We need your support to keep TheyWorkForYou running and make sure people across the UK can continue to hold their elected representatives to account.

Donate to our crowdfunder

Report

Part of Bank of England and Financial Services Bill [HL] – in the House of Lords at 4:12 pm on 15th December 2015.

Alert me about debates like this

Photo of Lord Bridges of Headley Lord Bridges of Headley The Parliamentary Secretary, Cabinet Office, The Parliamentary Secretary, Cabinet Office 4:12 pm, 15th December 2015

My Lords, I am grateful for the discussions we have had on Bank governance to date. In this group, I would like to bring forward three amendments that respond to these debates: first, to ensure that the non-executives on the court can always initiate performance reviews; secondly, to prevent the court from delegating oversight functions to a sub-set of its members; and, thirdly, to provide clarity on responsibility for the financial stability strategy.

The noble Baroness, Lady Kramer, and the noble Lords, Lord Sharkey, Lord Tunnicliffe, and Lord Eatwell, have raised concerns that the transfer of the oversight functions to the court could unintentionally weaken the non-executive majority. Noble Lords have argued that a majority of non-executives might be blocked from initiating a review if the executive was united in opposition and enlisted one or two non-executives to their cause. The first amendment laid by the Government addresses these concerns. The government amendment to Clause 3 ensures that a majority of non-execs can always initiate performance reviews without needing to secure the agreement of a majority of the whole court. If just four non-executive directors want a review, they will be able to initiate it. This will reinforce oversight of the Bank’s activities and provide additional protection against groupthink. The initiators of a review would determine who should carry it out. This could be someone external, or internal, including the Bank’s new Independent Evaluation Office.

At this point, it is worth pointing out a related change that the Bill makes. The 2012 Act required that:

“If the person to be appointed to conduct a performance review is an officer or employee of the Bank, the appointment requires the consent of the Governor of the Bank”.

The Bill removes that condition, so that a majority of the court or a majority of non-executives will be able to appoint an officer or employee of the Bank without needing to secure the Governor’s consent.

The noble Lord, Lord Eatwell, has suggested an addition to my amendment. Although I do not feel his text is necessary, I am grateful to him for proposing it today because it reminds us of a very important aspect of the Bank’s accountability, a point I will come back to in a moment. We have provided only one condition that must be met if the non-executives wish to initiate a review, which is that they should,

“consider that to do so would contribute to the discharge by the court of directors of any of its oversight functions”.

This is rightly a low bar since the purpose of our amendment is to ensure that the non-executives have unfettered power to launch reviews into the Bank.

The noble Lord, Lord Eatwell, has suggested that we widen the reasons the non-executives might choose to initiate a review to include a request from the Treasury Select Committee in the other place. For the avoidance of doubt, this amendment would not mean that the TSC may initiate reviews; it only makes a request by the TSC a reason the non-executives might choose to start a review. However, the TSC is already fully able, and will remain fully able, to ask the non-executives to commission a review of interest. It will be up to the non-executives to decide whether they want to follow through on that request.

Although I hope that the noble Lord, Lord Eatwell, will not press his amendment, it is an important addition to this debate because it reminds us of an important element of the Bank’s accountability to Parliament and specifically to the Treasury Select Committee. As noble Lords will know, the Treasury Select Committee is a fierce scrutiniser of the Bank’s work. Since this Bill was introduced, that committee has questioned Governor Carney twice, PRA CEO Andrew Bailey twice, Chief Economist Andy Haldane, MPC members Kristin Forbes and Jan Vlieghe and PRA members David Belsham and Mark Yallop. It has also published appointment reports for Jan Vlieghe and Ian McCafferty and questioned the Chancellor on the changes to the Bank of England we are making through this Bill. The Treasury Select Committee will continue to hold the Bank to account after this Bill is passed, just as it has before, calling both executive and non-executive members before its scrutiny.

I turn now to Clause 4. In Committee, the noble Baroness, Lady Kramer, was concerned that Clause 4 enables the court to delegate the oversight functions to,

“2 or more non-executives of the Bank”.

The existing arrangements provide flexibility for the oversight committee by allowing it to,

“delegate any of its functions to two or more of its members”.

We drafted Clause 4 simply to maintain this provision, but limited it to the non-executive members of the court to prevent any of the oversight functions being delegated purely to the executive. The amendment to Clause 4 would remove this provision. The court would no longer be able to delegate oversight functions. I hope that this addresses the noble Baroness’s concerns and reinforces that the oversight functions are the responsibility of every single member of the court.

Clause 4 also requires the court to establish a sub-committee of at least two non-executives to determine executive remuneration. Clearly, we would not want the executive setting its own pay. This replicates a power currently used to form a remuneration committee. Through this amendment, we propose to increase the minimum size of the remuneration committee from two to three. This ensures that a larger number of non-executives are responsible for setting executive pay and also brings the legislative basis of the Bank’s remuneration committee in line with The UK Corporate Governance Code.

The aims of Clause 5 were quite modest. Moving responsibility for the financial stability strategy from the court to the Bank would have maintained the court’s ultimate responsibility but would have enabled it to delegate the strategy’s production within the Bank. The policy intention was that expertise from across the broad range of policy areas covered by the financial stability strategy could feed into the final document. Today’s amendment maintains the original policy intent but responds to the demand for clarity voiced in our debates.

The amendment restores responsibility for the financial stability strategy under the legislation to the court. To provide the flexibility needed to delegate elements of its production within the Bank, the amendment provides for an express power of delegation. The amendment also clarifies that the court remains responsible for any duty or power it delegates, addressing concerns raised during our debates and providing clarity on the scope of the court’s responsibilities. Under either our initial proposal or this amendment, the court is responsible for the production of the strategy and able to delegate work within the organisation. However, I hope noble Lords will agree that this amendment has the significant advantage of clarity, and I thank the noble Lords and the noble Baroness, Lady Kramer, for bringing this to our attention.

Through our amendments today, we are ensuring that the non-executives on the board can always initiate performance reviews, preventing the court from delegating oversight functions to a subset of its members and providing clarity on responsibility for the financial stability strategy. I thank those who spoke with me, wrote to me and met me to make the case for these improvements. I hope that noble Lords will agree to our amendments. I beg to move.

Amendment 2 (to Amendment 1)

Moved by Lord Eatwell

2: Clause 3, line 3, at beginning insert “At the request of the Treasury Select Committee of the House of Commons, or”