‘Review of remuneration
5 Within a year of Royal Assent for this Act the Bank of England shall publish a review of the remuneration and pension fund arrangements for senior executives and those appointed to serve on the committees and sub-committees of the Bank.’.
Amendment 71, in schedule 3, page 183, line 45, at end insert
‘with the approval of the Treasury’.
So bon voyage to clause 3, and we hope that it will be improved by the time we reach Report. We now welcome schedule 1 and page 167 of the Bill, although we will be returning to single-figure page numbers.
The three amendments have been very sensibly grouped together by the Chair, as they relate to the terms and conditions of membership of the Financial Policy Committee. Essentially, the schedule is a sort of standing orders, for want of a better term, of the FPC. It makes provision for the terms of office of appointed members, qualifications, removals, appointment and so on.
Amendment 24 would insert an additional phrase to the provision on terms and conditions. Currently, the terms and conditions under which a person holds office as a member of the FPC will be
“such as the Bank may determine.”
The argument could be made that the Bank is independent in that respect and that it should be able to make such determinations. To my mind, it is important that those terms do not exceed the terms and conditions and remuneration arrangements available to external members of the Monetary Policy Committee. The terms and conditions for holding office in the FPC should be no more generous than those for holding office in the MPC, because of a risk that could arise in the discrepancy of payments, which might give the impression that one committee is more important than the other. Clearly, that should not be the case. Unfortunately, the Government will not concede that both the FPC and the MPC should be committees of the Bank: the MPC is, but the FPC will be a sub-committee. Their importance, given that monetary and financial services are in many ways inextricably linked––as is the economy––should be reflected in some of the terms and conditions arrangements.
According to the Bank of England annual report, on page 40, it is for court to determine
“the remuneration of the Bank’s most senior executives, including the Governors, Executive Directors, Advisers to the Governors and the external MPC members.”
The court is advised by the remuneration committee or RemCo—we know about NedCo and the oversight committee, but here is another—the composition of which is set out in the annual report. I assume that the Minister will clarify that RemCo will also advise on the terms and conditions, pay, rations and pension arrangements of the FPC membership. If the Minister confirms that, at least it will be one step towards clarification.
Looking into this can be interesting. We can only assume that the Bank plans to remunerate FPC members to a similar or equivalent parallel level as MPC members. According to the terms and conditions for the four external members of the MPC, who are appointed by the Chancellor, they have terms of three years, on a part-time basis that averages three days a week. External MPC members must not retain or accept other appointments or interests that would create a conflict with their MPC responsibilities during their term of office as determined by the Chancellor, on the Governor’s advice.
It is interesting that the external members of the MPC were each paid £101,362 in 2010-11. I cannot remember what ministerial salaries tot up to, but I think that that is broadly the same as those of Government Whips. Perhaps the salaries of Ministers of State are different from those of the Whips, but MPs’ salaries are about £65,500 and MPC members receive £101,000. Are hon. Members aware that MPC members are also paid a 30% supplement, on top of that £101,000, in lieu of membership of the Bank’s pension fund? They are also entitled to cover under the Bank’s group medical insurance scheme. A public body is providing private medical insurance to those members, a point which I wanted to draw to the Committee’s attention.
Deputy governors are paid considerably more. On 1 March 2010, the salary of deputy governors increased by 2.5% to £258,000, but those salaries have since been frozen. The Governor’s salary increase was due on 1 July, but he chose not to accept it, and I think it is the case that there have been no bonuses within the senior executive ranks of the Bank of England. I would be grateful if the Minister clarified his understanding of the Bank’s intentions about the remuneration and pension arrangements for FPC members.
That ties in neatly with amendment 28, which would require that
“Within a year of Royal Assent for this Act the Bank of England shall publish a review of the remuneration and pension fund arrangements for senior executives and those appointed to serve on the committees and sub-committees of the Bank.”
A 30% cash supplement in lieu of pension contributions is extremely generous—it certainly exceeds the 20% cap that was placed by the Exchequer on parliamentary pension fund contributions—and I am not sure that much light has been shone on that corner of the public sector.
