Membership of court of directors

Bank of England and Financial Services Bill [Lords] – in a Public Bill Committee at 9:25 am on 9 February 2016.

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Photo of Richard Burgon Richard Burgon Shadow Minister (Treasury) 9:25, 9 February 2016

I beg to move amendment 9, in clause 1, page 1, line 7, at end insert—

“(2A) In section 1(2)(e), at end insert “who shall include four designated representatives including—

(i) Practitioner Representative,

(ii) Smaller Business Practitioner Representative,

(iii) Markets Practitioner Representative and

(iv) Consumer Representative.”

With this it will be convenient to discuss the following:

New clause 2—Composition of the Court of Directors of the Bank of England—

“In making nominations to the Court of Directors of the Bank of England, the Chancellor of the Exchequer must have regard to the importance of ensuring a balanced representation from the nations and regions of the United Kingdom.””

New clause 5—Publication of transcripts of meetings of the Court—

“In paragraph 12A of Schedule 1 to the Bank of England Act 1998, replace the word “record” with the word “transcript” in each place where it occurs.””

Clause stand part.

Photo of Richard Burgon Richard Burgon Shadow Minister (Treasury)

It is a pleasure to serve under your chairmanship, Mr Wilson, and to serve opposite the Minister.

On part 1 of the Bill, which is on the Bank of England, it is our intention to make the case for increased transparency and increased accountability at the Bank. At a time when the financial services sector, as the political system does, faces a lack of public support and public trust—or rather, not as much as we would like—it is in the interests of the sector as a whole and the Bank of England itself for it to present itself and its decisions in the most open way possible.

Clause 1 relates to membership of the court of directors. Amendment 9 regards representation on that court. We accept the proposals in the clause regarding membership of the court, but I note that concern was expressed in Committee in the House of Lords about a potential reduction in the number of non-executive directors in the court. Will the Minister clarify the number of non-executive directors that the Government foresee sitting in the court? In the light of amendment 9, which is in my name, and new clause 2, tabled by Scottish National party Members, the Government should make use of the option of nine non-executive directors in the legislation to ensure the widest possible representation and fullest possible input into and scrutiny of the Bank’s work through the court.

Through amendment 9, we seek to amend the Bank of England Act 1998 to insert a requirement that, of the nine non-executive directors, four be designated as representatives of specific practitioner sectors, including a consumer representative. We recognise that the court, as it stands, includes representatives of a variety of backgrounds, including, historically, the trade union movement. We welcome that and believe that that tradition and representation should continue.

To improve that representation, we propose drawing on the practice at the Financial Conduct Authority and the categorisation of its statutory panels to ensure that a practitioner representative for larger firms, a smaller business practitioner representative for smaller firms, a markets practitioner representative and a consumer representative are included. That is all I have to say directly in relation to amendment 9.

We believe that providing transcripts of the court’s proceedings, such as Hansard provides of our own discussions in Parliament, allows for rich scrutiny of lines of argument and is a clear way to increase transparency and public awareness. In the United States of America, it is the practice to broadcast meetings of the chairs of the various Federal Reserve banks. In the new clause, Members have not asked the Bank to go that far, but we believe that that is a positive example. The aim is to enable the public to understand what is going on and to allow greater scrutiny of the Bank of England’s valuable work.

Photo of George Kerevan George Kerevan Scottish National Party, East Lothian

I want to speak to new clause 2, which is a probing amendment. My response will be determined by the Minister’s response. We are asking that, when making nominations to the Bank’s court of directors, the Chancellor should have due regard to the importance of ensuring balanced representation from the UK’s regions.

Overall, the Bill is useful in tightening regulation and in refocusing the organisation and direction of the Bank of England. In particular, there is much merit in tidying up the operation of the Bank’s three main committees overseeing micro and macroprudential activity and the operation of the Monetary Policy Committee and, if that is accepted, in ensuring that the Bank’s court becomes essentially the organiser of the organisation, with responsibility, as the main oversight, for how the Bank’s operation works and for ensuring that there is managerial competence and value for money and that resources are well deployed between the Bank’s various functions.

