Financial Services Bill

– in a Public Bill Committee on 21st February 2012.

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[Mr George Howarth in the Chair]

Written evidence to be reported to the House

FS 01 Aviva

FS 02 Payplan

Amendment moved (this day): 4, in clause 2, page 2, line 7, at end insert—

‘(2A) The Bank shall also be under a duty to minimise, as far as possible, the use of public funds to support or rescue parts of the UK financial services industry.’.—(Chris Leslie.)

Question again proposed, That the amendment be made.

Photo of Mark Garnier Mark Garnier Conservative, Wyre Forest

I do not want to take up a huge amount of time, as we have only started page 2 of 312 and we need to move on. I will repeat one or two of the points made this morning by the hon. Member for Solihull and others. The amendment discusses the bank’s duty to minimise as far as possible the use of public funds. I want to make three points. The first is that the entire Bill is all about minimising the use of public funds. The purpose of this great long process is to prevent another situation in which we must use huge public funds to bail out the banks and rescue the financial system. The whole thing is about mitigating the use of public funds.

My second point is this. The hon. Member for Nottingham East said that the Governor of the Bank of England should be considering a limit on the use of public funds, but since the Treasury Select Committee reported in November on the Bank of England’s accountability, the process has moved on somewhat and the Treasury has come back with a draft memorandum of understanding between it and the Bank with regard to crisis resolution. In that respect, although it is incredibly nice to see that Labour Members are unreservedly backing the Treasury Committee—I suspect that they see an opportunity to split the coalition with the members of the Treasury Committee and others on the Government side—the fact is that it will probably be a little tricky for him to find a fault line between us, on the basis that things have moved forward.

On that point, the crisis resolution introduces an ability for the Chancellor of the Exchequer, who is accountable to Parliament, to step in and make guidance when public funds are at risk. That is an incredibly important and welcome development.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

The Treasury Select Committee came to a view that clause 2 should be amended so that the reference to stability  takes account of the proviso not to require the support of taxpayers’ money, but the hon. Gentleman is saying that since that time, he has seen the memorandum of understanding and feels now that it is not necessary. Is that view shared by the Treasury Select Committee more widely? Has the Committee discussed it and decided to recant that particular recommendation, or is that just his view?

Photo of Mark Garnier Mark Garnier Conservative, Wyre Forest

I certainly speak on my own behalf. I hesitate to say necessarily that we have all gathered together, but as we keep hearing from all sorts of people, as events change, one’s opinions change. As far as I am concerned—I will wait to see whether any other members of the Select Committee come forward to agree with me—I feel reassured that we are in a much more stable position now that the Chancellor of the Exchequer can step in and protect public funds.

Another important point about the Bank of England is this. One thing I do not want in a crisis is for those involved in dealing with the crisis, particularly those who deal on an executive level within the Bank, to sit there wondering what on earth constitutes a significant risk to public funds. Earlier, when the hon. Gentleman took an intervention, we discussed his definition of where the limit should be. The limit is incredibly important. What is an acceptable or an unacceptable limit on the use of public funds? My hon. Friend the Member for West Suffolk raised that point.

My final point might sound contradictory, but it is not meant to be. If we start writing a specific limit into legislation, even if we discover collectively in one way or another what that limit should be, will it necessarily help the financial stability objective? At the end of the day, markets will look at the financial system and the regulatory regime in the UK and ask whether the system will ultimately be protected and underwritten by the Government. We are trying to get away from having the Government underwrite every single financial crisis, but many financial institutions are coming to the area and people are investing their money in the UK. If we were to set an absolute limit on the amount of money, by any definition on which I am sure the hon. Gentleman will put his undoubtedly impressive brainpower to work in order to come up with, at some point, the markets may turn around and say, “Other countries do not have a limit, but this country does. It is less stable.”

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I want to be clear about what the hon. Gentleman is saying. [ Interruption. ] It is important that my brain can understand the even more impressive statements of the hon. Member for Wyre Forest. I do not think that he disagrees with the spirit of the amendment. Does he think that the Bank should have regard to the need to minimise the use of taxpayers’ funds in any rescue arrangement? It seems that he is disagreeing with the drafting of the amendment. He said earlier that he did not want the banks sitting and thinking about what the impact on public funds would be. I am sure that that is not quite what he meant.

Photo of Mark Garnier Mark Garnier Conservative, Wyre Forest

It is a fair point, and I ought to clarify mine. We, collectively, go through a great deal of trouble to ensure that people who are involved in the court of the Bank of England, the MPC, the PRA and the rest of the three-letter mnemonics that we can come up with  are extraordinarily good at their jobs. One would hope that those people are selected on the basis that they naturally have an idea about the issues. To then hobble them by putting a specific limit—we still do not know what it is—would direct their attention away from what they are good at and ask them to try to deal with issues within the confines of some arbitrary level. At the end of the day, I feel uncomfortable that the amendment would not allow the Court of the Bank of England to be able to do what it wanted.

Photo of Fabian Hamilton Fabian Hamilton Labour, Leeds North East

I appreciate that the hon. Gentleman is talking about a specific limit, and I understand and accept his points. The amendment states:

“The Bank shall also be under a duty to minimise, as far as possible, the use of public funds to support or rescue parts of the UK financial services industry.”

It does not set a limit. Does he accept that that would be a perfectly reasonable amendment, which simply adds to that duty to not exacerbate the amount of public funds going in? “A duty to minimise” is all the amendment says.

Photo of George Howarth George Howarth Labour, Knowsley

Order. I remind the Committee that interventions should be brief and, preferably, stick to the question.

Photo of Mark Garnier Mark Garnier Conservative, Wyre Forest

I will wind up now, because we could go on all afternoon about the issue. The problem is that the amendment is subjective. It does not give any clear definition. We have heard from my hon. Friend the Member for West Suffolk that the amendment does not come up with any sort of hard idea. As such, it would not add to the Bill.