I know that the Chief Secretary has to sign off salary arrangements above a certain level, particularly if they exceed those of the Prime Minister, but will the Minister say whether he is content or not content with the 30% supplement in lieu of pension schemes? That is a very precise question, which is meant to obtain his sense of whether that arrangement will continue with the FPC or whether he thinks that the Bank should rethink that plan. Those members will receive at least another £33,000 as cash in lieu of belonging to a pension scheme, and we should not forget that, as things stand, they are part-time. Will the Minister tell us whether he thinks that those members will have three day a week postings, and what time commitment we should expect from them?
Another interesting facet of the Bank of England’s pension scheme is that pension benefits for the current deputy governors are provided for through the court’s section of the pension fund. They are not externals, so they are members of that pension scheme, which allows them to obtain a maximum pension of two thirds of salary at a normal age of 60, not 65, after 20 years’ service. That is quite a generous scheme all round and I think I am right in saying—some people have said this—that the most generous scheme is the parliamentary one. The Bank of England’s scheme is right up there with such schemes, and I am not sure how far that has been reviewed. Is the Minister content with the arrangement of having, in the public sector, a maximum pension of two thirds’ salary at a normal age of 60 after 20 years of service?
Amendment 71 deals with a slightly different issue, on page 183 of the Bill, in schedule 3—[Interruption.]
Thank you, Mr Howarth. I know that hon. Members are discussing whether to support the amendment. It is a difficult decision for them, as they serve on the Treasury Committee. It cannot be easy, given the conflict that they must be racked with when considering amendments that were in many ways created under their own authorship.
Amendment 71 deals with the terms of service of the members of the governing body of the Prudential Regulation Authority, which are set out on page 183 of the Bill. I do not think we have been told by Ministers how independent the regulators will be from the Bank. The Bill states:
“The PRA must pay to the members of its governing body such remuneration as may be determined by the Bank.”
The paymaster, set out quite clearly in the Bill, will be the Bank of England.
Our amendment suggests that the remuneration should gain the approval of Her Majesty’s Treasury. I do not think that the amendment is particularly difficult for the Minister to accept. There is an important point about accountability. Although I understand that public money might not be involved, as the money will come from a surcharge on the financial services sector, in order to ensure that there is accountability for the sums paid to the members of the PRA, the sums should be approved by Her Majesty’s Treasury. We could have tabled similar amendments to all the various committees, the FPC and to other elements, such as the FCA, but we have little time, and we thought that here would be a sufficient place to table a probing amendment about that point of principle. We are not singling out the PRA for any other reason, and we hope that the Government will table similar amendments. Treasury approval is necessary when it comes to remuneration arrangements for the PRA and other governing bodies.
This is an interesting set of amendments.
I shall first deal with amendments 24 and 28. The Bank is responsible for setting its own remuneration policies. The court determines the remuneration of the Bank’s most senior executives, including the governors, executive directors, advisers to the governors and the external MPC members. The court will also set the remuneration of the external FPC members, and it will be advised in that respect by the remuneration committee. The court has mandated the committee to keep senior executives’ pay under review, and its approach is set out each year in the annual report. The court made the decision, which the Government support, that senior executives and the rest of the Bank’s employees’ pay would be frozen for two years from 1 March 2011, in line with Government policy for the public sector.
Amendment 24 seeks to place constraints on the remuneration of those serving on the FPC as external members. The court, advised by the remuneration committee, sets remuneration so as to enable the Bank to discharge its functions effectively. It is vital that we safeguard the court’s flexibility in setting the remuneration policy for those important roles. The work of the MPC and the FPC requires skilled individuals to act as external members. Such members must have the requisite skills and expertise to challenge the thinking of Bank executives. It is important, given the roles and expertise that we are looking for, that they are rewarded sufficiently.
Although the Government place equal importance on the roles of the MPC and FPC, we must recognise that external members of the committees have different roles, and it is inappropriate to constrain one group in relation to the other. In all aspects of the Bank’s remuneration policy, it is a matter for the court to ensure that its policies are adequate to be able to recruit the right people to do the jobs that we ask them to do.
