Good morning, Mr Leigh. It is a pleasure to be back again in this interesting and stimulating Committee. Hon. Members have been champing at the bit all weekend in anticipation of amendment 29, and here we are at last. I draw their attention to proposed new section 9G, entitled “Directions to FCA or PRA requiring macro-prudential measures”. That concerns the interstices—the internal wiring—of the relationship between the Bank of England and its Financial Policy Committee, and the downstream implementation of such policy measures. As we discussed in previous sittings, the macro-prudential powers are clearly significant and will have a big effect on the economy at large.
New section 9G(6) states:
“The direction may not require its provisions to be implemented by specified means or within a specified period, but may include recommendations as to the means to be used and the timing of implementation.”
In other words, the FPC will make recommendations to the Prudential Regulation Authority or the Financial Conduct Authority about how they implement particular measures, but it cannot require them to follow those recommendations. If the amendment were agreed, the subsection would read: “The direction may require or recommend the means to be used and the timing of implementation.”
We tabled the amendment partly because of the evidence given by the Governor of the Bank of England to the pre-legislative scrutiny Committee. He suggested that an amendment should be considered to allow the FPC to
“require or recommend its provisions to be implemented by specified means or within a specified period”.
“I think this a missed opportunity. It was the intention of the new framework that the FPC should be able to impose requirements on systemic stability grounds, and for this purpose it is very difficult, in my view, to justify limiting its power to specify timing and means. On many occasions the precise implementation of FPC directions can be left to the micro-prudential supervisor. But in other cases a key element of the FPC’s policy position will be about when or how a particular tool is to be used and, in some areas, there is likely to be a premium on pre-emptive, targeted and well-timed action.”
Sir Mervyn King therefore suggested the amendment that we have tabled.
Obviously, we might have an existential debate about the extent to which the Bank of England’s writ should run and how the regulatory authorities pick up on the FPC’s view. However, as we heard in previous debates, there is no clear-cut case for having the Bank of England separate from the PRA or the FCA. They should not be in little compartments with walls around them; there are connectivities between them all and there is a stream that flows downhill from the Bank of England and its FPC to those regulators. The Governor has therefore made an interesting point about the current drafting of the Bill. The Financial Services Authority has supported the concept of such an amendment. In its evidence it stated:
“The FSA is supportive of the concept, as laid out by the Bank of England, that the FPC can direct the PRA or the FCA both as to means and timing. However, it is important that this is restricted to the powers to direct rather than recommend. We would, accordingly, support the Bank of England’s suggested amendment.”
This is a probing amendment. The pre-legislative scrutiny Committee chewed over this question in detail and came to its own conclusions. It recommended:
“Where the FPC is to be given the power to direct the PRA and FCA to implement a macro-prudential tool it should also be given the power to direct the regulators as to the timing and means of implementing that tool. The FPC should use this power where the timing and means of implementation are likely to have a significant impact on the effectiveness of the tool. If these circumstances do not exist the decisions about timing and means are better left to the regulators—the PRA and FCA—who hold the expert knowledge.”
That is probably the right balance to strike, but to exclude the ability to specify means and timing might cause difficulties. We can imagine circumstances in a crisis situation, when being able to get legal advice about whether the FPC could make reference to a particular company or timing of a measure might not be desirable. We want proper clarity in the Bill in relation to such circumstances. I can also envisage circumstances—I am sure the Minister can, too—in which the FPC might have company-specific, or at least vehicle-specific, reasons for concerns. It might therefore want a response about implementation of a macro-prudential tool relating to means or timing of changes.
I want the Minister to give us a sense of why the Government have chosen this drafting, particularly given the stance of the pre-legislative scrutiny Committee, the Governor and the FSA. I should be grateful to hear his justification.
It is a pleasure to serve under your chairmanship this morning, Mr Leigh.
The starting point for my argument and that of the hon. Member for Nottingham East is the quote from the pre-legislative scrutiny Committee. However, he emphasises the first part of the quote and I emphasise the second—that the Committee rightly recognises that it is the PRA and the FCA who hold the expert knowledge. It is because they hold such knowledge that I disagree with giving the FPC power to direct timing and means. Let me be clear: the FPC is a macro-prudential regulator; the PRA and the FCA will handle the day-to-day supervision of regulated persons. They will have the necessary expertise and experience to know how and when best to implement a direction from the FPC, which is important. The chief executives of both the PRA and the FCA will sit on the FPC to ensure that conduct and micro-prudential issues are taken into consideration, but the working-level supervisors will manage the day-to-day relationships with regulated persons. They will know how best to put directions into practice and what the right process is.
That is not to say that the FPC will be powerless with regard to the timing or means of a direction; the Committee can recommend how and when a direction should be implemented. Should it wish to underline the significance of its views on the matter, it can make its recommendation on a comply or explain basis, which would require the regulator to comply with the recommendation as soon as was practical, or explain why it had not done so. The provision will provide the FPC with a powerful means of influencing a direction’s implementation when it feels that that may impact on the tool’s effectiveness. However, regulator discretion is vital in ensuring that unintended consequences be avoided. A poorly calibrated direction on timing or means might have significant impact on regulated persons, and the regulator would have no choice but to comply unless the FPC revoked or amended the direction. Such a scenario would be highly undesirable and put potential uncertainty around the FPC’s exercise of its key function, potentially undermining its credibility and authority.
The Bill strikes the right balance. It gives the FPC some powers to be more specific about the use of the tool, but it also gives the micro-regulators—the FCA and the PRA—some latitude over the timing of the use of these tools. The existence of comply or explain powers provides a balance, so that if the PRA or the FCA feels that the direction from the FPC is not right, it can explain why. The balance is right and takes into account the proper relationships among the FPC, the PRA and the FCA.
If there had not been this process of direction and comply or explain, the hon. Gentleman’s arguments and those of the pre-legislative scrutiny Committee would be valid and would need reflection. It was because we thought about those arguments that we introduced the comply or explain power into this part of the Bill. I hope that the hon. Gentleman will take my points on board and recognise that his amendment is unnecessary, because the right balance has been struck.
I am grateful to the Minister for his justification of the Bill. We know that comply or explain is a favourite paradigm of the Treasury, going back quite some time, as a way of balancing regulatory burdens and the enforcement of those regulations. Comply or explain, of course, has its limits. Where the PRA or the FCA choose to differ on a regulation from the FPC, it may land us in circumstances where there is a row or a strong difference of opinion between the Bank and those creatures of the Bank—that is what the PRA and the FCA are—about the implementation of those particular changes.
I said at the outset that this is a probing amendment to test the view of the Governor of the Bank. As I said in my earlier remarks, there are ways in which it is important potentially to fetter the imperial writ of the Governor of the Bank. Given that the Governor made this specific point in the evidence session of the pre-legislative scrutiny Committee, I thought it was important to at least test it out. It would not be correct to go along with the pretence that the PRA or the FCA are somehow entirely independent, because they are not. The Minister takes a different view and thinks that they are independent, but we have already had discussions about the number of ways in which they are dependent on and steered and shaped by the Governor and his appointees.
My understanding is that the chief executive of the FCA is appointed by the Treasury, but the other members of the FPC are top heavy with executives within the Bank. Although the Treasury makes the appointment of the FCA chief executive, I think I am right in saying that there is a requirement to consult the Bank in the appointment of the FCA chief executive. I may be wrong.
I am delighted to hear that. The Government—this is important clarity—are labouring under the impression that the FCA is entirely independent from the Bank of England, yet we are talking about how the FCA implements FPC recommendations and how it must comply with them or explain why it has not done so. The Governor of the Bank is clearly under the impression that he should have power to direct the FCA, not only in those general terms, but in specific ones. The Minister may have clarified the point for me, but he should write a note to the Governor to let him know that the FCA might not be as under his thumb as he might have supposed, given the impression he gave in evidence.
This is a probing amendment and we have clarified some of the Government’s thinking. The pre-legislative scrutiny Committee envisaged circumstances in which the FPC might recommend, but not order, a requirement on the PRA to raise banks’ capital ratios to
“a minimum of X%, recommending this be done within three months.”
The PRA would then have to increase capital ratios, but could choose to do so over a longer period, such as six months rather than the recommended three. The Governor says that it might be desirable for him to be able to specify the time period, but, let us be clear, the Minister does not want the Bank to have that power. I am happy to accept his judgment, but setting out the exact boundaries of the Bank’s powers is incredibly important. The Minister has clarified that the FCA is entirely independent from the Bank, so I am more than happy to beg to ask leave to withdraw the amendment.
Amendment 36, in clause 3, page 7, line 43, at end insert—
‘(c) where an order is made under subsection 2(b) above, the reasons for not consulting the Committee and/or the public shall be subject to scrutiny by the Treasury Committee.’.
We move rapidly on. Proposed new section 9K relates to macro-prudential measures, which are a significant part of the clause 3 provisions. Under it, before making an order, the Treasury must consult the FPC. That makes sense, because the FPC was the genesis of the macro-prudential rules, so I suppose the Treasury would consult it on the technicalities of enactment of a particular macro-prudential measure. In addition,
“if the Treasury considers that the delay involved in consulting the Committee would be prejudicial to the stability of the UK”,
it must consult the Governor of the Bank.
I have no problem with circumventing consultation arrangements in crisis scenarios. In emergencies, actions must be taken rapidly, and I have no objection to that. However, in normal circumstances, the Treasury should be able to consult more widely on the technical way in which a macro-prudential measure will be enacted. Amendment 34 would insert the words “and the public” after “Committee” in line 40, because we want a public consultation on such matters. Amendment 35 proposes something similar in that the public could be consulted even in circumstances relating to emergency situations, although it would not mean that no action could be taken until the consultation were closed. A facility to consult the public should exist, however.
If an order were made in rapidly developing situations and it would be prejudicial to the UK’s stability to go through a full FPC consultation, it is important that the Treasury Committee, at least, be given reasons for the lack of consultation with the FPC or the public. The Treasury Committee could make a judgment, ex post, about the rapidity of those order-making powers and the extent to which wider consultation might have been beneficial.
In this day and age, it is not onerous or difficult to consult the public. Public consultation would hopefully improve the detail and nature of Government orders, including draft orders, allowing them to tap the widest possible sources of information and so improve the quality of decisions and ensure that they are desirable. It might be beneficial to alert policy makers to concerns in industries and businesses affected by such draft orders—consumers might also have views—especially if, inadvertently, policy makers or the Minister had not picked up details arising through a consultation process. Public consultation would also help to ensure healthier monitoring of how policy changes affect existing policy and to consider, perhaps in a dialectic process, whether such changes are in fact needed.
