Grand Committee
Arrangement of Business
The Deputy Chairman of Committees (Lord Colwyn)
My Lords, welcome to the first day of the Grand Committee’s consideration of the Groceries Code Adjudicator Bill. If there is a Division in the Chamber while we are sitting, the Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes.
Groceries Code Adjudicator Bill [HL]
(12 years, 5 months ago)
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Lord Browne of Ladyton
Lord Browne of Ladyton
My Lords, I apologise that I was unable to contribute to the Second Reading debate on this important piece of legislation as I was unavailable on that date. I have paid considerable attention to this for one very good reason: for 14 years or thereabouts, I represented the greatest concentration of dairy farmers in any constituency in Scotland. For all that time, I watched them battle, with great frustration and an unequal contracting position, as their livelihoods were strained. I have significant sympathy with the objectives of the Bill and, indeed, of the groceries code.
I hope that this amendment will not detain the Committee for very long; it is not my intention for that to happen, but we all know what happens to the best-laid plans of mice and men. In responding to the Second Reading debate, the Minister said:
“The Bill is one of the pilot plain English Bills that are intended to be easier for everyone to understand”.—[Official Report, 22/5/12; col. 761.]
As a fan of plain English, I believe that to a degree that objective has been achieved in this Bill. Noble Lords will be relieved to know that it is not my intention in the course of the Bill’s consideration to go through every individual part of it in order to see whether they meet the test.
The Bill begins with a statement which, in my view, is a challenge to the objective of plain English. This is an opportunity for the Committee to explore the thinking behind some of the decisions that have been made in the way in which the Bill has been drafted. It cannot be the case in the future that plain English Bills will be presented to Parliament and that no consideration will be given to the way in which they are drafted.
In 1998, famously, the late Donald Dewar began the Second Reading debate of the Scotland Bill by saying that,
“there shall be a Scottish Parliament”. —[Official Report, Commons, 12/1/98; col. 25.]
In this case, the Government have chosen, in similar circumstances, to say:
“There is to be a Groceries Code Adjudicator”.
The purpose of the amendment is merely to explore the thinking behind the construction of the verb that is deployed here. Candidly, I know many people who speak plain English—some plainer than others. I know of nobody who uses this construction in ordinary conversation. I know many people who say, “There will be a bus along in a minute” but very few who say, “There is to be a bus along in a minute”. If we are to meet the objective of plain English—language which is understandable and not unnecessarily legalistic—it has to meet at least two objectives. It has to relate to the plain language that speakers speak and not be unnecessarily grandiose. Secondly, it needs to meet the test of consistency. As a lawyer, I can see that at some time in the future, there will be some money to be made for lawyers in saying that there is a difference between the words that have been deployed at the beginning of this particular Bill and the words that have been deployed at the beginning of others. There was a reason behind this. Let us explore that reason.
There is seriousness to this point. It would be helpful to know why the Government chose this particular construction. It may have been presented by a draftsman and accepted by the Executive. I understand that, and I have been in that position, but why is this construction preferable to, “There will be a Groceries Code Adjudicator”, or indeed, “There shall be a Groceries Code Adjudicator”?
The Earl of Sandwich
I hope the Minister and also the noble Lord, Lord Browne, will forgive my intervention in the early part of the Bill.
I want to make a slightly more general point, since we are close to the Title of the Bill. There is something missing in the early part of the Bill: that is, the link with the original Groceries Supply Code of Practice. I know that this will come up again, but I want to raise it right at the beginning. The Competition Commission uses the important phrase about stopping,
“the transfer of excessive risks and unexpected costs”,
by retailers on suppliers, and encouraging compliance. To make that point, I have put down an amendment to Clause 15. I apologise that I missed putting an amendment down to the Long Title. I hope the Minister will find a few minutes, or a few sentences, to answer that point somewhere in the course of the debate.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Wilcox)
My Lords, we are off to a marvellous start. This is a great level to start at—whether we are doing something in plain English or not. I was in on the beginning of the Plain English Campaign, as, I think, was the Office of Fair Trading and the noble Lord, Lord Borrie. I was rather hoping we would get a crystal award for how we have written this Bill in plain English, but I can see I am going to have to work very hard during this Committee stage to reassure everyone that we are trying to be as clear as possible.
I fully appreciate the sentiment behind this amendment. The Government have committed to writing the Bill in plain English, and we strive to apply this principle to all communication as the Bill goes forward. However, in this case the amendment would change the meaning of the clause. “There will be” is a prediction, whereas “There is to be” indicates that the Bill establishes the Groceries Code Adjudicator. I hope that that clarifies the point for the noble Lord.
I will answer the second question when we come to the appropriate amendment, if that is okay. I thank the noble Earl for giving me notice.
Baroness Wilcox
It might. I wonder if the noble Lord, Lord Browne, would be kind enough to let me take this away and return. I ask him to withdraw his amendment.
Lord Browne of Ladyton
My Lords, I will be more than content to withdraw my amendment, and to go away and reflect on the response of the noble Baroness to my rather small point. I am surprised, I have to say, at the nature of the response, given that I know that at least one piece of legislation has been passed by this House which includes the phrase “there shall be” in its first sentence. I suspect that there are many others, but I shall have to go and do some research now. If it was a prediction that the legislation fulfilled, perhaps that is the proper construction; I am not entirely sure. However, we should not detain the Committee with this point, given that we all need to go away and reflect on it. I am happy to withdraw my amendment, but I give the noble Baroness notice that I am not entirely persuaded by the response she deployed. This is not the most important issue that the Committee will consider this afternoon, but it is important that there should be consistency in legislation. I beg leave to withdraw the amendment.
Viscount Eccles
“The Groceries (Supply Chain Practices) Market Investigation Order 2009
The Office of Fair Trading is to continue to monitor compliance with The Groceries (Supply Chain Practices) Market Investigation Order 2009.”
Viscount Eccles
My Lords, I start by thanking my noble friend for letters that have been deposited in the Library and for the dialogue that we have had. I start with two regrets. The House of Commons Business, Innovation and Skills Committee, which put a lot of work into the Bill, considered whether there should be a review of how the present regime was working. On balance—and it was only on balance—it decided not to ask for that review. That was a pity because a good deal of time has gone by since the Competition Commission started its inquiry in 2006, and the order that is to a large extent the subject of the Bill became effective on 4 February 2010.
My second regret is that we have not had a briefing from the Office of Fair Trading, although I asked for one. To be precise, I asked if it thought that the monitoring of the order was going okay and whether it had any concerns. It said that it had done—I think—nine out of 10 compliance reports but that it would take some time to analyse them. Those reports are on the second full year of operation of the order. There has now been more than 24 months of experience of how the GSCOP is working. Perhaps I might suggest to my noble friend that we should have a report from the OFT before Report. The OFT has had this responsibility for more than 24 months and we should know how it thinks the scheme is going.
That led me to believe that the case had not fully been made for the changes proposed in this unusual Bill. As I will explain, I am not against a lot of its intentions, but they are not being sensibly carried through. There is a case for leaving the present regime in place because, as far as I can tell, it is working. All that I will do from now on is probe to find out whether there is a case for what is proposed in the Bill. In so doing, I will explain that in this enormous group of amendments the only thing that really matters is the new clause. If that were to be accepted, Schedule 1 would fall away almost automatically. The rest of the amendments, on which the Public Bill Office kindly advised me, are technical in the sense that one has to replace “adjudicator” with “Office of Fair Trading” if the regime is to stay as it is. Of course, I shall have to be pretty prompt in saying, “Not moved” all the way through the proceedings. I hope that that will at least make sure that I am awake.
After the consequential point, I have to enter a caveat. I have not studied the OFT’s existing powers. Someone, probably my noble friend on advice from the Bill team, needs to say that, if we go down that road, we will not need this or that clause because the OFT already has those powers. An example is the collection of information. I am aware that if my scheme is accepted, there would be other consequential amendments.
At Second Reading I referred to the minority opinion in the commission’s report put forward by Professor Bruce Lyons. This is set out in detail in paragraph 11.347. He supported the finding of the adverse effect on competition and went on to support very strongly a strengthened code of practice. I am sure that the contents of the present code of practice will be entirely acceptable to Professor Lyons, who went on to say that the OFT was “well placed” to monitor adherence to it because competition was at the heart of its role and its history. I agree with that. If the passing on of excessive risk and unexpected costs is not stopped, it is perfectly sensible to come to the conclusion that there may be an adverse effect on competition. The strengthened code of practice in front of us is a sensible document and the OFT is well placed to monitor adherence to it.
Good progress has been made. Now that we are coming to the completion of the second round of compliance reports, it is clear that disputes are regularly being settled. I would like to be guided by someone if I am wrong, but I am not aware that any dispute has yet been referred to arbitration under the code. As we all know, there is a full description in paragraph 11 of Part 5 of the code of practice of how the dispute resolution procedure should lead to arbitration.
Lord Knight of Weymouth
I am most grateful to the noble Viscount for giving way. Has he seen the briefing that has been provided by the National Farmers’ Union, particularly the second point in the section on myths and misconceptions? It states:
“Suppliers do already have the right to independent arbitration under the code. However, this requires suppliers to make the details of their grievance known to the retailer they believe has breached the code. The Competition Commission explicitly referred to the climate of fear in this sector preventing small suppliers from complaining about unfair treatment. The current system of arbitration clearly makes no provision for this serious problem”.
Viscount Eccles
My Lords, I am grateful for that intervention, and no doubt we shall come on to discuss the climate of fear. The concern of the National Farmers’ Union is a pretty difficult issue because very few farmers are direct suppliers to supermarkets and so they are not covered by the code. Indeed, the detriments identified by Professor Lyons, to which I shall come in a moment, include the extended chain of supply to the supermarkets. Perhaps I should say at this point that I owned some cows for a while, but maybe it is not an interest I need to declare on this occasion. It is a difficult issue and we shall come on to it. I do not accept that the problem of indirect suppliers and the question of arbitration so torpedoes the present regime that it is necessary to change it. It may be necessary to do so and I am here to be persuaded, but at the moment I would not change it.
Of course, with regard to farmers, I think that we are going to talk primarily about milk and cheese production. Some 53% of milk finds its way into fresh milk, 27% into cheese and the remaining 20% into manufactured products. While I think we will be talking about that, I do not believe it quite lies within the remit of where Professor Lyons was finding detriments, except on the point of indirect supply.
The first detriment that Professor Lyons worried about was that he thought that the third-party intervention—however that was structured, but at the time the description was “ombudsman”—would be counterproductive. I suppose that was based on “two’s company and three’s a crowd”, or some such version of it. He thought that independent arbitration with the addition of monitoring by the Office of Fair Trading was a better option than the intervention of a third party for the interests of the industry.
Secondly, Professor Lyons worried very much about anonymity. He did not believe that it could be maintained and he cited the German experience. I have no doubt that we will discuss anonymity in more depth as we go along. Thirdly, he thought that justifiable investigations had a very limited potential because he did not see the third party intervening in disputes or discussions between supermarkets and suppliers about a particular contract. Her Majesty’s Government do not think that that is the way that the adjudicator should work. Professor Lyons thought that finding justifiable investigations would be quite difficult because of the length of the supply chain and the lack of ability to look into actual disputes. I am sure that we will want to discuss that more.
Next, Professor Lyons thought that any third party—an ombudsman or now an adjudicator—could be seen to be in support of suppliers, and of them throughout the supply chain. He thought that that itself could become anti-competitive. He saw difficultly in dealing with complaints from suppliers about buyers and at the same time achieving benefits for the public, particularly long-term ones. The successful outcome of intervening in a contract between suppliers and supermarkets would presumably be that the suppliers got better terms. It was difficult to link that to a benefit to the public—that link was pretty weak.
Professor Lyons also saw any third party intervening in this market as being subject to external pressures and to the almost inevitable regulatory creep. Regulatory creep has been a feature of our lives in recent years, as noble Lords have seen in the amendments to secondary legislation which have tended to make legislation more complicated and severe, not lighter or less severe. Finally, Professor Lyons said that this would be a much more expensive system than leaving things as they are.
Quite a lot of these points have been discussed but I submit that they have not really been properly dealt with and therefore, as I am probing and as we go through, I am sure that these subjects will recur. It will be interesting to see where the argument leads us. I very much agree with Professor Lyons. Sometimes, minorities can turn out to be right. His minority report was very good and absolutely on the ball. I am still left with the question: why have we got this Bill? I beg to move.
Lord Borrie
My Lords, perhaps I may intervene at this point. Most Members of the Committee know that I had a connection with the OFT—the Office of Fair Trading—but retired from it 20 years ago, after many years as its director. I no longer have any position of that kind and therefore do not have anything formally to declare.
However, references to the Office of Fair Trading by the noble Viscount led me to consider whether there was a great deal of point in establishing—for a fairly narrow field of anti-competitive complaints from farmers and others who complain about the power of supermarkets—a specially appointed new body created as a corporate sole, with all the debates, complications and so on that are involved in doing so. The subject of the Bill covers a fairly narrow sphere. It does not deal with all complaints against supermarkets, but only those connected with groceries. It does not even apply to all supermarkets, but only the 10 that are especially designated.
There are surely many reasons for thinking that there may not be an adequacy of work for the groceries adjudicator to justify the appointment of an adjudicator and, as one of the schedules states, a deputy adjudicator and all the paraphernalia of an office—although I admit that it is stated that back-office facilities may be provided by the Office of Fair Trading. If back-office facilities can be provided by the Office of Fair Trading, why are these powers not simply given to the OFT to monitor, to check, to listen to complaints and if necessary push those complaints further to the Competition Commission, and so on?
The points made by the noble Viscount are quite convincing but, as the phrase goes, we are where we are. We have given the Bill a Second Reading. We are now at the Committee stage. We can go backwards, of course, but there would then be an emptiness and nothing immediately to take its place because the Office of Fair Trading does not have all the different powers intended for the adjudicator under the Bill. I therefore return to the point that the Bill in front of us will set up a particular body—the groceries code adjudicator—and we have details in front of us to elaborate, consider and change, as a normal Committee does. In summary, it is not worth while continuing with the fundamental points made by the noble Viscount, although there is a lot of value and a lot of point in what he said. However, that would represent a backward step and we would, in effect, be replacing entirely the contents of the Bill with something else.
Lord Razzall
My Lords, perhaps I may respond to the remarks made by the noble Lord, Lord Borrie, by saying that I entirely agree with him. However, given the preliminary comments by noble Lords, one thing ought not to be forgotten—we are not starting here from scratch. This proposal emanated from the previous Government and has been heavily consulted on across all relevant parties. I know that your Lordships tend to take the view that what was in party manifestos does not necessarily bind your Lordships, but all three political parties included the creation of the adjudicator in their manifestos, and we should have that on the record before the debate goes a lot further.
Lord Curry of Kirkharle
My Lords, I very much support the Bill. I should like to pick up on a phrase used by the noble Viscount, Lord Eccles. He said that the current code appears to be working. I should declare that I am a farmer in Northumberland and I do not produce milk. I was also responsible for a report in 2002 in which we recommended that the OFT should monitor the recently introduced voluntary code, which later became the GSCOP.
The OFT has been monitoring the code and, as far as it is concerned, it may well be working because it has not identified any serious abuses of power that could not be resolved by negotiation. The problem is that there are many concerns about abuses of power by suppliers that have not been brought to the notice of the OFT. Many companies in the supply chain are fearful of the consequences of drawing attention to what they believe is a trading relationship which may be terminated if they are open and transparent about their concerns. From the OFT’s point of view, the code appears to be working. For many within the supply chain it is not working, which is why this Bill is so necessary.
Lord Knight of Weymouth
My Lords, I am sure that we are all extremely grateful to the noble Viscount, Lord Eccles, for giving us the opportunity to test at this early stage some of the principles behind establishing an adjudicator. He used the phrase, “As far as I can tell, it is working.”. The core of this debate is whether having just the rules of the game in place is enough or whether we need a referee alongside the rules at this stage.
My strong view is that we need a referee now in order to enforce the rules and to make sure that everyone who is a part of this market and supply chain understands that if they break the rules, there will be consequences. In preparing for Committee stage I have spoken to a number of suppliers to supermarkets and to people in the supermarket supply chain. The anecdotal evidence I have received is that there are still some considerable problems. If there is a belief that it is working, that may be correct technically in terms of the OFT’s analysis, as we have just heard from the noble Lord, Lord Curry, but the reality for people who are trying to operate within this market is that it is not.
As regards notice periods, in some aspects of this business there are no contracts. Thus, the supermarkets often give very short notice—for example, one week for the complete stopping of ordering goods. A minimum of three months’ notice should be given for changes. There are short-term changes to forecasts. The current system is that suppliers get the forecast from the retailer, which is not binding, and then receive the order generally on the day of dispatch. The supermarkets then charge a penalty for not supplying the volumes on the order—shorting—even if they are massively different from the forecast. For example, the sale of salads on a hot weekend can go up fourfold or the supermarket can choose to do a promotion and not tell the supplier. If the supplier fails to supply the larger volume, it could get a penalty charge.
On the flip side, if a supermarket decides to cut back its orders massively, the supplier can be left with big stocks to write off because, often, these goods are on the supermarket’s own label and cannot be sold elsewhere. Consequently, the supplier loses out. I see the noble Viscount, Lord Eccles, wants to intervene, which will be a pleasure.
Viscount Eccles
Perhaps I may ask the noble Lord a short question. What part does he think that the public plays in the salad sales on a hot weekend?
Lord Knight of Weymouth
I am grateful to the noble Viscount for his intervention. Clearly, the public are the consumers. I am certainly aware that not every supermarket is guilty of abusing its power. The competition between supermarkets generally has been very good for consumers but that does not mean that they should continue to be able to use that power to exploit their relationship with suppliers.
To give another example, I heard about a company which was developing an innovative low-sugar jam. It took the product to a very large supermarket because, having invested in developing this new product, it needed to get the volume of sales that could be achieved only by using one of the large supermarkets. The supermarket was very interested and said, “Leave it with us. We will give you a call.”. It gave the company a call and said, “Do come in. We want to talk to you about the low-sugar jam that you showed us.”. The supermarket called the company in just to put on the table its own product which it had developed in response to that company’s innovation. Therefore, that investment was a loss for that innovator. Similar stories of abuses of market power by some supermarkets—not all of them—are legion. I referred to the helpful briefing from the National Farmers’ Union. We have had similarly helpful briefings from the Country Land and Business Association and the Federation of Small Businesses. All were extremely supportive of the establishment of this adjudicator because they agree that we need a referee.
I know that we will go on to talk about some of these things throughout the proceedings of the Committee. In response to my intervention, the noble Viscount, Lord Eccles, said that not many farmers supply retailers directly. The NFU tells us that some do and, what is more, the Competition Commission has identified an adverse affect on competition whereby grocery retailers pass unexpected costs and excessive risks down the supply chain. Ultimately, those risks, in the form of extra costs, are passed on to producers, even when they do not deal directly with retailers.
Lord Howard of Rising
I must declare an interest as I have a tenant who is a direct supplier to a supermarket. The examples that the noble Lord, Lord Knight, gives us are all those of vested interests that would like to have better commercial arrangements. There is nothing whatever to stop any farmer saying to his supermarket, “I do not like your terms of trade and I will not supply you”.
Lord Knight of Weymouth
It is very helpful to have the contribution of the noble Lord, Lord Howard, because he has a particular view that we can leave this all to the market, which is operating perfectly. I disagree. I remember from my economics A-level that you can have perfect markets but you can also have imperfect ones and powerful players within markets who abuse their market position. I believe—as did the Competition Commission in its analysis—that that is the case here. That is where the noble Lord and I will differ as we debate these things. In the end, those suppliers will struggle to find another market. Often, they have worked with a supermarket and built up a relationship where they have been persuaded that it is worth investing in, for example, growing a product. That needs at least a 12-month timeline. The supplier or grower of that product takes on a huge risk because they have invested 12 months in advance but the contract will only give them at best three months’ notice of cancellation. They can just be cancelled on and that happens all the time. That is a difficult aspect of that market relationship.
I give another example: I know of an innovator of a new chocolate product using pomegranate dust from Afghanistan. That innovator had to invest significantly in developing the product. It is a fine product but the innovator has to recoup the cost of that investment and needs to get the product out in volumes that are only achievable using large supermarkets. The response from the supermarkets is, “Yes, we like the product. If you want us to stock it then you need to pay us to take it on. If you want a decent shelf position, you need to pay us some more money. If you want point-of-sale merchandising, you need to pay us for that as well”. That individual needs to acquire a huge amount of investment to be able to innovate. In the end, a healthy market allows new players to come into it, to innovate and introduce new supply. That is not happening very easily in this particular market because of that power relationship and the structure of how it is set up. I strongly urge the noble Viscount to withdraw his amendment and strongly urge the Committee to support proceeding with the establishment of the adjudicator.
Baroness Wilcox
My Lords, this group of amendments goes to the very heart of the Bill. It concerns whether or not there should even be a groceries code adjudicator, or whether oversight of the code should continue to rest with the Office of Fair Trading. It is therefore only fitting that we should debate it early on, and I thank the noble Viscount, Lord Eccles, for raising it. I also thank him for allowing us to discuss all these amendments in one go. I also thank the noble Lords, Lord Borrie, Lord Razzall, Lord Curry, Lord Knight and Lord Howard, for their contributions to this debate.
I will not repeat all that I said at Second Reading. I know that the majority of us here support this Bill. Suffice it to say that, in its 2008 report on the supply of groceries, the Competition Commission found that the buying power of large supermarkets was potentially a cause for concern. It found that retailers were transferring excessive risks or unexpected costs to their suppliers, a practice that was likely to lessen suppliers’ incentives to invest and innovate, and that this would operate to the long-term detriment of consumers.
The Competition Commission therefore made an order that required large retailers to incorporate the Groceries Supply Code of Practice into their contracts with suppliers. It also recommended that an independent groceries code adjudicator be established to enforce the code and ensure that it was effective.
The adverse effect on consumers is not something expected to follow immediately and directly from a specific action by a retailer. Rather, the transfer of excessive risk or unexpected costs lessens incentives for innovation and investment, and the reduction in innovation and investment is what causes consumers harm.
This is a long-term effect and not one that can easily be measured—and not one that we should stop to measure before we have even implemented the measures recommended by the Competition Commission. I ask noble Lords to note that in the pre-legislative scrutiny the BIS Select Committee explicitly considered whether another review should be carried out, but concluded that we should instead implement the recommendations of the Competition Commission as swiftly as possible.
On the point from the noble Viscount, Lord Eccles, about the report from the Office of Fair Trading, I will pass his concerns to the OFT. I remind noble Lords that the OFT operates independently of Ministers, but I will pass that on and see if we can get some result for the noble Viscount. He has referred to the fact that the members of the Competition Commission were not unanimous in their view that an independent adjudicator should be established. He cited passages from the report which set out that minority opinion. He is right that one member of the panel did not agree with the rest, and I recognise that not everyone thinks the adjudicator is necessary. However, five out of six of the members did consider that an independent adjudicator should be set up. They concluded that an adjudicator is essential for the effective monitoring and enforcement of the GSCOP. That is why the Government are committed to establishing an independent adjudicator.
The amendments in the name of the noble Viscount, Lord Eccles, would give the powers in this Bill to the Office of Fair Trading, not to an independent adjudicator. However, the Competition Commission recommended an independent adjudicator. There are clear advantages to establishing an independent, dedicated office with industry expertise, which can build working relationships with supplier trade associations and retailers, monitor compliance and promote best practice. The Office of Fair Trading has told us that it fully supports the argument that the GCA should be an independent body, separate from the OFT or any other organisation. Furthermore, on a practical point, it would not be appropriate to give these powers to the OFT while the broader competition regime is undergoing so much reform.
The Government believe that the best way to address the issues in the groceries market identified by the Competition Commission is to establish an independent groceries code adjudicator to enforce the groceries code, not to give more powers to the Office of Fair Trading. This is also the view of the BIS and EFRA Select Committees, of the Office of Fair Trading and of five out of the six panel members of the Competition Commission investigation.
I have listened to all the views that have been expressed and I thank in particular the noble Viscount, Lord Eccles, for taking the time and trouble to explain his differences so clearly. However, at this stage, I would ask him to withdraw his amendment.
Viscount Eccles
My Lords, I am grateful to my noble friend and to all noble Lords who have taken part in this short debate. My father wrote a book called Half-Way to Faith. The noble Lord, Lord Borrie, is halfway there, so we have plenty of time to persuade him to come the rest of the distance.
The climate of fear was mentioned just once by the Competition Commission in its report. If people can find it referred to more often, I would be grateful to know about it. It was not mentioned in the summary or in the findings. I am quite sceptical about it, but that is not really the point. The point is that if it is true, the adjudicator will make it worse. If the supermarkets have the power to create all this fear and they find out that a supplier has approached the adjudicator or that a trade association is doing so on behalf of a group of suppliers, I am afraid that the messages will be a lot sterner than they are supposed to be under a climate of fear. I am sceptical about it because I do not see any justification for a climate of fear for Waitrose, for goodness’ sake. Indeed, I do not see any justification for any of the leading quoted British supermarkets. Their shares are at the bottom of their 12-month spread and they are all in trouble with their shareholders. There is absolutely no reason why they would want to make their lives even more difficult. They will want to do the best they possibly can with their suppliers.
Lord Curry of Kirkharle
Perhaps I may intervene to say something I should have said earlier. I chair the Leckford Estate for Waitrose, so I have an interest in Waitrose which, uniquely, supports the code and is very much in favour of it. I have certainly never used the phrase, “a climate of fear”, and I would not do so. However, I am deeply concerned about trust and confidence within the food supply chain, and I believe that this is an important factor in creating more confidence.
Viscount Eccles
I am grateful to the noble Lord for his intervention, but I doubt whether a state-appointed sole corporation will generate more confidence.
There are all sorts of problems. I used to supply power steering pump casings to Delphi in Strasbourg on a schedule. One week it would be three container loads and the next week it would be one, then suddenly in the middle of the week it would be four, but the following week it would be none. That is the way that just-in-time supply works. There is no escape from it, and it does not matter whether it is the supply of lettuces or steering pump housings, where we were the only people who made them for Delphi.
Lord Knight of Weymouth
For how long did the noble Viscount’s steering pump parts last if he had to store them? What was their shelf life?
Viscount Eccles
We did not know how soon Delphi would change its designs because there was a range of power steering pumps. Let me assure the noble Lord that there was no question of storing them. Delphi wanted them to come in and be fitted straight on to the machines. For many years I was a supplier to Marks and Spencer. The schedules changed every two or three days. That is the way of the interaction between suppliers and the retail market, particularly for anything that has a short shelf life. The noble Lord is quite right, if it has a longer shelf life, one can be a little more relaxed.
I do not therefore see that the problems raised by the noble Lord will come at all easily within the purview of the adjudicator. We shall shortly consider the investigations clause, and I am not at all confident, even if they do come within the adjudicator’s purview, that any substantial progress will be made from the point of view of those who want the supplier’s life made easier and the returns made greater. I do not see it working.
My noble friend is quite right to say that the Competition Commission stated that if there was no satisfactory agreement with the supermarkets it would be necessary to introduce an ombudsman. We should note that we are actually proposing to introduce something quite different to an ombudsman, and we should not therefore pray in aid the Competition Commission without any qualification.
I should add that the decision was, I suppose, made in 2007—it takes quite a long time for these decisions to get into a final published report—which is almost five years ago and the circumstances are different. The high street is under tremendous pressure that is much greater than it was when the report was written. The shares on the London Stock Exchange of the four British-based supermarkets on the list are all languishing near the bottom of their 12-month range.
I therefore feel that anything we do to erode the highly successful competitive model of the supermarkets and their suppliers—including, I may say, Nestlé, Kellogg’s, and Unilever and its subsidiaries—is not going to serve the public well. However, at this stage, and I may come back to this matter—
Lord Razzall
Before the noble Viscount sits down, is he prepared to address my point that the proposal was in all three political parties’ manifestos? He obviously knows better than all three political parties.
Viscount Eccles
Luckily, I am just a vulnerable ancient Conservative Back-Bencher who does not feel in any way committed to the three parties’ manifestos. I should also point out that they were published in 2010 and we are now in 2012, and there is always time for amendment in life. I am just hoping that that still applies. In the mean time, I have much pleasure in withdrawing my amendment.
Lord Knight of Weymouth
“The Groceries Supply Order
(1) The Secretary of State must make an order to establish the Groceries Supply Order by statutory instrument.
(2) The Secretary of State shall commission a review into the effectiveness of the Groceries Code to report no later than two years following the commencement of this Act.
(3) An order may not be made under subsection (1) until a review under subsection (2) is completed.
(4) An order made under subsection (1) is subject to the approval of both Houses of Parliament.”
Lord Knight of Weymouth
My Lords, many of the debates we have had on the Bill, and will no doubt continue to have, are of limited relevance to the legislation before us because they have been about the market practices of the major retailers.
I am in many ways grateful that we have been able to have the debate initiated by the noble Viscount, Lord Eccles, to get some of those matters off our chest in a way that is relevant. However, those debates are on the groceries code itself, not the adjudicator’s role as referee to that code. Yet, despite sitting at the heart of the debate, the code has never been subject to any formal parliamentary scrutiny. If noble Lords wish to blame the previous Government who introduced the code for doing it that way, that is fair enough. However, in a slight echo of the noble Viscount, we are where we are and my job relates to 2012, rather than 2010.
It is worth referring the Committee to the Delegated Powers and Regulatory Reform Committee’s first report of this Session which considered the Bill. The first paragraph states:
“This is an unusual Bill, for its purpose is to provide for enforcement of a Code which no Act of Parliament requires to exist, and which may be altered or revoked without any Parliamentary involvement. The Groceries Code is a Code of Practice set out in Schedule 1 to the Groceries (Supply Chain Practices) Market Investigation Order 2009 which was made by the Competition Commission. The Order is not a statutory instrument and is not subject to a Parliamentary procedure”.
The committee goes on to say that that informed its consideration of the Bill.
The committee is right to point out that it is a bit odd that primary legislation is being used to set up a referee for something that does not exist in any kind of parliamentary statute. In part, what I seek to do with the new clause is to right that. The code is not a statutory instrument but a function, as we have heard, of the Competition Commission’s power under the Enterprise Act 2002. While the Act was thoroughly scrutinised by Parliament, the groceries code had no scrutiny by this House. We in the Lords take extremely seriously our responsibilities to scrutinise secondary legislation. While it is right that the Competition Commission has powers to correct the market, surely there is merit in allowing proper oversight and scrutiny of the remedy proposed. It is fundamentally odd that while Parliament is entitled to debate and scrutinise the function and powers of the referee, we are denied the opportunity to give the same scrutiny to the rulebook itself. Amendment 3 introduces a new clause to establish the code as a statutory instrument of Parliament.
I do not want in any way to delay the passing of the Bill and the establishment of the adjudicator. I do not propose that we pause the whole process in order to introduce a new statutory code and then set up an adjudicator because that would delay things considerably. The Committee should consider allowing the adjudicator to go ahead with the established code that came into effect in 2010, but at the same time requiring the Secretary of State to commission a review into the effectiveness of the existing code and the operation of the whole supply chain. When the Competition Commission was commissioned, it was asked to look only at direct supply into supermarkets; it was not asked to look at the operation of the whole supply chain. We now hear a lot of complaint about the operation of intermediaries. What I propose would allow a review to look at how that is working and to see whether any amendment of the code would then be helpful, which could then be introduced to Parliament for approval.
I am extremely grateful to the Minister for her letter of 19 June explaining the government amendments that we will discuss later. The main amendment is to Clause 15. I am also extremely grateful to the many Members of your Lordships’ House who thought that the letter had been misdirected to them and chose to send on their copy to me. I have many copies of this letter; clearly they did not see that it was being copied to all Peers. Never mind—it was all entertaining stuff. In the letter, the Minister clarifies that through the amendment the groceries supply order will provide that each designated retailer will ensure that its subsidiaries comply with the order. Therefore, subsidiaries that deal with suppliers should incorporate the code in their supply agreements and then comply with it. That is extremely helpful because it clarifies for us that the code as it is written—and as the adjudicator will then referee it—operates down the supply chain. That is certainly of comfort to those of us who are concerned about that.
Nevertheless, having a review at this point—two years in—that looks at the whole supply chain and makes a judgment about whether some improvement to the code can be made would be helpful so that we can then have a statutory code. That is the basis of the amendment. Placing it in statute is a good opportunity for parliamentary scrutiny and would provide a mechanism for it then to be updated and to remain a living instrument, which is something that the National Farmers Union, for example, is asking for. It would then be capable of responding to changing market forces and would be as durable as the adjudicator whom the Bill sets up in primary legislation to referee it. I beg to move.
Viscount Eccles
Very briefly, I am sure that the noble Lord recognises that in doing this he goes far beyond the recommendations of the Competition Commission. The one thing that the commission did not do was go up the supply chain, as I would call it, but never mind. It declined to do that. The code is between direct suppliers—although I recognise that the Bill includes something about indirect suppliers—and supermarkets. It is based on the supply agreements between the supermarkets and those suppliers. If we go down the road that the noble Lord indicated, we are in for regulatory creep, exactly as the professor predicted.
Lord Grantchester
I support my Front Bench colleague at this stage. As at Second Reading, I declare my interests as a dairy farmer in Cheshire and in having been involved in dairy supply-chains both with farmer co-ops and on behalf of the Royal Association of British Dairy Farmers over many years. In support of the comments made in response to the previous amendment of the noble Viscount, Lord Eccles, there is an extremely delicate relationship between a supplier and the supermarket, and it takes quite some managing. It is not necessarily a question of fear. I am often reminded of the words in the Bible that the lion will lie down with the lamb. When I was in with the supermarkets, I always wanted to make sure that I was a lion but I never quite achieved that status. It is an extremely delicate relationship.
The noble Viscount said that the groceries code has been in existence for two years. It is eminently sensible that we complete this legislation to get the adjudicator in place and then, two years after that, have the review that the noble Viscount looked for. That would be an excellent time to review whether the code should be extended further up the supply chain to the suppliers of suppliers: the consolidators and the processors that have that direct relationship. I am sure that we will then find that there are lots of parts that the code does not cover, to which my noble friend from the Front Bench has alluded already. For example, I point to the practice of offsetting invoices from the supermarkets to suppliers and the charges that they think are quite acceptable to deduct from the suppliers. Those lead to long, detailed arguments and a very awkward time between a supplier and the supermarket. I am sure that putting that review on a statutory basis would, in two years’ time, allow Parliament—it would be wider than just the Competition Commission—to be consulted on the reach of the GSCOP code.
Baroness Wilcox
The noble Lord, Lord Knight, has brought us an interesting amendment, supported by his colleague, the noble Lord, Lord Grantchester. It is perhaps not fully aligned with the subject of the Bill, which is the creation of a groceries code adjudicator. I reassure noble Lords that the groceries code, contained within the Groceries Supply Code of Practice Order 2010, already has full statutory force and the requirement to incorporate it in their supply agreements is binding upon all large supermarket retailers. There is therefore no need for the Secretary of State to establish it by statutory instrument.
Furthermore, the review of the groceries code is the responsibility of the Office of Fair Trading not the Secretary of State. If the OFT considers that a change in the code or the order is needed, it can advise the Competition Commission accordingly. As the code concerns the remedying of practices that are concerned with competition, it is right that oversight of the code rests with the independent competition authorities, which have the necessary expertise and can make decisions based on objective economic criteria.
The noble Lord, Lord Knight, also asked whether it is right that the Competition Commission can make such orders without recourse to Parliament. Noble Lords who wish to discuss the powers of the competition authorities will have to wait until the Enterprise and Regulatory Reform Bill enters this House. However, the Government consider it entirely appropriate for the Competition Commission to make remedies based on the findings of its investigations.
Lord Knight of Weymouth
I am grateful to the noble Baroness on that matter but I am struggling a little. Fundamental to the amendment is whether or not Parliament should have a role in scrutinising the Groceries Supply Code of Practice, which the adjudicator will referee. If the noble Baroness is saying that we will have to wait before we find out how Parliament will then scrutinise the code, we are in a difficult position to legislate. Have I misunderstood?