It has been generally recognised over the years that the court has sometimes had an ambiguous position halfway between being a proper corporate board and a policy-making institution. The Bill, correctly, separates the policy functions that go to the committees, leaving the board with the essential corporate governance. That is a step forward. My point is that, if we do that —if we redefine and concentrate the board’s activity—we must look at the composition of the board and ensure that it is fit for purpose—a new board for a new competence.

The composition of the current board is a little too narrow. I accept that it has moved beyond the days when the court consisted simply of City grandees. In recent years, appointment to the board has widened; the international influence has widened. It includes a South African and an American. There is some industrial representation, but by and large there is still a feeling in the wider financial community outside London and in the wider industrial and commercial communities outside London that it is too City focused. For a board that is about not simply managing the City, but managing the central bank, it would be in the interests of the central bank and of commanding the respect of the central bank if there were a wider remit in relation to appointments to the board.

In the new clause, I am trying not to be too specific. A board should not be federalised; it should not consist of delegates. A board has overall responsibility. I presume that most people around this table have been on the boards of companies, large and small. I have been on at least two dozen boards in my rather geekish lifetime. When boards have discussions about who should be on them, they say, “Well, what experience do we have? Who is not represented? What area of competence do we need that will help the board to function?” That is perfectly proper.

I am just saying that, given the key role that the Bank of England plays in the UK, there should be more representation of the regions and nations of the UK. That is particularly the case because the banking community is no longer concentrated simply in the City of London. There are operations in Manchester, Bristol, Glasgow, Edinburgh, Cardiff and beyond, and the industries and sectors there want to feel some confidence that the Bank of England listens to them.

I know of course that the Bank of England has long had a system of agents. I suppose that many of us around the table will have met the agents in our region over the years. However, the agents have a different function. We are talking about a new board for a single bank.

Let me say—I hope that the Government will respect this—that the principle has already been conceded in one respect, which has been referred to. It has been traditional since the post-war period for the Bank to have a representative of the labour movement, the trade union movement, on the grounds that labour and capital were the two great elements of the economy. Given that that principle has already been conceded, all we are talking about is extending it.

My final point is that the distinguished Governor of the Bank of England, Mr Carney, of course comes from Canada, where the principle is already accepted. There is a rule that, in composing the board of the Bank of Canada, due consideration should be given to the provinces being represented. There is not a rule that every province has to be represented on the board of the Bank of Canada; it is not as specific as that and nor should it be. However, if we look at the board of the Bank of Canada, we see that, strangely enough, all the provinces are represented. Mr Carney is perfectly comfortable with that, so we are not trying to impose a burden that he has not had to face in the past.

Photo of Richard Burgon Richard Burgon Shadow Minister (Treasury)

I will comment on new clause 2, in the name of the hon. Member for East Lothian. As I said, we see merit in the proposal for wider geographical representation on the board and we believe that it complements our proposals to ensure that different stakeholders are represented. We would be interested to hear a little more detail if possible. He spoke about different centres of employment—Birmingham is one example—but I would be interested to hear specific comments on whether this proposal relates to personal residency or employment and, crucially, does the SNP believe that devolved bodies should make recommendations to the Chancellor?

To clarify, our new clause 5, on the publication of transcripts of meetings of the court, is a small tidying amendment, but we hope that it would have a significant impact by opening up the discussions of the court to wider scrutiny and that it would ensure increased transparency and accountability. That is why I will seek a Division on new clause 5 and why I invite all hon. Members to consider voting for it.

Photo of John Mann John Mann Labour, Bassetlaw

It is an honour and a privilege to serve under your chairmanship, Mr Wilson. The issue of the court and its lack of transparency— the amendments attempt to bring in some transparency—is one that has bypassed the majority of commentators and the general public. Hidden in the rather grand depths of the Bank of England, the court holds significant potential power, yet it has become embodied by not a concept of nepotism within the financial sector, but something akin to that. Perhaps “revolving door” is a better term. Someone goes in one door, they fail and go out of another door, and then they turn up in the same industry and at the same heights, time and again.