Photo of Mark Durkan Mark Durkan Shadow SDLP Spokesperson (International Development), Shadow SDLP Spokesperson (Work and Pensions), Shadow SDLP Spokesperson (Foreign and Commonwealth Affairs), Shadow SDLP Spokesperson (Home Affairs), Shadow SDLP Spokesperson (Justice), Shadow SDLP Spokesperson (Treasury)

Taking up some of the points made by the hon. Member for Wyre Forest, as the hon. Member for Leeds North East pointed out, the amendment does not refer to any limits and would not require a limit to be fixed, either in absolute terms or in the event of any particular circumstance. The amendment seeks to make good a clause that changes some of the handles that are used in the existing financial stability objective. We have had the experience of the past few years. In essence, the clause will leave the financial stability objective to stand as was. I know that we have been told that there are some changes later in clause 3, but, in primary terms, the clause before us basically changes

“contribute to protecting and enhancing” to “protect and enhance” and “systems” to “system”. It changes those words to refer to the two new vehicles that will take over the Financial Services Authority. The message seems to be that the financial stability objective stays the same. All that changes is some of the terminology.

The amendment of my hon. Friend the Member for Nottingham East, to which I have added my name, deals with the fact that over the past few years, many people have questioned whether the financial stability objective puts the financial system and the players within the financial services sector above the national and public interest. This amendment tries to ensure that part of the financial stability objective is not just to stabilise the financial system against all sorts of  systemic risk but to protect the public purse. It is simply a balancing of that and a rounding off of that objective.

Many people think that the financial stability objective is all about ensuring that the whole state system—the whole apparatus of Parliament and the Bank of England—is there to bail out the excesses and inadequacies of the financial system and that the public purse should be at the call of that system. For exactly the reasons that the Treasury Committee has identified––that this clause should be made more complete and more balanced and that people should know that we were carrying the experiences of the last few years with the heavy exposure that there has been in relation to the taxpayer––the amendment is simply showing that Parliament has learned that lesson, is wise to the risk and is mandating the Bank of England in its job description. I take on board the Minister’s point. In essence, he is saying that if we look at the Bill as a whole, we will see that it is trying to ensure that the risk is minimised, but that is a bit like the old story of everyone and no-one. We cannot say that the financial stability objective is there in the whole Bill. It is either in the key job description of the Bank of England or it is not. Currently, it is not, and this amendment would put such a measure into the key job description of the Bank of England. What is wrong with that?

Photo of Chris Evans Chris Evans Labour, Islwyn

It is a pleasure to serve under your chairmanship, Mr Howarth. I was not going to speak because I have a blinding migraine, which has meant that it has been quite quiet in Committee today.

I speak in support of this amendment. The Government have accused it of being quite narrow, but I see it as going towards the first step. If this Bill is about anything, it is about protecting the banking industry. I do not want to go into any detail about why we have ended up in the place that we are in now. The key is protecting the taxpayer in the future. We do not want to be faced with a situation in which we are in deficit and have to bail out the banks again, because that has a knock-on effect on the wider economy. That is why we need some protection to say that there is a limit. If the banks end up in trouble again, we do not want the taxpayer bailing them out. We have heard both sides of the House saying that the banks failed because they thought that they were too big to fail. It is always dangerous from a market-driven point of view if we say to a company that it does not matter how it runs its business. It would be dangerous to say, “If you run your business into the ground, we will protect you.” It would be like saying, “You can do whatever you want; you will always be bailed out.” It is important to have some measure in place. [Interruption.] When the Government look at this, we can talk about definable measures, but this is the first step. That is all I will say because the lights are bright and my head is banging.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury 4:15 pm, 21st February 2012

It is a pleasure to serve under your chairmanship this afternoon, Mr Howarth. The hon. Member for Islwyn, who is suffering from migraine, got to the heart of this debate. It is about the cost of failure, how that cost is borne, who bears the cost and who decides what  an appropriate cost is. My remarks will therefore cover both the cost and who decides. Who decides is key to this clause and key to the whole Bill, so I want to expand a little more widely than the strict confines of the amendment to give a sense of what the Bill is about and to tackle the blurring of responsibilities that the amendment would result in if the Committee accepted it. We need to be clear about the architecture that we are debating.

No one should be in any doubt about the importance placed by both Government and Parliament on the need to protect taxpayers’ money when there are problems in the financial system. The events of the financial crisis of 2008-09, during which billions of pounds of public money were needed to prop up failing banks, were unacceptable. One of the Government’s overriding priorities is to take steps to ensure that we never find ourselves in that position again. We set up the Vickers commission to examine some of these issues. I will not go into detail about that now—I will save that delight for another day and another Bill—but changing the structure of the banking sector is clearly one of the ways in which we are trying to make the system more stable and to reduce the risk posed to taxpayers by failure in the banking sector. Part 4 makes fundamental changes to the way in which financial crises will be managed in the future.

The legislative provisions, together with a detailed crisis management memorandum of understanding, will for the first time provide absolute clarity about the respective roles of the Bank of England and the Treasury in a situation in which public funds might be put at risk by a problem in the financial sector. A key element of the clarification of those roles is that the Bill creates a new power for the Treasury to direct the Bank where public money is at risk. That power will underpin and underline the overriding principle that it is the Chancellor of the Exchequer who takes decisions involving public funds. It is that principle and the need to avoid diluting or obscuring it that makes me uncomfortable about the amendment proposed by Opposition Members.

Before I deal with the detail of the amendment, I should like to explain in more detail why the Government believe that it is vital to maintain absolute clarity of responsibilities between the different bodies in the regulatory system and the distinct roles that they fulfil within it. This is the first of a number of Opposition amendments that would blur those clear responsibilities. It is therefore important, in order to avoid repetition of the argument in Committee, to say a few words about that.

One of the main flaws in the system that we inherited from the previous Government was the blurring of the boundaries of responsibility. That problem was particularly acute in the area of crisis management and financial stability. As the Treasury Committee pointed out:

“The biggest failings of the Tripartite’s handling of Northern Rock were that it was not clear who was in charge, and, because the Tripartite took a minimalist view of their respective responsibilities, necessary actions fell between three stools.”

We therefore need to be clear about the roles of each of the bodies that we are creating.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I do not in any way seek to blur the responsibilities of each of the bodies, but I take issue with the Minister’s logic in relation to asking the Bank  of England to keep an eye on whether decisions that it takes or recommendations that it makes may incur or have the effect of incurring taxpayers’ money in any rescue in a crisis. I do not see how that is in any way—what was his phrase?—“diluting or obscuring” the primary duty that the Chancellor has. Why should it be a case of one or the other?

