Lord Peston
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Financial Services Bill
Lord Peston Excerpts(11 years, 10 months ago)
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Lord Peston
My Lords, I notice that the Chief Whip is in her place, so when will we who propose to spend quite a lot of time on the Bill and make serious contributions be told of the days on which we will be sitting, and how many days we will be sitting, before the House rises? It would enable some of us at least to get something resembling a life.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, the Forthcoming Business will be issued in the normal manner following discussions through the usual channels.
Lord Eatwell
I think the answer is no. The issue is the straightforward drafting of the Bill. The problems, as I said, could be better addressed by proper redrafting rather than by piecemeal amendment. For example, the appropriate structure of the governance of the Bank of England in the 21st century, a matter to which the Treasury Committee paid particular interest, should be dealt with by a full rewrite of the Bank of England Act 1998 rather than by the cumbersome and opaque clauses before us.
Thirdly and most importantly, the Treasury Committee of the other place has raised a number of major objections to the content of the Bill with respect not only to Bank of England governance but to a number of other crucial issues of economic management, especially at times of crisis. Before today, few of these had been taken on board by the Government, although we will consider their proposal of an oversight committee later today.
I was delighted to read in the Financial Times yesterday that amendments derived directly from the Treasury Committee’s report of 24 May have been tabled by my noble friend Lord McFall, a distinguished former chair of the Treasury Committee, and by the noble Baroness, Lady Noakes, perhaps the most tenacious opposition speaker on Treasury affairs for many a long year—my noble friend Lord Myners has the scars to prove it. Your Lordships’ House has a fundamental responsibility to pass those amendments so that the other place has the opportunity to consider amendments proposed by its own committee. This is a valuable constitutional innovation.
I recognise that a fundamental rewrite of the Bill would take some time, but the Treasury Committee has faced up to this issue, too, arguing that the legislation is proceeding with undue haste. I agree. I recognise that the planning blight that hangs over the FSA is causing problems, but the performance of the shadow committees and authorities has already been such as to give us confidence that delay will not be disproportionately damaging.
All this adds up to the fact that the Bill as drafted is a barrier, not an aid, to effective macroprudential regulation. This is not a party political issue. I say with all due respect that the noble Lord, Lord McFall, and the noble Baroness, Lady Noakes, are not natural political allies. This is about getting the legislation right, which is what we on this side will endeavour to do.
The noble Lord, Lord Sassoon, and I worked well together to improve the Bill that established the Office for Budgetary Responsibility, and I hope that we can work well together to improve this Bill, although I would not start from here. When the Minister first speaks, I think he owes the Committee an explanation as to why the Government have consistently ignored the advice of the Joint Committee and the Treasury Committee on the structure of this legislation.
I turn—to the relief of the Committee, I am sure—to the amendments in this first group. Their fundamental objective is, I hope, clear: to set in train a wide-ranging restructuring of the governance of the Bank of England. The Bill gives the Bank remarkable new powers in macroprudential and microprudential regulation and in the assessment and management of financial crises. The structure of governance and levels of accountability should be appropriate to these new powers.
A key element in the structure of governance of the Bank is the court. As many commentators have noted, the current constitution of the court, its powers and resources are simply not up to the job. The Treasury Committee has paid particular attention to the role of the court, which is currently responsible for managing the Bank of England’s affairs other than monetary policy. The committee’s evidence sessions have exposed doubts, expressed by many witnesses, as to the court’s fitness for purpose as presently structured. A distinguished former member of the Monetary Policy Committee, in evidence to the Treasury Committee, described the court as,
“an historical legacy institution that now serves no useful purpose and creates the appearance or illusion of accountability or oversight where none exist”.
These concerns are especially important because of the role that the Financial Services Bill, as currently drafted, envisages for the court with respect to determining the UK’s financial stability strategy. In the context of monetary policy, where the Bank of England’s objective is to maintain price stability HM Treasury is required to write to the Monetary Policy Committee at least once a year to specify price stability and the Government’s economic policy. The annual Treasury remit letter fleshes out the concept of price stability in practical operational terms while avoiding undue rigidity. It strikes a balance between operational independence and democratic accountability.
A quite different model is proposed for financial stability. It is envisaged that the primary responsibility for determining and keeping under review the strategy for achieving the financial stability objective will reside with the court, although the court will be required to consult the Financial Policy Committee and the Treasury, and the Financial Policy Committee can, at times, make recommendations.
However, here we have a crucial difference in views—given the court’s role in determining the financial stability objective—on whether the court is up to the job. The view that the court should be abolished and replaced by a supervisory board was advanced by the Treasury Committee. In the face of the powerful arguments advanced by the Treasury Committee, the Government replied that they were not,
“at this time, minded to pursue the more radical changes to Bank of England governance recommended by the TSC, including the replacement of Court with a supervisory board. In general, the Government considers that the governance of the Bank should primarily be a matter for the Bank itself”.
