Bank of England and Financial Services Bill [HL] Debate

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Department: Cabinet Office
Tuesday 3rd May 2016

(8 years ago)

Lords Chamber
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Lord Ashton of Hyde Portrait Lord Ashton of Hyde (Con)
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My Lords, I beg to move that this House do agree with the Commons in their Amendments 1 to 6. In moving them, I shall speak also to Amendment 12.

In the other place, the Government made small changes to the provisions relating to the National Audit Office’s powers to carry out value-for-money studies of the Bank. As we have discussed in previous debates, these clauses deliver an important increase in the accountability of the Bank and its operations.

The NAO’s new powers are subject to a bespoke policy carve-out, designed to protect the independence of the Bank’s policy decisions. The Government have made two small but important technical changes to ensure that the NAO’s new powers are applied consistently across all areas of the Bank. These changes have been agreed by both the NAO and the Bank.

The original drafting of the Bill did not give the NAO the power to carry out value-for-money reviews of Bank subsidiaries unless they were indemnified by the Government. This was not the Government’s policy intention.

The first change ensures that the NAO is able to carry out value-for-money studies, not only of the Bank itself, but also of all the Bank’s subsidiaries, whether or not they are indemnified by the Government. The amended clauses will also allow the NAO to carry out value-for-money studies of any other company in which the Bank has an interest, but only if that company is indemnified by the Government.

The second change ensures that the policy carve-out applies consistently across all areas of the Bank. Under the previous drafting, the NAO’s powers to review the Bank’s indemnified subsidiaries and other companies came from the National Audit Act 1983. That means that its review of these companies would not be covered by the policy carve-out. The Government have amended the Bill to address this inconsistency.

On Amendment 12, the Government also made a small amendment to the clauses in the Bill relating to the Monetary Policy Committee. The Bill reduces the minimum frequency of MPC meetings from monthly meetings to “at least 8” meetings in every calendar year. The Warsh review assessed that this new timetable,

“strikes the balance between timeliness and probity”,

and brings the MPC into line with other leading central banks, including the US Federal Reserve and the European Central Bank. The amendment made in the other place adjusts the reporting requirements of the MPC to match the new meeting timetable. At the moment, it is required to submit a monthly report and so, without this change, the committee would be obliged to produce reports even when it has not had meetings.

I hope that noble Lords will agree that these are sensible changes, and I commend the amendments to the House.

Lord Higgins Portrait Lord Higgins (Con)
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My Lords, I had not realised until now that I am a wild enthusiast for a bespoke policy carve-out. The amendments reflect the considerable extended debates that we have had previously in your Lordships’ House, and I am very glad that they are now effectively implemented by the amendments that we have in front of us. There was a real problem with the relationship between the National Audit Office and the Bank of England. It is very fortunate that that seems to have been resolved now in a way that is satisfactory to both sides.

In a former incarnation, I was much involved in extending powers of the National Audit Office so that it did not merely act as an auditor but could look into the economy, efficiency and effectiveness of the bodies that it was investigating. I certainly think that there is a strong case for it including the Bank of England in its remit. To clarify one point on this, there are some aspects of the Bank’s operation that really need to be looked at. The present Governor of the Bank of England has taken to issuing forward guidance on interest rates, which I must say has not been an enormous success. Anyone who has followed that advice will almost certainly have lost money, depending on the precise timing. I think that he should consider very carefully whether it is an appropriate approach for the Bank to take—and perhaps the National Audit Office should do so, too.

I am not entirely clear what is covered by the expression “Bank company”. In particular, does it include the body—I have forgotten its name for a second—responsible for managing the enormous quantity of gilts purchased as a result of the quantitative easing operation? Will the National Audit Office have the power to inquire into how that very substantive—indeed, enormous—quantity of gilts is managed?

Overall, however, this is a very welcome change—and I am particularly glad that the Treasury is proposing to finance the operation. As it pointed out in the notes that come with the Bill, it should increase the likelihood of a value-for-money study being undertaken relative to the Bank of England. This change reflects the work that your Lordships did at earlier stages, and is very much to be welcomed.

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Lord Sharkey Portrait Lord Sharkey (LD)
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My Lords, we support this amendment, but more precisely, we support this amendment with the commitments made in the Chancellor’s letter to the chair of the Treasury Select Committee. We are glad to see moves to buttress the independence of the FCA, and we think the amendment and the commitments will help do that. It is true that the FCA does need some help. In particular, it needs help in ending what is, or appears to be, interference by the Executive.

Recent times have not been happy. There was the early announcement of the non-renewal of Martin Wheatley’s contract; the Chancellor’s public announcement that Tracey McDermott was withdrawing her CEO application, before she had had a chance to tell her own people; and, then, the appointment of Andrew Bailey as CEO without benefit of a proper interview panel. I will not even mention that the search for the hard-to-find Mr Bailey cost £280,000.