On amendment 28, as required by the Bank of England Act 1998, the Bank already publishes an annual report that includes a report by NedCo, the committee mentioned earlier that comprises the non-executive members of the court who have responsibility—among other things—to decide on the pay and pensions of the executive members of the court. The remuneration committee’s approach has been to carry out a review of senior Bank remuneration against external benchmarks every five years, in order to set appropriate pay, benefits and conditions of service. The most recent review was in 2006, but it was not implemented in full because of the public sector pay freeze. The 2011 review was also postponed because of that pay freeze. The remuneration committee will continue to review regularly the remuneration of senior Bank staff and publish reports in the annual report. It is important that the court has the discretion to set the remuneration of external FPC members, and that those decisions are subject to appropriate scrutiny.
The test is whether the overall package for members of the committee is appropriate to attract the right quality and calibre of people to serve on it. Different professions and organisations have different benefit packages, and the challenge is to ensure that the overall package is sufficiently competitive to attract the right people. We are asking people to give up other significant opportunities in order to be members of the MPC, so we must ensure that the overall package is adequate and will attract people. We do not want substandard members of the MPC. That may be the hon. Gentleman’s objective, but it is not my objective and neither is it in the interests of the country. It is important that the pay is sufficient to attract good quality applicants, although it should not be excessive. That is a challenge for the court and Bank to live up to, and they should be accountable for the process.
Will the Minister say whether the Bill as currently worded would allow different pay to be awarded to different non-executive members?
As I have made clear, the hon. Member for Nottingham East seeks to bind the court so that the same terms of service apply to FPC members as to MPC members—the hon. Member for Foyle may like to think about that if the matter is put to a vote. My point is that those terms should be flexible in order to attract the right people. I am looking for greater freedom and not the prescription sought by the hon. Member for Nottingham East.
Does that flexibility extend to the four different people appointed possibly being paid different rates? Are we talking football-club style flexibility in terms of payment of external members?
If the hon. Gentleman wishes to table an amendment to specify which members should be paid what, that is fine. The issue is one of flexibility, and we should allow the court to exercise that. Opposition Members should be careful not to get into a micro-management style of government. We set up bodies and we give them responsibility. If we want people to join those bodies and exercise responsibility, we should allow them to do so rather than seek to constrain them or second-guess their judgment, because that does nothing to attract people into public service. It is a matter for the court. I will not be prescriptive about who should be paid what; the court needs to make that decision. It may decide that FPC member A needs to be paid more than member B, but that is not my decision. The court should be deciding on the right pay packet to attract the right people for the job, and that is an interest we all share.
It was not that many minutes ago that Opposition Committee members were expressing concern about thinking through the macro-economic impacts of macro-prudential tools, economic growth and what the FPC will do. Surely, it is in all our interests to ensure that the right people do the job, which requires some flexibility regarding the right pay rather than being constrained, as the hon. Member for Nottingham East would require, to pay in accord with MPC members’ pay. That is not the right approach.
Amendment 71 raises similar concerns. The remuneration of PRA board members is determined by the Bank. The amendment states that the Treasury must approve the board members and their pay. I do not support the amendment.
Yet again, the hon. Member for Nottingham East objects to spaghetti—to interconnections at one level—but wants to introduce more interconnections, through the amendment, by blurring the lines of responsibility. It is clear that, as a subsidiary of the Bank, the PRA will be accountable to the Bank’s governing body—the court—on administrative matters. The court will approve the PRA’s budget and ensure that it is providing good value for money. Consistent with that, the court will also set the remuneration of directors. Giving the Treasury an additional role would muddy the lines of responsibility and accountability and undermine the court. It is vital that there is responsibility.
In conclusion, one issue that has—
It is vital that there is proper accountability in respect of how money is spent. One thing that we are introducing in the Bill, which was not in the previous legislative regime, is a statutory role for the National Audit Office with regard to the use of its funds. That significant improvement will provide reassurance not just to Members of Parliament, but to those people who pay their fees to the regulators. That money is spent carefully and wisely.
People in the financial services sector want to know that their fees are being spent wisely, but they also want to know that good quality people who know what they are doing have been recruited. We need to give the court the power to do so.