This is astonishing. Indeed, it is nonsensical. As the Treasury Committee points out, the Government are the sole shareholder of the Bank, and many of the Bank’s responsibilities, functions and powers are defined by legislation. The Government do not regard the governance of private sector companies as a matter just for those companies. They really cannot wash their hands of this central issue.
Finally, the Bill grants major new powers to the person of the governor. It is important that the governor is backed up by a powerful supervisory committee to which he is accountable and is not an individual exposed on his or her own, so why a supervisory board? What is in a name? The whole point of this proposal is to recognise this necessary break with the past if we are to have a modern, effective structure of governance at the Bank of England. In the convoluted context of amendments to this Bill, we have been able to present only a sketch of what we on this side of the House have in mind, but we shall return to the matter on Report.
By accepting this amendment, the Government would acknowledge that the new Bank, with its new powers, would have a board to whom the executive is responsible and that is capable of performing an effective supervisory function. That should be its job: to supervise, to set strategy, to advise and review, not to run the Bank on a day-to-day basis and certainly not in the context of a crisis. These amendments are a signpost towards the new Bank with a new regulatory structure, and hence towards a truly effective regulatory system. I beg to move.
Lord Peston
I rise to support my noble friend. This is an immensely complicated Bill, and I certainly find it virtually impossible to follow. I cannot tell you how many hours I have put in trying to find out what almost any sentence actually refers to when it refers to some other sentence in the Bill. It contains clauses, subsections, paragraphs—I think I could find an infinite regress in there somewhere that went on for ever.
Lord McFall of Alcluith
My Lords, this is the most important Bill to have come from the coalition. We are expected to right the wrongs of the financial service and have that in place for the next 20, 30 or 40 years. This Bill has been tacked on to the Financial Services and Markets Act, which is why there is such complexity and why it is wrong. The Governor of the Bank of England himself said in June 2011:
“We are losing the simplicity and the ability to have a cleaner debate about the new framework. Certainly the Government rejected our”—
the Bank of England’s—
“request to have a new Bill and the argument that they gave, understandably, was that at the cost of some complexity we could ensure that all the provisions that were appropriate could be put into an amended FSMA and it would be a faster way of doing it”.
He went on, with some understatement:
“I think we have seen the complexity”.
If the comments of noble Lords today are anything to go by, we have not seen anything yet as a result of that. The governor went on:
“I am not quite sure whether we have avoided delay”.
Going back to the crisis of 2007 and 2008, the main issues were complexity, the question of who was in charge and transparency. We are making them worse, rather than better. We are moving from a tripartite system to a quadripartite system. When we ask exactly who is in charge—the deadly question that no one could answer at the time of the financial crisis—it will be equally hard to give a decent answer as a result of this Bill.
That is what is wrong with the Bill. It needs the utmost scrutiny in this Chamber. The other Chamber debated the Bill for 43 hours and 28 minutes. However, the Financial Services and Markets Act was debated for 89 hours and 59 minutes—more than double the time. As a result, the Treasury Committee says, in its frustration, in the first paragraph of its report, that it is now over to the House of Lords to change the Bill. Why does it say that? It says so because Clauses 80 to 103 and Schedules 17 to 21 were not debated due to a lack of time for the programme Motion. We need time for, and simplicity in, the Bill but we are getting complexity. That is the issue that has brought the noble Baroness, Lady Noakes, and me together. We are very clear: give us that simplicity, not complexity. The audience that is looking at this from outside may then understand that we have the best interests of the financial services and the country at heart, and we may get a decent Bill out of this.
Lord Peston
My Lords, I told the Minister that I would ask him a question but I forgot to ask it. I hope I will be allowed to ask it before he replies. Its origin is in my getting lost in the Bill. I was in the Public Bill Office and pointed to something on the page—a number, a letter and another number—and said, “I cannot find it”. They flicked the pages over and said to me, “What you need is a Keeling schedule”. I had never heard of a Keeling schedule so I rang the Treasury and asked one of the noble Lord’s assistants what it was. I gather from talking to the Minister earlier that he now knows what it is. I should like him to tell your Lordships’ House what it is and where we can get one, since I gather that it will enable us to find things.
Lord Sassoon
My Lords, different noble Lords will want to digest the material in different ways. Some of us may find it much easier to focus on what we are interested in on a computer screen. I am certainly conscious of the wasteful expenditure of resources and taxpayers’ money when people do not want printed copies. I will investigate, but it may be that copies are available through the Library. I do not know—let me have a look at that. But it is certainly on the website. I suggest that noble Lords may not want to download all 600 pages but will be interested in particular sections. I underline the fact that a huge effort was gone into that far exceeds anything that would normally go into a Keeling schedule.
