“In Schedule 1ZA to the Financial Services and Markets Act 2000 (the Financial Conduct Authority), after paragraph 2 insert—
2A (1) The term of office of a person appointed as chief executive under paragraph 2(2)(b) must not begin before—
(a) the person has, in connection with the appointment, appeared before the Treasury Committee of the House of Commons, or
(b) (if earlier) the end of the period of 3 months beginning with the day on which the appointment is made.
(2) Sub-paragraph (1) does not apply if the person is appointed as chief executive on an acting basis, pending a further appointment being made.
(3) The reference to the Treasury Committee of the House of Commons—
(a) if the name of that Committee is changed, is a reference to that Committee by its new name, and
(b) if the functions of that Committee (or substantially corresponding functions) become functions of a different Committee of the House of Commons, is to be treated as a reference to the Committee by which the functions are exercisable.
(4) Any question arising under sub-paragraph (3) is to be determined by the Speaker of the House of Commons.”—(Harriett Baldwin.)
This new clause provides that the term of office of a person appointed as chief executive of the Financial Conduct Authority (otherwise than on a temporary basis) must not begin before that person has appeared before the Treasury Committee of the House of Commons or, if earlier, three months from the date of his or her appointment.
Brought up, and read the First time.
With this it will be convenient to discuss the following:
“(1A) If, before the term of office has begun, the Treasury Committee reports to the House that the appointment should not be confirmed, the Treasury shall not continue with the appointment unless the House of Commons resolves that the appointment should be confirmed.”
Amendment (b) to new clause 12, at end insert—
“In Schedule 1ZA to the Financial Services and Markets Act 2000, in paragraph 3(1), at the end insert “, except in the case of the chief executive of the FCA, who shall be appointed for a reappointable term of five years”.”
‘(1) Schedule 1ZA of the Financial Services and Markets Act 2000 is amended as follows.
(2) After paragraph 2(2) insert—
“(2A) The Treasury shall not appoint a chief executive without the consent of the Treasury Committee of the House of Commons.”
(3) After paragraph 4(1) insert—
“(1A) But a chief executive appointed under paragraph 2(2)(b) is not to be removed from office without the consent of the Treasury Committee of the House of Commons.”
(4) After paragraph 27 insert—
“References to Treasury Committee
28 (1) Any reference in this Schedule to the Treasury Committee of the House of Commons—
(a) if the name of that Committee is changed, is to be treated as a reference to that Committee by its new name, and
(b) if the functions of that Committee (or substantially corresponding functions) become functions of a different Committee of the House of Commons, is to be treated as a reference to the Committee by which those functions are exercisable.
(2) Any question arising under sub-paragraph (1) is to be determined by the Speaker of the House of Commons.””
New clause 2—Composition of the Court of Directors of the Bank of England—
“In making nominations to the Court of Directors of the Bank of England, the Chancellor of the Exchequer must have regard to the importance of ensuring a balanced representation from the nations and regions of the United Kingdom.”
New clause 3—Change in title of the Bank of England—
“The Bank of England shall be known as the Bank of England, Scotland, Wales and Northern Ireland; and any reference in any enactment to the Bank of England shall be taken as a reference to the Bank of England, Scotland, Wales and Northern Ireland.”
New clause 5—Sterling Central Bank—
“The Bank of England is renamed the Sterling Central Bank.”
This new clause would change the name of the Bank of England to reflect its position as the UK central bank and the UK’s shared currency.
New clause 6—Membership of the Monetary Policy Committee of the Bank of England—
This new clause seeks to ensure representation of the four nations of the United Kingdom on the Monetary Policy Committee.
New clause 7—Objectives of the Monetary Policy Committee—
“After subsection 11(a) of the Bank of England Act 1998 there is inserted—
“(b) maximum employment, and.””
This new clause would expand the mandated objectives of the Monetary Policy Committee to include maximum employment.
New clause 8—Bank of England Accountability and Devolved Legislatures—
“Within three months of the passing of this Act, the Chancellor of the Exchequer shall lay a report before both Houses of Parliament on the merits of ensuring that the members of the policy committees of the Bank of England, including the Governor, appear before the respective economy committees of the devolved legislatures of the UK at least once a year.”
New clause 13—Freedom of Information—
(2) In the entry relating to the Bank of England, leave out all the words after “England.””
Amendment 6, in clause 9, page 7, line 19, at end insert—
‘(6A) The Comptroller may enquire into the Bank’s success in achieving its stated policy objectives but shall not enquire into the desirability of such objectives having been set.
(6B) The Comptroller shall submit reports arising from the exercise of his powers under subsection (6A) to the Treasury Committee of the House of Commons (or any successor committee exercising the same or equivalent functions).
(6C) The Comptroller shall lay before Parliament, and publish, each report arising under subsection (6B) promptly unless, in the opinion of the Treasury Committee, publication of a particular report would be likely materially adversely to affect the stability or functioning of the UK’s financial or banking system.”
Amendment 7, in clause 11, page 12, line 2, at beginning insert
“Subject to section 7ZA(6A) of the Bank of England Act 1998,”
Government amendment 3.
I would like to start by emphasising that the Treasury Committee is an esteemed Committee of this House and provides exceptional scrutiny of the Government and their regulators. Through its programme of pre-commencement hearings, it questions appointees to several posts before they start work. After appointees have started, they can expect to appear regularly before the Committee, and the public can expect the Committee to hold appointees firmly to account.
The Government welcome that scrutiny of appointees—it is a critical democratic function. That is why we have tabled new clause 12 to ensure in statute that the Committee always has the chance to scrutinise a new Financial Conduct Authority chief executive before they start work.
Will this be setting a bit of a trend? For which other important posts—there will be a number of other important posts at not just regulators but other City institutions—does my hon. Friend think it would be appropriate for the Treasury Committee to have a similar approval process?
I am speaking very narrowly to new clause 12. I am sure the Treasury Committee and other Committees will look at the issue again. I expect it to be part of the ongoing discussions between Parliament and the Executive. However, I am speaking to the very narrow characteristics of new clause 12.
Since we tabled our new clause, there have been further discussions with the Chair of the Treasury Committee over its role in the appointment of FCA chief executives. I am pleased to announce that we have found a means of reinforcing its scrutiny role that goes further than the context of this Bill. Indeed, today the Chancellor has written to the Chair of the Treasury Committee, agreeing that the Government will make appointments to the role of chief executive of the FCA in such a way as to ensure that the Committee is able to hold a hearing before the appointment is formalised.
The letter is in my binder and I would be happy to read it out, provided that the Chair of the Committee does not object. I will ensure that a copy is put in the House of Commons Library, if that has not already happened. I am sure that the Chair of the hon. Lady’s Committee will be more than happy to share it with her. Would she like me to read the letter out in full?
By popular demand, this is what the letter states:
During the passage of the Bank of England and Financial Services Bill, we have considered the role of the Treasury Select Committee (TSC) in scrutinising the appointment of the Chief Executive of the Financial Conduct Authority (FCA).
This scrutiny is important and welcome. I will therefore 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 recommend”— this is more exciting news—
“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.
Additionally”— it does not stop there—
“I 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 would not apply to Andrew Bailey, who I recently announced as the new head of the FCA, but would first apply to his successor.
I believe that these changes will reinforce the Treasury Committee’s important scrutiny role.”
As the letter states, should the Treasury Committee follow the pre-commencement hearing with a report recommending that the appointment be put as a motion to the whole House, the Government will make time for that motion and, should it result in a vote, they will respect the decision of the House. We will also seek an opportunity to alter the legislation governing appointments to the FCA chief executive officer, to make the appointee subject to a fixed, renewable, five-year term. I can confirm that Andrew Bailey, the new CEO of the FCA, has been appointed to a five-year term that can be renewed, so the agreed process will first apply to his successor. The agreement is the right way to reinforce the crucial scrutiny role of the Treasury Committee.
I am grateful to the Economic Secretary, who is being extremely generous with her time. What she has said is extremely welcome and a significant step forward. Will she explain why the Chancellor thought it better not to insert it in the Bill, but to make the arrangement through an exchange of letters?
We tabled our new clause on Thursday and, as I have said, there have been further discussions with the Chair of the Treasury Committee. I am delighted to be able to announce the result of those discussions today.
I also want to take a moment to address the question of dismissals of the FCA chief executive. I can confirm that the Government do not have the power, except in very limited circumstances, to dismiss the chief executive of the FCA during his or her term of office. I refer the House to paragraph 4 of schedule 1ZA to the Financial Services and Markets Act 2000, which applies to the chair and the external members, as well as to the CEO, and states:
“The Treasury may remove an appointed member from office…on the grounds of incapacity or serious misconduct, or…on the grounds that in all the circumstances the member’s financial or other interests are such as to have a material effect on the extent of the functions as member that it would be proper for the person to discharge.”
