Clause 2

Financial Services Bill – in a Public Bill Committee at 5:30 pm on 5 January 2010.

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Proceedings of the Council

Photo of Colin Breed Colin Breed Shadow Treasury Minister

I beg to move amendment 24, in clause 2, page 2, line 22, leave out ‘quarterly’.

Photo of Joe Benton Joe Benton Labour, Bootle

With this it will be convenient to discuss the following: amendment 25, in clause 2, page 2, line 24, leave out ‘quarterly’.

Amendment 26, in clause 2, page 2, line 25, leave out ‘quarterly’.

Photo of Colin Breed Colin Breed Shadow Treasury Minister

These are modest amendments, deleting the word “quarterly” so that the council must in normal circumstances look at its meetings sequentially. It seems clear that there will be monthly meetings, and there might be intermediate meetings between quarterly meetings. That was alluded to in the debate on whether clause 1 should stand part of the Bill, when it was suggested that the quarterly meeting will be nothing more than a rubber-stamping exercise with very little in it of any material benefit to anyone. The minutes of those meetings will be published, whereas the minutes of the meetings held in the interim, which might contain more helpful information, will not be published. It would be more appropriate for minutes to be taken, so that we have a proper formality in all meetings, and for minutes of those meetings to be published and considered every time.

Limiting everything to the report of the council’s quarterly meetings, and publishing the minutes of each of those quarterly meetings, seems insufficient if we are to have an understanding of what the council is doing, what it is considering and discussing and what issues it has on its agenda. This small amendment would take out the word “quarterly”, so that we had details of all council meetings, rather than only the quarterly ones.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

As I have indicated, under the Government’s proposals, the council will be statutorily required to meet every quarter, although we anticipate that it will meet more often than that in the current circumstances. The importance of quarterly meetings is that they are scheduled in advance with agreed agendas, and they will assess the analysis made by the Bank and the FSA regarding risks to financial stability. Quarterly strategic discussions, including those on the Bank’s financial stability report, the FSA’s financial risk outlook and the annual report on the council, will be publically minuted. As set out in the terms of reference, those minutes will be released within one month of the meeting. It is important that that structure and transparency is provided for under the proposals.

The Government do not believe that the hon. Gentleman’s amendments would be helpful, because we do not think that it would necessarily be right to minute publicly all meetings. In future, when the council is required to meet more regularly than every quarter, it is probable that discussions will be dominated by operational matters that are likely to need to remain confidential. We can all envisage circumstances where matters may need to be confidential, and minuting meetings that are dominated by confidential discussion would not be helpful. For example, publishing minutes that reveal nothing of substance could lead to damaging speculation about the stability of specific firms or markets. Such speculation might naturally be centred on firms or markets that are not in fact the subject of specific concerns of the members of the council.

The Government believe that transparency about the quarterly strategic discussions is more beneficial, hence the distinction between quarterly meetings and, when necessary, other meetings. I stress that what we are proposing is a significant stride forward in transparency when compared with previous arrangements. I hope that the reasons I have outlined will lead the hon. Member for South-East Cornwall to withdraw his amendment.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I am slightly surprised by the Minister’s answer. I intended to raise the point about confidentiality during the clause stand part debate, as it applies to both clause 2 and clause 3 in a broader context. Late last year, loans were made to HBOS and the Royal Bank of Scotland to provide them with adequate liquidity and ensure that they were solvent. It took some time—even longer than anticipated—for details of those loans to become public. I am slightly concerned that the lack of transparency to which the Minister refers in the context of the intermittent meetings of the council might create an atmosphere of secrecy that people feel uncomfortable with. We touched on that matter in the Banking Act 2009. A balance must be struck between transparency, commercial confidentiality and unsettling the markets. If minutes are not published, I am not clear how we will know—or if we will know—whether meetings take place outside the normal quarterly cycle.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

There is indeed a balance to be struck between transparency and confidentiality. With quarterly meetings, we are proposing a significant improvement in transparency, compared with current arrangements. However, when striking that balance, it is important to recognise that there will or may be occasions in the  future when confidential discussions need to take place about a particular institution or market, or about another range of circumstances that it is in everyone’s interests should remain confidential.