The noble Lord, Lord Peston, asked about Keeling schedules. When he asked about them a couple of days ago, I had no idea what they were. So I asked for somebody to have a look on the internet, where there is a very interesting debate. It starts by questioning whether these schedules were named after the stunt woman, Liise Keeling, or the distinguished former Member of Parliament for Twickenham, Mr E H Keeling, later Sir Edward. It was the latter who did it in conjunction with Mr R P Croom-Johnson, later Mr Justice Croom-Johnson. So there was, indeed, a Keeling schedule, but it is something that has fallen out of common use over the past decade and more. I suggest that we have gone rather further than a Keeling schedule in producing a fully amended version of FSMA on the Treasury website. There is not, before I am challenged, an amended version of the Bank of England Act, because the changes that we propose to that Act are relatively straightforward. The major innovations in the Bill, such as Clauses 3 and 5, which we will get to in due course, are drafted as entire new clauses, and may be read and scrutinised very straightforwardly as self-standing provisions.
Lord Peston
This reminds me of the Marx Brothers stuff and the great joke about whether we have an insanity clause. Am I to understand that there is no such thing as a Keeling schedule and that it does not exist? Is that the answer to my question?
Lord Sassoon
It is something that used to exist and the concept is still out there in the ether, but it has fallen out of common use over the past 20 years. For this Bill, there is no Keeling schedule but there is the 658-page, fully amended version of FSMA, which is accessible on the Treasury website. It serves the purpose of a Keeling schedule and does more than that.
Lord Turnbull
My Lords, I am not in favour of the amendments. First, there is the post of the deputy governor for prudential regulation. This is the old head of the FSA, in so far as it deals with macroprudential regulation, who is given the status of deputy governor in order to bring him into the councils of the bank. No extra posts or salaries are being created here. One might have been created by the creation of the FSA, but that is not here.
Secondly, as to the checks and balances on the governor, I do not think that a committee as important as either the NPC or the FPC being chaired by his deputy is a good way of exerting supervision of the governor. You cannot work for someone and supervise them at the same time.
At the moment, the governor chairs these committees and brings their thinking together; and, as we discussed earlier, there are other mechanisms around the court or the oversight committee—whatever it is called—that check the over-mighty power of the governor. Using one of his deputies to do this does not make sense.
Lord Peston
My Lords, I shall not talk about the Treasury representatives because we have an amendment relating to them later in the list and I shall save my vitriol for then.
I did not understand Amendment 9 until the right reverend Prelate the Bishop of Durham spoke. I am grateful to him because I now understand it. In essence, he is saying that three different people ought to chair the three different committees, which makes perfectly good sense. Chairing a committee is an important task and would involve a great deal of work, and I am sympathetic to the amendment.
However, going back to my and my noble friend Lord Barnett’s amendment, these appointments are only titular. It is not for your Lordships’ House to decry those who like titles. In other words, if there are three people, men or women—although I am afraid that these days it seems to be all men in the Bank of England—who want to be called deputy governor, it is no big deal. If it turns them on, and if a wife refers to her husband as the deputy governor and that cheers her up, why not? However, I am concerned as to whether it is more than that in two ways. First, do you get paid more for being a deputy governor? The Minister keeps telling us that we have to be economical, so we have to ask whether this is the correct way to spend money.
More specifically, the amendment is also about the following. First, can we have a full job description in each case? Does a full job description for these three posts exist, and if so can we see it? Secondly, how are the three of them appointed? For example, are the three jobs advertised, and can someone from outside apply to be a deputy governor with appropriate references, experience and so on? Thirdly, who appoints to this post? Those are the questions that I wanted answering. In the transparent, modern world in which we live, the answers should be that anyone can apply for these jobs, that the jobs should be advertised, and that there should be a precise job description and a proper appointing panel. That is the world in which we live, so I hope that the answer to all my questions is yes.
Baroness Kramer
My Lords, perhaps I may comment quickly on Amendment 9. The noble Lord, Lord Turnbull, presented what I suspect will be the Government’s argument, which is that having the Governor of the Bank of England in all these roles provides co-ordination. At Second Reading, I described the twin-peaks strategy as a small mountain range, so your Lordships will understand that I appreciate the need for co-ordination, but to use as the co-ordinating mechanism the single person of the Governor of the Bank of England strikes me as exceedingly inadvisable. The challenge is huge. It is a mechanism for co-ordination that is likely to suffocate, challenge and encourage group-think, but, frankly, no matter how much of a superman the individual who is appointed to that post is, I cannot see that they could possibly have shoulders broad enough to carry all those roles in the demanding way which this legislation and the economy require. Co-ordination strikes me as not the appropriate argument. If the argument is to be made, it must be on other grounds and not to make up for other weaknesses in the Bill.