The lawyers are clear that the only reasons the Treasury can dismiss an FCA chief executive are incapacity, serious misconduct and conflicts of interest. I hope that offers the House considerable reassurance.
It is worth saying a little about what happened in relation to Martin Wheatley. Although he was not technically dismissed, his term was not renewed. The situation was straightforward. In July 2015, it was announced that his term would not be renewed in March 2016. As a result, he left his office six months early. I accept that that may have been a mutual decision between the Treasury and Mr Wheatley, but it certainly gave the impression, at least, that, even if it was not a fully fledged dismissal, it was a non-renewal, and, ultimately, the exit from office came six months before the end of a fixed term.
My right hon. Friend has stated the facts about the term of office to which Martin Wheatley was appointed and the fact that the Government chose not to renew it. It is appropriate to pay what I hope is a cross-party tribute to the excellent work of the acting chief executive, Tracey McDermott, who stepped into the role at that time. She has carried out the role for almost a full year in an absolutely exemplary fashion.
Unless there any further questions on the new clause, I am going to move on to the amendments relating to devolution. I am inviting interventions, but there are none.
The next set of amendments, which stand in the names of the hon. Members for East Lothian (George Kerevan), for Carmarthen East and Dinefwr (Jonathan Edwards) and for Kirkcaldy and Cowdenbeath (Roger Mullin), force us to ask exactly who the Bank works for. The answer must be the entire United Kingdom. Indeed, that is emphasised in the Bank’s mission statement,
“to promote the good of the people of the United Kingdom by maintaining monetary and financial stability.”
To fulfil that mandate, the Bank of England goes to great lengths to ensure that it has a comprehensive understanding of the economic and financial situation across all corners of the United Kingdom. The Bank has a network of 12 agencies, which are located across Scotland, Wales, Northern Ireland and the regions of England. Each year, those agents undertake some 5,500 company visits and participate in panel discussions with approximately a further 3,500 businesses. In that context, imposing a requirement to have regard to regional representation on the court is unnecessary. A comprehensive framework for regional information-gathering already exists.
Will the Economic Secretary inform me who the Welsh representative is, because I have absolutely no idea who represents Welsh interests at the Bank of England and I am Plaid Cymru’s Treasury spokesperson?
I will make sure that that person makes him or herself known to the hon. Gentleman with the greatest of speed. It is important to point out that the agents do not engage with us as politicians. The agent for the west midlands and Worcestershire is very engaged with my local businesses, but I as a politician have never had a meeting with them. That is how it should work.
I realise that the Economic Secretary is trying to be helpful, but does she not recognise that there is a strategic difference between the process of information-gathering through the agents and that of policy-making through the bodies of the Bank itself? That is where we are asking for representation.
I will get to that point later in my remarks. As always, I seek to be helpful to the hon. Gentleman, so I hope that he will enjoy those remarks when I get to them.
We believe that it is unnecessary to impose the requirement in new clause 2 to have regard to regional representation on the court, which is effectively the board of directors of the Bank of England, because of the comprehensive framework for regional information gathering that already exists. In addition, if we found a candidate with the perfect profile to serve on the court, but we insisted on downgrading them because they lived in an over-represented part of the country, that would not be the best way to produce an effective court.
I have been clear that in setting both monetary and financial stability policy, the Bank must take into account economic conditions in, and the impact of policy decisions on, every part of the UK. Monetary and financial stability policy must be set on a UK-wide basis. None of the 65 million people whom this House represents would be well served if, for example, different capital requirements applied to banks in different parts of the UK. Of course, monetary policy must be consistent. It is completely impossible to set different interest rates in different regions, so monetary and financial stability are, rightly, reserved policy areas.
The men and women who make up the Bank’s policy committees must have their decisions scrutinised, but since policy must be set UK-wide, this Parliament must hold them to account. This Parliament holds power over reserved matters, which these issues rightly are, and the Members of this Parliament represent people from every part of the country on an equal basis. Likewise, Ministers, who are accountable to the House and who hold their positions with the support of a majority of the House of Commons, must be responsible for making the external appointments to the Monetary Policy Committee, each member of which is responsible for considering the impact of their policy decisions on all 65 million people in the UK.
We also return to the question of the Bank’s 300-year-old name. It is important to recognise the reputation associated with a name built up over such a long period. During that time, the Bank has come to be globally renowned as a strong, independent central bank. We should not underestimate the importance of that. International confidence in the Bank of England helps to support international confidence in our economy and currency.
I turn to the monetary framework. The Government amendment in this group is modest. The Bill reduces the minimum frequency of Monetary Policy Committee meetings from monthly to at least eight times in every calendar year, and our amendment adjusts the reporting requirements of the Monetary Policy Committee to match.
The Minister moved on very quickly from the matter of the name. I just want to clarify whether the Government have a view on changing the name of the Bank of England to reflect the fact that it is the Bank for all the nations of the United Kingdom. Notwithstanding the fact that in normal, everyday parlance it will, I am sure, still be referred to as the Bank of England, its long and proper title surely should reflect all the nations of the United Kingdom.
I respect and pay tribute to the fact that the Bank of England was founded by someone from Scotland, so the hon. Gentleman is absolutely right to draw attention to the fact that this is an historical anomaly. I would be the first to accept that the monetary policy of the Bank of England is set for the whole United Kingdom. That does not mean to say that we will accept the new clauses that would change the name of the Bank of England, because we think that its name has been well established over 300 years.
I think that the Treasury is right, in this instance, not to change the name. The Bank of England has a brand. I do not need to give a history lesson to the nationalist Members, but the Bank of England was founded in 1694, which was before the 1707 and 1800 Acts of Union that might—for two of the three other parts of the United Kingdom, at least—otherwise have had an impact on its initial name. Its brand is important, and I hope that those from the other parts of the United Kingdom will not feel as though their interests are being downgraded simply because they do not appear in the headline name, not least for the reasons that have been set out. It is important that we recognise that the Bank acts for the entirety of the United Kingdom, and that it therefore pays great attention to the voices of those in all parts of the United Kingdom, not just England.
Yes, and on that point I hope that the support of Tommy Sheppard for the united nature of our kingdom means that the Scottish National party has moved on from the discussions of last year in which it wanted to break up the United Kingdom. I hope that the party will accept the settled will of the Scottish people to continue to benefit from monetary policy that applies right across the country.
Further to the points made by the Minister and Mark Field, the new clause tabled by my colleague George Kerevan will address the issue that they spoke about. As a keen cricketer, I know that the official title of the governing body is the England and Wales Cricket Board, but it is named “England” for all promotional purposes. Even if we accept the well-intentioned new clause tabled by my colleague from the Scottish National party, the Bank of England will still be known, in promotional terms, as the Bank of England.
The hon. Gentleman tries to tempt me down the path of comparisons with sports teams, but I decline to be tempted. The Government amendment is modest: the Bill reduces the frequency of MPC meetings from monthly to at least eight times in every calendar year, and the amendment will simply adjust the reporting requirements of the MPC to match.
New clause 6, tabled by the hon. Member for Carmarthen East and Dinefwr, suggests that we give the MPC a second primary objective of maximising employment. We conducted a comprehensive review of the monetary policy framework in 2013 and concluded that a flexible inflation targeting framework offered the best approach. Employment is already explicitly part of the MPC’s objectives. Its secondary objective is
“to support the economic policy of Her Majesty’s Government, including its objectives for growth and employment.”
The most recent MPC remit letter summarised the Government’s economic policy as being
“to achieve strong, sustainable and balanced growth that is more evenly shared across the country and between industries”.
I thank the Minister for her forbearance in giving way again. She is taking refuge in the Bank of England’s existing mandate, a mandate that all Members, on both sides of the House, know has long since become redundant. The inflation target has been dead in the water for years and years, because inflation is nowhere near 2% and is not likely to be for a long time. Implicit in the new clause is the fact that we are questing about for other policy measures to replace the 2% inflation target. Will the Minister address the question of what future targets the Bank of England should have to address the needs of a deflationary era, rather than the inflationary era of the last 20 years?
The hon. Gentleman asks an important question. There are many opportunities in Parliament, in the scrutiny of the Bank of England by the Committee of which he is a member, to ask those important questions. The Government choose to use the mechanism of the letter process and the remit. The hon. Gentleman and I are both old enough to know how inflation has changed over the years—[Hon. Members: “Surely not!”] I know; surely we are not. We should all welcome the significant lowering of inflation expectations, and we should all remember how important it is that we continue to ask the Bank of England to keep inflation under control, so that we never return to the kinds of impoverishing inflationary policies that so harmed people—particularly the poorest and oldest in society—during the 1970s.
