Examinations and reviews

Bank of England and Financial Services Bill [Lords] – in a Public Bill Committee at 2:15 pm on 9 February 2016.

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Photo of Harriett Baldwin Harriett Baldwin The Economic Secretary to the Treasury 2:15, 9 February 2016

I beg to move amendment 1, in clause 11, page 9, line 11, at end insert—

“(b) the economy, efficiency and effectiveness with which a Bank company has used its resources in discharging its functions.”

Amendments 1, 2 and 3 extend inserted section 7D of the Bank of England Act 1998 to enable the Comptroller and Auditor General to examine the economy, efficiency and effectiveness of Bank companies, as well as the Bank itself. “Bank company” is defined by amendment 3.

With this it will be convenient to discuss Government amendments 2 to 6.

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

Mr Wilson, you will have to bear with me, because we have quite a few Opposition amendments to this clause to cover and I will seek your guidance on when you would like me to touch on those. I will start with Government amendment 1 and move on to Government amendments 2 to 6.

Can I just ask you to stick to the first group of the Government amendments? We can then move on after that debate.

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

Thank you, Mr Wilson. That is what I am trying to do. I am just buying some time while I go through great wodges of paper here, to ensure that I do not rush ahead.

I will speak to Government amendments 1 to 6 on National Audit Office oversight of Bank subsidiaries. As we know, the Bill makes provision for the first time for the NAO to initiate its value-for-money studies of the Bank of England. As we have discussed, that delivers an important increase in the accountability of the Bank and its operations. The intention in the Bill was to grant the NAO these powers in relation to the Bank in the broadest sense, subject to the bespoke policy carve-out, which also features in the Bill, protecting the independence of the Bank’s policy decisions, but as the Bill is drafted, the NAO’s powers to conduct value-for-money examinations in relation to companies owned by the Bank differ from its powers to conduct value-for-money examinations of the Bank itself. That was not the Government’s policy intention. The amendments will ensure that the NAO’s value-for-money powers apply on the same terms to the Bank, its subsidiaries and other Bank companies that are indemnified by the Treasury.

I will briefly outline the inconsistencies that arise through the current drafting. First, the NAO would have powers to conduct value-for-money examinations of Bank companies that have been indemnified by the Treasury only where the Treasury has directed the company concerned to send its accounts to the NAO, as provided for in section 7C of the Bank of England Act 1998, inserted by clause 10 of this Bill, and the NAO’s examination would be made under the powers given to it in section 6 of the National Audit Act 1983. Those NAO examinations would not, therefore, be subject to the bespoke policy carve-out that has been defined in the Bill. Secondly, under the Bill as drafted, subsidiaries or companies of the Bank that do not benefit from a Treasury indemnity would not be within the scope of NAO examination.

I hope that the Committee agrees that we should make the NAO’s power to initiate value-for-money examinations applicable on the same terms across the Bank, its subsidiaries and other companies indemnified by the Treasury in which the Bank has a minority interest. The amendments seek to do just that.

Photo of Richard Burgon Richard Burgon Shadow Minister (Treasury)

Having considered this matter and listened to the Minister’s detailed explanation, I can confirm that we will not oppose amendment 1.

Amendment 1 agreed to.

Amendments made: 2, in clause 11, page 9, line 12, leave out

“of the Bank (however described)”

and insert

“(however described) of the Bank or the Bank company”

Amendment 3, in clause 11, page 10, line 3, at end insert—

““Bank company” means—

(a) a company which is a subsidiary undertaking of the Bank, within the meaning of section 1162 of the Companies Act 2006;

(b) a company not within paragraph (a) in respect of which a direction under section 7C(2) has effect;”

Amendment 4, in clause 11, page 10, line 16, at end insert “or a Bank company” —(Harriett Baldwin.)

This amendment extends inserted section 7D(11) of the Bank of England Act 1998 (which provides that section 6 of the National Audit Act 1983 does not apply to the Bank) to Bank companies. Section 6 provides for economy, efficiency and effectiveness examinations by the Comptroller and Auditor General.

Photo of Richard Burgon Richard Burgon Shadow Minister (Treasury)

I beg to move amendment 16, in clause 11, page 10, line 19, at end insert

“and the Comptroller must lay a copy of the first memorandum of understanding to be prepared, and of any subsequent revisions, before both Houses of Parliament”.

With this it will be convenient to discuss the following:

Amendment 17, in clause 11, page 10, line 26, after “procedure” insert

“which may be reviewed by the Treasury Committee of the House of Commons

Amendment 18, in clause 11, page 10, line 32, at end insert—

‘(3) The Comptroller must lay before Parliament a copy of the Memorandum within one calendar month of its preparation.”