Lord Peston
Before the Minister finishes what he is saying, could I ask him a question which is a sort of question of economics? I entirely agree with the noble Lord, Lord O’Donnell, that it would seem very strange indeed if the Governor of the Bank of England did not chair both the FPC and the Monetary Policy Committee. But then I ask myself, “Does that mean that there is a vast amount of spare capacity in the governor; that he has been twiddling his thumbs looking for other things to do, and this is a way of making use of his skills?”. This is a very serious question. I remember that when I chaired the Economic Affairs Committee—or rather, its predecessor—the previous governor chaired the committee in a way completely different from the way that the present governor chairs the MPC. I could enlarge on that, if the Committee liked. I was given a complete set of papers for the MPC, a vast amount, which I found fascinating. On the basis of those papers, I would have found it a full-time job just to chair that committee. I am therefore at somewhat of a loss as to where the spare capacity comes from. What is the governor not now going to do in order to chair the FPC? That is a very serious question indeed. This would not have been a problem for the previous governor, because he regarded his role as chairman as just chairman. He did not intervene; for example, he always voted last. He was never defeated, and when he used to give me lunch regularly I would say to him, “There is no big deal in being on the losing side”. He said, “It is impossible for me as Governor of the Bank of England ever to be defeated in the MPC. It would be quite out of the question”. I was very impressed with the present governor being willing to be defeated. I am often defeated, but I never think I am wrong; I just shrug and walk away.
Could the Minister therefore tell me where the spare capacity in the governor is to be found, so that he can chair both these committees entirely satisfactorily, in the way the present governor does it?
Lord Sassoon
My Lords, first of all, I am not going to respond to the challenge of how different governors have handled committee chairing. As I have explained, I have sat in on one meeting of the MPC. We have other noble Lords, or at least one, who have sat in on a lot of meetings. I am not sure where the noble Lord, Lord Peston, gets his first-hand experience from, but let us put that aside. I hear now that he has no first-hand experience. Well, I am glad to hear that, but let us put that on one side.
I appreciate that in this Bill, and under the present arrangements, the Governor of the Bank of England has a very challenging job. The essence of what we are putting back into the Bank of England is, of course, leadership in financial supervision, which was part of the historical role of the Bank, except for the last 15 years or so. The Bank has essentially had these responsibilities in the past. The governor is and will be very well supported, partly by the deputy governors, as I have explained, but also, of course, by the whole Bank and PRA executive. This whole construct has been discussed in detail with the present governor, so I am fully confident, without being able to go through the governor’s time and analyse it, that this has been carefully thought about and the new proposed role of the governor is entirely manageable with the support that the governor has and will have.
Lord Barnett
My noble friend and I put down the amendment not because we care too much about whether someone is called a deputy governor but to discuss the underlying problem here. The Minister might be saved a lot of work in future; as we have heard, we are very fortunate in this House as it is, without reform, in having three noble Lords who can answer our debates, and the Minister need not bother. I am grateful to them, and we are fortunate to have them here. I know that one of them is even worrying about the job of the governor and whether he can cope with it—I see the noble Lord nodding—and he may find at the end of our debates on this Bill that he would rather not bother.
The Minister has not replied to my questions, but of course I did not expect him to. He did not tell us what the salaries were or whether someone gets more of a salary as a deputy than as an ordinary member. He told us that the job was advertised and anyone could apply. I wish I had known that years ago; I might have thought of applying. I do not know who was on the committee then; it may have been those three noble Lords on the Cross Benches who decided on the candidates. Whoever it was, we have had an interesting debate. However, what we have not yet discussed, although no doubt we will have other opportunities to do so, is the job of,
“a Deputy Governor for financial stability”,
and “for monetary policy”.
After all this, I am still not clear what the Monetary Policy Committee does, what the Financial Policy Committee does, what these deputy governors and their committee do, what the governor is going to do, what the Chancellor is going to do and who the hell is doing what. I am sure that in our later debates the noble Lord, Lord O’Donnell, will be interested to know. As I have no intention of applying for any of these jobs, I would like to know how they are decided and who applies. Incidentally, as my noble friend Lord Peston said, it is interesting that there is never a woman anywhere in the Bank. There may be some lower down in some menial jobs.
Lord Barnett
Name one. Anyway, I do not wish to delay the Committee much longer, and I will withdraw the amendment.
Lord Sassoon
Before the noble Lord sits down, I would point out that very recently Rachel Lomax was a very distinguished deputy governor of the Bank, to name but one, and there are now some very able senior female members in the banking sector, to avoid any doubt on that matter.
Lord Peston
Women comprise half the population of the country, do they not? If we look at ratios, there is not a lot to boast about.
Baroness Wheatcroft
My Lords, I speak in favour of Amendment 6. The amendment concerns the corporate governance of the Bank, and we have heard much this afternoon about perceived gaps in that. I understand the desire to strengthen the court, but I think that this can be achieved without drastic changes either of name—as the noble Lord, Lord Eatwell, said, “What is in a name?”—or in structure. In particular, I have qualms about giving strong new powers to the Treasury Select Committee. Having heard my noble friend Lord Turnbull, I think that if we go in that direction, perhaps it should be the whole House that gets to answer the question of who should be the future governor.
