Schedule 2 - Further amendments relating to Bank of England

Financial Services Bill – in a Public Bill Committee at 6:15 pm on 28th February 2012.

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Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury) 6:15 pm, 28th February 2012

I beg to move amendment 27, in schedule 2, page 171, leave out lines 26 to 28.

The amendment, which is probing, proposes the omission of what is intended to replace paragraph 6(1) of schedule 1 to the Bank of England Act 1998:

“The fact that a person has held office as Governor of the Bank does not disqualify that person from appointment as Deputy Governor or director of the Bank.”

In many ways, this is the Putin clause. A Governor, having served—in this case—an eight-year term, might be slightly frustrated and might want to continue to exert power over the Bank of England, and so thinks, “Aha, here’s a cunning wheeze, I’ll serve as a deputy governor of the Bank, and perhaps swap positions with another deputy governor, and who knows what might happen in the future.” The Russian Prime Minister and President have sought to do much the same in recent years—perhaps a parallel can be seen.

When a powerful, imperial figure seeks to take a deputising role, the dynamics within an institution used to that dominant and firm stamp of authority might be difficult. Can the Minister justify opening that particular box and being so specific in allowing a person who has held office as Governor to hold office as a deputy governor? Given that we are moving towards a single term for the Governor, rather than terms of reappointment, is it not more sensible to say, “Once you have been Governor of the Bank of England and your term expires, that’s it. Thank you very much for your service, here is your carriage clock, we appreciate your many hours, days, months and years of contribution, but that is it”? But under the Bill, it is entirely possible that he or she could serve as a deputy governor.

Can the Minister explain why the provision is in the Bill? Is he aware that some cynics might worry about the continuing power dynamics? Indeed, the British Bankers Association has picked up on the measure. [Interruption.] The Minister raises an eyebrow at that suggestion, but the BBA said:

“We were see the provision at paragraph 1(6) of Schedule 2 proposing that paragraph 6” be substituted with that provision. It continued:

“It is not immediately obvious to us the reasons why a Governor should become a Deputy Governor after serving an eight year term as Governor or the circumstances in which this would be appropriate.”

Can the Minister address such concerns and explain why the Putin clause has been put in schedule 2?

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

I am a little surprised by the hon. Gentleman’s concern. In a slightly modified form, we are replicating what is in paragraph 6 of schedule 1 to the Bank of England Act 1998, a piece of legislation introduced by the previous Government, although the original 1998 Act places no restrictions whatever on the number of terms that an individual may serve. Under that legislation, a person could theoretically switch between the posts of Governor and deputy governor indefinitely—a real Putin clause. Under the proposals in the Bill, that will not be the case, so the concerns of the hon. Gentleman are misplaced.

The existing paragraph 6 of schedule 1 to the 1998 Act clarifies that:

“The fact that a person has held office as Governor, Deputy Governor or director of the Bank does not disqualify him for re-appointment to that office or for appointment to any other of those offices (subject to paragraph 1(3) and (4)).”

The original wording, therefore, creates a slightly Putinesque rotation policy. Paragraph 1 of schedule 2 to the Bill, however, restricts future Governors to a single term of eight years, so the wording in the original paragraph about reappointment is clearly not appropriate, while the cross-reference to paragraph 1(3) and (4) no longer works. Paragraph 1(6) of schedule 2 will amend schedule 1 to the 1998 Act to remove cross- references to the Governor being reappointed and update the cross-references. However, that does not change the practical effect of existing legislation, which is to clarify that a person who has held office as a member of the court in one guise is not prevented from being subsequently appointed to another.

The most obvious example of that is a deputy governor being subsequently appointed as Governor, a career path that a good number of Governors, including the current one, have taken. Other permutations are possible. A former deputy governor or Governor could be reappointed to the court many years later as a non-executive director of the court, or, in the other way around, a non-executive director of the court could, later on in their career, seek appointment as a deputy governor or Governor. It is also theoretically possible for a Governor to seek appointment as deputy governor after they have served their term as Governor, but that is highly unlikely in practice, as it would effectively be a demotion.

