Bank of England and Financial Services Bill [HL]
Lord Davies of Oldham Excerpts(10 years, 3 months ago)
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Baroness Wheatcroft (Con)
My Lords, listening to the debate this afternoon, it is clear that many have concerns about the power and influence of the Bank of England. However, I cannot help but feel that this amendment takes that concern a step too far. Much as I have great admiration for Mark Carney, I cannot imagine how he is expected to predict the effect of artificial intelligence. The duties we are putting on the Bank are already extremely far-reaching. The responsibilities now placed on the Financial Policy Committee are deep and will have a huge impact, but to ask it to range as far as this amendment is surely to demand something beyond common sense.
The role of ensuring financial stability is crucial. It means keeping our financial institutions on the straight and narrow, and watching out for problems. However, to ask for those decisions to be taken in the light of what may be happening 20 or 25 years from now is surely a step too far. The role of Government in thinking about such issues is clear, but we would be in very dangerous territory if we thought of the FPC as the arm of government to influence such decisions.
Lord Davies of Oldham (Lab)
My Lords, I would like to join in this debate because, although I respect the expertise of the noble Baroness who has just contributed, I am rather more in sympathy with the arguments of my noble friend Lady Worthington and the noble Baroness, Lady Kramer. I hear what was said about placing obligations on the Bank, but we should also appreciate that we have the benefit of the present governor—on whom I have not lavished many plaudits this afternoon as I was rather concerned about the future structure of the Bank, for which he will be responsible. Nevertheless, we all recognise the governor’s merits in taking a wider perspective on aspects of the economy than has perhaps been the case heretofore. Certainly, the speech that he made not so very long ago, in September, to Lloyd’s of London, in which he said that climate change is the “tragedy of the horizon”, ought to wake all of us with alarm, but also make us ask how we can adjust and make responsive our institutions to the anxieties that obviously flow from the developing and clearly established dangers of climate change.
Lord Davies of Oldham
Lord Davies of Oldham
My Lords, I shall speak also to the other amendments in this group. I will be brief. If ever I were cast before the Lord Mayor’s Show, it is in moving this rather marginal amendment when a huge, significant debate on the relationship of the Audit Commission to this legislation will take place as soon as we finish debating these rather minor amendments. I shall keep my remarks necessarily brief on this because I want to hear the more weighty contributions that are likely to be made on more fundamental aspects of the relationship of the Audit Commission to this Bill.
I think I can anticipate the Minister’s response to these amendments, particularly when he is at his most constructive, as he has been today. He will say that “reasonably” is used to limit excess, that it is a common legislative tool and that I have been at Westminster long enough to recognise that. I do, but I make no apology for the fact that I have introduced these amendments centred on “reasonably” merely to get some locus with regard to the important consideration of the National Audit Office. The Bill will allow the National Audit Office to initiate value-for-money studies across the entire Bank, other than for the financial audit of the prudential regulation functions of the Bank. It ought to be compatible with the—I hesitate on this word—desubsidiarisation of the PRA. The National Audit Office will be able to conduct any value-for-money study and is not to be concerned with the merits of the Bank’s general policy. It will consult the Bank of England regarding any proposed study.
Our amendments deal only with the practical arrangements between the National Audit Office and the Bank. They do not try to deal with conflicts that may present themselves between the Court of Directors and the National Audit Office or the proposed means by which various resolutions could be achieved. Nor am I seeking in any way, shape or form to pre-empt the much more substantial debate which is to take place in a few moments. However, we had a harbinger of that debate in the contributions by the noble Lord, Lord Bichard, at Second Reading, and the chair of the National Audit Office, Sir Amyas Morse, has also spoken publicly about his concerns. The issue is made more sensitive because of the Bill’s general approach to oversight and scrutiny, which we have covered in a series of discussions today. The National Audit Office’s concern with regard to its work mirrors many of the worries that we have already expressed about the Bill in its current form.
I hope it will be recognised that I am not going to press these amendments today. I am not even going to ask the Minister to give much more than a cursory reply to them. They were tabled against the background that at Second Reading we had an expression of real concern about the role of the National Audit Office as conceived in the Bill, and I cannot wait for that debate to take place. I promise the Committee I will play, if any, a small, supportive role. I beg to move.
Lord Bridges of Headley
My Lords, as my noble friend Lady Noakes said, the noble Lord, Lord Davies, is once again being incredibly modest and reasonable about his reasonableness amendment. I think the amendments merit a full response, so I hope he will forgive me. I will try my best, and I will pick up on the point made by the noble Lord, Lord McFall. I heed what he said about this in the past.