However, we need not do anything quite so drastic yet. If we wish to strengthen the governance of the Bank, it seems to me more appropriate to do so by giving the court—or supervisory board, if you want to call it that—an enhanced role. The government amendments that will be moved later this afternoon go some way towards doing that with the formation of the oversight committee. It certainly enhances the remit of the non-executives from where it is currently perceived to be. It may be retrospective, but the power of being held to account retrospectively is quite a powerful force with regard to current behaviour.
Nevertheless, the court already has significant powers. The Bank of England Act 1998 stipulates:
“The court … shall manage the Bank’s affairs, other than the formulation of monetary policy”.
Some have interpreted that as being little more than looking after the housekeeping, and it has sometimes appeared that way. However, the Act goes on to say that,
“the court’s functions … include determining the Bank’s objectives (including objectives for its financial management) and strategy”.
Surely the ability to determine strategy is a pretty powerful one.
The noble Lord, Lord Burns, has pointed out that within the court there is pretty much the structure of a corporate board. Perhaps it has not always seemed that way, but we need the court to feel empowered to use the powers that it has. Much will depend on the ability and willingness of the members of the court to take a tough and challenging line; and there is no reason why they should not if they are well qualified and strong.
We have heard about the need for challenge; the court should be providing it. However, I believe that the Government need to send a firm signal about how important they believe the role of the court to be. In a normal company, the crucial role of the chairman is to ensure that the company has the best and most effective chief executive. Companies thrive best when the chairman and the chief executive have a constructive relationship and mutual regard. Is it not therefore imperative that, even though the Bank is no ordinary company, the chairman should at least have some involvement in the appointment of the chief executive?
This amendment does not call for drastic change, but in demanding that the Chancellor should consult with the chairman of the court—or the supervisory body, should that be preferred—it would underline the importance of the court and the notice that the Government want to take of it. It would encourage the court to be brave, perhaps braver than it has been in the past. Formal discussions may go on now between the Chancellor and the chairman of the court, but there is no mistaking what a low-profile role the chairman has had—indeed, some thought that the governor was the chairman of the court. I think that we need the chairman of the court to have a rather more effective, higher-profile role. That could start with a formal requirement that the Chancellor should negotiate and discuss the future governor.
Lord Peston
My Lords, I shall speak to Amendment 8A in my name and that of the noble Lord, Lord Barnett. In doing so, I shall not comment on Amendment 6 in the name of the noble Baronesses, Lady Kramer and Lady Wheatcroft, simply on the grounds that the subject is totally beyond me. I am no expert on governance whatever, and I could not tell good from bad governance if it hit me over the head. However, what the noble Baroness said sounded very persuasive, and I am sure that she is right.
I also apologise to my noble friend Lord McFall. I just did not notice his Amendment 10. If I had done so, I would have tabled an Amendment 10A as I have tabled Amendment 8A.
I take noble Lords back to the Bank of England Bill, which the noble Lord, Lord Barnett, and I played a full part in debating. Indeed, one thing that I still remember with enormous pleasure and some amusement is the fact that, while the noble Lord and I were enthusiastically in favour of the Bill and said so, Conservative noble Lords who were then on the opposition Benches were doubtful. One of my tasks was to try to persuade many Conservative Peers that what Gordon Brown was doing was not only the right thing but that it was a very strong move in a Conservative direction to give independence to the Bank of England for monetary policy. I still give the odd lecture, and I sometimes boast that I was once involved in educating the Conservative Party in the correct way in which to run monetary policy.
In the course of debating the Bank of England Bill, all references to feeding back were to the House of Commons. The noble Lord, Lord Barnett, and I put down an amendment—I think that it was the only one that was accepted from us—to say that wherever the word “House of Commons” appeared it should be deleted and replaced with “Parliament”, and the Bill was changed so that Parliament became the body, meaning that it included the House of Lords. That established the fact, on which Lord Williams of Mostyn got a definitive opinion from the Clerk of the Parliaments, that the House of Lords is fully entitled to look at any matters of this kind and to be consulted on them. The Commons does not have to take any notice of us on these matters, but we can certainly exercise our rights. That is why I object very much to the form of Amendment 10 in my noble friend’s name and feel that the correct wording should be, “Treasury Committee of the House of Commons and the Economic Affairs Committee of the House of Lords”. This is a matter of principle for your Lordships’ House. I am personally not persuaded by any of what might then happen, but that is another story. If it is going to be done, I feel very strongly that both Houses should have access.
That was all about appointment, which comes up several times later on other things, but I shall make one speech do for all the other times it comes up. In my total naivety, it never occurred to me that there was any question of removal from office being a serious matter. That is another reason why I apologise to my noble friend. I would probably emigrate if we got to a state in our society where we were dealing with the removal from office of the Governor of the Bank of England. I hope that that was what the noble Lord, Lord Turnbull, was saying as well. We are all very keen on science fiction, but I think that we can go a little too far.