My basic point is about something that is pretty much the sole item of discussion on an agenda. If a minute must be published saying that something was discussed but it was completely confidential and we cannot say anything about it, is publication really in anyone’s interests? I do not think so, which is why, when we thought carefully about the judgment to be made, we decided on quarterly strategic discussions—looking at financial stability as a whole, and at reports from the Bank and the FSA. If there are meetings in between such periods, particularly if they concern confidential items, they should not be completely minuted. If the Committee thinks about it, that is the right balance.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury) 5:45, 5 January 2010

May I make a suggestion to the Minister? At one of those interim meetings, a discussion takes place between the tripartite authorities and the outcome is an action that the FSA will take to increase the capital requirements of all banks in order to restrict in effect the level of lending. That is clearly commercially confidential, but also a response to a risk identified in the financial stability report or in the financial risk outlook. Could such action be taken at one of the interim meetings and therefore not made public?

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

I do not want to speculate and respond immediately about individual circumstances. It would depend on the circumstances of each case as to what should remain confidential and for how long. As the hon. Gentleman is aware, under the Financial Services and Markets Act 2000, the requirement is for a lot of information to be made publicly available at appropriate times. Certainly the Council for Financial Stability has the capacity to decide to minute something publicly, so it could. However, if the council decided it would best remain confidential, we ought to recognise the judgment of those who would be making that decision. What we are proposing in the system that we have before us maintains the flexibility to allow that judgment to be exercised.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I have listened to the point made by the Minister, and I have great sympathy with it, but if the action led to the expenditure of taxpayers’ money or the issue of a guarantee or indemnity by the taxpayer, would that be picked up by the reports made to Parliament as part of the Banking Act 2009? Is there a backstop that ensures that information appropriate to taxpayers is made know at the appropriate point?

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

I think that the short answer to the hon. Gentleman’s question is yes. Systems of parliamentary accountability are in place now for the expenditure of Government funds or the taking on board of contingent liabilities, as he is well aware. None of that will change. All we are saying here is that we want to see quarterly minutes and that we think that there is a reasonable case, when meetings take place between the quarterly ones and confidential items are discussed, that if the decision of the Council for Financial Stability is that they should not be minuted, that ought to be respected.

Photo of Colin Breed Colin Breed Shadow Treasury Minister

During the evidence session, the Minister must have listened to the evidence from my questions about the potential for the meetings. Given the scenario that now exists with the media and everything else, the knowledge of an unscheduled meeting of the council, perhaps over a weekend, is unlikely to persist much longer than a few hours before it appears on Mr. Robert Peston’s blog. The fact that the Government still feel that they can maintain an area of such confidentiality in today’s world is extremely naive. There are safeguards in the Bill to determine what is confidential and what can be there. I entirely agree. The fact that nothing is said may well precipitate the crisis that we are trying to avoid. The Minister may find himself—or future Ministers may find themselves—being grilled on “Newsnight”, where he may find it difficult to defend. Of course it will be published. A month or 40 days later, everything would have moved on in many respects anyway.

It is difficult to criticise something that we have not seen, and we have not seen what the quarterly minutes might produce. They might be relatively full, and might consider at least the essence of what the interim meetings have discussed. Arguments were proposed when the question of whether to publish Monetary Policy Committee minutes was being discussed. The publication of the MPC’s minutes several weeks later has been a real strength to its credibility, to people’s understanding of how it works and to the markets’ acceptance of its work. What we are discussing is equally important. It is important that we err on the side of transparency and publication, not on the side of secrecy and trying to deny material. Yes, I accept that there needs to be some confidentiality and sensitivity, but we must not have completely sterile quarterly minutes that mean nothing to anyone, and which do not in any way give an indication of the work of the Council for Financial Stability.