I understand that the Government still follows the Cabinet Office “Code of Practice on Consultation” in relation to policy making, which states that there should technically be 12 weeks between the publication and the implementation of a policy proposal. That 12-week period allows people to reflect on and consider the proposals and to make representations, and the Government should act only after the end of that period. That is an important principle, and having a consultation process is good practice because, after all, the changes may have significant effects on people and businesses.
“We think the Bill should be revised to ensure that a much wider range of expertise is used by consulting the public. The current structure gives no opportunity for consultation with public interest, financial and business stakeholders. While it should be possible to consult the public on setting the financial strategy, which should include the range of macro-prudential measures the Bank expects to have available, it may not be practical or in the interests of financial stability to consult the public in advance in emergency situations. Where these emergency powers are needed, they should be subject to scrutiny after the fact from the Treasury Select Committee.”
The three amendments seek to strike such a balance in that they would allow, in normal circumstances, for the doors to be opened, for there to be transparency and for consultation to take place, while also making sure that there is provision to circumvent and speed up the consultation, albeit ex post, once such arrangements are made.
On amendment 36, it is important that the Treasury provides reasons why, in some circumstances, it will not consult the public and why the Cabinet Office code is not relevant. The role of the Treasury Committee has clearly been important in considering such questions. I hope that the Minister agrees that we have framed the amendments so as not only to reflect external views, but to strike the right balance on transparency, and I would be grateful if he addressed my points.
It is a pleasure to serve under your chairmanship, Mr Leigh. May I ask a technical question? Do you also propose to have a clause stand part debate?
Thank you for that clarification, Mr Leigh. In that case, I will save the bulk of my remarks for that debate, although the Committee probably agrees that we have already had a wide-ranging and lengthy discussion on the clause. I have much sympathy for the points made by the hon. Member for Nottingham East about public consultation and the need to involve the widest possible group of stakeholders in decisions that may have a profound long-term effect on our economy. I shall comment more on that in the clause stand part debate.
It is interesting to note that the December 2011 discussion document from the Bank of England, which is perhaps the closest we have come to a public consultation on macro-prudential powers, uses terms such as “Countercyclical capital buffers”, “Sectoral capital requirements”, “Maximum leverage ratios”, “Time-varying provisioning practices”, “Restrictions on distributions”, “Margining requirements” and other such jargon, which, at the very best of times would be difficult for members of the public properly to understand. While I want to support the notion put forward by the hon. Member for Nottingham East that there needs to be the widest possible public consultation as these macro-prudential powers are discussed and debated, we need to ensure that that is done in proper English.
The hon. Gentleman is entirely correct. When we discussed these macro-prudential measures earlier and I started to summarise the Bank’s description of what its initial toolkit would look like, I got the sense that the Committee was glazing over. I might be wrong, but that is the tip of the iceberg in what the public might think about this. Clear, legible and straightforward explanations are necessary for the public. There were only 30 responses to the public consultation on the Bank of England document. That is a clear sign that there was not proper appreciation or communication of the calibre and importance of those measures.
I am afraid that I have to agree with the hon. Gentleman. When we are talking about loan to value and loan to income restrictions, we are essentially saying that Parliament will hand to the Bank of England the ability to set the leverage ratio on individuals’ personal debt levels or their ability to secure finance for mortgages. Like him, I am appalled that only 30 people and organisations across the country found that significant power both legible and significant enough to respond to. I am sure that there are more individuals and organisations across the country interested in responding to that issue than have so far come forward. A large part of that is the intelligibility of the December 2011 consultation.
I have a range of other comments that I want to make in the clause stand part debate.
Will the hon. Gentleman clarify his position? Is he suggesting that, if he has fears that it will not be clear, there should be no consultation, or that there should be consultation with the public, but it is essential that it should be clear?
Clearly, I was not being clear enough in what I was saying. It is very much the hon. Lady’s latter point: we should have consultation and it should be clear. This reminds me of when I was at the royal courts of justice yesterday, where there was a great debate about a competent appropriate authority and an appropriate competent authority. The hon. Lady is entirely right: we should have proper public consultation, conducted in plain English. I will leave my comments there for now in the hope that, Mr Leigh, I can catch your eye—
Before the hon. Gentleman finishes, would it be possible for him to write a joint letter with the Deputy Prime Minister on the amendments that he would be keen to see in the Bill? I know that that is a novel facet that is developing in our body politic, but I would be more than happy if he wanted to do a joint letter with the Deputy Prime Minister. We could even publish it; it would be helpful for these proceedings.
As ever, the hon. Gentleman is tempting in his generous offers. Perhaps I come from a different generation from the hon. Gentleman, but I am more likely to tweet my right hon. Friend the Deputy Prime Minister than I am to write to him with quill. I do not yet see the capacity for joint tweeting. On that note, I hope to catch your eye, Mr Leigh, at a later point.
No, definitely not, but I wish that I could keep my remarks to 140 characters. I do not think that these amendments are necessary—I am not sure how many characters that is. They are not necessary for two different reasons. One is about consultation. I have made it clear in previous debates about macro-prudential tools and legislation relating to them, that there will be a consultation process. The hon. Member for Nottingham East is right that there are Cabinet Office guidelines, which we are committed to following in consultations. I point out, however, that the guidelines permit circumstances in which consultations can be undertaken in periods shorter than 12 weeks. We are clearly committed to transparency, whether on statements of policy on the FPC’s tools, the financial stability report or public records of meetings, so that people can understand what is going on in the FPC.
The interim FPC’s December paper has been widely quoted this morning and in previous sessions, which demonstrates that that practice is out there and that the FPC rightly wishes to engage with people. As a matter of course and as part of the usual statutory instrument process, I expect that the Treasury will consult on macro-prudential tools. Hon. Members should not think that the debate has been in private or in secret. Had it been, the FPC would not have published its paper in December. In fact, we particularly asked it to do that work and publish its results to inform the debate because of the potentially significant socio-economic impacts of macro-prudential tools.
I am sorry if I am exhausting the Minister so early, but this is important. Given the point made by his colleague, does the Minister think that the December document from the Bank of England genuinely engaged the public in the importance of the possible effect of macro-prudential powers? Could it have been more effective in having a stronger, clearer communication with the public?
The hon. Gentleman comes from a strand of politics that seeks to micro-manage every aspect of public life, perhaps including providing a prescriptive set of language for the FPC to use. We must ensure that there is a public debate, which is not necessarily only to be done through FPC documents and the one that he suggested. That said, there is a broader point about the wider education of people in some of the more complex areas of finance that have a big impact. People are much more aware of such issues now than they were in the run-up to the financial crisis. The FPC must think carefully about how it gets the message across and about how it could engage with others to help it to do so.
Is not the point about the December document slightly spurious? Inevitably, some FPC decisions and deliberations will be highly technical and will need documents such as that. Others are big picture, and can be communicated through speeches by the Governor and through other FPC and Bank of England publications. Indeed, that is demonstrated by the difference between MPC minutes and the Governor’s press conferences in communications relating to monetary policy.
My hon. Friend makes an important point. The FPC can communicate to the wider public in a range of ways—through its financial stability reports, through documents such as the December document, and through speeches made by the Governor or other FPC members. The challenge is to ensure not only that there is sufficient technical information for people such as economists, bankers and people in business to understand, but that a wider communication strategy is in place. The FPC must think about that, because it has an important public role in sending signals and messages.
On micro-legislation, I cannot speak for the Treasury Committee, members of which are on both sides of Committee, but it should be able to call anyone to appear before of it whenever it chooses, and people may or may not come. However, it should not seek to have its powers defined in legislation any more than they are now. Such definition might restrict the Treasury Committee.
My hon. Friend raises an important point, which relates to the third amendment in the group, amendment 36. Let me wrap up on the first two. The intention is to consult with the public and support the FPC to think about how it communicates with the public in its prescriptions and the issues that it raises. The Government will consult before the introduction of secondary legislation, so we too will be able to consider how we engage with the public on such matters.
My hon. Friend is absolutely right about amendment 36: it is not necessary for primary legislation to dictate to the Treasury Committee what it should do. During the nearly two years in which the system has been up and running, I have noticed that the Chairman and members of the Treasury Committee are sufficiently robust and independent to decide their scope and remit, and rightly so.
I am sad that the hon. Member for Hereford and South Herefordshire has chosen to interpret amendment 36 as putting a burden on the Treasury Committee. I could have improved the drafting of that amendment, but the requirement that I am seeking to place would be on the Treasury to ensure that it gave the Treasury Committee the opportunity, ex post, properly to consider anything taking place under the emergency arrangements. I do not want to micro-manage how the Treasury Committee does that; I want to ensure that Her Majesty’s Treasury shows the courtesy and respect necessary to enable the Treasury Committee to do it.
Of course, the issue is not about burdening the Treasury Committee. It is simply that, as the Minister said, once we start to define a Committee’s responsibilities in legislation, we would irresistibly be drawn down the path of defining what it can and cannot do, but the Committee must reserve to itself a degree of autonomy.
That is true to some extent, but requirements for pre-appointment and pre-commencement hearings have been written into legislation and so on. In some circumstances, we should ensure that the Executive has, by law, a certain set of consultation arrangements with Parliament. I was simply trying to expand on such arrangements, but I understand the hon. Gentleman’s point.
On amendments 34 and 35, I welcome the Minister’s commitment that, as a matter of course, the orders will be subject to consultation and to the Cabinet Office code of practice. The purpose of tabling the amendments was to get the Minister’s commitment on the record. I do not see what harm would be done by writing into law a requirement for public consultation. That would be a harmless addition to the Bill, but the Minister’s commitment is very helpful.
The Minister talked about our not being too prescriptive in how we ask the Bank of England or others to describe their macro-prudential measures. There was an unfortunate tone of aloofness in the Minister’s comments, implying that we should all understand City-speak and not worry about any difficulty. I do not want to be prescriptive; I just want plain English. From time to time, Ministers should be guardians, on behalf of the general public, of the need to make those academics in their towers in Threadneedle street talk in an accessible way.