Price stability must have primacy, because we judge that having a single lever aimed primarily at a single objective is the best way to make sure that the inflation target is credible. That, in turn, anchors all-important inflation expectations and helps us to keep inflation under control. Our system has shown that it produces good labour market outcomes. Despite global uncertainty, we have record numbers of people in work, an unemployment rate that is at its lowest in a decade, and a claimant count that has not been lower for more than 40 years. Moreover, targeting low inflation ensures that hard-earned wages are not eroded by inflation.
I must confess that I entirely agree with what the Minister is saying about inflation. I, too, am old enough to remember what inflation was like, particularly in the 1970s. However, it seems to me that the Bank of England’s sole monetary policy lever is to say that we must keep the inflation rate down. Surely we must recognise that inflation has now been well below the 2% target for a long time. I accept that we should never believe that inflation, and all the distortions it makes in our economy, has been entirely vanquished, but should there be a different inflation target, or a different set of remits for the Bank of England, to recognise that it should pay attention to other aspects of the economy in its monetary policy?
My right hon. Friend, who is an extremely wise and knowledgeable person—I will not refer in any way to his age—highlights an important point. He also emphasises the behavioural characteristic of the recency effect. Inflation is well below the 2% target today, but only during the lifetime of the last Parliament it was above 5%. Even during the six years that I have been a Member, we have tested the parameters of the inflation target. I do not think there is any need for us to make any changes to that target this afternoon.
“The Comptroller may enquire into the Bank’s success in achieving its stated policy objectives but shall not enquire into the desirability of such objectives having been set.”
The Bill, as drafted, will already have that exact effect.
The second part of amendment 6 directs how the Comptroller and Auditor General should submit his reports. Parliament has delegated to the Comptroller discretion over the content of National Audit Office reports and the timing of their publication, and it is important that this independent officer of Parliament is able to use his judgment on how Parliament and the public are best served. The National Audit Act 1983 provides that the Comptroller
“may report to the House of Commons the results of any examination”.
Once he has reported to the House, it is open to any Committee of this House to inquire into matters on which he has reported. There is an in-built incentive for prompt publication as it mitigates the risk of the report’s conclusions being overtaken by events.
Amendment 7 would disapply restrictions in the Financial Services and Markets Act 2000 on the disclosure of specially protected information in relation to reports by the Comptroller and Auditor General. Information is specially protected under these rules if it is held by the Bank for the purposes of monetary policy, for financial operations supporting financial institutions in maintaining financial stability, or for private banking purposes. Similarly, new clause 13, in the name of Helen Goodman, would remove three corresponding exclusions in the Freedom of Information Act 2000. I hope I can persuade the House that each of the three categories of protected information is entirely sensible.
The first category applies to the Bank’s monetary policy functions. How we communicate monetary policy is extremely important. It moves markets in substantial ways and every detail of the published minutes is scrutinised for predictions of future changes. Managing disclosure while making sure information is presented in a timely way is vital. That is why the original legislation creating the Monetary Policy Committee in 1998 set out the full range of disclosure requirements, including publication of the minutes and of a quarterly inflation report. Since then, the Bank has implemented the recommendations of Governor Warsh’s review of MPC transparency. Through the Bill, we are supporting full implementation of the recommendations of that review.
The second exclusion applies to
“financial operations intended to support financial institutions for the purposes of maintaining stability”.
Hon. Members will understand that if the Bank has to extend emergency liquidity assistance, very careful communication is a critical element of preserving stability. Any covert assistance will be reported privately to the Chairs of the Treasury and Public Accounts Committees, while broader liquidity schemes for institutions, such as the special liquidity scheme and the discount window facility, may be announced to the markets.
Finally, the Bank’s very limited private banking services are excluded from FOI requests. We often forget that the Bank of England also provides private banking to customers. As I am sure hon. Members will agree, it would be entirely inappropriate to subject ordinary bank customer information to disclosure.
I came to the House ready to speak in support of new clause 1, which seeks to give the Treasury Committee a formal role in the appointment of the chief executive of the FCA. In my view, new clause 1 is better placed to guarantee the competence and independence of the regulator than the new clause in the name of the Chancellor, which in our original reading of it did too little to change the status quo. New clause 12 was tabled in response to the new clause tabled by the Chair of the Treasury Committee, Mr Tyrie. We had a similar debate in Committee on an amendment about the appointment process for the chief executive of the Prudential Regulation Authority.
Since 2008, Select Committees have routinely held pre-appointment hearings for a number of public appointments, and some candidates have not been approved. The coalition Government developed the scrutiny agenda when the Chancellor agreed in 2010 to the Treasury Committee having a power of veto over appointments to the Office for Budget Responsibility. The Public Accounts Committee has a veto over the appointment of the Comptroller and Auditor General. Appointments to the Monetary Policy Committee and the Financial Policy Committee of the Bank of England are made by the Chancellor of the Exchequer, and are then subject to a confirmation hearing by the Treasury Committee. The Treasury Committee has powers over the chair and board members of the Office for Budget Responsibility, an arrangement that the Chancellor told the Treasury Committee he would put in place
“because I want there to be absolutely no doubt that this is an independent body”.
The Minister will be aware that, when it examined the proposals for the future FCA in 2013, the Treasury Committee made a number of recommendations on the accountability of the new body to Parliament, including that the legislation should provide that the chief executive of the FCA be subject to pre-appointment scrutiny by the Treasury Committee. I recall that the Treasury Committee was disappointed by the Government response, particularly in view of the deficiencies in the accountability mechanisms for the Financial Services Authority.
As we have heard, the view of the Treasury Committee was set out in the Treasury Committee Chair’s letter to the Chancellor of the Exchequer on
In Committee, I flagged up this matter and said it would be helpful to know whether the Chancellor had shared his thinking on such calls to extend pre-appointment hearings and the power of veto to those two positions. Now we have had his reply. It was in the Minister’s ring binder. As she said, it was “exciting” to hear the contents of it, and we got a fantastic insight into the fireside exchanges within the Government. Labour Members believe that the Treasury Committee should have greater authority over the future of financial regulation in this country.
On Government new clause 12, it is unclear what would happen in the period between the appointment of the chief executive and him or her appearing before the Committee. Would they be left in limbo, or would they in fact be settling into their new post? Would we be disappointed—in practice, would it simply be business as usual, with the Treasury Committee not given the power that we all believe it deserves? We do not believe that simply requiring any new chief of the FCA to appear before the Committee within three months of appointment delivers anything particularly new. It is reasonable to expect that any new postholder would appear before the Committee within that timeframe in any event, whether or not that appearance was codified.
With regard to new clause 12, however, I am pleased to note the exciting news—the Minister herself has called it that, as have I—that by means of the Chancellor’s letter the Government have communicated that they accept the broad thrust of the proposals put forward by the Chair of the Treasury Committee. I also note and welcome the Minister’s commitment today to introduce the relevant legislation, in her own words, sooner rather than later. I politely suggest that the changes be introduced in the Finance Bill shortly—that is an opportunity not to be missed.
I turn to Labour’s amendments 6 and 7, containing measures that we have retabled after they were discussed in Committee, and new clause 13, in the name of my hon. Friend Helen Goodman. Each of those measures, in its own way, addresses the crucial issue of the need for transparency and openness in the Bank of England. The National Audit Office’s power to investigate the Bank has been subject to discussion at each stage of the Bill in both this House and the other place. The Comptroller and Auditor General was clearly concerned about proposals in the Bill that would have allowed the court of directors a veto over the new powers for the NAO. I am pleased to say that there has been clear progress on the issue as the Bill has proceeded through both Houses; in particular, the veto was removed in the other place. As hon. Members will recall, in response the Government proposed a memorandum of understanding between the Bank and the National Audit Office; I understand the draft of that has been welcomed by both sides.
Opposition amendments 6 and 7 seek to extend and clarify the powers of the comptroller to inquire into the Bank’s success in achieving its policy objectives. We believe that that does not encroach beyond the boundaries of questioning the merits of policy decisions, but would assist the National Audit Office in ascertaining whether the Bank is delivering value for money.
I have a brief question on amendment 6. Although I accept that transparency and openness are the spirit of the age and we cannot necessarily move entirely against that—[Laughter.] We do our level best some of the time. I am sure that the Treasury will be at the vanguard of this. Does the hon. Gentleman accept that, at times of great difficulty, when there are issues about the stability or functioning of the UK’s financial banking system, it would be appropriate not just for the Treasury Committee but for the Treasury itself to have some say in suggesting when openness should not be fully fledged? The safeguards that he has put in place in the amendment refer only to the Treasury Committee; does he not see that there might be instances when Ministers rightly have concerns about issues of stability that should be protected from open transparency at least for a time, although there could then be a move to make the minutes and other things more open at some future point, once the particular threat had passed?