To restore belief in its independence and its self-confidence and morale, the FCA needs to have a robustly and operationally independent CEO. We hope that this amendment and the Chancellor’s commitments will make that happen. This amendment and those commitments are of course the result—as the Minister has explained—of negotiations with Mr Tyrie, the chair of the Commons Treasury Select Committee. We would have preferred Mr Tyrie’s original amendment, which simply gave the Treasury Select Committee the power to approve, or not to approve, the appointment of the CEO of the FCA.

The government amendment, of course, does not go nearly that far. It simply says that the already appointed—although, I hope, not contractually bound—CEO must appear before the TSC before taking up his office. By itself, this is pretty feeble stuff. In fact, the important changes are not in this Bill at all; they are contained in the letter from the Chancellor to the chair of the TSC. The letter makes two commitments, as the Minister has explained. The first is that the Chancellor will,

“ensure that appointments to the Chief Executive of the FCA are made in such a way to ensure the TSC is able to hold a hearing, after the appointment is announced but before it is formalised. Should the TSC”,

as the Minister has said,

“recommend in its report that the appointment be put as a motion to the whole House, the government will make time for this motion and respect the decision of the House”.

Secondly, the Chancellor,

“will seek, in a future Bill, to make a change to the legislation governing appointments to the FCA CEO to make the appointee subject to a fixed, renewable 5-year term”.

This is all very cumbersome, and one must hope that the prospect of having your merits gently and tactfully debated in the Commons will not put applicants off. However, it is an improvement on the current situation.

There are some questions, though, and I would be grateful if the Minister could respond. Why are these two commitments not on the face of the Bill? Can the Minister confirm that the Chancellor’s commitment to ensure government time for a Treasury Select Committee Motion in the Commons is not binding on him or, more importantly, on his successors? Can the Minister say why the Chancellor will put the fixed term for the CEO into a future Bill but not the Commons vote on a Treasury Select Committee Motion? Will the Minister agree to consider incorporating both these elements into a future Bill? Finally, can the Minister assure us that any future selection process for the CEO of the FCA will involve the proper panel interviews, or at least something more closely resembling due process?

We believe that we need the protections and safeguards in this amendment and in the Chancellor’s letter. We believe that Andrew Bailey is a good choice as CEO and we wish him every success. We believe that both Mr Bailey and the FCA will benefit from less interference from the Executive and we support the amendment.

Lord Higgins Portrait Lord Higgins
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My Lords, as a former chair of the Liaison Committee in the House of Commons, which co-ordinates the work of the Select Committee system, as well as having been chairman of the Treasury and Civil Service Select Committee, I very much welcome the proposals put forward by the Government. Of course, there are various qualifications, which have just been mentioned, but I believe that this is a significant step forward and that it will improve the way in which the appointments system works within overall government. Therefore, I think that this is an excellent amendment and I heartily support it.

Lord Flight Portrait Lord Flight (Con)
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My Lords, as I understand it, the proposed arrangements effectively give the Treasury Select Committee a sort of negative veto after the event. Why could this not be more straightforward, with senior appointments such as the head of the FCA requiring the approval of the Treasury Select Committee up front?

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Lord Ashton of Hyde Portrait Lord Ashton of Hyde
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I can reassure my noble friend, because the date that the regulations have to be brought in is June 2017, so the consultation will take place in the second half of this year. It will be implemented before June 2017. I think that that is pretty clear and there is no question of it being put into the long grass. I have subsequently learned that the consultation will be 12 weeks and it will be after July—so I hope that my noble friend will be reassured by that.

My noble friend Lord Flight basically implied that any enhanced due diligence for all Peers, MPs and MEPs would be ridiculous. The directive and the Financial Action Task Force do not agree. They think that anyone who is an MP should have some form of enhanced due diligence. Of course, there is a huge range that can take place within enhanced due diligence. The point of the amendment and the regulations will be to make sure that there is a true difference. A Back-Bench Peer who may not have the position to influence corrupt acts—although every Peer and MP has access to people, so they are not exactly like every citizen—will have some form of enhanced due diligence, but it should be proportionate. The way that this will be done will ensure that.

The banks are in absolutely no doubt about the Government’s view on this. The Chancellor has personally written to the heads of the large banks, and the Economic Secretary to the Treasury has written to colleagues. Every bank now has a contact person with whom Peers, MPs and MEPs can get in touch if they feel that the enhanced due diligence is too great.

Lord Higgins Portrait Lord Higgins
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Before my noble friend comes to his peroration, perhaps I could ask this. All this consultation is taking place against the background of an impending referendum on whether we remain a member of the European Union. Am I wrong in thinking that all this depends on European directives, and that if the vote were to go in favour of our leaving the European Union we would have to look at the whole thing again?

Lord Ashton of Hyde Portrait Lord Ashton of Hyde
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Even if that took place, we would be a member of the European Union for at least two years under the arrangements. But this is based on our staying in; if we did not, we would have to look at a great many things in addition to anti-money laundering procedures—and I am not sure that this would even be top of the list.

I am sorry to hear about the problems that the noble Baroness, Lady Kramer, has had with her family—but, as I said, the proportional nature of the enhanced due diligence for politically exposed people will be taken account of. The amendment is a good start and I commend it to the House.