That point is important because, historically, a whole series of risks were masked—even from bank executives—by collateralised debt obligations squared and other opaque descriptors of financial products. Similarly, we want to ensure that regulatory changes are also debunked of the verbiage that unnecessarily accumulates around such provisions. I completely agree with the points made by the hon. Member for St Austell and Newquay, and we definitely need to guard against such risks. The Minister has given a commitment to the Committee, and therefore I beg to ask leave to withdraw the amendment.
With this it will be convenient to discuss the following:
‘but always on the Bank of England website.’.
Amendment 21, in clause 3, page 12, line 23, at end insert
‘but always on the Bank of England website.’.
Amendment 22, in clause 3, page 12, line 35, at end insert
‘but always on the HM Treasury website.’.
Amendment 69, in schedule 3, page 176, line 6, at end insert—
Publication of minutes and agendas
10 (1) The FCA shall make arrangements to publish, unless publication would be inappropriate, the agendas and minutes of the meetings of its committees and sub-committees.
(2) When a meeting of any committee or sub-committee of the FCA makes a decision upon any matter of public policy, the minutes of the meeting or meetings that result in that decision shall summarise the considerations which were taken into account, both for and against the decision.’.
Amendment 30, in schedule 3, page 177, line 26, at end insert ‘on the FCA website’.
It is a minor point, but amendment 69 has been grouped with this set of amendments. Amendments 16, 18, 21, 22 and 30 would clarify the language used in the Bill and how transparent it intends to be on the reporting of various matters. For example, amendment 18 would insert at the end of the provision
“Publication under this section or section 9S is to be in such manner as the Bank thinks fit”. the words
“but always on the Bank of England website”.
It is pretty harmless to insert a de minimis requirement, as the publication of such documents on the Bank of England website seems fundamental. Such a proposal is not objectionable to me; it is an important point. It would not be particularly onerous.
Whatever manner in which the Bank decides to publish, it is surely appropriate for such information to be made readily available and be easily accessible. I accept that we have had a laugh and a giggle about Twitter, but the interweb or the internet, as some people might call it, is now a commonly used device for gaining information. It is not even beyond the wit of the Committee to use the wi-fi facilities at the House of Commons to access available information about certain public documents. Indeed, these days it is in order for Members to read their speeches from tablet computers—generally the Apple iPad. I am not sure about that level of modernisation, but many hon. Members are keen on it and dedicated to it. The amendment would modernise the Bill and ensure that, rather than acting as the Bank sees fit—such as using a quill pen, who knows?—we, as a modernising Parliament, require publication of information on a website.
I do not know whether “website” has been used in previous legislation or whether we would become involved in legal definition problems, but people would understand the meaning of the word. Will the Minister outline the circumstances in which the Bank publishes in the manner it sees fit that would not be appropriate for publication on the Bank’s website? If the hon. Gentleman resists the amendment, he would be saying that, in certain circumstances, the website is not the appropriate vehicle to use. I want to know when such circumstances might occur. Transparency, which we have discussed, is important, but so is the accessibility of information. It must also be obtainable at all times. One of the wonders of the interweb is that it does not operate in business hours. We can turn it on, boot up and access such information at all times of the day or night, as I have found out in advance of our sitting. It is important to ensure that the Bill is fit for the 21st century.
The amendment would cover meetings of the Financial Policy Committee and deferred publications under proposed new section 9S. Amendment 21 would cover financial stability reports. Amendment 22 deals with records of meetings between the Governor and the Chancellor, which would be interesting. Amendment 30 is slightly different from the others, as it deals with a requirement in respect of the Financial Conduct Authority’s annual meetings, in which case it would not be appropriate to publish such information on the Bank of England’s website. Clearly, as the Minister has explained, the authority is a wholly independent body so it would be necessary for such matters to be published on the FCA website.
Amendment 69 would insert a new paragraph in schedule 3 on the records that must be kept. The FCA also requires a degree of transparency, and we think that the publication of minutes is perfectly justifiable. It is an important principle that we have transparency on the discussions that occur at the highest level of the regulator. Which?, the consumer association which campaigns for a fairer deal for all consumers, argues:
“Failing to legislate for the publication of board minutes and agendas of FCA board meetings stands in stark contrast to the Government’s publicised intention to create a transparent regulator. If the Government truly intended to create an open watchdog then they would legislate accordingly. The Government needs to learn the lessons of the report into the failure of RBS and ensure that the new regulator never gets into this type of situation again”.
Hon. Members will recall that we have recently had a discussion about the extent to which regulators share their information, albeit in a sometimes circumscribed manner, with the wider public. We wanted to test the principle of publishing minutes and I cannot understand why it is not in the Bill.
That view is echoed by Lord Turner, the current Financial Services Authority chairman. In evidence to the Treasury Committee last November, he said that he is “quite favourable” to making public board meeting minutes around policies such as the retail distribution review and the mortgage market review. He also suggested that non-executive board members should give evidence to the Treasury Committee to increase the accountability of decision making. Perhaps most significantly of all, the hon. Member for Wyre Forest, who will know that I listen to his every word on many of these issues, has said—in terms, because it was not about this specific amendment and I do not want to misquote him—publicly:
“It is important that we have publication of minutes to improve and enhance the effectiveness of how we can scrutinise and hold to account those financial regulators.”
I understand that, in Money Marketing magazine—I have a copy here if the hon. Gentleman wants a spare copy— he recently said:
“Getting in at least the non-executive board members would help us understand how decisions are made rather than simply what they are.”
That was in respect of the Treasury Committee. He then said:
“With the minutes from board meetings public, we could say to them ‘well, you said this, it is in the minutes, can you explain what you meant’ rather than it all happening behind closed doors.”
Indeed, as he said, helping us understand how decisions are made, rather than simply what they are, is an important principle. The hon. Gentleman makes a compelling argument. It is a principled stance and his leadership within the Treasury Committee also resulted in that recommendation coming forward in its 26th report, which was clear, unambiguous and strikingly simply. The report stated:
“The current legislative proposals do not provide adequate accountability, nor the framework for sufficient scrutiny of, and explanation by, the regulator. We therefore recommend:
That the board of the FCA publish full minutes of each meeting.”
Government Members will know that I am intending to be helpful to them. I have tabled amendment 69 in the spirit of cross-party consensus and I hope that they will join me in recognising its virtues.
Will the hon. Gentleman clarify to members of the Committee what time frame he has in mind for publishing these minutes? Will it be to publish immediately after the meetings or at a certain time afterwards? Can he also remind members of the Committee whether that was conducted by preceding bodies?
No. Hon. Members will remember that we had a big debate on this issue in the House, and the Minister replied in respect of the retail distribution review. About 80 colleagues of the hon. Member for Bury St Edmunds, including Labour Members, were most exercised about the lack of transparency regarding decisions on that review. Given that that is also a problem with current Financial Services Authority arrangements, we felt it important to take the opportunity to move forward and require publication of the minutes.
I did not feel it necessary to put the time scale for publication of the minutes in the Bill. General practice would perhaps accept that the time frame used by the Monetary Policy Committee, which publishes minutes a certain number of weeks after its meetings, would be an appropriate equivalent on which to draw. I envisage publication taking place an appropriate period after the decision has been taken, giving time for people to draft the minutes and have them approved and so on. Those are the reasons for tabling amendment 69. There are two issues: one is about the terms of publication on the website, and the other—more important in many ways—is about the publication of the minutes and agendas.
I feel that the hon. Member for Nottingham East is a bit old school when it comes to the publication of information. He has locked himself into websites—the interweb as he described it—but the communication of tomorrow may be different. It may be that the FPC tweets its recommendations, or that we are all friends of the Bank of England on Facebook and get information that way. The hon. Gentleman is in danger of locking himself into old technology. When the day comes on which the interweb is finally disposed of in the dustbin of technology, we will have to come back in primary legislation and remove references to websites in every piece of legislation that the hon. Gentleman has sought to amend. His point, however, is valid: we must ensure that information is communicated in ways that are accessible to people, not only in the language used, but in the location. He may be interested to know that Treasury policy is to post documents on its website and fewer hard copies of documents are published. Time is moving on, and I would not want to be locked into old technology such as websites.
It is not so much that. Amendment 18 would insert,
“but always on the Bank of England website.”,
so the whole interweb would have to be kept going just to publish that information until the legislation could be amended. Let me draw a different analogy. Members of the Committee may remember, as I do, the days when teletext and ceefax were cutting edge. The equivalent of the hon. Member for Nottingham East would have tabled amendments to suggest that information should always appear on teletext. We should be wary of locking ourselves into old-style technology.
Chris Leslie rose—
The Minister makes an important point. I do not, in any way, want to lock in the Treasury to the day when the internet suddenly collapses and Tim Berners-Lee’s invention becomes a redundant feature. It does not seem to be meaningful on those grounds. Perhaps I have missed some techno-news into which the Minister has some insight. If the Minister will address this particular point, I will be happy to withdraw my amendments. Can he envisage any circumstances in which the FSA or others would not always publish on the website?
I still cannot, but that is not really the point. People publish stuff on the internet as a matter of course. Any organisation that is communicating with the public will publish stuff on the internet; that is what people do in this early part of the 21st century when Tim Berners-Lee’s invention is still at the forefront of our minds.
Let me turn to amendment 69. The hon. Gentleman is right that this flows from not just the wise and sagacious remarks of my hon. Friend the Member for Wyre Forest but the evidence that Lord Turner gave to the Treasury Committee. One of the clear principles that underpins the approach to regulation that is set out in the Bill is transparency. It underpins a lot of the work of the FPC. Before we finish consideration of this Bill, we may come on to other ways in which we can use transparency to improve outcomes for consumers. Transparency is there. None the less, it is a matter for the FCA board to decide what it publishes. I have no objection in principle to saying that it should publish these documents, but I will come on to some areas where such publication may not be so helpful.
There is a slightly broader point to bear in mind. The FCA, or the FSA as it is currently, is quite a transparent body when it comes to policy making. We already have consultation papers and discussion papers. The hon. Gentleman touched on the fact that the Retail Distribution Review had gone through a very public process of consultation and discussion for about three years. There is no shortage of information out there, but where the gap perhaps is, and the publication of board minutes would help to close that gap, is the thought process that goes beyond, “This is what people have said” to “This is why we have done it”. In part, it is addressed in the responses to consultation papers that the FCA publishes, but it does not do any harm for those discussions in boards to be minuted and for those minutes to be publicised. It just completes the loop. I do not have any objection to it; it is a good thing to do and clearly Lord Turner thinks that it is a good thing to do.