The Minister is multi-talented: he can be in Committee while simultaneously estimates tabled in his name are being debated downstairs on the Floor of the House. What a fantastic, multi-talented Minister. He was slightly spooked by the idea that there might be a Division on his business, but juggling and keeping the balls in the air, as he does, is an impressive skill.
I am saddened by the Minister’s rather prosaic defence of the Bank’s remuneration and pension arrangements. He said that pay needs to be sufficient but not excessive. That is a classic politician’s comment, if ever I heard one. I asked whether he thought that the pension scheme—the 30% supplement—was right or wrong, but he did not exercise his opinion in that regard.
The Minister castigated us for suggesting that the Treasury should have a level of approval on some pay and remuneration arrangements in public bodies, when of course the Chief Secretary to the Treasury has been hauling in every chief executive of a public body, wanting to sign off—micro-manage, as the Minister might put it—pay and conditions above a certain threshold. We were trying to take his lead, but he rebuffed us with his argument.
I welcome NAO oversight, which is an important, worthwhile step forward in respect of the stewardship of money by the regulators. We will be talking about issues to do with that later.
I do not think that having some sign-off from Her Majesty’s Treasury on such matters would blur the lines of responsibility. These are public bodies and ultimately they should be accountable to Parliament. I am not trying to constrain the Bank in varying FPC members’ terms and conditions, but if we end up with an FPC that remunerates at a far higher and more generous level than the MPC, people might infer that one committee is more important than the other. We might even end up with a trade-off, with one committee asking for more money and vice versa. I wanted to get a sense of the Minister’s perspective, but he does not want to get too embroiled in the situation, so we will have to leave it at that for the time being. I beg to ask leave to withdraw the amendment.
I beg to move amendment 25, in schedule 1, page 169, leave out lines 35 to 37.
“At a meeting of the Committee…the Treasury’s representative may not vote”.
I suppose that is fair enough and we will go along with the provision as there is a pretence of independence for the FPC. However, under sub-paragraph (7)(b),
“anything done by the Treasury’s representative is to be disregarded in determining under sub-paragraph (4)”,
according to which, the person chairing the FPC meeting
“must seek to secure that decisions of the Committee are reached by consensus wherever possible.”
The chair must try to conduct the FPC meeting so that members reach consensus, but the Treasury representative might put a hand in the air and say, “Please may I speak?”. That representative is not allowed to vote, but might want to make an opinion known, saying, “The Chancellor thinks this, that or the other.” According to the Bill, if there is a disagreement and the Treasury representative voices a concern, it is to be disregarded and is not to be classed as part of the consensus arrangements.
We are back to the old issue: the Minister thinks in the box, and he thinks that the box must have high walls and compartments. The FPC must be rigidly separate from Her Majesty’s Treasury and there should be no read-across between the two. Even if the Treasury voices a doubt about a particular decision, there should be no attempt to reach a consensus opinion. The Treasury representative does not need to be included in characterising whether a consensus has been reached.
I find the provision strange. I understand why the Minister would not want to allow the Treasury representative a vote, but it seems perverse to write into primary legislation that there cannot be an attempt to reach a consensus with that representative. I know that Ministers have referred to the difficulties caused by blurring lines of accountability, but we need some common sense read-across between the key actors and institutions in our economy. I do not understand why the provision is necessary. It should be possible to strive for a consensus, and if one cannot be reached, the FPC has the vote. The Treasury representative may disagree, but it is strange to disregard the Treasury view.
No, I have said that we should keep subsection (7)(a). It is the point about disregarding the Treasury view in reaching a consensus that I find strange. I do not see the point of the Treasury being represented there at all if its view is essentially to be disregarded. It is not even allowed to exercise influence through debate or discussion. Sometimes I get the same impression about being on this Committee—but I am being facetious. Obviously, there is a purpose in Opposition Members being here.
The hon. Gentleman’s answer to my intervention demonstrates one of the problems with his position. It is not the case that we do not want the Treasury representative to influence or shape the committee’s decisions. We do. That is the point of having a Treasury representative there. They are not there as a passive observer but to contribute to the debate and discussion and share with the Committee their own experience and view of what is happening.