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

I will deal with that question in due course. I will not duck answering it, but I want to build my argument first. It is because of the lack of clarity on responsibilities that the Government are adamant that it is vital in the new system that the respective roles of each of the bodies in the financial system are clearly delineated. That will ensure that the system is based on mutual respect and mutual recognition of the expertise of each body. It will avoid duplication of work and provide clarity and certainty for firms.

This morning, we talked about the Financial Policy Committee as the macro-prudential regulator. Its remit is to focus on systemic risks, which are the risks that affect the entirety or a significant part of the financial system. Its job is to focus on the big picture and the big risks. The Prudential Regulation Authority and the Financial Conduct Authority will be responsible for the regulation of individual firms, from a prudential and conduct perspective respectively. Their remit is to focus on the safety, soundness and conduct of individual firms. Their job is to deal one-on-one with firms, questioning their business models, their levels of risk and their behaviour towards customers and other firms.

In constructing the new bodies provided for by the Bill, we have emphasised that each body should have a clearly defined remit, and the tools and expertise that it needs to be expert within that remit. It would be inconsistent with that approach to confer overlapping remits on the FPC and the regulators, or to allow the FPC, which will not have micro-regulation expertise, to trump the judgments of regulators on micro-regulatory matters. That would take us back to the bad old days of the tripartite system, where the lines of responsibility and accountability were blurred. We are also concerned about the impact that that type of overlap would have on the regulated community and their relationship with the regulator. We would not want the FPC to encroach on or second-guess the decisions and judgments of regulators when it comes to the regulation of individual firms. That would be disastrous for the regulators and for the companies that they regulate, which would never be certain whether a firm, specific decision by the regulator was the last word or whether the FPC could overrule that decision at a later date.

If we allow the FPC to spend its time duplicating or second-guessing the work of the regulators, which will be looking at the bigger picture, that would be problematic too. We need the FPC to play the vital role that everyone agrees was missing in the run-up to and during the financial crisis; that of a strong and expert macro-prudential authority, with the remit to look at rifts across the system and to take action to mitigate those risks. That is why the powers of the FPC are constrained. It cannot make directions or recommendations that are targeted at individual firms. Instead it must refer to classes or types of firm or activity when making directions or recommendations.

Let me come back to amendment 4. As the Government set out in our response to the TSC’s report, we agree entirely that protection of public funds should be the core priority for the new regulatory system, and clearly the Bank of England has a fundamental role to play in that system. As part of its objective to protect and enhance financial stability, the Bank will be responsible for reducing the likelihood of serious threats to stability that might have the potential to put public funds at risk.

However, the principle that I have already set out about the importance of the responsibilities and remits of each body being clearly delineated applies in the same way to this matter as it does to the relationship between the FPC and the regulators. Once there is a material risk of circumstances where public funds might be needed, the Bank is under a statutory duty to notify the Treasury. Effectively, from that point onwards, the ultimate responsibility, including any use of public funds, passes to the Chancellor. Giving the Bank an explicit duty to minimise recourse to public funds would risk diluting and undermining the principle that it is ultimately the Government’s responsibility to protect public funds. As I have set out, ensuring clarity of responsibilities is a central tenet of the reforms set out in the Bill and we are not willing to compromise that tenet by giving the Bank a statutory duty for something that ought to be the exclusive responsibility of the Government of the day, who are accountable to Parliament.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I want to get this matter absolutely clear, because the Minister’s elaboration will henceforth prove very useful. We will call this his compartmentalisation speech. We will consider this idea of clear delineations in little boxes as the Fareham doctrine.

Is the Minister saying that the Bank of England’s decisions need to disregard any impact on public funds and instead, when responsibilities pass to the Chancellor, the Bank should rely entirely on the Chancellor to be the guardian of public funds? I ask because that is how I heard his description.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

There are two points that I will make in response to that question. First, the Bank of England is the guardian of financial stability and, as I have said, what it should be doing in its role of tackling financial instability is minimising the risk that a firm will fail. That is not to say there will be no failures. Also, through the work that the PRA will do, and its interventions, the safety and soundness of individual firms will be looked at. So there is a clear role to be played.

However, a question arises: when there is recourse to public money, or if there is a risk of recourse to public money, who should be making decisions about how it is spent, and the nature of the resolution? I think hon. Members would expect the Chancellor of the Exchequer and the Government of the day to be responsible for making the decision.

I will address in a moment the point made by my hon. Friend the Member for West Suffolk in an intervention, because that also suggests a wider responsibility on the part of the Government. It is for the Government to take decisions about public money and how it should be spent. If we had said that the Bank should decide, the Opposition and Parliament more broadly would say that it is surely the Government’s responsibility—and it is.

The Government are there to decide how public money is spent and what is the best use of it. The Bank has a role in managing financial stability and minimising the risk of failure, but ultimately, when there is a risk to public funds, the Government should be in the driving seat.

The hon. Member for Foyle is itching to get in, so let me take his intervention and then make progress.

Photo of Mark Durkan Mark Durkan Shadow SDLP Spokesperson (International Development), Shadow SDLP Spokesperson (Work and Pensions), Shadow SDLP Spokesperson (Foreign and Commonwealth Affairs), Shadow SDLP Spokesperson (Home Affairs), Shadow SDLP Spokesperson (Justice), Shadow SDLP Spokesperson (Treasury)

The amendment would not alter the role of the Government or the Chancellor in that regard. It would simply make it clear that the Bank of England would have a duty, in its pursuit of the financial stability objective, to have regard to ensuring that there was no undue recourse to public money. Is the Bank of England now being told that that is not its job and it does not have to worry about it?

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

Hon. Members need to reflect for a moment on the fact that plenty of legislative and non-legislative provisions already make it clear that the Bank has a responsibility to act in a way that minimises the need for public funds. The amendment is not right because it creates confusion about the responsibility—about who is accountable for the use of public funds.

Photo of Matthew Hancock Matthew Hancock Conservative, West Suffolk

Is the Minister surprised, as I am, that the proposition from the Opposition that we discussed this morning pushed for more clarity about who is responsible for things, whereas the amendment before the Committee muddies clarity about that? Is not there some inconsistency in the amendments?

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

My hon. Friend is right. The problem that the Opposition have is that whereas previously lines of accountability were blurred, confused and obscured, the reforms are intended to clarify responsibilities; but the Opposition seem almost desperate to return to those days of obscurity and blurred lines of responsibility, where no one was felt to be in charge. We are being very clear about who is responsible for which parts of the process.