None the less, the broad scope of the hon. Gentleman’s amendment would catch a range of committees that have a public policy function. I just wonder whether we would be going beyond what we are always trying to do, which is to get some transparency around decision-making on regulatory policy. It might include committees dealing with remuneration, audit and the financial management of the FCA. Would it cover discussions of the regulatory decisions on individual firms? Those are quite sensitive matters. My instinctive principle is to ensure that information is made public, but the Committee should be wary about being over-prescriptive. It is clear from Lord Turner that they want to publish as much as they can—I think that they should—but we should be very careful about extending the scope without fully thinking through the consequences.
This is a substantive amendment and an important principle. It is very helpful that the Minister sees no harm in the publication of the FCA minutes and agendas, I want to hear why there would be harm in placing this requirement in legislation. The Minister has a particular quibble with the drafting of my amendment. If he gives a commitment to come back on Report with some equivalent that would be more properly framed in the way he would prefer, I would be more than happy to withdraw this amendment. It is an important principle. It should not just be left to the current incumbents in those regulators to say, “Well, that is what we are going to do.” We know of situations in the past in which there has not been the necessary transparency of minutes and proceedings at board levels. Will the Minister at least commit to coming back and considering a way of including the requirement in the Bill?
I will certainly think about it, but I am wary of going down the route of being prescriptive about how a board will function. That is one of the reasons why we have set out clear regulatory principles in the Bill, such as the principle of transparency. However, I will consider whether there is a way of including the measure without setting a precedent on the degree of intervention in how boards function, which would be unhelpful.
I was hoping the hon. Member for Wyre Forest might have something to say on this. I was inspired by him, as I often am, to take up the pearls of wisdom that drop as crumbs from the Treasury Committee’s table. He is not keen to speak, however. It is difficult to read particular motives or views into someone’s silence, so I shall try not to do so. The Minister has said that he will think about it, which is helpful—for this Minister, that goes quite a long way. Does my hon. Friend agree?
Yes. The FCA will set up various practitioner and consumer panels and consult them. Does my hon. Friend agree that those panels would find it useful to be able to refer to the minutes and agendas, which would be available through routine publication?
Indeed, and that was the question that the Minister prompted when he mentioned the audit committee or the remuneration committee. As a matter of principle, in this day and age, regulatory matters must be more transparent. We framed the amendment so that anything inappropriate for publication could be excluded or redacted from minutes in the usual way. I do not see how consumer panels and others could properly reflect on the rationales behind decisions made by the FCA or others if they did not have some insight into the minutes. This is an important question, and the proposal is not a particularly prescriptive way of proceeding in legislation.
I am grateful for the hon. Gentleman’s extraordinarily kind words about my participation in the Treasury Committee. I have taken a bit of time in finding the exact quote in the Treasury Committee’s 26th report of the 2010-12 session. In my question 116 to Hector Sants and Lord Turner, we discuss the very point about the Monetary Policy Committee’s minutes. The MPC keeps detailed minutes of exactly what each member refers to, so its accountability is much clearer. Lord Turner discussed how that situation might be applicable to the FCA and would make it more accountable, too. He says that each executive director of the FCA could be called before the Treasury Committee to give an account of their contribution, which would make accountability more clear.
Order. Mr Garnier had an opportunity to give a speech earlier. Interventions must be made through brief questions. If he wishes to give a speech later, I am perfectly relaxed about that.
The existing regulators that have not so far published their minutes might not wish to change their ways, but that is entirely different from saying whether the new regulators, particularly the FCA, ought to take a different course. I am not averse to quoting and praying in aid Lord Turner on other occasions, but I disagree with him, because the amendment should be written into the Bill.
The hon. Gentleman will remember our discussions about the retail distribution review and how massively frustrating it was for many people. It was wise of the usual channels to try to have some cross-fertilisation between this Committee and the Treasury Committee, although they did not succeed in relation to the pre-legislative scrutiny Committee. At least the hon. Gentleman is serving on this Committee. I know he is in an invidious position, because he is part of a team that has a duty to get the Bill through in a particular form, but I hope that he might—[Interruption.] I am afraid I will put amendment 69 to a vote, because I need to ratchet up more pressure on Government Members, and the hon. Gentleman will understand that. I also hope that, being in a rather awkward position, he might put pressure on the Minister to consider returning with a more appropriate amendment on Report. The Minister has already said that he will “think about it”. If we do not bring that pressure to bear, there is not much point in going through this rigmarole.
Does my hon. Friend agree that amendment 69 would create a fairly basic provision? It would not amount to Parliament writing all the rules, because Parliament would not decide when publication is deemed inappropriate, and it would not prescribe that we have to know who said what and how they voted. The amendment would amount to the fairly basic stuff about the considerations for and against certain matters, not the detailed rules.
‘(1A) (a) if the Treasury considers it appropriate to proceed with the making of an order under section 9K, the Treasury may lay before Parliament—
(i) a draft order, and
(ii) an explanatory document,
(b) the explanatory document must—
(i) introduce and give reasons for the order,
(ii) explain why the Treasury considers that the order serves the purpose in section 9K, and
(iii) be accompanied by a copy of any representations received from the FPC or the Governor,
(c) the Treasury may not act under subsection (1A)(a) before the end of the period of 12 weeks beginning with the day on which the consultation began, unless the order is made in accordance with subsection (2),
(d) subject as follows, if after the expiry of the 40-day period the draft order laid under subsection (1A)(a) is approved by a resolution of each House of Parliament, the Minister may make an order in the terms of the draft order,
(e) the procedure in subsections (1A)(f) to (1A)(i) shall apply to the draft order instead of the procedure in subsection (1A)(d) if—
(i) either House of Parliament so resolves within the 30-day period, or
(ii) a committee of either House charged with reporting on the draft order so recommends within the 30-day period and the House to which the recommendation is made does not by resolution reject the recommendation within that period,
(f) the Minister must have regard to—
(i) any representations,
(ii) any resolutions of either House of Parliament, and
(iii) any recommendations of a committee of either House of Parliament charged with reporting on the draft order, made during the 60-day period with regard to the draft order,
(g) if after the expiry of the 60-day period the draft order is approved by a resolution of each House of Parliament, the Minister may make an order in the terms of the draft order,
(h) if after the expiry of the 60-day period the Minister wishes to proceed with the draft order but with material changes, the Minister may lay before Parliament—
(i) a revised draft order, and
(ii) a statement giving a summary of the changes proposed,
(i) if the revised draft order is approved by a resolution of each House of Parliament, the Minister may make an order in the terms of the revised draft order,
(j) for the purposes of this section an order is made in the terms of a draft order or revised draft order if it contains no material changes to its provisions,
(k) in this section, references to the “30-day”, “40-day” and “60-day” periods in relation to any draft order are to the periods of 30, 40 and 60 days beginning with the day on which the draft order was laid before Parliament,
(l) for the purposes of subsection (1A)(k) no account is to be taken of any time during with Parliament is dissolved or prorogued or during which either House is adjourned for more than four days.’.
The more I think about it, not to have had a Division just now was the best outcome, given that it provides the hon. Member for Wyre Forest with the opportunity to talk to his Front-Bench colleagues. Let us hope that that window of opportunity proves useful.
Amendment 15 concerns a fundamental part of clause 3 that needs proper consideration. The amendment would insert a considerable new subsection about the parliamentary scrutiny of orders made by the Treasury to implement the macro-prudential measures required by the Financial Policy Committee. The reforms of the Bank will give it new powers, especially in relation to prudential policy, that are of the utmost importance, so we clearly need enhanced accountability arrangements for the introduction of those powers.
I should say that I do not want to alter the provisions about emergency orders. I accept that if the FPC decides that macro-prudential measures are necessary and the Treasury has to implement those measures, there may be certain circumstances in which a long and detailed parliamentary process is not appropriate. We are not addressing such circumstances; we are asking how there can be proper scrutiny, particularly in the House of Commons, of macro-prudential orders tabled by the Treasury at normal times.
During the pre-legislative scrutiny process and consideration by the Treasury Committee, there was considerable discussion of the need to enhance parliamentary scrutiny and accountability. In paragraph 309 of its report, the pre-legislative scrutiny Committee stated:
“The reforms in the draft Bill give the Bank significant new powers in macro- and micro- prudential policy. These powers must be paired with reforms to ensure that clear accountability processes are in place.”
Given that the Government sometimes argue against amendments because of technicalities, or because of the way in which they have been framed by the Opposition, it is appropriate to look at the most recent example of the Government’s approach to parliamentary scrutiny. Hon. Members will recall the Public Bodies Act 2011, which contains the provisions in the amendment. If a quango or a particular public body was being abolished, rather than just laying the order and having a rather unsatisfactory one-and-a-half hour statutory instrument Committee randomly comprised of hon. Members who had other things going on, the provisions would instead allow a proper period of time for Parliament and the relevant Select and Public Bill Committees to thoroughly consider the implications of the orders. In fact, they would be draft orders at first. Hon. Members can see how this process would work.
It is difficult to prescribe in an amendment and in the Bill a particular type of Committee to do a particular type of consideration, because legislation, as we know, cannot bind parliamentary sovereignty or successor Parliaments. All we can do is find a way of framing an amendment that would give time, and the House of Commons could then decide its own internal scrutiny and consultation arrangements. The amendment states that if the Treasury considers it appropriate to make an order, it must lay the draft order and an explanatory document before Parliament. The document must give reasons for the order, explain why the Treasury considers that it serves the purpose in proposed new section 9K, and it must be accompanied by
“any representations received from the FPC or the Governor”.
Crucially, the Treasury may not enact the order
“before the end of the period of 12 weeks beginning with the day on which the consultation began”.
If, after a 40-day period,
“the draft order laid…is approved by a resolution of each House of Parliament, the Minister may make an order in the terms of the draft order”.
“either House…resolves within the 30-day period, or…a committee of either House charged with reporting on the draft order so recommends” that the resolution be rejected
“the Minister must have regard to…any representations… any resolutions of either House of Parliament, and…any recommendations of a committee of either House of Parliament” and make the report accordingly. There is a similar provision for the revision of orders if the Committee makes a recommendation not to simply reject, but to revise or amend the order.