The criteria for who is on the board have always been shrouded in some secrecy. The hon. Member for East Lothian raised the question of the representation of the labour movement. That is a good and interesting point to examine in this context, because it remains the case today that Mr Prentis of Unison is on the court, as was Mr Brendan Barber of the TUC before him. I believe that Mr Bill Morris was on the court before that, and Mr Gavin Laird was too, in the distant past. Indeed, I used to see the papers that Mr Laird received at the time and the contributions he made. If they had been listened to at the time it would have had a significant impact on British competitiveness. Mr Laird used to argue repeatedly, very eloquently and in beautifully scripted speeches, that we were in danger of overemphasising the importance of finance at the expense of manufacturing. That is an issue not only for the Government, but for the Bank of England itself. Industry, as opposed to finance, needs to be in at the Bank. That is a fundamental weakness, because at present it is financiers as opposed to industrialists who are evident at the Bank, not so much in the expertise but in the mindset and the thinking which lead to decision making. The Bank thinks as financiers do, and it does not think more widely.

In the same way, my hon. Friends on the Front Bench propose to broaden the court with consumer champions and others who are missing at the moment. The Chancellor is decisively, deliberately and calculatedly removing consumerism and the consumer interest from regulation. Why? Because that is seen as a barrier to the ever onward growth and recovery of the big banks, not least RBS and Lloyds. Some commentators are speculating that there might be a fuel tax increase. That is quite wrong, in my view. What the Chancellor wishes to do is maximise his returns on the sale of shares in RBS and Lloyds. In itself, that is very sensible, and it is something that the Bank of England would support, does support and will support. However, speed and timing are critical in all of this. We have the Bank of England being unduly influenced by the Chancellor and the Treasury, while at the same time it is losing external influences from the world of industry. That includes both the employer and, potentially, the trade union influence.

There is the intriguing possibility of a more regional Bank. What would the world come to if there were people in the Bank of England who did not live in London or, more likely, in the commuter belt outside London? How would the world survive? It is a shame that my hon. Friends did not go even further and suggest that the court ought to meet not in the hallowed chambers on the third or fourth floor of the Bank, but in Manchester, Birmingham, Cardiff, Edinburgh, Aberdeen or Sheffield, in order that the public can see and hear it and get a feel for it. That would be an easy, significant win, and I am sure that the Bank’s representatives listening in will take note of that. I commend the amendments to the Committee; they are excellent and should be agreed.

Photo of Harriett Baldwin Harriett Baldwin The Economic Secretary to the Treasury 9:45, 9 February 2016

May I say what a pleasure it is to serve under your chairmanship, Mr Wilson? I will speak to clause 1 and why it should stand part of the Bill before dealing with the amendments.

The clause makes the deputy governor for markets and banking a member of the court of directors—an important position that is not currently a statutory member of the court. It also provides enhanced flexibility to add or remove a deputy governor or alter the title of a deputy governor, as well as the corresponding ability to make changes to the composition of the court, the Financial Policy Committee, the Monetary Policy Committee or the new Prudential Regulation Committee where a deputy governor is added or removed. Those important provisions will simplify the governance of the Bank.

Following the expansion of the Bank’s responsibilities through the Financial Services Act 2012, a deputy governor for markets and banking was appointed with responsibility for reshaping the Bank’s balance sheet, including ensuring robust risk management practices. That important position is currently filled by Dame Minouche Shafik, who is not a statutory member of the court. We have talked about regional diversity this morning, but she ticks many boxes in terms of other forms of diversity, having been born in Egypt, worked a lot in America and being a British citizen. The clause amends the Bank of England Act 1998 to make that deputy governor a member of the court, ensuring equal status for all the Bank’s deputy governors and simplifying the Bank’s governance structure.

It should be noted that the power to add or remove a deputy governor will not permit the Treasury to remove a deputy governor or change his or her title while that deputy governor is in office. The measure will ensure flexibility for future need. At present, changes such as the creation of the new position of deputy governor for markets and banking can only be effected through changes to primary legislation. Instead, as a result of the clause, the Government will in future be able, by order and after consulting with the Governor, to adjust the size and shape of the Bank’s senior management team to meet future requirements—for example, to bring in new expertise if that proved to be necessary.

The hon. Member for Bassetlaw asks why we are changing the number of non-executive directors on the court. To be clear, that change is not being made by the Bill. The Bank of England Act 1998 requires up to nine non-executive directors, and following retirements there are currently seven non-executive directors on the court. A smaller board will be better for the Bank. The strong view of the Bank’s non-executive chair, Anthony Habgood, is that a smaller board makes for more effective challenge and accountability of the executive. When there are fewer non-executive directors, each member has greater opportunity to pose questions to executive members and to debate with them. A larger court might encourage a round table of individual speeches, rather than enabling effective back-and-forth discussions with and challenge to the executive.