The hon. Member for Nottingham East asked earlier, from a sedentary position, where the legislative and non-legislative means of ensuring the Bank is aware of its responsibilities in relation to public funds are set out. I draw his attention to paragraph 22 of the draft memorandum of understanding on crisis management, which makes it clear that the Bank must

“take account of the Treasury’s need to use public funds in a way which meets standards of regularity and propriety and provides good value for money.”

There are constraints there, but ultimately clarity and responsibility must rest with the Chancellor of the Exchequer.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

The Minister may need a little inspiration at this point. He has quoted from the draft memorandum of understanding, which is not a legislative provision. In draft form it currently states that the Bank should have some regard to public funds. I suppose that that is a step in the right direction. The Minister has grasped an opportunity to accuse us of blurring the arrangements, but it appears that the draft memorandum is guilty of a sin similar to that committed by our amendment.

The Minister said that there were legislative and non-legislative provisions. Where are the legislative provisions under which the Bank must have regard to public funds?

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

The Bank’s financial stability objective gives it a clear remit for identifying and addressing risks to stability, which would include those with the potential to require public funds. [ Interruption. ] Hold on. The hon. Gentleman and the hon. Member for Foyle said that the amendment would just require the Bank to have regard to the use of public funds.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury 4:30 pm, 21st February 2012

Exactly, and a duty goes much further than having regard to something. One cannot just say that it is semantics or flip the words between the two. There is a clear difference between them.

I want to tease out the broader issue that my hon. Friend the Member for West Suffolk highlighted. He asked a question about how public funds would be defined in this context. The hon. Member for Nottingham East did not have a substantive answer. It is a genuinely difficult issue to resolve. It is not a technical drafting question; it is a question that goes to the heart of the effect of the amendment. Clause 54 of the Bill places the Bank under a duty to notify the Chancellor of risk to public funds. It sets out the circumstances in which public funds should be taken as being at risk. They range from the special resolution regime to a national loans fund to support payment by the Financial Services Compensation Scheme.

The Bank will have an important role to play in relation to such cases, but it is clearly not responsible for all the decisions or for ensuring that interventions are handled effectively. Ultimately, that is the responsibility of the Government. As my hon. Friend suggested, there are other elements of a wide-ranging policy to take into account—for example, the overall management of the economy in a financial crisis and the impact of a crisis on economic growth and the fiscal position. Those would also come into play under such a duty. Those are clearly the responsibility of the Treasury as the UK’s finance and economics ministry directly accountable to Parliament. They are not matters for the Bank of England.

A broad and legally enforceable duty on the Bank to minimise recourse to public funds would go way beyond the Bank’s responsibilities and areas of influence.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

Let me conclude. I may resolve the hon. Gentleman’s question.

The proposal would impose a duty on the Bank that it does not have the tools to discharge. Contrary to the view that he expressed before lunch, the Government consider that such a duty would give rise to litigation. There is no reason why a person with sufficient interest, who thinks that the Bank has failed to discharge such a duty, could not bring judicial review proceedings. No doubt a court would give a wide margin of appreciation to the Bank’s judgment in this area. However, I do not  consider that the court would refuse to consider the matter at all or declare that the whole matter was non-justiciable.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

This is one of those times when a Minister opens a box of arguments to resist amendments, but he is scraping the bottom of that box at the moment. He doubts that “minimise” can be quantified or enforced, but in the change that he makes in his own clause, he talks about enhanced financial stability. How are we to measure whether the Bank is enhancing? How is that not justiciable? He contradicts himself in his own clause.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

I am not sure whether the pot is calling the kettle black in bringing in other arguments. There is a fundamental point here. The amendment imposes a duty on the Bank of England to minimise the use of public funds. My argument, contrary to that of the hon. Gentleman, is that it is a matter that could go through the courts. This morning he thought that it would not. My legal advice suggests that it would. The point of substance is this: it is the responsibility of the Treasury, which is accountable to Parliament for the use of public money, to make decisions about the best use of public money. I am thinking not only about the actual cost of intervention, but the wider social, economic and fiscal effects of that intervention. I am sure that would have been the thought process that went through the mind of the right hon. Member for Edinburgh South West (Mr Darling) when he was Chancellor of the Exchequer and having to deal with the Royal Bank of Scotland and Lloyds Banking Group, and weighing up the conclusions. The Bank has a narrow focus.

I have an example of one of the responsibilities under legislation. The Bank has to minimise the use of public funds under the Banking Act 2009, under the special resolution regime. One of the objectives is to minimise the use of public funds in operating a resolution regime. However, this is a narrow area of debate. The Bank should not ignore the impact of its decisions on the use of public funds. As I said, financial stability and the MOU clearly have implications, but to impose a duty on the Bank to minimise such use ignores the fact that responsibility actually rests with the Treasury, which is accountable to Parliament. That responsibility should not be borne solely by the Bank of England.

The hon. Gentleman raised a legitimate point of debate about the use of public funds and where responsibility should lie, but he must recognise that the pressure from Parliament has been that decisions about public funds should rest with the Treasury, not the Bank. That is what we are implementing in the Bill. There is a clear set of responsibilities through the Bill and previous legislation. Imposing a duty on the Bank opens it up to making decisions beyond its capability and remit. It also opens it up to court action, which is not what we want.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

I was just about to wind up. I hope that the hon. Member for Nottingham East will see the light and withdraw his amendment. It would create confusion where the current regime has clarity and go back to the days before the reforms, when it was clear that no one was in charge.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

May I also welcome you, Mr Howarth, to the Chair? It is a pleasure to serve under your chairmanship. The Minister finished his remarks by hoping that we would see the light after having dared to ask that the Bank of England should have a duty to minimise, as far as possible, the use of public funds to support or rescue parts of the UK financial services industry. He then went for the Fareham doctrine, as I call it, of compartmentalisation. His approach, as I see it, is essentially to draw little boxes and walls and say, “That’s your duty; that’s not your duty. Thou shalt not think about these questions. It’s all got to be very circumscribed and precise.” In another context, he castigates the current regulatory regime for underlap problems, but I suppose there are dangers that his own doctrine could cause those problems to happen yet again.

The Minister quoted the Banking Act 2009, saying, “Well, actually, yes, that Banking Act”—which, by the way, we do not propose to amend in this respect—“does allow for the Bank to have a duty to minimise the use of public funds in special resolution regimes.” He does not disagree with the provision being in that legislation. In that context, it is not a blurring, yet it would be to put it into the Bank’s financial stability objective.