Baroness Wilcox
No, I do not suppose for one minute that the noble Lord has misunderstood, because I spoke quite slowly and clearly. As to whether it is a question I can answer now, I do not know. Obviously, the noble Lord may feel that the Bill is going to stop at this very moment if I do not answer that question, but perhaps I may have a conversation with him on this matter before we come back on Thursday. As I understand it, the powers of the competition authorities are going to be debated under the Enterprise and Regulatory Reform Bill when it enters this House. Perhaps I may leave it at that for the moment.
I move on to another question on whether the code will apply further up the supply chain. I should emphasise that government amendments that we will discuss later do not extend the code to intermediaries. The amendments ensure that only subsidiaries of the 10 retailers are covered, as they are in the code. I hope that that is clear when noble Lords read it tomorrow in Hansard. It might be a little more cogent. I have no more help from behind me, so perhaps I may ask the noble Lord to withdraw his amendment at this stage.
Lord Knight of Weymouth
I am kind of grateful to the Minister for that. The noble Viscount, Lord Eccles, was in many ways right to say that I sought to go beyond where the Competition Commission had reached and was looking for an opportunity to debate this issue. We are establishing the adjudicator who will referee the code. Plenty of people who have debated the Bill want to ensure that the code is a living code and is regularly reviewed so that changes in market conditions can be accounted for. There are concerns about intermediaries and we are looking for ways in which we might think about whether the code could be extended to cover them. That is worthy of consideration. In response to what the Minister said, I am sure that if the Secretary of State were to ask the Competition Commission or the Office of Fair Trading to have a look at the operation of the whole supply chain, they would do so. I am sure that if the Secretary of State were to then ask them, as a result of that review, to consider whether or not the code should be updated, they would be happy to do so. That is the way things work in government. If the Secretary of State asks these people to do things, there is a very good chance that they will give that serious consideration and try and meet the Minister’s wishes.
I understand what the noble Baroness was saying regarding the Enterprise and Regulatory Reform Bill. In the end, I understand that there is nothing technically wrong with the code as it is written. The powers that were used properly to set it up remain until they are changed, subject to Parliament, by the Enterprise and Regulatory Reform Bill. I understand that they are not going to know how that works. For now, I am content for this Bill to be debated in the context of the current environment rather than some speculative future environment that may or may not come about, subject to parliamentary process. We can probably park that convoluted little debate in which we managed to find ourselves.
The fundamental thing remains: if this is not the right mechanism for keeping the code as a living code and something that Parliament can scrutinise, I am relaxed about that but would love for the Government to come back with a way for this Committee and your Lordships’ House to amend the Bill so that we can keep it a living code and, at points, consider whether or not it is up to date. With that, I beg leave to withdraw the amendment.
Lord Browne of Ladyton
Lord Browne of Ladyton
My Lords, the purpose of this group of amendments is twofold. It is, first, to explore the nature of the office that is to be created by this legislation and, secondly, to make an important constitutional point about the appropriateness of appointing an individual to an office of this nature in the current constitutional environment as set out in the Bill.
I start my argument by referring to the comments some minutes ago of the noble Viscount, Lord Eccles, when he referred to the recommendation of the Competition Commission for the appointment of an ombudsman. He said that this post was something quite different from an ombudsman, and I respectfully agree with him. I hesitate to do this, but I point out to my noble friend Lord Knight that it is not helpful to refer to this office as the office of a referee. It is something quite different from a referee, too. In fact, when one researches and considers carefully the powers that are being vested in the office of the adjudicator of the groceries code—I direct noble Lords’ attention to the Second Reading debate of 22 May at column 275 of the Official Report, when the noble Baroness set out quite extensively the roles of the adjudicator—one finds that at the heart of the many roles that the adjudicator will have, over and above all those other roles, is the role of investigator, arbitrator and the imposer of penalties. I dare say that if I were to ask most people with experience of life, “In whom do we invest those roles?”, they would say, “We invest those roles in a judge”. That is probably why this particular office has been called the office of the adjudicator. Respectfully, this is, if not a judicial position, a quasi-judicial position. There is no doubt that we are vesting in an individual the sorts of powers that we would expect a judge or magistrate, somebody who investigated and adjudicated on conflicts, to have. In normal parlance, such a person exercises a judicial role.
Since 3 April 2006, as a consequence of the Constitutional Reform Act 2005, all persons appointed to judicial roles in England and Wales—all those listed in Schedule 14 to that Act—are selected for them, if not appointed to them, by the Judicial Appointments Commission. That is simply because Parliament took the view that in the modern world it was inappropriate for persons to be appointed to such roles unless it was done independently of the Executive.
Consequently, I have proposed amendments that deploy those resources. In response, noble Lords may say, “This is something quite different from those judicial appointments listed in Schedule 14 to the Act”. They would be partly right, but the Judicial Appointments Commission goes much beyond what we would traditionally refer to as a judge and selects people for roles in a very wide range of tribunals that cover social care to taxation and farming to employment. I do not intend to be exhaustive in my arguments, but those who wish to do so can look at Schedule 14 and see the extensive list of roles in which people make judgments where we now expect there to be an element of independence.
I am reinforced in this view because everything that I have read in preparation for the debates in Committee makes constant reference to the necessity for the adjudicator to be independent. In my view, it is crucial for a person who exercises these sorts of powers to be independent of the Executive, to the extent that there should be some significant independent element in the selection of the person who is suitable for that role. I would argue that that is the constitutional position in England and Wales and that it has been since 3 April 2006, as a result of the 2005 Act.
On the basis of that analysis, I have proposed amendments that would ensure that the appointment by the Secretary of State can only be on the recommendation of the Judicial Appointments Commission. In that way, the independence of the adjudicator will be reinforced, if not preserved. Consequently, the adjudicator and not the Secretary of State will appoint the deputy adjudicator. Given the nature of this role, the Secretary of State would not be able to dismiss the adjudicator or the deputy adjudicator without the consent of the Lord Chief Justice. Certainly, it would not be just in his or her own judgment. Finally, in order to make it clear that this role can be held only by a person who is above reproach, I have added to the requirements of the person who holds this role that he or she should not have been convicted of an offence.
I have very little to add to my argument. With respect, I think that it is clear that independence requires this in the modern world. If the Minister disagrees with that analysis, I invite her to explain why this role, with all these powers, is significantly different from that of a judge or a justice and why it is appropriate to reverse the trend of constitutional change in this country in this way and in this legislation.
Lord Borrie
My Lords, I am reluctant to disagree somewhat with my noble friend, who has argued so eloquently that this is a judicial appointment, but I do not think that it is. It may be close to it, and there is nothing unusual in certain positions being on the borderline of administrative and judicial. However, in examining the role of the adjudicator, we have heard the noble Viscount, Lord Eccles, and others mention that, when this was first introduced, the title given to the man or woman in charge was “ombudsman”. There seems to be general agreement that that was not suitable, so we came to “adjudicator”.
Because we have adopted—or the Government have adopted—“adjudicator”, I strongly sympathise with my noble friend Lord Browne, because “adjudicator” suggests that there are at least two sides and that this is a judicial role. However, one thing that I have noticed, looking at the detail of what the adjudicator can and cannot do, is that he cannot settle or determine or arbitrate on a civil claim made by a particular supplier and a particular supermarket. It is of course typical for a judge, or indeed an arbitrator, to determine civil disputes of that kind, yet the detail of this Bill tells us that this is something that cannot be done by the adjudicator. The word “adjudicator” may not be entirely appropriate and may have led the noble Lord, Lord Browne, along a false path.
Lord Browne of Ladyton
Will my noble friend do two things for me before he sits down? First, will he address with the same certainty the issue of whether this is a quasi-judicial role? With respect, it is not fatal to my argument that this role does not meet the high test for a judicial role that my noble friend has—arbitrarily, I may say—imposed on us. Secondly, will he also address the ability or potential ability of this adjudicator to impose financial penalties? Does that cause him to reflect on whether this is the sort of role that he is describing?
Lord Borrie
With respect to my noble friend, he has not, in his question to me, dealt with the fundamental point that I raised, which is that the adjudicator is unable to determine civil claims between suppliers and supermarkets. The adjudicator has to go to a separate civil claim in the civil courts, or through arbitration. That is fundamental in my argument that this is not a judicial appointment and that involvement of the Judicial Appointments Commission would be inappropriate.
“Quasi-judicial” is a fascinating phrase, and we heard it a lot in the Leveson inquiry. It is amazing how Ministers have got accustomed to defining and knowing what quasi-judicial is, even though they did not always pronounce it the same way. It was a quasi-judicial role that the Minister had in determining whether the bid by Mr Murdoch for BSkyB should go to the Competition Commission. That was determined by everybody who spoke at the Leveson inquiry to be quasi-judicial. In answer to the noble Lord, Lord Browne, I have already admitted that the job of the adjudicator in this Bill is close to being judicial and, if it is close to being judicial, it is certainly close to being quasi-judicial.
The noble Lord, Lord Browne will know that the Judicial Appointments Commission has nothing whatever to do with Ministers and others who have quasi-judicial functions. It does not have that role. The Government must have found it difficult to know whether to call this person an ombudsman, an adjudicator or something else. He or she will be a regulator with powers to fine, like other regulators that are set out in statute. That is what is intended here. Some of us are in favour of this being in the Bill, whereas the Government want it only to follow a new regulation. Be that as it may, the adjudicator is closer to being a regulator than a High Court judge.
Lord Browne of Ladyton
My noble friend set a test for me that he knew I must fail, because the adjudicator does not have the power to impose a decision on a civil dispute—and because I failed this entirely arbitrary test, which he imposed with his customary skill, my argument was apparently nullified. Perhaps I may engage him by referring to another area of life in which there is a separation of powers. We have settled health and safety legislation in this country. Where there is a prosecution for breach of health and safety regulation before a criminal court, the court does not have the power to impose civil compensation, because that is not its function. However, it is a judicial process. Of course, another court can impose a civil remedy by awarding compensation for breach of health and safety regulations as an indication of negligence where somebody is injured, but it cannot impose a criminal penalty, because that is not its function. However, both courts have judicial functions. The fact that one court cannot impose its will on the jurisdiction of another does not nullify the fact that they both have judicial functions. Why does that logic not serve me well in this argument?
Lord Borrie
The only thing that I can say is that it has been the deliberate intention of the Government through their drafting of the Bill to deprive the adjudicator and to deprive anybody else except civil courts—in a completely different process—of the ability to determine a civil claim or something like it. As the noble Lord, Lord Browne, has considered this matter very deeply and carefully, there cannot be a lot between us. We are talking about a matter of title or name. Whatever that is, it does not seem suitable for the Judicial Appointments Commission to be involved in the appointment of this individual in a narrow field of the grocery trade, with the fairly narrow role provided by the Bill.
Viscount Eccles
Perhaps I could ask the noble Lord, Lord Browne, whether we have any other adjudicators.
Lord Browne of Ladyton
The honest answer to the noble Viscount is that we have many adjudicators. We call them judges. However, I am not aware—although the Minister may be—of the use of this term in another set of circumstances that could be instructive to the Committee in analysing the process. I have no doubt that the noble Baroness will quickly leap on the alibi granted to her by the noble Lord, Lord Borrie, that the drafters of the Bill unfortunately came up with this unhelpful title. My argument is that, if it walks like a duck and quacks like a duck, it is a duck. When they created the position and wondered what to call it, they must have said, “It is an adjudicator, so let us call it that”, and they were right.
Lord Knight of Weymouth
Before my noble friend Lord Grantchester responds, I will say very briefly to the noble Viscount, Lord Eccles, that there is a schools admissions adjudicator who adjudicates the schools admissions code.
Lord Grantchester
I rise to propose Amendment 5. Far be it from me to come between my two noble friends on Amendment 4, but I reflect that although there may be very little between them, there is a slight implication for some of the processes in the Bill. I would be interested to hear the Minister’s response to this question.
In proposing Amendment 5, we have approached it from the—
The Deputy Chairman of Committees (Lord Geddes)
With great respect to the noble Lord, I think he means that he is speaking to Amendment 5, not proposing it.
Lord Grantchester
I thank the Deputy Chairman for clarifying that. We have approached it in a simple, straightforward way: that this is, in fact, the role of a regulator. As we have argued and discussed on previous amendments, the role of the regulator is a high-profile one at the moment, with a wide range of powers to effect change in the UK groceries market. It is only appropriate that the Secretary of State should consult with both the relevant Select Committees in the other place to reflect the standing that such a person will have in the business and parliamentary world, so that it is fully transparent to the supply chain that this has been well considered.
Baroness Wilcox
My Lords, these amendments concern the independence of the adjudicator and, in particular, how this may be safeguarded through the appointment and dismissal processes. I fully agree that the independence of the adjudicator is critically important to the successful operation of the role.
I have just been passed a note for the noble Lords, Lord Browne and Lord Borrie, on the name “adjudicator”, which I thought might be helpful. The term has been chosen because an ombudsman must deal with consumers rather than businesses. That is the answer to that one.
Before addressing the amendments, I first reassure noble Lords that the Bill provides the adjudicator with full operational independence. There is no question of the Secretary of State telling the adjudicator what to do, who to investigate or what the sanctions should be. It is, however, normal practice that public appointments should be made by Ministers, in accordance with the standard rules and procedures on public appointments. In addressing these amendments I intend to draw parallels with other public bodies in the field of competition.
On the amendments of the noble Lord, Lord Browne of Ladyton, the adjudicator will not be a judge and it is therefore not necessary to involve the Judicial Appointments Commission. Similarly, the panel members of the Competition Commission, who might also be considered to have a similar quasi-judicial role in their rulings on appeals from sectoral regulators, are not appointed or recommended by the Judicial Appointments Commission. It is similarly appropriate that the Secretary of State should appoint both the adjudicator and, if there is one, deputy adjudicator, as both are public appointments. In a similar way, the Secretary of State currently appoints both the chair and the chief executive of the Office of Fair Trading. The Office of Fair Trading can, of course, also impose financial penalties.
On dismissal, the Secretary of State may dismiss the adjudicator only if they are satisfied that he or she is unable, unwilling or unfit to perform his or her functions. This is not a judgment that would be made lightly and could be subject to judicial review if made incorrectly. Given these safeguards, I do not consider it necessary to require the Lord Chief Justice’s approval, nor to make specific provision for the circumstances of criminal conviction, which the Secretary of State could, in any case, take into account when judging whether the person was appropriate for the role.
Finally, on the amendment tabled by the noble Lords, Lord Knight of Weymouth and Lord Grantchester, I make two points. First, while the Government support the principle of suitable parliamentary oversight of public servants, they believe that pre-appointment hearings by Select Committees are only for those roles where it is vital that the post’s independence from government or its importance to the public is of the highest importance. It does not seem clear that the adjudicator, though very important to the groceries sector, would fall within this category.
Secondly, even were the post of adjudicator such a post, it is also not general practice for Select Committee oversight to be set out in primary legislation, but rather for it to be decided by the Secretary of State responsible. I hope that that is helpful and, therefore, ask the noble Lord to withdraw his amendment.
Lord Browne of Ladyton
I am grateful to the Minister for dealing so comprehensively with the constituent elements of my argument. I am not entirely persuaded by all her arguments. I read that the distinction between an ombudsman and an adjudicator is that an ombudsman deals with only consumers and therefore cannot regulate a set of circumstances in which consumers are not involved. I am not entirely sure whether that argument is sustainable but it has been deployed in earlier debates on this legislation for justifying the move from the recommendation for an ombudsman in relation to this role. When I read it in the past I was not convinced and, with respect to the noble Baroness, I am not convinced now. However, I realise that that is the Government’s position, which I respect.
I am grateful to my noble friend Lord Borrie for his intervention and I am enormously respectful of his vast experience in the area of consumer protection and competition. I thought that he got almost to the point where he agreed with me but could not break through the cigarette paper that was between us—which I have to say he put there. I am also grateful to him that he thought that there was something in my argument.
There is nothing implicit in any of these arguments that is in any sense critical of the way in which I expect the Secretary of State to behave. I expect the Secretary of State of whatever party is in government in this country to behave in an entirely appropriate way and not to make capricious decisions. I accept also that it may be possible to find other examples—as there were in the noble Baroness’s brief—of similar types of appointment that have not been considered to be judicial appointments or have required the intervention of the Judicial Appointments Commission in the past. However—I will research this as I cannot be certain about it—I suspect that none of those roles was created by statute since the creation of the Judicial Appointments Commission in 2005. In view of the roles held in the OFT in the post-2005 constitutionally changed environment, I would argue that it would be inappropriate to appoint someone with those sorts of powers without the element of independence that we imposed on the nature of these appointments by passing that legislation.
I am concerned that perhaps we treat constitutional change now as being of the moment and that we revert to type thereafter. But the 2005 Act was a significant step in creating an element of independence in the role of people who exercise these types of functions. We extended it well beyond what people would normally think of as judges, for instance into tribunals that cover a significant area of public life. I do not believe that competition should be immune from that restraint as regards the constitution. However, despite the fact that I believe quite strongly in this argument, at this stage I am content to withdraw the amendment—before I do so I will give way to my noble friend.
Lord Knight of Weymouth
Before my noble friend withdraws his amendment, I ask his indulgence so that I can come back to the Minister on what she said in respect of Select Committees being involved in a confirmation hearing. I refer her to the coalition agreement, which stated:
“We will strengthen the powers of select committees to scrutinise major public appointments”.
I turn to the Conservative Party manifesto for 2010, which stated that it would,
“give Select Committees the right to hold confirmation hearings for major public appointments, including the heads of quangos”.
The Liberal Democrat manifesto stated that the party would:
“Strengthen the House of Commons to increase accountability. We will increase Parliamentary scrutiny of the budget and of government appointments and give Parliament control over its own agenda so that all bills leaving the Commons have been fully debated”.
I now refer the noble Baroness to some of the appointments that have been subject to pre-appointment hearings. From her own department, hearings were held for the chair of the Gas and Electricity Markets Authority, the chair of Ofcom, the chair of the Competition Commission, the chair of the Office of Fair Trading and the chair of the Postal Services Commission. She may argue that those are more major appointments than that of the adjudicator, but we think that it is important, otherwise we would not be here. Does she think that the post of adjudicator is more important than the chair of Oftenant, which is a quango from the Department for Communities and Local Government? I might also mention the chair of the Agricultural Wages Board, the chair of the Gangmasters Licensing Authority and the chairs of the research councils. That is a list of quangos, some of which are now being abolished. However, these are equivalent appointments and it is clearly the policy of her party and the coalition to give Parliament more scrutiny of such appointments. I do not understand why there is a problem.
Lord Browne of Ladyton
I am grateful to my noble friend for expanding my peroration quite significantly. The only point I had left was to refer to the necessity for some element of independence in this appointment. At some stage in Committee we will consider the absence of independence with regard to the dismissal or abolition of this role, which is a wrong step for many reasons, not the least of which is the role of Parliament. It seems to me that as a society we were on a journey towards recognising the need for an element of independence in the appointment of people who exercise certain powers. With respect to my noble friend Lord Borrie, it is not the narrowness of the issue but the nature of the powers that is important. We should be very wary of giving powers of this sort to individuals to exercise in our society without going through the appropriate processes to ensure utter independence from the Executive. That means not just factual independence but independence in law, and we must be consistent so that people go through the same process of selection that has been imposed on others to ensure that they meet the criteria that have been created.
In the mean time, I will study what the noble Baroness said and research whether any of the examples she gave predate the 2005 Act, with the distinct possibility that I will return to this issue at a later stage. I beg leave to withdraw the amendment.
Lord Browne of Ladyton
“( ) the Scottish Government;( ) the Welsh Assembly Government;( ) the Northern Ireland Executive; and”
Lord Browne of Ladyton
My Lords, I do not seek to dominate the debates in this Committee and I hope that my amendments will soon give way to others. This is a simple but timeless point. In these amendments I seek to ensure that the devolved Executives are included in both the reporting of the accounting process and in the reporting process of this particular office or of the adjudicator.
I expect, and will anticipate in my argument, that the response to that would have been that this is not a devolved matter; it is a reserved matter and the proper accountabilities are therefore restricted to the organs of reserved, UK government. I probably would have deployed that argument when I was a Minister myself. However, only yesterday, those of us who believe in the union came together politically in a campaign called Better Together to persuade the people of Scotland that we are better together than separate. In my political life, this is the most important decision that the people of Scotland will make. Part of the reason why those who seek to divide us are confident that they will be able to persuade the people of Scotland is that they conduct the politics of grievance constantly. They seek issues on which Scotland is treated differently or with disrespect. They say that those who allowed Scotland, Wales and Northern Ireland a degree of devolution did so reluctantly for political convenience, did not actually mean it and operate the rules in a nit-picking fashion which does not respect our institutions or those which they have set up.
The Duke of Montrose
I support the noble Lord, Lord Browne of Ladyton. In particular, I will back up his arguments on several of the points, although I must declare some interests as a meat-producing farmer with a 30-month production delay.
The difficulty, as the noble Lord pointed out, is that the subject matter of the Bill is very certainly reserved. The items that it will deal with are heavily devolved, both in terms of agricultural support and meat inspection. Many elements of the supply side are devolved, so there is great concern for devolved Administrations in this whole matter. The noble Lord was making the point quite well that this is not something that will require what we describe as a Sewel motion. It was drummed into us when we were debating the Scotland Bill that there is a convention in place. It would be interesting to know from the Minister if the convention has meant that the subject matter of this Bill has been run before the Scotland Office or the Scottish Parliament—not that we necessarily need to await their approval. As the noble Lord says, if we include this element of receiving these reports, we would dilute any sense of particular prejudice against the Scots.
Baroness Randerson
My Lords, I thank the noble Lord for tabling these amendments and concur with the viewpoint of the noble Duke. I am speaking from a Welsh perspective, with experience of the Welsh situation. The noble Duke is correct to acknowledge the significant role of the devolved Administrations in relation to this topic. As has been said by both speakers so far, the devolved Administrations have power over key issues.
The Welsh Government obviously have considerable power over agriculture and agricultural issues. Indeed, that power has grown considerably in the 12 years since devolution. They make the key decisions on agriculture. Even on the economy, many levers are in the hands of the Welsh Government rather than the UK Government. It is really important that the adjudicator, once established, has a regular and close dialogue with the Governments—the Executives—of Scotland, Wales and Northern Ireland, because it is so important to their day-to-day decision-making on policy.
As a member of the Welsh Assembly for 12 years, I sat through more debates on the supermarket ombudsman, and more questions on when the supermarket ombudsman would be set up, than I could possibly recall and count. It is a topic that was very close to the hearts of Assembly Members in Wales, across the board. It would be right for them to be closely involved from now on.
Baroness Wilcox
My Lords, I fully recognise the interests of the devolved Administrations in this Bill: of the noble Duke, the Duke of Montrose, for Scotland and the noble Baroness, Lady Randerson, for Wales.
The Government have kept in close contact with the devolved Administrations through the development of both the policy and the legislation, and we are grateful for the strong support that they have given to this Bill. Officials in my department have discussed this with representatives of all the devolved Administrations on multiple occasions, and continue to do so. We would of course expect the adjudicator to informally interact with the devolved Administrations in the same way.
However, formally speaking, the groceries code is a non-devolved issue, as it is a matter of competition law. The adjudicator therefore has no formal responsibilities to the devolved Administrations. Given this fact, a statutory duty to report to such bodies would therefore be inappropriate, and could make the adjudicator’s role less clear. Additionally, it might suggest that the devolved Administrations had responsibility for oversight of the adjudicator, when in fact they do not have powers to control either the code or the adjudicator. However, as I have said, we have worked and will continue to work very closely with the devolved Administrations. It is in all our interests that we do so.
If I may, I will discuss the issue regarding the Competition and Markets Authority when we discuss the seventh group of amendments. I therefore ask the noble Lord to withdraw his amendment.
Lord Browne of Ladyton
My Lords, I confess to being disappointed. It would appear that we have resorted to type in relation to the legalities of these issues. I am utterly schooled in making the arguments for them. However, with respect to the noble Baroness, she reassures me to a significant degree when she recounts the degree of interaction and co-operation that there has been between the devolved Administrations and the UK Government. I am reassured by that and would expect nothing less. She suggested that informally the adjudicator will be encouraged to continue that level of co-operation. To that degree she reassured me.
However, the noble Baroness disappoints me because it would appear that in the structures of Whitehall we have not got beyond the strict legalities of these arguments and cannot see how damaging this strict approach is to relations across the union. We need to be much more mature in the way in which we approach these issues, and we need to be much more political in not creating opportunities for grievance or for discussions that are perceived to be beyond power but which create an argument for more power. For example, if the Welsh Assembly sensibly had a debate about the importance of a supermarket ombudsman, in Scotland that would lead almost inevitably to an argument that the Scottish Parliament should have had the power to appoint one because the UK Government were taking a long time to do it. We would then get into a confrontation about the constitution that would be utterly unnecessary if we had an officer who was instructed by the legislation that we passed to set up his office to report to those institutions.
I confidently predict that if the adjudicator role beds in, at some stage a committee of the Scottish Parliament, Welsh Assembly or Northern Ireland Assembly will say, “We are conducting an inquiry into the economic opportunities that relate to a particular part of our society or economy. This officer has a role to play in that. We would like him to come and give evidence to our committee”. I also confidently predict that the occupier of this role will go, that the constitution will not melt down and that no great affront will be done to the divisions between devolved and reserved powers. I hope that at some stage we can come off these platforms where we tell the people of the United Kingdom that we are better together and that we respect each other and the settlement that we have, and drive that attitude down through Whitehall so that departments do not define themselves by whether they have reserved or devolved powers.
This is a disappointing response to the issue. I understand why legally it is being done. I am sure that the noble Baroness is aware of the possibility that while she is still in her office, somebody will come to her and say, “This does not go far enough. There is insufficient power for Scotland and it is disrespectful to the Scottish people”. I hope that those who provided her with the argument to defeat my simple amendment can provide her with the argument to deal with that when she has to go to Edinburgh to make the argument. However, I accept the inevitable. We are where we are. In these circumstances, there is nothing else I can do but beg leave to withdraw the amendment.
Lord Browne of Ladyton
“(2) The Adjudicator may, in particular—
(a) enter into contracts;(b) with the consent of the Secretary of State borrow money;(c) acquire and dispose of land; and(d) obtain advice or assistance from any person.(3) The Adjudicator may remunerate any person from whom he or she obtains advice or assistance.”
Lord Browne of Ladyton
My Lords, this is a probing amendment. This adjudicator is a creature of statute. He can have only the powers that are given to him by statute. Paragraph 8 of Schedule 1 states:
“The Adjudicator may pay to or in respect of the person holding office as the Adjudicator or the Deputy Adjudicator … remuneration … allowances … sums by way of or in respect of pensions”.
It appears to me that in this statute he deliberately is not given certain other powers that one would expect, even if he is to have a “small, agile staff”, as the noble Baroness described his office at Second Reading. Are we to infer from the absence of those powers that others will exercise those necessary powers to create the small infrastructure around the adjudicator that will be necessary? Or are we to infer that there is an expectation that later provisions in this Bill will be enacted before it becomes necessary for the adjudicator to have these powers and that the office will no longer exist? Or is it the plan to embed this office in another existing administration or organisation? Has a decision been made as to what that organisation will be? If so, is the noble Baroness in a position to tell the Committee what organisation that will be and what powers it will have in order to support this person, bearing in mind that the adjudicator is required to carry out investigations?
The adjudicator may have to conduct arbitrations himself or herself. He or she may also have to appoint others to conduct arbitrations and, although we hope not, in the future may have to impose penalties, some of which may not be of a financial nature but some of which may be of a financial nature. He or she may have to account for such money and do all sorts of things—I do not need to go into the detail. Most noble Lords will have an idea of what these sorts of offices will look like, even if they are small and agile. I repeat that this adjudicator is a creature of statute. If he or she does not have these powers, they will not be able to do that. This amendment probes the intention of the Government in relation to the administration that will necessarily support the role of the adjudicator. I beg to move.
Baroness Wilcox
My Lords, I fully recognise the importance of ensuring that the adjudicator has the powers necessary to adequately carry out its functions. However, the powers listed in this amendment are already provided for in the Bill. I refer in particular to paragraph 16 of Schedule 1, which provides:
“The Adjudicator may do anything that is calculated to facilitate the carrying out of the Adjudicator’s functions or is conducive or incidental to the carrying out of those functions”.
It is clear that sub-paragraphs (a) and (d) of the amendment are covered by this. The adjudicator could, for example, use this to enter into contracts or to obtain and pay for legal advice. Similarly, it must be the case that the adjudicator has the power to enter into a lease, which is an interest in land. With regards to borrowing, I draw the noble Lord’s attention to, for example, provisions such as paragraph 20 of Schedule 2 to the Human Tissue Act 2004. That is exactly like our paragraph 16, except that it ends with the words,
“but may not borrow money”.
That implies that a general power includes a power to borrow unless it is specifically excluded. I hope that that is helpful.
Lord Knight of Weymouth
My noble friend raises an interesting point and I thought that I would wait to hear whether the noble Baroness prayed in aid paragraph 16. I worry about the very broad nature of the power that the adjudicator gets in paragraph 16 to do whatever he or she thinks is appropriate to perform the functions. It seems sensible enough, but I am mindful of what the large retailers are saying to us in respect of them having to pay a levy to fund the operation of the adjudicator and there being very little protection for them as to how much that would cost. Paragraph 16 as it stands seems to give a very wide power that leaves them vulnerable to some considerable costs. I wonder if the Minister needs to reflect on whether there is a way to give some protection to the levy payers to make sure that, were this interpreted by a frivolous adjudicator who thought there were some incidental things to the carrying out of functions, they could not go slightly berserk and incur quite a large cost on those levy payers.
Baroness Wilcox
The noble Lord, Lord Knight, will be pleased to know that we are ahead of him on this. The adjudicator will be able to carry out these acts only if it is to facilitate the carrying out of the adjudicator’s functions or if it is conducive or incidental to the carrying out of those functions. This will ensure that the adjudicator’s powers are used responsibly and are not abused. For example, it would not be possible for the adjudicator to make investments in land. I hope that that may be of some help. I was about to say that we might add things like, “should not go to Ascot” or this, that and the other, but I am being frivolous. I think that that is broad enough to cover any difficulties there.
Lord Knight of Weymouth
I am grateful to the noble Baroness. It is the “incidental” that would worry me the most were I a levy payer. I will leave it at that because I do not want to labour the point. We need to think about this a little. I know that we may have an amendment later that looks at whether the annual reports should explicitly include the cost of administration so that that is transparent and clear to levy payers as a way of ensuring that these “incidental” expenses are not excessive. I think that the point has been made.
Lord Browne of Ladyton
The noble Baroness asked whether I am reassured. I am. How could I not be, given her explanation that what lay behind “incidental” powers is now on the record and it has been made clear that the adjudicator will have the powers necessary to carry out the functions that will support the role?
I do not expect the noble Baroness to answer this question, but she may reflect upon it: if paragraph 16 is all-encompassing, what is the purpose of paragraph 8? Why is it necessary for paragraph 8 to be in this schedule at all to deal with the issue of the remuneration of the adjudicator and deputy adjudicator if incidental powers cover all those fundamental things? I was misled by the presence of paragraph 8, thinking that “incidental” meant, in plain English, what I would consider to be incidental.
The powers that I put in the amendment are pretty fundamental to the office of the adjudicator. Given that this is the money of those who will support the role and given that, as my noble friend Lord Knight articulated, there is an argument for spelling out in plain English the powers that the Government expect the adjudicator to operate or use, particularly if those powers are relevant to the spending of other people’s money, it would be more helpful to spell out the powers that an adjudicator has for spending money than to give an office of this nature incidental powers that are so all-encompassing against a provision such as paragraph 8.
That being said, the matter is now all on the record. It is very clear that there is some restriction on these incidental powers as well as on the exponential expansion of them. To that extent, I am grateful to the noble Baroness. In those circumstances and since the amendment is redundant, I can do nothing but beg leave to withdraw it.
Lord Browne of Ladyton
Lord Browne of Ladyton
My Lords, noble Lords will be pleased to hear that I will not be insisting on these amendments. They were tabled for a specific reason, but that has actually been addressed in debate thus far. The answer to them is clear, because they anticipate the Enterprise and Regulatory Reform Bill, which is of course not yet enacted. They are therefore deeply premature, but were intended to initiate another debate, exploring what powers and relationships the adjudicator will have with these offices, but we have already had that debate.
I am conscious, however, because I argued that my amendments should be grouped with others in order to minimise the time, that if I do not move it that will imperil the rest of the grouping. I do not intend to insist upon my amendments because I understand what the Minister’s argument would be. I beg to move.
Lord Knight of Weymouth
My Lords, I will speak to Amendments 12, 96, 124 in my name and that of my noble friend Lord Grantchester, which are about the powers to abolish the adjudicator. It is always a little worrying when a Government are thinking about the manner in which they will dispose of a new office before it is even established. Clearly, this is what the Government have done. Clause 16 provides both for the transfer of the adjudicator’s functions to another public body and the outright abolition of the adjudicator, something which one or two Members of this Committee would, I am sure, welcome.
The fact that the Government have made such specific provisions rather implies that they already have a good idea about what they expect to happen to the adjudicator after a couple of years. A more cynical person might infer from this that the Government have calculated that they can benefit from a few good headlines now in setting it up, and then quietly merge the office with the Office of Fair Trading, or the new Competition and Markets Authority a couple of years down the line. That would probably feel like a very efficient win-win to the Government; but this is obviously a highly cynical view. The Government could even quietly get rid of the thing altogether with a simple Motion in Parliament.
We have heard how this issue has exercised suppliers to supermarkets for some time. It has been the subject of campaigns for a number of years. I do not believe that the affirmative resolution is in this instance a high enough threshold for Parliament to allow the Secretary of State to abolish this public body so easily. The reason for this goes to the heart of what the adjudicator is there to achieve, and to the arguments on the powers which the adjudicator should have available. In a sense, if the adjudicator never initiates a single investigation or uses a single one of his or her powers, this could just as easily indicate success as it could do failure of their functions. The reason for both the code and the adjudicator is not to catch retailers out so much as to compel good behaviour and to make clear where the boundaries lie between competitive and anti-competitive practice. The presence of the adjudicator alone, especially an adjudicator with teeth, such as strong powers to fine, should, we hope, be enough of a deterrent to ensure that retailers never stray beyond the rules of good practice set out by the code. If a referee—or, if it pleases my noble friend Lord Browne of Ladyton, a quasi-referee—goes through an entire football match without giving a single booking, you would applaud it as a success. You do not question the future need for the referee.
It is therefore worrying that the Government have included a mechanism for the adjudicator’s abolition without giving any indication of how they intend to measure the continued value of an adjudicator. At the very least, the bar for abolition should be set higher than it currently is within the Bill. Our amendments 12, 96 and 124 would require the Government to follow exactly the same procedures as are set out in the Public Bodies Bill model of a super-affirmative order in order to abolish the office. Indeed, in proposing these amendments, we are seeking some consistency from the Government.
Baroness Wilcox
My Lords, on the amendments tabled by the noble Lord, Lord Browne of Ladyton, I recognise that in due course the references to the Competition Commission and the Office of Fair Trading will most likely need to be changed to refer to the Competition and Markets Authority. My ministerial colleagues in BIS are currently working hard to ensure that the Enterprise and Regulatory Reform Bill, which will bring about these changes, makes a successful passage through the other Chamber. However, the Government believe that it would be presumptuous of us to take the will of Parliament for granted by making a reference to the Competition and Markets Authority when the Enterprise and Regulatory Reform Bill has not yet received its Third Reading in the other place, so we propose to consider the amendments tabled by the noble Lord, Lord Browne of Ladyton, at a later stage of this Bill’s passage through Parliament—namely, when the other Bill is more advanced.
With regard to the amendments tabled by the noble Lords, Lord Knight of Weymouth and Lord Grantchester, we all agree that when granting delegated powers, the appropriate degree of parliamentary scrutiny should be provided. Too weak a procedure could lead to a lack of scrutiny and the weakening of parliamentary authority. However, too stringent a procedure would not only be cumbersome, wasting Parliament’s valuable time, but could act as a barrier to timely action. The noble Lord, Lord Knight, asked why there are abolition provisions in the Bill. Abolition and review provisions are included in accordance with the broader policy on sunset and review that we are pursuing. It does not indicate an intent to abolish the body or transfer its functions.