The council may not be talking about individual banks, but about the sorts of strategies that it jolly well should have been talking about in the years leading up to Northern Rock. Had the issue been given much wider publication and airing in the general financial fields, we might well have got the bank to pursue what it should have been doing in reforming itself somewhat more quickly than it did. There is a benefit in recognising that publication of as much as possible about its work and its thinking will add to its credibility, and provide us with a much better system of regulation.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

The hon. Gentleman is making an interesting point, but is there not a distinction between the work of the MPC and that of the council? The minutes of the MPC explain a decision, the outcome of which is in the public domain—everyone knows whether interest rates are left unchanged, increased or decreased, or whether there is more quantitative easing. The difference here is when a decision is taken by the Council for Financial Stability, the outcome may not be in the public domain. It may have decided that an institution should hold more capital or should cease to have a particular type of business, or that a group of institutions must change the way they work. Such decisions might not be in the public domain. We can argue about whether they should be, but there is a difference in the type of decisions that are being made by the two bodies. That should be reflected in how much confidentiality there is on the publication of the council’s minutes.

Photo of Colin Breed Colin Breed Shadow Treasury Minister

I broadly agree with that. I think I said earlier that it is not the council’s role is to micromanage the regulation of banks. The FSA’s role is to indicate to individual organisations whether they have sufficient capital. I think the council has a much broader remit, much of which ought to be considering the markets and the overall framework of stability. It may well have evidence, information or contributions from the FSA in respect of individual organisations. I do not think that that is an appropriate thing to put down in the minutes. That a number of institutions are finding life a bit more difficult, whatever the circumstances, is the sort of information that needs to be fed into the council’s considerations. That is not to do with the sensitivity of individual organisations and I do not think the council will get too involved in that.

As I said, perhaps the analogy of the MPC is not exact. For there to be credibility, an understanding of the council’s functions and for the wider financial community to see that the council is doing what it thinks it ought to be doing, there should be publication and transparency as far as possible, rather than just the minimum that is required.

I have said what I want to say to the Minister. I am sure he understands that we are not far removed on the page. When we see the first set of minutes, we will begin to see whether they are meaningful. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I beg to move amendment 35, in clause 2, page 2, line 22, at end insert

‘and publish its response to those risks in its minutes.’.

The clause concerns the way in which the council proceeds and the publication of minutes. As the hon. Member for South-East Cornwall said, the proof of the pudding will be in the first set of minutes that we see. We will then know how thorough are the discussions between the various principals and what contribution the committee’s deliberations will make to financial stability. We welcome the fact that it will meet at least quarterly and the Minister’s comment that it will meet at least monthly during the financial crisis. As we established, that is an improvement on the situation in the run-up to the financial crisis.

The amendment asks for more clarity on what will be published in the minutes. We know that the council will review the financial risk outlook and the financial stability review. That will be a key part of its work. The Bank and the FSA do excellent work in looking at the market, understanding what risks there are and elaborating on their impact. Those who have read the reports will be impressed by their thoroughness.

The role of analysing the macro-prudential risks is being looked at in more detail by institutions across the world and is part of the remit of the European systemic risk board, which is part of the architecture put in place as a consequence of the de Larosière review. That body will look at some of the emerging macro-prudential issues at a European level. Such work is already happening. The Bank of England has been monitoring financial stability in quarterly reports.

When he was deputy governor for financial stability, Sir John Gieve in an interview with the BBC in December 2008 said:

“We did spot some crazy borrowing going on, asset prices looking unsustainable and we said actually for a couple of years before the crash that a correction was coming.”

One school of thought says that the financial crisis came as a bit of a surprise to all of us; another says that some of the problems had been identified, but that no one acted on that. The Bank for International Settlements identified in its reports some of the seeds of the financial crisis. Part of the problem is that bodies that had the task of analysing the trends published reports that generated the odd press article, but nothing seemed to happen as a consequence. Who did anything about the warnings that the Bank of England issued or that were identified by the Bank for International Settlements? I suspect that very few people did anything about them at all and that is the problem. It was very easy to ignore them, because some of the conclusions that they were reaching were quite difficult. To use a phrase of a US Federal Reserve bank governor in the 1930s, it required people to take away the punch bowl at the party. It required someone to tell Chuck Prince to stop dancing. It required someone to say, “You have to stop a particular activity, you will have to cease doing it, so we will have to do it in a different way.” It is very easy to ask people to identify the risks, but it is much harder for someone then to decide how to act on the findings of those reports.