I accept that the grandiose objectives of big institutions, whether the Treasury, the Bank of England or others, are broad statements. Currently, the clause seeks to change the statement, as my hon. Friend the Member for Foyle said. Instead of reading “contribute to protecting and enhancing” the financial systems, it will read

“protect and enhance” the financial system.

Those are similarly qualitative concepts and phrases that are not quantified in the way that the hon. Member for West Suffolk called for. Ultimately, they are just as subjective as “minimise the use of public funds”. The Government are saying, simultaneously, that a duty to minimise the use of public funds would be impossible because it is subjective, but that it is okay to say “protect and enhance” financial stability. I find their logic difficult to see at this point.

It is absolutely right that the Treasury, as the guardian of public funds, is where primary responsibility should rest. I do not have a problem with the concept, as set out in the draft memorandum of understanding, that the bell should be rung when the Bank makes decisions or takes steps that might have an impact on public funds, but I do not see why that is incompatible with a general statement at the top of the objectives of the Bank of England that says, “If you don’t mind, please minimise the impact of the use of public funds to support or rescue parts of the UK financial services industry.”

We are amending the Bank’s financial stability objective at a time when, as my hon. Friends the Member for Foyle and for Islwyn pointed out, a great deal of taxpayers’ money has been used to save the banking system. Our constituents would expect nothing less than for us to say, “Under the new regulatory regime, those in charge have a duty to minimise the use of public funds in supporting or rescuing parts of the financial services sector.” It is almost the top thing that they would want us to do.

I am totally baffled that coalition Members—the Conservative ones at least—have said that they wish to vote against the amendment. I would have been happy if the Minister had said, “I’m kind of interested in doing this, so if you withdraw the amendment, we will look at it on Report, because I understand where you are coming from.” I do not think that this needs to be a party political point. Ultimately, how we frame and describe the financial stability objective of the Bank is important. On Bill Committees, I sometimes get the sense that we are wasting our time a little—the Minister has “Resist amendment” all the way through his folder—but I hope that is not the case, because trying to improve legislation through scrutiny ought to transcend party political debate. Making suggestions about how to enhance the text is the job that we are here to do.

Photo of Fabian Hamilton Fabian Hamilton Labour, Leeds North East

As long as the Treasury and the Chancellor have the final say on the use of public funds, surely there is no contradiction in putting a duty on the Bank to minimise the use of public funds and the ultimate decision being with the Treasury and the Chancellor.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Absolutely, and there is a danger in the Minister’s statements today, which are in many ways contradictory. It felt as though he was saying at one point that the Bank must disregard questions of public funds because those are ultimately the responsibility of the Chancellor and it would blur the lines, and that therefore it should put forward recommendations no matter what the cost or impact on the taxpayer. It is for the Chancellor to spot the impact and ensure that he is the sole guardian, rather than ensuring that public bodies generally, which include the Bank, have an eye on it.

Photo of Mark Durkan Mark Durkan Shadow SDLP Spokesperson (International Development), Shadow SDLP Spokesperson (Work and Pensions), Shadow SDLP Spokesperson (Foreign and Commonwealth Affairs), Shadow SDLP Spokesperson (Home Affairs), Shadow SDLP Spokesperson (Justice), Shadow SDLP Spokesperson (Treasury)

Further to that point, does my hon. Friend agree that the danger is that the Minister’s argument today is that the Bank of England will essentially be told, “Worry about the system for its sake. Worry about the bankers. The taxpayers are not your concern”?

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I know that there is a danger that the Minister’s remarks might send that message. I hope that that is not the Government’s view.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

I think that I made it clear. The hon. Gentleman may recollect that I referred to paragraph 22 of the memorandum of understanding and to the Banking Act 2009. The point I was trying to make is that when it comes to the decision about how much public money is used and who is responsible for that decision, the duty rests with the Chancellor, not the Bank. The amendment puts the duty on the Bank, not the Chancellor. The final decision should be with the Chancellor.

There are provisions in legislation and elsewhere that mean that the Bank has regard to the amount of public money spent, but the ultimate decision rests with the Chancellor. We have done that to avoid the confusion of the previous regime—the Chancellor is accountable, not the Bank.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Interestingly, that intervention may have shed light on the Minister’s thought processes. He seems to be labouring under the impression that inserting the  amendment into the financial stability objective would in some way dilute or amend the Chancellor’s duty to be the guardian of public funds. It would not, however—and if he thinks that it would, he is misreading the amendment.

I cannot see any way in which inserting a duty on the Bank of England to minimise the use of public funds would dilute or water down the Chancellor’s responsibilities. It is as if the Minister is suggesting that there can be only one guardian of public funds. Why not have two in this context? Can only one institution play such a role? Of course not; that is nonsense.

If the Minister were in the mood to be constructive about how to improve the Bill, I would be happy to suggest that we come back to the matter on Report. If he prefers “have regard to” or thinks that the provision should be of second order compared with the Treasury’s primary responsibility, I would be happy to look at that. There is deep confusion and danger if the Government feel that a Bank of England that dares to have regard to taxpayer protection will in some way challenge the role of the Chancellor or be a bad or retrograde step. I completely disagree with the Minister about that, and many of our constituents would be surprised to hear such an argument.

On occasion, Governments have to rebut amendments or ask the Opposition to withdraw them and so on. However, the Minister should be careful about deploying arguments that could be construed outside the Committee as saying that what happens with the use of public funds has nothing to do with the Bank of England.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury 4:45 pm, 21st February 2012

Let me repeat again—for the third time, I think—that there are provisions in legislation, and things such as the MOU, that shape the Bank’s thinking on the use of public money. The hon. Gentleman is wrong to suggest that we would allow that focus to become blurred if we had multiple guardians of the use of public money.

Ultimately, decisions about public money are the responsibility of the Chancellor, who must take into account his wider responsibilities as a Finance Minister and an Economic Minister, and look at the broader context. The Bill, the MOU and the Banking Act 2009 ensure that the balance of responsibilities is right between those of the Bank and, crucially, those of the Chancellor.

We need clarity and focus regarding who is to make big decisions about the use of public money, and what considerations should be behind such decisions, and the Bill provides that where it was previously lacking.