This is an incredibly important part of the balance of powers and the constitutional changes that the Bill seeks to put in place. It gives phenomenally significant new powers to the Bank of England, the FPC and the new regulators. In the previous group of amendments we discussed the retail distribution review, the mortgage market review and other large changes to regulations. There was incredible frustration in Parliament that there had not been ample time to debate, discuss or properly scrutinise the arrangements. Hon. Members may well say that we have the Treasury Committee, but quite frankly, that Committee is one of the busiest—if not already the busiest—Select Committees in Parliament. It has something like 12 members and an incredible amount of business, and it is inadequate to place the whole burden of scrutinising macro-prudential policy making on the Treasury Committee.
The hon. Gentleman will be well aware that the regional distribution started in 2006, and for four years his Government failed to scrutinise it. It was not until the new Parliament that new Members started looking into the issue in any meaningful way.
I accept that we have to learn lessons where there has not been sufficient scrutiny; I have no problem with saying that, as I said in a debate on the RDR. There could be danger if we do not design a safety valve in the Bill to allow steam to be let off and the proper thread of accountability to be pursued. It is difficult, because we have to talk about hypothetical situations from time to time. If the Bank decides to take on radical new powers, and the Treasury enacts those, albeit by affirmative resolution—I am grateful to the Minister for conceding at least that point—there will be a highly charged, binary yes-or-no debate and vote on the Floor of the House. In theory, it is perfectly possible for the House to vote the resolution down, and I accept that that is an important concession from the Government. However, if there are more examples in future of regulators making changing via the Treasury, and Parliament does not feel that its voice has been heard, or if the views of business representatives or consumers have not been included in discussions, a future Parliament will come along and bodge in a safety valve retrospectively to the legislation, which might not be appropriate or fit. It is therefore important to include a proper time for consultation in the arrangements, which is why we have tabled the amendment. I was inspired by the Government themselves; the device is a Government one. The Minister for the Cabinet Office and Paymaster General talked favourably in the Second Reading of the Public Bodies Bill about that particular process, and I hope the Minister will consider that it is appropriate.
As I said, the Treasury Committee is full to bursting with issues to consider. Just as we have a European Scrutiny Committee in the House of Commons, chaired by the hon. Member for Stone (Mr Cash), which looks at quasi-legislative regulatory suggestions from an external source, it would be appropriate for the House to consider establishing a financial services scrutiny Committee, also to look at quasi-legislative regulatory changes from an external source—in this case the Bank of England, the Monetary Policy Committee and so forth. A standing group of Members with particular interests, and led by a dedicated Chair, would able to look at the conveyor belt of regulations as they come through, pick out the most important and pertinent aspects, delve into them, raise questions and hold discussions with the Minister and properly consider them. That would be a useful supplement to the work of the Treasury Committee. I am not fixed on that; if the Government have a different view, we would be more than happy to discuss it through the usual channels. A Sub-Committee of the Treasury Committee would be a better way of approaching the matter. I genuinely think—this is not a partisan point—that all of us, as parliamentarians, have a duty to figure out how best we can improve scrutiny of what could be a considerable number of changes to regulations.
I am interested in my hon. Friend’s idea of establishing a kind of Select Committee scrutiny procedure for financial services. Does he not agree that now is the time to do that, to reassure the public that Parliament is taking seriously not only through legislation, but through a scrutiny Committee in the form of a Select Committee, the careful regulation of financial services?
Absolutely. I commend the work that the Treasury Committee does; it does a phenomenal job. However, there is enough going on in day-to-day policy making without the detailed scrutiny of some of these orders. Another parliamentary device to fulfil that scrutiny would be useful. That relates to the second part of the amendment that we have tabled. We have not been able to specify that in the amendment, but it would enable Parliament properly to consider the impact of those things.
Our amendment was very much inspired by the Public Bodies Act 2011, so it is consistent with existing legislation. That overcomes the usual rebuttal that it has been drafted in a technically inefficient way. The Treasury Committee has recommended that prior scrutiny would be beneficial:
“The macro-prudential measures set out in secondary legislation will be of great importance and potential scope, and will give the FPC great powers. Parliamentary control and scrutiny of these measures are vital before such powers are granted. As the legislation stands, their approval by the House of Commons requires only a 90 minute debate in a General Committee and a decision without debate in the House. We recommend that the Government amend the draft legislation to require that debates on orders prescribing macro-prudential measures be held on the floor of the House and not be subject to the 90 minute restriction. Furthermore, the House would benefit from prior scrutiny of such orders by this Committee. We recommend that the Government provide us with the proposed text of the draft orders at least two months before they are laid before the House in order to allow us to report to the House on their merits.”
Our amendment would not prevent that from happening. I personally think that we need a dedicated financial services scrutiny Committee, but I would be content if the Treasury Committee had its way, as it has requested.
The pre-legislative scrutiny Committee, too, made the recommendation that Parliament should have scrutiny powers in non-urgent cases and that the procedure for affirmative resolution should be based on section 11 of the Public Bodies Act. That was something the PLS Committee pointed out. It states in paragraph 315 of its report:
“The macro-prudential tools to be used by the FPC are of considerable importance. Some of the tools being considered will have a direct effect on the economic circumstances of constituents. Parliament must have an opportunity properly to scrutinise these powers. On the other hand there must be”—
Will the hon. Gentleman explain why, when we are talking about macro-prudential powers that could affect every constituency and perhaps every constituent, he wants to shunt scrutiny to a Sub-Committee or a different committee as yet undecided? Why not do it on the Floor of the House?
We currently have a vote on the Floor of the House, but no debate. Given that there is nothing else going on of great importance in legislative terms in the House of Commons, I would be happy to say that scrutiny could easily be done on the Floor of the House. However, normally, we tend to have specialist Select Committees or Standing Committees scrutinise such arrangements. They can make recommendations that could in themselves be a distillation of the most important regulatory points and debated accordingly on the Floor of the House. For example, the European Scrutiny Committee can make a recommendation that can either be debated in Committee or on the Floor of the House, depending on the usual channels allowing parliamentary time for that.
I am talking about that sort of arrangement, but the amendment is not prescriptive about how that should proceed; it is very broad-ranging in allowing time. After all, that is the approach taken in the Public Bodies Act, and that was the approach suggested by the pre-legislative scrutiny Committee, which went on to say:
“In non-urgent cases we recommend that the tools be subject to an enhanced affirmative procedure similar to that set out in Section 11 of the Public Bodies Act 2011. This would provide for consideration by the relevant select committees in both Houses and where appropriate would place a duty on the Treasury to consider those committees’ recommendations before laying the final instrument.”
The Government have already responded to that recommendation. I am trying to pre-empt what the Minister will say, because we do not have long to debate the principle. The Government’s response in paragraph A.64 was that agreed proper parliamentary scrutiny was important and that
“The Bill already provides for macro-prudential tools to be subject to the affirmative procedure… the Government will consult publicly on its proposals for the FPC’s initial set of policy tools. The Government believes that the enhanced affirmative procedure would not be appropriate for the FPC’s toolkit, as even in non-urgent cases, enhanced affirmative procedure could cause excessive delay in updating and amending the FPC’s powers.”
The Government’s objection seems to be the point about delay, but I genuinely think that in non-urgent times, delay need not be an encumbrance to getting the order through. These are rule-making powers; quasi-legislative arrangements. That is not the same as the Monetary Policy Committee determining the operation of interest rate policy; it is about changing the rules in which businesses operate and under which our constituents have to live.
It is important that we accept the need for enhancement in the prudential-regulatory arrangements and that we need better systemic oversight. As a consequence, we agree that from time to time macro-prudential rules need to be made and we have no problem with that.
I think that Parliament is sovereign and that ultimately we are accountable to our constituents. The Bill goes so far in allowing Members of Parliament to vote on macro-prudential measures through the affirmative resolution procedure, but it does not allow us to properly scrutinise or revise those tools. That is the recommendation made by the pre-legislative scrutiny Committee, and to a certain extent the Treasury Committee.
But does the hon. Gentleman think that such decisions should be made independently? He said that this issue is different from monetary policy, but in substance it is not. When the Monetary Policy Committee changes interest rates, that has an impact on savers and borrowers across the country, just as using macro-prudential tools would have an impact.
No, this is very different from monetary policy. [ Interruption. ] I will give way in a moment but I want to pin down this point. The Bill gives powers to Parliament, but those powers are insufficient to allow a vote on macro-prudential policies through an affirmative resolution procedure. The hon. Gentleman says that by extension that compromises the independence of macro-prudential policy making, but I disagree fundamentally and support the Minister in that at the very least we need an affirmative resolution procedure. If we are to have such a measure, it should be an enhanced affirmative procedure so that we can properly scrutinise the legislation.
Is not the point about monetary policy that Parliament has not passed it lock, stock and two smoking barrels to the Bank of England? Parliament sets the target that the MPC works towards. If I am right, that is exactly the kind of oversight that the hon. Gentleman proposes with the macro-prudential powers.
To an extent the hon. Gentleman is right. The Chancellor of the Exchequer set the benchmark target for inflation at 2%, and the MPC uses that in its day-to-day decisions. There is a connection between policy making and operation. Similarly, it is important to recognise that this is not a partisan point but is about the right of Parliament not to take whatever is said by the Bank of England and the Crown as gospel. Parliament is sovereign under our constitution, and we have a duty to do our best to scrutinise the rules by which our constituents are obliged to live. That point should be shared across the Committee.
I strongly agree that we should scrutinise the rules by which our constituents live, and that is precisely what we are doing. We are setting exactly that framework and target—to provide a parallel with monetary policy—in the legislation that we are scrutinising. On the parallel with monetary policy, does the hon. Gentleman argue that setting interest rates is not a policy decision?
The setting of interest rates is an operational decision by the Bank of England, which makes that decision independently, but we are talking about the macro-prudential measures, which are clearly policy issues that would affect our constituents. If they were not policy the Government would not already wisely have conceded that they should dealt with by affirmative resolution in Parliament.
To row back even from that would be to go back to the dark ages, and say that we should all take the missives of the Crown as Gospel, and, as parliamentarians, just doff our cap. Hon. Members may from time to time get excited about their role within the Executive, and the power that can flow from that, but our primary duty is as legislators, properly scrutinising the proposals made by the Crown. We are dealing with pretty fundamental and important constitutional issues.