Baroness Kramer
My Lords, I have attached my name to Amendments 5, 6 and 10, so I think I will by definition be hated by any future Governor of the Bank of England.
I want to speak for a moment on Amendment 6, which was spoken to by the noble Baroness, Lady Wheatcroft. The 2009 report by Sir David Walker, on behalf of the Government, which took a detailed look at corporate governance in the UK banking industry, is very relevant. Your Lordships will remember his recommendation that:
“Balance also needs to be found between the role of executives and non-executives on a well-functioning bank board”.
Amendment 6 goes a significant way towards achieving that and establishing that real relationship between a non-executive chair and the Governor of the Bank of England as the chief executive. That distinction is also important for the purposes of accountability which others, including the Minister, have described as significant and important.
Lord Eatwell
My Lords, these amendments raise some interesting and important issues with respect to the person of the governor. Despite the warm words of the noble Lord, Lord Sassoon, about degrees of consultation, balance and so on, the idea remains that the person will be endowed, under this legislation, with quite extraordinary powers and therefore the process of appointment should be more transparent and subject to consideration by democratically elected Members. If we are to accept an unelected individual having these powers, at the very least the appointment process should be transparent.
The idea that the Treasury Select Committee should express its views is a very good one, but I am not sure about this notion of a veto. That goes a little too far. We do not want to politicise appointments to the extent that has occurred in the United States, which makes me nervous about the suggestion by the noble Lord, Lord Turnbull, that appointments might end up being considered by the whole House, which would inevitably be whipped and become very political indeed. The Treasury Select Committee, although it may sometimes be eccentric, is not party political in quite that sense. It is a good idea that the Treasury Select Committee is consulted about an appointment and it would be a bold Chancellor who would ignore the committee’s views. Since the committee does not have a veto, it is less likely to have the propensity to develop into an overly politicised hanging court. That covers Amendment 5, which is one of the amendments from the Treasury Select Committee in another place put forward by my noble friend Lord McFall and the noble Baroness, Lady Noakes.
I am sympathetic to the idea expressed in the amendment from the noble Baroness, Lady Wheatcroft, and found the arguments put forward by the noble Lords, Lord Burns and Lord Tugendhat, convincing. The notion that the chairman should be consulted and that the degree of confidence in the relationship between the chairman and the governor should thereby be established seems to have the ring of good sense about it. The Government should take this matter under serious consideration.
My noble friend Lord Peston referred to the role of the House of Lords. Although the expertise in your Lordships’ House often comes to bear most effectively and positively on Treasury issues, in the context of an appointment of this seriousness and magnitude, one really has to turn to elected Members. If the constitution of your Lordships’ House changes in the future, then perhaps the House of Lords could have a role in this respect. However, for the moment, the Treasury Select Committee should be the focus of consultation—
Lord Peston
The noble Lord has rather lost me. Is he saying that he agrees that the Commons should have a veto but the Lords should not, or that neither should have a veto?
Lord Eatwell
I hoped that I had made clear that I was not in favour of a veto for the Treasury Select Committee, but was very much in favour of it being consulted.
Lord Peston
In that case, I really cannot see the noble Lord’s argument at all. I hate to disagree with anybody sitting on my own Front Bench, but if this is a matter of consultation, it is a matter of great significance that your Lordships’ House is treated as an equal House. This principle has been established beyond any doubt whatever, and I therefore find it quite unacceptable that whoever is speaking from our Front Bench would not take that view on this subject. I am sorry to say that.
Lord Sassoon
My Lords, first, of course the Government place great importance on the suitability and independence of the Governor of the Bank of England. We are all clear that the governor’s role is already a challenging one and that future holders of this post will need to possess an even broader range of skills, experience and expertise. We do not in any way seek to deny that. However, although I fully recognise the great importance of this appointment, I am very confident that there are already robust arrangements in place, which I will go through in a minute.
It is good that we are now focusing in this debate for the first time very directly on the amendments that we are discussing, which makes for a much more productive 35 minutes than we have had on this. In the debate, which has been instructive and interesting, I have heard some voices speaking up for some form of parliamentary veto, some arguing for consultation, some arguing that it should be the Treasury Committee in another place and some suggesting that it should be that committee and/or—I am not quite sure which—the Economic Affairs Committee of this House. Although it is not the subject of an amendment, I heard at least one suggestion that if we were going to change anything, we should go rather more radical and make it subject to a vote of the whole House in another place. That is a rather broad menu. There are many ways to skin this particular cat but I suggest that there are already robust arrangements in place
The governor and the deputy governors of the Bank are appointed by Her Majesty the Queen on the recommendation of the Chancellor and the Prime Minister. Since 2009, this Government and the previous Government have agreed that in principle these appointments will be subject to open public competition. That is what happened with the most recent example of Paul Tucker, who was appointment deputy governor in 2009, and that practice will continue. The Treasury Committee already holds pre-commencement hearings with those who have been selected to become governors and deputy governors. Therefore, I do not believe that Amendment 5 is necessary.