Photo of George Howarth George Howarth Labour, Knowsley

Order. I remind the Committee that my earlier point about interventions from Back-Bench Members also applies to those on the Front Bench.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I appreciate that, Mr Howarth. We may feel—the Minister certainly does—that we are reiterating certain points, but they are incredibly important. The Minister asks whether we realise that the 2009 Act already states that the use of public funds should be  minimised in respect of resolution regimes, and that paragraph 22 of the draft memorandum of understanding—not a legislative document—also does the same, and says that that is sufficient.

The Minister almost implies that that is enough blurring of the line and we do not want any more, and that if this measure were to be put in the Bill it would cause too much blurring and too much care and attention would be paid to public funds, which would be a step too far. His logic suggests that he needs to go and have a word with the Chancellor and talk the measure through. The Treasury Committee and the pre-legislative scrutiny Committee also looked at this issue.

Photo of Mark Durkan Mark Durkan Shadow SDLP Spokesperson (International Development), Shadow SDLP Spokesperson (Work and Pensions), Shadow SDLP Spokesperson (Foreign and Commonwealth Affairs), Shadow SDLP Spokesperson (Home Affairs), Shadow SDLP Spokesperson (Justice), Shadow SDLP Spokesperson (Treasury)

My hon. Friend is encouraging the Minister to think again about this issue. Following on from that, perhaps the Minister will also think about some of the wording used. The amendment refers to

“the use of public funds”,

and that could cause the complication since the use of public funds would fall to the Chancellor. The Minister referred to recourse to public funds. Perhaps there should be an amendment that gives the Bank a duty to anticipate and minimise possible recourse to the use of public funds, which would not interfere with the Chancellor’s jurisdiction over the use of public funds.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

My hon. Friend is correct, and I swear by my cub scout oath that, if the Minister wants to bring something back on Report that is framed in a more modest, precise and measurable way, I will not crow from the rooftops on the Floor of the House; I will welcome it and congratulate him, and I will say that it is part of the scrutiny process. I make that solemn pledge to him today. I think it is possible to achieve that. There are probably very few external press organisations listening to our proceedings today, although I am not necessarily sure of that, but on the Floor of the House I would be happy to congratulate him and be the first to say that the change would be useful.

I really think that the Minister needs to look at the logic of his arguments to rebut the amendment. He needs to recognise that, as a financial stability objective setting out at the top of the Bill the goals and aspirations for the Bank of England and how it should operate, it is important that we signal to our constituents that the use of taxpayers’ money or public funds, however we describe it, is an issue to which the Bank of England should show some care and attention. That is all we are asking.

I am afraid that I do not wish to withdraw the amendment. It is important, so that we might encourage the Minister to revisit the issue at a later date, that we put the amendment to the vote.

Question put, That the amendment be made.

The Committee divided: Ayes 8, Noes 10.

Division number 3 Decision Time — Clause 2 - The Bank’s financial stability objective

Aye: 8 MPs

No: 10 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly negatived.

Question proposed, That the clause stand part of the Bill.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Our previous debate began to stray into some of the wider provisions of the subsections of clause 2, which, as my hon. Friend the Member for Foyle said, seeks to amend section 2A of the Bank of England Act 1998 so that the new objective is to “protect and enhance” the stability of the financial system, rather than

“contribute to protecting and enhancing” the financial system. That objective was introduced by the Banking Act 2009, and, essentially, it is being preserved with a semantic change.

I am conscious that we are due a Division in the House imminently, so I just want to make a number of points before the Committee is suspended.

The Government’s choice to vest the task of protecting and enhancing the financial system so comprehensively in the hands of the Bank of England raises a set of questions, not entirely different from the discussion that we just had about protecting public funds.

If we are to take literally the move from contributing to protecting and enhancing, there is the implication—perhaps we are back to that Fareham doctrine of compartmentalisation—that Her Majesty’s Treasury or other bodies may not have as strong a duty to contribute to protecting and enhancing the stability of the system. I think it is possible for the Treasury to do that at the same time as the Bank of England. I would not expect the Treasury not to have a role in protecting and enhancing the financial system.

My first question to the Minister is this. As he thinks that the use of public funds is entirely in the permit of the Chancellor of the Exchequer, is the change he is making to the financial stability objective for the Bank in any way diluting or diminishing the role of Her Majesty’s Treasury and the Chancellor of the Exchequer in contributing to the protection or enhancement of the stability of the financial system?

Sitting suspended for a Division in the House.

On resuming—

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I was asking the Minister my first question about how his doctrine of compartmentalisation applied equally, or not, to the role of Her Majesty’s Treasury in having a duty to protect and enhance stability in the financial system. We were discussing the semantic change in clause 2 in relation to the Bank’s objective becoming to protect and enhance the stability of the financial system.

I want to know to what extent the Treasury feels that it has a duty and an obligation to take steps to do that as well. I presume and hope that the Minister will say, “Yes, it is possible for Her Majesty’s Treasury to also contribute to the protection and stability of the financial system.” I hope that he will not say, “It isn’t anything to do with us. This is entirely the responsibility of the Bank of England.” That would be of great regret, to say the least. I would be interested to hear the Minister address that point when he speaks.

Photo of Mark Durkan Mark Durkan Shadow SDLP Spokesperson (International Development), Shadow SDLP Spokesperson (Work and Pensions), Shadow SDLP Spokesperson (Foreign and Commonwealth Affairs), Shadow SDLP Spokesperson (Home Affairs), Shadow SDLP Spokesperson (Justice), Shadow SDLP Spokesperson (Treasury)

As well as the point about the change in the language to protect and enhance, does my hon. Friend have any anxieties that such a change, which is pretty absolute, would open up possible challenges in relation to justiciability? The Minister said that that was a risk with the amendment that we previously discussed. Surely, it is a serious risk with absolute terms such as “protect” and “enhance”.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

To be fair to the Minister, I did not think that it would be a particular risk to say “protect and enhance” the financial system, or that having that phrase in the financial stability objective would be a danger. However, in his earlier remarks, the Minister sought to rebut any other elaboration of that financial stability objective by saying that there is a risk of justiciability and judicial review of that clause. Therefore, I suppose that it opens the door to the prospect that an individual or firm who experienced difficulties—lost money—in a future crisis and felt that the Bank of England did not protect or enhance the stability of the financial system could take legal action against the Bank. That is the implication of the Minister’s comments.