Photo of John Mann John Mann Labour, Bassetlaw

Other than remarks from an individual, what is the evidence base from analysis of input over years for the Government seeing the reduction as being quantified in better input?

Photo of Harriett Baldwin Harriett Baldwin The Economic Secretary to the Treasury

The hon. Gentleman serves as a member of the Treasury Committee, and I believe he was also a member of that Committee in the previous Parliament, so he will remember that it produced a report in 2011 called “Accountability of the Bank of England” which recommended that the court’s membership be reduced to eight—smaller than we propose. It emphasised that a smaller court would allow for

“diversity of views and expertise” while still being

“an efficient decision-making body”.

He may want to go back and look at the evidence base that the Committee looked at. It is important to emphasise that the Bill does not make a change in terms of the membership, which remains at possibly up to nine.

Photo of Roger Mullin Roger Mullin Shadow SNP Spokesperson (Treasury)

Does the Minister therefore believe that the Cabinet should be reduced in size?

Photo of Harriett Baldwin Harriett Baldwin The Economic Secretary to the Treasury

The Cabinet, as the hon. Gentleman knows, has fluctuated in size over the years. On the evidence base, we are obviously talking about the experience of the Bank of England having in the past, particularly in the run-up to the financial crash, had a significantly larger court. I think there were 19 members in the run-up to 2009, and it was thought that that was a very large and unwieldy body. I think it still falls short of the number of people who currently attend Cabinet. There is a range of different views of effectiveness, but the important point to emphasise is that the Bill does not intrinsically make any changes to what is already there, although in practice we currently have seven non-executive directors on the court.

Importantly, the Bill also provides for the continued balance of internal and external members on the MPC, the FPC and the newly formed PRC. Following the addition or removal of a deputy governor, the Government may make a corresponding change to the number of members appointed by the Chancellor in the case of the FPC or PRC or the Governor in the case of the MPC.

New clause 5 would require the court to publish transcripts of its discussions within six months. I agree completely with the hon. Member for Leeds East that transparency is critical. The Bank of England makes decisions that affect all of us and it must be accountable to the public, and enhancing transparency is central to that. That is why I am so pleased to bring this Bill to the Committee: it makes governance of the Bank much more transparent in several ways. First, it makes the entire court responsible for the oversight functions. No longer will an oversight committee oversee the work of an oversight board. Every member of the board, executive or non-executive, will be clearly responsible for oversight of the Bank.

Secondly, the Bill removes a greater barrier to transparency and unnecessary complexity. In 2013, the Parliamentary Commission on Banking Standards noted the complexity of the present regime. It said:

“The accountability arrangements of the new structures”— that is, the structures that exist now—

“are more complex than those of the previous regulatory regime. The PRA is a subsidiary of the Bank, and the FPC is a sub-committee of the Court of the Bank.”

The Bill will change the FPC’s status from a sub-committee of the court to a committee of the Bank and will end the PRA’s subsidiary status, establishing the Bank’s three policy committees on a common statutory footing.

The final and perhaps most significant means of enhancing transparency is bringing the whole Bank into the purview of the National Audit Office for the first time in its history. Allowing the NAO to conduct value-for-money reviews across the Bank will increase its accountability to Parliament and to the public. In turn, this will build greater public trust in the Bank’s operations and governance, supporting its vital independence role in the UK economy.

I agree with the hon. Member for Leeds East that transparency is important: it improves accountability and ultimately makes the Bank’s governance better. However, I disagree with him that mandating transcripts of court sessions will make governance better. As hon. Members are aware, the court is now required to publish the minutes of every meeting within six weeks. That was not always the case, but I am glad to see that the court has published historical records of its minutes, including those during the financial crisis. Through this, Parliament and the public now have greater insight into the governance of the Bank and the key decisions made. Transcripts are a different matter entirely.

We are fortunate in this debate because the impact of transcripts on Bank discussions has already been examined by Governor Warsh in his review, “Transparency and the Bank of England’s Monetary Policy Committee”. He said:

“Creating a safe space for true deliberations is among the most critical indicia of organisations that make good decisions, according to the leading academic and empirical literature and my own observation”.

