Clause 56 - Circumstances in which Treasury power of direction exercisable

Financial Services Bill – in a Public Bill Committee at 8:30 pm on 20th March 2012.

Alert me about debates like this

Amendment made: 100, in clause 56, page 135, line 14, after ‘PRA’ insert ‘, the FCA’.—(Mr Hoban.)

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

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

We have discussed matters relating to the meaning of the word “Bank”, so we do not need to run through that discussion—[Hon. Members: “Hear, hear.”] Perhaps we do need to run through it again. If I have not convinced hon. Members, the power of my oratory is obviously as not as strong as it might be at this hour.

I find it strange that the Financial Policy Committee is missing from the list of organisations with particular responsibilities in subsection (5)(b). The clause is a prelude to the main Treasury power of direction, which the Treasury Committee was keen to see in the Bill. It provides a set of preconditions under which Her Majesty’s Treasury may exercise power and direction over the Bank of England. That is fair enough—I suppose it makes sense to try to define such circumstances and, essentially, fetter the Treasury, so that it cannot direct the Bank more frequently.

The Minister has set out in the clause three specific scenarios or circumstances in which the power of direction might be used. I want him to assure us that he genuinely believes that the provision has been drafted with sufficient breadth to capture hypothetical future scenarios. He  has cast back and considered the circumstances of the most recent crisis and has imagined when such a power might have been necessary. In terms of the Banking Act and the implications for the FSCS, will the Minister reassure us that there is enough flexibility and breadth to capture future crises, in which the Treasury might need to have a power of direction, not least to safeguard public funds? The power could be in relation to any number of various crises that might occur. Is it wise to be as specific as he has been in the legislation?

I accept that the balance is difficult to find, because one has to ensure that there is some sort of check on the Executive’s ability to interfere with the workings of the Bank of England, but on occasion it may be necessary to interfere. That is my main question to the Minister, and I would be grateful if he could elaborate on that.

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

We have, as the hon. Member for Nottingham East would expect, looked at the interventions that have taken place in the recent financial crisis to ensure that subsection (5) is as broad as is appropriate. Provisions such as

“the Treasury or the Secretary of State provide financial assistance to or in respect of a financial institution,” have been drafted as broadly as possible. They will cover actual financial support, contingent liabilities and guarantees. There is a huge breadth, even in subsection (5)(a).

The reason why the FPC has been excluded from subsection (5)(b) is that we do not expect it to be a micro-prudential regulator; it is a macro-prudential regulator. However, the FCA will be included as a consequence of the amendment that we have already discussed.

Subsection (5)(c) has been drafted in a way that is not exhaustive either. The clause has been drafted as widely as possible to capture any foreseeable set of circumstances.

Question put and agreed to.

Clause 56, as amended, accordingly ordered to stand part of the Bill.