However, sharing that view and helping shape the debate is different from the FPC’s decision-making process, which is where voting comes into play. The FPC can take a decision in one of two ways: by consensus if possible, and by a vote if not. In practice, a decision taken by consensus must have the support of, or at least not be opposed by, all the voting members.
If we allowed the Treasury representative’s opinion to be taken into account when determining whether consensus has been reached, what would change? If the Treasury representative agreed with the rest of the committee, the decision would be the same, but if the Treasury representative’s view was contrary to that of all other members, the decision could not be passed by consensus. In effect, the Treasury would be vetoing any attempt by the rest of the FPC to reach a decision by consensus. It would then pass to a vote, and if all the voting members agreed, the decision would be taken.
It is about the procedural process of decision making, not the FPC’s debate. If the hon. Gentleman believes, as I do, that the Treasury representative should not have a vote, the representative’s opposition to a particular course of action should not prevent all voting members from seeking a consensus. That is what we are seeking to enable. To be clear, in the process of the committee, the Treasury representative may participate in the discussion freely and on an equal basis with other members. The provision will not prevent that from happening.
I know that Her Majesty’s Treasury and the Government have a problem with the concept of a veto, but the Minister must accept that if the Treasury representative is not allowed a vote but merely allowed to express an opinion, the representative will not be able to veto the committee’s proceedings. Therefore, I do not see his objection to allowing the Treasury’s voice to be heard in the consideration of a consensus.
I do not have a problem with it. In fact, I want the Treasury’s voice to be heard in the discussion. What I am saying is that a consensus should be a consensus of all voting members, not of all voting members and one non-voting member. We want the FPC to come to a consensus as a committee. That can only be a consensus of voting members, which is why the Treasury representative will be ignored when it is asked whether all members of the FPC agree with a measure. That is not to say that he cannot participate in the debate—I suspect that he will participate fully—or help shape the committee’s views, but he will not have a vote. He will not be part of the consensus of voting members, because he does not have a vote.
The hon. Gentleman and I agree that the Treasury representative should not have a vote. When determining whether there is a consensus of voting members, what the representative says should not be taken into account as forming part of that consensus. I am trying to think of the right way to say this without sounding very critical. It is a slightly pedantic point of procedure to dwell on, but it does mean that the FPC can reach a decision by consensus of all voting members.
Our problem is not in relation to the Treasury representative not voting; nobody believes that they should vote. The problem is the strange wording of sub-paragraph (7)(b). It is not even anything said or any view expressed by the Treasury representative, it is
“anything done by the Treasury’s representative”— which
“ is to be disregarded in determining under sub-paragraph (4) or (5) whether there is a consensus.”
Does that apply even if the Treasury representative is making facial expressions, such as frowns, raised eyebrows and other gestures of disapproval or dissent, so that it is not even just what is recorded? It is strange this reference to “anything done”. Will the Minister clarify this reference to
“under sub-paragraph (4) or(5).”
Is that an attempt to ensure that the Treasury representative not only does not have a vote, but does not even influence whether or not there is a vote? Whoever is chairing the meeting will hopefully decide that there is consensus, but if they decide that there may not be consensus, they can put it to a vote. Is the reference to sub-paragraph (4) or (5) an attempt to ensure that the Treasury’s representative does not even influence whether there is a vote? Is that to protect the clear and total discretion of the Chair in that regard? Is that what that strange wording is about? The reference is made specifically to the Treasury representative not being part of the decision as to whether or not there is consensus. That seems strange and peculiar, and the amendment is there to flush it out. It is very awkward wording. There could be better ways of achieving that. Sub-paragraph (b) could simply say that the views of the Treasury representative will be disregarded by the Chair in determining whether or not there is consensus before putting it to a vote. There could be a better and simpler way to deal with that. It is very awkward wording. It is bound to give rise to the question of why the board of legislators did not ask questions about such odd wording.