This is the important second point for the Minister. Given what I thought would not be the case but he said is the case—that there is a prospect of judicial review—and given that the phraseology and the terms that we are using will indicate that it is the Bank’s duty not simply to contribute to something but to protect and enhance the stability of the financial system, that is pretty absolutist, as my hon. Friend says, and is a big responsibility. As I say, I did not think that it was in any way a bad thing to put in the Bill. The Minister, however, has painted a big old question mark above the clause, so he needs to explain how that change will not lead to a flood of litigation or other changes, given his earlier comments.

My third point is, to what extent can we have absolute confidence in the Bank to live up to that ultimate responsibility and the role placed on it by the clause? I hope that the Bank can fulfil that function, but the Committee will recall my earlier bemoaning of a lack of a thorough review and assessment of the role of the Bank of England during the 2008 to 2009 financial crisis. To this day, we have still not had the Bank review of its role or the contribution that it did or did not make to the circumstances back in 2008. It is all very well for Ministers to heap the blame on the Financial Services Authority and the previous Government, as they do, but the Bank of England surely had a role. Does the Minister think that we ought at least to open the lid on what the Bank of England’s responsibilities, frailties, successes and failures might have been, or is that something that we should sweep under the carpet, as we give more  and more power to the Bank to take on what could be the sole role—given the Minister’s doctrine—to protect and enhance financial stability? I should like to know the Minister’s view. I want to press the Government on those three points.

An inordinate amount of taxpayer support has been given to the banking system. The National Audit Office report of July stated that explicit support for the banks was around £450 billion, down from a peak of more than £1 trillion some years ago. The total outstanding support is the equivalent of 31% of gross domestic product, as at March last year. The cash outlay is much less than the implied support—that safety net—which is still large and significant. We are still talking about serious sums of money directly and indirectly supporting the banking system. I do not want to reopen the debate on amendment 4, which we have just had, but there remains a gaping hole in the clause as drafted. Preferably, clause 2 ought to have regard to the need to protect the use of public funds in any future rescue, and I continue to hope that the Minister will find a way to do so. For the time being, I have made my three key points, and I should like to hear the Minister’s response.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury 5:15 pm, 21st February 2012

Let me make some broader points about clause 2 and respond to the questions asked by the hon. Member for Nottingham East.

The purpose of the clause is to revise the Bank of England’s financial stability objective, to make it clear that the Bank has primary responsibility for protecting and enhancing the stability of the UK’s financial system. That replaces the confusing and ineffective tripartite approach, in which responsibility for financial stability was shared between three authorities. The Bill makes the Bank of England a single point of accountability for financial stability in the UK.

I have been in this role for some time, so I have lived with the various manoeuvrings on financial stability and the role of the regulators. The previous Government’s 1998 reforms led to the Bank of England to have only one statutory objective: monetary policy. The other responsibilities were left with the court to decide on a non-statutory basis, so the Bank’s financial stability functions were demoted, diminished and devalued over the following decade. It was only after the failures of Northern Rock, Lehman’s, RBS and HBOS that the previous Government gave the Bank a statutory role in protecting financial stability. That was done under the Banking Act 2009, which stated:

“An objective of the Bank shall be to contribute to protecting and enhancing the stability of the financial systems of the United Kingdom”.

The wording of that objective, particularly the phrase “contribute to”, demonstrates some of the problems.

The 2009 Act sparked a debate about the role of the FSA and whether it should have a role in contributing to financial stability. The previous Government argued that the FSA had a market confidence objective, which could be seen as broadly the same as financial stability but not quite. When we got to the Financial Services Act 2010, the FSA was given a financial stability objective rather along the same lines as “contributing to”.

The current structure has caused some confusion. A number of bodies can play a role in financial stability, but none of them takes overall responsibility for protecting  and enhancing it. Clause 2 amends the Bank of England Act 1998 to make it clear that the Bank of England takes the lead on financial stability, which will ensure that somebody is accountable for it and people know who in the structure takes the lead on the matter. I reassure the hon. Gentleman that it will be perfectly possible for the Bank of England to be taken to court on that, and one mechanism for accountability is legal action. It is highly unlikely that a huge torrent of litigation will surround this, but the duties are not imposed lightly and that mechanism for accountability will be available, as will judicial review.

The hon. Gentleman asked about the role of the Treasury. The Bank has primary operational responsibility for the UK’s financial stability but, as the Bill makes clear, the Treasury retains certain specific responsibilities. Among those are responsibilities relating to the legislative framework for financial stability, including setting macro-prudential tools—which we will discuss in later amendments—and setting the regulatory perimeter. In advising on the tools and setting the perimeter we will get advice from the FPC, but the Treasury has a key role to play in putting those macro-prudential tools in statute and moving the regulatory perimeter. The Treasury has overall responsibility for the UK’s international engagement on financial stability, so it has a role to play, but the focus is on the Bank of England for overall responsibility for financial stability. Through the change to the Bank of England Act 1998 that is set out in clause 2, we seek to be absolutely clear about where that primary responsibility rests. I think that that addresses the hon. Gentleman’s questions. He is waving his finger at me, so I may have forgotten one.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

It was the point about the review of the Bank of England’s role in the crisis.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

Indeed. That raises an interesting question: what was the Bank of England’s role meant to be during the crisis? As I have made clear, at the time of the financial crisis the Bank had no statutory responsibility for financial stability. I recall the Governor of the Bank of England saying at a Mansion House speech that he had the power to make sermons, but that was about it. The Bank of England highlighted the fact that risk was mispriced, for example, but it did not have the tools to tackle that problem. The way in which the tripartite structure was set up meant that no one had responsibility for financial stability. The Bank was not responsible for it. The FSA had responsibility for market confidence, which was not the same as financial stability. So there was a gap there.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

Let me just continue. Under the previous Government we saw baby steps being taken to try to fill this. So there was the “contribute to” objective that we are amending today. That was introduced to the 1998 Act by the Banking Act 2009. The Financial Services Act 2010 gave the FSA some responsibility for financial stability but there was a lack of focus. So it would be wrong to say that the Bank failed in its duties on financial stability during the financial crisis because it had no duties around financial stability then. The Bill ensures that that focus is there.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I am grateful to the Minister for giving way. He forgot that a financial stability committee was also created. The improvement process should not stop at that point. I accept that the whole purpose of this Bill should be to make those improvements but I question the idea that the Bank had no role during the crisis. We can talk about its legislative formal theoretical role, but clearly it played a part at the time and therefore does the Minister not think that it is worth having a review of the role that the Bank played during that period?