The Governor of the Bank of England told the Treasury Committee in June 2009:

“We were given a statutory responsibility for financial stability in the Banking Act, and the question I put to you in February at this committee, to which I have not really received any adequate answer from anywhere, was: what exactly is it that people expect the Bank of England to do? All we can do at present”— this is the key section of his comments to the Committee—

“before a bank is deemed by the FSA to have failed, is to write our financial stability report and give speeches”.

Under the new regime, therefore, the Governor produces his financial stability report, the chairman of the FSA produces the FSA’s financial risk outlook, but what happens next? That is the challenge.

I am sure that we have all had the experience of either sitting in church listening to sermons or listening to experts in the new year telling us how to change our lives and we think, “This is a jolly good idea about how to change our lives, but I will leave it until tomorrow,” or, “I will put that diet off until next month.” Of course, no one then goes back and asks those experts, “Well, you issued these warnings about people’s health, alcohol consumption and smoking, but what happened about those warnings?” We need to ensure that the Council for Financial Stability does not end up in a situation where it talks about these reports but then nothing happens in terms of responding to the risk that has been identified.

One way to ensure that there is an audit trail about the activities of the council is to make sure that, in the minutes of its meetings, there is not only evidence that the risks have been identified and discussed but that there is some record of the decisions that have been taken by the members of the council on how they will exercise their respective responsibilities in response to those risks.

That goes back to the debate that we had on the previous clause about the FSA’s supplementary addendum. As the body responsible for setting capital standards, it may be that the FSA’s remit, as a consequence of one of these meetings of the Council for Financial Stability, is to increase capital across the board, because the risk analysis that the Bank of England has made suggests that there is a credit bubble rising and that holding more capital is the right way to choke off some of that additional lending. That might be the outcome of a council meeting and we can then see very clearly the risk identified in the financial stability report and the response to it in the Council for Financial Stability.

When I was an auditor, we would start every audit with a list of risks and our responses, so that there was a very clear starting point; we knew what we had identified and what we would do as a consequence. That provided a discipline and a framework for the work that we were about to do. The minutes of the council should be sufficiently transparent to ensure that readers of those minutes know exactly how the authorities have dealt with the risks that have been identified.

It may be the case that, after deliberation, people say, “Actually, the risk is not material, the probability of it occurring is so slim that no action should be taken, but this is how we have disposed of that risk and that is how we have decided how that risk should be dealt with.” If the amendment is adopted, at least we will be able to see in the minutes how the council reached a conclusion about what it was going to do and each member’s justification of how it would respond to the risk and exercise its responsibilities.

That is an important way of establishing transparency and accountability and ensuring that the risks identified in all the different processes have been properly addressed and acted on. It will avoid a recurrence of the situation in which people identify risks like those in the December 2004 financial stability report, which said:

“The questions are whether risk is being priced properly, and to what extent the search for yield is leading to excessive leverage”.

That is a clear sign of what was going to happen, but no one appeared to do anything about it. If there is greater transparency through the minutes, it will demonstrate that risks have been identified and discussed and that action has been taken, or an agreement reached on why action should not be taken. We will know what has happened to the risks. That was not the case under the previous regime, and this is an opportunity to put that right.

Photo of John Howell John Howell Conservative, Henley 6:00, 5 January 2010

I want to pick up two points arising from the speech that my hon. Friend has just made and continue the theme of what can be published in the minutes. The need for an audit trail is even more important when we consider the draft terms of reference.

Annexe B discusses the Council for Financial Stability’s deputies—civil servants who will meet monthly. It is not unreasonable to expect that they will do most of the donkey work. Indeed, B1 of annexe B states that the deputies

“will meet to prepare and advance the work of the Council.”

My view is that their role will be to lay the grounds and, hopefully, to assess a lot of the material that comes before them in order to prepare what will be discussed  at the main meeting of the principals of the Council for Financial Stability. Yet we see from the draft terms of reference that the minutes of that group will not be published. I understand the sensitivity about naming civil servants, but surely there must be an audit trail. My hon. Friend’s amendment addresses the weakness arising from the terms of reference.