My hon. Friend the Member for Foyle makes an important point. Ministers may think that joined-up Government is an old-fashioned concept, but we need to recognise that the Treasury has a key role to play in the stewardship of our economy, as does the Bank of England. We have to ensure that there are the correct synaptic connections between those institutions. One such connection is the role of the Treasury representative on the Financial Policy Committee. It is not the case that a consensus is only visible if a vote is taken. A consensus may be visible before a vote is taken. Let us imagine a situation in which the Treasury may feel strongly about a particular issue, but is not able to override the FPC in that particular way. It may want to ensure that the members of the FPC have pause for thought on a particular measure in which case it may be necessary for the Treasury to prompt a vote among members of that Committee by encouraging them to take a different view or to consider a different set of opinions. The Minister has conceded that this is not a one-way street process. He says that the Treasury representative is not a passive observer, but is there to contribute to a debate. That is a positive commitment by the Minister.
May I try to draw these proceedings to a conclusion by suggesting that what I might do is get the parliamentary counsel to see whether there is a better way of wording this particular aspect so that we can deal with some more substantive issues?
National Assembly for Wales (Disqualification) Order 2010
7 In Part 1 of the Schedule to the National Assembly for Wales (Disqualification) Order 2010, at the appropriate place insert “Member of the Financial Policy Committee of the Bank of England appointed under 9B(1)(d) or (e) of the Bank of England Act 1998.”.’.
Although this amendment is also to schedule 1, I hope hon. Members will find it interesting. They will have noticed that it relates to the Scottish Parliament and the National Assembly for Wales. Schedule 1 sets out two disqualifications from membership of the FPC. Members of the House of Commons are disqualified from being on the committee in paragraph 4 of part 2 of the schedule and Members of the Northern Ireland Assembly are disqualified in paragraph 5. The amendment is a probing amendment to see why the Minister has not also sought to extend similar disqualifications to Members of the Scottish Parliament or the Welsh Assembly.
Perhaps the Government are anticipating the outcome of a referendum in Scotland or a similar referendum in Wales, in which case they are pre-empting the will of the Scottish people.
It would stray beyond the remit of the amendment. It had not occurred to me that that might be the Government’s motive. We are talking about the Bank of England, which is a bit anomalous in some respects. Why on earth would the Minister not also extend that disqualification to MSPs or Members of the National Assembly for Wales or, conversely, allow Members of the Northern Ireland Assembly to become members of the FPC? That would in a sense treat the devolved Administrations equally. The amendment was designed to probe why this particular combination has been chosen. When I asked the Library to clarify this arrangement, it was similarly baffled. It could see none of the disqualifications for Scottish Parliament or the Welsh Assembly and it could not shed much light on this. I should be grateful if the Minister could explain.
It is quite straightforward. The answer is in the title of both the amendments and paragraphs 4 and 5 of part 2. The disqualification for this House and the Northern Ireland Assembly is done by an Act of Parliament. Disqualification for Members of the Scottish Parliament and the National Assembly of Wales is done by order. So orders will be passed to ensure that members of the Scottish Parliament or the National Assembly for Wales are disqualified. It does not need to be done through primary legislation.
I am very surprised. Just because something does not have to be done by primary legislation, does not prevent it from being done that way. The Minister rolls his eyes as though this is such an obvious issue. He may well have a phalanx of 300 officials in his Department poring over and writing every jot and tittle of the notes that he reads out, so eloquently may I say, but for those of us who are not staffed to the same degree, it is not quite so easy to discern these things. I personally think it would have been fairer and more transparent for all of those disqualifications to have been in the Bill thereby not insulting members of the Northern Ireland Assembly for thinking they were singled out among the devolved Administrations for disqualification. I am sure that their feelings, having been hurt in that way, can be soothed. It is helpful to have that commitment from the Minister that orders will be brought so I shall expedite proceedings. I beg to ask leave to withdraw the amendment.
For the sake of making some progress in the Committee, we do not need to spend much time on schedule 1. We know that these are the standing orders of the Financial Policy Committee, terms of appointment, disqualifications and so forth. These are relatively uncontroversial, fairly administrative arrangements, so I am happy to support schedule 1 as part of the Bill.