I thank the right hon. Gentleman for his intervention. It may be that transparency is the spirit not just of the age but of the future—we shall see. I draw his attention to the wording in the amendment:
“The Comptroller shall submit reports arising from the exercise of his powers under subsection (6A)”.
It is not a completely open-book policy.
On new clause 2, which is in the name of George Kerevan, Labour sees merit in the proposal for wider geographical representation on the board. In Committee, we tabled an amendment making the case for amending the composition of the court to ensure that different stakeholders were represented, including having dedicated places for customers and practitioners.
Similarly, we support new clause 13 tabled by my hon. Friend the Member for Bishop Auckland. She has a long track record in campaigning for greater transparency in financial services, and her new clause sits well with our amendments, as it seeks to empower the National Audit Office further by making the case for greater powers for freedom of information requests.
I now turn to new clauses 3 and 5, put forward by the Scottish National party and Plaid Cymru respectively. Both new clauses would change the name of the Bank of England. In fact the SNP was so keen to discuss its proposal that it tabled it twice. We discussed that measure in Committee and it is before us again. It seeks specifically to have the name of Scotland, as well as those of Wales and Northern Ireland, as part of the title of the Bank. The SNP has now been joined by Jonathan Edwards, who has taken a different tack and removed all national names; his new clause would mean that the name of the Bank referred solely to the currency—for the avoidance of doubt, that is sterling, not Stirling. We were happy to support the SNP’s proposal in Committee, recognising as it does the unifying role of the Bank—that has been expressed again today—as one which services all parts of the United Kingdom, and we will support it again.
New clauses 6, 7 and 8 and Government amendment 3 have a number of merits. New clause 7, in the name of the hon. Member for Carmarthen East and Dinefwr, sets out a new mandated objective for the Monetary Policy Committee to include maximum employment. New clause 6 proposes the nomination of representatives on the MPC from the devolved authorities of Scotland, Wales and Northern Ireland, and new clause 8 argues that the Bank should be more accountable for its decisions to those same bodies.
The Labour party has established a review into the mandate of the Monetary Policy Committee under former MPC member David Blanchflower. We have said previously that we will look at a wide range of ideas, including what can be learned from the US Federal Reserve. That will include considering the importance of growth, employment and earnings in the MPC’s deliberations. Indeed, on new clause 7, David Blanchflower has himself written in City A.M.—the favourite publication of the Labour Front-Bench team—that he will consider the issue of maximising employment in his review. He is also looking at the structure, size and, crucially, gender balance of the MPC, optimal policy rules, asymmetrical targeting and the relationship with fiscal policy, as well as the frequency of the MPC’s meetings.
Therefore, although we welcome the proposal for the Bank to report to the devolved authorities, we will not support the new clauses on the MPC today. We see merit in them as part of an ongoing debate, but look forward to considering and sharing the results of David Blanchflower’s review in due course. With that, I draw my comments on this group of measures to a conclusion.
First of all, that was a very good speech. I congratulate Richard Burgon on covering quite a lot of ground in a good deal of detail—and with a sense of humour, which I enjoyed. I was also pleased that he got in one or two points—it saves me the trouble—about the OBR and its importance as a precedent for what we are discussing today.
I will also say—although only in a sentence, otherwise I am sure that I will get told to be quiet by you, Madam Deputy Speaker—that this is a very good Bill. In many respects, it implements a good number of the wider objectives for Bank of England scrutiny and accountability for which the Treasury Committee has for many years been pushing. I thank members of the Treasury Committee in the previous Parliament and in this one who have pressed for these measures vigorously. It shows that things can be achieved if one persists.
I am grateful to the Minister for her assistance over a number of days, and to the Chancellor of the Exchequer, who followed up a telephone conversation last night with an exchange of letters. We have now reached an agreement on how to proceed, so I will not need to press new clause 1 to a Division.
Following the exchange of letters, most of the objectives that we sought through new clause 1 are provided for, and it is worth going through the key points, which the Minister effectively clarified by reading out the Chancellor’s letter. First, appointments will be made in a way that ensures that the Treasury Committee can hold a hearing in good time. Before the appointment is formalised, the question of whether there is a pre-commencement or pre-appointment hearing is, in my view, a distinction without a difference. Secondly, if the Committee disagrees with the appointment, it will report that to the House, and if they choose, the Government must find time for a debate on the Treasury Committee’s report. That debate will be on a motion to accept the conclusion of the Committee. The Government will then have to vote it down. The Government further agree that they will respect the decision of the House once that vote has been taken.
Thirdly—this point has already been raised—at the earliest opportunity, the Government will amend legislation to ensure that future appointments of the chief executive of the FCA are made on a fixed renewable five-year term. I expect that legislative change to take place in the next parliamentary Session. I am not sure that the provision would satisfy the long title of a Finance Bill but, if it does, I would expect the Government to include it in that Bill. I also recognise that the Chancellor could not fully commit over the phone that the change would take place in the next Session, since he will have had no opportunity to secure an agreement on the legislative time from his Cabinet colleagues. I expect, however, that he will do that as soon as possible. It will be a pretty small, self-contained Bill. The fourth point, which has not been mentioned so far, is that it is the Chancellor’s clear view—I am not in any way misrepresenting him—that the arrangements that are being put in place should be the permanent method of appointment, rather than something that will just disappear with this Chancellor or, indeed, the helpful Minister at the Dispatch Box, however supportive she may be of the proposals.
Why has the Treasury Committee devoted so much time to this issue? I have a specific and a general answer to that. On the specifics, there have been widespread concerns that the independence of the FCA has been compromised by the circumstances of Martin Wheatley’s departure, and by other apparent interference in the FCA’s work by senior Treasury officials, and perhaps Ministers. We explored those circumstances through cross-examination in Committee and found no such evidence. However, my right hon. Friend Mark Field got right to the point when he said that the appearance or perception of interference none the less remains. That perception makes it harder for regulators to do their job, so it had to be addressed. Bolstering the perceived independence of this key appointment, and ensuring that the individual cannot easily be removed by the Treasury, seemed crucial to the Committee.
For the record, I do not think there was any undue interference from the Treasury, and I am happy that Andrew Bailey is taking over—he will be a good chief executive. None the less, there was that perception within the square mile and we must hold that fairly close to our hearts.
May I also say how much I approve of the Treasury accepting the guts of new clauses 1 and 9? It is greatly to its credit that we have not had to go through the House of Lords, because it does a discourtesy to this House when such changes are made through amendments in the House of Lords, rather than being part and parcel of discussions in advance of Report.
One other issue is the apparent statutory protection against dismissal, which came into question as a result of Martin Wheatley’s departure. Whatever the reality, the current statutory protection appeared inadequate, which was perhaps because he was appointed only for a three-year term. Five years—a goodly and longer term—will provide more protection. To put it even more simply, the changes rectify in another way the risk of arbitrary dismissal. For example, if the Treasury Committee strongly supports keeping the incumbent after four and a half years, it can make that abundantly clear in a report and recommend to the House of Commons that any other candidate is voted down. So in practice, with the letter, we already have the protection that we wanted.
The FCA needs a strong and demonstrably independent chief executive, accountable to Parliament. It endured a difficult birth and struggled to emerge from the rubble of the failed FSA. Some of its best staff have been poached by the Prudential Regulation Authority, the Bank and the private sector, and it has been hitting the headlines for all the wrong reasons, not least with the breach of its own listing rules, which wiped 20% off the share value of the life assurance sector. With what will amount to a requirement for parliamentary approval of future appointments or dismissals of the FCA chief executive, the incumbent will now be in a strong position to resist pressure from Ministers and officials, and their authority will be bolstered.
The fact that this is a non-statutory change—unlike new clause 1, which would have been in the Bill—does not perturb me a great deal. Any attempt by the current or future Chancellor to circumvent these arrangements is likely to lead to a complete collapse of trust between the Treasury Committee and the Government, and I do not foresee that happening.
Does my right hon. Friend have some small concern that if a measure is not included in the Bill, no precedent will be set? To return to an earlier exchange that I tried to have with the Minister, that might give the Treasury licence to take this as a sui generis case, rather than recognising that the Treasury Committee should perhaps have a more important role in approving the appointments of a number of senior figures in the financial services firmament.