The Public Bodies Act has been mentioned as a precedent. However, there is a big difference between that Act and this measure. The Public Bodies Act confers powers to abolish, reform and modify a wide range of public bodies, and confers a range of ancillary powers such as the power to amend primary legislation. However, this Bill is a limited measure to establish a new adjudicator in a single, specific area of the economy, the grocery sector. It is quite a different thing.
I remind noble Lords that the Delegated Powers and Regulatory Reform Committee examined the Bill. Its report is available to any Member who wishes to read it. The committee carefully considered whether the procedures provided by the Bill were appropriate, and specifically considered whether some measures should be delegated at all. However, it concluded that the procedures were appropriate and did not recommend the replacement of the affirmative procedure with the super-affirmative procedure at any point.
Lord Knight of Weymouth
The noble Baroness is of course right to refer to the first report of the Delegated Powers and Regulatory Reform Committee. When it considered abolition, in paragraphs 6 and 7 of the report, and Clause 16(2), it stated:
“This provision illustrates the unusual nature of this Bill”.
It then goes back to its opening paragraph, which states:
“If the Competition Commission revoked the Order containing the groceries code, the Act would serve no purpose so it could be repealed. There would be no great point of principle involved in its repeal, for the Act is wholly dependent on the Order”.
The committee’s view was very much informed by the weirdness—which I referred to earlier—of setting up in primary legislation a quasi-referee to govern a code that Parliament has no power to scrutinise.
It is entirely appropriate and comparable with the Public Bodies Bill, which was about the bonfire of the quangos and the Government having the power in secondary legislation to get rid of quangos that they had set up in primary legislation. In this primary legislation we are setting up a quango. In Clause 16 the Government are seeking to use just the affirmative procedure if they want to abolish it. It is entirely consistent with the Public Bodies Act to argue for the super-affirmative procedure.
Baroness Wilcox
Perhaps if I go back and continue for two paragraphs, we might find something a bit more helpful. I will go back again to say that the Delegated Powers and Regulatory Reform Committee examined the Bill. It carefully considered whether the procedures provided by the Bill were appropriate, and explicitly considered whether some measures should be delegated at all. The committee concluded that the procedures were appropriate and did not recommend the replacement of the affirmative procedure with the super-affirmative procedure at any point.
On the abolition of the adjudicator, the committee stated:
“We considered whether this goes far enough and whether the policy and repeal of the Act in these circumstances should be effected by another Bill. But we are satisfied that the affirmative procedure is appropriate given the overall purpose of the Bill”.
On transfer of functions, the committee said:
“An order under clause 16(1) can transfer all or some of the Adjudicator’s functions to another public body (undefined). The power is balanced by the affirmative procedure; and the Adjudicator’s functions are specific under the Bill. We are satisfied with this approach”.
Abolition and transfer of functions are major steps that should be subject to the super-affirmative procedure. The Secretary of State can abolish the adjudicator only for being ineffective or unnecessary, under the clauses referred to by noble Lords, following one of the triennial reviews. These reviews require full consultation. Transfer of functions can be done only after consideration of whether it will increase efficiency, effectiveness and economy, while ensuring appropriate accountability to Ministers.
This Committee’s job is to carefully scrutinise delegated powers and to ensure that the appropriate procedures are chosen. If the committee had recommended changes to the Bill, we would have considered them extremely carefully, but it said that the procedures were satisfactory.
As I said at the beginning, one must ensure that the degree of scrutiny is proportionate to the powers involved. That is why it would be absolutely wrong, for example, for the negative procedure to be used in these cases. Equally, the super-affirmative procedure is a step too far. With that explanation, I invite the noble Lord to meet me after today and talk this through further. I would be delighted to do so, rather than taking up any more of the Committee’s time at this stage. Therefore I ask the noble Lord to withdraw his amendment.
Lord Browne of Ladyton
My Lords, I look forward to the Government’s amendments at a later stage of the Bill and, although I was slightly premature, the opportunity to claim credit for them. I have to say to the noble Baroness that I would trade that for better consideration of the earlier amendment on the devolved Administrations. If I may crave the indulgence of your Lordships, I realise that when I was responding to that debate I failed to recognise and pay due regard to the contributions of the noble Duke, the Duke of Montrose, and the noble Baroness, Lady Randerson, who graciously supported my amendments and made arguments that created a cross-party consensus on this issue, which the Government were unfortunately immune to. I am grateful to noble Lords for their support and contributions to the debate. I beg leave to withdraw the amendment.
Lord Browne of Ladyton
Lord Browne of Ladyton
My Lords, the other amendments in this group are consequential on the first, and challenge the perception that you can invest in one person so many powers without creating an inevitable conflict of interest. As we have already established in our deliberations, the Bill gives the adjudicator many powers in relation to disputes, including arbitrating, investigating and enforcing. It is axiomatic that the adjudicator must carry out these powers with independence and impartiality.
The Bill goes well beyond implying that investigation necessarily gives rise to conflict on the lack of impartiality in a later arbitration—indeed, it creates a mechanism for it. Although the Bill does not compel the adjudicator to appoint an arbitrator, it gives him or her a strong hint that that is what they should do. I know that in the Second Reading debate the noble Baroness was careful not to apply an imperative to that requirement, and suggested that the adjudicator would probably, in such circumstances, appoint someone else to arbitrate.
The reason for the amendment is that although I have some limited experience of arbitration, I cannot, from my research or my consideration of what this adjudicator would do, envisage any set of circumstances in which an arbitration would take place that did not require a prior investigation of some sort. I cannot believe that an adjudicator—particularly one who is expected to arbitrate in a limited number of cases in relation to the groceries code during the course of a year—would decide to use the powers that he or she is constrained to use sparingly, without some preliminary investigation and some conclusion that arbitration was necessary. I cannot conceive of any circumstances in which that argument of impartiality, or lack of it, could not be levelled at an adjudicator when a decision is made to arbitrate.
I am perfectly willing to defer to interventions or contributions to this debate from noble Lords in this Room—and there are many of them—who have much more experience of these sorts of circumstances than I had in my limited exposure to them during my legal career. I cannot think of the circumstances. As a consequence, and given the nature of this legislation, there is a strong implication that the arbitration function should be separate from the role of the adjudicator. Should arbitration be necessary, the adjudicator would be required to appoint a separate arbitrator. Otherwise, what is the point of all the provisions which say that investigations can give rise to the implication of a lack of impartiality? Where did they come from and why are they in the Bill at all, if that is not the logical conclusion?
Viscount Eccles
My Lords, I do not know if this will help or at least shorten what I need to say in the debate on whether Clause 2 should stand part of the Bill. I want to consider what the situation is and has been since 4 February 2010. The dispute resolution scheme is set out in the code in Part 5. Paragraph 11(5), of course, does not conform to the Bill. It states:
“The arbitration will be administered by the Ombudsman, if established. In the event that the Ombudsman is not established, or has a conflict of interest in relation to a particular Dispute, the arbitration will be administered by a single arbitrator appointed in accordance with the Rules of the Chartered Institute of Arbitrators in force for the time being.”
My understanding would be that it is a contractual obligation of the retailers that that is included in their contracts with their suppliers, exactly as I have read it out. It goes on in 11(6) to say:
“To the extent that they do not conflict with this Article 11, the arbitration will be conducted in accordance with the Rules of the Chartered Institute of Arbitrators in force for the time being”;
and in 11(9):
“Nothing in this Article will prevent a Designated Retailer including in a Supply Agreement a right for the Designated Retailer also to refer a Dispute to arbitration if the Dispute is not resolved … within 21 days”.
We need to know what the present situation is with the operation of the code. If the arrangements which have been set out with care by the Competition Commission, and included in the order are working perfectly well then I am bemused as to why the adjudicator would ever want to play any part in arbitration at all. I cannot see why it would be sensible for the adjudicator to play any part, because it is all there. Surely the adjudicator is to monitor whether these arrangements are working satisfactorily?
It may be, of course, that the further sophistication suggested by the noble Lord, Lord Browne, would also be a sensible thing to do. I have no view on that; I am not sufficiently expert. However, I cannot understand—and I need to be given some sort of comfort—why the adjudicator is involved in arbitration, as opposed to simply taking note of the fact that arbitration is taking place, and probably coming to a view as to whether, when it took place, it was a satisfactory procedure or not?
Baroness Wilcox
The noble Lord, Lord Browne of Ladyton, has raised an important question that it is well worth us examining closely. It is correct that the adjudicator will have two separate main roles. One will involve arbitration, as set out in Clauses 2 and 3 of the Bill. The other will involve investigations and is set out primarily in Clauses 4 to 10 of the Bill. Both roles will be carried out fairly and impartially. The two functions will be distinct from each other and it is important, as the noble Lord, Lord Browne said, that they remain so in order to prevent any conflict of interest.
The noble Lord, Lord Browne, asked whether the adjudicator would always be conflicted. Not necessarily. If arbitration is sought on a subject where the adjudicator has not carried out an investigation or given advice, it is likely that there would be no conflict of interest. We do not consider it inherent in the functions of the adjudicator that he or she will be conflicted in carrying out arbitrations.
It is important to remember that the adjudicator will carry out all their functions fairly and impartially. It is not the role of the adjudicator to act as an advocate for suppliers in carrying out investigations, but it is possible that conflicts will arise in particular cases, and the Bill provides the flexibility to deal with each situation as it arises. The Government consider that Clause 2(1)(b) in particular will help ensure that the distinction between the adjudicator’s arbitration and investigation functions is maintained and that any conflicts of interest are prevented. This clause allows the adjudicator to appoint another person to arbitrate a dispute. The Government envisage that this will be used in cases where a conflict of interest may exist, for example where the adjudicator has previously advised on, or investigated, an issue which is relevant to the dispute. To assist the noble Lord, Lord Browne, the powers to arbitrate are applied at the request of the supplier or retailer. No previous investigation is actually needed.
The adjudicator will be required to act responsibly and will refer any cases where a conflict may arise. However, in cases where there is no conflict of interest, the Government believe that it is sensible to allow the adjudicator to arbitrate. This was envisaged by the Competition Commission in its drafting of the groceries supply order. The adjudicator will, after all, probably be the single most experienced person in the workings of the code.
On the proposed procedure for appointing an arbitrator, I do not consider it necessary to set this out in the Bill. As the Explanatory Notes explain, in England and Wales and Northern Ireland, Section 94 of the Arbitration Act 1996 will broadly apply the provisions of Part 1 of that Act to any arbitrations carried out under the groceries supply order and this Bill. In Scotland, Section 16 of the Arbitration (Scotland) Act 2010 will broadly have a similar effect in applying the Scottish arbitration rules.
The arbitration legislation which will apply to arbitrations by the adjudicator or a person appointed by the adjudicator includes protections on fairness and impartiality, including an ability for parties to apply to the court to remove an arbitrator on those grounds. The adjudicator can of course be expected to satisfy himself or herself either that they can carry out an arbitration themselves fairly and impartially, or that the person they appoint will do so, but there is a safeguard in the arbitration legislation if, for some reason, that does not happen properly.
I wanted to respond to my noble friend Lord Eccles, and have now found the speaking note for that. The groceries supply order has already established a dispute resolution scheme for disputes arising between a particular retailer and a particular direct supplier under the groceries code. The order anticipates that the adjudicator, referred to there as the “ombudsman”, will arbitrate these disputes. This will both ensure that the disputes are arbitrated by an individual with a high level of expertise in the sector and will allow the adjudicator to gain a greater understanding of how the code is operating that will be helpful when carrying out his or her functions, such as providing advice or preparing the annual report. I hope that that is helpful.
I hope that these rather long but, we felt, necessary explanations have proved satisfactory to noble Lords. While I would of course be happy to speak further to the noble Lord, Lord Browne of Ladyton, about this matter, I ask him to withdraw his amendment at this stage.
Lord Browne of Ladyton
My Lords, I am grateful to the noble Viscount, Lord Eccles, for expanding into a potentially fruitful area my further deliberations on this. I had not thought to look at the terms of the code itself, but his drawing my attention to the detail of the provisions on arbitration points to an area at least worthy of consideration: the interaction between existing provisions and those that would be enacted by the Bill, which are less descriptive. It interests me that the Government have chosen to legislate in way that is less clear than the simple provisions in the code, which the noble Viscount read out, composed by the Competition Commission. I will take some time to deliberate on that, but it is an area worth exploring, perhaps at a later date.
I am grateful to the noble Baroness for giving these amendments such careful consideration, and for her words suggesting that they raise an important issue. It is an important issue and I remain to be convinced that it would be appropriate for the adjudicator to embark on arbitration without doing some prior investigation. I suppose that it depends on what one means by “prior investigation”. Given that it is expected that the adjudicator will arbitrate in a very small number of cases over the course of a year, I would expect that he or she would pay great attention to whether it was appropriate to deploy scarce resources on such a request, even if it came from a big retailer.
Viscount Eccles
I will try to be brief. I start by coming back to Professor Lyons, whose views were set out in paragraph 11.347 of the Competition Commission’s report:
“However, he believed that the Ombudsman would be counterproductive and strongly preferred rapid, independent arbitration of disputes, combined with OFT compliance”.
On the question of independent arbitration, I hope that we will investigate what is happening. It is very normal in conditions of supply and sale for there to be arbitration clauses. I suspect that if we were dealing with a large supermarket and somebody like Nestlé, Kellogg’s or Unilever, there would be arbitration clauses in the supply and purchase agreements. Are we saying that the adjudicator will override those clauses in some way because of the provisions of the Bill? That is one of my main reasons for suggesting that the adjudicator should play no part. That is why Clause 2 should come out of the Bill—and with it, under my Amendment 16, subsection (1) of the following clause. The adjudicator will not be at all well served by having the duty to administer arbitration or, if not being the arbitrator him or herself, to appoint another. That will override a lot of the existing and quite normal arrangements that are set out independently in contracts.
My noble friend said in different terms that the adjudicator will be neutral and fair between suppliers and retailers. I say with some regret that that is not the expectation. The expectation of the adjudicator, and those lobbying for the appointment of one, is that he or she will be in support of suppliers. I do not think that we should blink at that in this Committee. There has been no argument by the retailers of the kind that there has been by the suppliers. I quite accept that that is something to do with the gearing of perceived market power between the two sides, but if the adjudicator does not serve the interests of the suppliers, there will be a lot of disappointment.
Lord Knight of Weymouth
I am grateful to the noble Lord. As we have already heard, Waitrose, as one of the big retailers, is fully supportive of the establishment of not only the code but the adjudicator as well.
Viscount Eccles
I am grateful to the noble Lord, Lord Knight. I have looked at that with some care and he is quite right that the things said by Waitrose during these procedures have been more positive than some of the things said by other supermarkets. If you read the compliance reports in the supermarkets’ annual reports and accounts—those that are available—you will find that they are all complying, and doing so in cheerful and positive way. That is why I want the OFT, under paragraph 7 of the code—it gets all the reports and it has all the information—to give its assessment and judgment of the extent to which the supermarkets are complying in a cheerful and positive manner with this code. My belief is that they are complying. I have sought to find out the views of the supermarkets and all their responses have been 100% positive; not one has put up any kind of negative response. Their trade association’s response has been, “We are going to make this thing work. We are making this thing work. We do not really think that an adjudicator will help, but we may have to have one”. That is perhaps the attitude I am taking—if we have to have an adjudicator, we will get on with it. I do not think the argument that Waitrose stands out as an exception runs.
Lord Knight of Weymouth
Given that the noble Viscount had said that there were no suppliers, I merely wanted to offer the information to the Committee that clearly there was one.
Viscount Eccles
I am only talking about expectations. It is up to Members of the Committee to make up their minds as to where the expectations that might arise as a result of this Bill being enacted lie. We all make up our own minds. In conclusion, I would much prefer it, and I think that it would be much in the public interest, if Clause 2 did not stand part of the Bill.
Baroness Wilcox
My Lords, my noble friend Lord Eccles has already made clear that he believes that the adjudicator’s function should be given to the Office of Fair Trading. The Government disagree and consider that with arbitration, just as with investigations, there is merit in establishing a dedicated, independent office which can build up a high level of expertise in the groceries market. I have already discussed this issue in some depth in response to previous groupings and have set out why we have made the provisions for the adjudicator to arbitrate.
The groceries supply order has already established a dispute resolution scheme for disputes arising between a particular retailer and a particular direct supplier under the groceries code. The order anticipates that the adjudicator—referred to there as the “ombudsman”—will arbitrate these disputes. This will ensure that disputes are arbitrated by an individual with a high level of expertise in the sector and allow the adjudicator to gain a greater understanding of how the code is operating that will be helpful when carrying out his or her functions, such as providing advice or preparing the annual report.
In response to the question asked by my noble friend Lord Eccles on whether the Bill will override existing arbitration clauses, the order already gives a right to suppliers to arbitration in accordance with Article 2 of the order. The Bill simply allows the adjudicator to carry out that arbitration role where appropriate. Similarly, with regard to Amendment 16, the purpose of Clause 3(1) is to increase the expertise of the adjudicator—something that will benefit both retailers and suppliers. It is entirely reasonable that just because the adjudicator has not acted as an arbitrator he or she should continue to have access to the information from that dispute. This clause provides the adjudicator with the means of obtaining it. Therefore, with that explanation, although I know it will not please him, I hope that it will persuade him to allow Clause 2 to stand part of the Bill.
Viscount Eccles
I am grateful to my noble friend. Perhaps I may ask whether that last comment was on Part 2 of the code of practice, which does not seem to mention arbitration.
Baroness Wilcox
The order already gives the right to suppliers to arbitration, in accordance with Article 11. I am sorry, did I say Article 2?
Viscount Eccles
I thank my noble friend. I want to reiterate that I do not read anything in Article 11 that currently prevents a supermarket and a supplier entering into their own contractual arrangements about arbitration. Perhaps we could deal with that matter. I am sticking to my point that I would like an answer to the question: do the arrangements proposed in the Bill override normal contractual arrangements that exist between many suppliers and their customers in many markets?
I would also welcome—because I would like to come back to this at the next stage—some reflection on this matter of arbitration and its independence. I think that I am supporting the noble Lord, Lord Browne, because I remain of the opinion that it is almost inconceivable that the adjudicator will not have some perceived conflict of interest. Therefore, once it is perceived, the adjudicator will say, “I think that I had better back out of this and let it be done another way”. Meanwhile, I withdraw my opposition to the Question that the clause stand part of the Bill.
Lord Browne of Ladyton
“( ) The power conferred by this section is not exercisable in relation to information or documents in respect of which a claim to legal professional privilege (in Scotland, to confidentiality of communications) could be maintained in legal proceedings.”
Lord Browne of Ladyton
My Lords, I shall not detain the Committee long with my amendments in this group. They are designed to protect legal professional privilege and confidentiality of communications in Scotland.
I am certain that the noble Baroness will say that legal professional privilege is recognised by common law and is therefore protected by it; that it is not therefore necessary to make legislation to protect it; and that the same applies in Scotland. My question to her, although she may not be able to answer it, is: why do we protect legal professional privilege in some legislation but not in other legislation? For example, in the Counter-Terrorism Act 2008, at paragraph 12 in Part 3 of Schedule 7, we enacted exactly the provision I have sought to include in the Bill. That is only one example and I can find others. I apologise to the noble Baroness for bowling her a bit of googly, even if I am a Scotsman—and we normally cannot play cricket at all, unless we captain the English team. Why on some occasions do we legislate to protect legal professional privilege and on others we do not? If she can answer that at some stage, I will be pleased. I do not intend to press this matter to a Division. I beg to move.
Baroness Wilcox
This is an important issue. It is clearly important that documents subject to legal professional privilege should not be subject to the information-gathering powers that are granted here. I thank the noble Lord, Lord Browne, for raising this point and reassure him that the Bill already gives protection to documents that are subject to legal professional privilege, on the basis of the general rule about legal professional privilege in civil proceedings. Because the enforcement mechanism in Schedule 2 and Clause 3 is via civil proceedings, the outcome is that legal professional privilege cannot be overridden.
I can say that confidently because legal professional privilege can be overridden only by express words or necessary implication. That is precisely what the House of Lords decided in the case of R (Morgan Grenfell & Co Ltd) v Special Tax Commissioner 2003. There are no express words of override here, nor is there anything that can be thought of as giving rise to unnecessary implication. In the mean time, I have been given an answer to the question put to me by the noble Lord. It is difficult to talk about other legislation, but we are clear that the intent is to protect legal professional privilege here.
As a result of the precedent to which I have just referred, the Bill has the effect desired by the noble Lord, Lord Browne of Ladyton, and I would therefore ask him to withdraw his amendment.
Lord Browne of Ladyton
Lord Browne of Ladyton
My Lords, the purpose of this amendment is to give the adjudicator a basis for investigating an alleged breach of the groceries code. Perhaps I may say at the outset that, if it is of concern to the noble Baroness or the Government, I do not intend to undermine in any sense the requirement for reasonable grounds of suspecting a breach of the code before an investigation can take place. Clause 4 enables the adjudicator to investigate in those circumstances, and I think that that is the appropriate test. However, we will have a debate about whether it is the appropriate test in response to other amendments before the Committee.
There is a perception that proaction on the part of the adjudicator and reasonable grounds are inconsistent with each other. I do not believe they are, and this amendment makes that clear. There is no provision in the Bill that allows the adjudicator to form the reasonable grounds for an investigation, so providing a route for complaints to the investigator is the best way to achieve reasonable grounds. This amendment provides in a simple way for the adjudicator to take his own initiative, on receiving a third party complaint, to begin an investigation. That is straightforward, and if we are legislating in plain language to indicate what we intend, we should spell that out. I beg to move.
Lord Teverson
My Lords, I should like to speak to my own amendment in this group, Amendment 26. Something that particularly interested me in the speech made by my noble friend the Minister at Second Reading was that, following the considerable work carried out on this Bill in its preparation stages, the provision allowing bodies to make a complaint was widened. In her opening statement, the Minister set out a list of bodies that could bring complaints before the adjudicator. The major change was that instead of only suppliers themselves being able to complain, the Bill specifically opens up the ability to do so to trade associations and third parties. I want to use the amendment moved by the noble Lord, Lord Browne, to ask whether that is absolutely the case.
I note that Clause 4(1) states:
“The Adjudicator may investigate whether a large retailer has broken the Groceries Code if the Adjudicator has reasonable grounds to suspect that”.
While I do not have the depth of knowledge of the noble Lord, Lord Browne, on these issues, which he has demonstrated so well, I want to be clear that what it means is that whoever reports a reasonable suspicion that there has been an abuse, the adjudicator can get involved. In fact, I was slightly concerned by his Amendment 23 as it seems restrictive, although I am not sure that that was his intention. It refers to,
“either at the Adjudicator’s own initiative or following a complaint by a third party with an interest”.
To me that almost excludes a farmer or a supplier, which I would say is the second party. It seems confusing, but perhaps I do not understand it completely.
I am also aware that Amendment 27, which is in this group although the noble Lord, Lord Howard, has not spoken to it yet, seems to be even more restrictive. The Minister’s assertion that we should be as broad as possible in terms of the adjudicator is very important, not only in his being able to take evidence—which is my own amendment—but also in his being able to have a wide range of people reporting problems to him. That is fundamental to the proper working of this Bill.
As regards my Amendment 26, it is important to emphasise that the adjudicator can consider any information that it seems appropriate to consider. I am not certain but that may well be covered by default by the Bill. I would like to test that and to ask the Minister to respond on whether that will exist within the wording of the Bill.
Lord Borrie
I join in the query of the noble Lord, Lord Teverson, to the Minister, which I hope she can answer, to make sure that those who can make complaints are not only individual farmers, producers or whatever but also trade associations such as the National Farmers’ Union or the British Retail Consortium.
I hope that my noble friend Lord Browne does not think I am going for him today in the various matters on which we disagree, but I am slightly worried—as I think the noble Lord, Lord Teverson, was—by the phrase in Amendment 23,
“complaint by a third party with an interest”.
If the third party is a trade association, then I suppose that parties one and two are the supplier on the one hand and the supermarket on the other. But then, what does “third party with an interest” mean? If that is the trade association, does that mean that it has to have some interest other than the fact that the supplier, who has got a real complaint, is a member of it? Is that what “interest” is meant to mean, or must it be wider than that? That is the query I put to my noble friend Lord Browne but there is also a general point about where complaints can come from. I hope that it is from as widely as possible.
Lord Howard of Rising
My Lords, I feel I should first finish declaring my interests: I am a farmer as well. I find it rather gripping to find the noble Lord on the other side defending the farming industry so strongly during this debate.
My Amendment 27 reflects the wording which was included in the draft Bill and limits those who can complain to parties to the transaction. If anybody else can come and stick their oar in, it is a source of endless trouble. For example—you may find this a little extreme but I am certain it would happen—if I am supplying a supermarket, my competitor thinks that I am doing well and would like to have my contract, he could put in a complaint—anonymously, of course. The supermarket would say, “Oh,” and the whole process would start. While the process was going on, my competitor could leak that it was me who complained—although of course I never did—and the result would be that when my contract came to an end there would be little incentive for the supermarket to continue with me. My competitor might do rather well, at that stage. I just give you that as an example of the sort of thing that would happen if anyone, all and sundry, could make a complaint which had to be listened to.
I ask the Minister one question. In the notes for the draft Bill, there was a comment that the adjudicator has no power to require people to provide information for the purpose of deciding whether to commence an investigation. I would like confirmation that this is still the case in the Bill as it has been presented to the Committee.
Baroness Byford
My Lords, I declare a past interest. We are still farmers, but we do not supply supermarkets any longer. In fact, we used to have a contract with Waitrose to supply pigs. I reiterate what the noble Lord, Lord Knight, said earlier: Waitrose offer a very good example and a steer to a lot of the other retailers that we are talking about.
I will comment on my noble friend Lord Howard of Rising’s point. I would be anxious if we went back down the route that he suggests. I also seek clarification from the Minister, or from himself, on how you classify what is “publicly available”. Obviously, a lot of information is hearsay and is not publicly available. I would be really quite concerned about that.
On the earlier comments about third parties being able to give evidence to the adjudicator, this morning I asked the National Farmers’ Union, which has sent a briefing to all of us—and of which I declare myself a member—whether it would only do that on behalf of its members. It seemed a logical question to ask. Otherwise, there may be many other people who would be affected if they were willing to take it up on everybody’s behalf. I think that the answer I got to that was that, generally, it would probably be instigated by a member, but that other evidence and considerations would obviously be taken into account. I am quite happy with what is in the Bill, and would be quite concerned if we started narrowing it back just to information provided by a supplier. We have been down that route before. That would identify the supplier to the supermarket very quickly, which the Bill is not trying to do. The acceptance that third parties can give evidence and bring things forward to the adjudicator is hugely important.
My noble friend Lord Howard of Rising is right that the balance lies where mischievousness creeps into it. Clearly, all Members of this Committee would be horrified about that. My reading of the Bill is that I am reasonably comfortable with it, and am not particularly concerned about that. The detail in the Bill does not totally stop it happening, but it certainly discourages it. These instigations of investigations should only happen on good grounds.
Baroness Randerson
My Lords, I wish to state clearly that I do not agree with the arguments of my noble friend Lord Howard of Rising. If there had been a robbery, would we ever argue that a witness to that robbery could not give evidence to the police and that the only people who could do so would be either the robber or the victim? We have to open this out so that the general principles on which we base so many issues of this nature in society apply, so that other people are allowed to make complaints. I give one example: there are plenty of organisations in civic society that might wish to make a complaint on behalf of a supplier in this case. I remind noble Lords that other aspects of the Bill ensure that it is not in your interest to make vexatious complaints. The adjudicator can, at his or her discretion, apply costs against those who do so. I am absolutely sure that a supplier who sought an advantage against another supplier in the way that has been suggested would be the subject of that kind of cost.
The Earl of Sandwich
The noble Baroness, Lady Byford, and others said exactly what I would have. I am an NFU member. I know how much the Government have steered a course in this to accept third parties. I do not know what the noble Lord, Lord Howard, meant by “all and sundry” but it is a rather sinister phrase. It presumably means mischief and none of us wants that. I hope that the Government keep the wording as it stands.
Lord Grantchester
Picking up on quite wide-ranging amendments, I think that on this side we are content that included in the drafting of the clause is the fact that third parties can be party to the complainant. That is perhaps the easiest way to put it. Yet we appreciate what has been said and would like the Minister to underline and put on the record that that is indeed the case. On this side, we think that third parties will act as a responsible check and balance to the process in that they will pick up widespread experience of the supply chain, including from other suppliers who may come forward with information. I am sure that they will act as a steadying hand on any vexatious claims that individual suppliers might feel they have under their own individual circumstances. I will also reply to the noble Lord, Lord Howard. Of course, on this side we are very concerned that fair and best practice should be everyday experience for all businesses, whether they supply supermarkets or not.
Baroness Wilcox
I thank all noble Lords. We are considering three amendments in this group—two intended to make it easier for the adjudicator to begin investigations and one to make it harder.
I assure noble Lords that the Government are in complete sympathy with the aims of the amendments tabled by my noble friends Lord Razzall and Lord Teverson, and by the noble Lord, Lord Browne. We firmly believe that the adjudicator should be able to consider information from any source when deciding whether to start an investigation, whether or not this is provided by way of complaint. However, it is unnecessary to make explicit provision for the breadth of information that can be considered. I assure noble Lords that in this respect Clause 4 is written broadly and places no limits on who can complain to the adjudicator or what evidence the adjudicator can consider as reasonable grounds for suspicion. My officials have discussed this clause with trade associations and representatives of suppliers, including the National Farmers’ Union and the Food and Drink Federation, and they have raised no concerns over the wording of Clause 4.
The amendment of my noble friend Lord Howard of Rising would return the Bill to the draft that was originally published for pre-legislative scrutiny last year by restricting the sources of information that the adjudicator could consider to information from suppliers and information in the public domain. I remind noble Lords that this issue was considered carefully by the BIS and EFRA Select Committees, both of which explicitly rejected the version of the clause that is now being proposed. They concluded that third parties, including trade associations and whistleblowers, could have a valuable role to play. After discussion with both suppliers and retailers, the Government decided that that was right. Trade associations, for example, may have a better overall picture of practices in a sector, which could reveal systematic breaches of the code. The Government therefore consider that it is right that the adjudicator should be able to consider any relevant information when making decisions to investigate. However, I reassure my noble friend Lord Howard of Rising that we have also introduced Clause 15(10) to enable the Secretary of State to restrict the possible sources, if it turns out that third parties do act irresponsibly.
I say to my noble friends Lady Byford, Lady Randerson and Lord Howard that there is protection in the Bill against malicious complaints, in that costs can be awarded against a complainant who makes a vexatious complaint or one that is wholly without merit. If those answers are seen as good and fair, I will ask the noble Lord, Lord Browne, to withdraw his amendment.
Lord Browne of Ladyton
My Lords, at Second Reading the Minister said that there would be no restrictions on who could complain to the adjudicator and she has confirmed that that is the position, which I am satisfied with. I am grateful to all noble Lords who have spoken in this debate for their support of that position, which was overwhelming, with one notable exception.
The noble Lords, Lord Teverson and Lord Borrie, raised the issue of my reference to the phrase “with an interest” as perhaps restricting those who can complain. I may, in including it, have been guilty of what I have been trying to avoid and want the Government to avoid: attaching legalese when it is unnecessary. The concept of “with an interest” is well recognised by lawyers. It was intended not to restrict but to indicate that there ought to be a bar against frivolous or vexatious complaints. The idea of title and interest is a concept with which I am entirely comfortable, but I understand that many other people may not be and may think that it would be restrictive. It would not prevent any of those identified groups that noble Lords want to be able to complain to the adjudicator from doing just that. In any event, I would think that the adjudicator would be experienced and able enough to indentify frivolous or vexatious complaints and see them off rather than have to wait until the end to deal with them by the imposition of expenses, as it were.
I cannot conclude without expressing a degree of regret at the tone of the preamble to the contribution of the noble Lord, Lord Howard of Rising, to which I listened with interest. I have some sympathy with it, which he will have gathered from my contribution. I am not interested in creating some monster which runs away in terms of regulation.
Baroness Wilcox
Before the noble Lord sits down, I realise that I omitted a response to my noble friend Lord Howard on a question that he asked. It was central to what he was saying, so I hope that the noble Lord, Lord Browne, does not mind if I intrude. My noble friend Lord Howard asked whether it was right that the adjudicator will have no power to require information before an investigation is started. The answer is yes. The adjudicator will have no such power; this is in paragraph 35 of the Explanatory Notes. The only exception to that is the monitoring of recommendations. I thank the noble Lord, Lord Browne.
Lord Browne of Ladyton
I will finish what I had to say. I was pleased that the nature of our debate in Committee this afternoon was devoid of partisanship. I know that the noble Lord, Lord Howard, was perhaps just tweaking our tail a little and was not making too serious a point, However, I represented a group of farmers in my constituency, which was both urban and rural, for 13 years. I established a good relationship with them, and some of them became my very good friends, although I did not know them before I became a Member of Parliament. I say to the noble Lord, Lord Howard, that before he categorises people as manifestations of irony, perhaps he should make some inquiries. I am confident that, were he to interrogate members of the National Farmers’ Union in Scotland whom I represented for 13 years about whether they thought it ironic that I should be party to a process that is designed to protect their livelihoods and those of others, he would be surprised. Clearly he would be surprised, because he has a preconception about where I am coming from. The same could be said of my noble friends on the Front Bench. I understand that one of them farms, and so is well qualified to speak for farmers. Therefore, it might be better if we avoided such implications for the rest of our deliberations. I beg leave to withdraw the amendment.
Viscount Eccles
Viscount Eccles
My Lords, I will read out a sentence that is relevant to my amendment and also to the one we have just discussed. The Minister stated:
“After careful consideration, the Government have decided not to restrict the information that the adjudicator can consider”.—[Official Report, 22/5/2012; col. 726.]
That is entirely right. It is a free country, with free speech and so on. However, at the other end of the story, if we were to get into a situation where it was found that something had been brought forward that turned out to be vexatious, it would represent a failure and would be proof that the Bill was not working as well as it should.
I am mindful of the warning of Professor Lyons that he was not at all sure that the investigation potential was all that large, because of the length of the supply chain and because the adjudicator may investigate whether a large retailer has broken the groceries code. That is quite a narrow ground on which to mount an investigation.
In my amendment I put forward the argument that we should take out “suspect” and put in “believe”. There is a lot of hearsay and suspicion in the world, and in the way in which people think about the way supermarkets behave. When considering several Bills recently the House had no problem accepting that “suspect” was too weak and that we should “believe” before we start engaging in the expenditure of public money. I also think that it would be a protection for the adjudicator. This business of investigation is delicate and the adjudicator will have quite a hard time with it.
It is not an answer to say that Amendment 24 is irrelevant, because I think that the Office of Fair Trading should persist. That is my preference but of course I am capable of accepting that we should debate this on the basis that there will be an adjudicator, even though I want to see the continuation of the OFT. The adjudicator would welcome the protection of having to say that he or she “believed” that they had reasonable grounds rather than just “suspected”. I beg to move.
Baroness Wilcox
My Lords, the amendment would alter the criterion for starting an investigation so that the adjudicator would have to have reasonable grounds to believe that there had been a breach of the code, rather than reasonable grounds to suspect, before beginning an investigation. The decision on what threshold is needed is always difficult. However, we should consider what is being decided here. It is not guilt, liability or a sanction of any kind. All that is being decided is whether the adjudicator should begin an investigation that will allow him or her to decide, based on the results of the investigation, whether there has been a breach of the code. At this early stage of the process, the term “suspect” rather than “believe” has to be correct, particularly as the adjudicator generally will not benefit from the information powers set out in Schedule 2 until an investigation has started, and so may not be able to establish grounds for belief.
With that explanation, I hope that the noble Lord will see fit to withdraw his amendment.
Viscount Eccles
My Lords, I thank my noble friend, although I will come back to the matter because I am not satisfied. I should like to point out that the minute an investigation begins, it threatens a supermarket with an unexpected cost. Starting an investigation is quite a serious matter and is not to be undertaken lightly. The word “believe” should be included in the prelude to an investigation. I also think, given the amount of information that would already be available and will become available to the adjudicator, it should not be too much of a problem to ensure that there is some certainty that the matter is worth investigating. I beg leave to withdraw the amendment.
