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(1) Appointment as Governor of the Bank shall be for a period of 8 years.
(1A) Appointment of the Deputy Governor of the Bank shall be for a period of 5 years..
With this it will be convenient to discuss the following amendments: No. 66, in clause 221, page 105, line 24, leave out from first of to add in line 25 and insert
that paragraph of that Schedule.
No. 67, in clause 221, page 105, line 26, leave out twice and insert once.
The amendments refer to the tenure of the Governor of the Bank of England. The clause limits how many terms the Governor can servehe can serve no more than two terms. It is the view of my party that those arrangements work against the perception of the Governor of the Bank of England as independent. The fact that the Governor has to becan bereappointed could create in the minds of observers some doubt as to whether he is independent of the Chancellor. The Governor may wish to be reappointed, and there may be a sense that he tempers his decisions so as to improve the chances of his reappointment. To be absolutely clear, I do not believe that that has occurred so far, but there is potential for that risk in the future.
As a consequence, on several occasions we have proposed that the Governor should serve a single, non-renewable term of eight years. That is in line with the term served by the governor of the European Central Bank, who serves a single eight-year term. Such a provision would enhance peoples view of the independence of the Governor. Other processes too could be used to strengthen the independence of appointments, to ensure, for example, that the process is open and transparent. There have been cases in the past where appointments to the MPC have not been made openly and transparently; we think that that should change. The Chancellor of the Exchequer has recognised that in connection with other appointments to the MPC.
We also felt that, when it comes to the reappointment of the current Governor, at the time of the current period of financial instability, there could be a concern that the Governor may have been put under pressure, because he was awaiting reappointment. It would be better to have much greater clarification about Governor status than is the case at the moment, where it is possible for the Governor to be appointed for a second term. We therefore believe that a longer single term is in the wider interests of the Bank of England and of ensuring that the Governor is seen to be independent of the Treasury.
In considering the amendments, it might help if I explain some of the context of clause 221 as it currently stands. In his letter to the Treasury Committee of 19 June 2008, the Chancellor set out his plans to strengthen the procedure for future appointments to key roles in the Bank and the Monetary Policy Committee. These measures include limiting external appointments made by the Government to the Monetary Policy Committee to a maximum of two terms, and limiting the Governor and deputy governors to serving a maximum of two five-year terms in a particular post.
While not captured in the legislation before us, the Chancellor also announced that in future, vacancies for Governor and deputy governor and external Monetary Policy Committee appointments would be openly advertised and be conducted in a way consistent with the principles of open competition. With respect to the tenure of the Governor, which these amendments seek to change, the current five-year term for the Governor and deputy governor was set at the time of nationalisation in 1946 and has proved itself perfectly effective ever since.
Turning to the specific amendments, we believe that having a maximum of two five-year terms in office offers a strong balance between certainty and continuity on the one hand, and flexibility on the other. A five-year term for the Governor, with the possibility of a second term, gives that individual a natural break point at which they can consider whether they wish to continue in the role. It also gives them something to work towards and provides an opportunity to consider their performance. In contrast, a single eight-year term might actually discourage some strong candidates from applying, as they do not feel that they can make such a long commitment. It might also increase the likelihood that a Governor would step down mid-term, potentially creating uncertainty and speculation in the financial markets. It is for those reasons that the Government oppose amendments Nos. 65 to 67. I hope that the hon. Gentleman will recognise that there are arguments on this side, as well as his own advocacy for a longer term, and he should take them seriously when considering whether he wishes to press the amendment to a vote.