That argument can be turned on its head. One can argue that this sets a precedent that is more easily rolled out, without the need for statutory change, to other bodies. In the Treasury field, we now have a statutory double lock for the appointment and dismissal of the head of the Office for Budget Responsibility, which was recently found to be of some use following controversy about alleged interference in the production of the forecast—again, we did not find any evidence of that, but the perception of it might have weakened the OBR. We have a requirement for a resolution of the House prior to the appointment of the chairman of the Office for National Statistics, and now we also have these arrangements. So we have a battery of different arrangements on which to draw.
I congratulate my right hon. Friend on achieving this great success for parliamentary scrutiny, and I suggest that it is better to proceed in a non-statutory way. Bringing statute into the proceedings of the House always presents longer term problems, and setting a non-statutory precedent has lots of advantages.
I always like listening to my hon. Friend, who is a member of the Treasury Committee and, of course, a constitutional expert. It is certainly true in this place that a good deal of quasi-constitutional change, which is what we have here, tends to take place gradually and often due to the development of informal arrangements. I think that that is all to the good, which is what I think my hon. Friend is saying.
Everyone is trying to pile in, whereas I am trying to get to the end of my speech. I was almost there a minute ago, but I give way.
Of course my hon. Friend Mr Rees-Mogg, as a great and learned constitutional expert, will explain this apparent contradiction to the House in, I hope, a lengthy disquisition in a few minutes’ time.
I really am trying to conclude, but I have just one more point. It is essential in a 21st-century democracy that appointees to an increasing number of quango positions—this was the general point I said I would refer to earlier—should be forced to explain their actions before Parliament and also should feel accountable to Parliament. To achieve that, the means of their appointment and their protection from dismissal are relevant, and that is why a change such as this can offer us something.
Over decades, successive Governments have offloaded their responsibilities to quangos, leaving the public with the sense that nobody is ultimately democratically accountable for anything. I believe that accountability for decisions that were formerly taken directly by Ministers, but now sit with unelected appointees in quangos, needs thorough scrutiny and cross-examination, and that is what we have been trying to do in the Treasury Committee over the past few years.
The agreement with the Chancellor is a sizeable step in the right direction. Of course, in an ideal world, I would like access to the statute book to write exactly what, on behalf of the Treasury Committee, I feel should be on it. However, we live in the real world, and I am very happy with this exchange of letters and grateful to Ministers for their agreement. I shall not press new clause 1 to a Division today.
I agree with Mr Tyrie that there is a lot to be commended in the Bill, although some of the good things, as with new clause 12, were pushed on the Government. I also think that there are still some negative aspects to the Bill, which brings me to a conclusion—[Interruption.] As usual, it will be quite a long conclusion!
The Bill began as a tidying-up operation, which is why it was launched in the House of Lords. It was seen to be about just tidying up a few things, making a few additions and changes to the Financial Services Act 2012. As the Bill proceeded through its various stages, however, the more it became apparent that it exposed a whole series of issues in the financial regulatory system that were not fit for purpose.
We have convinced ourselves—or at least the Government have convinced themselves—that bar a little tidying up, all has been done to resolve the crisis of 2007, but that is not true. What we discovered time and again as the Bill proceeded were issues with the operation of the Bank of England and issues with the functioning of the regulatory bodies and how fit for purpose they are. Furthermore, new issues have emerged only in the last few weeks regarding tax havens. All those problems have appeared. I do not see this Bill putting the problems away and putting the issues to bed. Rather, we are seeing the start of a whole series of pieces of legislation coming into force until we get it right. Far from it being a tidying-up operation, we have started something new.
I am speaking to new clauses 2 and 3, which stand in my name and those of my SNP colleagues. I believe they get to the nub of the issues we are facing as a result of what has been uncovered. In the last 20 years, and more particularly in the last 10, the Bank of England has acquired an extraordinary range of new powers. I do not mean just forecasting or supervising powers over banks, because fundamental policy levers for running the whole economy have been transferred from this House and the Executive to the Bank of England itself. This began with the transfer of powers over interest rates to the Bank of England in 1997, along with the power to set the exchange rates, which no one seemed to notice at the time. This gave the Bank de facto control over our external sector. More recently, of course, with quantitative easing, the Bank has forced interest rates down to the zero band. If monetary policy cannot be manipulated, what else can be done? Gradually, the Bank has been given powers over large swathes of fiscal policy.
Nowadays, the Bank of England even operates our housing policy, as housing determines the whole direction of economic growth. In recent weeks, the Bank has been deciding between buy for let or buy for homeowners. Micro-decisions have been transferred, and my worry is that we have crossed a line of accountability with respect to the Bank of England. This is not a criticism of individuals working for it or indeed of the Governor of the Bank of England, for whom I have high regard. Gradually, however, we have allowed it to take over from this House far too much of the operational policy that directs the economy.
That is why I am happy to support new clause 12 as a step forward in beginning to redress the balance of accountability. New clause 12 and the Government’s acceptance of the general line of march from the Treasury Select Committee means that we are beginning to move to the point where key members of the regulatory regime can be confirmed in their appointments by this House.
We now have two precedents in that direction, with the Treasury Committee as a servant of the House confirming the appointment of the director of the Office for Budget Responsibility and now the head of the Financial Conduct Authority. That is the line of march, but I want to put on record, however, that SNP Members view this as a down payment. We are moving in a direction where the Governor of the Bank of England and all the key members of the regulatory agencies have to be confirmed by this House. I know that will take a long time and that there is always a struggle—sometimes gentle, sometimes not—between the Executive and the House over who has the real say. What we are seeing is a move towards more democratic accountability being held by the House, which I welcome.
Let me move on briefly to new clause 2, which takes this process a little further. Given the policy direction and powers that now lie with the Bank of England, we have to make sure that its committees and, above all, its ruling court of directors are democratically accountable. That is why we tabled this simple new clause, stating:
“In making nominations to the Court of Directors of the Bank of England, the Chancellor of the Exchequer must have regard to the importance of ensuring a balanced representation from the nations and regions of the United Kingdom.”
That new clause was carefully written. There is no suggestion that the court should be a federal body. Our suggestion is that in the balance of its make-up, there should be representation for the whole nation. Rightly or wrongly—much more rightly than wrongly in my opinion—there is a perception that the City of London and its major banks and financial institutions have historically had too big a sway over the court and the Bank.
The hon. Gentleman is making a powerful point. Does he agree that it must be significant that the economic performance of the peripheral areas of these nations is also peripheral?
I could not agree more. In fact, if we look at the long history of the regions and nations of the United Kingdom—Scotland, Wales, the north of England and Northern Ireland—we see that they have suffered a deflationary cycle since the second world war, because from 1945 onwards, by and large, interest rates were set to control inflation that was triggered by the City of London and over-lending by the City of London. As a result, the north-south divide became a deflationary line, with the nations of the north, and the regions of the north of England, suffering high interest rates. Although those rates were not germane to their economic problems, for most of the post-war period UK interest rates have, on average, been set at a higher level than those in the rest of Europe, simply in order to control and curb over-lending by the City of London, which has resulted in deflation in the industrial regions.
I consider that that might have been mitigated to some extent if there had been broader representation of the nations and their industries on the leading bodies of the Bank of England, and, although I know that the Executive will challenge my proposal, I think we need to move in that direction. I remind Members that the court of directors is not the institution of the Bank that actually makes monetary or fiscal policy. It has oversight over the whole of the Bank’s operations, in the sense of giving value for money, and, above all, ensuring that there is no group-think between the different committees that make operational policy. I therefore think that, at that level, we need to begin the process. At that level, we need wider representation on the court.
Surprisingly—and I raised this in Committee—such representation already exists to a small degree. Since world war 2, traditionally, there has always been a trade union representative on the court of the Bank of England, and there still is, to this day. Even the Government—indeed, successive Governments—have recognised that there can be wider representation on the court, including wider social representation. However, when I asked Ministers whether, if they were rejecting the notion of a court with a wider representation of the economy and the community, they were going to remove trade union representation, there was a deafening silence, and that is why I am putting the question again today. Those who accept the principle that there should be trade union representation—and there should—ought to widen that principle, and that is what I am asking for now.
We tabled the new clause carefully in order not to suggest that the court should be federal or too detailed, with someone representing this and someone else representing that, but simply to suggest that a balance was needed. As anyone who has sat on the board of a company will know, the first thing that one must do when creating a board is ensure that there is some representation of different skills and different interests, so that the board’s members can act as a collective. My point is that the court, and to some extent, I think, the new policy committees of the Bank of England, do not act as collectives. They are in danger of adopting silo thinking, and, ultimately—because of the power that we have given to the Bank of England—they are also in danger of beginning to act with the kind of hubris that central banks begin to wield when they are given too much power. They begin to think that they know everything when they do not. We need democratic accountability in the Bank of England, and we need it not in the sense in which the Bank understands it, but in the sense in which the nation, and the nations of the UK, understand it. That is why I will press the new clause to a vote later on.