Baroness Byford
Baroness Byford
My Lords, we have moved on to looking at investigations. My amendment seeks to amend Schedule 2(6). The Explanatory Notes refer in line 3 on page 11 to the adjudicator considering information supplied by whistleblowers. The rule in the Bill that allows the payment of expenses only to someone who has to undertake a journey of “more than 10 miles” could exclude—I do not say that it will do so—people who live in the countryside. As we know, if they do not have a car, public transport can be quite a problem. Does the choice of a distance of 10 miles follow what has been provided for in previous legislation or does it relate only to this Bill? A distance of 10 miles in urban areas with plenty of transport options is one matter, but in rural areas where buses sometimes run only three times a week, it is another. Is it necessary to restrict this provision to that distance? It could well be that someone has to make a six-mile journey and cannot manage it easily. As the Bill stands, they would not be entitled to any financial help to get to the adjudicator and give their evidence.
Earlier today, we had a meeting of the All-Party Parliamentary Group on Rural Services. One of the things we talked about was the provision of rural bus and rail services. I have to say that it is an increasingly difficult problem. For those who own cars, it is not something that needs to be thought about, but for those who do not own cars, it is. If someone happened to be a whistleblower, which is what we are talking about here, and had lost their job, they might find themselves in difficulties. I have therefore tabled the amendment to seek clarification. I beg to move.
Lord Knight of Weymouth
My Lords, I am interested in the noble Baroness’s amendment. I shall not comment on it at length, but I understand the problem she raises here. I want only to ask the Minister whether, under paragraph 16 of Schedule 1, which we discussed earlier in respect of incidental powers, it would be better to offer the adjudicator some flexibility under this wonderful paragraph and thus allow him to use his judgment on what would be a reasonable level of travel expenses.
Baroness Wilcox
My Lords, I can understand why my noble friend is asking this question because she lives in the countryside. I live in Cornwall and I know about buses in rural areas, and can understand the principle behind the amendment. From a practical point of view, a simple distance criterion will be much easier for the adjudicator to apply than one based on the time taken to use public transport. It says here that it is more straightforward and harder to dispute to decide whether someone has travelled more than 10 miles than to calculate whether it would have been possible to make that journey within half an hour on public transport.
However, my instinct is similar to that of the noble Lord, Lord Knight, and I feel that somehow or other the adjudicator should at least be able to have some thoughts on this matter. Although I shall ask my noble friend to withdraw the amendment, I can say that we will go back and look at this issue to see what the answer may be. I do not know whether there can be some discretion, and I may be treading on all sorts of impossible ground, but when we discussed this matter previously, and my team asked why we should consider this, I said, “I think you will find that this is a rural question”. There is obviously sympathy in the Committee for my noble friend’s question. I therefore ask her to withdraw her amendment. However, I will take it away and see if there is anything else that we can come back with.
Baroness Byford
I thank my noble friend for that response. I am not wedded to the half-hour period suggested in the amendment, but I wanted a debate about the need for rural accessibility. I am grateful to the noble Lord, Lord Knight of Weymouth. We all appreciate some of the real difficulties that people face. I am grateful to the Minister, and it gives me great pleasure to withdraw my amendment in the hope that we will come back with something at the next stage. I beg leave to withdraw the amendment.
Lord Browne of Ladyton
(c) the reasons for the decisions reached”
Lord Browne of Ladyton
My Lords, the purpose of the amendment is to require the adjudicator to give reasons for his or her decisions under Clause 5, for the very obvious reason that such decisions can lead to the consequences described in Clause 6 on forms of enforcement. The Minister will agree, as will the Government, that the adjudicator is expected to comply with the rule of law. It is important that the adjudicator’s decisions are lawful and reasonable, following investigation.
This simple amendment places the adjudicator under an obligation to provide reasons for his or her decisions to use enforcement powers under the Bill. It would be an eminently appropriate provision to have in the Bill. There will be an expectation on the part of the Government that the adjudicator will give such reasons, but ensuring that an expectation that reasons will be supplied would reassure those who may feel in any sense threatened by this legislation or believe that it will create an environment in which unreasonable demands may be made of them. In my experience, a requirement to provide reasons obliges those who make decisions to comply with the law and avoid successful challenge on grounds of human rights or judicial review.
However, much more importantly, providing reasons often means that judgments are accepted. In my experience of processes of this nature, if reasons are given people can then be satisfied that there is no point in taking the matter further by any form of appeal. In the absence of reasons, appeals or further proceedings are taken just to find out the reasons, which is why so many processes stop at the door of the appellate court or there are further proceedings. It is only at that point that parties can understand exactly the reasons for the decision in the first place.
I commend the amendment. I have not been successful thus far in my many attempts to try to improve the Bill. I hope that this simple amendment will not be considered offensive and that the Government can be generous enough to say that the Bill can be improved, even if the proposal for improvement comes from the traditional opposition Benches. I beg to move.
Viscount Eccles
My Lords, I have an amendment in this group. I am in full support of the noble Lord, Lord Browne. My amendments dovetail entirely with what he has just said. I want to drop subsections (3) and (4) of Clause 5 because, in this media age, the idea that an investigation report will be published and that the identity of the retailer will not come out is not workable. Again, it feeds the whole world of suspicion, innuendo and investigation of another kind. On subsection (4), if a retailer’s name is given, apart from the reasons for the decision having been given, the retailer would have been given an opportunity to make a comment and to know which way the report was going, as is normal in order that it could be agreed by one and all to be a well balanced and fair report.
Baroness Byford
I will speak to my Amendment 34 in this group. It is a simple, probing amendment to ask whether the wording implies that a supplier will never be mentioned and that, if a supplier is mentioned, he or she does not need or deserve a second chance to comment. For example, if a retailer is mentioned in the draft, it can see the copy and comment on it. As a result, the draft may be changed. Should it not be open to all parties involved in the investigation to know both the original wording and the comments made?
Lord Borrie
I cannot see how the Minister can possibly have a good reason for rejecting the perfectly straightforward amendment of by my noble friend.
Baroness Wilcox
My Lords, the reports that the adjudicator must publish at the end of each investigation are a vital part of his or her accountability and an important way of keeping retailers, suppliers and consumers informed of his or her work. It is therefore right that we should carefully examine what is contained within them. To take each of the amendments in turn, I find the amendment in the name of the noble Lord, Lord Browne of Ladyton, interesting and he has made his case eloquently. It is indeed reasonable that the report should give the reasons for the decisions reached, as well as the decisions themselves. I would be happy to speak with him further about this amendment before the next stage of the Bill.
I am less sure of Amendment 33, which is proposed by my noble friend Lord Eccles. I think that it is reasonable to say that the adjudicator’s report need not always identify the retailer concerned. This is because there may be cases where the adjudicator considers that the matter can more appropriately be dealt with privately. For example, if there were no breach of the code, the adjudicator might conclude that it would be unfair to name the retailer that had been investigated, due to the possible reputational damage.
Lord Knight of Weymouth
I am most grateful to the noble Baroness for giving way. In what way will the Freedom of Information Act apply to the adjudicator? If a report was published that did not identify a retailer and someone wanted to find out who the retailer was, would it apply? I think that that is pertinent to the noble Viscount’s amendment.
Baroness Wilcox
Will scrutiny from freedom of information or the parliamentary commissioner not undermine the principle of confidentiality? The duty to maintain confidentiality is very strong and the Bill is explicit that it can only be overruled in certain defined circumstances. Those would not include a freedom of information request and that position is a result of Section 44 of the Freedom of Information Act, which is engaged by Clause 18. Generally, freedom of information will apply to the adjudicator with the exception of Clause 18 overriding it. I am sorry that that was a slightly disjointed answer. Was it of help?
Lord Knight of Weymouth
I am grateful to the Minister for giving me another chance to seek clarification. It seemed clear and then the second piece of in-flight refuelling to the Minister made it less so. She essentially said that there is a confidentiality get-out on FOI for the adjudicator. Normally, freedom of information would apply to the work of the adjudicator unless there were good reasons for confidentiality such as protecting the interests of a retailer who would otherwise be damaged. Is that the case? If the Minister or her in-flight refuelling were able to give us some examples, that would be quite helpful.
Baroness Wilcox
My view—and that of the advisers behind me—is that at this stage I need say only one thing: I will write to the noble Lord. That will be easier and fairer. We will make sure that everyone else receives a copy of that, too. I apologise for not being able to be clearer at this stage. Maybe it is getting late. Furthermore, regarding the deletion of subsection (4), it is only fair that if a retailer is identified in a report they are given a reasonable opportunity to comment on a draft of that report before publication.
That brings us on to my noble friend Lady Byford’s amendment, which would require the retailer’s comments to be published as an annex to the report. Although I understand the thinking behind that, on balance it is unnecessary. Although the retailer may comment, the adjudicator is not obliged to include any of these comments and the final report is fully the adjudicator’s. Furthermore, if a retailer knew that any comments they made would be published, it could impair free and frank discussions. I hope that that clarifies the position a little. Apart from the fact that I will write to everyone to clarify the point about freedom of information, I ask noble Lords to withdraw their amendments.
Baroness Byford
I am slightly mystified by the Minister’s response to my question. I would be grateful if she would take it away and think about it because it was a surprise.
Lord Browne of Ladyton
Despite the lateness of the hour, I am significantly perked up by the noble Baroness’s response. I have no doubt that what tipped the balance in my favour was the support that I received from the noble Viscount, Lord Eccles, but more importantly that I managed at last to persuade my noble friend Lord Borrie that there was some merit in one of my amendments. I am extremely grateful to him. He has almost rehabilitated his relationship with me with that intervention. I am delighted that the noble Baroness is willing to take this away. I would of course say this but, with respect, it enhances this part of the Bill. It will have the consequence of reducing the amount of contention that follows decisions if it is clear that people can expect that there will be reasons given for them.
I listened carefully to the amendment by the noble Viscount, Lord Eccles, and I have some sympathy. Coupled with the contribution of the noble Baroness, Lady Byford, there is an issue here that requires further exploration. I think that—with respect—there was a cross-purposes discussion that took place between the proposal of the noble Baroness for comments to be published, and the response from the Minister that that would in some way impede the process of investigation. I understood the noble Baroness to be saying that the comments and response deserve to be published. As these will be published in any event, it would be a much more coherent and comprehensive process that would command the support of parties if they thought that, even when there was a finding against them, the response would be published by the process rather than independently of it.
I hope that I have done credit to the amendment from the noble Baroness. In any case, conversations are about to take place and I hope that, when we all come back to this, there will be even bigger smiles on their faces, metaphorically, than I have at the moment, having managed to achieve even this minor victory. In the mean time, I beg leave to withdraw the amendment.
Earl Attlee
My Lords, I think this may be a convenient moment to adjourn the Committee until Thursday at 2pm.
House of Lords
Introduction: Baroness Kidron
NHS: Dental Care
(12 years, 5 months ago)
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Baroness Gardner of Parkes
To ask Her Majesty’s Government how many dentists are now providing NHS dental care under the general dental services contract introduced in 2006; and what is the annual cost of the care provided and the amount generated in patient charge revenues towards funding this care.
The Parliamentary Under-Secretary of State, Department of Health (Earl Howe)
My Lords, the latest figures published by the NHS information centre show that 22,799 dentists provided NHS primary dental care in 2010-11. The net allocation for primary dental care in 2010-11, the latest year for which figures are available, was £2,200 million. Patient charge revenue for 2010-11 was £617 million.
Baroness Gardner of Parkes
It is good to have the updated figures, but is the Minister aware that the two major concerns for patients now are transparency and availability? Availability is something that we look to the health service to provide. However, the transparency issue has become very important, not only to patients but to other dentists, who are very dissatisfied that dentists are able to put up notices saying, “National Health Service treatment available”, yet after a patient goes to them it emerges that the treatment is very limited. Does the Minister not think that, in the interests of warning the consumer, the present NHS fee charts should show that conditions may apply?
Earl Howe
My Lords, I absolutely agree with my noble friend about the importance of transparency of information for NHS patients. NHS Choices, which is the department’s public-facing website, already displays a lot of information about fees, the treatment that should be received and how to make a complaint about NHS dentistry, but more work is being done in this area to improve information on patients’ ratings of different practices, and we are updating the patient leaflet as well. What a dentist should not do is mislead a patient or induce a patient to access the surgery and then not provide the treatment that the patient thought they were going to get. If they cannot provide NHS treatment for whatever reason, they should point the patient in the direction of a practice that can, or else refer him or her to the primary care trust helpline.
Lord Hunt of Kings Heath
My Lords, I refer the House to my health interests in the register. Following on from the noble Baroness’s Question, can the Minister refer specifically to the OFT report, which showed that thousands of patients, after being told by their dentist that they could not have a certain treatment on the NHS, were persuaded to go private? That is and was inaccurate information. Are the Government going to take action in this area?
Earl Howe
My Lords, the OFT report on the dental market was published last month and we very much welcome that study. We note that it found that the vast majority of patients were happy with their dental treatment and that the vast majority of dentists behave ethically. There should be, and are, clear penalties for the small minority who mislead patients, but the noble Lord is right to draw attention to that aspect of the OFT report. It is an area that we are taking extremely seriously and we are looking at what more we can do.
Lord Colwyn
In view of the Minister’s comments on patient charge revenues and the fact that NHS dentists are not allowed to do competitive pricing, has he any idea why the recent OFT report to which he has just referred revealed that 1% of regular NHS patients chose their dentist because, they said, the practice had competitive prices? Why do his colleagues at the department still refer to the NHS as being free at the point of delivery?
Earl Howe
My Lords, my noble friend is correct. Treatment provided on the NHS carries only one pricing tariff, which cannot be varied. The OFT report found that only 1% of NHS patients and 2% of private patients chose a dentist on the basis of price. I stand to be corrected, but I do not believe that it made any suggestion that NHS charges were uncompetitive; they are, and always have been, a subsidised contribution to NHS costs—they are not a market price. Therefore, I imagine that the OFT report reflected the fact that patients were comparing private charges with NHS charges. Of course, the NHS is in general free at the point of use, but my noble friend is right. It is important that we are clear that some charges exist, as they have in dentistry for 60 years.
Baroness Jolly
My Lords, some may avoid the dentist because they cannot find one, others for fear of high costs, and others just for fear. Have the Government carried out any work to determine what proportion of the population does not attend a dentist, and the reason why?
Earl Howe
I am pleased to tell my noble friend that since May 2010 over 1.1 million more patients have been seen by an NHS dentist, which is very good news. Nevertheless, we are clear that access is a priority—56.6% of the population has seen an NHS dentist within the past two years. We wish to design the new dental contract, which is currently being piloted, in a way that encourages access.
Baroness Knight of Collingtree
My Lords, does my noble friend recall that last month he told the House that he was giving attention to the possibility of access online to dental prices. Has he anything to report since he said that?
Earl Howe
My Lords, I referred earlier to NHS Choices, the website that patients and the public can access. It contains the most up-to-date information on dental treatment costs and entitlements. The dental section of NHS Choices was updated at the end of February following suggestions and comments submitted by the public through the website itself and these changes include new pages that clearly explain dental charges and exemptions and inform patients how to get help with dental costs.
The Countess of Mar
My Lords, am I right in my understanding that children and young people get all NHS dental treatment free of charge? If so, what improvements have there been in dental health among this group?
Earl Howe
The noble Countess is quite right. The oral health of children, particularly those from disadvantaged families, is one of the biggest challenges we have and one of the main priorities in this policy area. While two-thirds of five year-olds are now caries free, the remaining one-third have an average of 3.45 decayed, missing or filled teeth. We are piloting new ways of supporting dentists to identify children at risk of tooth decay to get them the care and preventive advice they need, including engagement through schools, the wider community and local authorities.
Rio+20 Conference
(12 years, 5 months ago)
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Lord Stern of Brentford
To ask Her Majesty’s Government what assessment they have made of the outcomes at the recent Rio+20 conference and the contribution made by the United Kingdom Government.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Taylor of Holbeach)
My Lords, the Rio+20 conference made clear that the green economy is essential for poverty eradication and sustainable development. It sets out a green economy vision and has agreed some specific steps that countries can take to implement this. These include agreement to develop sustainable development goals and indicators to complement GDP, and to advance corporate sustainability reporting. We approached Rio+20 with ambition and engaged constructively with our international partners, and we will continue to do this as we focus on implementation.
Lord Stern of Brentford
I thank the Minister for his Answer. I certainly welcome the Rio commitment to develop sustainable development goals and the Prime Minister’s involvement in that work. However, does the Minister agree that the facts indicate that now is the time for strong action if we are to avoid severe threats to the lives and livelihoods of future generations, particularly of the poorest among them? Does he also agree that the paucity of specific commitments, credible action plans and funding make Rio+20 deeply disappointing? Will he therefore agree that now is the time to change the debate by providing clear and strong examples of action to achieve results and that of particular importance is the implementation of sustainable energy for all by bringing sustainable power to the approximately 1.5 billion people with no access to electricity? Will the UK Government therefore work directly and strongly to support countries with viable plans for the delivery of sustainable energy for all?
Lord Taylor of Holbeach
The noble Lord has a great deal of knowledge in this area and I am very sorry that his indisposition meant that he could not chair one of the key committees at the conference. I agree that some of the outcomes are not as strong as we might have hoped. However, we must view this agreement in context. More than 190 countries have signed up to a political declaration and it is on the foundation of that declaration that the detailed work will then go forward. This country went to Rio+20 with a number of proposals that were welcomed by that conference.
Lord Clark of Windermere
My Lords, in view of the fact that one of the greatest single sources of global emissions is deforestation, and yet timber is one of the few tangible assets of some poor countries, will the Minister tell the House what specific agreement we made at Rio to try to tackle this very important issue?
Lord Taylor of Holbeach
I agree with the noble Lord that this is important. We wanted to impress on the conference that GDP was a rather inadequate measure of the resources of a country, and that we want to develop indicators of natural and social capital to complement GDP and agreement to incorporate these into national accounts. All nations at Rio+20 recognise the importance of a broader measure of progress to complement GDP in order to inform decision-making. Forestry is a key element of natural capital, and the UN Statistical Commission will take this work forward.
Lord Teverson
My Lords, corporate business is more and more important to the way the world develops. One of my right honourable friend the Deputy Prime Minister’s targets was to get corporates to report much more on carbon emissions and wider environmental issues. I congratulate the Government on deciding to do that here in the UK, but what other nations are following our lead and how does the Minister see this developing in the future?
Lord Taylor of Holbeach
I am delighted that the Deputy Prime Minister was able to make this declaration on greenhouse gas reporting at Rio. I can report back that the UK was key in this particular area and that this particular development was widely welcomed. Indeed, the decision was cheered by the conference. At Rio, we talked to Aviva and Unilever—companies that have developed exactly this sort of approach to corporate responsibility—and hope that this model will be taken up by other companies.
Lord Judd
My Lords, will the Minister take time to reflect on the answer he has given? I suggest, if I may, that he will find it very complacent. Climate change is the largest threat to the global community, notwithstanding our financial difficulties, which are obviously acute. Does the Minister agree that we must take urgent action on migration, world poverty and food availability for the world population? What happened at Rio is a disgrace. We should learn from the financial crisis that we suffer grievously if we do not take action in time. Why have we not taken and agreed specific action at Rio?
Lord Taylor of Holbeach
The noble Lord makes a passionate contribution to the discussion. Underlying it, of course, is the question of Britain’s role. This is a gathering of the world’s nations, with a huge disparity between the wealth and economic activity of the participating countries. Getting a single agreement is bound to be difficult. It is important that we have laid the foundations for discussions in the future that can lead to exactly the sort of outcomes that the noble Lord seeks, but it would be presumptive of this country or Parliament to go to an international conference and insist that it had the solutions to the world’s problems. We are part and parcel of a global solution, and that is what we seek to maintain.
Lord Knight of Weymouth
My Lords, the Rio agreement 20 years ago was a landmark agreement. As a result, we had Local Agenda 21, and “thinking global, acting local” entered our consciousness. By contrast, this agreement is a let-down. What does the Minister think this treaty will be remembered for in a month’s time, let alone in 20 years’ time? Given that the Prime Minister is co-chairing a process for following up the millennium development goals, in the light of a lack of progress at Rio what hope does the Minister have for the Prime Minister’s success?
Lord Taylor of Holbeach
I certainly have a great deal more hope than is evidenced by the noble Lord’s question. I do not see this as a failure. As I said right at the beginning in my Answer to the noble Lord, Lord Stern, this has the potential to build the foundations for a durable and sustainable global green economy. The Prime Minister is, through the United Nations, chairing his committee and working in parallel with the millennium development goals, and I am satisfied that he will achieve the outcome that he desires.
Child Poverty
(12 years, 5 months ago)
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Baroness Massey of Darwen
To ask Her Majesty’s Government how they will respond to UNICEF’s recent report on international comparable data on child deprivation and relative child poverty.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)
My Lords, we welcome this contribution to the debate on child poverty. As UNICEF notes, although income matters, eradicating child poverty is about more than income. This Government are investing to tackle the root causes of poverty. In particular, we are improving early intervention, reforming education and, through the universal credit, making work pay. This approach is fundamental to our strategy for tackling child poverty, and we are pleased that UNICEF’s conclusions support this.
Baroness Massey of Darwen
I thank the Minister for that reply. However, first, will he acknowledge that since 1990 a great deal has been achieved in addressing child poverty and deprivation; secondly, can he guarantee that these trends will continue, given the Government’s policies on welfare; and, thirdly, will he support regular reporting back to Parliament on this important issue?
Lord Freud
My Lords, the level of child poverty has come down since 1998 but the cost has been very high. More worryingly, we are now the second-highest spender on transfers to children and families, spending 3.6% of GNP on it—the figure for France being 3.8%—but we simply do not get enough for our money. We are way down the ranking and that is why we need a new approach. I cannot think of a single reason why quarterly reporting would help that but we are clearly committed to reducing child poverty. We are committed to the targets for 2020 and we need to find new ways of achieving them.
Lord Chidgey
As a prelude to the Minister’s consultation with UNICEF, which I think is planned for the autumn, how will the Government explain their plans to address the multidimensional nature of child poverty?
Lord Freud
My Lords, one thing on which there has not been enough focus is the importance of behavioural impacts. Income transfers have their place in tackling poverty but they are simply not enough. Behavioural changes are required, and one thing about universal credit is that it brings a change in work incentives, as well as some very precisely targeted income transfers. Vocational education and apprenticeships in this country have just not been adequate, and we have not looked after vulnerable groups—I am thinking of those leaving care and prisoners leaving prison. We need a large number of strategies to tackle this very difficult problem.
The Earl of Listowel
Education is the key route out of poverty. Will the Minister encourage his colleagues to look still more closely at the Finnish education system, where 20 candidates compete for each teacher training place, where every teacher, whether in primary or secondary school, has a masters qualification and where excellent results are achieved in numeracy, literacy and science? With regard to young people in care, will he consider again looking at the continent, where he will see how much more qualified the staff in children’s homes are compared with those in our country? Surely these are the children most at risk of poverty. Their carers and the people around them should have a high level of qualifications—ones that they can aspire to themselves.
Lord Freud
Yes, my Lords, this is an important point. We have a different approach from many of our continental peers. Looking at the figures, we do not seem to be doing well enough in some of these areas. When there are people who need real support, we need to look more closely at the education of the workforce.
Baroness Sherlock
If the UK is second in transferring money to help children, I personally am rather proud of that. If the Minister does not want to focus on income transfers, will he take this opportunity to reassure the House that when his universal credit comes in he will carry on supplying free school meals to children?
Lord Freud
Let me make clear why I do not think it is good enough. We are second as regards the number of income transfers—that comes out in the UNICEF report—but we are 22nd out of 35 countries as regards relative child poverty. That shows that we are just not getting value for our money. I can say that we are making arrangements to ensure that school meals continue in basically the same way, although longer term I am looking to try to incorporate that in the universal credit even more tightly and to make some improvements.
Baroness Deech
My Lords, is the Minister aware that there is widespread scepticism about relative poverty tables because no matter how much money is transferred to children, relatively there will always be others who have less? It is widely thought that one of the safeguards against poverty is having two parents who stay together, preferably with one of them in work.
Lord Freud
My Lords, there is a lot of debate about how to measure poverty. I believe that relative income measures have an important place, as do absolute measures, but it is quite true that we need to have strategies that go to the fundamentals that create poverty rather than worrying about trying to ameliorate those by income transfers. It is more important to have a balanced strategy.
Lord Avebury
My Lords, why do the Government refuse to extend the pupil premium to Gypsy, Roma and Traveller children who are the worst achievers in all sectors of education, whether measured by achievement, attendance or exclusions? Surely that group qualifies as being the most deprived of all in our schools.
Lord Freud
My Lords, I will pass that view on to the Department of Education.
Lord McKenzie of Luton
My Lords, as we have heard from the Minister, universal credit was supposed to be the last word in welfare reform and the route to tackling worklessness and child poverty. It is clear from recent information that it seems to be behind schedule and heading for being overbudget. Is that the reason for the Prime Minister’s latest foray into welfare reform? There are 17 ideas, which are apparently his and some of which he said could be implemented before the next election if he gained the support of his Liberal Democrat coalition partners. On which of the 17 ideas in particular is he trying to get the agreement of his coalition partners? Do they include removing access to housing benefit and the change in the link with inflation?
Lord Freud
I am really pleased to take this opportunity to reply and to tell noble Lords that universal credit is on time and on budget. The Prime Minister is looking at how to pull the welfare system into the future by asking some fundamental questions that we all need to think about.
Afghanistan: Women’s Rights and the Education of Girls
(12 years, 5 months ago)
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Baroness Williams of Crosby
To ask Her Majesty’s Government whether they will propose at the forthcoming Tokyo conference on support for Afghanistan that at least 25% of aid should be directed to the support of women’s rights and the education of girls.
Baroness Northover
My Lords, at the Tokyo conference in July we will be working to ensure that Afghanistan and its international partners reaffirm their commitments to the rights of Afghan women and children, as enshrined in the Afghan constitution. We wish to see long-term financial commitments from the international community in Tokyo matched by promises from the Afghan Government to deliver key services and policy reforms, including in the areas of human rights and equal status and opportunity for women. The Tokyo conference is not, however, the forum for detailed spending priorities.
Baroness Williams of Crosby
I thank my noble friend for that Answer. The Tokyo conference is the last occasion, and the best occasion, to try to change the attitude of the Afghan Government towards their handling of what is called the transformational period, the period that follows the removal of ISAF from Afghanistan next year. In the past few weeks we have had very troubling evidence of backsliding on women’s rights, including the poisoning of 120 schoolgirls for daring to attend school. All 120 of them are now in hospital.
Given all that, I ask the Government for two promises. First, will they insist that some part of the aid provided by this country—the $110 million we have committed to Afghanistan—should be devoted to the education, training and advancement of women as a condition of our aid being supplied? Secondly, there should be a transparent account of how that money is spent so that the Afghan Government cannot again escape their responsibilities in the way that, frankly, they have done all too often over the past couple of years.
Baroness Northover
My Lords, my noble friend is quite right that the position of women in Afghanistan is not at all as we would wish it to be. They have made a lot of progress, and we must make sure that we secure that progress and continue to make progress. As far as the UK Government are concerned, the way that DfID approaches its support for Afghanistan is underpinned by human rights, and women’s rights are part of human rights. That will continue to be the case into the future. As we look at the transformational decade that my noble friend referred to, that approach will continue as far as international donors are concerned. The protection of women’s rights is written into the Afghan constitution, and that is what is going to be expected of the Afghan Government.
Baroness Kinnock of Holyhead
My Lords, does the noble Baroness recall that 10 years ago it was, in fact, the plight of women in Afghanistan that captured our attention and our support? Is she aware that religious leaders, with tacit agreement from President Karzai, are now justifying certain types of domestic violence? They are proposing limits on women’s education and employment and calling for the compulsory wearing of the hijab. Against this background, will the United Kingdom Government undertake to ensure that any peace settlement contains specific and unconditional provision for protecting and promoting the rights and freedoms of women and girls in Afghanistan?
Baroness Northover
This Parliament, like many others, has done a huge amount to highlight the position of women in Afghanistan, and the noble Baroness is quite right that over the past decade or so that has been a focus here. That will continue to be the case. As the noble Baroness knows, Afghanistan is an extremely poor country— it is one of the poorest in the world—and it will continue to rely on donor support. That donor support insists on the adherence to the principles of Bonn, Chicago and Tokyo in commitment to human rights, and women’s rights are part of that.
Baroness Afshar
Would it be possible to ask the Afghan Government to act according to their Islamic teaching, which demands, as a matter of duty, the provision of education for women, so that they cannot get away with that under the pretence of it being Islamic?
Baroness Northover
I point out to the noble Baroness that 39% of the children attending school at the moment are girls, and that figure is up from virtually none in 2001. The donor commitment to Afghanistan will continue, and it is contingent upon recognition and respect for human rights and the rights of women.
Baroness Symons of Vernham Dean
The Minister spoke about the underpinning of the British Government’s commitment to the rights of girls and women in Afghanistan but the noble Baroness, Lady Williams of Crosby, asked a much more specific question about aid. It is not a matter of detail, as the noble Baroness implied in her first Answer. Will the Government undertake to ensure that 25% of our aid is earmarked for the rights of women and the education of girls? I thought that the point raised by the noble Baroness was not really answered by the Minister, and I hope she will now address that very specific point.
Baroness Northover
As I said before, the Tokyo conference is about the principles of taking this forward. The principles include respect for human rights, which includes education and the rights of women and girls. DfID mainstreams that through what it does. It therefore follows that the aid that DfID gives has that element built in. The specific request from my noble friend Lady Williams about ring-fencing a particular part is not necessary when you consider the principles and the fact that they are underpinned by a commitment to human rights, education and so on. I think that answers the noble Baroness’s question. The details of how that is done will be addressed down the line once the principles are established. The principles are key in the first instance.
Social Care Portability Bill [HL]
Administration and Works Committee
The Chairman of Committees
That Lord McAvoy be appointed a member of the Select Committee in place of Lord Bassam of Brighton, resigned.
Public Bodies (Child Maintenance and Enforcement Commission: Abolition and Transfer of Functions) Order 2012
(12 years, 5 months ago)
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Lord Freud
That the draft order and regulations be referred to a Grand Committee.
Financial Services Bill
(12 years, 5 months ago)
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Lord Peston
My Lords, I notice that the Chief Whip is in her place, so when will we who propose to spend quite a lot of time on the Bill and make serious contributions be told of the days on which we will be sitting, and how many days we will be sitting, before the House rises? It would enable some of us at least to get something resembling a life.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, the Forthcoming Business will be issued in the normal manner following discussions through the usual channels.
Lord Eatwell
“Supervisory Board
In section 1 of the Bank of England Act 1998 (court of directors), for subsection (1) substitute—“(1) The court of directors of the Bank shall be replaced with a Supervisory Board.””
Lord Eatwell
My Lords, I shall speak also to Amendments 2 and 201. Before addressing the amendments, I crave the indulgence of the Committee in making a few general comments on the Bill and our procedures.
This is a very important Bill. Yet, as we know, it is a dog’s breakfast of amendments to earlier legislation and is, accordingly, extraordinarily and disproportionately difficult for the House to assess properly. The Treasury Committee of the other place has objected to the current construction and argues that there should be a new Bill to replace earlier legislation. Only then can that committee and, indeed, the regulated community gain a proper overview of the full import of the measures before us.
Most importantly, the Bill as currently drafted severely limits effective scrutiny by this Committee. Not only is there the question of excessive complexity in drafting but many of the most important debates on Bills take place on the Motion that Clause “X” stand part of the Bill. As this Bill is constructed, this is just about impossible, as failure to agree, say, that Clause 3 or Clause 5 stand part would not only wreck the entire Bill but render it completely meaningless by taking about 40 pages out of it. The drafting is a mess.
Secondly, there are fundamental problems with the overall structure of the Bill, identified by the Joint Committee and the Treasury Committee, which could better be addressed by proper redrafting rather than by piecemeal amendment.
Lord Phillips of Sudbury
I apologise to the noble Lord, Lord Eatwell, for interrupting at this early stage. I am sympathetic to the point that he has just made, but is not the problem one of standing orders rather than the drafting of the Bill?
Lord Eatwell
I think the answer is no. The issue is the straightforward drafting of the Bill. The problems, as I said, could be better addressed by proper redrafting rather than by piecemeal amendment. For example, the appropriate structure of the governance of the Bank of England in the 21st century, a matter to which the Treasury Committee paid particular interest, should be dealt with by a full rewrite of the Bank of England Act 1998 rather than by the cumbersome and opaque clauses before us.
Thirdly and most importantly, the Treasury Committee of the other place has raised a number of major objections to the content of the Bill with respect not only to Bank of England governance but to a number of other crucial issues of economic management, especially at times of crisis. Before today, few of these had been taken on board by the Government, although we will consider their proposal of an oversight committee later today.
I was delighted to read in the Financial Times yesterday that amendments derived directly from the Treasury Committee’s report of 24 May have been tabled by my noble friend Lord McFall, a distinguished former chair of the Treasury Committee, and by the noble Baroness, Lady Noakes, perhaps the most tenacious opposition speaker on Treasury affairs for many a long year—my noble friend Lord Myners has the scars to prove it. Your Lordships’ House has a fundamental responsibility to pass those amendments so that the other place has the opportunity to consider amendments proposed by its own committee. This is a valuable constitutional innovation.
I recognise that a fundamental rewrite of the Bill would take some time, but the Treasury Committee has faced up to this issue, too, arguing that the legislation is proceeding with undue haste. I agree. I recognise that the planning blight that hangs over the FSA is causing problems, but the performance of the shadow committees and authorities has already been such as to give us confidence that delay will not be disproportionately damaging.
All this adds up to the fact that the Bill as drafted is a barrier, not an aid, to effective macroprudential regulation. This is not a party political issue. I say with all due respect that the noble Lord, Lord McFall, and the noble Baroness, Lady Noakes, are not natural political allies. This is about getting the legislation right, which is what we on this side will endeavour to do.
The noble Lord, Lord Sassoon, and I worked well together to improve the Bill that established the Office for Budgetary Responsibility, and I hope that we can work well together to improve this Bill, although I would not start from here. When the Minister first speaks, I think he owes the Committee an explanation as to why the Government have consistently ignored the advice of the Joint Committee and the Treasury Committee on the structure of this legislation.
I turn—to the relief of the Committee, I am sure—to the amendments in this first group. Their fundamental objective is, I hope, clear: to set in train a wide-ranging restructuring of the governance of the Bank of England. The Bill gives the Bank remarkable new powers in macroprudential and microprudential regulation and in the assessment and management of financial crises. The structure of governance and levels of accountability should be appropriate to these new powers.
A key element in the structure of governance of the Bank is the court. As many commentators have noted, the current constitution of the court, its powers and resources are simply not up to the job. The Treasury Committee has paid particular attention to the role of the court, which is currently responsible for managing the Bank of England’s affairs other than monetary policy. The committee’s evidence sessions have exposed doubts, expressed by many witnesses, as to the court’s fitness for purpose as presently structured. A distinguished former member of the Monetary Policy Committee, in evidence to the Treasury Committee, described the court as,
“an historical legacy institution that now serves no useful purpose and creates the appearance or illusion of accountability or oversight where none exist”.
These concerns are especially important because of the role that the Financial Services Bill, as currently drafted, envisages for the court with respect to determining the UK’s financial stability strategy. In the context of monetary policy, where the Bank of England’s objective is to maintain price stability HM Treasury is required to write to the Monetary Policy Committee at least once a year to specify price stability and the Government’s economic policy. The annual Treasury remit letter fleshes out the concept of price stability in practical operational terms while avoiding undue rigidity. It strikes a balance between operational independence and democratic accountability.
A quite different model is proposed for financial stability. It is envisaged that the primary responsibility for determining and keeping under review the strategy for achieving the financial stability objective will reside with the court, although the court will be required to consult the Financial Policy Committee and the Treasury, and the Financial Policy Committee can, at times, make recommendations.
