I, too, welcome you to the Chair this evening, Mr Leigh—it was remiss of me not to say that before.
On clause 54, we talked about the Bank of England notifying the Treasury of a material risk. Under clause 55, the Bank must, in certain circumstances, notify the Treasury of any changes to that notification. The clause is therefore consequential on clause 54, and it also applies where the notification has ceased.
Clause 55(2) states that the Treasury must be notified of a
“substantial change in the matters which gave rise to the notification”,
even if the notification continues to be valid. May I gently ask the Minister whether there is not a danger that, while the Bank does not think a change is material or substantial, the Treasury will be of a different opinion? Would it not be better if the Treasury were notified of any changes in circumstances so that it could judge whether they were substantial? Perhaps the Minister has in mind a concept of what is substantial, and he might be happy to leave us with a vague concept, but I worry that the judgment about whether there has been a change should be in the hands of the Treasury.
Subsections (2) and (3) start with the words
“If the Bank of England is of the opinion”— and so on. Again, I have to ask the Minister: what does that mean? Is it in reality the Government’s opinion? I am sorry to be constantly pointing out this lacuna in the legislation, but it would be better if the Bill were precise and if it specified, even if in a definitional, consequential clause later on, what is meant by the Bank’s opinion. As a corporate body, the Bank will have lots of opinions, but we have to take it that the opinion is essentially determined by the head of the organisation—the Governor—and if that is the case, the Minister needs to say so. If he will not put it in the Bill, saying it in Committee would be one step towards that.
I want to know what happens if there are disagreements within the Bank about whether risks have changed or ceased, and whether different opinions can be communicated to the Treasury, or whether the only opinion that matters will ultimately be the Governor’s. The Minister has mentioned that the Deputy Governor is a Crown appointment, and perhaps that gives some level of independence, but he will also know that the line management chains mean that the Governor can overrule the Deputy Governor and other deputies, so it is important to test this point. It was heavily discussed on Second Reading, and it is important to get a sense of how such disagreements are to be aired—or not.
Clause 58 allows the Bank and the PRA, following the Government’s amendments, to look at the public funds notification. The Minister is not amending clause 55 to ensure that the FCA is involved, but my view is that the FCA ought also to voice its opinion.
Clause 55(4) says:
“Before giving notification under section (3), the Bank must consult the Treasury.”
What form will that consultation take? Will a phone call to a Treasury official suffice, or will there be a meeting between the Governor and the Chancellor—
This is a serious point. I wonder whether there is a conflict between subsections (3) and (4). Subsection (3) says:
“If the Bank of England is of the opinion that the risk to which the notification relates has ceased, it must notify the Treasury”,
and subsection (4) cites the need to “consult the Treasury”. We have already discussed how the wording in other parts of the Bill could lead to some confusion.
This is the difficulty. We are not the architects of this legislation—the Government are, and they have to iron out this difficulty. Sadly, there is some confusion and lack of clarity about how these procedures will work, and it is incumbent on us to ask what is meant by consultation in this context.
I am curious about this obsession with what the Bank means. Perhaps the hon. Gentleman or the shadow Chancellor has had a bad experience at some point. This was such a centrepiece of the shadow Chancellor’s speech on Second Reading that I could not work out if he had any other objections to the Bill. He dilated on the topic—as the Speaker would say—for some time, and we never really got to the bottom of why he had this concern.
Let us for the sake of argument replace the Bank of England with the Governor. In that case, if the Governor was ill or away, nothing could happen, because the Governor could not do this. We need to recognise that there is a legal institution called the Bank of England, and it makes these notifications to the Government.
No, I will not give way on that point. For at least the second time today, we are debating whether the Bank of England means the Governor. We have had that debate, and when the hon. Gentleman tested the will of the Committee, it decided not to accept his amendment.
On the point about substantial change, we need to recognise that the ongoing risk to public funds might change from day to day. It would be disproportionate and bureaucratic to require the Bank to provide formal notification any time the risk changes, so it is important to qualify the risk with the word “substantial”. Otherwise, every minor change will end up being notified, which would get in the way of a proper dialogue between the Treasury and the Bank of England. We, of course, expect the Bank to keep the Treasury up to date on changes in risk.
The form of consultation might, as the hon. Gentleman has suggested, be a phone call or a meeting. The purpose of the provision is to enable the Treasury to make representations to the Bank if it disagrees with the reason for a notification so that the available power of direction still remains. The Treasury has a power to tell the Bank that it disagrees with such a change because it does not accept the Bank’s description of the circumstances. That power will prevent a unilateral withdrawal of the notification, which has to be done in consultation with the Treasury.
The Minister refers to subsection (4), which states:
“Before giving a notification under subsection (3)”— in other words, about a denotification—
“the Bank must consult the Treasury.”
However, the Bank is not required to consult the Treasury in relation to the notification of a substantial change in the matters giving rise to the risk. The Bank just notifies the Treasury and there is no prior consultation, which surely is odd.
If there is a change, there will be an opportunity for a discussion, as there is when there is a notification of a risk. The provision relates to when the Bank decides that a risk no longer exists. It gives the Treasury the power to say that the notification should remain in place.
Subsection (2) concerns public funds notifications. Clause 54(2) states that such notifications are covered by clause 54(1) or by clause 55(2). For public funds notifications, there will be no prior consultation with, or indication to, the Treasury. The only room for consultation with the Treasury that is provided for relates to denotifications, not public funds notifications involving a material change.
The Bill does not provide for it.
If the hon. Gentleman will allow me, we want the Bank to tell us, first, when there is a material risk and, secondly, when there is a change in that material risk, and there will be consultation if the Bank decides to withdraw a notification. The arrangement permits a dialogue in that, once a general indication about the risk has been given, the Treasury and the Bank of England have the opportunity to discuss the nature of that risk. Ultimately, the Chancellor decides how to use public money, so such information has to be provided.
We have to be clear on the point made by the hon. Member for Nottingham East about disagreement within the Bank of England. The MOU sets out that if the Bank is in doubt, it should tend towards making a notification rather than not doing so. The whole emphasis of clause 54 and the MOU is to set the bar low, so the expectation is that a notification will be made rather than not made. That will ensure that there is a flow of information from the Bank to the Treasury. It is important for the Bank to notify the Treasury of a change, but it should be a substantial change rather than any change, because otherwise the Treasury will be deluged with notifications every time there is a slight tweak in the Government’s potential exposure to something. The approach must be proportionate to prevent the measure from being used in a bureaucratic fashion.
My hon. Friends the Members for Foyle and for Kilmarnock and Loudoun made important points about the clause’s lax drafting. I am sorry that the Minister is exasperated by our asking what is meant by the opinion of the Bank. There are many players in the Bank. He did, however, ask an interesting question: what if the Governor falls ill? I am still not clear that we know who is second in command at the Bank, given that there are three equal deputy governors. Presumably, the second-in-command functions are divided equally between each of the three players according to their relative portfolios. I presume that the court of the Bank would appoint an acting director in the interim. In a crisis scenario, we cannot dissociate the question of individuals and their opinions, because they really do matter. It is important to test such issues, because in a crisis, there will not be time to figure them out. We might waste half a day trying to work out who will be in charge. It is far better to have clarity in the Bill about how things would flow.
The clause is generally reasonable in relation to notification of changes, but the Treasury must be very trusting of the Bank of England in the measure. Such trust between great institutions of state is good, but the provision puts an awful lot of power in the Bank’s hands and leaves the Treasury blind, and reliant on the Bank to define a substantial change in circumstances. However, we have had sufficient debate.