We have made some progress with the Bill. I fear that that progress has consisted mostly of discovering more about what we need to do to improve the regulatory structures of the economy, but at least more is out in the open, and the debate is more open. Where do we go next? Where we go next is towards more accountability. The Bill makes a down payment on that accountability, but it does not finally deliver it. That is where we go next.
Obviously, in the new landscape of the City, the head of the Financial Conduct Authority holds an extremely important post, and the question of who fills that post is therefore vital. I am extremely pleased about the change that was agreed this afternoon and announced by the Minister at the Dispatch Box. It opens up the process, it gives the Treasury Committee a proper role, and it will, we hope, reinforce the independence of the person concerned.
Another person with considerable independence is, of course, the Comptroller and Auditor General. I am pleased, too, that we have moved away from the idea that the court should decide which part of the Bank’s homework the Comptroller and Auditor General should be allowed to mark. There is clearly a parallel with the CAG’s role in respect of the BBC. On Second Reading, we asked Treasury Ministers to publish the memorandum of understanding. They have now published it, and it is an extremely useful document, which sets out, in advance, an agreed framework for the CAG’s remit. That will prevent ad hockery, and will also prevent both the reality and the possible perception of political interference, or inappropriate avoidance of scrutiny of certain areas of the Bank’s work.
New clause 13, which stands in my name, would make the Bank of England subject to the Freedom of Information Act 2000. It seems to me that, as the Bank is a public authority which is fulfilling public policy purposes, the case for covering it does not really need to be made; it is the case against its being covered that needs to be made. The Minister made some important points about why she was not minded to accept the new clause, and I want to respond to what she said. She singled out three areas in particular: monetary policy, financial operations, and private banking.
I am not entirely sure of all the details of the 2000 Act, but we all know that local authorities are FOI-able. Equally, we all know that when we submit freedom of information requests to local authorities, we are not able to see the personal reports on individual members of staff in those authorities. The Act does not give access to that kind of personal information, and I should have thought that the same approach would exempt the private banking work of the Bank of England.
As for monetary policy and financial operations, I do not believe that my new clause would run into those parts of the Bank’s work, because they would still be protected by section 29(1) of the Act. That section states:
“Information is exempt information if its disclosure under this Act would, or would be likely to, prejudice…the economic interests of the United Kingdom or any part of the United Kingdom, or…the financial interests of any administration in the United Kingdom, as defined”,
blah blah blah. I should have thought that as long as we were not amending section 29, we would be able to protect the areas about which the Minister was particularly concerned.
I was alerted to this matter by a letter from the Governor, which the Minister herself waved at us in the Chamber last June, about the sale of shares in the Royal Bank of Scotland. I am sure that the Minister remembers the occasion well. In his letter, the Governor said that
“it is in the public interest for the government to begin now to return RBS to private ownership”.
Writing that letter was not part of the Governor’s role on monetary policy, financial policy or prudential policy; it was an intervention in Government policy at the Chancellor’s request on the issue of a share sale.
When the Governor appeared before the Treasury Committee, I asked him whether he would share the analysis that underlay the letter that he had written. He refused point blank to do so. I am not going to read out the full exchange that I had with the Governor on that occasion, because I went into the matter in detail on Second Reading and it has now been placed on the record twice. However, I really feel that in refusing to provide that underlying analysis, the Governor is evading public scrutiny of what is a perfectly proper matter for the public to understand.
The Governor also said in his letter that
“a phased return of RBS to private ownership would promote financial stability, a more competitive banking sector, and the interests of the wider economy.”
In fact, none of that is true. It will not promote a more competitive banking sector. We are hoping that the Comptroller and Auditor General will, in his separate audit of the RBS share sale, secure that analysis. However, there should be a more straightforward way of dealing with this. The share sale is a particular issue and the Comptroller and Auditor General always looks into share sales, so we might get at the truth on this one occasion, but I am sure that there will be other similar loopholes.
The topicality of seeing this analysis was further underlined last week by the interview in the Financial Times given by Sir Nicholas Macpherson on the occasion of his retirement from the Treasury, in which he described the sale of more RBS shares as “tricky”. He went on to say that there was a judgment to be made over whether to sell further shares below the 2008 purchase price. These are not straightforward matters; they do not fall within the normal remit of the Bank of England and they are of public policy significance. They are but one example of why it is appropriate for the Bank of England to be subject to the Freedom of Information Act.
I rise to speak to new clauses 5 to 8 in this group, which are in my name. Madam Deputy Speaker, you will be glad to hear that I will be as brief as possible, because I am desperate to get to the third grouping so that we can have a vote on those amendments.
My new clauses aim to achieve two things: first, to secure justice for my country in the formulation of monetary policy; secondly, to help monetary policy formulation better to reflect the fiscal reality of the evolving UK. They are probing amendments, and I wish to draw the Government’s attention to them again as these are important points that the Government should go away and look at before possibly coming back with their own proposals, given the relatively light legislative programme before the House these days. I was glad to hear that Labour was holding a review into these issues, and I look forward to reading its findings, although it would have been handy if the review had been prepared in advance. We could then have discussed those issues in this debate on the legislation.
The first of my new clauses proposes a change to the name of the central bank. We in Plaid Cymru believe that the Bank of England’s name should be changed. It is the UK’s central bank, and it is time that was reflected to a greater degree, not only in its name but in its structures and practices. It is an undoubtedly contentious issue for me as a proud Welshman that the central bank that decides monetary policy in Wales is named after another country. The Bank of England was created in 1694, before the present British state was constructed. Wales was annexed in 1536, Scotland in 1707 and Ireland in 1801. The central bank was therefore created to serve a political entity that consisted only of Wales and England. I suppose the fact that Wales was omitted from its title reflects the inferior status that my country enjoyed in 1694.
“England is an island and we should be proud”.
I was going to say “If only”, but I thought I might get into trouble. That dubious geographical knowledge reflects an error continually suffered by the other nations of the UK at the hands of those who use “England” to mean a larger entity. It is an injustice that persists in cricket, Wales being denied a national team in its own right. Similarly, the other nations of the UK are denied recognition when it comes to the central bank. If the British state is a partnership of equals, all its institutions must reflect that reality, including perhaps the most important institution underpinning its financial system: the central bank.
My suggestion is that our central bank be called the “Sterling Central Bank”. This would reflect the fiscal and political reality we live in, and it would show that those in this place genuinely believe in the respect agenda and a partnership of equals. I notice that George Kerevan has tabled a similar amendment to the same effect, and I will of course vote in favour of it, if he is minded to press it to a Division.
New clause 6, in my name, seeks to ensure representation of the four nations of the United Kingdom on the Monetary Policy Committee. Measures relating to major fiscal levers flow from the Treasury in London to the devolved countries—measures relating to corporation tax being devolved in its entirety to Northern Ireland, to full income tax devolution to Scotland, and to partial income tax devolution to Wales. Even though I believe that we should have a symmetric devolution of powers, the trajectory is clear none the less.
Fiscal responsibility, when combined with a genuine no-detriment fiscal framework, increases the political accountability of the devolved Governments to their respective electorates and, critically, incentivises those Governments to boost economic performance in order to invest in public services. The co-ordination of monetary and fiscal policy is vital in any economic policy. Obviously the central bank is independent, but there is undoubtedly co-ordination with the Treasury, as would be expected. Similar protocols and links need to be developed with the Welsh, Scottish and Northern Irish Exchequers. The national Parliaments should nominate a member to serve on the MPC to ensure that those involved in interest rate setting have an understanding of economic conditions and events in Wales, Scotland and Northern Ireland.
Is the hon. Gentleman aware that in the United States, the central bank is called the Federal Reserve for the very simple reason that it is appointed federally, and the interest rate setting committee is a federal committee? The principle is therefore well established in other jurisdictions.
I fully agree with my hon. Friend on that point. I also agree with the points he made earlier about the north-south divide and the impact that monetary policy has had on that reality. It is no surprise that the UK is the most grotesquely unequal state in the EU in terms of geographical wealth, and one of the main reasons for that is that for far too long monetary policy has been determined in the interests of a very small part of it—namely, the square mile just down the Thames.