My second point relates to the things that can be excluded from the minutes. I am less worried than others about the exclusion of things that are genuinely commercially confidential, but there is also the potential to remove anything that might pose a threat to the stability of the UK financial system. That is such a wide definition that some witnesses asked what exactly would be left. There is a distinct risk that the provision could be used politically. Is it wide enough to exclude, for example, remarks that are critical of the Chancellor or of specific Government policy: in other words, politically embarrassing?

Given that the council is required to meet quarterly but the principals are not required to attend—they can send deputies—there could be a run of meetings to which the Chancellor or the Governor of the Bank of England do not turn up. The attendance list, therefore, could itself be a cause of risk. If the Chancellor, the Governor of the Bank of England and the chairman of the FSA all suddenly decide to turn up together and that is the only thing printed in the minutes, everyone will know that something untoward happened. We need to explore further with the Minister how the provision for redaction of the minutes will be used.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

This debate essentially follows some of the points made by the hon. Member for South-East Cornwall. We as a Government have made it clear on the face of the Bill that important strategic discussions will be held at a minuted quarterly meeting. It is right that hon. Members press us about whether the minutes will be illuminating. The minutes must follow the structure set out in the terms of reference, which the hon. Member for Henley referred to, and which I have referred to on a number of occasions already today. We have a structured agenda that provides the basis for discussions that will then be minuted. I do not believe that the minutes will be sterile—the hon. Member for South-East Cornwall raised that risk—nor do I believe that the amendment is necessary, because the same effect will be achieved by the requirements of the draft terms of reference. We intend that the minutes will provide significant clarity on the views of each authority individually, and the council collectively, on the challenges to financial stability and on the co-ordinated action being taken. Putting that on record will perhaps provide some reassurance to hon. Members, and to others who follow these discussions.

The provision proposed by the amendment is therefore not needed, nor does the requirement need to be in the Bill. As I have indicated, it is better that it appears in the terms of reference, as that is a more suitable vehicle. We are introducing greater transparency through the proposals. It is not appropriate, as the hon. Member for Henley suggested, that the proceedings of working group meetings be disclosed, but significant transparency is clearly outlined in the Bill and in the terms of reference. I hope that with those additional clarifications, the hon. Member for Fareham will seek leave to withdraw his amendment.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

There is a difficult balance to strike between what should be in the Bill and what should be in a non-statutory document, which is what the terms of reference are. The draft terms of reference will not be a statutory instrument to be debated on the Floor of the House, and may well change between now and Royal Assent. Although I take some comfort from the Minister’s saying that the sort of information that I expect to see in the minutes will be there, and that the terms of reference will get us to that point, that perhaps does not go as far as having a measure in the Bill.

The comment that my hon. Friend the Member for Henley made, and which the Minister did not pick up on, was about the publication of the register of who is at the meeting. My hon. Friend made a slightly whimsical point about whether all the principals turning up would mean that there was a crisis. I hope that the fact that all the principals turned up would not be notable because it happened regularly. However, people’s attention might lie with the body now, but over time they might take less interest and send their deputies. My hon. Friend made an important point about transparency as a way of monitoring the engagement of the principals, and that might be reflected in the terms of reference at some point.

I take some reassurance from the Minister’s saying that the requirement in the amendment will be in the terms of reference, and I hope that that is followed through because it will be proof of how seriously the system is taken. One of the failures of the regime in the run-up to the financial crisis was that risks were flagged but no action was taken, and if we are trying to increase financial stability in the UK we want to avoid a recurrence of that. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Colin Breed Colin Breed Shadow Treasury Minister 6:15, 5 January 2010

I beg to move amendment 28, in clause 2, page 2, line 36, leave out ‘someone else’ and insert ‘an approved nominee’.

On the basis that I withdrew a previous amendment in respect of meetings as opposed to quarterly meetings and there is already a reference to the minutes of quarterly meetings being published, I was happy not to move amendment 27.

The Bill’s wording is most extraordinary. Clause 2 states:

“If a member of the Council is unable to take part in any of its proceedings, the member may appoint someone else”.

“Someone else” could be almost anyone. Indeed, my admirable researcher, Andrew Baldwin, asked me whether he could apply for the job. The phrase “someone else” is also a bit demeaning. Some of us may be used to serving on a local council, where we sometimes have designated deputies, but a designated deputy is normally someone who is acceptable to the committee or the council.