I shall set out the Government’s position. Clause 9 gives the Comptroller and Auditor-General a new role in the financial audit process of the Bank. The Comptroller and Auditor-General will be consulted on the appointment of the financial auditor and on the work programme that that auditor sets out to deliver. The Comptroller and Auditor-General will have the right to attend the relevant parts of the meetings of the Bank’s audit and risk committee. This is intended to assist the NAO in conducting value-for-money examinations of the Bank under Clause 11.
Clause 10 provides for increased public scrutiny in circumstances where a Treasury indemnity has been granted to the Bank, or to a company of the Bank. Fortunately, times when a Treasury indemnity is deemed necessary are rare, but it is right that where there is a direct risk to public funds the Treasury can require the Bank to prepare a financial report on any activities that have been indemnified, so that the extent of the risk to public funds can be assessed, and that this report is subject to review by the Comptroller and Auditor-General. I agree that in both of these contexts the question of access to information is critical. It is central to the ability of the Comptroller and Auditor-General, assisted by the National Audit Office, to carry out effectively the roles defined for him in the Bill. So I am pleased that the noble Lord, Lord Davies, has tabled the amendments and that the issue has been raised, but I am unable to accept them.
To address my noble friend Lord Higgins’s point, the language used in the Bill regarding the Comptroller and Auditor-General’s access to information mirrors the relevant wording from the National Audit Act 1983, which provides in Section 8 that,
“the Comptroller and Auditor General shall have a right of access at all reasonable times to all such documents as he may reasonably require, for carrying out any examination under section 6 or 7”,
in the National Audit Act,
“and shall be entitled to require from any person holding or accountable for any such document such information and explanation as are reasonably necessary for that purpose”.
As far as I am aware, the inclusion of requirements of “reasonableness” in this section has not created difficulties for the Comptroller and Auditor-General in the context of value-for-money examinations carried out in relation to other public bodies, and I see no reason why it should cause a problem now.
Some may argue that the Bank would be able to use this reasonableness requirement to delay examinations, but if the Bank did not comply with its obligations under this clause then the Comptroller and Auditor-General would be able to seek an injunction from the courts to enforce his rights. As such, it seems to me that the amendment is unnecessary, and I ask the noble Lord to withdraw it.
Lord Davies of Oldham
My Lords, I am not going to withdraw it without first expressing my enormous appreciation for the support from the government Benches for what I had regarded as modest amendments. The noble Baroness, Lady Noakes, often expressed herself with great vigour against any proposals that I put forward when we were in government, but today I have found some favour with her when I did not quite anticipate it. Obviously the noble Lord, Lord Higgins, is always reasonableness itself, so I knew that he would speak very well on this matter.
The issue was not so much that I did not think it was worth airing the question of reasonableness. I accept very much the Minister’s coherent and proper response to this very short debate, and I think that we very much appreciated the tone that he adopted. The reason why I was concerned about these amendments at this stage was against the background that they are immediately before what we all recognise is a pretty substantial issue regarding the Bill, and I know that others are going to present that argument with considerable force. It seemed only reasonable if on this occasion I couched my expressions in modest terms. I promise not to make a habit of that, and beg leave to withdraw the amendment.
Lord Davies of Oldham
My Lords, I do not enjoy the role of opposition a great deal but, just for once, in the light of this debate I am glad that I am here this evening and not where the Minister is sitting. He has been presented with a very difficult situation. I assure him that it is not often that in this House we have not just the Official Opposition presenting a strong case on an issue but two very experienced Members on his own Benches—on this occasion, the noble Baroness, Lady Noakes, and the noble Lord, Lord Higgins—pressing the need for change in a Bill. The equally experienced—although more so in the other place than here—noble Lord, Lord Young, indicated that there has to be some way out and that it is time the Government pursued it. It certainly is.
What a mess the Government are in and what great difficulty, I am sure, the Minister will have in defending how they arrived at this ridiculous situation. Time is of the essence. Even if the Government stagger through this House without too much challenge—I am still not convinced about how sharp that challenge should be—the other place will consider this matter shortly and there will certainly be a great deal of difficulty down there unless change is effected. I accept what the noble Baroness, Lady Noakes, suggested: it is best to get it right in this House before Report, so the Minister does not have too much time.
Lord Bridges of Headley
My Lords, it is always nice to start off with some sympathy for my position from the noble Lord, Lord Davies. I thank all noble Lords who have spoken and made some very thoughtful contributions. I start by letting your Lordships know that detailed discussions are ongoing between the Bank, the NAO and the Treasury to find a way forward on this issue that all sides find acceptable. These discussions have not yet concluded but I hope to be able to update the Committee before Report.