All current MPC members are either Bank staff or in one of the four positions nominated by the Treasury. Fittingly, there are four countries in the UK, which makes the MPC ripe for modification to ensure that all nations are represented when it comes to the highly important task of deciding interest rates. I am also interested in the emerging debate on changing the MPC’s remit with regard to setting interest rates. New clause 7 seeks to expand the mandated objectives of the MPC to include maximum employment. It is already specifically charged with keeping to an inflation target of 2%. Other central banks, such as the US Federal Reserve, to which reference was made in my exchange with the hon. Member for East Lothian, have a dual mandate that goes beyond inflation. In 1977, the US Congress amended the Federal Reserve Act 1913 and mandated the Federal Reserve to target long-term moderate interest rates and, critically, maximum employment. I heard with interest the Minister’s point that the Bank does consider the Government’s employment target, but there is a difference between that and a mandate for maximum or full employment.
New clause 8 seeks to improve the Bank’s accountability to Wales and the other devolved Governments. The British state is changing rapidly as powers and responsibility flow from Westminster to the devolved Administrations, although the pace is perhaps not as quick as those like me would want. We are not privy to the meetings between Treasury Ministers and the Governor and his senior team, but we can safely assume that they are frequent. On top of that, the Governor and his team meet the Treasury Committee at least five times a year. As I mentioned a moment ago, fiscal powers already exist in the devolved nations, with more planned, so I hope that the Bank and the Treasury agree that it is in their interests to strengthen relations with the devolved Governments and Parliaments. I am not aware of any formal structures for meetings between the Governor and Ministers of the devolved Governments, or for scrutiny of the Bank by the devolved Parliaments. In the interest of mutual respect, those structures need to be formalised.
Does my hon. Friend share my sense of regret and bewilderment that the Government can so casually dismiss the proposal to amend the long name of the Bank of England? Does he agree that it is disingenuous of the Conservative Government to talk about a respect agenda that embraces the contributions of all the United Kingdom’s nations when they refuse to recognise those contributions at the first opportunity, and state that only England should be in the name of this most significant institution?
I agree entirely with my hon. Friend. Indeed, it is particularly apposite that he makes that point now, because as my hon. Friend George Kerevan pointed out, the Bank of England is a very different kind of bank from a few short years ago. It has a much more political role than it did, and it makes decisions that have a wider impact than before. Its name surely now needs to reflect the impact of its decision making.
The second reason why my hon. Friend Tommy Sheppard is entirely correct is because of the changed political climate in the UK. Jonathan Edwards made similar points about the need to recognise the role of Wales. This is important. It is not a flimsy point; it is fundamental for people who want to see an important central institution that has proper regard for all the nations that it seeks to serve. A short while ago, I was looking at a list of the court of directors of the Bank of England. Looking at the representation provided by its 11 members, one would be inclined to rename it “the Bank of the City of London”, because there is little proper representation for the UK’s nations and regions.
I enjoyed the analogy the hon. Member for Carmarthen East and Dinefwr made with cricket. It is not a subject in which I can claim particular expertise. [Interruption.] Or interest? No, I have some interest in it. The hon. Gentleman pointed out that there is the England and Wales Cricket Board. One Mike Denness, born not far from where I was born in Scotland, was the captain of the English cricket team some years ago; again, I am showing my vintage.
We must have proper regard to all the nations represented in the United Kingdom. I was stung by the Minister’s comment that the Bank of England represents the whole of the United Kingdom, the implication being that it had always done so, but I do not think that is at all true, in terms of its policy making. The hon. Member for Bishop Auckland (Helen Goodman) and my hon. Friend the Member for East Lothian made the telling point that the Bank has had undue regard for one part of the UK. Many commentators would say that the interest rate setting policy of the Bank of England pre-2008 paid undue regard to the City of London and surrounding areas, and too little regard to the north of England, the Scottish economy, the Northern Ireland economy and the like.
That leads me nicely on to new clause 2 and why there should be representation for the nations and regions that make up the UK on the Bank of England’s court of directors. A short time ago, I had a quick look on the internet to see who these esteemed figures are, and unless I am proven to be incorrect—or the internet is incorrect—one is also a non-executive director of the Financial Conduct Authority. Such interlocking directorships do not serve economic policy and the financial sector well. Do we have such a tiny pool of appointable people that bodies with such an important relationship to one another have to be represented by the same directors? That is not a sign of strength in our appointing arrangements, but a position of extreme weakness.
Why are these things important? My hon. Friend the Member for East Lothian mentioned a word that has cropped up many times in Committee discussions: he talked about the importance of avoiding group-think. Many studies show it to have been part and parcel of the flawed decision making that contributed to the crash in 2008. If we want to avoid group-think, we need people who are willing to think differently and to ask the critical questions, and we need a chairman willing to seek out those with alternative views. I do not see that happening today.
Some years ago, I was sitting within the confines of a company that was considering a large proposal. A paper was presented, and the chairman quickly went around all the directors asking for their thoughts. Every single person around the table immediately said, “I think this is a really great paper and we should go with its suggestion.” The chairman, being extraordinarily wise, said, “I am extremely uncomfortable that we have an immediate consensus, so I am going to postpone this discussion until our next meeting. I want you to go away and generate some alternative, critical views.” That is the wise course of action; it is about not being sucked into group-think. For all those reasons, new clause 2 deserves the support of all those who do not want to replicate the mistakes of the past.
Like many others in the Chamber and, as is clear, in the Treasury Committee, I welcome the progress made on the Bill but have serious concerns about it and, in particular, its role in the systematic gradual compromising of the independence of the two key regulators, the FCA and the Prudential Regulation Authority. Further to the Minister’s announcements in her opening remarks, which were touched on by many in this House, including my hon. Friend George Kerevan, I welcome the Government’s determination that more oversight is needed on the appointment of the chief executive of the FCA by the Chancellor. However, I have concerns about the new procedures, as announced. Until this legislation is in place, this is very much open for debate and I sincerely hope we will debate it thoroughly, in the way described by my hon. Friend Roger Mullin.
Another consideration is this: if the Treasury Committee recommends the appointment to be put forward as a motion to the House, the Government could simply whip votes to approve the Chancellor’s appointment. Select Committees provide substantially more apolitical deliberation of key specialised issues. For that reason, a direct Treasury Committee veto of the appointment needs to be considered.
Issues around Treasury Committee approval are even more pertinent given the controversy surrounding the appointment of the newest chief executive of the Financial Conduct Authority, Andrew Bailey, which was touched on by Mr Tyrie. Before his appointment, Mr Bailey was the deputy governor of the Prudential Regulation Authority. Mr Bailey’s move between the two regulators, at the recommendation of the Chancellor, raises questions over whether a revolving door policy may exist. As many in this Chamber learnt in the wake of the 2007-08 financial crisis, separation of Church and state is of paramount importance when it comes to regulation of the banks. I fear that the current Conservative Government are ignoring that critical point.
One may wonder about the motivation of the appointment of Mr Bailey as chief executive of the FCA, given that his predecessor, Martin Wheatley, was allegedly forced out of the job by the Chancellor for reportedly being perceived as too tough on financial institutions. A lighter-touch approach to regulation could mean that selling Government shares in Lloyds Banking Group and Royal Bank of Scotland would be, shall we suggest, less troublesome for the Chancellor, particularly given the recent capping on losses from the mis-selling of the pay protection scandal.
As I have previously said in this Chamber, the Chancellor stated in the 2016 Budget that he expects the Government to be able to sell their share in RBS for £25 billion, despite the fact that the bank arranged £9.3 billion in high-yield energy loans between 2011 and 2014 alone and the fact that its share price currently stands at roughly half of what was paid for it by the taxpayer in 2008. Clearly, the Chancellor faces serious challenges.
Two clauses in the Bill as outlined are particularly detrimental to the maintenance of the independence of regulators from Government influence, which is well covered by Members in this House. In part 2, clause 18 states that the Treasury is required to make recommendations for the FCA regarding economic policy as it pertains to the advancement of the objectives of the regulator at least once per year. Similarly, in part 1, clause 13 states that the Treasury can at any time—although it is required to do so at least once per year—make recommendations to the Prudential Regulation Committee regarding economic policy as it pertains to the objective of the PRA, which is the maintenance of stability within the financial sector.
Although those recommendations made by the Treasury to the regulators are not binding, it is clear that they increase the level of political involvement in the function of the regulators, which at their inception were intended to be independent of political influence. Given recent speculation that the FCA bowed to political pressure when it abandoned a probe into banking culture in the UK at the end of 2015, these two clauses, and the greater political influence on the independent regulators they entail, are concerning to say the least. In particular, the requirement in clause 13 that the Treasury make recommendations at least once a year to the PRC creates a greater onus of responsibility on the Treasury to remain aware of systemic risks in the financial system. I fear that, given the track record of this Government, they may well be asleep at the wheel when it comes to management of systemic risk.
As I have mentioned previously in this Chamber, during the debate on the 2016 Budget, this UK Government have thus far failed to address a source of substantial systemic risk inherent in the financial system and the wider economy—that of leveraged lending to the oil and gas sector by British banks and US banks active in the UK market, and the slice and dice repackaging of these loans into derivative products, such as collateralised loan obligations, which are then sold to investors.