My amendment highlights the strange situation whereby “someone else” may be appointed. Perhaps it should be someone who is “an approved nominee”. Approval means not just approval by the person who is designating a person to represent them; that person should be acceptable to the other members of the council. I think that both the FSA and the Bank of England would want to know who the approved deputy is from the  Treasury—for the Chancellor—who might well be chairing the meeting. It is not an unreasonable request to say that we should not use the wording “someone else” but should refer to an approved nominee or an approved person to undertake that deputising requirement.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I have some sympathy with the amendment and I seek an assurance from my hon. Friend the Minister that the “someone else” will not be one of the other two, because under the provision the Chancellor could nominate the Governor of the Bank of England and so could the head of the FSA, and there would be a meeting of one person saying, “I’m the someone else times two.” It may seem ridiculous, but may I have an assurance from the Minister that that is in no way the intention and that that signal will be sent out if the amendment is not accepted?

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

That certainly is not the intention. The principals themselves are best placed to decide who represents them. I do not think that we will find ourselves in a situation like Caligula where he appoints his horse. We can rely on the Chancellor, the Governor and the FSA to appoint suitable people. Using the phrase “someone else” at least gives the Chancellor the flexibility to appoint another Minister, a permanent secretary or a most responsible official. We could make too much of this. What we are trying to achieve with the Council for Financial Stability is quite straightforward. It will be senior-level representation. The Chancellor’s photocopying assistant is not likely to be appointed as his deputy. We can leave the matter to the good judgment of those involved.

Photo of Colin Breed Colin Breed Shadow Treasury Minister

Of course we can leave the matter to the good judgment of those involved, but there is a more serious point. There could be some qualification. If, as far as the Treasury is concerned, it has to be a ministerial-level appointment, that is fine, but of course we are also talking about the FSA and the Bank of England. They, too, may have certain levels of appointed official who would be nominated to be a deputy or a representative. I am happy if that is the case. I would not be happy if the “someone else” was someone different every time. There would be no continuity, in that we could have three people sitting around the table who have not even met each other very much, and there could be three completely different people the next time, and the following time.

I know that that is ridiculous—it is almost as ridiculous as the suggestion by the hon. Member for Wolverhampton, South-West—but it exposes the inadequacy of the term “someone else”. Will the Minister, perhaps before Report, at least consider a slightly better wording that would indicate that whoever operates on that deputy or representation basis had at least some standing and was acceptable to the other members of the council?

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

I am not sure whether the hon. Gentleman was intervening on me. It is unlikely that I might want to do that, but I understand his point. If he had suggested “someone else appropriate”, that might have addressed the issue that he raises. I seem to remember that somewhere in the Banking Act 2009 we referred to  appropriate people, but I believe that those who follow these things will understand that there is no intention other than to have senior level and appropriate representation, if not the direct principals themselves, who may not be able to participate because of illness or for other reasons. We have the clause in the Bill to take account of that.

Photo of Colin Breed Colin Breed Shadow Treasury Minister

I am happy with the Minister’s assurances. If he could come up with a slightly different wording before we finalise the Bill, I would be absolutely delighted. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I beg to move amendment 39, in clause 2, page 2, line 39, at end add—

‘(9) Where the Council is unable to reach agreement on the exercise of its functions, the Chancellor of the Exchequer can take reasonable steps in pursuit of its function.’.

The Bill appoints the Chancellor of the Exchequer as chairman of the council. The question is, what role does the chairman play in the committee? Is he or she there simply to control proceedings and ensure that people run through the agenda, or is there more to it than that? In a way, this goes back to the point that the hon. Member for Wolverhampton, South-West made in a debate on the previous clause. He assumed that the structure of clause 1 was such that the powers in subsections (5), (6) and (7) meant that it was clear that the Chancellor was in charge.

When the hon. Gentleman made his point, the Minister winced, because he has been keen throughout to avoid creating the impression that the Chancellor is in charge. However, I can foresee a situation where there is deadlock in the committee: an issue may be raised in a report from the FSA or the Bank and there is no agreement among the principals about what the action should be. It may be as a consequence of a difference of opinion about the nature of the risk, or about the probability of the risk materialising and having an impact on financial stability. It may be that people cannot agree on the appropriate action to be taken. A risk is identified, everyone agrees that it is important to tackle it, but no one can say what the action will be.