Amendment 19, in clause 11, page 10, line 32, at end insert—

‘(4) The Treasury Committee of the House of Commons may in its absolute discretion enquire into the genesis and contents of the Memorandum.”

Photo of Richard Burgon Richard Burgon Shadow Minister (Treasury)

There was significant discussion of the extent to which the Comptroller and Auditor General is to be involved in the audits of the Bank during the Treasury Committee autumn hearings attended by the Chancellor and the Governor of the Bank of England and at various stages of the Bill’s passage through the other place. From statements made by the National Audit Office’s chair, Lord Bichard, and from the Chairs of the Treasury Committee and the Public Accounts Committee, I am aware that positive movement is believed to have been made following significant early criticism.

On Report in the House of Lords, the Government spokesperson said that

“to protect the Bank’s independent status the Bill provides for a policy carve-out from the scope of NAO value-for-money reviews”—[Official Report, House of Lords, 15 December 2015; Vol. 767, c. 1996.]

and that there had been significant discussions between the Bank, the NAO and the Treasury. We welcome the removal of the original proposal to allow the court a veto over NAO investigations. I thank the Minister for forwarding to my office yesterday a copy of the memorandum of understanding being discussed by the Bank and the NAO. I understand that it may be approved or finalised in the days ahead. I stated on Second Reading that I had written to the Minister asking that the memorandum be published during the lifetime of the Bill, and she acknowledged in her response that that would be her preference, so I am pleased that that has been possible.

I believe the draft memorandum has been circulated only to members of this Bill Committee—I hope the Minister will correct me if I am wrong and it has been seen anywhere else. We tabled amendment 16 to require that the memorandum be published and laid before both Houses of Parliament, which it appears will now happen. I also recognise that amendment 18 is somewhat repetitious on this point. We may require further discussion on the draft memorandum on Report. When it appears, it will have been finalised or approved by all parties to it. My initial reading of the draft memorandum is that it does not move us on significantly, in that both sides are able to publish letters that set out whether they agree with each other’s proposals to carry out or refuse an investigation, but there is no clear information in the memorandum on how such a dispute would be resolved. Of course, resolution is key in such matters.

We tabled amendments 17, 19 and 20 to allow for further scrutiny of the dispute procedure. It is our view that a role for the Treasury Committee could be a useful one, where such a dispute was left unresolved and it was clear the procedure was not working.

Photo of George Kerevan George Kerevan Scottish National Party, East Lothian 2:30, 9 February 2016

I speak as a member of the Treasury Committee, although obviously I do not speak for the Committee. I remind the Minister of the Committee’s view that one of our principal roles is to protect value for money on behalf of the taxpayer. Regulatory bodies are often, for very good reasons, concerned with regulating and may be remiss when it comes to consideration of value for money. This is particularly important because regulatory functions have to be carried out effectively, and there is a cost in terms of resources: sometimes regulators do not have these resources, and sometimes resources are put in in the wrong way. The Select Committee is keen to ensure that the auditor plays a distinct and effective role. I underline to the Minister that, regardless of formal decisions here, the Treasury Committee has an ongoing brief to ensure that the relationship between the Bank and the auditor runs smoothly and the auditor is allowed to do his business.

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

I thank the hon. Member for Leeds East for his good summary of the deliberations so far on this. As I said in my letter to him last week, I did push both the Comptroller and Auditor General and the Governor on whether or not they would allow the draft memorandum of understanding to be shared with this Committee. I confirm that yesterday we were able to send copies of that draft memorandum of understanding to all members of this Committee, the Chair of the Treasury Committee and the Chair of the Public Accounts Committee, which of course scrutinises and works most closely with the National Audit Office. That is the extent to which the draft memorandum of understanding has been shared at this point.

The expectation, as I understand it, is that the court will meet on Thursday, and that is the forum in which amendments to the current draft may be suggested or approved. I assure hon. Members that as soon as we have the final version, the memorandum can be more widely disseminated—certainly in time for Report and Third Reading. Amendments 16 and 18 are therefore not necessary.

Amendments 17 and 19 would give the Treasury Committee express powers to consider various aspects of the memorandum. I am sure that the hon. Members for East Lothian and for Bassetlaw know that the Treasury Committee already has the power to examine all matters connected with the policy and administration of the Bank of England and can choose what inquiries it undertakes. In addition, the National Audit Office works closely with the Public Accounts Committee, so one can imagine conversations taking place between the Chairs of those two very important Committees about what aspects they want to look at. If the Treasury Committee or indeed the Public Accounts Committee determines that it would be appropriate to conduct an inquiry into the memorandum of understanding, it could do so. The amendments might suggest that the powers of the Select Committees to conduct inquiries are in some way limited to those powers that have expressly been given to them in this primary legislation. That would be an unfortunate suggestion, so I hope that the amendments will not be pressed.