Plenty of other outside bodies say that we need to take great care in the scrutiny arrangements: the Institute of Chartered Accountants in England and Wales, among others, says similar things. It is important that the Minister properly address the question of why the Public Bodies Act arrangements would not be appropriate in the case we are considering. We have taken the lead offered by the pre-legislative scrutiny Committee. The point is not a partisan one; it is about Parliament asserting its right to have the correct balance. I seriously and strongly urge hon. Members to think carefully about whether the Government should concede the point.
There is a weakness in the House’s processes regarding some of the regulation-making procedures. The huge use of regulations, not just in the present context but in all spheres, and the all-or-nothing approach of voting for or against, together with the lack of real debate and scrutiny, limit Parliament’s ability properly to scrutinise and influence legislation. As we know, all too often, the devil with legislation is in the detail of the regulations. After such a process as we are engaged in, many things are left undecided; proper debate is not necessarily allowed for.
With that in mind I think it would be appropriate to extend and expand Parliament’s ability to become involved in the matter. If Parliament were not meant to be involved at all, as is perhaps suggested by the independence of the Financial Policy Committee, there would be no provision for the matters in question to come back; but of course there is such provision. The amendment relates to a provision under which the matter would come back to Parliament, and it is obviously considered appropriate that that should happen.
From there, the further point to consider is whether the process set out in the Bill allows sufficient scrutiny and sufficient ability to revise, reconsider and take into account various other points during the process. If that approach is in the Public Bodies Act 2011, that seems to allow for a similar process in the present case. I hope that the Minister is willing to consider the proposals.
I shall explain in detail why I do not think the amendment is appropriate. We need to recognise that it is important to get the right balance between scrutiny and giving the FPC the tools it needs to take prompt action. The problem with the super-affirmative procedure set out in the amendment is that it creates the potential for unacceptable delays, even in non-critical circumstances.
The minimum time needed for a draft order to be approved under this process would be 124 days. However, the maximum time would be much longer. If either House was adjourned for more than four days, that period would not count towards the scrutiny period for the order. This year, the summer recess starts in the Commons on 17 July, and the House of Lords returns on 8 October. That is 83 days that could be added to the scrutiny of the tools during which nothing is being done. This year, it could take more than 220 days to approve a draft order using this procedure. Most reasonable hon. Members would suggest that that was simply too long. By the time that a draft order was approved, the risk that it was needed to address could already have become a major threat to stability.
Orders made under proposed new section 9K will not always be major legislation. It could be that minor technical amendments need to be made to the tools over time or that tools will be removed. In such circumstances, requiring the super-affirmative procedure would be a disproportionate use of parliamentary resources. Perhaps the hon. Lady would welcome that.
The hon. Lady might not wish to attend her party conference, but I rather enjoy attending mine. It is important that we ensure that we are accountable to the members of our parties and that we engage in massive public debate with them. She may think that the proposal is a good method to wheedle her way out of attending whichever seaside resort the Labour party is going to this year, but I do not think that that is a good enough reason. [Hon. Members: “Manchester.”] There we go—Manchester. The ship canal, of course, links Manchester to the sea, but I am not sure that that is good enough to say that it is a seaside resort.
The super-affirmative procedure is time-consuming. There is a need for proper parliamentary scrutiny and public consultation. We have been very clear about that in previous debates. However, the time that use of the super-affirmative procedure could add up to would get in the way of the FPC getting on with its job.
I intended to come on to this issue. It is the second strand of my argument. The super-affirmative procedure can act as a barrier to timely action. There is also a difference between the Public Bodies Act and this measure. That is another reason why the super-affirmative procedure is not appropriate in this case. The Public Bodies Act confers very wide powers to abolish, reform or modify a wide range of public bodies. In contrast, the powers that we are currently discussing are specific to the tools of the FPC. The Public Bodies Act also confers a range of ancillary powers, such as the power to amend primary legislation. This measure does not do that. One must ensure that the degree of scrutiny is proportionate to the powers that are being engaged in. That is why it would be absolutely wrong, for example, for the negative procedure to be used in this area. However, the super-affirmative procedure is a step too far.
The Joint Committee on Statutory Instruments—the Committee that scrutinises whether the appropriate parliamentary scrutiny is put in place for these bodies—looked at proposed new section 9K and did not recommend that the super-affirmative power be used. The Joint Committee, which includes Members of both Houses and from both major parties, looked at the matter carefully and did not conclude that the super-affirmative procedure should be used. They spend all their time considering these matters, so they are acknowledged experts on what the right degree of scrutiny is.
The proposal suggested by the hon. Member for Nottingham East is not necessary. It certainly was not necessary in the view of the Joint Committee on Statutory Instruments. It is not proportionate to the powers, in contrast with the Public Bodies Act 2011, and the super-affirmative procedure would get in the way of ensuring that the FPC has the tools that it needs to carry out its role. I urge him to withdraw the amendment.
My hon. Friend the Member for St Austell and Newquay suggested that the rules could be debated on the Floor of the House. Our right hon. Friend the Chancellor of the Exchequer indicated on Second Reading that that could happen, subject to the usual channels.
I am afraid that the Minister has given the importance of parliamentary scrutiny cursory attention in his remarks. I was expecting a series of arguments slightly stronger than “The Joint Committee on Statutory Instruments didn’t recommend this particular route,” although I would be grateful if he would set out where the Joint Committee considered the option. It would be interesting to see its proceedings. Perhaps he could write to the Committee with a reference to where that consideration took place.
I worry greatly about the Minister’s framing of his arguments against the arrangements. He says that we must strike a balance between proper scrutiny and the FPC’s ability to exert its powers. The idea that parliamentary processes in non-urgent cases are too difficult to hold a proper debate on rules that will affect the lives of our constituents and businesses is a most unfortunate understanding of the role of Parliament in scrutinising those rules. His argument is that if we add recess and all the other arrangements into the circumstances, it could take 200 days at the outside, implying that that would be the case in all circumstances. It is absolutely not the case that a draft order need take all that time. If it is referred to a relevant Committee that decides it is unobjectionable or requires only minor revisions, it can move through rapidly. That is the whole point.
By extension, the Minister is saying that the European Scrutiny Committee arrangements are too burdensome for considering European legislation, whereas I would say that most hon. Members think that we do not scrutinise European regulations and legislation enough. I am surprised by his argument.
That had not occurred to me. It has been so long since I served on a Select Committee—more than a decade—that I did not realise. In my time, that was not the case, but modernisation has hit Parliament, as I am glad to see.
Hon. Members must recognise that this is an important point of principle. It is about constitutional powers that need to be balanced correctly. I seriously hope that hon. Members will consider the proposals carefully and support them. The Minister has not given convincing arguments. He says that the Public Bodies Act 2011 is different because it affects primary legislation, but in many ways, macro-prudential rules are new forms of serious and significant legislation that verge on being the equivalent of primary legislation, and therefore merit proper scrutiny. I am afraid that I will not withdraw amendment 15. The principle is important, and I urge hon. Members to vote for it.
Clause 3 has a provision that prevents certain activities by the Financial Policy Committee in respect of the making of recommendations within the Bank of England. In certain circumstances, the FPC can make recommendations relating to
“the provision by the Bank of financial assistance to financial institutions” or
“the exercise by the Bank of its functions in relation to payment systems, settlement systems and clearing houses.”
The FPC may not make recommendations about
“the provision by the Bank of financial assistance in relation to a particular financial institution”— which is interesting in relation to subsection (2)—
“or the exercise by the Bank of its powers under Parts 1 to 3 of the Banking Act 2009 in relation to a particular institution.”
I will come back to subsection (3)(a) in a minute because I want to see how it is compatible with subsection (2)(a). Under the amendment, we would leave out those elements about which the Committee may not make recommendations.
This is a probing amendment to test the rationale of the Government. Perhaps it was the Bank of England’s idea to circumscribe the discussions and the recommendations by the FPC and prevent it from discussing specific assistance to particular banks or the exercise by the Bank of powers under the 2009 Act.
Let me refresh the memories of members of the Committee because they may not remember the corresponding topics to the parts of the 2009 Act. It might be useful for the Committee to see what we are talking about here. Part 1 of the Act refers to special resolution regimes. Part 2 refers to bank insolvency arrangements and part 3 talks about bank administration.
As I read the clause, the FPC may not make recommendations about the exercise by the Bank of its powers on special resolution regimes, bank insolvency and bank administration as they relate to a particular institution. I am surprised that the Government have fettered the scope of the FPC’s activities in such a way. They unnecessarily inhibit the FPC from making recommendations within the Bank. It is not necessary to gag the FPC in this way, especially when it comes to making recommendations about particular institutions, because there could be some valid and important circumstances when it would want to make such recommendations. For example, under section 152 of the Banking Act 2009, there is mention of transfers to public ownership of companies under administration. Under the provisions in the Bill, the FPC would not be allowed to make such recommendations. That is circumscribing the role of the FPC quite considerably, especially given that there might be stability implications from such a circumstance.
Section 118 of the Banking Act 2009 talks about insolvency provisions—the impact of a bank’s winding up on consumer confidence. Part of the Financial Policy Committee’s role is to keep an eye on credit cycles. Consumers have an important role to play in the behavioural nature of credit cycles. If consumer confidence is affected, the FPC may have an opinion on that and might want to make recommendations to other parts of the Bank, but might be prevented from making recommendations accordingly under this provision.
Bridge banking arrangements or the scope of private purchase arrangements in the wider market are also mentioned under the special resolution regime in Part 1 of the 2009 Act. Again, a proper appreciation of the wider market and the role that the FPC has in understanding it is relevant to the Bank’s decisions, so I do not understand why the Minister seeks to fetter an internal challenge that the FPC might usefully be able to add in discussions that take place. That echoes some rather peculiar decisions by the Government in framing this legislation, putting walls around some of the Bank’s various interstices. Just as they did not wish to go the full way in creating a court of the Bank of England with proper supervisory powers, they do not want to give the FPC flexibility in this regard. I might have misread the provision. I should like the Minister to explain what is achieved by such an artificial restriction being placed on the FPC.
Will the Minister square for me the provisions in proposed new section 9N2(a) and 3(a), although I might have misread it?
“The Financial Policy Committee may make recommendations” relating to
“the provision by the Bank of financial assistance to financial institutions” but
“may not make recommendations about…the provision by the Bank of financial assistance in relation to a particular financial institution”.
I see now that it is to do with the particularity of that circumstance. However, that is why we wanted to remove lines 13 to 17. I should be grateful if the Minister explained the provision.
