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I am not sure that the independence of the Bank of England can be described as ill-thought through or rushed. There are certain circumstances in which Executive decisions have to take place for market sensitivity reasons, and I am not decrying that. I am simply saying that we are debating something after the fact, and after it has taken place. Parliament is not necessarily on the crest of the wave when it comes to discussion of these issues; we are almost just mopping up in the wake of decisions that have already been taken. However, that is just a passing observation.
On Second Reading, I said that the Labour party agreed with the need to enhance systemic oversight of our financial services. A system of prudential regulation has strong cross-party consensus, at least on the principles, although we have not really seen what it will mean in reality when it bites and comes into force. That is true of the operation of prudential regulation and the suite of policy changes that will deliver an eagle-eye view across the economy. We wait to see quite how the new arrangement pans out over time, but nobody would dispute that the principle is correct. The system needed improvement, and we welcome this aspect of the reforms to the Bank of England.
The clause creates three deputy governors, as opposed to two. Paul Tucker is the deputy governor for financial stability, Charles Bean is the deputy governor for monetary policy and Hector Sants will be the deputy governor for prudential regulation. It is important for the Minister to explain how he sees those three deputy governors working together in practice. For example, I would like him to explain in a bit more detail the differences between the roles of the deputy governors for financial stability and for prudential regulation, and where the join is between their two sets of tasks and job descriptions. Is there the potential for duplication? Are there risks of overlap? In a sense, overlap is less of a problem than underlap, but I want to know how we delineate the tasks of those two deputy governors. That is perhaps set out in their job description or job specification. The job spec I have seen for the deputy governor for financial stability says he has responsibility for risk-assessment and risk-reduction work, but my layman’s definition of prudential regulation would lead me, perhaps incorrectly, to expect that risk-assessment and risk-reduction work also to be part, perhaps indirectly, of the role of the deputy governor for prudential regulation. I want to get a sense of how the roles of those two deputy governors in particular line up.
Will the Minister say a word about the ranking of the deputy governors? Under current legislation, we have the Governor and two deputy governors. Presumably, in the normal parlance, a deputy has the ability to step up and be a principal in the absence of the Governor. What is the situation when we have three deputy governors? Who will act in the absence of the Governor? I would be grateful if the Minister elaborated on that.
We have a peculiar situation, in that the court is appointed partly externally but also has powers of its own. There are also executive members as well as non-executive members on the court, although that is not particularly unusual in other walks of life. However, given that we are talking about the court potentially having some scrutiny role in relation to the Bank, how can we avoid conflicts of interest involving the three deputy governors and the Governor—there is quite a large number of executives on the court as it is—when it comes to the broader scrutiny function of the court as a whole?
The Minister mentioned that the oversight committee will be composed solely of non-executive members. I do not know whether he has had any inspiration since we debated the issue an hour or so ago, but I would still quite like to know what the distinction will be between those executive and non-executive functions, when it comes to scrutiny activities.
I think that there is an exclusion in relation to the deputy governor being part of the Monetary Policy Committee. Under subsection (2) the deputy governor for prudential regulation is not, I think I am right in saying, a member of the MPC. I should be grateful if the Minister would explain the decision-making logic of that; why financial stability is represented by a deputy governor, while the prudential regulation governor has no role there. To what extent would the prudential regulation deputy governor be able to make his views known, if he had thoughts or recommendations to make about monetary policy? Is that entirely outside his remit? Will those questions come before him solely at the court, or will he have any impact on questions despite not being a member of the MPC?
There is also an interesting change, which was made in the Bank of England Act 1998, by which certain functions of the court were delegated to a sub-committee, which I think is known as the NedCo—the non-executive committee. That may well be the body that the Minister is renaming “the oversight committee”. I am not sure whether that is the case. It seems on my reading of the 1998 Act that certain functions of the court are delegated to that—to the nine non-executive directors of the Bank.
Those delegated functions are to keep under review the Bank’s performance in relation to objectives and strategy, monitor the extent to which the objectives set in relation to the Bank’s financial management have been met, keep the internal financial controls under review, determine remuneration and pensions issues, and keep under review the procedures followed by the MPC—and, presumably, the FPC, if that is established.
I do not know to what extent the 1998 NedCo arrangements are being changed or amended. Perhaps I have misread the clause; they do not seem to have been affected in the arrangement. I just want to get a sense of how the Minister is continuing the court as it is, in its existing composition. The Bank proposes to create an oversight committee, but will that take on some of the functions of the NedCo or not, and how will those two bodies work if they are to continue together?