However, here we have a crucial difference in views—given the court’s role in determining the financial stability objective—on whether the court is up to the job. The view that the court should be abolished and replaced by a supervisory board was advanced by the Treasury Committee. In the face of the powerful arguments advanced by the Treasury Committee, the Government replied that they were not,
“at this time, minded to pursue the more radical changes to Bank of England governance recommended by the TSC, including the replacement of Court with a supervisory board. In general, the Government considers that the governance of the Bank should primarily be a matter for the Bank itself”.
This is astonishing. Indeed, it is nonsensical. As the Treasury Committee points out, the Government are the sole shareholder of the Bank, and many of the Bank’s responsibilities, functions and powers are defined by legislation. The Government do not regard the governance of private sector companies as a matter just for those companies. They really cannot wash their hands of this central issue.
Finally, the Bill grants major new powers to the person of the governor. It is important that the governor is backed up by a powerful supervisory committee to which he is accountable and is not an individual exposed on his or her own, so why a supervisory board? What is in a name? The whole point of this proposal is to recognise this necessary break with the past if we are to have a modern, effective structure of governance at the Bank of England. In the convoluted context of amendments to this Bill, we have been able to present only a sketch of what we on this side of the House have in mind, but we shall return to the matter on Report.
By accepting this amendment, the Government would acknowledge that the new Bank, with its new powers, would have a board to whom the executive is responsible and that is capable of performing an effective supervisory function. That should be its job: to supervise, to set strategy, to advise and review, not to run the Bank on a day-to-day basis and certainly not in the context of a crisis. These amendments are a signpost towards the new Bank with a new regulatory structure, and hence towards a truly effective regulatory system. I beg to move.
Lord Peston
I rise to support my noble friend. This is an immensely complicated Bill, and I certainly find it virtually impossible to follow. I cannot tell you how many hours I have put in trying to find out what almost any sentence actually refers to when it refers to some other sentence in the Bill. It contains clauses, subsections, paragraphs—I think I could find an infinite regress in there somewhere that went on for ever.
Lord Flight
My Lords, I am unclear as to what are the Government’s proposals, the Opposition’s proposals and even the Treasury Select Committee’s proposals. It strikes me that a great deal of complexity is made out of a situation which should be extremely straightforward. The Bank of England should have a board of directors—you can call it the court, if you like—composed of proper individuals independent of the Bank of England who have substantial experience in the financial services industry and who have all the powers of a board.
I am a commissioner of a minor regulator, the Guernsey Financial Services Commission, and we operate as a board controlled by non-executives to which the executive regulator is accountable and where the board has the power to fire the chief executive and the requirement to understand and be on top of every regulatory issue that is in the course of being addressed. I cannot see why the Bank of England should not have a board of that nature. Indeed, the court has a lot of the powers required to exercise that role. It is just that it has not done so for many years and has been an ornament.
We then have the question of what the FPC should do. Some have said that it will take over as the board that runs the Bank of England. However, it seems to me that the FPC should be a specialist body which focuses on the fundamental issue of what is going on in the banking industry and advises the board on financial stability; it should not be a substitute for or take over from a proper board of the Bank of England which covers all the issues. However, if there is a specialist body and a proper board in this structure, I cannot see what is wrong with it.
I also have to agree that, certainly between 2007 and 2008, the Bank of England did not exactly do very well. Much to my chagrin, it was really the ECB that managed to keep the banks and the City of London afloat, since the Bank of England, extraordinarily, did not recognise a major run on the banking system that was far greater than the one in 1974, which I also lived through. My reply on that point is that these bodies need to contain a majority of independent people. If the board or the FPC is not controlled by independents, then they will be in the control of the governor. Both bodies need independent people who can stand up to the establishment of the Bank of England.
I look forward to learning from the Minister precisely what the amendments mean. Solving the situation should not be particularly difficult but is actually a matter of common sense.
Viscount Trenchard
My Lords, I, too, share the nervousness of the noble Lord, Lord Eatwell, about the governance of the Bank of England, and I agree that the Bill is extremely complicated. I take my hat off to those who have worked hard on the Joint Committee. Their task was very much harder than the one that the noble Lord and I had—under the chairmanship of the noble Lord, Lord Burns, who is in his place—when we scrutinised the then Financial Services and Markets Bill some 12 or 13 years ago. This task is clearly much more difficult given that it does not attempt a total rewrite of that legislation. Although I am not sure whether the PRA or the FCA will be the continuing entity of the FSA, as I understand that two-thirds of the FSA personnel will be moving to the FCA, I believe that for most purposes the PRA will nevertheless be the continuing entity.
Although I understand why the noble Lord, Lord Eatwell, has moved his amendment, I am afraid that I am unable to support it. Like my noble friend Lord Flight, I believe that the situation is quite simple: the Bank of England has a perfectly good Court of Directors—a term which I think sounds rather good. Some of your Lordships may think that it sounds arcane and fusty but, on the other hand, it has a certain amount of gravitas. To change it to “supervisory board” would be very un-British. In my business life, I have come across many supervisory boards, in Holland and in Germany. In many cases, I find them semi-detached, rather remote and rather nervous to exercise their powers. If we were to adopt the term “supervisory board” it would give a weak impression—much weaker than the rather heavy-sounding Court of Directors gives. I do not think that there is no problem with the court’s name. However, I agree that its accountability needs to be strengthened, given the additional powers that the Bank will receive. Certainly, some changes need to be made to the governance of the Court of the Bank of England.
The noble Lord also referred to the asymmetry between the Monetary Policy Committee and the proposed Financial Stability Committee, in that the first is independent of the court, whereas the new Financial Stability Committee would be subordinate to the court. I do not think it necessary, in this connection, to strive for total symmetry, because the Monetary Policy Committee has a very specific responsibility, to set interest rates, which is a technical matter. It is essential that it continues to conduct its business in a transparent and independent way and to be composed of persons who are able to provide technical expertise in determining interest rates. The Financial Stability Committee will have a much broader remit. Regarding the oversight of our prudential regulation, both macro and micro, I do not quite understand why it is necessary that the two be so separated; it makes the structure more complicated than it need be. So I have sympathy with the noble Lord’s purpose, but I cannot agree that to replace the court with a supervisory board would be the right way to go.
Lord Barnett
My Lords, what we have heard so far exposes to me why, as I have said before, this is a non-party political Bill. I agree with everything that has been said so far. The noble Lord, Lord Flight, was very good. The way that this Bill is being managed is not the Minister’s fault—we should not have had a Bill in the first place. What an amount of paperwork; we are supposed to be becoming a world without paper, but I have left huge volumes of advisory papers behind in the office. I also have with me the Bill itself, of course, and various other documents. The management of this, as my noble friend said, has been outrageous. A few days ago we had four pages—as if the Bill and the amendments were not enough to read—of government amendments. Those were, I think, on page 3 of the paper. We have to read those as well as find out what all the committees, sub-committees, courts and directors, and God knows what else, are going to do. They are all going to be responsible for matters which, at the end of the day, the Chancellor will never give up. Indeed, we are told that the Treasury will be very involved with the various committees. We will come to that later.
For the moment, however, I would like the noble Lord, Lord Sassoon, to tell us why we removed the FSA. My understanding at the time of the Bank of England Bill was that Gordon Brown took away the FSA from the Bank of England precisely because he did not want to make the Bank as powerful as this legislation now proposes making it. Those powers are now much wider—the court of the Bank is being given much greater powers as well as various committees and sub-committees. The Bill proposes all sorts of things that we are supposed to understand. Frankly, I do not understand them. Will the noble Lord, Lord Sassoon, be able to explain the Bill rather than just read out his briefs? Perhaps he should send his briefs to us; that might be easier than listening to what they say. The whole thing is so complex. The powers of the Bank of England are now so huge that I assume that the Treasury and the Chancellor will never allow them to be used. Members of the Treasury itself are on various committees of the Bank. I do not know who is going to be responsible anywhere.
Lord Phillips of Sudbury
My Lords, I would like to make one comment on the amendment moved by the noble Lord, Lord Eatwell, and then make some comments on the remarks of the noble Lord, Lord Peston. On the way in which the amendment is drafted, I am not at all clear about how the notion of a supervisory committee fits with the language of new Section 9B of the Bank of England Act 1998 in Clause 3(1), which talks about the Financial Policy Committee being,
“a sub-committee of the court of directors of the Bank”.
I am a very long-in-the-tooth lawyer, and the normal language of sub-committees is to make them clearly subsidiary and subject to not just the oversight but the decision-making of the body of which they are a sub-committee. I put that to the Minister because we have enough confusion in the Bill already and, as has been mentioned, the name “supervisory committee” has many connotations from other jurisdictions that frustrate his desire to make this clearer.
Given that the issue of clarity and comprehensibility has been raised by the noble Lord, Lord Peston, and others, this is probably the only chance I have to add to that and ask my noble friend if he will take profoundly seriously the way in which the Bill is being put to us. I venture to suggest that not one Peer in 50, however learned or experienced they are, will be able to get their head around these 168 pages. It is not just those pages, of course, since they cross-refer to hundreds and hundreds of other pieces of statutory legislation and instruments.
I hope that my noble friend will take back the undertaking that I thought I got two years ago to the effect that where we had a Bill of this nature with, as I say, constant cross-references, those of us who wanted to get our heads around it would be given the legislation that was amended by the Bill, with the amendments shown on the face of that legislation so that we could relatively quickly—I use the word “relatively” advisedly—get our head around it. I have to tell noble Lords that if they go to the Library and pull down the 1998 statute, they will find that subsequent amendments have not been incorporated into it and they will have to go off elsewhere to find them. The whole thing is totally counterproductive to the work of this House. Most of us have neither secretaries nor research assistants of any sort. It really is scandalous—I use that word—that as legislators we are not assisted as far as possible to do our job effectively.
If the Minister is having sleepless nights, I urge him to look at subsections (1), (4) and (5) in new Section 9B, where the language is so—I nearly used an Anglo-Saxon expression, which would have been much more colourful—hyper-complicated. New Section 9B(1) says that this particular sub-committee is to be called,
“the ‘Financial Policy Committee’”.
However, new Section 9B(4) says,
“The court of directors must keep the procedures followed by the Committee under review”.
Given that the Bill has just said that the way to describe the new sub-committee is as the “Financial Policy Committee”, which committee is meant in subsection (4)? Then new Section 9B(5) says that:
“The court’s function under subsection (4) is to stand delegated to the sub-committee”,
which is not supposed to be referred to as that at all, so perhaps that is another sub-committee that we have not heard of and which is defined 63 pages later. And so it goes on. I do not know about anyone else, but I think that I have spent eight hours so far in trying to understand Clauses 5 and 6. I may be becoming an old f—no, I may be losing my sharpness, but I urge the Minister, not only with this Bill but with so many other Bills that we are called upon to deal with, to make the task for us legislators as readily accessible and easy as possibly can be.
Baroness Liddell of Coatdyke
My Lords, I am delighted that cleverer people than me have found this Bill incomprehensible, because I have real fears that we will get very lost in the detail of this Bill, and we will certainly get lost in the alphabet soup of acronyms contained within the Bill. However, I will return to the substantive issue.
The Bank of England is to be the pre-eminent financial services regulator. A regulator has to be transparent, consistent, and readily understood internationally. I would be delighted if, when the Minister replies, he will explain to us why it is necessary to vest such untrammelled power in the Governor of the Bank of England. The governor becomes much more powerful than the Prime Minister, who is, after all, only primus inter pares. The governor becomes completely unchallengeable. That is why the idea of a supervisory board in the amendment proposed by my noble friend is sensible.
I will not get tied up on titles. The court concept is anachronistic, and it is not readily understood by our main competitors. I am much more interested in the substance of supervision. One of the key elements of the work of the Bank of England as financial regulator will be to insist upon the best kind of corporate governance that we can get in our financial institutions. It should, therefore, be an example in itself in how it is governed. I have no confidence that that level of modern, transparent, corporate governance is in the model that is outlined in this Bill, as I understand it.
If people are tied up with the history of the Bank, which is long and distinguished, we can still have chaps running around in pink coats, and we can still have a wonderful collection of silver. However, at the end of the day, if we, as a nation, are to remain a leader in the financial services industry, we have to have a system of governance of our financial regulator that stands up to very tight scrutiny. I therefore urge the Minister, when he replies to this amendment, to give us some explanation as to why the Government have not come up with a model of corporate governance that gives that kind of confidence.
We will come to other elements when we talk about the role of the governor. I am extremely concerned about a repetition of what happened in the run-up to the run on Northern Rock. Some ill advised, perhaps unintentional, comments by the governor contributed to the run on that bank. We cannot allow ourselves to get into a situation where something like that could happen again.
Lord Stewartby
My Lords, I do not want at any length to add to what many noble Lords have said, except to record that this is one of the most incomprehensible Bills that I have had business with. Several times I started on what I thought was a trail of decisions, and at the end of it I could not work out who did what and how they knew what they should do.
I have one small technical question for my noble friend that is along those lines. I know that “macro” means “long” in Greek. I do not know what is meant by “micro”—which means small—so far as it is applicable to prudential regulation. Is the micro bit about the size of the body being investigated or about the scale of the activities of the regulator? I am not at all clear about this. Having come across these terms “macro” and “micro” regulation, I found myself unable to work out what quite a lot of these fundamental things mean.
Unfortunately, under the old regime there was a lack of clarity about who did what and who was responsible. However, I am not sure that we are getting away from that, as we ought to. It is a difficulty, and I hope that my noble friend can shed a little light on it. Many who have spoken in this short debate have pointed out that the Bill is not very easy to follow, to put it mildly. I would strongly welcome anything that would make it easier.
Lord McFall of Alcluith
My Lords, this is the most important Bill to have come from the coalition. We are expected to right the wrongs of the financial service and have that in place for the next 20, 30 or 40 years. This Bill has been tacked on to the Financial Services and Markets Act, which is why there is such complexity and why it is wrong. The Governor of the Bank of England himself said in June 2011:
“We are losing the simplicity and the ability to have a cleaner debate about the new framework. Certainly the Government rejected our”—
the Bank of England’s—
“request to have a new Bill and the argument that they gave, understandably, was that at the cost of some complexity we could ensure that all the provisions that were appropriate could be put into an amended FSMA and it would be a faster way of doing it”.
He went on, with some understatement:
“I think we have seen the complexity”.
If the comments of noble Lords today are anything to go by, we have not seen anything yet as a result of that. The governor went on:
“I am not quite sure whether we have avoided delay”.
Going back to the crisis of 2007 and 2008, the main issues were complexity, the question of who was in charge and transparency. We are making them worse, rather than better. We are moving from a tripartite system to a quadripartite system. When we ask exactly who is in charge—the deadly question that no one could answer at the time of the financial crisis—it will be equally hard to give a decent answer as a result of this Bill.
That is what is wrong with the Bill. It needs the utmost scrutiny in this Chamber. The other Chamber debated the Bill for 43 hours and 28 minutes. However, the Financial Services and Markets Act was debated for 89 hours and 59 minutes—more than double the time. As a result, the Treasury Committee says, in its frustration, in the first paragraph of its report, that it is now over to the House of Lords to change the Bill. Why does it say that? It says so because Clauses 80 to 103 and Schedules 17 to 21 were not debated due to a lack of time for the programme Motion. We need time for, and simplicity in, the Bill but we are getting complexity. That is the issue that has brought the noble Baroness, Lady Noakes, and me together. We are very clear: give us that simplicity, not complexity. The audience that is looking at this from outside may then understand that we have the best interests of the financial services and the country at heart, and we may get a decent Bill out of this.
Lord Peston
My Lords, I told the Minister that I would ask him a question but I forgot to ask it. I hope I will be allowed to ask it before he replies. Its origin is in my getting lost in the Bill. I was in the Public Bill Office and pointed to something on the page—a number, a letter and another number—and said, “I cannot find it”. They flicked the pages over and said to me, “What you need is a Keeling schedule”. I had never heard of a Keeling schedule so I rang the Treasury and asked one of the noble Lord’s assistants what it was. I gather from talking to the Minister earlier that he now knows what it is. I should like him to tell your Lordships’ House what it is and where we can get one, since I gather that it will enable us to find things.
Lord Burns
My Lords, I agree with the noble Baroness, Lady Liddell, that the Bank of England needs a modern and transparent form of governance, the best governance that it can have. I also agree with the noble Lord, Lord Flight, that the form of governance that is best known in this country and is best practice is a unitary board—a board that consists of a majority of non-executive directors. It also consists of executive directors with a non-executive chairman. The present structure of the court seems to me very close to that. We may not like its name, but in terms of structure, it seems it could very easily be turned into such a body. The issue is not what its name is or even the composition of it; it is to do with the powers that the court has.
It has been mentioned that the court has many of the powers that a normal board would be expected to have. Some of those powers that it does not practise at present are contained in the amendment that the noble Lord, Lord Sassoon, will move later today to do with dealing with issues of oversight of policy in the past and the extent to which that should be done.
I would hope that we could retain the present structure of the court. As I said, whether the name should be changed is a matter of taste, but we should concentrate on the powers of that court and the extent to which the powers that it needs to operate as a normal board are contained in some of the other amendments being put forward. Certainly, as I interpret some of those that we have seen already, it begins to come quite close to what I would expect to be a modern, transparent and very good form of governance.
Lord Sassoon
My Lords, it has been an interesting 45 minutes. I really thought that this group of amendments was going to be, in cricketing terms, a loosener from the opening fast bowler from the Opposition Benches, instead of which I have been faced with a number of bouncers and, I dare say, a couple of wide balls on the way through.
I will not respond to all of what I might term the Second Reading points that have been reiterated. I answered all the substantive points at Second Reading and would refer noble Lords back to those debates. I also will not be tempted into discussing clauses yet to come. In answer to my noble friend Lord Eccles about what “micro” means—
Lord Sassoon
I beg my noble friend’s pardon. I think I was looking at the Annunciator, which was misleading at the time. I rather wished we were already where my noble friend Lord Phillips of Sudbury was, on Clause 9, but sadly I looked down and we were still on Clause 1. We will come to all these points in due course.
I will respond to the comments on the form in which the Bill is presented. Although I explained at Second Reading why we are amending FiSMA rather than giving a wholesale rewrite, it is clearly of some concern to noble Lords and I should address the points as I did at Second Reading. Our approach was widely supported by consultation respondents. It will minimise the extent to which regulated firms and other users of FiSMA have to deal with legislative change. I appreciate that there might have been forms that would have made it easier at the margin for your Lordships’ House, but I think the substantive point here is that we are asking a major UK industry to absorb significant and necessary change and it is certainly the watchword of this Government in all that we do to minimise regulatory and administrative burdens; and we listened to what the industry had to say in response to the consultation.
I also believe that the way in which the board is constructed will allow for more focused parliamentary and stakeholder scrutiny of the key changes to the regime rather than open up a full discussion of everything again. The Government recognise that it is difficult. We have well over 300 pages of the Bill before us, which is precisely why we published a consolidated version of the Financial Services and Markets Act, which at some 650 pages was a huge exercise by Treasury officials. It took an enormous amount of time and is available on the Treasury website. I drew noble Lords’ attention to it at Second Reading. A comprehensive amended version, as it would be amended if this Bill goes through, is available for scrutiny on the Treasury website.
Lord Eatwell
The Minister is quite right—it is 658 pages, actually, and extremely difficult to read on a computer screen. Will the Treasury undertake to print a copy and provide it to every Member who has taken part in this short debate?
Lord Sassoon
My Lords, different noble Lords will want to digest the material in different ways. Some of us may find it much easier to focus on what we are interested in on a computer screen. I am certainly conscious of the wasteful expenditure of resources and taxpayers’ money when people do not want printed copies. I will investigate, but it may be that copies are available through the Library. I do not know—let me have a look at that. But it is certainly on the website. I suggest that noble Lords may not want to download all 600 pages but will be interested in particular sections. I underline the fact that a huge effort was gone into that far exceeds anything that would normally go into a Keeling schedule.
The noble Lord, Lord Peston, asked about Keeling schedules. When he asked about them a couple of days ago, I had no idea what they were. So I asked for somebody to have a look on the internet, where there is a very interesting debate. It starts by questioning whether these schedules were named after the stunt woman, Liise Keeling, or the distinguished former Member of Parliament for Twickenham, Mr E H Keeling, later Sir Edward. It was the latter who did it in conjunction with Mr R P Croom-Johnson, later Mr Justice Croom-Johnson. So there was, indeed, a Keeling schedule, but it is something that has fallen out of common use over the past decade and more. I suggest that we have gone rather further than a Keeling schedule in producing a fully amended version of FSMA on the Treasury website. There is not, before I am challenged, an amended version of the Bank of England Act, because the changes that we propose to that Act are relatively straightforward. The major innovations in the Bill, such as Clauses 3 and 5, which we will get to in due course, are drafted as entire new clauses, and may be read and scrutinised very straightforwardly as self-standing provisions.
Lord Peston
This reminds me of the Marx Brothers stuff and the great joke about whether we have an insanity clause. Am I to understand that there is no such thing as a Keeling schedule and that it does not exist? Is that the answer to my question?
Lord Sassoon
It is something that used to exist and the concept is still out there in the ether, but it has fallen out of common use over the past 20 years. For this Bill, there is no Keeling schedule but there is the 658-page, fully amended version of FSMA, which is accessible on the Treasury website. It serves the purpose of a Keeling schedule and does more than that.
Lord Phillips of Sudbury
I am reluctant to intervene on the Minister again, but it is important that even if he does not provide a print-off of this labour of love, hard copies of this mammoth work should at least be available in the Library. Some of us find that the time that it takes to run off 658 pages on our clapped-out machines is itself unnecessary.
Finally, the Minister may find that a Keeling schedule is exactly what has been done by the Treasury in this regard. That is my understanding of a Keeling schedule.
Lord Sassoon
My Lords, it may be the largest Keeling schedule ever known to this House. I will certainly make sure that the Library is aware of where to find the amended version of FiSMA, and I am sure that it will print copies off on request in the normal way.
I turn now to the substance of this clause. The amendments put forward by the noble Lord, Lord Eatwell, seek to convert the court of directors into a supervisory board. We will discuss in detail later—as has already been identified by the noble Lord, Lord Burns, and others—government Amendment 13 and related amendments which, I suggest, address all the points of substance behind the amendments of the noble Lord, Lord Eatwell, by creating a statutory oversight committee. I will have a lot more to say about that when we get to Amendment 13.
The only substantive difference, as the noble Lord, Lord Eatwell, has said, between the Government’s amendments and those in his name appears to be in the name of the Bank’s governing body. The noble Lord’s amendments do not seek to change the structure or membership of the court; it is simply, as he identified, that he does not like the term “court”. I agree with other members of the Committee that simply changing the name is not what we should be focusing on. The name of the Bank’s governing body is largely irrelevant. It is important that it is a body that is fully equipped and prepared to fulfil its role in the new structure effectively and that the non-executives on the court have a clear and explicit remit to oversee the Bank’s performance, both in policy terms and operationally. We will come on to why the Government believe the amendments to the Bill that we have put down are needed.
In answer to the questions about why we put the amendments down when we did, I listened very carefully to all the points on governance and other issues that were made at Second Reading and have come forward, at the earliest practicable date, with amendments ahead of discussion in Committee rather than after it, both in relation to oversight and growth. I make no apology, but your Lordships will appreciate that there was not much time between Second Reading and today to get some important amendments sorted out in detail. I hope that explains what we have done.
Lord Eatwell
My Lords, on that point, it is my understanding that Mr Hoban made the commitment to produce this committee at Third Reading in the other place. It does not seem to me that the noble Lord had to wait until after Second Reading here to formulate his amendment.
Lord Sassoon
My Lords, as I said at Second Reading, I wanted to take full account of the wisdom of this House before we finalised and tabled the amendments. That is exactly what we have done and, as I will explain later, I believe that they meet the concerns of many noble Lords who spoke at Second Reading. The new oversight committee achieves the substance of what is required.
However, as has been said by a number of noble Lords in this debate, if we were to change “court” to “supervisory board”, as suggested by the noble Lord, Lord Eatwell, it would be grossly misleading. What many people, maybe most people, would understand by a supervisory board is that it would be a board of non-executives exercising independent oversight. Actually, as the Committee should be aware, merely changing the name “court” to “supervisory board” would means that it would still be a body made up of executive and non-executive directors, and therefore it would not have the effect that most people would understand by the term “supervisory board”, unlike the oversight committee which the Government are proposing and which we will come on to. I understand the point that the noble Baroness, Lady Liddell of Coatdyke, makes. We want proper, independent oversight, but changing the name of the court is not the way to do it. This has been an interesting debate but, on the basis of that explanation, I ask the noble Lord to withdraw his amendment.
Lord Eatwell
Will the noble Lord give his view of the amendments that we could call the Treasury Committee amendments, which are going to come before us and have been tabled by my noble friend Lord McFall and the noble Baroness, Lady Noakes?
Lord Sassoon
My Lords, when we come to those amendments I will give my view and the view of the Government, but in this group we are talking about the noble Lord’s amendments only.
Lord Eatwell
I mean generically. I raised the question in my opening remarks as to whether it would be appropriate for this House to give the other place the opportunity to discuss the amendments tabled by its own committee. Does the noble Lord think that is appropriate?
Lord Sassoon
My Lords, we have a series of amendments down in the name of my noble friend Lady Noakes and the noble Lord, Lord McFall of Alcluith. The best thing to do is to discuss them when they come up and take them one by one on their merits. If the noble Lord had wanted to discuss all these matters together, he could have grouped a number of amendments together but he, or the usual channels on his behalf, chose not to do so. We had better proceed as per the groupings list.
Lord Eatwell
My Lords, the noble Lord is not answering the question about what he considers to be the generic nature of that set of amendments derived from the Treasury Committee report.
I am very grateful to noble Lords who have taken part in this short debate. As I understand it, the discussion broke into two parts. Many noble Lords were disturbed by the complexity of the legislation before us and felt that this complexity was preventing a satisfactory consideration of the overall implications of the legislation. Having worked on this for some time, I have some sympathy with them. The noble Lord referred to the many hours that Treasury staff had to devote to creating the unified Bill—the Keeling schedule. Similar hours will no doubt have to be devoted to deriving a full understanding of the implications.
Leaving aside the issue of complexity, I turn to the issue of governance, which lies behind the first amendments that I have proposed and which will be before the Committee as we roll through a number of other amendments. Every noble Lord who spoke, with the exception, to a certain extent, of the noble Lord, Lord Burns, felt that there were important issues to be addressed with respect to the governance of the Bank of England and that the court as currently formulated is not fit for purpose. Some of this will be discussed later, in the context of my Amendment 8 and of Amendment 13, which establishes the oversight committee. There are some major questions to be raised about the oversight committee, which we shall deal with at that point. It does not achieve an effective system of clear, transparent governance in the way that one would expect of a major public institution.
With respect to the name, being a bit of a traditionalist myself, I have some sympathy with the noble Lords, Lord Flight and Lord Burns, who felt that the court might as well be called the court. However, when the noble Lord says that the term “supervisory board” is misleading, do we think that the term “court” is not misleading? Whatever does that mean to anybody not steeped in the history of the Bank of England? The Minister has failed to address the generic question about the amendments derived from the Treasury Committee in another place.
This is a significant constitutional development which I think is very valuable, but the noble Lord seems not to want to discuss it. We will return at several points—
Lord Sassoon
My Lords, is the noble Lord, Lord Eatwell, aware that what he describes as the Treasury Committee amendments were debated on Report in another place? Does he accept that, perhaps contrary to the impression which he may not have meant to give, they were indeed debated on Report in another place?
Lord Eatwell
I think that the noble Lord will find that not all the amendments were debated. Indeed, the key amendments relating to the governance of the Bank of England were withdrawn on the basis of Mr Hoban’s assertion that he was going to bring forward some new arrangements. Therefore, the issue before us is whether those new arrangements measure up to the issues raised by the Treasury Committee—a matter that we will discuss in a moment.
Given the nature of our discussion, which I think has got us under way and raised a number of important issues that are yet to be resolved, for the moment I beg leave to withdraw the amendment.
Lord Barnett
Lord Barnett
My Lords, if anyone troubles to read the amendment, which stands in my name and that of my noble friend Lord Peston, they will see that I am asking why we need two more deputy governors. I do not know whether that means that they get higher salaries. Perhaps the noble Lord can tell us the salaries of the members of the Court of Directors. It is not clear to me just who is responsible for financial strategy. The Bill proposes the introduction of one deputy governor for financial stability and one for monetary policy. I do not know how many people are responsible for this. As has been said, there are supervisory committees, boards, a Court of Directors, the Financial Policy Committee, the Monetary Policy Committee and the Treasury, and I assume that ultimately the Chancellor might take a slight interest in financial stability and so on.
Why do we need two new deputy directors? They could be called deputy chairmen, or anything you like, but the point is that we should just let them chair the committees. I assume that the work they will do will be repeated elsewhere many times. I do not even know whether the Court of Directors will have the final word. To my knowledge, the Court of Directors has never made the final decisions in the past. The noble Lord, Lord Sassoon, once told me that when he was a senior official at the Treasury he attended the Monetary Policy Committee as the Treasury spokesman. I have never been able to find out, either from him or from anyone else, just what the Treasury spokesman spoke about at the Monetary Policy Committee. Clearly, he had some important things to tell that committee before it came to its conclusions.
I suppose that the question underlying our two amendments in this group is: who is ultimately responsible for these major issues? Is it the Court of Directors of the Bank of England, the Financial Policy Committee or the Treasury, and why do we need two new “deputy governors” rather than just “members of the court”? I beg to move.
Lord O'Donnell
Perhaps I may respond to the noble Lord’s comments about the Monetary Policy Committee and the Treasury person on it, having been that Treasury person at a very large number of MPC meetings. That person is referred to as the Treasury representative. In the early stages of the meetings, they would explain what was going on in fiscal policy to allow fiscal monetary co-ordination to take place. However, the convention was that the Treasury representative did not get involved in the committee’s discussion about a decision on interest rates.
The Lord Bishop of Durham
I shall speak to the amendment in my name, which is in this group. The noble Lord, Lord Eatwell, and others, have commented that the governor’s powers under this Bill are extraordinary. In fact, in the internal running of the Bank the governor will become totally dominant and virtually unchallengeable, as it will the governor who sits on all the relevant key committees. By virtue not only of sitting on them but of chairing them, the governor will have power over the agendas and the conduct of business. That will enable the governor essentially to control the direction of the PRA, the MPC and the FPC completely.
The purpose of the amendment is to pick up some of the points that the noble Lord, Lord Barnett, made so well a few moments ago and which had been made earlier. It seeks to balance the powers in the committees so that the deputy governors have control of their own special areas and are capable of ensuring that the committees focus on the areas that they know well. Noble Lords are aware that in the crisis of 2008, part of the problem, which has been brought out in subsequent inquiries, was that the governor’s focus was inevitably on one area and that others were overlooked because they were not the governor’s principal concern at the time. It is therefore necessary to try to balance the internal powers to create a robust and demanding internal discussion within the Bank long before it comes to the oversight or review of what might have gone wrong in the past—in other words, to stop things happening before they happen rather than afterwards.
Government Amendment 13, which is a fascinating, interesting and useful amendment that will be discussed later, seems, with respect to the noble Lord, to be retrospective rather than prospective. There is quite a lot of closing the stable doors after the horses have left. We do not want another run on the banking system; we want people to stop one. It is the old pink elephant problem: how do you prove that the system has stopped pink elephants being around because you never see one? We will be looking backwards, not forwards, with Amendment 13. It is useful in helping us to understand what has gone wrong but not what happened at the time.
My other concern in trying to balance out these major three committees, two being chaired by a deputy governor, is to try to make the FCA slightly less of the runt of the litter. At the moment, with one person having so much control, the FCA, which is the only committee of the big four that the governor does not chair, ends up being overlooked, I fear. Will the Minister comment on whether he agrees with the point made forcefully earlier that the most rigorous models of governance today should be those that are modelled on the Bank, which include ways of ensuring that it is a learning organisation before rather than after disasters happen. What further action can he suggest to ensure that the FCA’s voice is heard clearly, given its widespread impact on consumer finance across the whole nation and not only in the major financial institutions in the City of London?
Lord Sharkey
My Lords, I support Amendment 9, to which the right reverend Prelate the Bishop of Durham spoke. On Second Reading, several noble Lords commented on the powers that the Bill gives to the Governor of the Bank of England. The noble Baroness, Lady Liddell, made the same point half an hour or so ago. It is clear that such a concentration of power calls for robust checks and balances. To an extent, the Bill recognises this, and some of the government amendments recognise it even more. Perhaps necessarily all the proposed checks and balances are formal and procedural, and many are backward-looking. This is necessary but not sufficient.
Viscount Trenchard
My Lords, I had considerable sympathy with the amendment of the right reverend Prelate, which I found rather clearer and easier to understand than I did the explanation of the noble Lord, Lord Barnett. I am not convinced that appointing an additional two deputy governors is necessary because I believe these three sub-divisions of the Bank could be rationalised. However, appointing deputy governors will tend to make the governance of the Bank of England more rather than less level in that if you have a governor and one deputy, only one person comes close to challenging the governor’s authority. As proposed in the Bill, there will be three deputy governors, which will mean that the perception of the balance of power will be more level than before.
It is completely unnecessary for the governor to chair the Financial Stability Committee, because the governor chairs the court and the Financial Stability Committee is a sub-committee of the court. It is not right that the chairman of the court—that is, the governor—should also chair one of its own committees. That is highly illogical.
Lord Turnbull
I do not think that the governor chairs the court any longer.
Viscount Trenchard
I apologise to the noble Lord and I stand corrected. Perhaps the governor should chair the court. However, where possible, the deputy governors rather than the governor should chair the sub-committees.
Lord Turnbull
My Lords, I am not in favour of the amendments. First, there is the post of the deputy governor for prudential regulation. This is the old head of the FSA, in so far as it deals with macroprudential regulation, who is given the status of deputy governor in order to bring him into the councils of the bank. No extra posts or salaries are being created here. One might have been created by the creation of the FSA, but that is not here.
Secondly, as to the checks and balances on the governor, I do not think that a committee as important as either the NPC or the FPC being chaired by his deputy is a good way of exerting supervision of the governor. You cannot work for someone and supervise them at the same time.
At the moment, the governor chairs these committees and brings their thinking together; and, as we discussed earlier, there are other mechanisms around the court or the oversight committee—whatever it is called—that check the over-mighty power of the governor. Using one of his deputies to do this does not make sense.
Lord Peston
My Lords, I shall not talk about the Treasury representatives because we have an amendment relating to them later in the list and I shall save my vitriol for then.
I did not understand Amendment 9 until the right reverend Prelate the Bishop of Durham spoke. I am grateful to him because I now understand it. In essence, he is saying that three different people ought to chair the three different committees, which makes perfectly good sense. Chairing a committee is an important task and would involve a great deal of work, and I am sympathetic to the amendment.
However, going back to my and my noble friend Lord Barnett’s amendment, these appointments are only titular. It is not for your Lordships’ House to decry those who like titles. In other words, if there are three people, men or women—although I am afraid that these days it seems to be all men in the Bank of England—who want to be called deputy governor, it is no big deal. If it turns them on, and if a wife refers to her husband as the deputy governor and that cheers her up, why not? However, I am concerned as to whether it is more than that in two ways. First, do you get paid more for being a deputy governor? The Minister keeps telling us that we have to be economical, so we have to ask whether this is the correct way to spend money.
More specifically, the amendment is also about the following. First, can we have a full job description in each case? Does a full job description for these three posts exist, and if so can we see it? Secondly, how are the three of them appointed? For example, are the three jobs advertised, and can someone from outside apply to be a deputy governor with appropriate references, experience and so on? Thirdly, who appoints to this post? Those are the questions that I wanted answering. In the transparent, modern world in which we live, the answers should be that anyone can apply for these jobs, that the jobs should be advertised, and that there should be a precise job description and a proper appointing panel. That is the world in which we live, so I hope that the answer to all my questions is yes.