The Minister has been clear that under the terms of reference there will be a process of risk identification, and then the action to be taken will be reported in the minutes. What will happen if the committee cannot agree on the right action? Is the lack of agreement—that impasse—a reason for doing nothing and just saying, “Let’s see what happens”? Or should someone actually have responsibility for ensuring that action is taken?

The Minister’s argument is that this is a shared enterprise, that no one is in charge. The Chancellor happens to be chairman because he is the chairman of the group, and the Treasury has set out its functions, but we are not to think that this in any way means that he has authority over the others. Yet the reality is that, at times, the Chancellor has to be in charge. There are certain circumstances in law when the Chancellor is not in charge, and we discussed them in the context of the Banking Act. For example, responsibility for triggering the special resolution regime rests with the FSA, and the choice of the resolution regime in certain circumstances  rests with the Bank. It is only when taxpayers’ money is at risk that the Treasury has a role to play. In practice, there is a sense of the Chancellor being in charge at the crunch. We go back to the evidence session when we asked John Footman who was the first among equals in the relationship. He said:

“The obvious answer is that only one person in that committee is directly accountable to Parliament, and that is the Chancellor.”[Official Report, Financial Services Public Bill Committee, 8 December 2009; c. 29, Q62.]

We asked Andrew Whittaker the same type of question. We know that in certain aspects, they seem to set up a secondary role, but he said that the Chancellor sits at the head of the triangle because of

“the impact on the real economy and the fiscal impact of any rescue package.”——[Official Report, Financial Services Public Bill Committee, 8 December 2009; c. 29, Q63.]

There seems to be an expectation among the members of the Council for Financial Stability that the Chancellor is not just the chairman in a formal sense, but he also has a degree of additional responsibility because he is accountable to Parliament for the fiscal impact. As we probed this matter at length during the Committee, it was clear from the point of view of the Bank that if there was a hierarchy, the person at the top was the Chancellor. The Government must be clearer about their expectations of the role of the Chancellor as chairman. They must accept that the other participants are right and that de facto the Chancellor is head of the Committee or they must say that in no sense does the Chancellor have the final say. That would create clarity, but I am not sure whether it would create the right outcome. We saw this in various parts of the crisis. Obviously, the rescue of Northern Rock is the most transparent aspect of the crisis. When we look at the decisions taken on Lloyds, RBS or Dunfermline, we may find that in practice there was a very clear hierarchy about who banged heads together to say, “This is the right solution for Dunfermline.” or, “This is the right outcome for RBS.” Clearly, if there is an impasse—if people on the Council for Financial Stability are not prepared to take action within their remit—how is that broken? Do Treasury officials simply call out for more curry to fuel them through the long nights and then beat everyone into submission, or is there a process in which the Chancellor takes charge, because that is what people expect?

Let me reflect for a moment on my business experience. Sometimes, very complex corporate structures created, in accounting terms, a deadlock company in which no one had control, but there would be a set of decisions in which it was very clear that one party or another had control and could make the big decisions. It may be a veto that they had over a capital investment of a certain size. It may be control that they had over the sale of the other party’s stake in that business. Clearly, there was a mechanism for resolving deadlock. At the moment, we do not seem to have that in the Bill.

Given that everyone apart from those in the Treasury seems to think that the Chancellor is in charge, my probing amendment suggests that we should be up front and honest and say that where there is an impasse the Chancellor will be able to direct people to use their powers.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury 6:30, 5 January 2010

I feel that we are going over old ground. The hon. Member for Fareham does not like the tripartite system of regulation. He clearly is not very keen on the Council for Financial Stability and wants to create some mischief about how it should operate. I think he understands our proposals on the operation of the Council for Financial Stability. We see it as a body that will work to ensure the effective co-operation of the three authorities, each of which has a role to play. As I have made very clear, the matter is not about a power hierarchy; it is about working together towards the right outcomes.