In any case, the term limits for deputy governors and Governors are absolute. Paragraph 1(3) states that a person cannot serve more than two terms as deputy governor and one term as Governor in their lifetime, regardless of the order in which those terms take place. A Governor who has served two terms as deputy governor before being appointed a Governor cannot seek appointment for a further term as a deputy governor. Term limits cannot be reset.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury) 6:30 pm, 28th February 2012

Cutting and pasting provisions from the 1998 Act into the Bill will invariably mean that certain provisions read across. I was surprised that the Minister was updating the provision to allow a Governor to serve as a deputy governor. That is a specific point.

If we are now moving, as an important point of principle, to a fixed single eight-year term for the Governor, does the Minister seriously envisage circumstances in which the Governor would continue in a role such as that of deputy governor? Is now not an opportunity to remove that anomaly from the Bill?

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

I agree with the hon. Gentleman that it is not likely at all; I would be surprised, as I said, as it would be a demotion. However, we are not ruling out that possibility, just as we are permitting a member of the court to seek appointment as a Governor. A member of the court may also decide to become one of the deputy governors. It is merely a permissive piece of legislation; we are not ruling it out, but we do not think that anyone is likely to do it.

I do not know who christened the proposal “a Putin clause”. It will be impossible under the Bill for someone to recycle endlessly between two terms of deputy governor and Governor—return to two terms of deputy governor, and then become Governor again.

Photo of Matthew Hancock Matthew Hancock Conservative, West Suffolk

It is probably important to note that Putin has not yet recycled into the presidency. It is only in the febrile imagination of someone trying to dream up amendments that the proposal is a Putin amendment. After all, is it not the Crown who appoints the Governor and deputy governors? Therefore, it is not in the gift of the Governor to become deputy governor, unless so appointed.

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

My hon. Friend makes a helpful point. The deputy governors and the Governor are appointed by the Crown, so even if it were possible for a Governor to do a Putin, the Crown could block that appointment, so it will not become self-perpetuating at the whim or discretion of a Governor. It is clear that there will not be endless recycling, and I hope that that allays the concerns of the hon. Member for Nottingham East.

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

The Minister knows that Treasury Ministers have been making the point about the importance of term limits. We heard that stressed in the Chamber, and we now have, for the first time, a clear term limit. There was a clear, conscious decision to qualify the term limit. What was the reason? Why did Ministers agree to do that if they did not think it would ever arise?

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

It is a funny thing, but one of the important measures in the schedule has not been touched on, which is why we have moved from two five-year terms to one eight-year term. We have made that change, and perhaps a schedule stand part debate is welling up in the mind of the hon. Member for Nottingham East. We are not banning someone from being demoted from Governor to deputy governor. I think that is unlikely to happen, but the facility is there.

The important thing is to ensure that someone may have one term as Governor, and not more than two terms as deputy governor. That is reasonable. I do not  think we should preclude someone who ends up as Governor from deciding that they fancy a term in charge of financial stability.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

In my experience, the way these things tend to happen is that Ministers are presented with submissions from their officials about the formation of legislation, and then have to make some decisions. I wonder whether the Minister positively decided on the provision, or whether it is one of those read-across arrangements that slipped through the net. We will discuss in a moment under schedule 2 stand part whether there should be a fixed single term of eight years.

I am in two minds in many ways about term limits as a concept. If they were applied to hon. Members, and office holders of the Crown, we would be in all sorts of difficulties. Term limits have virtues in ensuring that in certain circumstances independence can be built into the system. The Minister is seeking to strengthen the Governor’s independence by having a single appointment and no reappointment process.

