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Clause 1 - Deputy Governors

Part of Financial Services Bill – in a Public Bill Committee at 11:30 am on 21st February 2012.

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Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury) 11:30 am, 21st February 2012

That is a good point. Sometimes those of us who move an amendment have to be able to answer questions on enforceability. There are a number of provisions in the Bill that will put a duty on a Minister either to undertake a certain course or to have regard to a number of functions, many of which are not necessarily enforceable, but it is important that the principle is there.

When I was a Minister, I would receive recommendations from my officials on appointments to courts, magistrates or committees, or whatever it might be, and I had a set of criteria that those officials had to consider when making representations on the composition of a shortlist of potential appointees. It is important that officials have guidance in legislation on the necessary considerations when making recommendations to a Minister. The purpose of the amendment is to ensure that those people who advise Ministers on appointments are sent a signal of the sort of questions that need to be taken into consideration, which does matter. Such things can make a difference.

We know the history of groupthink at the banks, of course, much of it from the credit crunch and the global financial crisis. The banks thought that they were aware of a wide variety of issues, but partly because of their background and their blind spots on other issues, they did not raise concerns or alarms on certain activities as they were happening. The issue of groupthink has been raised by the Treasury Committee, the CBI and other esteemed economists, such as Willem Buiter.

The CBI has made its own recommendation that there must be a broad cross-sector level of expertise within the set-up of every regulatory body to ensure awareness and levels of understanding. In this case, the CBI particularly emphasises those segments of the economy that need to have a voice and perhaps some experience brought to bear.

Overall, experience should be reflected in the composition to ensure that we do our best by the UK economy. It is important that practical experience is also brought to bear. For instance, although the insurance sector is represented on the court, there are other committees on which the insurance sector is not properly represented, and we will come to those discussions at a later date. Enhancing the governance capabilities and allowing a diversity of voices to be heard is important.

Paragraph 102 of the Treasury Committee’s “Accountability of the Bank of England” report states:

“Groupthink will inevitably remain a potential risk in the Bank’s committees. Exclusive reliance on Parliament and the Chancellor to challenge the proceedings in the committees and ensure the external members of committees are able to challenge the executives of the Bank is inappropriate. The FPC and MPC have one non-voting Treasury representative in the committee meetings. We do not consider this to be a sufficient check or tool to allow the effective challenge of groupthink. The avoidance of groupthink is the responsibility of the Bank of England, and therefore should be monitored by the new Supervisory Board of the Bank.”

That is what inspired the amendment. We listened and tried to pick up on some of the signals sent to us by the Treasury Committee. Those are some of the important issues that need to be addressed today.

With those thoughts, it is clear that we need to make improvements, and I hope that the Government will consider the points I am making with this amendment.