It is not surprising that people note that the Chancellor is the only one who is accountable to Parliament; nor is it surprising that people say that the Chancellor is the one responsible for the public finances. That is clear. However, it is also clear that the Bank of England is independent and has legal responsibilities that are defined in law. That is also the true of the Financial Services Authority. There will be issues on which the FSA will take a secondary role and other issues on which the Bank will take a secondary role—or, indeed, on which the Government will. That will depend on what is being discussed and what roles and responsibilities are involved. It is a fundamental misunderstanding of the council to see it as anything other than a monitoring and co-ordinating body to ensure that the tripartite organisations are working effectively together on an aligned basis.

Photo of Mark Todd Mark Todd Labour, South Derbyshire

There was some evidence—I suspect that when the history is written, we will see what substance there was to this—of dissent between the Bank of England and the FSA at an early stage of the Rock crisis. It was not entirely clear how that disagreement was fully resolved. I have to say to the hon. Member for Fareham that my answer would have been rather different: there is a de facto position, which is that, in the end, the Chancellor has a responsibility to ensure a solution. However, I am not entirely sure that it is helpful to state that in the Bill. He is perhaps too optimistic in thinking that an inability to produce a resolution is a purely hypothetical argument, because I honestly think there is some evidence that it could happen and perhaps has happened.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

History is often fascinating. I do not want to comment on that aspect of history, despite my hon. Friend suggesting that I might. The point I want to make in response to the hon. Member for Fareham is that, through the Council for Financial Stability, we are trying to establish an organisation that acts as an effective, co-ordinating body that brings together the three key players involved in ensuring the financial stability of the system. We want to ensure that those key players are effectively aligned and working together.

Elsewhere, we have discussed the fact that a formalised agenda will be followed and that there will be far greater transparency in how decisions, actions and discussions are minuted. That is the right approach to take. It would not be right or constitutionally correct, given the legal responsibilities of the other members of tripartite, to try to put forward an amendment in the form that the hon. Gentleman proposes. I strongly advise my hon. Friends to resist the amendment.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

This debate illustrates part of the problem that we saw emerge at the early stage of this crisis. I think my interpretation of events is shared by the hon. Member for South Derbyshire. There was an opportunity to resolve the problems with Northern Rock at a very early stage, but that opportunity was lost because the tripartite authorities could not agree about the exercise of their respective powers. One player had the opportunity to extend to the inquirer some financial support, but that was not forthcoming. We do not know what other tensions there were in the system as the crisis developed.

The Minister has given the impression of cosy, happy harmony, and that might be true. I do not doubt the Minister’s word, but I am sure that there have been times in this crisis where there was not that happy harmony and somebody had to say, “This is what is going to happen”. Unless there is some acknowledgement of the decision-making process and at what point individual players have or do not have responsibility, we are always going to be left with the question about who is in charge. That is the question that the Governor of the Bank of England was asked at the Treasury Committee. The impression that we are left with, at the end of this short debate, is actually that no one is in charge—it is a shared responsibility. It is about co-ordination; it is not about action. There is no executive power invested in the body.

Let us assume for the sake of argument that the tripartite regime continues to exist. We might get to another crisis in five or six years and go through that loop again where no one actually seems to be able to take control and the situation gets out of control because of a lack leadership and responsibility. We all want to see a system where the lines of accountability are much clearer than they are. I still do not think that we are at that point. Even if we were to assume that the tripartite authority system was to remain in place, I still think that there is a lot to be done with the tripartite system to get it to a point where people are very clear about their respective roles, responsibilities and powers. There are still some big gaps, such as the macro-prudential toolkit. We need some clarity about who is in charge at what point in the process.

The Minister is perhaps right to say that my amendment could be better drafted if I wanted to disregard the constitutional niceties. I could introduce a longer clause more akin to the sort of deadlock provisions in companies where there are some very specified circumstances for who is in charge, but until we clarify responsibilities and powers we are not going to be in a position to do that and we are still going to be left with uncertainty. The preceding clause still perpetuates the uncertainty that bedevilled the tripartite authorities at the start of the crisis, but I beg to ask leave to withdraw the amendment.

Amendment, by leave withdrawn.

Clause 2 ordered to stand part of the Bill.