I am sure we all want a court that makes good decisions. The alternative would be extremely costly for all of us. Governor Warsh looked at the MPC’s two discussion days and found that the different nature of the day one and day two discussions required different approaches to transcript publication. It makes sense to see which of those days is most like a court session and what Governor Warsh recommended. Day one is when the MPC members deliberate, challenge the evidence before them and question one another—exactly the kind of role that the court performs very effectively. Day two is very different. In Governor Warsh’s words:

“With few exceptions, the deliberations are nearly complete, policymakers are heard, and their judgments tallied.”

I think it is clear that day one is closer to the deliberations and discussions of a board.

Photo of Roger Mullin Roger Mullin Shadow SNP Spokesperson (Treasury)

I thank the Minister for explaining Governor Warsh’s views, but I would like to challenge his view that the academic literature is all one way. In fact, some of the academic literature points out that in more private settings, people are more prone to groupthink.

Photo of Harriett Baldwin Harriett Baldwin The Economic Secretary to the Treasury

As a distinguished academic himself, the hon. Gentleman will know that academics often differ in their points of view. It is clear that in this case the distinguished Governor Warsh has come down in one way, and here in our deliberations we have come down in favour of producing a transcript, and Hansard performs that incredibly valuable role for us. I will make some further points, which I hope will convince him of the wisdom of the position that the Government are taking on transcripts.

When Governor Warsh looked at releasing transcripts of the day one deliberations, which he described as “safe space” deliberations, he found that

“Should the transcripts of the Day 1 deliberations be made public, the quality of the deliberative process would risk being materially impaired, to the detriment of sound policymaking.”

He went on to make a clear recommendation that

“the Day 1 policy discussions should no longer be recorded nor should they be transcribed.”

Publication of transcripts of meetings of the court would have a “chilling effect” on discussion and the quality of debate and harm decision making. I therefore hope that the hon. Member for Leeds East will not press his new clause.

Photo of John Mann John Mann Labour, Bassetlaw

Having gone through in some detail an analysis of whether transcripts of meetings of the Monetary Policy Committee should be made available, on which there has been a thorough debate, including with members of the MPC, the Minister translates that to an amendment relating to the court. In relation to the court, what is the evidence base that suggests that the hearings or decision making of the court, as opposed to the MPC, would in some way be restricted by a transcript?

Photo of Harriett Baldwin Harriett Baldwin The Economic Secretary to the Treasury

The hon. Gentleman makes an important point. The court oversees the MPC, the FPC, and the PRC under the proposals in the Bill. We have not discussed yet—I will be happy to do so—the fact that on the prudential side of discussions, the people on that committee will looking at material that constitutes, by any judgment, non-public information on the soundness of important financial institutions in this country. I am sure that, as a member of the Treasury Committee, the hon. Gentleman will agree that such material ought to be treated as extremely market-sensitive in any circumstances.

Photo of John Mann John Mann Labour, Bassetlaw

The Minister is now jumping to a third body. The amendment relates to the court. The court does not make decisions on interest rates. The court does not delve into the financial situation of individual banks or other financial institutions. The court oversees; the court is strategic. Will she explain the relevance of her case in relation to the court, as opposed to the committee dealing with prudential regulation or with monetary policy?

Photo of Harriett Baldwin Harriett Baldwin The Economic Secretary to the Treasury

I would have thought that it spoke for itself. The fact that the court is overseeing all these different committees, some of which will be considering material that is non-public information—

Photo of Harriett Baldwin Harriett Baldwin The Economic Secretary to the Treasury

If the hon. Gentleman will allow me, I will give way to him when I have replied to his previous point. We are proposing the publication of a record of the court’s meeting, and I agree with him that it is important for that record to be in the public domain. There is a clear difference between that record and a transcript.

Photo of John Mann John Mann Labour, Bassetlaw 10:00, 9 February 2016

I thank the Minister for giving way again. I have the advantage over her of having been in the deliberations of the Treasury Committee on these matters. There is a world of difference between decision making on interest rates or the examination of whether a particular financial institution is in danger of collapse and going into that in a committee and the role of the court. The Minister seems to misunderstand the role of the court. Has she looked at and understood the transcripts of the discussions of the Treasury Committee and the banking review on the question of the court? She is talking about different bodies. This amendment is about the court. The Minister said, in response to my earlier intervention, that this is self-evident. No, it is not self-evident—

Order. This is an intervention.

