Board of Directors of the Bank

Bank of England and Financial Services Bill [Lords] – in a Public Bill Committee at 2:30 pm on 23 February 2016.

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‘In the Bank of England Act 1998, as amended by this Act, for the words “Court of Directors” in each place where they occur there are substituted the words “Board of Directors”; and any reference in any other enactment to the Court of Directors shall be read as a reference to the Board of Directors.’—

Brought up, and read the First time.

Photo of Richard Burgon Richard Burgon Shadow Minister (Treasury)

I beg to move, That the clause be read a Second time. This is a simple new clause to change the terminology and move the Bank into the modern world. We have heard the Minister talk in this Committee about the importance of modernising the institution, and we have also heard eloquent discussions of the need to modernise from both the hon. Member for East Lothian and my hon. Friend the Member for Bassetlaw. The clause is a very simple way of showing that we are serious about this.

The Bank and the court of directors were established, as the Minister reminded us, in 1694. A lot of things have changed since then. The Bank is the second-oldest central bank in the world, after the Swedish Riksbank, and it is the eighth oldest bank. The Bank’s own website states that,

“the few public companies formed at the time of the Bank’s foundation, in 1694, tended to be governed by Courts of Directors”.

The phrase “courts of directors” is not used in relation to companies these days. It is worth asking whether the term “court of directors” survived into the modern day in other institutions, and whether this matters at all. Of course, this term did not survive into the modern day in other institutions, unless the Minister can tell me that I am wrong in that regard. If this does matter, should we continue to call what is currently termed the court of the Bank of England by that name? The Treasury Committee report of October 2011, “Accountability of the Bank of England”, stated:

The Court is the governing body of the Bank of England. In this respect, it is the board of the Bank”.

The report also said:

“Given that the Court has changed recently, its name is outdated and does not give a clear picture of what the Court actually does. In terms of corporate governance the Court is the Board of the Bank and its name should change to reflect that. To reflect the shift of emphasis in its role, we recommend that the governing body of the Bank (Court) change its name to the ‘Supervisory Board of the Bank of England’. References below to the Board of the Bank of England in this report use this term. Whatever name is ultimately chosen, we strongly recommend that the term ‘Court’ is abolished”.

Those are the words of the Treasury Committee report in October 2011. I know that the court of the Bank, in replying to this report, did not express any opposition to this modest proposal to rename it. The court’s response read:

“Whether or not to rename Court is a matter for Government. We simply note that Court itself is divided on the balance of the arguments”.

In considering the cases for and against the renaming of the court of the Bank of England, the court stated:

“On the one hand, renaming would recognise the considerable changes in Court’s actual and prospective responsibilities in the past decade. On the other hand, it could give rise to serious misunderstandings, since amongst central banks ‘Board’ is often used to refer to an executive and/or policy making committee, as exemplified by the Federal Reserve Board and the Executive Board of the European Central Bank”.

We believe that such concerns can be overcome. The board—or the supervisory board, as the Treasury Committee would prefer to call it—would not be changing its responsibilities with this name change. Such a change, however, would be one small statement to help connect it to modern practice in terminology in major financial institutions. It would also cut through some of the mystery of the workings of the Bank and help make it more accessible to everyday people.

This is a modest proposal put forward by what my hon. Friend the Member for Wolverhampton South West calls a moderate Member. The only downside is that it robs the media who like to refer to the Governor of the Bank of England somewhat cynically as the Sun King of that joke.

The proposal should be accepted and there is no reason why it should not. People outside would welcome this as a signal that we want the Bank of England to be accessible, transparent and moving into the modern age.

Photo of Harriett Baldwin Harriett Baldwin The Economic Secretary to the Treasury 2:45, 23 February 2016

What is in a word? The hon. Gentleman has set out the case for changing the name of the court. I do not know about you, Mr Brady, but I rather like some of our old traditions in this country.

The court has existed since the Bank’s inception in 1694. The composition and structure have obviously changed over its long history. Initially, there were 26 individuals on the court, while today it is much smaller, with the executives and non-executives, and is much more characteristic of a modern, unitary board. The term supervisory board, used by the hon. Gentleman, is more redolent of the German approach to corporate governance than the British one. I am sure he will provide me with examples. It is not the Americans this time, but the Germans.

For me, there is charm in the term “court”, which is rooted in this long history. It has no particular mystery about it; it merely refers to the Bank’s governing body, which does indeed operate like a modern board. I do not feel we should argue over semantics. We should look at how the court functions. As the Committee has already heard, the court is now far smaller and far more effective than it was historically. There is a clear division between the role of the chief executive and the non-executive chair. The court is comprised of a majority of independent non-executive directors, and there are formal, transparent appointment procedures for executive and non-executive directors alike.

The changes in the Bill, which we have discussed at such great length, will further enhance the role of the court, making it a stronger decision-making body. In particular, to remind the Committee, we are making the oversight functions the responsibility of the whole court, ensuring that every member of the court—executive and non-executive—can be held to account for the use of these functions.

This brings the court into line with the recommendations in the Treasury Committee report. My view and that of the Government on the amendment is clear. Changing the name of the court would make absolutely no difference to how it operates in practice. It is the provisions in the Bill that will do that. I oppose the suggestion to change the name from the rather quaint and old-fashioned term of “court”, which has for me some charm.

Photo of Richard Burgon Richard Burgon Shadow Minister (Treasury)

That was indeed a charming oration from the Minister about how things were done in the past and continue to be done to this day. As much as I like many aspects of the history of this country, I am not persuaded that we should not press the matter to a vote. In the name of modernity, I seek to divide the Committee on this issue.

Question put, That the clause be read a Second time.

The Committee divided:

Ayes 6, Noes 10.

Division number 6 Christmas Tree Industry — Board of Directors of the Bank

Aye: 6 MPs

No: 10 MPs

Aye: A-Z by last name

No: A-Z by last name

Question accordingly negatived.

Question proposed, That the Chair do report the Bill, as amended, to the House.

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

Mr Brady, as we come to the final question of our proceedings, I put on record the Committee’s gratitude to you and Mr Wilson for having chaired our sittings so effectively. I also thank the Clerks and the Hansard reporters. For their incredibly diligent work behind the scenes—so often it is unsung—I also thank the Treasury officials, the Treasury legal team and, in this case, the Bank of England’s legal team. I put those thanks and that gratitude on the record. I also thank all members of the Committee for the care and attention that they have given to the line-by-line scrutiny of the Bill.

Photo of Richard Burgon Richard Burgon Shadow Minister (Treasury)

I echo the sentiments expressed by the Minister. I thank you, Mr Brady, and Mr Wilson, the co-Chair of the Committee, for your chairmanship. I thank the Clerks and the staff. I thank the Minister for her patience and courtesy and for the detailed responses she has given throughout our proceedings. I also thank my hon. Friends and all members of the Committee. We have no objection to the Bill being reported to the House.

Question put and agreed to.

Bill, as amended, accordingly to be reported.

Committee rose.