Baroness Kramer
My Lords, perhaps I may comment quickly on Amendment 9. The noble Lord, Lord Turnbull, presented what I suspect will be the Government’s argument, which is that having the Governor of the Bank of England in all these roles provides co-ordination. At Second Reading, I described the twin-peaks strategy as a small mountain range, so your Lordships will understand that I appreciate the need for co-ordination, but to use as the co-ordinating mechanism the single person of the Governor of the Bank of England strikes me as exceedingly inadvisable. The challenge is huge. It is a mechanism for co-ordination that is likely to suffocate, challenge and encourage group-think, but, frankly, no matter how much of a superman the individual who is appointed to that post is, I cannot see that they could possibly have shoulders broad enough to carry all those roles in the demanding way which this legislation and the economy require. Co-ordination strikes me as not the appropriate argument. If the argument is to be made, it must be on other grounds and not to make up for other weaknesses in the Bill.
Lord Eatwell
My Lords, the essence of the debate on these amendments comes down to a lack of a clear governance structure in the Bank. If there were a clear governance structure, with the roles which exist in modern corporations—described clearly by the noble Lord, Lord Sharkey—being performed, we could understand how the co-ordinating activities referred to by the noble Baroness, Lady Kramer, might be carried out. In general, any organisation would be expected to review its internal operations and create an efficient internal management structure, but there is no evidence that the Bank of England is capable of doing this. Given the significant powers that are to be bestowed on the Bank, surely the Government cannot sit idly by. This may be unfortunate, and primary legislation is probably too rigid for the goals that the noble Lord, Lord Sharkey, seeks, but we cannot accept a dictatorship at the Bank or even a belief elsewhere that such a dictatorship exists.
Generally, I am in favour of developing the roles of the deputy governors, particularly in the three major areas of financial stability, monetary policy and prudential regulation. That could provide a framework within which a more collegiate structure of decision-making was developed in the Bank. As I noted at Second Reading, given the differing roles of the MPC, the FPC and the PRA, it is likely that they will put forward contradictory proposals. If one person is supposed to chair all those committees, he or she will either be driven mad or will concentrate on one area to the neglect of others, as we saw the Bank do in the run-up to the crisis. Therefore it seems to me that the right reverend Prelate’s idea of having the deputy governors chair the committees is a good one. Then the Bank could presumably develop a proper management structure in which it was the role of the governor of the Bank to gather together the views of the committees and develop a coherent policy structure from their differing perspectives.
The right reverend Prelate is on to a very important development. It is unfortunate that these procedures do not seem to be developing within the Bank itself and that we do not have a clear governance structure for a Bank which is going to be placed, as the Government say, at the centre of UK financial regulation, and therefore I am very sympathetic to the ideas that the right reverend Prelate has developed.
Lord Flight
My Lords, these committees seem to me to be very different bodies. The MPC and the FPC are, in essence, intellectual bodies reviewing policy, one in the monetary area and the other in the stability of the system. They are not bodies employing hordes of people carrying out an executive function. This is in contrast to the PRA, which will be an organisation employing lots of people doing a detailed regulatory task, and the court itself, the board that runs the Bank of England which does all the banking and other things. They are very different entities, and the PRA and the court actually need chief executives. I think it very reasonable that the chief executive of the PRA—you can call him the deputy governor, that is fine—and the chief executive of the Bank of England should be the governor himself. Thus the governor should not be chairman of the court, which should have an independent chairman. When it comes to the MPC and the FPC, the chairman is actually the person who is hosting the taking of the decisions, and so I do not think it is inappropriate for the governor to be chairman of both or at least chairman of one.
Lord O'Donnell
I support the noble Lord, Lord Flight, in that and pick up on what the noble Lord, Lord Eatwell, was saying about this issue. I completely agree that the problem is whether the governor concentrates on one area to the exclusion of the other. You risk making things worse if you make the governor chair of one of these committees and not the other. I would say that you cannot have a Governor of the Bank of England who is not sitting on the Monetary Policy Committee. I just cannot see how you would have a governor who does not have a vote on the interest rate for this country. It does not seem to make any sense whatever. The Financial Policy Committee is going to take decisions on instruments such as loan-to-value ratios which will have quite an important bearing on macroeconomic issues which also matter to the MPC. I completely accept the issues about concentration of power. They are very important and should be handled through the accountability relationships that we set up. I also agree that the third body is very different and therefore the governor should not chair it, but the MPC and the FPC overlap so much that I do not think it is feasible not to have one person chairing both. If you were governor, and sent your deputy to chair one of these meetings, can you imagine how much time would be spent instructing them on what you thought they should do and getting feedback? It is far more transparent and open that one person chairs both.
Lord Sassoon
My Lords, this has been a very interesting discussion. Let me first deal with Amendments 3 and 4 in the names of the noble Lords, Lord Barnett and Lord Peston, and remind the House of one or two background issues with the deputy governors. First, we are not creating any new positions here. We are talking about two deputy governors who were created in the Bank of England by the Bank of England Act 1998. For the avoidance of doubt, we are not talking about anything new, but about existing deputy governors. Of course, the details of their pay and that of all other members of the Bank’s senior management are set out in the annual report and accounts. If it helps the noble Lord, Lord Barnett, page 41 of the 2011 accounts sets it all out in full detail. We are not talking about something new here.
As to the question of the noble Lord, Lord Peston, about job descriptions, when the role is advertised for a new appointment, a full job spec of the sort that he would expect is indeed produced. If he will forgive me, we will come on to questions of appointment in a further grouping, when no doubt we can come back to that point.
The two amendments open up a discussion about why we have deputy governors and what is their role, so I should say a word or two on that. I suggest that the role of the deputy governors is crucial. It would be enormously challenging for the governor to handle the breadth of policy and operational responsibilities of the Bank without support from the two specialist deputy governors. Each of the existing deputies is responsible for the Bank’s activities relating to one of its two statutory objectives: monetary policy and financial stability. That in itself goes 90% of the way to explaining the job description in very clear terms. The deputy governors run those areas on a day-to-day basis; they take the lead in many cases in international negotiations in those areas; they communicate with the public; and they have a major role in the relationship with the Government and Parliament in their respective areas.
Particularly given the enhanced responsibilities that the Bill will give to the Bank, I see absolutely no reason why we would want to weaken the Bank’s senior executive team by removing the deputy governors. I hope that that is not what the noble Lords who tabled the amendment would want, although that would be its effect. Rather the reverse: the capacity of the Bank’s senior team must be strengthened to equip it for its new responsibilities, which is precisely why Clause 1 creates a new deputy governor post. The third deputy governor will be the chief executive of the PRA and will be responsible for prudential regulation within the Bank. This has been a useful teasing out of what the deputy governors do, and I hope that that explanation has proved useful.
I turn to Amendment 9 in the name of the right reverend Prelate the Bishop of Durham, which would require the court to remove responsibilities from the governor. It will be no surprise to the Committee when I say at the outset that I do not believe that that is appropriate. The governor is the most senior executive in the Bank and is ultimately accountable for all the Bank’s decisions and actions. Of course, a great deal of Bank policy-making is delegated by statute to policy committees, including the MPC and the FPC. Indeed, it could be argued that most of the Bank’s most vital decisions are taken by the FPC and the MPC—and, in future, also by the PRA board.
I largely agree with the three noble Lords who are very distinguished former Permanent Secretaries to the Treasury. The Committee should be very grateful that they are here and able to illuminate this debate with such clarity. However, having heard the noble Lord, Lord Turnbull, in particular, at Second Reading, I suspect that there may be moments later down the track when we may not be in complete agreement. The interventions of the noble Lords, Lord Turnbull and Lord O’Donnell, on the amendment have been illuminating. The noble Lord, Lord O’Donnell, quite rightly highlighted the co-ordinating role and the need for balance and the noble Lord, Lord Turnbull, rightfully made the point about where the buck stops. I suggest that it is right that the governor, as the head of the Bank and being fully accountable for the decisions taken by the Bank’s policy-making bodies, should chair these committees.
I will come on to some rightful concerns about that position in a moment but I add, in parenthesis, that I am also grateful to the noble Lord, Lord O’Donnell, for answering the question that I have had on a number of occasions from the noble Lords, Lord Barnett and Lord Peston, about what the Treasury representative does on the MPC. I was privileged to be there on one occasion; even the Permanent Secretary to the Treasury needs a holiday in August occasionally, so I deputised. I hope that the very clear explanation from the noble Lord, Lord O’Donnell, will mean that we do not get the question quite as often in the next two years, so I am grateful for that.
The substantive concern underlining Amendment 9, about the concentration of power in the Bank and in the governor as an individual, is an important issue. I was not going to argue for one minute, and will not argue, that the oversight committee is the answer to that point. No doubt we will come on to talk at length about the oversight committee which, among other things, responds to the Treasury Committee’s specific recommendation that reviews be retrospective in order to allow enough time to pass to learn the lessons effectively from decisions and actions that are taken by the Bank. We will come on to that but it does not address the issues we have here.
Let me suggest, in answer to the point in Amendment 9, that there are some effective checks and balances in the system. To start with, in each of the governor’s roles—as chair of the MPC, the FPC and the PRA, and as head of the Bank itself—he or she will be both supported and challenged by a group of experts. Those experts will include internal Bank executives such as the specialist deputy governors, who we have talked about; the executive directors and the non-executives of the two governing bodies, the court and the PRA board; and external members of the policy committees, the FPC and the MPC. I certainly agree with my noble friend Lord Sharkey that that challenge is important. It is already there and it will continue in the new construct so that in each area of the governor’s areas of responsibility, he or she will not be responsible for taking decisions alone. In the MPC and FPC, policy decisions are taken collectively, with each member having a voice and a vote.
On the specific issues raised by my noble friend Lord Sharkey, those votes do not always go the governor’s way. Members of the Committee may be aware that the governor has found himself on the losing side of the MPC vote on a number of occasions, most recently in the June MPC meeting. I suggest, first, that there is the right construct of individuals to challenge and that, secondly, we have evidence that challenge takes place and is effective. Equally, on the governing bodies of the Bank and the PRA, decisions will be taken collectively, with non-executive members being in the majority on both bodies. As chair of the PRA board, the governor will ensure strategic co-ordination between the PRA and the rest of the Bank group; that aspect of co-ordination is also important. That will help to ensure an effective and joined-up response to emerging threats to financial stability.
However, the governor will not play a hands-on role in the day-to-day running of the PRA. That will be the job of the deputy governor for prudential regulation in his or her role as chief executive. The governor will therefore be fully supported in all the different roles and will receive effective challenge from both Bank insiders and external members. It is entirely right that the responsibilities of the governor and the arrangements to ensure that he or she is both supported and held properly accountable should be determined and set by Parliament through the legislation we are scrutinising today, rather than delegated to the discretion of the Court of Directors of the Bank. For all those reasons, therefore, I cannot support the amendments in this group. I would ask the noble Lord, Lord Barnett, and the right reverend Prelate to withdraw their respective amendments.
Lord Peston
Before the Minister finishes what he is saying, could I ask him a question which is a sort of question of economics? I entirely agree with the noble Lord, Lord O’Donnell, that it would seem very strange indeed if the Governor of the Bank of England did not chair both the FPC and the Monetary Policy Committee. But then I ask myself, “Does that mean that there is a vast amount of spare capacity in the governor; that he has been twiddling his thumbs looking for other things to do, and this is a way of making use of his skills?”. This is a very serious question. I remember that when I chaired the Economic Affairs Committee—or rather, its predecessor—the previous governor chaired the committee in a way completely different from the way that the present governor chairs the MPC. I could enlarge on that, if the Committee liked. I was given a complete set of papers for the MPC, a vast amount, which I found fascinating. On the basis of those papers, I would have found it a full-time job just to chair that committee. I am therefore at somewhat of a loss as to where the spare capacity comes from. What is the governor not now going to do in order to chair the FPC? That is a very serious question indeed. This would not have been a problem for the previous governor, because he regarded his role as chairman as just chairman. He did not intervene; for example, he always voted last. He was never defeated, and when he used to give me lunch regularly I would say to him, “There is no big deal in being on the losing side”. He said, “It is impossible for me as Governor of the Bank of England ever to be defeated in the MPC. It would be quite out of the question”. I was very impressed with the present governor being willing to be defeated. I am often defeated, but I never think I am wrong; I just shrug and walk away.
Could the Minister therefore tell me where the spare capacity in the governor is to be found, so that he can chair both these committees entirely satisfactorily, in the way the present governor does it?
Lord Sassoon
My Lords, first of all, I am not going to respond to the challenge of how different governors have handled committee chairing. As I have explained, I have sat in on one meeting of the MPC. We have other noble Lords, or at least one, who have sat in on a lot of meetings. I am not sure where the noble Lord, Lord Peston, gets his first-hand experience from, but let us put that aside. I hear now that he has no first-hand experience. Well, I am glad to hear that, but let us put that on one side.
I appreciate that in this Bill, and under the present arrangements, the Governor of the Bank of England has a very challenging job. The essence of what we are putting back into the Bank of England is, of course, leadership in financial supervision, which was part of the historical role of the Bank, except for the last 15 years or so. The Bank has essentially had these responsibilities in the past. The governor is and will be very well supported, partly by the deputy governors, as I have explained, but also, of course, by the whole Bank and PRA executive. This whole construct has been discussed in detail with the present governor, so I am fully confident, without being able to go through the governor’s time and analyse it, that this has been carefully thought about and the new proposed role of the governor is entirely manageable with the support that the governor has and will have.
Lord O'Donnell
Having sat through large numbers of meetings of the Monetary Policy Committee chaired by Eddie George and Mervyn King, I know that the reality is that the chairman has one vote, although they have a casting vote. That dominates the style of the meetings; they are not so much dominated by the style of the individual who is chairing them. Having sat through all those, I do not think that the contrast is as great as the noble Lord, Lord Peston, makes out. It is certainly true that I remember one occasion when the vote was coming round to Eddie George and he was 4-3 down, and he chose to use his vote to make it 4-4 and then used his casting vote to make it 5-4. That was an interesting use of the chair’s power. It is important, though, that the chair has only one vote and that therefore, of the nine, they can be outvoted; indeed, that is a good thing.
As laid down in the previous Act, the governor has always had responsibility for financial stability, so it is a question of how they choose to use it. Like the noble Lord, Lord Peston, I worry about the sheer weight of meetings because it is not just these meetings but the international ones as well. That is an issue, and it may be that one of the things that we got wrong with the Bank of England Act was specifying precisely how many meetings there should be. On occasion, it would be nice if you could go through a period of longed-for financial and economic stability when you might be able to pass on one or two of these meetings and not be forced to have them quite so often when actually there was not that much to do. However, that is a nirvana that we are not that close to at the moment.
Lord Barnett
My noble friend and I put down the amendment not because we care too much about whether someone is called a deputy governor but to discuss the underlying problem here. The Minister might be saved a lot of work in future; as we have heard, we are very fortunate in this House as it is, without reform, in having three noble Lords who can answer our debates, and the Minister need not bother. I am grateful to them, and we are fortunate to have them here. I know that one of them is even worrying about the job of the governor and whether he can cope with it—I see the noble Lord nodding—and he may find at the end of our debates on this Bill that he would rather not bother.
The Minister has not replied to my questions, but of course I did not expect him to. He did not tell us what the salaries were or whether someone gets more of a salary as a deputy than as an ordinary member. He told us that the job was advertised and anyone could apply. I wish I had known that years ago; I might have thought of applying. I do not know who was on the committee then; it may have been those three noble Lords on the Cross Benches who decided on the candidates. Whoever it was, we have had an interesting debate. However, what we have not yet discussed, although no doubt we will have other opportunities to do so, is the job of,
“a Deputy Governor for financial stability”,
and “for monetary policy”.
After all this, I am still not clear what the Monetary Policy Committee does, what the Financial Policy Committee does, what these deputy governors and their committee do, what the governor is going to do, what the Chancellor is going to do and who the hell is doing what. I am sure that in our later debates the noble Lord, Lord O’Donnell, will be interested to know. As I have no intention of applying for any of these jobs, I would like to know how they are decided and who applies. Incidentally, as my noble friend Lord Peston said, it is interesting that there is never a woman anywhere in the Bank. There may be some lower down in some menial jobs.
Lord Barnett
Name one. Anyway, I do not wish to delay the Committee much longer, and I will withdraw the amendment.
Lord Sassoon
Before the noble Lord sits down, I would point out that very recently Rachel Lomax was a very distinguished deputy governor of the Bank, to name but one, and there are now some very able senior female members in the banking sector, to avoid any doubt on that matter.
Lord Peston
Women comprise half the population of the country, do they not? If we look at ratios, there is not a lot to boast about.
Lord McFall of Alcluith
“(2A) Any person appointed under subsection (2)(a) shall be appointed with the consent of the Treasury Committee of the House of Commons.”
Lord McFall of Alcluith
My Lords, on behalf of the noble Baroness, Lady Noakes, I am moving Amendment 5 and speaking to Amendment 10, which is consequential on Amendment 5.
As the noble Lords, Lord O’Donnell and Lord Sharkey, said, this is about the concentration of power in and the accountability of the governor in the new financial system. In fact, Alistair Darling, when he appeared before the Joint Committee on the draft Financial Services Bill, called the governor the “Sun King”. I would suggest that we are giving the governor an impossible job. The MPC and FPC require an academic economist of the highest calibre, and we have that in the present governor. However, the Bank of England, as it is comprised now—with the PRA and the FCA and so on—is the equivalent of a multinational enterprise. It requires a chief executive and skills that are separate from those required on the Monetary Policy Committee and the Financial Policy Committee. We make a mistake by not realising that particular point.
I have invited the governor to come here so that all Peers could listen to him, in the hope of understanding and inquiring how he sees the position. He will be departing in 2013, so we are legislating for the future in this respect. Perhaps I may give my own view on the debate taking place at the moment about deputy governors, and so on, as a former chairman of the Treasury Committee and someone who had an intimate association with the governor and others especially during the financial crisis. I believe that the words “deputy governor” relegate the authority of the position. We have a vertical accountability here but we do not have a horizontal accountability. That is what we should be looking at on this issue—how do we get that horizontal accountability?
The noble Lord, Lord Sharkey, was correct about the concept of culture and ethics. I raised the issue of culture and ethics when the Northern Rock problems arose and it was a foreign language to the financial services industry of the time. The people involved thought that we were talking about Moses bringing the tablets down from the hill. However, culture is about behaviour, and ethics is about how you resolve conflicts of interest. It is as simple as that. I was delighted to see that the FSA, after being pressed for many years, has taken on that view. In his last speech before departing, Hector Sants spoke exclusively about the issue of culture. The issue of culture and behaviour is extremely important. If we concentrate on titles, then we will miss the main point. That is the issue that I would like to get across now. We need checks and balances.
My experience with the financial crisis also showed that when the crisis hit, both the Treasury and the Bank of England were found wanting. The Treasury had diminished its financial expertise. I knew the people in the Treasury who had the financial expertise—two of them have left by now, but at the time there were three. That was the situation we were in. If we wanted a response to the financial crisis from the Government we could not get one because they did not have the skills and understanding. The Treasury therefore invited people in from the City to advise it, which is where the problem started in the first place. That is the paucity of the situation at the moment.
Parliament therefore has a very important role to play in terms of the checks and balances. It was acknowledged by the governor and others that the Treasury Committee played an important role in Northern Rock, particularly in the legislation that was put through on “lender of last resort” resolution regimes and so on.
Lord Turnbull
My Lords, the amendment raises a very important question, largely unresolved, about what responsibility the Executive and the legislature have for public appointments. The truth is that we have not found a definitive solution to it.
There is a case for the status quo, which involves the candidate being interviewed by the Treasury Select Committee and, if the Minister ultimately decides that he wishes to go ahead with an appointment, the Minister being free to make the appointment. However, the bar has been raised and it has been made more difficult to bring forward a candidate of poor merit. There are also advantages to the candidate of the kind that the noble Lord, Lord McFall, has just mentioned.
The second option is for the candidate to be interviewed but for the committee to have a veto. At the moment we are still talking about appointments, and that is what we have with the OBR.
The third option is the scheme that was the subject of a report by the Institute for Government, under the chairmanship of a much beloved Member of this House, the noble Lord, Lord Adonis. It suggests dividing candidates into two tiers. These are unambiguously tier-1 appointments. The Chancellor of the Exchequer or the Government propose someone and the candidate is then interviewed. If the committee is dissatisfied, it then summons the Minister to defend their case. If there is still no resolution, the matter goes to the whole House; it does not simply go back to the Select Committee. The OBR case, which I may have voted for at the time, is a bit of an anomaly. You either stay where you are or go for the wider power. If there is a serious disagreement, the whole House should be involved.
As for dismissal, this is in some ways even more important. If the Government are to remove the Governor of the Bank of England, the issue is so big that it should go beyond the Treasury Select Committee and be a matter for the whole House. However, there is one caveat. Did he jump or was he pushed? I can think of many instances, including that of the Commissioner of the Metropolitan Police, where someone might resign because their position has been made untenable. The Minister may say, “I did not sack him. It had nothing to do with me. He decided to go”, yet all the time he has been pushing away, undermining his position. We do not really have very much control over that as that has to be a question of conduct. I have some sympathy with the principle that this post, particularly if it comes to a dismissal, needs some very powerful protection. However, if it is that important it should be referred to the whole House and not simply to the committee.
Baroness Wheatcroft
My Lords, I speak in favour of Amendment 6. The amendment concerns the corporate governance of the Bank, and we have heard much this afternoon about perceived gaps in that. I understand the desire to strengthen the court, but I think that this can be achieved without drastic changes either of name—as the noble Lord, Lord Eatwell, said, “What is in a name?”—or in structure. In particular, I have qualms about giving strong new powers to the Treasury Select Committee. Having heard my noble friend Lord Turnbull, I think that if we go in that direction, perhaps it should be the whole House that gets to answer the question of who should be the future governor.
However, we need not do anything quite so drastic yet. If we wish to strengthen the governance of the Bank, it seems to me more appropriate to do so by giving the court—or supervisory board, if you want to call it that—an enhanced role. The government amendments that will be moved later this afternoon go some way towards doing that with the formation of the oversight committee. It certainly enhances the remit of the non-executives from where it is currently perceived to be. It may be retrospective, but the power of being held to account retrospectively is quite a powerful force with regard to current behaviour.
Nevertheless, the court already has significant powers. The Bank of England Act 1998 stipulates:
“The court … shall manage the Bank’s affairs, other than the formulation of monetary policy”.
Some have interpreted that as being little more than looking after the housekeeping, and it has sometimes appeared that way. However, the Act goes on to say that,
“the court’s functions … include determining the Bank’s objectives (including objectives for its financial management) and strategy”.
Surely the ability to determine strategy is a pretty powerful one.
The noble Lord, Lord Burns, has pointed out that within the court there is pretty much the structure of a corporate board. Perhaps it has not always seemed that way, but we need the court to feel empowered to use the powers that it has. Much will depend on the ability and willingness of the members of the court to take a tough and challenging line; and there is no reason why they should not if they are well qualified and strong.
We have heard about the need for challenge; the court should be providing it. However, I believe that the Government need to send a firm signal about how important they believe the role of the court to be. In a normal company, the crucial role of the chairman is to ensure that the company has the best and most effective chief executive. Companies thrive best when the chairman and the chief executive have a constructive relationship and mutual regard. Is it not therefore imperative that, even though the Bank is no ordinary company, the chairman should at least have some involvement in the appointment of the chief executive?
This amendment does not call for drastic change, but in demanding that the Chancellor should consult with the chairman of the court—or the supervisory body, should that be preferred—it would underline the importance of the court and the notice that the Government want to take of it. It would encourage the court to be brave, perhaps braver than it has been in the past. Formal discussions may go on now between the Chancellor and the chairman of the court, but there is no mistaking what a low-profile role the chairman has had—indeed, some thought that the governor was the chairman of the court. I think that we need the chairman of the court to have a rather more effective, higher-profile role. That could start with a formal requirement that the Chancellor should negotiate and discuss the future governor.
Lord Peston
My Lords, I shall speak to Amendment 8A in my name and that of the noble Lord, Lord Barnett. In doing so, I shall not comment on Amendment 6 in the name of the noble Baronesses, Lady Kramer and Lady Wheatcroft, simply on the grounds that the subject is totally beyond me. I am no expert on governance whatever, and I could not tell good from bad governance if it hit me over the head. However, what the noble Baroness said sounded very persuasive, and I am sure that she is right.
I also apologise to my noble friend Lord McFall. I just did not notice his Amendment 10. If I had done so, I would have tabled an Amendment 10A as I have tabled Amendment 8A.
I take noble Lords back to the Bank of England Bill, which the noble Lord, Lord Barnett, and I played a full part in debating. Indeed, one thing that I still remember with enormous pleasure and some amusement is the fact that, while the noble Lord and I were enthusiastically in favour of the Bill and said so, Conservative noble Lords who were then on the opposition Benches were doubtful. One of my tasks was to try to persuade many Conservative Peers that what Gordon Brown was doing was not only the right thing but that it was a very strong move in a Conservative direction to give independence to the Bank of England for monetary policy. I still give the odd lecture, and I sometimes boast that I was once involved in educating the Conservative Party in the correct way in which to run monetary policy.
In the course of debating the Bank of England Bill, all references to feeding back were to the House of Commons. The noble Lord, Lord Barnett, and I put down an amendment—I think that it was the only one that was accepted from us—to say that wherever the word “House of Commons” appeared it should be deleted and replaced with “Parliament”, and the Bill was changed so that Parliament became the body, meaning that it included the House of Lords. That established the fact, on which Lord Williams of Mostyn got a definitive opinion from the Clerk of the Parliaments, that the House of Lords is fully entitled to look at any matters of this kind and to be consulted on them. The Commons does not have to take any notice of us on these matters, but we can certainly exercise our rights. That is why I object very much to the form of Amendment 10 in my noble friend’s name and feel that the correct wording should be, “Treasury Committee of the House of Commons and the Economic Affairs Committee of the House of Lords”. This is a matter of principle for your Lordships’ House. I am personally not persuaded by any of what might then happen, but that is another story. If it is going to be done, I feel very strongly that both Houses should have access.
That was all about appointment, which comes up several times later on other things, but I shall make one speech do for all the other times it comes up. In my total naivety, it never occurred to me that there was any question of removal from office being a serious matter. That is another reason why I apologise to my noble friend. I would probably emigrate if we got to a state in our society where we were dealing with the removal from office of the Governor of the Bank of England. I hope that that was what the noble Lord, Lord Turnbull, was saying as well. We are all very keen on science fiction, but I think that we can go a little too far.
Baroness Kramer
My Lords, I have attached my name to Amendments 5, 6 and 10, so I think I will by definition be hated by any future Governor of the Bank of England.
I want to speak for a moment on Amendment 6, which was spoken to by the noble Baroness, Lady Wheatcroft. The 2009 report by Sir David Walker, on behalf of the Government, which took a detailed look at corporate governance in the UK banking industry, is very relevant. Your Lordships will remember his recommendation that:
“Balance also needs to be found between the role of executives and non-executives on a well-functioning bank board”.
Amendment 6 goes a significant way towards achieving that and establishing that real relationship between a non-executive chair and the Governor of the Bank of England as the chief executive. That distinction is also important for the purposes of accountability which others, including the Minister, have described as significant and important.
Lord Burns
My Lords, I support Amendment 6 tabled by the noble Baroness, Lady Wheatcroft. As she said, in terms of strengthening the power of the court or the board of directors, whatever we are going to call it, giving the appropriate powers, respect and position to the non-executive chairman of that court would be a very important part of making it an effective functioning body.
I was Permanent Secretary at the Treasury in 1993 when Eddie George was appointed governor and Rupert Pennant-Rea deputy governor without any warning being given to any of the members of the Court of the Bank of England. It caused a great deal of upset among members of the court who felt that they had been undermined by the lack of warning. In a world where we are trying to build some good corporate, modern, transparent governance, as we have heard today, giving a role to the chairman of the court, at least in terms of informing him or consulting him, would be an important part of it.
With respect to the amendments covering the powers of the Treasury Select Committee, my noble friend Lord Turnbull has set out the analysis of that position. It would be wrong to underestimate the power of the Treasury Committee simply in terms of its ability to summon people and to question them. I regard the Treasury Committee—I have watched it for many years and I appeared before it many times—as a very skilled body in terms of oversight. It fulfilled its role in terms of challenge, questioning and advice. I would rather it did the job that way rather than by seeking to have vetoes over positions. It can make a huge impact simply by the way it brings people in, talks to them, summarises its opinions and then leaves it in the hands of Ministers to decide how far they wish to take account of those views and whether they really want to push it. At the point at which they want to push it, the points made by the noble Lord, Lord Turnbull, probably come into play.
I particularly agree with the noble Lord, Lord Peston. I cannot remember an occasion when the term of a Governor of the Bank of England was shortened other than by his own will. I would have thought that it would be an issue of some significance that would require not just the House of Commons but, as the noble Lord, Lord Peston, said, Parliament in general to agree it.
Lord Flight
My Lords, I also support the amendment tabled by the noble Baroness, Lady Wheatcroft, for essentially the reasons given by the noble Lord, Lord Burns, and as part of the process of restoring the court to being a proper board.
I want to comment on Amendment 5. I have mixed views, but I think it is quite healthy that someone being appointed to such an important role should be subject to vetting in the same sort of way that occurs typically in the United States and that it probably is the Treasury Select Committee that is equipped to handle that vetting.
If I may digress, the present Governor of the Bank of England studied economics at the same university as me at the same time, and anyone that knew that knew that the teaching of economics at that time at that university was appallingly bad. That illustrates that it takes some effort to assess the sort of mind that someone being appointed to that job has got. The absence of any form of politically accountable examination is probably wrong in today’s world. Therefore Amendment 5 is worthy of serious consideration.
Lord Northbrook
My Lords, I disagree with Amendment 5. It gives the Treasury Select Committee too much power. As I understand it, the Treasury Select Committee already holds pre-commencement hearings with those who have been selected to become governors and deputy governors. Furthermore, as I understand it, the Government have no powers to remove a Governor of the Bank of England; rather the Treasury must give its consent if the Bank decides the governor has met the criteria for removal. It is the Bank’s decision to make. The pre-commencement hearings provide the right balance between giving Parliament an opportunity to question the new appointee on their views and qualifications without bringing into question or placing doubts over the appointment itself.
Lord Tugendhat
My Lords, I was unable to participate in the early stages of the debate this afternoon because I was at a Select Committee, but now that I am here I should like, on the basis of experience, to support the proposition of my noble friend Lady Wheatcroft—not experience of the court of the Bank of England, I hasten to add, but of the European Commission. The President of the European Commission is appointed quite separately from the other members of the Commission and he has no particular power over who else is going to become a member. The way it is done leaves him at the mercy of Governments. My experience under a very strong and good president in the case of Roy Jenkins and under a much weaker and less effective president in Gaston Thorn is that if the chairman or president, whatever he is called, of a body has no influence over the appointment of his colleagues or over whether they stay or go, it seriously diminishes the significance of the person in charge.
As the noble Lord, Lord Burns, said earlier, we are trying to put together something that has a governance structure in keeping with the modern age and which sets an example, inasmuch as that is possible in a body such as the Bank of England which is quite separate from the corporate sector, to the rest of the country. If the chairman is to be taken seriously by the governor and, indeed, by the entire Bank of England beneath the governor, it is essential that he should be seen to be somebody who has played a significant role in the appointment. It would be quite unacceptable if a governor were appointed in whom the chairman did not have confidence. It would be quite unacceptable if the governor felt that the chairman did not have confidence in him, just as it would be unacceptable if the chairman felt that the governor did not have confidence in the chairman.
The noble Baroness, Lady Wheatcroft, has put forward a very sensible and practical proposition. As I say, I speak with experience of having served in a body where the chairman did not have the powers that the noble Baroness suggests. My experience is that that was not a very good way of doing things.
Lord Eatwell
My Lords, these amendments raise some interesting and important issues with respect to the person of the governor. Despite the warm words of the noble Lord, Lord Sassoon, about degrees of consultation, balance and so on, the idea remains that the person will be endowed, under this legislation, with quite extraordinary powers and therefore the process of appointment should be more transparent and subject to consideration by democratically elected Members. If we are to accept an unelected individual having these powers, at the very least the appointment process should be transparent.
The idea that the Treasury Select Committee should express its views is a very good one, but I am not sure about this notion of a veto. That goes a little too far. We do not want to politicise appointments to the extent that has occurred in the United States, which makes me nervous about the suggestion by the noble Lord, Lord Turnbull, that appointments might end up being considered by the whole House, which would inevitably be whipped and become very political indeed. The Treasury Select Committee, although it may sometimes be eccentric, is not party political in quite that sense. It is a good idea that the Treasury Select Committee is consulted about an appointment and it would be a bold Chancellor who would ignore the committee’s views. Since the committee does not have a veto, it is less likely to have the propensity to develop into an overly politicised hanging court. That covers Amendment 5, which is one of the amendments from the Treasury Select Committee in another place put forward by my noble friend Lord McFall and the noble Baroness, Lady Noakes.
I am sympathetic to the idea expressed in the amendment from the noble Baroness, Lady Wheatcroft, and found the arguments put forward by the noble Lords, Lord Burns and Lord Tugendhat, convincing. The notion that the chairman should be consulted and that the degree of confidence in the relationship between the chairman and the governor should thereby be established seems to have the ring of good sense about it. The Government should take this matter under serious consideration.
My noble friend Lord Peston referred to the role of the House of Lords. Although the expertise in your Lordships’ House often comes to bear most effectively and positively on Treasury issues, in the context of an appointment of this seriousness and magnitude, one really has to turn to elected Members. If the constitution of your Lordships’ House changes in the future, then perhaps the House of Lords could have a role in this respect. However, for the moment, the Treasury Select Committee should be the focus of consultation—
Lord Peston
The noble Lord has rather lost me. Is he saying that he agrees that the Commons should have a veto but the Lords should not, or that neither should have a veto?
Lord Eatwell
I hoped that I had made clear that I was not in favour of a veto for the Treasury Select Committee, but was very much in favour of it being consulted.
Lord Peston
In that case, I really cannot see the noble Lord’s argument at all. I hate to disagree with anybody sitting on my own Front Bench, but if this is a matter of consultation, it is a matter of great significance that your Lordships’ House is treated as an equal House. This principle has been established beyond any doubt whatever, and I therefore find it quite unacceptable that whoever is speaking from our Front Bench would not take that view on this subject. I am sorry to say that.
Lord Eatwell
The noble Lord and I are both professional economists and therefore we have disagreement built into our DNA. The role of the Treasury Select Committee in another place is special in this case.
I move on from the amendment tabled by the noble Baroness, Lady Wheatcroft, to Amendment 10, which raises some very difficult issues. Given the new, complex set of conflicting goals that the governor will necessarily need to navigate, the idea that his or her removal from office should be subject to some form of special scrutiny is entirely appropriate. I am not sure whether this is the right form of special scrutiny, but I am certainly going to take this away and think about it and may return to it on Report.
To sum up, Amendment 5 goes a little too far. Consultation is the key in the appointment process. The noble Baroness, Lady Wheatcroft, has identified something very valuable indeed, and we should be grateful to her, as should the Government, who should say so and accept her amendment. A number of very difficult issues have been raised with respect to Amendment 10, which I need to take away and think about at greater length before we come to Report.
Lord Sassoon
My Lords, first, of course the Government place great importance on the suitability and independence of the Governor of the Bank of England. We are all clear that the governor’s role is already a challenging one and that future holders of this post will need to possess an even broader range of skills, experience and expertise. We do not in any way seek to deny that. However, although I fully recognise the great importance of this appointment, I am very confident that there are already robust arrangements in place, which I will go through in a minute.
It is good that we are now focusing in this debate for the first time very directly on the amendments that we are discussing, which makes for a much more productive 35 minutes than we have had on this. In the debate, which has been instructive and interesting, I have heard some voices speaking up for some form of parliamentary veto, some arguing for consultation, some arguing that it should be the Treasury Committee in another place and some suggesting that it should be that committee and/or—I am not quite sure which—the Economic Affairs Committee of this House. Although it is not the subject of an amendment, I heard at least one suggestion that if we were going to change anything, we should go rather more radical and make it subject to a vote of the whole House in another place. That is a rather broad menu. There are many ways to skin this particular cat but I suggest that there are already robust arrangements in place
The governor and the deputy governors of the Bank are appointed by Her Majesty the Queen on the recommendation of the Chancellor and the Prime Minister. Since 2009, this Government and the previous Government have agreed that in principle these appointments will be subject to open public competition. That is what happened with the most recent example of Paul Tucker, who was appointment deputy governor in 2009, and that practice will continue. The Treasury Committee already holds pre-commencement hearings with those who have been selected to become governors and deputy governors. Therefore, I do not believe that Amendment 5 is necessary.