I am pleased that the hon. Gentleman has resolved for himself the problem with paragraphs 2(a) and 3(a). The use of “particular” is particularly important in this regard and reflects the fact that the Financial Policy Committee is there to consider systemic financial stability issues, rather than the nature of individual firms.
The hon. Gentleman is heading in a certain direction, not for the first time: he may want to term it the Nottingham East principle. Where we seek clarity through the Bill, with clear lines of responsibility, he wishes to create uncertainty and a lack of clarity about who is in charge. That is fundamentally the answer that we seek in the Bill. Giving the FPC powers in respect of individual financial institutions and in respect of the 2009 Act again blurs that clarity. He is asking the FPC to have a view, whereas responsibility rests more appropriately with the Prudential Regulation Authority and other stability functions within the Bank of England.
Although it is legitimate for the FPC to talk about the provision of liquidity assistance to a group of banks, it is not appropriate for it to make recommendations about the provision of liquidity to a particular institution. Different divisions of the Bank have specific expertise in that area and it is not the FPC’s role to undertake such duties.
The hon. Gentleman would give the FPC a role in crisis management. It is important that the Treasury has a clear responsibility in respect of crisis management. The scope of its new crisis management power of direction covers those two areas specifically. The Government are clear that the FPC has no role in crisis management. A policy committee such as the FPC, with a generalised remit, multiple members and detailed procedural requirements, is not the right type of body to deal with a crisis. In a potentially fast-moving situation when agility and flexibility are vital, a body such as the FPC would simply be too cumbersome to respond effectively.
Recognising the practical limitations of what is by nature a policy-making body rather than an executive agency, the FPC is responsible only for identifying potential risks to financial stability and addressing them before they become a threat. Once a risk has crystallised, it is the Bank—or, if public funds are at risk, the Treasury—which is responsible for managing that risk, in line with the provisions in part 4 of the Bill and in the crisis management memorandum of understanding.
We are therefore trying to be very clear about the appropriate roles of individual actors in the regulatory structure. The hon. Member for Nottingham East hankers for the days when it was not clear who was in charge––when multiple voices were engaged in these issues and debates to the point that no one knew who was in charge. His amendment goes back to the bad old days when no one could answer the question, “Who is in charge?”
I thought we were having a serious and nuanced debate. Instead, the Minister is getting into the old cycle of nonsense. We are simply considering whether the FPC should have the power to make recommendations on issues that might be relevant to its work—resolution arrangements, public confidence and so on. He talks about a lack of clarity. I am talking about common sense flexibility, instead of gagging people who may well have something crucial to bring to the party.
The reality is that the FPC is not set up or resourced to become a micro-prudential regulator able to engage in those debates. That confuses the role of the FPC with the team within the bank responsible for the use of the special resolution regime, and that is part of the problem. The hon. Gentleman talks about common sense, but he is creating chaos. Different organisations are responsible for those aspects of activity, and the FPC is not set up to second-guess which resolution tools should be made, or whether emergency liquidity assistance should be given to a particular institution. That is not its role, and that is not the role it is given under the Bill.
The hon. Gentleman needs to reflect on some of the causes of confusion during the crisis. The Treasury Committee in the previous Parliament, under the chairmanship of Lord McFall, highlighted the issue: no one had a clear responsibility, no one was in charge. The hon. Gentleman is seeking to replicate those arrangements through the amendment. The lesson of the crisis is that we need to know who is in charge. Giving additional powers to such bodies as the FPC ignores what we have learned since the financial crisis. It ignores the recommendations of the Treasury Committee and the fact that where there are no clear lines of responsibility, people tend to shirk responsibility and do not step up to the plate. We want people to know who is responsible, and the Bill is designed to achieve that.
Will the Minister explain how the provisions might relate to circumstances such as those that existed around Northern Rock? The Governor of the Bank of England believed that that was a particular problem that was not symptomatic of wider issues. Equally, Conservative Members alleged that the then Government were engaged in a measure that was electorally motivated because of the geopolitical significance of that particular institution. Would the FPC have nothing to say about any of those raging issues that might exist around a particular institution, but might be of more generic significance?
The FPC is there to identify the emerging threats to financial stability, but once a risk is crystallised it is down to others to act. I would not expect the FPC to have a view on whether the resolution on Northern Rock should have been through a bridge bank or temporary public ownership. The FPC is not equipped to undertake that role. The team that is equipped to do that is the special resolution unit in the Bank of England. It understands how the tools work and has a detailed knowledge, alongside the PRA, of the composition of firms under threat. It has a more detailed and better grasp of the challenges of resolution in a particular institution. The FPC will not have the knowledge and experience to engage in such matters of fine detail.
On that basis, the amendment is not particularly helpful. It would create confusion where there is clarity. It would take away the clear delineation of responsibilities between the different actors involved. If it were allowed to stand, it would undo the work we are trying to do to introduce some clarity. I therefore encourage my hon. Friends to vote against it if the hon. Member for Nottingham East pushes it to a vote.
I am very surprised. We have had the doctrine of compartmentalisation to the nth degree. The Minister says the FPC is not resourced to comment on some of the most important factors in our economy that might have wider strategic significance. The notion seems to be that the FPC needs to be up in the clouds and to be a theoretical and academic institution. How dare it even think about making recommendations that might affect a particular organisation, such as one of the big five banks! In accepting the notion that we should be firm and gag the FPC so that it cannot even discuss, or make recommendations about, something that could have a read-across to a wider systemic situation, the Minister is taking a profoundly dangerous stance. He is not framing the Bill in such a way that it could deal with a wide variety of hypothetical scenarios.
It would not be dangerous to allow the FPC to discuss such issues or to make recommendations. Expressing an opinion is not a dangerous thing in these circumstances; indeed, it might be beneficial to have a fresh perspective. Ministers do not give the impression that they listen to views from beyond the four walls of Her Majesty’s Treasury, but sometimes other people can be right, and the Government can be wrong. Similarly, it might be important to hear the FPC’s voice. We cannot discount the idea that the real economy could be affected by the transfer of a bank to public ownership, by the impact on consumer confidence of winding up a bank or by bridge banking arrangements and the scope for purchases in the wider market. All of those issues could be relevant to the FPC’s role, so it might be relevant to hear the committee’s voice.
It is tempting to push the amendment to a vote, but I will withdraw it with the proviso that the Minister thinks more deeply about the connections that should be put in place between the FPC and the wider economy. The FPC should not be a theoretical organisation; it needs to have its feet on the ground and to understand that some of the measures it introduces have practical consequences for real firms. I am conscious of the time, however, and I do not wish to detain the Committee with a Division, so I beg to ask leave to withdraw the amendment.
‘(2A) The FPC must carry out and complete a review of the definition of regulated persons and the scope of exemptions permitted under FSMA 2000 to consider whether the scope of exemptions is appropriate.
(2B) The FPC must make recommendations under section (2A)—
(a) before the end of the period of 30 days beginning with the day on which this section comes into force, and
(b) at least once in every calendar year following that in which the first recommendations are made.’.
The definition of “regulated persons” does not catch all financial intermediaries; it really depends on how wide the exemptions are under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. Financial intermediaries or indeed anyone else can become a regulated person if they are carrying on the activity by way of business, which is often the case; if they are engaging in an activity that is specified as a regulated activity in schedule 2 of FSMA and if there are no exemptions under the RAO available for that activity; or if their activities relate to an investment that is a specified investment listed under schedule 2 to FSMA, which gives the Treasury powers to adopt orders to specify exemptions, either through the RAO or through other statutory instruments, and which gives the FSA the power to make rules.
I appreciate that there is a debate to be had about the extent to which reviewing regulated persons is a role for the FPC or other regulators to undertake, but it is an important debate to have because ultimately the trickle-down effect of people being affected by the FPC’s decisions as they flow through the PRA and the FCA is incredibly important.
We know that there has been a long-standing debate about the problem of the so-called shadow banking system, which is notoriously difficult to define, and therefore it is difficult to categorise as regulated persons people who have a habit of falling in and out of those particular categories. I want to press the Minister to find out whether he feels the scope of regulated persons at the moment is broad enough, or whether it should include a collection of financial entities, infrastructures or practices that support financial transactions that occur beyond the reach of the existing FSA monitoring and regulation arrangements, for example hedge funds, other money market funds, structured investment vehicles and so forth.
The Bill itself seeks to expand the list of investments that are regulated, to include loans and other forms of credit; at the moment, only loans secured by land are included. So that provision might catch some of the people whose activities are in question, but it will not necessarily catch all of them.
On the margins of society in certain very large and seriously important—even systemically important—financial transactions, there are question marks about whether regulated persons are properly captured within the definitions in the Bill. In certain ways, we can see that legislation has to play catch-up from time to time, as innovations come along and people undertake new businesses, having designed them in such a way as to evade or avoid—“avoid” is potentially a better word than “evade”—the definitions of regulated persons.
At a micro level, the definition of regulated persons really matters. Let us take, for example, the Farepak saga of Christmas clubs and savings arrangements that still do not fall properly under the definition of “regulated persons”, when it comes to the way that our regulators and the FCA might want to capture some of those arrangements. People lost considerable sums of money because of Farepak and they had no recourse, either to compensation of any significance or to the regulator to explore and inquire into what went wrong, and to ensure that lessons were learned in those circumstances.
My hon. Friend mentioned the ongoing saga of Farepak. Does he agree that members of the public who lost money because of Farepak will find it very difficult to understand if a Financial Services Bill goes through this Parliament that does not give increased protection to people in those circumstances?
That is entirely correct. My hon. Friend talks about those things that people would expect to be in the 300-odd pages of the Bill. Our amendment simply seeks to ensure that the Bank of England—perhaps we should have added the Financial Conduct Authority or others—ought to review, on a fairly regular basis, who falls into the category of “regulated persons”.
As well as firms such as Farepak, will my hon. Friend include those funeral directors who collect money over a period of years and then go out of business before the person is deceased, so that all the money that was saved is lost?
Absolutely. There are some pretty macabre circumstances in which companies can disappear at a moment’s notice and leave people in the lurch. There are a number of small-scale micro-business activities in which people can invest a great deal of their life savings. People have different priorities, and they may want to insure against certain things or put money aside for certain scenarios. My hon. Friend’s point about undertakers is important. There are other high-cost credit providers in the grey area between the regulated and unregulated loan shark categorisations that some people have described. Again, we need seriously to explore whether such providers are defined as regulated persons.