I should like to set out the Government’s position and will address the amendments and the stand part debate relating to Clause 11 in one fell swoop. However, before I continue, I thank the noble Lord, Lord Bichard. He met me last week and talked me through the amendments that he had hoped to table for today. I thank him for engaging so constructively and I very much hope that that dialogue with me can continue, even if he is unable to contribute to this debate in Committee.
I begin by emphasising that by extending, for the first time, the NAO’s ability to conduct value-for-money reviews of the Bank, the Bill will deliver a significant increase in the transparency and accountability of the Bank to the public and Parliament. The Government are strongly of the view that enhancing the accountability of the Bank of England is in the public interest but it is also in the Bank’s interest—strengthening public trust in the Bank will only add to its credibility.
The issue of how the Bank uses public resources is long running, as my noble friend Lord Higgins said. There has been debate on it ever since the Bank was nationalised in 1946. While researching this debate, I came across correspondence on this issue from my grandfather, who happened to be a Permanent Secretary at the Treasury in 1946 and during the 1950s. So something in the Bridges genes means that we have to deal with these things, although I do not know quite know what that is.
Since the 1950s, the relationship between the Bank and the Government has clearly evolved. Now, we regard the independence of the central bank as critical to our economic security and prosperity. As the noble Lord, Lord McFall, said, independence has been an issue of debate not just here but elsewhere. As Ben Bernanke, a previous chair of the Board of Governors of the Federal Reserve System, said:
“A broad consensus has emerged among policymakers, academics, and other informed observers around the world that the goals of monetary policy should be established by the political authorities, but that the conduct of monetary policy in pursuit of those goals should be free from political control”.
As a number of your Lordships have said, today the Bank of England occupies unique territory in the foundation of the UK economy, and policy decisions by the Bank are of vital importance to everyone. To deliver its mandate effectively, it is essential that the Bank’s independent status is preserved.
The NAO also plays a vital role as Parliament’s auditor. Its own independence is crucial to ensuring that there is effective review of the effectiveness and efficiency of the public sector and for maximising public accountability. Parliament, and in particular the Public Accounts Committee, relies on the work of the NAO to scrutinise properly the value for money of taxpayer-funded activities. It is therefore important that the NAO be allowed to do its work in as unfettered a way as possible.
Bank of England and Financial Services Bill [HL]
Lord Davies of Oldham Excerpts(10 years, 3 months ago)
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Lord Davies of Oldham (Lab)
My Lords, the House owes the Minister a degree of thanks for the effective and precise way in which he introduced the Bill, though I perhaps detected that, as this is a fairly modest Bill of only 30 clauses and four schedules and contains some measures of limited contention, he thought that this was a fairly straightforward exercise. As soon as my noble friend Lord Eatwell had made his contribution, however, the Minister probably realised that, in fact, there were going to be a series of challenges on some quite fundamental points. I am going to discuss those in some detail, but we all recognise that the great opportunities we have for following through the broad arguments put today are during the remaining stages of the Bill, on which we all will strive to be active. In my own party, the shadow Chancellor is carrying out a review of the very issues that have been commented upon in relation to this Bill, and my noble friend Lord McFall is due to serve on that committee, which will be chaired by David Blanchflower, formerly of the court of the Bank of England.
There have been a number of excellent contributions to the debate but I wish to acknowledge that of my noble friend Lord Eatwell, who has very considerable knowledge of these issues. He was unremitting in his trenchant criticism of certain aspects of the Bill. I assure the Minister that those issues will be presented further as we go along. In particular, questions of transparency and scrutiny have come out in this debate. I do not want to put words into the Minister’s mouth, but I hope he will accept that two key planks for the reforms the Government need to get right are in exactly these areas.
Furthermore, there were comments on the financial stability strategy and where the ultimate responsibility for that lies. Of course, this relates to the changes to the structure of the Bank and the new position of the Prudential Regulation Committee. We are bound to be interested in how effectively the Bank pursues financial stability strategies, against a background of its having to take some responsibility for the catastrophic failure that occurred in 2007-08.
There are two other areas that might have looked technical—the National Audit Office and the restrictive role envisaged for it in relation to the Bank—but it is quite clear from the comments of the noble Lord, Lord Bichard, that this idea will not be accepted in committee without the most vigorous debate. The Minister will also have noticed that several anxieties were expressed about the reverse burden of proof being abandoned before it had been significantly tried. We will certainly want to look at the Government’s reasoning behind that concept in the Bill.
Transparency and proper lines of accountability are key for any institution, particularly those whose decisions have such an impact on the public. They are also critical to the trust and confidence that people have in an institution. We need to ensure that the changes being made—particularly changes to the membership of the Court of Directors, the abolition of the Oversight Committee and the changed status of the Prudential Regulation Authority—meet those standards, a point made by my noble friends Lord Eatwell and Lord McFall, who made some trenchant comments on these matters.