To be absolutely clear regarding something that I think I heard the noble Lord, Lord McFall, say, I certainly agree that Amendment 10 is connected with Amendment 5 but, to be technically right, I would not accept that Amendment 10 is consequential on it. I just wish to be clear on that technical point.
Having been appointed, the governor certainly cannot be removed on a whim. Indeed, the Government have no powers to remove a Governor of the Bank of England. Rather, the Treasury must give its consent if the Bank decides that the governor has met the criteria for removal. However, it is the Bank’s decision to make. The legislation is clear that the governor, a deputy governor or a director of the Bank can be removed only with cause—that is, if the Bank is satisfied that he or she has been absent from meetings of the court for more than three months without the consent of the court, that he or she has become bankrupt, or that he or she is unable or unfit to discharge their functions as a member. That is very clear.
Some commentators have suggested that the fact that the appointments of the chair and independent members of the Office for Budget Responsibility are subject to a Treasury Select Committee veto sets a precedent and that governor appointments should also be subject to a parliamentary veto. However, I agree with the noble Lord, Lord Turnbull, who suggested that these cases are rather different. The role of the governor and the members of the OBR are both characterised by the need for especially talented and independent candidates, but that is where the similarities end. The OBR performs an important function in providing an independent and unbiased forecast on which government policy can be based, whereas the governor carries out executive functions on behalf of the state.
More than that, and more broadly relevant to the amendments, this policy-making role makes the appointment of a prospective governor extremely market-sensitive in a way that appointments to the OBR and many other appointments simply are not. The uncertainty created by a public pre-appointment approval process could, depending on the market conditions at the time, be significantly damaging. The noble Lord, Lord Eatwell, may not like this analysis but I suggest that the person performing the role of governor attracts significant market interest. A huge amount of time and effort is spent examining every scrap of information relating to members of the Bank’s policy committees in order to gain insight into their thinking and determine likely future policy responses, and that will very much be the case with candidates for the post of governor.
Once the candidate is announced, his or her particular leanings can be factored into asset prices. The Treasury Select Committee will then be able to conduct pre-commencement hearings, providing a useful insight into the professional competence and personal independence of the appointee. However, I suggest that pre-appointment hearings of the sort suggested and necessitated by the amendments in this group would exacerbate the uncertainty of markets about who will be appointed, and that would be inappropriate.
I am also sure, and I do not need to point out, that I could apply similar arguments regarding the dismissal of a governor. The uncertainty around any such dismissal would be just as damaging. In addition, I cannot see how the position of a governor whom the Bank had sought to remove for reasons of unfitness for the post could be anything other than untenable if the Treasury Committee reversed the decision, so I simply do not understand how that would work in practice.
I believe that the current arrangement of pre-commencement, rather than pre-appointment, hearings provides the right balance. It gives Parliament an opportunity to question the new appointee on their views and qualifications without bringing into question, or placing doubts over, the appointment itself. A parliamentary veto on appointments and dismissals would introduce uncertainty into these processes, and that would apply whether the veto was given to the Treasury Committee in the other place or to your Lordships own Economic Affairs Committee. For these reasons, I believe it is inappropriate for the Bill to provide that a parliamentary committee must approve governor appointments or dismissals.
Lord Peston
Before the noble Lord moves on to his next point, can he, for my education, explain one aspect of the drafting of the Bill? With regard to what we are discussing, can he tell me whether there is any significance in lines 8, 9, 10 and 11 on page 1, which refer to “a Governor” and “a Deputy Governor”, and line 15, et cetera, where the references are to “the Governor” and “the Deputy Governor”? Is this a fundamental matter of parliamentary draftsmanship, which is beyond me, or is it simply a grammatical error?
Lord Sassoon
My Lords, it relates to the former. I do not think it is fundamental; it just fits in with the construct of the legislation that we are talking about. There is no mystery behind it; it is purely a case of the grammar that the draftsmen have thought appropriate to use in the different lines.
Baroness Kramer
My Lords, the Minister has just put forward an argument for retaining the current process, which excludes the Treasury Select Committee from participating in the appointment of the governor. However, has he ever looked at the idea of allowing the Treasury Select Committee to question pre-appointment, even if there is no veto? I think we can all see a potential scenario—one that we hope never to have—where an appointee who is already in position, although they may not have commenced the role, comes before the Treasury Select Committee and does not win the confidence of the committee or the confidence of Parliament. That would leave us in a particularly dire situation and it is one that I think most of us would wish to avoid.
Lord Sassoon
I attempted to address the pre-appointment versus pre-commencement issue and I shall not repeat my remarks, other than to say that I believe that, for the market reasons I have given, among other reasons, it would be damaging if there were significant doubt over the clarity of the appointment of a particular individual as governor. One can very easily see how such a situation would be damaging and dangerous in present market conditions. Therefore, I repeat that I believe there is a distinction—
Lord Sassoon
Perhaps I may complete the answer to my noble friend Lady Kramer, then I will give way. As I pointed out, I believe that there is a great distinction between pre-appointment and pre-commencement, that we have the balance right, and that with any appointment put forward to the Queen on the recommendation of the Chancellor and the Prime Minister there will be a very high degree of likelihood, approaching certainty, that the figure appointed will have the confidence of the Treasury Committee.
Lord Eatwell
My Lords, following on from the point made by the noble Baroness, Lady Kramer, while I agree with the noble Lord that a veto by the Treasury Committee is not a good idea, I really do not understand his arguments about pre-appointment consultation, whereby a prospective candidate appears before the Treasury Select Committee prior to his or her appointment being confirmed.
The argument about market sensitivity entirely contradicts what the noble Lord told us about the collective decision-making process in the Bank. If there are all these collective procedures in which the governor is challenged and supported by deputy governors, technical staff, and so on, the idea that a new governor arriving would dramatically change the nature of monetary or stability policy seems to be ridiculous. There may be a change of tone or style, but the idea that the governor will somehow be the sole factor who can move markets by the very nature of his character would seem to reinforce all the fears of those who believe that we are appointing a sun king. The noble Lord argued persuasively that there existed a degree of collegiality in the Bank, which some of us were quite surprised to hear, but none the less we understand what he says. However, he cannot argue that and at the same time deny the possibility of pre-appointment consultation because it is market sensitive.
Lord Sassoon
My Lords, the noble Lord, Lord Eatwell, always applies impeccable logic but the way in which the markets look at these things is rather different and not necessarily logical. While I entirely accept at one level the logic of the noble Lord’s argument, it is not the way in which the markets seek to interpret what they can read into every tea leaf, let alone something as important as the appointment and the person of a new governor. I certainly do not accept that my two arguments are in any way at odds with one another.
Lord Eatwell
My Lords, if the markets are so irrational, as the noble Lord says, why will we have our appointment process distorted by these irrational forces? Surely, if they are so irrational we should simply leave them to their own devices and develop a sensible, coherent appointment process that fits the needs for the appointment of this very important figure.
Lord Sassoon
My Lords, I was not going to bring this up, but I am not sure about the logic of the position of the noble Lord, Lord Eatwell. I understand that he was arguing for consultation but not a veto by the Treasury Committee. I am not at all clear why, if he is asking for consultation but not a veto, he is so hung up on whether it be pre-appointment or pre-commencement. Pre-appointment seems to imply some form of effective veto that goes with it. I am genuinely rather confused.
Lord Eatwell
I thought that I had made that clear in my opening remarks on the amendments. An individual who is being proposed by the Government to Her Majesty for appointment may be found by the Treasury Select Committee to be unsatisfactory in various aspects of his skill set or whatever, but while the Government may ignore that, they would at least have to take it into account and justify the appointment. Indeed, in doing so, that would perhaps strengthen the position of the governor thereafter.
Lord Sassoon
My Lords, I have dealt as fully as I can with the arguments. All I would suggest is that it further points out that this is not an easy area. As the noble Lord, Lord Turnbull, said, there are lots of possible solutions. If he were to change it at all, he would go to a solution that is not one of the number on the table at the moment. The Government’s position remains that we have an appropriate balance in all of this.
In answer more specifically to the noble Lord, Lord Peston, since I had the time during that little exchange to do a bit more research into “a”s and “the”s, the point is simple. The first reference is to the creation of “a Governor” and the subsequent reference is to “the Governor” who is at that point in the flow of the legislation being created. I hope that that helps to explain what is going on.
Lord Peston
My concern was with the correct use of English. It does not help but I cannot believe that it matters at all.
Lord Sassoon
Even if it does not matter, I try. I do my best to answer these points, even if it causes more confusion. Sometimes the “a”s and the “the”s could be very important.
I move on to Amendment 6 tabled by my noble friend Lady Wheatcroft, on which, no surprise, I will not be much more accommodating, but it is an important point that should be discussed. As I said, it is vital that the post be filled by the best possible candidate and taken from candidates who have expertise and skills to fulfil the role effectively. The legislation as it stands does not prohibit the Chancellor consulting widely before recommending that a candidate be appointed as governor. In practice, the Treasury and the Bank work together closely to recruit for key Bank of England posts. I am sure that my right honourable friend the Chancellor of the Exchequer will engage with key individuals as appropriate during the process to identify the next Governor of the Bank of England. Indeed, well ahead of the formal process kicking off, the chairman of court, Sir David Lees, and the Chancellor are already in touch on this matter.
However, I suggest that we should keep in mind that the appointment is ultimately for the Queen to make on the advice of the Prime Minister and Chancellor. Many people may be consulted as part of the process to appoint a new governor, but it would be impractical to attempt to define them prescriptively in the Bill. By leaving the legislation broad in this way, the Chancellor will be able to consult whoever he or she feels will add value to the advice. The people consulted may well change depending on the circumstances of the appointment. I suggest that that is how to leave the legislation but I hope that I have given the Committee some perspective on how these things will be handled. I hope that the noble Lord will feel able to withdraw the amendment.
Lord McFall of Alcluith
My Lords, the aim of the exercise is contained in the Treasury Committee report, which said that an amendment was tabled on Report in the other place but that because of “insufficient time” the Minister did not give an answer. This amendment is to elicit an answer. I suggest that the Minister should think again on this issue.
The noble Baroness, Lady Kramer, said that there is a role for Parliament. If Parliament feels excluded, that does not augur well for the stability of the system. I understand that giving a veto to a parliamentary committee is a bold measure, so I understand the concerns being expressed. The noble Lord, Lord Turnbull, made the point that the Treasury Committee could make a recommendation and the House could look at it. There has to be either a formal or an informal way of including Parliament in this. My noble friend Lord Peston said that if the Governor of the Bank of England left, he would leave the country.
Lord McFall of Alcluith
If he was fired, that would happen. I bring not an exact parallel to the Committee’s attention. A number of months ago, comments were made by members of the present Treasury Committee about the chief executive of the Financial Services Authority. They felt that he was responsible for the demise of the Royal Bank of Scotland. A few weeks later the chief executive, Hector Sands, left. I do not know whether there was a causal relationship. I pointed out to Members of the Committee that if the environment in the other place is charged, it can have unforeseen consequences. Parliament therefore has to be considered.
Lord Peston
My Lords, perhaps I may interrupt as I misunderstood. In my judgment as an economist, the chairman of the Monetary Policy Committee is quite capable of doing some things via that committee that could destroy the whole economy of this country. However, as far as I can see, the rules are that he cannot be fired for that. He can be fired for going bankrupt and one or two other things, but there is no way he can be fired for making a mess of economic policy. I am pretty sure the Bank of England Act does not allow him to be fired for the reasons that my noble friend is raising. If we were asked if we could get him fired for a wrong policy, fine, but it is my understanding that the rules for firing a governor do not include a wrong policy. You may say that is a bit irrational but I am pretty sure that I am right.
Lord McFall of Alcluith
The rules do not include wrong policy and I never suggested that they did, but what I am saying is if there is a charged atmosphere in Parliament and there could be a scapegoat, perhaps the governor or a future governor would leave as a result of that. We must be mindful of that situation and I gave a parallel, if not an exact one, of what happened a few weeks ago on that particular issue. We also have the governor now being appointed for eight years. That was adopted after being suggested by the Treasury Committee and no one has commented on it in this Chamber. I think it is something which needs much more reflection from the Government.
The noble Lord, Lord Burns, spoke about the chairmanship of the court. I would suggest to the noble Baroness, Lady Wheatcroft, that this is a big challenge to the Bank of England, which at the moment is not perceived to have that challenge. That aspect of challenge is really important. I could give noble Lords an example from my time on the Treasury Committee. No names, but I was approached by the representatives of a number of non-executives during the financial crisis and asked if I would see them. They wanted to tell me about the situation on the board of their company and explain why no change was affected by them; my answer was, “Absolutely not. You’re on your own. If you’re a non-executive and you cannot challenge, you should not be on the board. You should leave the board as a result of that”. The aspect of challenge still resonates and we need that. It is the issue that the noble Baroness, Lady Kramer, was pointing to and the Minister needs to reflect on it.
The noble Lord, Lord Flight—if I can wake him up, no, I do not think I can—made the point about Mervyn King and economics teaching. He made the distinction that it was the economics teaching that was bad and not the present governor’s teaching—
Lord McFall of Alcluith
Yes, the former, exactly. Economics has lost its way on this issue. I would point the noble Lords to a good letter in the Financial Times yesterday that said economists are there for the well-being of society and that they forgot that. There needs to be a fundamental rethink of the economics curriculum. When Alan Greenspan appeared before the Senate, he said the intellectual edifice that was built up has now crumbled as a result of that.
Other noble Lords have made the point that Amendment 5 is going too far, but we need reflection on it and I can understand where people are coming from. The noble Baroness, Lady Kramer, raised the issue of Parliament’s involvement and pre-appointment consultation. I think the Government can do something in terms of pre-appointment consultation, whether it is overt or covert. I would suggest that if they do not want any further annoyance at the other end of this building, they should reflect on that issue and come back with something in terms of pre-appointment. It can be done, it is feasible.
Lord Sassoon
My Lords, just before the noble Lord, Lord McFall, sits down it may be worth being clear for the record that when I said the governor can be fired if he or she proves to be unfit to perform the role, that was completely right. In answer to the question from the noble Lord, Lord Peston, about whether the governor can be fired for wrecking the economy, I would suggest that at that point the Bank would probably decide that the governor was unfit. Without getting into a long debate about where unfitness comes into it, it is worth saying that at that point, unlikely though the scenario might be, wrecking the economy might lead the Bank to decide that the fitness test would apply.
Baroness Wheatcroft
I thank my noble friend the Minister for his reply; I confess I found it disappointing and I thank those noble Lords who spoke in support of my amendment. I was trying to find a simple means of showing that the court was held in some esteem and had powers to exercise. I do not doubt that informal conversations go on but I am slightly reluctant to rely on informal arrangements when we are trying to strengthen the corporate governance of the Bank. Not just to strengthen the corporate governance but to strengthen the perception of that corporate governance. I would ask my noble friend to think about this matter and maybe other ways in which he might strengthen perceptions of the corporate governance of the Bank. However, I shall not move my amendment.
Lord McFall of Alcluith
With a request to think again, I beg leave to withdraw the amendment.
The Deputy Chairman of Committees (Lord Brougham and Vaux)
Is it your Lordships’ pleasure that the amendment be withdrawn?
The Deputy Chairman of Committees
The question is that Amendment 5 be agreed to?
Lord Eatwell
“(2A) The Chancellor of Exchequer shall only appoint a person under subsection (2)(e) if he is satisfied that the person has knowledge or experience which is likely to be relevant to the Court’s functions and would enhance the diversity of the composition of the Court.”
Lord Eatwell
My Lords, I beg to move Amendment 7, which as noble Lords will see from the Marshalled List refers to the experience and knowledge of individuals appointed to the court; that the Chancellor should be satisfied that they have appropriate experience and knowledge; and that their presence would enhance the diversity of the composition of the court.
The immediate reaction to this amendment might be yes, of course, it is unnecessary; anyone who makes sensible appointments would do that sort of thing. However, if it is accepted, a statutory responsibility to ensure that the supervisory board or the court, whichever we have, has a diverse range of appropriate talents will be a crucial guideline that Chancellors must follow and when necessary justify.
The importance of this amendment lies in its combination of expertise and diversity. The crisis should have taught us all of the dangers of conventional wisdom. Conventional wisdom underpinned the decision-making in central banks and treasury departments throughout the world and Mr Greenspan’s confession of the way in which his decisions were distorted by a conventional view of risk analysis has already been cited by my noble friend Lord McFall. In building a successful court or supervisory board, we need the contrary, the awkward and the different to be part of the debate. This will not guarantee that we get it right but at least we will be more likely to than if we appoint a committee of well intentioned sound thinkers who all think the same way.
Diversity here is a reference to diversity of view of analysis and of opinion. There is no doubt that often diversity of view is correlated with other aspects of diversity, maybe of gender or of ethnicity. This is not what I am trying to get at here, it is diversity of view that I would like to suggest. It would be pointless, for example, to appoint a racially diverse, gender-diverse board, all of whose members happened to share the same analysis and views. The degree to which diversities are correlated will perhaps provide some guidance and inspiration for a Chancellor. This amendment is designed to be a permanent challenge to the Chancellor in the very important task that he or she has of deciding on the composition of the court and particularly the non-executive members of the court.
Baroness Liddell of Coatdyke
My Lords, I support Amendment 7. Looking at this amendment the casual observer might wonder why it is necessary. It makes perfect sense that you would not leave governance of the Bank of England—and therefore governance of the economy and our financial institutions—to a bunch of interested amateurs. Frankly, however, we have occasionally seen that happen with some of our financial institutions—we need only look at the trails of chaos over the years from banks such as Barings and onwards to the catastrophe of Lehman Brothers. If noble Lords wish to read a horror story they should read Michael Lewis’s The Big Short. I confess that I did not understand some of the complex derivatives being talked about until I read The Big Short, and I have spent most of my life in and around the world of economics.
It is critically important that there is a balance of knowledge, experience and expertise on the supervisory board, or whatever we choose to call it. It will need people with a wide range of competence, with experience ranging from macroeconomics to prudential regulation. It is a wide mix to put together.
The other side of the coin—a matter to which my noble friend referred—is diversity of opinion. In this case, as he pointed out, we are not talking about gender or ethnic diversity, although that would be very good to have. We heard an exchange within the past hour between two distinguished economists—my noble friends Lord Peston and Lord Eatwell—and there will undoubtedly be differences of view among any number of economists. I would love to throw behaviouralists into the mix of any supervisory board of the Bank of England. Quite apart from behavioural economics, it is how people react that can bring economic chaos.
The amendment may seem unnecessary because it is a no-brainer that you would seek to do this anyway. We have learnt along the way, however, that it is better to get such things written down. Then you will have a wee bit more of a chance of achieving them. I therefore support Amendment 7.
Lord Phillips of Sudbury
My Lords, I am afraid to say that I agree with the final remarks of the noble Baroness—it is a no-brainer.
I speak as a weary lawyer who is tired unto death of our legislation getting more and more prescriptive and complex as well as longer. If we cannot trust the Chancellor of the Exchequer to exercise sensible judgment in a matter of this kind then, frankly, he or she should not be Chancellor of the Exchequer. If, as it says in the amendment, the member has to add to diversity, what about integrity and independence? You could go on and on adding to and subtracting from the characteristics. I know that that is reflected in other parts of the 1998 Act but the amendment, for all its good intentions, is unnecessary and potentially disruptive.
If you want to play legalistics with this, you might ask what will happen if you have a full diversity of opinion on your board or court. Do you still have to add further diversity when you have got a full hand of diversity? As the provision is drafted here, you would. It is unpoliceable. For all those reasons, and despite its excellent intentions, I am against the amendment.
Lord Turnbull
My Lords, I direct this question to the noble Lord, Lord Eatwell. Does he regard Amendments 122 and 123—which were tabled by the noble Lord, Lord McFall, and refer to persons representing the constituent parts of the United Kingdom —as helpful or unhelpful to his cause? Are they helpful because they may add to diversity, or unhelpful because you would be choosing people on the basis of their geographical representation rather than their professional expertise?
Lord Sassoon
I hesitate in replying because the noble Lord, Lord Eatwell, might want to answer that excellent question. However, it is up to the noble Lord.
Lord Eatwell
If it is of convenience to the Committee I am quite happy to do that. The noble Lord—indeed, my old pal—Lord Andrew Turnbull, has put me on the spot here by placing me in opposition to some propositions put forward by my noble friend. I was very clear that I was seeking diversity of view. Where someone lives does not seem a basis for that.
Lord Sassoon
My Lords, that illustrates one thing about the amendment—that the ways in which people interpret its words are rather different, which in itself is not ideal.
The noble Baroness, Lady Liddell of Coatdyke, got it right when she said that it is a no-brainer, and we do not believe that it is necessary to make legislative provision for it. My noble friend Lord Phillips of Sudbury said so in vigorous and direct terms which I can only echo. On one level, I feel that I should say no more and sit down. Nevertheless, I should explain to the Committee exactly what is going on.
As the Committee may be aware, the Treasury’s Select Committee report into the accountability of the Bank of England concluded:
“The new responsibilities of the Bank will require its governing body to have an enhanced mix of skills”.—[Official Report, Commons, Financial Services Bill Committee, 21/2/12; col. 21.]
The Government agree with this conclusion and in their response to the Treasury Committee they committed to take it into consideration in relation to future appointments. We understand the concern underlying the amendment and have already taken it into consideration, including in the latest appointments to the court. For example, both Tim Frost and Bradley Fried bring extensive experience of financial services as practitioners to the court. However, I do not believe that it is necessary to make legislative provision for this.
I can assure the Committee that the appointments of non-executive directors to the court are fully regulated by the Office of the Commissioner for Public Appointments, OCPA, which ensures a fair, transparent and competitive process. The practical elements of the appointments process are run by the Treasury, with the most recent interview panel consisting of senior Treasury officials, the chair of court and an independent assessor. The Treasury seeks to find the best candidates for these roles. This means people with a deep and diverse range of experience in relevant sectors. This can be, will be and is achieved without a prescriptive legislative obligation.
Court appointments are advertised openly. Applications are sought from candidates with diverse experience and from a variety of backgrounds. For example, the role profile for the last NED vacancy sought people with substantial experience as board members or heads of functions in a major financial services organisation; and/or someone who had built up a successful enterprise of a significant size; and/or someone who had played a prominent role in a relevant area of public policy, the voluntary sector or a trade union.
I can assure the Committee that the decision is taken with full consideration of the impact on the broader composition of the court and the fit of each candidate within the make-up of the court as a whole. I hope the noble Lord feels that he can withdraw his amendment.
Lord Eatwell
My Lords, I am grateful to all noble Lords—except the noble Lord, Lord Turnbull, who ambushed me—who have commented on the amendment.
As to the other issues raised by the noble Lord, Lord Phillips, most issues of integrity and so on are covered by the committee on appointments in public life, to which the noble Lord, Lord Sassoon, referred. All those elements have to be taken into account. However, the issue that does not necessarily have to be taken into account is diversity of view, which I am particularly emphasising at this point. The noble Lord may feel it inappropriate to consider all these matters but, other than diversity of view, they already have to be considered under legislative structures.
Lord Eatwell
“( ) In section 2 of the Bank of England Act 1998 (functions of the court of directors) for subsections (1) and (2) substitute—
“(1) The Supervisory Board will be responsible for overseeing the development and execution of the objectives and strategic policies of the Bank of England, including monetary policy and stability policy, subject to instructions from the Treasury.
(2) There will be a Supervisory Board Secretariat, charged with providing economic, legal and monetary advice and research support to the Supervisory Board.””
Lord Eatwell
My Lords, the amendment stands in my name and that of my noble friend Lady Hayter of Kentish Town. It takes us back, because of the way in which the Bill is constructed, to the court or supervisory board of the Bank of England. The amendment lays out the roles of the court to specify more clearly than current legislation does the role of the supervisory board or court—let us leave that argument aside and concentrate on the body—which the amendment states,
“will be responsible for overseeing the development and execution of the objectives and strategic policies of the Bank”.
It relates, therefore, to the development of strategic policies, as is laid down with respect to the Financial Policy Committee, as well as to the objectives and strategic policies. They are subject always to instructions from the Treasury, which are defined in statute, as are particular responsibilities of the Monetary Policy Committee. The idea is to ensure that the board has the status that I think everyone who has spoken today feels that it should have. That is the first part of Amendment 8; the supervisory board or court would have that appropriate status.
The second part of the amendment—which proposes that the supervisory board should have its own secretariat,
“charged with providing economic, legal and monetary advice and research support to the Supervisory Board”—
arises because, I regret to say, the Bank of England has form in this area. In the early days of the Monetary Policy Committee, its independent members were denied access to satisfactory technical support. The Governor of the Bank of England at the time declared that if they should have suitable support, it would undermine the status of the Bank. It was only after a public outcry once the governor’s position was made clear that suitable economic and secretarial support was given to the independent members of the Monetary Policy Committee to enable them to do their job. The governor had prevented them having that support until there was a public outcry.
Members of your Lordships' House who have been non-executive directors of boards will know how important it is for the non-executive directors to be able to access independent advice at times in order for them to fulfil their proper fiduciary role. Having access to advice—whether it be legal or, in the case of the court of the Bank, economic and monetary—is a crucial part of the independent directors being able to do their job.
If the Bank had not behaved in this way in the past, I would not feel that the amendment was necessary, because one would say, “Well, of course, they should have appropriate support”. Unfortunately, however, important independent members operating within the structure of the Bank have not in the past been given the support that they needed to do their job. It is therefore important that independent members of the court should have access to the advice and research support that can make them effective non-executive directors. I beg to move.
Lord Tugendhat
My Lords, I support the amendment of the noble Lord, Lord Eatwell. He draws the lesson from what happened to the outside directors of the Monetary Policy Committee. It might be said that the Bank has learnt its lesson on that and that the situation will not arise in the future, but as I pointed out at Second Reading, the Bank has behaved unacceptably in relation to having an inquiry into its performance during the financial crisis. Whereas the FSA had an inquiry and the results were published, the Bank of England rather stuck to Montagu Norman’s axiom, “Never explain, never excuse”. The Bank of England is a fine and venerable institution, but it finds it difficult to change. Unless there is some provision of the sort that the noble Lord, Lord Eatwell, suggests, one cannot be sure that the supervisory board—or whatever it is going to be called—will necessarily have the economic, legal and monetary advice and so forth that is required. The role that it is taking on is complex. It will deal with highly competent officials in the Bank. It is essential that the non-executives on the supervisory board have absolute certainty that they have all the back-up they require.
When one looks at the demands being placed on non-executive directors of more normal financial institutions, it is clear that, if they are going to fulfil their functions, they will need much more back-up than non-executive directors were accustomed to in the past. Their responsibilities and accountabilities are greater and they will need absolute certainty and right of access. That applies to the Bank of England and I hope that the Government will take into account that, if we are to have proper governance, it requires proper support.
Lord Sassoon
My Lords, we debated earlier amendments tabled by the noble Lord, Lord Eatwell, which sought to convert the Court of Directors into a supervisory board. Following on from those amendments, Amendment 8 sets out some of the functions of that board. There is little between the noble Lord and the Government on the substance of the amendment, but my key argument is that the amendment is not needed because its most important parts are addressed by government Amendment 13.
Government Amendment 13, which I will talk to at much greater length when we get to it, will give the new oversight committee responsibility for overseeing the Bank’s performance against its objectives and strategy—precisely what the first part of Amendment 8 seeks to achieve. As for the second part of Amendment 8, I appreciate that in the past the Bank was slow to realise that the MPC members needed their own dedicated support. That lesson was learnt a considerable number of years ago, and both MPC and FPC external members now have access to appropriate resources. The point about the FPC is important and relevant because that has been created in shadow form only very recently.
We can see the considerable output that the FPC is already producing, which it could not possibly do without that support. I am wholly confident that the oversight committee will have sufficient support once it comes into being, and I do not believe that it is necessary to put it into the Bill. I ask the noble Lord to consider withdrawing his amendment.
Lord Eatwell
I apologise that I was temporarily distracted by other channels. I am heartened to hear that the Government feel that the Bank has learnt its lesson on the provision of resources. I still feel that it would be appropriate to provide that insurance, particularly legal advice, for independent members. Legal advice is crucial for non-executive or independent directors in any environment because they can so easily be outgunned by the executive in a way that ultimately is not beneficial for the institution as a whole.
By the way, I am heartened by what the Minister had to say about the definitions of the supervisory board’s roles, but we will come on to that issue in our detailed consideration of his Amendment 13.
I am sorry to be so roundabout in this respect, but going back to the issue of resources, I will consider what the Minister has said and decide what I will do on Report. In the meantime, I beg leave to withdraw.
Lord McFall of Alcluith
“Retrospective reviews of Bank performance by the court of directors
(1) Section 2 of the Bank of England Act 1998 (functions of court of directors) is amended as follows.
(2) After subsection (5) insert—
“(6) The court shall conduct retrospective reviews of the performance of the Bank with respect to its functions and objectives.
(7) The court shall determine the particular matters to be reviewed under subsection (6).
(8) The court must publish a report on each review carried out under subsections (6) and (7) unless the court decides that all or part of such a report should not be published for reasons of confidentiality or because it would endanger financial stability.
(9) When all or part of a report of a review is not published under the provisions of subsection (8), the court must—
(a) publish as much as possible of the report,(b) send a copy of the full report to the Chairman of the Treasury Committee of the House of Commons or, in exceptional circumstances, inform the Chairman of the Treasury Committee of the reasons for not sending it, and(c) publish the report or part of the report as soon as possible after the court decides that the considerations in subsection (8) no longer apply.””
Lord McFall of Alcluith
This amendment is about corporate governance and the best practices in corporate governance. The Treasury Committee has concluded that the corporate governance in the Bank of England is well short of that in the best public and private institutions. Given the concentration of the regulatory responsibility in the Bank of England, there need to be checks and balances.
The Treasury Committee has recommended a supervisory board, using the term “supervisory” rather than the term “court”. We had a debate about this earlier so I do not want to go over old ground, but this is not really about nomenclature but about powers and responsibilities. Frustration has been expressed over many years, by both parliamentarians and by people who have sat in the court, that the court is toothless. We need to make this an efficient body, so whether we call it an oversight committee or a supervisory committee is immaterial. It is about powers, accountability, best practice and corporate governance. That is the essence of the view in this amendment.
The supervisory court, as the Treasury Committee has recommended, should take an explicit view on the Bank of England’s budget, both in the level of changes to the allocation of resources and in prudential and monetary areas. The inclusion of experts on prudential policy, particularly for the chair of the board, is essential. The board currently comprises 12 members. It is a good suggestion to reduce that number to eight, because the best boards have smaller numbers, and 12 is rather unwieldy.
Lord Sassoon
My Lords, it may be helpful if I speak early in this group because there are substantial government amendments here. The Treasury Committee’s report last November concluded that the increased responsibilities given by this Bill to the Bank of England warranted another look at the Bank’s governance arrangements. The Bank’s Court of Directors has been statutorily responsible for managing the Bank’s affairs since nationalisation in 1946, albeit with some modernising changes brought in by the Bank of England Act 1998 and the Banking Act 2009. I expect the court, as it has done over the decades, to adapt and evolve to the Bank’s changing role, which was brought in by this Bill to enable it to continue to operate as an effective governing body.
However, we should not—and I am already clear from our Second Reading debate that we do not as a House—underestimate the court’s task. It must effectively oversee the transition to the new arrangements, ensure that the Bank is adequately resourced to meet its new responsibilities, and at the same time provide a vital link of accountability to Parliament.
Recognising this challenge, in January the court published its response to the Treasury Committee’s recommendations, proposing the creation of a new oversight committee made up of the court’s non-executive directors. The court accepted the Treasury Committee’s recommendation for retrospective reviews of policy, proposing that the oversight committee commission these reviews from expert external bodies. The court also accepted that an ex-post review or reviews be published, subject to the need to maintain appropriate confidentiality. In line with the Treasury Committee’s proposals, the court proposed to give the oversight committee the papers from the meetings of the MPC and FPC.
Some hours ago, the noble Lord, Lord Eatwell, somewhat mischaracterised the Government’s approach to governance. The Government’s position has been that governance is in the first instance for the Bank itself, but we have not sought to distance ourselves. We listened to the Treasury Committee’s and then to the Bank’s response and have come forward, in the light of those responses and the Second Reading debate, with these amendments.
Subsequent to both the Treasury Committee’s and the court’s response, the Chancellor agreed with the governor and the chairman of court that the oversight committee’s remit would be extended to encompass the commissioning of internal reviews of the Bank’s policy performance. Finally, as part of our response to the Treasury Committee and the Joint Committee that scrutinised the Bill in draft, the Government committed to considering further whether the proposed reforms ought to placed on a statutory basis.
My honourable friend the Financial Secretary to the Treasury restated this position in another place. As I said during Second Reading, the Government have now determined that that should be done, and we are tabling these amendments.
Amendment 13 writes the new oversight committee into the Bill, simplifying the governance structure of the Bank by subsuming the role and responsibilities of the existing committee of non-executive directors—the so-called NedCo—into the new oversight committee.
Subsection (2)(a) of new Section 3A provides that the oversight committee will be responsible for keeping under review the Bank’s performance in relation to its objectives and strategy. This includes both monetary policy and financial stability, including the responsibilities of the MPC and the FPC.
Subsections (2)(b) and (c) give the oversight committee responsibility for overseeing the Bank’s financial management and internal financial controls, and subsection (4) lists a number of additional responsibilities in relation to the procedures of the MPC and the FPC and the terms and conditions and remuneration of key posts within the Bank. I hope that when we hear from the noble Lord, Lord Eatwell, he will accept that that provision fulfils the purpose behind his Amendment 29, which would make the non-executive committee of court responsible for overseeing the activities as well as the procedures of the FPC.
The oversight committee will be made up of all the non-executive directors of court, but in some cases it may be inappropriate for particular directors to have an active role in certain of the oversight committee’s functions. For example, a director of court who is also an external member of the FPC—as is the case with Michael Cohrs at present—should not have a role in directly overseeing the FPC’s performance. Subsection (4) of new Section 3B therefore allows the oversight committee to delegate any of its functions to two or more of its members.
New Sections 3C and 3D give the oversight committee an express power to commission and publish external and internal performance reviews. I hope that that satisfies the noble Lord, Lord McFall of Alcluith, whose Amendment 11 is also intended to implement the Treasury Committee’s recommendation for retrospective reviews of the Bank. In fact, in a number of respects, government Amendment 13 in the names of the noble Lord and my noble friend Lady Noakes goes further than that. Amendment 11 relates only to reviews carried out by the court itself; whereas Amendment 13 provides for reviews to be commissioned from an external person, such as an academic or independent expert, or from an officer or employee of the Bank itself.
I also note that Amendment 11 is limited to reviews of past conduct; whereas government Amendment 13 allows reviews of current practice to be carried out that may be appropriate to the functions of the oversight committee in the financial management and internal financial controls of the Bank.
Consistent with the Treasury Committee’s recommendations, subsection (5) requires the oversight committee to ensure that sufficient time has elapsed before commissioning any review, to allow it to be effective and to avoid impeding the ability of the Bank to continue to operate effectively while the review takes place.
In line with the Treasury Committee’s recommendation and the amendment tabled by the noble Lord, Lord McFall of Alcluith, new Section 3D would require the oversight committee to publish its reviews, unless publication would be against the public interest. Published reviews will also be laid before Parliament. Where publication of all or part of a review is delayed, the oversight committee must keep that decision under review and publish that material as soon as the sensitivity has reduced.
New Section 3E requires the oversight committee to monitor the Bank’s response to the report and ensure that it fully implements recommendations that it accepts. That gives the oversight committee an explicit role in ensuring that reviews translate into real action, and that the Bank fully takes on board the lessons learnt.
The Treasury Committee recommended that non-executives have access to all papers considered by the MPC and the FPC. New Section 3F implements that recommendation and goes even further by allowing members of the oversight committee to attend all MPC and FPC meetings in order to observe their discussions.