Photo of John Mann John Mann Labour, Bassetlaw

It is a precise intervention. Would the Minister like to comment?

Photo of Harriett Baldwin Harriett Baldwin The Economic Secretary to the Treasury

In responding to the hon. Gentleman’s intervention I will be a little bit cheeky, if I may, and highlight the fact that even that august body, the Treasury Committee of this House, sometimes meets in private. There is a need for a safe space for discussions at certain points. We agree with the hon. Gentleman that it is important to have a degree of transparency in terms of the court. We think that the record provided is adequate. I hope that the hon. Gentleman will not press the amendment.

Photo of Harriett Baldwin Harriett Baldwin The Economic Secretary to the Treasury

I would like to move on, but I will take another short intervention.

Photo of John Mann John Mann Labour, Bassetlaw

I thank the Minister for giving way. Debate is important. The Minister now cites in evidence the Treasury Committee, which is a good example. The reason that minutes and transcripts of Select Committees are available is because of the strategic overview and public accountability that they provide. That is the whole point about the court. It is not making decisions on the minutiae or on the specifics. It is providing an overview and oversight, on precisely the same democratic logic as a Select Committee. That is the point of this excellent amendment. The Minister does not seem to understand the point of the court and what it is there for.

Photo of Harriett Baldwin Harriett Baldwin The Economic Secretary to the Treasury

With great respect to the hon. Gentleman, I do understand that. Perhaps he would like some further examples. The court plays an important role in relation to emergency liquidity assistance at the time of a financial crisis. We have to agree as a Committee that there will be times when the court is discussing something that we do not want to have transcribed and put into the public domain. Personally, I thought that Governor Warsh was very convincing in comparing what happens on day one of the Monetary Policy Committee and what can happen at other times—not necessarily all the time—and how a record will be published. The hon. Gentleman will vote one way and I will vote another. I do not agree with the amendment.

Amendment 9 would require representation on the court of particular sectors, and require the Chancellor to have regard for balanced regional and national representation on the court. Obviously, the Bank of England plays a central role in the UK economy, and its policy decisions are vital to everyone in the United Kingdom. I therefore entirely agree with hon. Members about the importance of the Bank of England giving careful consideration to how its policy decisions affect people throughout the country. This is at the heart of the Bank’s mission of promoting the good of the people of the United Kingdom by maintaining monetary and financial stability—indeed, that is precisely what the Bank does.

I will give a few examples. The Bank has representatives around the country; those agents work from 12 agencies, in Scotland, Wales, Northern Ireland and the regions of England, to gather information from businesses operating across many different sectors, including financial and non-financial firms. The regional agents, often joined by the Bank’s governors and members of the policy committees, regularly meet and hold panel discussions with companies of a range of sizes across the UK to gauge economic conditions and inform the Bank’s monetary policy and financial stability work. I trust that all members of the Committee have had an opportunity to observe that activity in their constituencies. If they have not, I strongly recommend that they do so, because those Bank activities are extensive. To give hon. Members an idea of how extensive they are: in 2014-15 the agents visited some 5,200 companies drawn from firms in all sectors and in all corners of the country; also, panel discussions were held with 3,700 businesses. Undoubtedly, the Bank goes to great lengths to ensure that it develops a detailed understanding of the conditions for businesses in all sectors across the whole United Kingdom.

In addition, the Prudential Regulation Authority’s practitioner panel ensures that the interests of those who must put the PRA’s rules into practice are communicated to the regulator. The panel includes representatives of banks, insurers, building societies and credit unions. The Financial Conduct Authority’s consumer panel has a statutory right to make representations to the PRA, and the FCA chief executive sits on the Financial Policy Committee and the PRA board, and will sit on the new Prudential Regulation Committee.

Through this Bill we are going further in ensuring that the regulators take into account the diversity of business models operating in the financial sector. Specifically, we are making it clear that both the PRA and the FCA must take account of the differences between different types of firm, including mutuals, whenever they are discharging their general objectives. We argue that these amendments are unnecessary and, indeed, unhelpful. They would cloud the appointments process.