If the Governor could be appointed to further offices within the organisation, that would be a small carrot that the Minister could dangle over the Governor’s head for the longer term, and they could have that consideration in the back of their mind, although I doubt whether that would happen. I suspect that the Minister did not spot the anomaly, and he may wish to revisit it on Report. I do not believe it strengthens his case for an eight-year term limit, because the Governor could end up going beyond that, and it is not impossible to envisage such circumstances. After all, some of the deputy governors are exceptionally well rewarded. Their posts are important and powerful, and I can imagine a Governor who is young and still has a career ahead of them wanting an ongoing role.

With the hope that the Minister will think again about this—he did not say so, but I must hope that he will—I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed,That the schedule be the Second schedule to the Bill.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I want to emphasise the fact that the most important element in the schedule is clearly the move to a single-term appointment for the Governor of the Bank. That is obviously an important change, and there are pros and cons. On balance, I am happy to hear the Minister justify why he thinks a single eight-year term is necessary. I wonder why he chose eight years; perhaps he will explain the logic of that arrangement.

The current arrangement is two five-year terms, which is 10 years in total, so the Governor will serve for slightly less than previously. Is there added virtue in not having the reappointment process? I would be grateful if he explained the logic behind that, because we may want to debate it later. The rest of the schedule is broadly administrative, and I do not have many other objections to it, but I would like the Minister to explain the eight-year term.

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

This is an important point that we considered carefully when in opposition. There was a sense, perhaps, of politics being played over the reappointment of Governors for a second term, because that could undermine  the independence of the Governor. If the Governor felt that they were dependent on the whim of the Chancellor or the Prime Minister of the day, or that the prize of reappointment was being dangled in front of them, it could cause them to feel that their independence was compromised while waiting for that reappointment decision.

It was right to reconsider whether two five-year terms were appropriate, or whether we should move to a single eight-year term. Our conclusion was that to strengthen the independence of the Governor, it was important to have a single term so that they did not feel fettered by the sense of an imminent reappointment. I do not think that any Governor has felt fettered in such a way, but a single-term appointment would put beyond any doubt the independence of the Governor of the Bank of England.

The question is about whether that term should last for eight years, five years or 10 years, and I do not suspect that a huge amount of science is involved in the decision. Clearly, however, the Governor should have time to get into the job and understand their complex range of responsibilities. We have touched on that during the debate so far, and we have mentioned the Governor’s responsibilities as chairman of the Financial Policy Committee and the MPC, their overall responsibility for the Bank, and the fact that they are the chairman of the PRA.

Those are important tasks, and it is important to give the Governor time to develop that expertise and have a prolonged period in which to exercise the powers that come with the role. These are big jobs and we want to appoint someone for a reasonable period of time so that they are prepared to develop the expertise they need. Continuity is vital, whether across an economic cycle or during changes to the financial landscape.

The other point is that a term that is too long would create the sense of a Governor who lacks accountability. There is a balance to be struck. It is vital that Governors are accountable, which is why, as with other appointments, a Governor has a pre-commencement hearing in which they come before a Treasury Committee and are subjected to parliamentary scrutiny about their role. It is about getting the balance right.

The other merit, which I know the hon. Gentleman is always keen to latch on to in support of his arguments, is that the Treasury Committee has also suggested a single eight-year term for the Governor, and that provides another wise reason for moving to such a term. In looking at the duration of the appointment, a range of factors should be considered. Getting the balance right between continuity and accountability is vital, as is ensuring that there is no doubt about the independence of the Governor, by having a single term rather than providing an opportunity for reappointment. Again, that strengthens the sense of the independence of the Governor of the Bank of England.

We would all agree that one of the strengths of the reforms introduced by the previous Government was to strengthen the independence of the Bank, and this measure goes a step further. There are a range of reasons why it is appropriate to move to a single eight-year term. It is the right balance to strike and I am grateful for the Committee’s support for the second schedule to the Bill.

Question put and agreed to.

Schedule 2 accordingly agreed to.

Ordered,That further consideration be now adjourned. —(Greg Hands.)

Adjourned till Thursday 1 March at Nine o’clock.