Numerous publications have warned that, with the stagnating price of oil at the moment, that structure poses serious risk, with the Financial Times reporting in December 2014 that
“there is a stark parallel with the US property market collapse that heralded the start of the 2008 global financial crisis and upended banks along the way.”
There are already signs that the first dominoes may be falling, as default rates on these high-yield loans are rising at a startling rate. Wells Fargo announced just this month that 57% of the loans in its energy portfolio were categorised as at risk of default. As Wells’ energy exposure stands at $42 billion, $24 billion, based on that figure, is at risk of default. UBS analysts have since put a sell notice on Wells’ stock.
Notably, it is reported by Lynn Adler at Reuters that in the United States the Federal Reserve has stepped up its review into lending which could lead to systemic risk, due to concerns about leveraged lending in the oil and gas sector. The systemic risk involved in such lending has been ignored by the Conservative Government here, however.
Political influence on the regulators was a key factor, as mentioned by my hon. Friend the Member for Kirkcaldy and Cowdenbeath earlier, in the failure of the regime to protect the financial sector and the wider economy from the systemic risk that led to the 2007-08 financial crisis. The Government have already demonstrated that they are unable even to acknowledge systemic risks that are apparent to so many in the industry today.
In a final point on the composition of the court of directors of the Bank of England, if the Government truly believe in one nation Conservatism, new clause 2, as tabled by my hon. Friend the Member for East Lothian, should be incorporated into the Bill. Finally, the Bill, as outlined, has serious potential to weaken the UK regulatory regime and compromise the independence of the regulators, bringing us back to a system wherein banks are seen as too big to fail—otherwise known as business as usual.
In responding to the debate, I will perhaps leave aside the comments of Philip Boswell, as I do not recall him participating in the debates on Second Reading, in Committee or earlier today, and his speech did not reflect the full view of other parties in this House that the Bill is a very good Bill, in the words of the Chair of the Treasury Committee.
I want to respond to some of the points raised in the debate and, in particular, to put on record how pleased I am that everyone welcomes Government new clause 12, which is supplemented by the text of the letter from the Chancellor to the Chair of the Treasury Committee that was sent earlier today and that I read out in my opening remarks. This has been an important opportunity to put on record how our amendment recognises the important scrutiny role of the Treasury Committee.
I would also put on record the important role of this House in scrutinising the Executive. This is another opportunity for us to emphasise the importance—the necessity, even—of preserving the independence of the FCA chief executive’s operational role, apart from Government. Our amendment reaffirms that commitment to continued independence of the FCA. It is vital consumers and firms know that regulatory decisions are being taken in an objective and impartial way. The FCA is an operationally independent regulator and must carry out its functions in line with the framework of objectives and duties established in statute and the independence of that chief executive is protected by statute, with clear provisions requiring the terms of appointment to be such that the appointee is not subject to direction by the Treasury or any other person.
Throughout their appointment, the FCA chief executive is scrutinised on an ongoing basis to ensure their continued independence. It was notable that in the course of the debate nobody could point out anything as regards the allegations made in the press about operational interference. I look forward to seeing the Treasury Committee’s report, because I know that it has carried out a thorough investigation into the matter.
Our new clause ensures that the Treasury Committee will always have time to scrutinise an appointee before they get their feet under the desk. I have also put it on the record that the legislation is very clear that once they are appointed the Government absolutely cannot dismiss an FCA CEO except in the limited circumstances set out in statute. I will not read out paragraph 4 of schedule 1ZA to the Financial Services and Markets Act 2000 again, but I referred to it in my opening remarks and reiterate that it applies not only to the CEO but to the chair and the external members.
We heard from my right hon. Friend Mr Tyrie about his reaction and his decision to withdraw his new clause 1. He asked whether he could expect legislation in the next Session outlining the five-year term. As he knows, he has our commitment to find an early opportunity to put that into legislation. He is aware of the strictures that exist in relation to writing round and getting Cabinet agreement, but he has that commitment now from the Dispatch Box. He asked whether the legislation is permanent—a good question. It is possible that legislation becomes permanent, but it is also possible for a future Government, a future House of Commons and a future Treasury Committee to change legislation.
I am grateful to the Minister for what she says. The clarification that I seek relates not to legislation, which stands or falls like any legislation, but to the arrangement. Is it intended that the arrangement between the Treasury Committee and the Chancellor, put in place in the exchange of letters today, will be permanent?
The Chancellor has many powers, but not necessarily the power to ensure permanence, which is a very long time. I can assure my right hon. Friend that it is the Chancellor’s intention that that remain the case for the length of time that he is able to exert power and influence over the matter. I hope that answers the question in the spirit in which it is asked.
Richard Burgon asked me to confirm that the NAO can look at the Bank’s success in meeting its objectives, but not necessarily at the desirability of those objectives. I have already said that that is exactly what the Bill achieves. The arrangements set out in the Bill have been agreed by both the Comptroller and Auditor General and the Governor, and the terms of reference have been made available to the House. The CAG is content that the scope of his powers is appropriate and the Bank is content that they do not go too far.
The hon. Gentleman asked whether the Bank should have practitioner representation. The Prudential Regulation Authority has a practitioner panel, which ensures that the interests of those who must put the PRA’s rules into practice are communicated to the PRA. That panel includes representatives of banks, insurers, building societies and credit unions, among whom the hon. Gentleman’s new favourite publication, City A.M., is widely read. Consumers also have an input through the FCA consumer panel, which has a statutory right to make representations to the PRA.
Speaking to her amendment, Helen Goodman asked about the Bank of England and the extent to which it is subject to the Freedom of Information Act 2000. It is thanks to this Bill that the Bank is subject to the FOI Act. There are three specific limited exclusions from the Act as it applies to the Bank and, as I explained earlier, those are entirely sensible. The Bank of England is not alone in having particular elements of its work carved out from the Act. Other organisations to which specific exclusions apply include the Verderers of the New Forest, S4C in Wales, the Competition Commission and the BBC.
On the hon. Lady’s question about the Governor’s analysis supporting selling RBS shares at prices substantially above the price at which the shares are trading today, the Governor has explained that his analysis is based on commercially confidential information obtained as part of the PRA’s supervisory responsibilities. In the Freedom of Information Act there is, rightly, a standard exemption for commercial interests.
George Kerevan said that there was a lot to be commended in the Bill. He asked about the range of expertise and perspectives on the court. He raised an interesting philosophical question, which is that in the past the court has been a much larger organisation, with 19 members—unwieldy, in the Treasury Committee’s view—but that it should represent the views of the entire UK. All members of the court should consider the whole UK, rather than acting as a representative of a particular part. He seems to have forgotten our exchange in Committee, when we talked about the trade union representation of the court and I assured him that we have said nothing during the passage of the Bill that would change the post-war reality.
Each of the committees of the Bank of England will have a strong external representation, and no external member will be able to serve on more than one of the policy committees at the same time. That answers some of the questions raised by Roger Mullin about group-think. By legislating for clear decision-making procedures for each of the committees and providing that the statutory duties and responsibilities granted to them can be exercised in no other way, we empower the varied perspectives of the external members on each. All that adds up to a set of protections for external input and oversight that mitigate the risk of just one view emerging from the court or any of the Bank’s committees.
In answer to Jonathan Edwards, if he wants to get in touch himself—I hope that he will take the opportunity to do so—the Bank’s regional representatives in Wales are Agent Steve Hicks and Deputy Agent Ian Derrick.
The Minister will have heard today the heartfelt concerns of representatives from Wales, Scotland and Northern Ireland about the accountability of the central bank to the devolved Parliaments and Governments. Will she at least commit to a Treasury report on that, or will she request the Bank of England to produce a report on how it aims to improve its financial accountability and its relationship with the devolved Parliaments and Governments?
I think that there are a range of different ways in which that can happen, particularly now that the Treasury Committee in this House has a member from Scotland, and of course we all welcome the fact that the very coins in our pockets are minted in the great country of Wales.
The hon. Member for Carmarthen East and Dinefwr identified the Federal Reserve as an example of a central bank that adopts a dual mandate. US policy makers have judged that that is right for them. We believe that the primacy of price stability is important for anchoring inflation expectations, and we are joined in that belief by other central banks, including those in Canada and New Zealand and the European Central Bank.
I am pleased to have had this opportunity to respond to a range of issues raised in this part of the debate. I commend the Government’s new clause to the House and hope that it will agree to include it in the Bill.
Question put and agreed to.
New clause 12 accordingly read a Second time, and added to the Bill.