On the Court of Directors, the Bill gives the Treasury the power, after consulting the governor, to remove or alter the title of deputy governor. That, along with the reduction in the number of non-executive directors on the court from nine to seven, will clearly alter its structure. The Bill also establishes that in future, alterations to the Court of Directors will no longer need to be done through primary legislation but will be subject to regulation. Who in the Treasury will determine the changes in relation to the deputy governor, and can the Minister outline how that decision will be taken? The Bill states that the Treasury can make changes to the Court of Directors after consulting the governor. Can the Minister say how that will work in practice, or be prepared to answer that fundamental issue in Committee?
Will the Minister go into more detail about the rationale behind the reduction in the number of non-executive directors on the court, and what does the Treasury regard as the benefits of this reduction? I would also be interested to hear why the Minister feels it is appropriate to make these changes through secondary rather than primary legislation.
Noble Lords also commented on the disappearance of the Oversight Committee, which the Bill intends to abolish, of course. It was established by the Financial Services Act 2012 in order to keep under review the Bank’s performance. As part of that, it may commission reviews and keep track of the delivery of any recommendations. The Government need to explain why they think they can dispense with that body, and how effectively its functions will be carried out in a different way. They will be transferred to the Court of Directors. However, Clause 4(3) states:
“The oversight functions of the court of directors (as defined by section 3A(2)) may be delegated to a sub-committee of the court consisting of 2 or more non-executive directors of the Bank.”
How on earth can this be removing a layer of governance, if the legislation gives enabling powers for another committee to be formed? There is an essential contradiction in the Government’s thinking on these issues. What safeguards are in place as a result of moving this committee in-house? Are the Government convinced that this will lead to self-evaluation, rather than some independent judgment? On the future make-up of the sub-committee for oversight, how far will oversight stretch if this function is being delegated to two non-executives? Previously, six non-executives were expected to perform that function. What prompted that change?
On the issue of transparency and oversight, the changes being made to the Prudential Regulation Authority and the reforms included in the Bill end the PRA’s subsidiary status and integrate its microprudential policy into the bank. The PRA board will be replaced by the Prudential Regulation Committee, which will be solely responsible for exercising the Bank’s functions as the PRA. We are concerned about whether this represents a downgrading, as it is no longer a freestanding committee, and we will want to explore that in Committee.
Turning to the financial stability strategy, the Bill moves the responsibility from the court to the Bank itself. What is unclear is how the various bodies that have previously been involved in developing this strategy will be affected by the proposed change. The Government’s impact assessment states:
“At present, the Bank’s financial stability strategy is set by the Court after consultation with the FPC … and HMT”.
It goes on to say:
“Making the Bank responsible for setting the strategy, and allowing the Court to delegate production of the strategy within the Bank”
—which is the essence of clause 5—
“will ensure that Court is responsible for the running of the Bank and that the Bank’s policy committees are responsible for making policy.”
We need to examine that further. Who in the Bank of England is responsible for producing the financial stability strategy? If it is the FPC, that needs to be made clearer than it is in the Bill.
The role of the MPC has been discussed in great detail as well, but I have a couple of technical points to make at this stage for the sake of clarity. The Bill makes changes to the make-up of the committee, the requirement on the number of meetings and the publication of minutes. Does the Minister anticipate that this will improve the MPC's work, and how? What prompted the change? More fundamentally, I ask the Minister how these alterations really succeed in terms of protecting consumers of banking services.
Then there is the crucial question of the operation of the National Audit Office. I do not need to repeat, but I fully support, the remarks made by the noble Lord, Lord Bichard. He is right that the quality of independence, which is critical to a successful and proper audit, may be compromised in the arrangements made in the Bill. The Minister will have to address that issue, too. It is quite clear that the National Audit Office will continue to have independence in determining a value-for-money programme within the framework proposed: it is for the Government to make sure that that framework guarantees that position.
The noble Lord, Lord Lawson, raised the crucial issue of how we hold banks and financial institutions responsible—in terms of personal responsibility, as he saw it. He also introduced the issue of ring-fencing, although I would imagine that as far as the Government are concerned that is also a fairly contentious measure. Nevertheless, the noble Lord, Lord Lawson, is quite right to raise that issue within the framework of this Bill. I hope that it, too, will be pursued in Committee.
A number of noble Lords—my noble friend Lord McFall and the noble Lords, Lord Flight and Lord Sharkey, and others—raised the question of why in replacing the approved persons regime the reverse burden of proof was being altered. We are by no means convinced of the arguments on that front as yet. The Minister will be asked to make those points clear in Committee.