To be absolutely clear regarding something that I think I heard the noble Lord, Lord McFall, say, I certainly agree that Amendment 10 is connected with Amendment 5 but, to be technically right, I would not accept that Amendment 10 is consequential on it. I just wish to be clear on that technical point.
Having been appointed, the governor certainly cannot be removed on a whim. Indeed, the Government have no powers to remove a Governor of the Bank of England. Rather, the Treasury must give its consent if the Bank decides that the governor has met the criteria for removal. However, it is the Bank’s decision to make. The legislation is clear that the governor, a deputy governor or a director of the Bank can be removed only with cause—that is, if the Bank is satisfied that he or she has been absent from meetings of the court for more than three months without the consent of the court, that he or she has become bankrupt, or that he or she is unable or unfit to discharge their functions as a member. That is very clear.
Some commentators have suggested that the fact that the appointments of the chair and independent members of the Office for Budget Responsibility are subject to a Treasury Select Committee veto sets a precedent and that governor appointments should also be subject to a parliamentary veto. However, I agree with the noble Lord, Lord Turnbull, who suggested that these cases are rather different. The role of the governor and the members of the OBR are both characterised by the need for especially talented and independent candidates, but that is where the similarities end. The OBR performs an important function in providing an independent and unbiased forecast on which government policy can be based, whereas the governor carries out executive functions on behalf of the state.
More than that, and more broadly relevant to the amendments, this policy-making role makes the appointment of a prospective governor extremely market-sensitive in a way that appointments to the OBR and many other appointments simply are not. The uncertainty created by a public pre-appointment approval process could, depending on the market conditions at the time, be significantly damaging. The noble Lord, Lord Eatwell, may not like this analysis but I suggest that the person performing the role of governor attracts significant market interest. A huge amount of time and effort is spent examining every scrap of information relating to members of the Bank’s policy committees in order to gain insight into their thinking and determine likely future policy responses, and that will very much be the case with candidates for the post of governor.
Once the candidate is announced, his or her particular leanings can be factored into asset prices. The Treasury Select Committee will then be able to conduct pre-commencement hearings, providing a useful insight into the professional competence and personal independence of the appointee. However, I suggest that pre-appointment hearings of the sort suggested and necessitated by the amendments in this group would exacerbate the uncertainty of markets about who will be appointed, and that would be inappropriate.
I am also sure, and I do not need to point out, that I could apply similar arguments regarding the dismissal of a governor. The uncertainty around any such dismissal would be just as damaging. In addition, I cannot see how the position of a governor whom the Bank had sought to remove for reasons of unfitness for the post could be anything other than untenable if the Treasury Committee reversed the decision, so I simply do not understand how that would work in practice.
I believe that the current arrangement of pre-commencement, rather than pre-appointment, hearings provides the right balance. It gives Parliament an opportunity to question the new appointee on their views and qualifications without bringing into question, or placing doubts over, the appointment itself. A parliamentary veto on appointments and dismissals would introduce uncertainty into these processes, and that would apply whether the veto was given to the Treasury Committee in the other place or to your Lordships own Economic Affairs Committee. For these reasons, I believe it is inappropriate for the Bill to provide that a parliamentary committee must approve governor appointments or dismissals.
Lord Peston
Before the noble Lord moves on to his next point, can he, for my education, explain one aspect of the drafting of the Bill? With regard to what we are discussing, can he tell me whether there is any significance in lines 8, 9, 10 and 11 on page 1, which refer to “a Governor” and “a Deputy Governor”, and line 15, et cetera, where the references are to “the Governor” and “the Deputy Governor”? Is this a fundamental matter of parliamentary draftsmanship, which is beyond me, or is it simply a grammatical error?
Lord Sassoon
My Lords, it relates to the former. I do not think it is fundamental; it just fits in with the construct of the legislation that we are talking about. There is no mystery behind it; it is purely a case of the grammar that the draftsmen have thought appropriate to use in the different lines.
Lord Sassoon
My Lords, I have dealt as fully as I can with the arguments. All I would suggest is that it further points out that this is not an easy area. As the noble Lord, Lord Turnbull, said, there are lots of possible solutions. If he were to change it at all, he would go to a solution that is not one of the number on the table at the moment. The Government’s position remains that we have an appropriate balance in all of this.
In answer more specifically to the noble Lord, Lord Peston, since I had the time during that little exchange to do a bit more research into “a”s and “the”s, the point is simple. The first reference is to the creation of “a Governor” and the subsequent reference is to “the Governor” who is at that point in the flow of the legislation being created. I hope that that helps to explain what is going on.
Lord Peston
My concern was with the correct use of English. It does not help but I cannot believe that it matters at all.