Photo of George Kerevan George Kerevan Scottish National Party, East Lothian

Does the Minister not accept that there is a difference between being consulted and having a right to be consulted and having a right to feel that one is represented on a deliberative body?

Photo of Harriett Baldwin Harriett Baldwin The Economic Secretary to the Treasury

There is, but the purpose of the deliberative body, as we have heard, is effectively to act as the board of the Bank of England, supervising the different committees. Prior to the financial crisis, members of the court were often selected specifically to represent a range of sectoral interests, including many of those proposed in the amendments. The first problem with the amendments is that requiring representatives of different sectors and regard to regional representation will entail a much larger and therefore oversized and dysfunctional court. Before the financial crisis, when the court had non-executives specifically to represent different interests—why stop at the four listed in the amendment?—the court had an incredible 16 non-executives, rendering it far too large to operate effectively and unable to hold the executive properly to account.

Photo of Roger Mullin Roger Mullin Shadow SNP Spokesperson (Treasury)

I think the Minister may have been in error when she implied that the new clauses would introduce a requirement. Our new clause 2 simply says

“the Chancellor of the Exchequer must have regard to the importance” of balanced representation.

Photo of Harriett Baldwin Harriett Baldwin The Economic Secretary to the Treasury

The hon. Gentleman is right to highlight that difference. Of course, what the Chancellor of the Exchequer would have regard to is the quality and ability of those individuals to perform the function they are asked to perform. The Banking Act 2009 sensibly limited the court to nine non-executives, and in practice we have now reduced the number of non-executives to seven while keeping that non-executive majority, which means that the court is now sufficiently small to form an effective body that can challenge the executive. The amendments before the Committee would inevitably mean a return to a large, inefficient and ineffective court.

A second problem with amendment 9, which would require sectoral representation on the court, is that it would give rise to conflicts of interest. The amendment calls for several practitioner representatives on the court. We have tried that in the past, too. During the crisis, the conflicts of interest meant that some of those on the court who could have been of most assistance to the Bank had to leave the room for the most important decisions, such as on liquidity provision to the markets and on individual firms. That hampered the court’s ability to respond effectively.

Photo of George Kerevan George Kerevan Scottish National Party, East Lothian

Does the Minister agree that her statement about the ineffectiveness of the board, because of its narrow composition during the crisis, makes our point that we need wider representation across the country, across areas and across industrial sectors?

Photo of Harriett Baldwin Harriett Baldwin The Economic Secretary to the Treasury

I do not think anyone disagrees with the idea that we would want to have a range of different abilities and skills on the court of directors. What we are fighting against in opposing the amendments is the propensity of such amendments to lead to a larger and larger group of individuals on the court. Importantly, in relation to highlighting the potential for conflicts of interest, the conflicts policy now makes it clear that, among other restrictions, members of the court should not accept or retain any interest that is in conflict with membership and should not normally be associated with a PRA or Bank-regulated firm, whether as a director, employee or adviser. That ensures that the wide-ranging expertise—we all agree that that is necessary—appointed to the court can be deployed without obstacles, and leaves the court better equipped to respond to a crisis. The amendment would unravel those arrangements, and I argue that we should oppose it; we should not allow it to take us backwards.

The third and most important concern about the amendments is that they would impose unnecessary and undesirable constraints on appointments to the court. In the past three years, the court has been transformed. The Chancellor has appointed the highest-quality team, with significant experience of running large organisations and deep expertise in matters relevant to the Bank. The Government look far and wide for the best candidates, with roles advertised in the international press. Let me be clear: obviously, there are highly competent and highly qualified individuals who work in the sectors proposed and from all the regions across the UK. The amendments would constrain the appointments process utterly unnecessarily, potentially preventing us from forming the highest-quality, most experienced board for one of the most important institutions in the country.

Photo of John Mann John Mann Labour, Bassetlaw

The Minister lauds this dramatic improvement in the court during the past three years. Can she give a specific example of a key decision made by the court during the past three years that has benefited by that enhanced performance?