The hon. Member for Leeds East asked about arbitration in a dispute resolution process. The memorandum of understanding sets out the dispute resolution process, as required by the Bill, but we should not expect that process to be called upon. We expect that the Comptroller and Auditor General would be able to reach an agreement with the Bank regarding his work, in the same way that he does with all the other public bodies with which he engages. The dispute resolution process set out does not call upon any independent arbiter. The draft document simply indicates that the Bank and the Comptroller and Auditor General are both content with attempting to resolve any disputes between themselves, and that they commit to the publication of their difference of view where any disputes remain unresolved. If this is a framework with which they are both content, I do not see any need to involve a third party in that process. When we have received the final version of the memorandum of understanding and are considering the Bill again on Report, I am sure that we will return to this question. On that basis, I urge the hon. Gentleman to withdraw the amendment.

Photo of Richard Burgon Richard Burgon Shadow Minister (Treasury)

Again, I welcome the Minister’s confirmation that the court will consider the draft memorandum further on Thursday and that it will be approved or amended that day. I also welcome the fact that the final version will be more widely circulated in time for Third Reading and Report. We recognise that events have overtaken our amendments and therefore will not pursue them. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Richard Burgon Richard Burgon Shadow Minister (Treasury)

I beg to move amendment 20, in clause 11, page 11, line 6, after “must” insert “promptly”.

We wish to make the point that we need the report to be published promptly. Otherwise, for example, the Treasury Committee, with all its expertise, cannot review using its powers, as the Minister has just referred to.

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

With regard to amendment 20 and the Treasury value-for-money reports, new section 7F of the Bank of England Act 1998, which is inserted by clause 11, preserves the existing power for the Treasury to commission value-for-money reviews of the way the functions of the Prudential Regulation Authority are exercised by the Bank. There is an equivalent power for the Treasury to commission such reviews of the functions of the Financial Conduct Authority. Taken together, these important powers ensure that the Treasury can carry out cross-cutting reviews of the operation of financial regulation in this country.

Amendment 20 would require the Treasury promptly to lay before Parliament any reports it receives following reviews into the PRA. It is, of course, vital that those reports are made available to Parliament to inform its deliberations into the regulation of financial services. Indeed, the Treasury is already required to lay reports into the operation of the PRA and the FCA before Parliament and to publish them. I assure the hon. Gentleman that the Treasury takes its obligations to this House very seriously and is concerned to fulfil them in good time. I am happy to confirm that any such reports will indeed be promptly laid before the House. There is no need for that requirement to be in the Bill.

Photo of Richard Burgon Richard Burgon Shadow Minister (Treasury)

I welcome the Minister putting on the record her desire for the reports to be published promptly. I would welcome it even more if she would, therefore, accept the amendment in order to insert the word “promptly” into statute. That would be one of many pieces of history that I am sure she will make in her role of shadow City Minister.

Photo of Richard Burgon Richard Burgon Shadow Minister (Treasury)

I do apologise for the role reversal. I was even called a moderate today so we are getting confused, although I am most moderate. I invite the Minister to reconsider her position on the amendment. Or shall I assume, unless she intervenes, that the matter is closed?

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

I am afraid the hon. Gentleman has not convinced me at this stage. I am sure we will return to this on Report.

Photo of Richard Burgon Richard Burgon Shadow Minister (Treasury)

Like the Minister, we have put on record our thoughts on this matter. Although we reserve the right to return to it at a later stage, we will not be pushing for a vote, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: 5, in clause 11, page 11, line 20, leave out “only”.

Amendments 5 and 6 amend inserted section 7G of the Bank of England Act 1998 to provide that where the Comptroller is examining a Bank company under inserted section 7D, he will have access to documents and information held by that company and its auditors.

Amendment 6, in clause 11, page 11, line 24, at end insert—

‘( ) In the case of an examination under section 7D(1)(b), subsection (1) also applies to documents in the custody or under the control of—

(a) the company to which the examination relates;

(b) the auditor or auditors of that company.”—

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

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

At this point I will simply commend clause 11 to the Committee. I cannot be certain of the Committee’s enthusiasm, but I cannot imagine that anyone disagrees with a clause that will increase the Bank’s accountability while protecting its independent status and recognising the complex nature of its activities. The clause, as amended, will achieve that.

Question put and agreed to.

Clause 11, as amended, accordingly ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Sarah Newton.)

Adjourned till Thursday 11 February at half-past Eleven o’clock.