Lord Sassoon
Even if it does not matter, I try. I do my best to answer these points, even if it causes more confusion. Sometimes the “a”s and the “the”s could be very important.
I move on to Amendment 6 tabled by my noble friend Lady Wheatcroft, on which, no surprise, I will not be much more accommodating, but it is an important point that should be discussed. As I said, it is vital that the post be filled by the best possible candidate and taken from candidates who have expertise and skills to fulfil the role effectively. The legislation as it stands does not prohibit the Chancellor consulting widely before recommending that a candidate be appointed as governor. In practice, the Treasury and the Bank work together closely to recruit for key Bank of England posts. I am sure that my right honourable friend the Chancellor of the Exchequer will engage with key individuals as appropriate during the process to identify the next Governor of the Bank of England. Indeed, well ahead of the formal process kicking off, the chairman of court, Sir David Lees, and the Chancellor are already in touch on this matter.
However, I suggest that we should keep in mind that the appointment is ultimately for the Queen to make on the advice of the Prime Minister and Chancellor. Many people may be consulted as part of the process to appoint a new governor, but it would be impractical to attempt to define them prescriptively in the Bill. By leaving the legislation broad in this way, the Chancellor will be able to consult whoever he or she feels will add value to the advice. The people consulted may well change depending on the circumstances of the appointment. I suggest that that is how to leave the legislation but I hope that I have given the Committee some perspective on how these things will be handled. I hope that the noble Lord will feel able to withdraw the amendment.
Lord McFall of Alcluith
My Lords, the aim of the exercise is contained in the Treasury Committee report, which said that an amendment was tabled on Report in the other place but that because of “insufficient time” the Minister did not give an answer. This amendment is to elicit an answer. I suggest that the Minister should think again on this issue.
The noble Baroness, Lady Kramer, said that there is a role for Parliament. If Parliament feels excluded, that does not augur well for the stability of the system. I understand that giving a veto to a parliamentary committee is a bold measure, so I understand the concerns being expressed. The noble Lord, Lord Turnbull, made the point that the Treasury Committee could make a recommendation and the House could look at it. There has to be either a formal or an informal way of including Parliament in this. My noble friend Lord Peston said that if the Governor of the Bank of England left, he would leave the country.
Lord McFall of Alcluith
If he was fired, that would happen. I bring not an exact parallel to the Committee’s attention. A number of months ago, comments were made by members of the present Treasury Committee about the chief executive of the Financial Services Authority. They felt that he was responsible for the demise of the Royal Bank of Scotland. A few weeks later the chief executive, Hector Sands, left. I do not know whether there was a causal relationship. I pointed out to Members of the Committee that if the environment in the other place is charged, it can have unforeseen consequences. Parliament therefore has to be considered.
Lord Peston
My Lords, perhaps I may interrupt as I misunderstood. In my judgment as an economist, the chairman of the Monetary Policy Committee is quite capable of doing some things via that committee that could destroy the whole economy of this country. However, as far as I can see, the rules are that he cannot be fired for that. He can be fired for going bankrupt and one or two other things, but there is no way he can be fired for making a mess of economic policy. I am pretty sure the Bank of England Act does not allow him to be fired for the reasons that my noble friend is raising. If we were asked if we could get him fired for a wrong policy, fine, but it is my understanding that the rules for firing a governor do not include a wrong policy. You may say that is a bit irrational but I am pretty sure that I am right.
Lord McFall of Alcluith
The rules do not include wrong policy and I never suggested that they did, but what I am saying is if there is a charged atmosphere in Parliament and there could be a scapegoat, perhaps the governor or a future governor would leave as a result of that. We must be mindful of that situation and I gave a parallel, if not an exact one, of what happened a few weeks ago on that particular issue. We also have the governor now being appointed for eight years. That was adopted after being suggested by the Treasury Committee and no one has commented on it in this Chamber. I think it is something which needs much more reflection from the Government.
The noble Lord, Lord Burns, spoke about the chairmanship of the court. I would suggest to the noble Baroness, Lady Wheatcroft, that this is a big challenge to the Bank of England, which at the moment is not perceived to have that challenge. That aspect of challenge is really important. I could give noble Lords an example from my time on the Treasury Committee. No names, but I was approached by the representatives of a number of non-executives during the financial crisis and asked if I would see them. They wanted to tell me about the situation on the board of their company and explain why no change was affected by them; my answer was, “Absolutely not. You’re on your own. If you’re a non-executive and you cannot challenge, you should not be on the board. You should leave the board as a result of that”. The aspect of challenge still resonates and we need that. It is the issue that the noble Baroness, Lady Kramer, was pointing to and the Minister needs to reflect on it.
The noble Lord, Lord Flight—if I can wake him up, no, I do not think I can—made the point about Mervyn King and economics teaching. He made the distinction that it was the economics teaching that was bad and not the present governor’s teaching—