Photo of Harriett Baldwin Harriett Baldwin The Economic Secretary to the Treasury

Not off the top of my head. I cannot specifically think of anything, other than to highlight the fact, in relation to the previous life of the court, when we were dealing with a much larger organisation, that all the reviews since the financial crash have highlighted the unwieldiness of that organisation and the lack of clarity in terms of conflicts of interest as being among the underlying imperfections in the financial regulation that we inherited in 2010.

Photo of John Mann John Mann Labour, Bassetlaw

The decision in Sweden, for example, to move to negative interest rates, the collapse in oil prices, the mistake that the Chancellor made with the timing of the RBS shares sale and the successful prosecution in relation to LIBOR are all issues that have originated within the past three years. Did the court in its wisdom say anything about any of them in giving advice to the Bank?

Photo of Harriett Baldwin Harriett Baldwin The Economic Secretary to the Treasury

As the hon. Gentleman will be aware, a number of different independent reviews have been commissioned by the oversight committee during the past few years. I completely dispute his point about the sale of RBS shares. Given how much lower they are today, I would have thought he would welcome the fact that the Government were able to sell the first £2 billion-worth in the market last August. He and I will clearly vote along different lines on this matter. The Government feel that the amendment would constrain the appointment process, to the detriment of effective decision making in the court and in effect, therefore, to the detriment of the Bank’s overall effectiveness. Undoubtedly the court should have a breadth of experience and knowledge, and we certainly want different perspectives to be brought to bear.

It is also important that the court is able, when necessary, to commission the kind of review about which the hon. Gentleman speaks. There has been the Plenderleith review to increase emergency liquidity assistance capabilities and the Stockton review, which made recommendations on how the Bank communicates its forecasts. We have even spoken this morning about the Warsh review, which has made the very recommendations that we are considering, regarding MPC procedures and the governance of the Bank of England.

The current court contains a remarkable collection of experience and talent. Among the directors are the chief executive of a major telecoms provider.

Photo of George Kerevan George Kerevan Scottish National Party, East Lothian 10:15, 9 February 2016

The Minister is being very sporting in giving way this morning. Can I take it from the tenor of everything she has said that the place for the trade union representative on the court, which we have had since world war two, is now in jeopardy?

Photo of Harriett Baldwin Harriett Baldwin The Economic Secretary to the Treasury

I do not know where the hon. Gentleman would get that impression from. It is important that we have a chief executive of a major telecoms provider, a chief executive of a major power utility, a private equity specialist, a leader of a global information services group and a leader of a major public sector trade union. The chair, Mr Anthony Habgood, is one of the most experienced and respected company chairmen in the country.

Photo of George Kerevan George Kerevan Scottish National Party, East Lothian

There has always been, since world war two, a place reserved on the court for a leading trade union figure. That is not written down anywhere, but it has always been accepted. Will it continue?

Photo of Harriett Baldwin Harriett Baldwin The Economic Secretary to the Treasury

Nothing in my remarks this morning has suggested any change whatsoever in that policy, but it is important that the best people are selected for the roles and we do not accept the Opposition amendments, which would further constrain the selection process. I hope we can all agree that every member of the court, wherever they are from, should consider in their decision making the Bank’s impact on everyone in the UK, across the UK, not just in one region or one individual sector.

The amendments call for a different kind of court, made up of representatives from UK regions and representatives of narrow interests, and that would result in a court riven by conflicts of interest. We have tried that kind of court before and we know how the story ends. I hope that members of the Committee agree that we should not allow the amendment to take us back there.

Photo of Richard Burgon Richard Burgon Shadow Minister (Treasury)

We will not seek to divide the Committee on the amendment, but we might, of course, revisit the matter on Report.

On new clause 5, we have heard powerful interventions from the hon. Member for East Lothian, and insightful ones from my hon. Friend the Member for Bassetlaw, who speaks, on this and other matters, not only with great experience because of his role on the Treasury Committee but with great common sense about transparency and representation. I am disappointed, therefore, by the Minister’s lack of support for the new clause. She says that she supports transparency but, with respect, I do not believe that she has offered greater transparency in this regard, not even with the compromise of an above-the-line and below-the-line model for transcripts, which is used by local authorities and school governor boards. On that basis. I will wish to press the new clause to a Division and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

I remind colleagues that votes on new clauses will be taken at the end of the Bill proceedings.

Clause 1 ordered to stand part of the Bill.

Clause 2