A number of other issues were raised. The noble Lord, Lord Naseby, introduced the issue of the mutuals. We could not possibly deal with a Bill of this kind without paying attention to their significant role. The right reverend Prelate commented on credit unions. They, too, have their proper place for consideration in this Bill. My noble friend Lord McKenzie identified the anxieties about the progress with regard to pensions advice—in what is one of the most crucial years for this, but it is only the first or second of crucial years. It is quite clear that we are going to have to wrestle with this issue of adequate advice for those who are seeking to change their position with regard to pensions and annuities. They will need a great help on that. Finally, my noble friend Lady Worthington raised quite fundamental issues about the financial strategy being responsive to environmental risks. We surely would be remiss if we did not take that into account as well.
This has been a fascinating debate. The Minister does not have to reply to every point at this stage—we would be here for an unconscionable time if he did—and we have the delights of Committee, Report and Third Reading ahead of us before the Bill completes its passage. But if the Government think that the Bill is a relatively modest one, and even one with limited contentious issues within it, what has been established this evening is that it has much that we need to challenge them on.
Lord Bridges of Headley
My Lords, I am all in favour of transparency and am happy to meet the noble Lord to discuss those issues. I hope the noble Lord will forgive me for not giving a blanket commitment here and now, but I am more than happy to meet him. Transparency must be in the interests of everyone, as long as it is applied proportionately. I am acutely aware that the noble Lord has a lot of experience in this field, so he will forgive me for not agreeing to that request here and now.
I thank your Lordships for all your contributions today.
Lord Davies of Oldham
It would be helpful if the Minister, after reading the debate, and after his officials have looked at it and seen areas in which he could usefully enlighten us before the Committee stage, could write to the Members concerned. Everyone in the House would appreciate that.
Lord Bridges of Headley
I certainly will do so, my Lords. Communication between us all will be very fruitful as we proceed. There are many technical issues here that we cannot perhaps do justice to on the floor of the House. It would be good to meet beforehand. I should also extend my apologies to the noble Lord, Lord Davies, because I believe he was unable to come to the briefing we had on this Bill, but that is my fault, not his. I am entirely in favour of good communication.
Taxation: Capital Gains Tax
Lord Davies of Oldham Excerpts(10 years, 7 months ago)
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Lord Bridges of Headley
I hear what my noble friend is saying. However, I tread with extreme trepidation and say that decisions on that matter are for the Chancellor to announce at the Budget.
Lord Davies of Oldham (Lab)
My Lords, the House will have noted the Minister’s sensitivity about making comments on tomorrow’s Budget. That is not the kind of thing which inhibits the Chancellor, and therefore I am not inhibited either. I think he has made clear that he is not going to increase income tax or national insurance contributions. As the Minister said, it is unlikely that capital gains tax will be greatly affected, although he is not quite sure about that. Is it not quite clear that the Government’s strategy is in fact not to be fair about taxation but to be brutally unfair about welfare expenditure?
Lord Bridges of Headley
No, I reject that utterly, I am sorry to say, my Lords. As the noble Lord will know if he has read the Conservative Party manifesto, the Government are committed to cutting income tax for 30 million people, taking everyone who earns less than £12,500 out of income tax altogether. As I alluded to, we intend to surpass what we did in the previous Government and help businesses create more than 2 million new jobs. That is the best way to tackle poverty and disadvantage in this country.
Algorithmic Trading
Lord Davies of Oldham Excerpts(10 years, 7 months ago)
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Lord Bridges of Headley
The noble Lord speaks with a lot of experience on these matters, which are worthy of consideration. If he will forgive me, I would like to write to him on that point as it requires a detailed answer.
Lord Davies of Oldham (Lab)
My Lords, I hope that the Minister is not indulging in that degree of complacency—saying, “It’s all under control”—which the senior management of significant banks indulged in, and then found themselves taken to the cleaners by the operations of relatively lowly placed staff. One thinks particularly of UBS losing £1.7 billion from someone trading in this manner. The noble Lord must know that the technology of increased speed is widening the spread between buying and selling, and therefore gives an incentive to people operating at that level to take advantage.
Lord Bridges of Headley
My Lords, I am certainly not complacent. The noble Lord raises a good point, and I reiterate that the Government take the matter of regulating financial markets in their entirety very seriously and closely follow developments in these markets. As I said, investment firms and trading venues should ensure that robust measures are in place to prevent automated trading creating a disorderly market and being used for abusive purposes. The new rules under MiFID II will ensure that such measures are in place.