On a point of clarification, speaking as the chairman of the all-party group on funerals and bereavement, it is not necessarily funeral directors who are selling such plans. They are special dedicated funeral plans, so I would not wish the Committee to be misled or for funeral directors as such to be maligned. Companies attached to funeral directors may be a conduit, but in many cases they operate on their own, although that does not detract from the hon. Gentleman’s central point.
I am grateful for the hon. Lady’s expertise. Who knew she had a role as august as chairman of the all-party funerals and bereavement group? Who even knew that there was an all-party funerals and bereavement group? I am sure the meetings are lively and interesting. Perhaps the hon. Lady would like to invite members of the Committee to a future meeting of that all-party group. Between sittings of this Committee, it might be appropriate for us to host a meeting of that all-party group. I know that hon. Members might appreciate that.
My sentiments exactly.
The scope of the permitted exemptions is important, and it is appropriate to find somewhere in the Bill to insert a provision that the definitions of regulated persons under the Financial Services and Markets Act 2000 are kept under review at least annually to ensure that they are justified. I know it is a difficult task, but a commitment to reviewing the definition of regulated persons would reassure the victims of Farepak and other scenarios where people have been ripped off and found themselves seriously out of pocket, expecting a regulator to be able to help and finding that it cannot. We have to close such loopholes.
That is a fair point, and it might be more appropriate if we amended the Bill at a different stage. Having read through the Bill and considered the impact that regulated persons might have on the directions the FPC may give to the FCA or the PRA, I felt that, on balance, the amendment might fit in this clause. It is a probing amendment, and I want to get a sense of how the Government envisage the regulators keeping up to date with regulated persons.
I take on board the point raised by the hon. Member for Wyre Forest, but we need to consider the groups of people who are regulated. If we had been here, say, 10 years ago, would we have been talking about the high-cost credit industry and payday lenders? The groups of people and the products that they offer are changing almost daily. As my hon. Friend the Member for Nottingham East says, they adapt to suit the circumstances.
Companies such as BrightHouse, for example, do not offer goods at a massive rate of credit, but they offer them at extremely high prices. Extremely costly insurance policies are not covered at the moment, and there are fee-charging debt management companies, too. I will explore that further in clause 6. At the moment, however, if the Bill goes through, they seem to have a perverse incentive not to offer a monthly fee, but to charge up-front fees—a high up-front fee is one of the problems with the whole industry—which provides a perverse incentive for people not to complete the plan and carry on paying their debts.
My hon. Friend mentioned Farepak. People who saved with Farepak thought that they were taking part in a savings scheme; they never believed it was a prepayment scheme. The same goes for the funeral plans that were mentioned: people believe that they are savings schemes. The difference between deposits and prepayments is not clear to a number of people.
With new products arising all the time, therefore, an overview is so important. They have to be reviewed regularly.
I do not disagree with any of that, and a fundamental part of the role of the FPC is to think about the perimeter of regulation—not only what is regulated, but what should be regulated by the FCA and what by the PRA. It is absolutely right to point out that, in a fast-moving world, the regulatory perimeters do not necessarily keep up with change, and it is vital for a body to be responsible for reviewing them. That is why we have given the FPC the powers under proposed new section 9O to enable it to look at the perimeter.
The PRA and the FCA will regulate what is inside the perimeter, but the role of the FPC is to look at the next threat and the next crisis that could engulf the financial system, so it needs to think whether businesses outside the perimeter are properly regulated, whether we should be expanding the perimeter to include them and whether the nature of the activities of businesses within the perimeter is such that they should be regulated by the PRA rather than the FCA, for example. Again, we are looking at the changing nature of scope. This is not the subject of an annual review but a constant part of the FCP’s activity. It should always be looking at threats to financial stability, to identify the right response, and if that includes changing the perimeter, it should not be required to wait until the annual review, nor should it review simply annually; review should be part of the regular work programme of the committee.
I do not disagree with the thrust of the comments, therefore. In fact, the Bill reflects them, but it does not set up a frequency of reporting or a requirement to report within 30 days. A report within 30 days is not realistic, but the committee should keep the matter under review, and I know that it does that and thinks about it carefully. The process should be related not only to prudential issues but to conduct issues, some of which the hon. Member for Makerfield raised.
To clarify, the hon. Member for Nottingham East said that only credit secured by land is covered in this way. That is true, because at the moment other forms of credit are dealt with by the Office of Fair Trading. If we ever get around to clause 6, however, we can talk in more depth about the powers to transfer the regulation of consumer credit from the OFT to the FCA. On Farepak and funeral plans, the hon. Member for Makerfield was right to point out that Farepak was an advance payment scheme, and, because of that, it is not regulated by FSMA—in the same way, paying for a package holiday is not. The previous Government chose not to extend the regulatory perimeter to Farepak and other advance purchase schemes. To reassure my hon. Friend the Member for Solihull, funeral plans are within the scope of FSMA regulations, so she may share that good news with the members of her all-party group. The whole purpose of proposed new section 9O, therefore, is to keep that perimeter under review, to identify the threats and to enable the FPC to make recommendations to the Treasury not only about the perimeter itself but about where it is set between the FCA and the PRA.
The regulation of banks operating within the EEA is determined by European regulation. As the hon. Gentleman and other Members would expect, the operations of the FPC and the other regulators are consistent with European Union law. On that basis, I encourage the hon. Member for Nottingham East to withdraw the amendment.
I read between the lines that the Minister was entreating me to do so. The amendment was a probing one, and it was helpful that he confirmed that the review will take place quite frequently and that it is the FPC’s job to consider the regulatory perimeter. It is important to try to keep track of who does what in the acronym city that we are creating. I agree with the Minister that the regulatory perimeter is part and parcel of the FPC’s job if it is supposed to judge where the next unforeseen systemic risk may come from. Credit bubbles may not occur every decade in housing, as people tend to assume; they could happen in any number of different ways, and the regulatory perimeter is incredibly important.
It is a flaw in the amendment to have asked the FPC to make a recommendation before the end of the 30-day period. The Bill introduces a whole series of measures, and a shadow FCA and PRA have been created anyway, so tabling an amendment at this stage would give the FSA ample heads-up to get on with the job. I accept that there is an argument that the situation should reviewed all the time rather than every calendar year. With the hope that the Minister will press for attention to be given to Farepak and the other areas on the margins that merit proper attention, I beg to ask leave to withdraw the amendment.
‘including both the most likely outcome and a range of reasonably possible scenarios.’.
Amendment 19, in clause 3, page 12, line 2, at end insert—
‘(f) an assessment of the impact of each macro-prudential measure on employment and economic growth.’.
Amendment 20, in clause 3, page 12, line 9, at end insert—
‘(c) an assessment of the state of financial stability against early warning indicators and report against the effectiveness of the macro-prudential measures deployed.’.
Amendment 31, in clause 3, page 12, line 9, at end insert—
‘(c) an assessment of the impact of the Committee’s measures on the functioning of financial markets and the wider economy.’.
This is a significant group of amendments on a basket of issues. Amendment 33 relates to the frequency of the FPC’s financial stability reports, and amendment 32 to their contents. We have tabled amendment 19 because we think that an important component of such reports should be an assessment of the impact of macro-prudential measures on jobs and growth. Amendment 20 specifies that a financial stability report would also have to include an assessment of financial stability indicators: what is the dashboard that the FPC is looking at? What are the indicators, especially in trying to achieve earlier warning of potentially difficult circumstances, and to what extent are appropriate macro-prudential tools being deployed? Amendment 31 would add to financial stability reports an assessment of the impact of the committee’s measures on the functioning of financial markets and the wider economy. The amendments cover a wide range, and there are number of reasons behind them.
I turn first to amendment 33. Clause 3 states that there should be two financial stability reports a year. We are suggesting that there should be four, and I will explain why. The FPC will meet quarterly, and we believe that two reports a year will not shed sufficient light on its work. Greater frequency would allow greater public accountability of its work. If it meets quarterly, it would be odd if there were not quarterly financial stability reports at around the time of each meeting. The Bank has published a financial stability report twice a year so far, and they are available on its website, stretching back to 1996. Given the new powers that the FPC will accrue under the Bill, it seems appropriate to increase the frequency of those reports, especially in view of the lessons that we are learning about the need to keep an eye on stability in the system.
The MPC produces a quarterly bulletin, which provides regular commentary on market developments and UK monetary policy operations. It also contains research, analysis and reports on a wide range of topical economic and financial issues, both domestic and international. It is a very useful document, and I commend it to the Committee. It carries a broad range of material, particularly in relation to the formulation and conduct of monetary policy. It is an important tool in the accountability of the MPC.
I am probably the only member of the Committee whose has contributed to the Bank of England’s quarterly bulletin, or indeed the financial stability report. The quarterly bulletin deals not just with monetary policy, but with economic policy broadly, and no doubt could deal with financial stability matters, and has in the past, as the hon. Gentleman will know from his close reading of it, which I am sure is as close as mine.
It is such a shame that the hon. Gentleman was not credited in the acknowledgements of the MPC’s quarterly bulletins. It could have quoted his work in other proceedings in Parliament. I must look at the precise dates when he worked at the Bank of England to see whether he left any fingerprints on other aspects of public policy. I agree that the quarterly bulletins are fine documents, in general terms.
My point was not that they are fine documents, although they are, but that they cover financial stability as well as monetary policy, and that invalidates the hon. Gentleman’s argument.
It does not—quite the contrary. If we listen to the words of the Minister who says that we must make sure that any confusion or lack of clarity is swept away, and that that was the problem before, delineating proper reports relating to monetary policy and financial policy are surely a corollary of that argument. To expect financial stability matters to be dealt with in a quarterly report of the MPC starts to blur the lines between the work of those committees. I am simply arguing that the FPC is as important in many ways as the MPC, so it merits its own report-writing and publishing capability. In my humble opinion, it is difficult to argue against that.
We do not want to force an unnecessarily burdensome or costly requirement on the FPC to publish reports, but we think they should be published in a proportionate, timely and effective way. I wanted to test the Minister’s view. If he believes that quarterly reporting is inappropriate for the FPC, why does he think it appropriate for the MPC to follow that path? The Bill specifies two financial stability reports a year, so provisions already exist, and the matter is for primary legislation.
“We think more regular reporting would make the FPC’s work on financial stability more transparent, and make the FPC itself more accountable”.
That is our rationale for amendment 33.