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

The point I am making is simply that it had no statutory responsibility.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

The hon. Gentleman is asking for a review of an organisation that had no responsibility in law for financial stability. This is part of the problem that we are trying to address through this Bill. He rightly pointed out that the Banking Act 2009 gave the Bank a partial mandate to contribute to financial stability and it set a vague financial stability commitment but I do not think he is focusing on what happened post 2009. He is focusing on what happened in 2007 and 2008. The reality is that there have been extensive reviews, many conducted by the Treasury Committee, and the question that we are trying to answer in the Bill is the question that the Treasury Committee itself posed to the Governor: who is in charge?

The problem was that no one was in charge of financial stability because no one had that statutory objective. This is what we are trying to remedy in the Bill by being very clear what the duties and responsibilities of the Bank, the FPC, the PRA and the FCA are. We are trying to create some clarity where before there was none. We are trying to fill in some gaps. That is what the Bill seeks to achieve. It is a matter for the court to decide what sort of review it wants to undertake. But some quite extensive reviews have been undertaken by the Treasury Committee over recent years. The Bill is about tackling the hole that is at the heart of the financial regulation in this country.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I do not see how the Minister can say that he has learnt the lessons of the global financial crisis as it applied in the UK without having had a look at the role that the Bank of England played at the time. It is all very well saying, “There were no statutory responsibilities on the shoulders of the Bank and therefore I don’t need to open that box. I don’t need to look into it” because quite obviously the Bank did play a role at the time. That was the practical experience within the crisis as it unfolded within the UK. It is invidious of the Government to argue that there was no statutory objective: I am not sure that that is the case because there were responsibilities on the shoulders of the Bank of England and it got involved and it had a part to play.

The key thing is this: the Bill seeks to lavish powers on the Bank of England to have responsibility, as we see here, to protect and enhance the stability of the financial system. So suddenly, we are going to give it pretty much everything. Yet we are not even going to test or ask whether the Bank of England was fit for purpose in terms of its practical role during that particular time. I pay tribute to the Treasury Committee and the others  who skirted around that question, but it is important that the Bank looks inward and takes the opportunity to say that it could have done things differently about not only its statutory obligations, but also the day-to-day unfolding events and how they were addressed at the time. Governors and deputy governors have for decades been involved in role-playing and theoretical exercises about what would happen in a crisis. One then came upon them and they had to deal with it for real. I would like to know what the Bank’s assessment is of its own performance, and I would have hoped that the Minister would have agreed. We should perhaps discuss on Report whether the Bank should be required to have that assessment. I have not tabled an amendment to that effect today, but it is surprising that the Minister seems to say that such a review is not needed.

I am grateful, however, to the Minister for setting out some of the legal responsibilities that rest on the Treasury and the Chancellor in terms of specific financial stability responsibilities. He mentioned international engagement and macro-prudential tools, which we will come to shortly, and the regulatory perimeter, and those are helpful. It does not blur the lines and it is perfectly possible to have the Treasury involved in those particular financial stability tasks. The Minister is breaching his doctrine slightly by having the Treasury involved in those tasks, but I am grateful that he has done so.

I am surprised by the point about the justiciability of the financial stability objective. The Minister embraces it as a sign of an extra facet to the accountability to which we can say that the Bank will be held. All the applicants and writs that pour through the door at Threadneedle street are therefore a jolly good thing, because that is about holding the Bank to account, perhaps for its failure—I hope not to protect the stability of the financial system in the future. But I do not know whether the Bank has ever acknowledged that it is potentially liable. I do not know whether the Treasury—perhaps the Minister can say—has ever made any assessment of the impact of possible litigation, of the damages that might accrue in such circumstances, and of the tests that might arise. It is interesting that the Minister has confirmed that litigation will be possible. I do not know whether it is something that individuals can pursue through the small claims court or whether a writ will have to be made through the High Court. Perhaps the Minister can elaborate on that at another opportunity, and it may be something that we return to.

Photo of Mark Durkan Mark Durkan Shadow SDLP Spokesperson (International Development), Shadow SDLP Spokesperson (Work and Pensions), Shadow SDLP Spokesperson (Foreign and Commonwealth Affairs), Shadow SDLP Spokesperson (Home Affairs), Shadow SDLP Spokesperson (Justice), Shadow SDLP Spokesperson (Treasury) 5:30 pm, 21st February 2012

As well as possible legal challenges in the event of somebody saying that they are in circumstances because of a failure to protect, are there risks in terms of Parliament’s relationship with the Bank of England if, say, in years to come the Treasury Committee says that a situation that arose demonstrated that the Bank had not adequately discharged its duty to protect? What would the implications then be for the Governor? If proposals for change from the Treasury Committee were resisted by the Bank, would that be a failure of the duty to enhance?

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

It is interesting. The Minister has opened Pandora’s box when it comes to the legal challenge for the Bank of England, and he may regret it. Of course,  we know that the Bank of England is increasingly good at printing money. Quantitative easing, as they call it, is perhaps the solution to any damages that may need to be paid out to those making claims—get the printing press rolling again.

Photo of George Howarth George Howarth Labour, Knowsley

Order. I do not know about Pandora’s box; we are dealing with clause 2.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Indeed. It is important, in looking at the responsibilities that will fall on the Bank of England from tits new duty specifically to protect and enhance financial stability, that we consider the downstream consequences and the possible costs to the Bank.

As my hon. Friend the Member for Foyle said, should Parliament at any point judge that the Bank has failed to protect and enhance financial stability, that would be a big piece of evidence that could be prayed in aid in a court of law by any individual or company seeking to take action against the Bank. The box has been opened, and I do not understand where that might lead. As I said at the beginning of this stand part debate, I did not have any problem with the wording of the clause until the Minister spoke. It is only since he elaborated on it in response to some perfectly reasonable questions from my hon. Friends that I started to think that there may be difficulties with the phraseology.

For the time being, given that we are in Committee and that we could return to the clause at a later stage, I am prepared to agree to it without making further objections. I am grateful to the Minister for at least putting some definition on the question marks that clearly hang over the clause.

Question put and agreed to.

Clause 2 accordingly ordered to stand part of the Bill.