The remainder of the new clause and government Amendments 28, 30, 33, 91 to 96, 98, 99 to 101 and 145 to 147 make consequential amendments to implement the new oversight committee, and I do not intend to take up the Committee’s time by making any further reference to them.
In conclusion, the Government fully recognise the importance of strong lines of accountability for the Bank, given its expanded responsibility and powers. The amendments represent the most significant legislative reform of the governance arrangements of the Bank of England since nationalisation, and on that basis I hope that the Committee will support them.
Lord Phillips of Sudbury
My Lords, in the provisions setting up the oversight committee, which obviously has a hugely important and wide-ranging job to do, my noble friend mentioned the right of delegation in new Section 3B, but that is limited to two or more of its members. He mentioned under new Section 3C the right of delegation of a review to a person whom the committee can appoint. May there be wisdom in having a slightly wider power of delegation, so that one could under new Section 3B have an outside person or persons as part of that sub-committee and, in new Section 3C, more than one delegated reviewer? There may be occasions when that would be helpful.
Lord Sassoon
My Lords, I think I have covered the point but perhaps I can reflect on that and respond to it, because I suspect that the Committee might want me to respond to other points after we have heard the debate.
Lord Flight
My Lords, I welcome both the amendment tabled by the noble Lord, Lord Sassoon, on behalf of the Government and Amendment 11, in providing for reviews of the conduct of the Bank of England. A review covering mid-2007 to date is well overdue. However, I note, quite correctly, that the amendments come with the caveat that anything that would be against the national interest if it were published may not be made generally available. The one issue that I do not really understand is the need for yet another committee. Why cannot the board of the Bank of England discharge the roles of the oversight committee? The board of a regulator would normally do that, in my experience, so adding yet another body seems slightly unnecessary. I noted the point that there may be some people on the court of the Bank who cannot review themselves, but I do not really see that as a problem. If somebody on the court was, for various reasons, prejudiced against doing some review or other, that is fine and they would not participate. I am nervous about proliferating committees, and I would welcome the Minister’s explanation as to why this cannot be a duty of the court.
Lord Hodgson of Astley Abbotts
My Lords, I found this amendment attractive because it seemed to be very direct and to provide a very important check. Having served on the boards of companies, it is extraordinary how often you find in the post-investment assessment report, which is what we are talking about here, that you have not quite landed up where you thought you were going when you set the policy and made the decision in the first place. That is a very important issue. As my noble friend Lord Flight has just said, the court is the body responsible, and it is perfectly possible when dealing with a matter that may be sensitive, such as individual directors’ conduct, for appropriate arrangements to be made to avoid that. I am not entirely convinced of the need for an oversight committee, and I am not sure that it cannot be carried out within the arrangements of the court as it stands.
I am very grateful to my noble friend for the extensive answer that he gave. Perhaps I might raise one point about proposed new Section 3D, on publication. Subsection (1) of the proposed new section says:
“The Bank must give the Treasury a copy”.
I do not want to sound cynical, but one wants to be able to ensure that this can come out unimpeded. One does not want to find that the hidden hand will be able to say, “Actually, it’s most inconvenient if you say this. We’d like this to be doctored, monitored, removed or dealt with in one way or the other”. The “public interest” referred to in proposed new Section 3D(3) is always a useful cosh to avoid things that are not necessarily against the public interest but may be simply embarrassing at the time. When he comes to speak further, can my noble friend give an assurance that my cynicism is unfounded and can he address the point made by my noble friend Lord Flight about the proliferation of committees?
Baroness Kramer
My Lords, I join with the comments made by the noble Lord, Lord McFall, and I have a couple of quick comments to make on this very substantial proposed new section. I have two queries on it, which I wonder whether the Minister can clarify. The oversight committee, as he conceives it, is to be chaired by the chair of the court. Am I correct in understanding that he expects this to be a non-executive chair? Although there is currently a non-executive chair of the court, the Minister will know that I have concerns about the Banking Act 2009. In Part 7 of that Act, Section 241 seems to be quite ambiguous about whether that is a requirement or merely in the gift of the Chancellor. If I am right, I hope that that can be corrected at some later stage of the Committee.
My second set of comments concern proposed new Section 3C(5), on performance reviews. When the cynics among us—I am afraid that I confess to being one—read a phrase that says:
“In the case of a performance review, the Committee must have regard to the desirability of ensuring that sufficient time has elapsed … for the review to be effective”,
the Minister will understand that there is an element of thought that that could mean the long grass, if we are not careful. Paragraph (b) of that proposed new subsection,
“to avoid the review having a material adverse effect on the exercise by the Bank of its functions”,
could be read as “no serious criticism required”. I would like some assurances from the Minister that that is not a possible reading.
The Minister will understand that some of those concerns are reinforced by widespread criticism of the delay, under the current banking structure, of the three reviews that were started in May this year. Seeing those reviews now in place, it seems an awfully long time since the financial crisis. There are also real questions about the scope of the reviews, particularly the review looking at the provision of emergency liquidity assistance in 2008-09. Many of us would have asked, “Why did this not start in 2007?”. Notwithstanding the fact that the Treasury Select Committee has looked at that, it is surely not a substitute for the Bank of England or the court doing the work itself. There are concerns in that area, and I look for reassurances from the Minister.
Baroness Drake
My Lords, perhaps I might ask the Minister a very brief question. Proposed new Section 3E(2) says:
“The Oversight Committee must … if or to the extent that the Bank accepts the recommendations, monitor the implementation of the recommendations”.
My question is very simple. If the Bank does not accept the recommendations, what then happens?
Lord Burns
My Lords, I, too, support the burden of this amendment. It is a subject that a lot of us spoke about during Second Reading, and this is an important part of strengthening the governance of the Bank of England, which we have been speaking about for much of the afternoon. The things set out here have the ability, over time, to change quite substantially the relationship between the non-executives and the executives at the Bank. I think we all agree that that will provide a better balance, given the wide-ranging powers that the Bank of England will have. The proposed new section sets out some of the important issues about making reviews of policy performance, which lie at the heart of this, and the engagement of the non-executive directors in what has been happening from a policy perspective within the Bank. The suggestions about publication and handling recommendations would also be extremely helpful.
The very same question raised by the noble Lords, Lord Flight and Lord Hodgson, also came to my mind. Why does one need a separate oversight committee for this, rather than handling it within the board itself? I have sat on a lot of boards by now and I have never found a problem with engaging with this kind of activity. Within a unitary board, people know the occasions when they must remain silent or absent themselves and who is in a position to do that. It is very much about commissioning reviews, as set out here. It is not as if one is suggesting that the directors themselves would be conducting the reviews, but they are going to be commissioning them, either from inside or outside the Bank.
It seems to me that the only argument arises from the scepticism that we have heard from many noble Lords about the entrenched position of the executives relative to the non-executives of today. Therefore I understand why the Government might think that this is a way of bringing confidence to this process. However, over the long term, I hope that it could be done within the remit of the board as a whole, because that gives confidence within a unitary board; confidence between the executives and non-executives that, together, they can review what has happened in the past and can learn the lessons of the past so that an attitude of confrontation does not develop between one set of people reviewing the performance of another set. However, I understand why it might be right at this point.
Lord Phillips of Sudbury
Is the noble Lord not assuaged in his point about the unitary board by the fact that it explicitly says here that the oversight committee is a sub-committee of the court?
Lord Burns
The committee consists only of the non-executive directors; the executive directors will be there, in a sense, only in attendance. It can work. Normally within a board, if it was doing this kind of review, it would be the non-executive directors who were in the lead and making the running. I have found from experience that one should do everything one can to keep the executive and non-executive directors together when one is handling these kinds of issues and trying to learn lessons from the past. We do not want a situation where one part of the board feels that it is being picked on by another. However, given the level of distrust that we have heard this afternoon from many noble Lords about this, I can understand the concerns that, if the Government had brought forward the proposal in the sense that a number of us suggested, they would have come up against the pressure of saying, “Well, it will simply be controlled by the executive directors, in the end, if it is done that way”. Over time, however, a well functioning board should be able to handle these kinds of policy reviews within the whole of the board. That is the best way of learning longer term lessons from these experiences.
Lord Tugendhat
My Lords, I agree with what the noble Lord, Lord Burns, has just said. This is an admirable amendment, and I agree with almost all of it. There is one point I am going to raise in a moment, but I do not see why it cannot be done by the court. The fact that the Government have gone to all this trouble to set up a committee instead of leaving it in the court means that one wonders what lies behind it. It seems to be diminishing the authority of the court in some peculiar way. I do not understand the purpose; if the court consists of the directors of the Bank, it seems very odd. That is one point. Otherwise, however, I agree with the thrust of this amendment.
I would like to point out to the Minister an inconsistency in his approach. In a couple of the previous amendments that we have discussed, he told us that what is being suggested is unnecessary, because, of course, the Government would behave in a proper fashion. They would consult everybody, including the chairman. There is no need to be specific in saying that the chairman should be consulted on the appointment of the governor. There was another occasion when the Minister said that there was no need to be specific. Yet here the Government say,
“If the person to be appointed to conduct a performance review is an officer or employee of the Bank, the appointment requires the consent of the Governor of the Bank”.
Lord Turnbull
My Lords, we have a great deal of common interest here that would advance the position of the court. We have two rival schemes, one in Amendment 11 in this group, the other tabled by the Government. We can mix and match here. The sense is that we prefer the Amendment 11 reference to the court, but we prefer the amendments in the government group, particularly about whether these amendments are made using internal or external resources, or whatever. If we put these two things together, we have a rather good scheme.
Lord Phillips of Sudbury
My Lords, I want to enlarge on the question I asked my noble friend just before he sat down. The point has been made from different quarters of the House about the desirability or otherwise of having yet another committee. However, whichever way that argument goes—and I note the rather odd situation that this oversight committee is to be a sub-committee of the court, and the composition of the court and the composition of the oversight committee are precisely the same—
Lord Phillips of Sudbury
I see:
“There is to be a sub-committee of the court of directors … consisting of the directors of the Bank”.
It is not all the directors, some of the directors. I have got you.
Lord Sassoon
I have been restraining myself from clarifying a number of other points, but I think that there is perhaps a point that will help the Committee. A director, as defined, is a non-executive director, so the executive members—the governor and the deputy governors—do not, under the definitions here, count as directors. It is only the non-executive directors, which may help my noble friend.
Lord Phillips of Sudbury
I am grateful for that, and I apologise for the error. However, I want to reinforce the importance of extending the power of delegation under new Section 3B. That could be very important to the work of the committee and strengthen it because it would bring in outside voices and give strength to its deliberations. I hope, therefore, that the Government may review this and decide to extend the power of delegation, not just to members but to outsiders as well. Subsection (3) already provides that outsiders can attend and speak at meetings of the committee, but to be members of a delegated body is crucial, as, indeed, in the review structure under new Section 3C, it would be helpful on occasions to have more than a single person appointed to conduct a review. If it is a complex review, there could be a lot of point in having a small team of three. At the moment that is not permitted by the wording of new Section 3C.
Lord Eatwell
My Lords, I welcome Amendment 11, which is the Treasury Select Committee amendment, put down by my noble friend Lord McFall and the noble Baroness, Lady Noakes. I also welcome the government amendment, which is taking us forward on this vexed issue of the governance of the Bank of England. I regard that as a general welcome, notwithstanding any criticisms or questions I may later have about some particulars of the amendment.
However, before getting into the discussion of Amendments 11 and 13, I reiterate the question raised by the noble Baroness, Lady Kramer, with respect to Section 241 of the Banking Act 2009, where it appears that the chair of the court is in the gift of the Chancellor of the Exchequer. There is nothing in that clause to suggest that the chair must be one of the non-executive members.
Baroness Kramer
I have tabled Amendment 98A, which I think fixes the problem, although it may be fixed by the Government before we get to that point.
Lord Eatwell
Let us hope that it is fixed by the Government, to general approbation.
I turn to Amendments 11 and 13. The noble Lord, Lord Turnbull, perhaps hit the right note when he said that there are elements of each of the two amendments that, if combined, could be turned into a truly satisfactory structure for this activity. As far as I can see, there are three crucial differences between the amendment proposed by my noble friend Lord McFall and that put forward by the Government. The first, as several noble Lords have pointed out, is that my noble friend’s amendment refers to the Court as a whole. Secondly, the Government’s approach would not allow the proposed oversight committee to consider the merits of the policy pursued by the Bank, a point that could be considered under Amendment 11. Furthermore, there is a third point: the Government’s approach does not commit anyone other than those internal to the Bank to know if a report is lying somewhere gathering dust, unpublished because of some concern about the public interest. Surely this is not the best way to grow confidence in the procedure, and the suggestions made in Amendment 11 would give some confidence that if reports were not published, at least there was some outside overview of the report and the reasons why it would not be published.
Given the detailed scope of the Government’s amendment, I am going to concentrate on its provisions. This represents a major concession, finally forced out of the Bank through gritted teeth by the criticisms of the Treasury Committee and the Joint Committee, to some sort of oversight of its actions. As the Committee will be well aware, the Bank has severely damaged its own reputation, as several noble Lords have said, by its persistent refusal to conduct a proper, wide-ranging review of its conduct in the run-up to the financial crisis. There was the downsizing of the financial stability department, for example; its obsession with moral hazard during the crisis when what was urgently needed was a recapitalisation of the banks; and indeed since the crisis the governor and others have persistently suggested that they knew what was going on but either did not have the tools to respond or were not loud enough in their protestations. I must say that that seems to be a derogation of duty.
So the Bank has form that has been damaging both to itself and to the effective development of stability policy and the British economy. It would greatly help the Committee if the Minister would specify precisely in what ways the proposal for an oversight committee now before us differs from the proposals first advanced by the Bank in January. Has the Treasury added to or subtracted from the bank’s suggestions, and what are the implications of the Treasury’s modifications? Can we now have confidence that the Bank will not only learn from its mistakes but have sufficiently critical procedures in place that it learns before making them?
I am afraid that my confidence in these proposals was severely undermined by the Bank’s own commentary on the proposed oversight committee:
“It is vital that the Oversight Committee does not seek to second guess the decisions of policymakers themselves. The passing of such judgements could threaten the relationship of trust that is necessary between policymakers and the Oversight Committee. Were the Oversight Committee to be seen to ‘take sides’ in the policy debate, those policymakers from whom it differed would be less likely to trust as independent its judgement of whether proper processes were followed”.
I think that that is nonsense. I really had no idea that policymakers in the Bank were such delicate flowers that they could not withstand a little robust assessment of their decisions.
On several occasions today, Members including myself have quoted from the evidence of Mr Greenspan before the US House of Representatives, when he said:
“This modern risk management paradigm held sway for decades. The whole intellectual edifice, however, collapsed in the summer of last year”.
At least Mr Greenspan had the guts to stand up and admit what was true for every central banker: that this was an intellectual failing, and analysis and judgments were wrong. That is why it is imperative that the oversight committee has the powers to penetrate groupthink at the Bank, to assess and evaluate analysis and judgments and to create a framework in which the institution can learn and adapt in the rapidly changing environment of financial markets. As the Treasury Committee itself said:
“It is unrealistic to suppose that an oversight body could plausibly be expected to commission an external review of a policy decision without assessing the substance”,
of that decision.
What is the full significance of the phrase,
“keeping under review the Bank’s performance”,
in new Section 3A(2)? Will it enable the oversight committee to review the judgments of the Financial Policy Committee as defined in proposed new Section 9C and the Monetary Policy Committee as defined elsewhere? For example, does the expression “duty of the FPC” include the tasks set out in new Section 9C(2)? Does the review of strategy include the right to criticise the intellectual framework used by the Bank in pursuit of its responsibilities under new Section 9C and the proposal of alternative frameworks? In other words, can the oversight committee do exactly what the Bank said it did not want the committee to do when it reviewed the proposal?
Then there are the phrases that the noble Lord, Lord Tugendhat, has referred to in respect of an office or employee of the Bank who could conduct the review but who has to be approved by the governor. I find that rather disturbing; surely if there is an employee who is truly competent and is chosen by the court and/or the oversight committee, and that employee may end up criticising some judgments of the governor, it is not appropriate that the governor should be able to approve that person.
As my noble friend Lady Drake pointed out, under new Section 3E(2) the oversight committee must monitor the Bank’s response and, to the extent that the Bank accepts the recommendations, monitor their implementation. As she pointed out, it is not at all clear what is going to happen if the Bank rejects the committee’s report. What is the committee supposed to do, slink away with its tail between its legs? What is supposed to happen in this case? What of the oxygen of publicity? As I have already commented, new Section 3D makes clear that the Bank may choose not to publish a report. That is entirely understandable in particular circumstances, but surely an outside eye needs to be cast over that decision, as my noble friend Lord McFall and the noble Baroness, Lady Noakes, have suggested.
I shall briefly address Amendment 29 in this group, which is in my name and that of my noble friend. Given what I have said already, the point of the amendment should be clear. As the Bill is presently drafted, the oversight committee would be able to keep only the procedures of the Financial Policy Committee under review. If that clause is inappropriate, as the Minister suggested in his introductory remarks, surely it should not be there or it should be appropriately amended. Proper oversight should be able to keep all the activities of the Financial Policy Committee under review. Once again, the Treasury seems to be unreasonably constraining the scope of oversight. The Minister shakes his head; I am delighted, but then why is the clause not amended?
I should refer to Amendment 31, which was put down in my name and that of my noble friend, and I was delighted to see that the noble Lord, Lord Sassoon, added his name to it. I regret that I have had to express such caveats regarding the Bank’s and indeed the Treasury’s motives in the design of the oversight committee but, as I said earlier, this is really because the Bank has let itself down and done itself significant reputational damage in failing to be open about its own failings in the crisis. A way of repairing that damage would be to develop an effective supervisory board, the court, with a proper strategic role including the oversight function, which I commend the Government for proposing.
I have raised these issues for clarification. I want to be clear that we have not been stuck with the proposals that the Bank itself put forward in January, and that the issue of oversight really would be as comprehensive as the noble Lord suggested. I hope that the Government consider the proposition put forward by the noble Lord, Lord Turnbull, and see that there are merits in both these amendments, and that by combining them later on in the development of the Bill a truly satisfactory structure could be attained.
Lord Sassoon
My Lords, in most senses I am very grateful for the number of questions. I am also grateful for the general welcome that there has been for the Government bringing forward this very important series of amendments to the way that the oversight and governance of the Bank operate. We are coming to one of the key parts of this Bill. I am grateful, therefore, for the general support from around the Committee for what we are trying to achieve here. Let me reassure noble Lords that a lot of their concerns have been thought about and are adequately dealt with, although there are one or two things on which we have consciously taken a particular course, which not all members of the Committee would agree with.
Let me start by reassuring my noble friends Lord Flight, Lord Hodgson and Lord Tugendhat, and others, that we are certainly not creating any new body here. The committee of non-executive directors of the court, the so-called NedCo, already exists; we are folding that committee’s responsibilities into the new oversight committee, so we are not proliferating committees.
I have considerable sympathy with the position of the noble Lord, Lord Burns. To summarise his position, it is that in fact a mature board can do all of this without effectively throwing the executives out of the room. There is, however, a long tradition within the governance of the Bank of this critical role of NedCo, which has been accepted and not seriously challenged over the years, combined with calls from all sorts of quarters, including the Treasury Committee, to do it in the way that we are doing it. We have had calls for a supervisory board from the noble Lord, Lord Eatwell, and others, which have a similar end. Many, therefore, both in this House and in another place, have been calling for this separation.
Yes, I understand that in the best of all worlds it should not be necessary, but the Government have responded to the calls for this separation between the executives and the non-executives to carry out the oversight role. We believe that we have done it in the most efficient and effective way here by not creating new committees and additional complexity. Neither have we chosen to do it in what I would suggest would be another inappropriate way—namely, to have a supervisory board, which is itself composed only of non-executives. All these considerations, therefore, have been factored into the basic construction here.
In terms of the basic construct, my noble friend Lady Kramer asked whether the Chair of Court would be executive or non-executive. It will be non-executive. I am aware that my noble friend has identified a possible lack of clarity by reviewing the existing legislation, and I know that she has tabled an amendment on this that we will debate later. However, the intention is very clearly that the chair will be non-executive.
I will take some of the other key points. My noble friend Lady Kramer asked whether new Section 3C(5) would mean that the committee should avoid criticising the Bank. That is absolutely not the case. The section only relates to the timing of reviews, and it is sensible to provide that, in deciding when to carry out a review, the committee should consider whether having a review at that time would disrupt the ability of the Bank to do its job properly. My noble friend also went back to questions about why the Bank had been so tardy, and about the scope of the reviews it recently commissioned. I would suggest that that illustrates why this amendment is appropriate and will make the whole position much clearer and different with this remit on the oversight committee. Without debating the rights and wrongs of the timing and the scope of reviews that have recently been commissioned, this amendment very much deals with that concern.
The noble Lord, Lord Eatwell, raised a concern about the scope of the work here, and what is kept under review. As he helpfully clarified, Amendment 29 seeks to require the non-executive committee to oversee the activities of the FPC. That is precisely what the Government believe Amendment 13 achieves as it makes the oversight committee responsible for overseeing the Bank’s performance against its objectives, including the FPC’s pursuit of its objectives. I believe, therefore, that in drafting its scope, that concern is taken fully on board.
My noble friend Lord Phillips of Sudbury asked questions on the ability of the committee to delegate, and on the interaction of new Sections 3B and 3C. These are different points, and therefore the construction here works as it was intended. New Section 3B allows the committee to delegate its own functions to two or more members of the committee. That is a different point from that in new Section 3C, which allows the committee to appoint, not to delegate, others—either an individual or a group—to undertake reviews of Bank performance. Therefore, the drafting works on that point and deals appropriately with the concerns that my noble friend expressed.
As regards the concerns around these processes, a number of points have been raised about possible redaction or disagreement with recommendations and so forth. The noble Baroness, Lady Drake, asked what would happen if the Bank did not accept recommendations that had been made. If that were the case, it would certainly be made public that the Bank had rejected a recommendation. I would expect that any such decision would therefore be subject to very close scrutiny, including appropriate parliamentary scrutiny. That would work in a very similar way to the scrutiny that surrounds government responses to independent and other reviews. There is no way that the Bank could walk away from proper challenge in such circumstances.
Baroness Drake
On that point, I am sure that it would leak or become obvious but what is laid before Parliament is not the report that the Treasury receives but the report that the Bank publishes. This provision allows for the Bank not to publish on the grounds of its view of a public interest issue.
Lord Sassoon
My Lords, it is generally accepted that carve-outs are needed, particularly in relation to the time-sensitivity of reports. As I have explained, this is very tightly circumscribed and the question of when it is appropriate to publish must be kept under review. The publication of the report, or any delay to that publication, can be achieved by the Bank only in those very circumscribed circumstances. They must keep publication under review. Therefore, there will be publication and appropriate challenge at the earliest appropriate time. It is difficult to see what the circumstances might be in which the Bank’s not agreeing with a recommendation would justify non-publication. There is proper but not excessive protection of the position here.
There was also a question from my noble friend Lord Hodgson about the Treasury’s possible ability to step in and in some way redact or hold back reports. The Treasury has no powers here. It merely receives a report. It is up to the Bank, again on public interest grounds, to hold back parts or the whole of a report. I should not say that I quite understand my noble friend’s cynicism about references to the Treasury because I certainly do not. However, I understand why he has properly raised the question.
I think I have already touched on this point but the noble Lord, Lord Eatwell, specifically referred to proposed new Section 3A and whether the government amendment allows the committee to consider the merits of the Bank’s action. Proposed new Section 3A provides that the committee is to keep,
“under review the Bank’s performance in relation to … the Bank’s objectives”.
I reiterate that the main concern here has been addressed.
On the broader question of what the Government have done not only in relation to the Treasury Committee but about the recommendations that the Bank made in January, there is nothing that I can add to what I said in my opening remarks, in which I attempted to be very clear on that point.
Lord Eatwell
Perhaps I can clarify the question for the noble Lord. The question is really about whether the oversight committee could pass judgment on the decisions of policy-makers. As the Treasury Committee put it:
“It is unrealistic to suppose that an oversight body could plausibly be expected to commission an external review of a policy decision without assessing the substance”.
This is what the Bank objected to in the initial form of the oversight committee. Has the Treasury put aside the Bank’s objections, and can the oversight committee now refer to make its assessment of the substance of policy decisions?
Lord Sassoon
Let me address this very directly. The requirement for the oversight committee to ensure that sufficient time has passed before commissioning a review is there precisely to ensure that it does not put itself in the position of second-guessing the Bank’s decisions when those decisions are still playing out. After that point, it will be appropriate to assess the effect of those decisions, but while they are playing out it will not be possible effectively to estimate how they are playing out and it would be inappropriate to do so. The way that the amendment is drafted is precisely consistent with the Treasury Committee’s recommendation that the reviews be retrospective, rather than in any sense contemporaneous.
I hear clearly what the noble Lord says: there is a difficult balancing act here, between allowing the oversight committee the ability to question everything and not boxing it into questioning the judgments that have been made on policy decisions. Yes, it can challenge and review judgments on policy decisions but it should not be boxed into doing so while the consequences of those decisions are playing out. In substance, that is what the Treasury Committee recommended.
Lord Eatwell
Let us focus this by taking a concrete example. It is now generally accepted by everybody except the Bank that the Bank made some calamitous decisions shortly before, or in the process of, the collapse of Northern Rock. Various statements were made by the governor that accelerated the run on the bank. The continuous reference to issues of moral hazard when the bank needed recapitalising did significant damage in that case, and that damage reverberates to this very day.
Now that significant time has passed, suppose we were to commission a review of the Bank’s activities at that time. Would it be permissible for the oversight committee to say, “Look, this decision was made on the wrong analytical grounds and was a serious mistake. The Bank should readjust its perspective to think in a different way. Perhaps it should introduce some other analytical tools so that that mistake is not made again”? Would that be appropriate?
Lord Sassoon
My Lords, without wanting to endorse the conclusions of the noble Lord, Lord Eatwell, from the experience in 2007, yes, of course it would be possible and appropriate for the oversight committee to conduct or commission that kind of review. Without detaining the Committee for much longer, I will address a couple of other points.
Lord McFall of Alcluith
Could the Minister point to where his amendment says that that would be allowed? Looking at proposed new Section 3A(2), I can imagine a very sterile debate between the oversight committee and the Bank or the governor. The function of the oversight committee is to keep,
“under review the Bank’s performance in relation to … the Bank’s objectives”.
If it asked, “Did you stick by your objectives?”, the Bank answered, “Yes”, and the committee said, “We don’t think you did stick by your objectives”, where would it go on that issue? The committee could ask, “Did the Financial Policy Committee do its duty under Section 9C?”. The answer could be, “Yes, it has”, or, “No, it hasn’t”. The Minister needs to point to areas that would allow for the questions that my noble friend Lord Eatwell has asked.
Lord Sassoon
My Lords, I think the critical point here is that the noble Lord, Lord McFall of Alcluith, posited a situation in which this would be, in his words, a sterile debate with the governor. It goes perhaps to the heart of the question that I started with as to why the oversight committee is a committee of the non-executives. It means that it is the oversight committee without the governor or any of the executives of the Bank being members of that committee that takes the decision, under this provision in Amendment 13, to commission reports over a very wide area. So there is no question at the front end of a negotiation with the governor and the executive about whether they would commission a report in those circumstances. That is for the oversight committee to do. We have discussed the timing issue. The report is made and, subject to the issues that we have already discussed, the report is published. I can assure the noble Lord, Lord McFall, that there is no negotiation to be had at that front end. The non-executive oversight committee of the court of the Bank will have a very clear statutory function to take precisely what is proposed in new Section 3A, and it will be untrammelled by any possibility of the sort of sterile debate that the noble Lord suggests might happen. I hope that that reassures him.
I want to address a couple of other points, largely people issues of two kinds here. My noble friend Lord Tugendhat and the noble Lord, Lord Eatwell, questioned the need for the governor to consent to the appointment of an internal reviewer. This is intended to be a perfectly straightforward and practical measure. In practical terms, if the person selected is on the verge of leaving the Bank for another post, going on sabbatical or maternity leave, or whatever, the non-executive directors on the court may not necessarily be aware of this, and it is a practical way of ensuring that the appointment works. It also provides the governor, as the person ultimately responsible for the staff who work for him or her, with the opportunity to determine whether the person selected has the capacity to undertake the review in the timescale envisaged without impacting their other responsibilities. There is no more to it than that.
Lastly, I go back to a point which I believe the noble Lord, Lord McFall of Alcluith, made at the beginning about the size of the court. It is not directly the subject of this amendment, but I think that it is worth answering that point. Given that there will be four executive members—the governor and three deputy governors—if the court were reduced to eight, it would not allow for a non-executive majority because we have four insiders on the court. More generally, if there were such a small number of non-executives, it would be difficult to have sufficient diversity of experience and views, which was a point that we discussed earlier and which I completely agree with. If we had a reduction in size, it would be impossible effectively to have a non-executive majority or indeed, as I say, sufficient diversity.
I hope that I have been able to deal with the very understandable and important questions and concerns on this issue so that the noble Lord, Lord McFall, might see his way to withdrawing his amendment and the Committee will support the Government’s amendments.
Lord Eatwell
My Lords, is the Minister accepting my Amendment 29? He seemed to say that it was referring to the right sort of thing. If he is not accepting it, why is proposed new Section 9B(4) left in the form that it is, referring only to procedures? I have another question, but would he answer that one?
Lord Tugendhat
May I add a question so that the Minister can answer both together? The Minister is dealing with these matters with such grace and elegance that I feel very bad in questioning his or the Government’s motives in any way. Nevertheless, when we were dealing with the question of whether the chairman should be consulted on the appointment of the governor, basically what the Minister said was that reasonable people will behave in a reasonable fashion and there is no need to spell all this out, because it will be done in the normal course of events. Here he is insisting on absolutely spelling it out so that in practice the governor has a block. Of course I agree that in a properly run organisation, as I am sure the Bank would be, an employee would not be appointed contrary to the wishes of the governor; the relationship between the chairman and the governor would overcome that. None the less, to give the governor an absolute block is a sort of belt and braces that is completely at odds with what the Minister said in an earlier discussion. That means that one does look with some suspicion as to why, as I said earlier, there is one sauce for the goose and another for the gander. If he wants to spell it out here, why could he not spell it out earlier?
Lord Sassoon
My Lords, in legislation we come back regularly to this question of what needs to be spelled out and what does not. Elegantly or otherwise, I am not sure what more I can say other than that we have to take each case on its merits. Sometimes there are good arguments for spelling things out and at other times there are not. I know that I will disappoint my noble friend and it is a perfectly fair question, but I am not sure that there is much more that I can usefully add.
On the question from the noble Lord, Lord Eatwell, about Amendment 29, I will be clear. I do not accept Amendment 29 because I do not believe that it is necessary. I believe that Amendment 13, which I thought was helpfully clarified during this debate, more than covers the ground. I refer the noble Lord in particular to proposed new Section 3A(2)(a), which I would suggest makes it clear right at the beginning of the Government’s amendment that the function of the oversight committee and its ability to review performance is very widely drawn in relation to the objectives of the Bank and of the FPC. I believe that new Section 3A enables the oversight committee explicitly to review the activities of the FPC, which are there right at the beginning of this amendment.
Clearly I am having difficulty understanding the noble Lord’s concerns but I am absolutely clear that the substance as he has explained it and the specific example that he gave are completely within the ambit of what is being put in the Bill as the function of the oversight committee.
Lord Eatwell
My Lords, if new Section 3A covers the point, and we want to avoid ambiguity, why not simply delete subsection (4) of proposed new Section 9B? What does it do?
Lord Turnberg
This amendment has been put in the wrong group. New Clause 9B(4) is about the Financial Policy Committee, not the oversight committee.
Lord Eatwell
The point is that the oversight committee is supposed to keep the activities of the Financial Policy Committee under review. There is an amendment among the amendments tabled by the noble Lord, Lord Sassoon, that changes “court of directors” in new Section 9B(4) to the “oversight committee”. So if we accepted his amendment, it would read that the oversight committee,
“must keep the procedures followed by the Committee under review”.
Why do we have that when we have new Section 3A doing all the work for us?
Lord Sassoon
I think that is wrong. It is not the Court of Directors that becomes the oversight committee; the Court of Directors remains the Court of Directors. It is effectively the committee of non-executive directors, or NEDCo, of the Bank, which becomes the oversight committee. The court remains the court. So there may be some misunderstanding of who is doing what here, but the Court of Directors must indeed keep the procedures of the FPC under review, which will be principally done through the oversight committee, which is a committee of the court.
Lord Burns
The references here to the Court of Directors of the Bank in new Section 9B(1) says:
“There is to be a sub-committee of the court of directors of the Bank”.
When it says Court of Directors in that case does it mean the whole court? Earlier we were being told that “directors” simply means the non-executive directors and that the governors are not counted as being directors of the court. That seems to be part of the problem that is causing this ambiguity.
Lord Sassoon
Let me try again. The court of the Bank, which is the executives and non-executives, must keep the procedures under review. The non-executives through the oversight committee have a remit and function that includes procedures but goes wider and is able to review the performance of the Bank and the FPC against its objectives in the full wide way that I believe the noble Lord, Lord Eatwell, is asking for it to do—and I am confirming that it does.
Lord Burns
For clarification, when it says the Court of Directors, does that mean the whole court or does it mean only the non-executives?
Lord Sassoon
Court means the whole court, and that is in relation to the procedures. The oversight committee has the function and ability to look not only at the procedures but also at the question of whether the objectives of the Bank and the FPC are being met.
Lord Eatwell
I am afraid that this does not help, because the amendment tabled by the noble Lord, Lord Sassoon, Amendment 28, says on,
“page 3, line 28, leave out “court of directors” and insert “Oversight Committee”.
So this should actually read, “the oversight committee must keep the procedures followed by the Committee under review”. Why is that there when new Section 3A covers it, we are told? But I shall not pursue this—I shall leave it with the Minister. Either we have just got in a muddle or there is a drafting error.
Lord Sassoon
I think that it is me that has got in a muddle. It is kind to say that we have got in a muddle or that there is a drafting error. I apologise to the Committee, as I am the only person who has got into a muddle on this, as I track through amendments and consequential amendments. New Clause 9B(4) is being amended by government Amendment 28 so that it no longer says “court” but says “oversight committee”. I apologise for my confusion on this, but we may have finally got to what it is intended to say. The two things will be consistent so that the oversight committee, to the substance of the point, will be able to deal with both procedures as envisaged under new Clause 9B(4) as amended and as explained in Amendment 13. So I hope that we are getting there.
Lord Eatwell
We are getting somewhere. What we have here is redundancy. New Clause 9B(4) is redundant, given the Minister’s explanation of new Section 3A.
I apologise to the Minister for raising a quite different question, which I shall just leave on the table. In my earlier remarks, I did not refer to the schedule. In the enthusiasm to replace “court” or “Bank” with “oversight committee”, the Government have gone a bit too far. Perhaps the Minister could check on this later, because the terms and conditions of non-executive members of the Financial Policy Committee are now amended to be determined by the oversight committee. That must be a mistake—it must be the court as a whole. That is in government Amendment 91. In government Amendment 93, the oversight committee can remove appointed members of the Financial Policy Committee. Surely that must be a mistake as well—it must be the overall court. So I think that there has been a great enthusiasm for replacing “court” with “oversight committee” and somebody has got rather carried away. But I am not going to press this issue now. I shall just leave it on the table for the noble Lord and his officials to consider and bring back to us later.
Lord Sassoon
I am grateful to the noble Lord because I think that we are getting into very detailed drafting points. I will certainly have a look at those points and write to the noble Lord and copy the letter to others who have spoken in this debate, just to check that nothing has gone astray in the drafting here. We will take that on board.
Lord Phillips of Sudbury
I hope that my noble friend agrees that the noble Lord, Lord Burns, had quite a point. It harks back to earlier discussions about the complexity of drafting. It is the fact, as I hope my noble friend will confirm, that the definition of Court of Directors in Clause 1 of the Bill includes the four executive directors and “not more than 9” non-executive directors—which makes 13. The interplay of the phrase Court of Directors and the new body that is the subject of the government amendment makes for extraordinary complexity in understanding. One thing that my noble friend might consider for the next stage is that when the Bill and his amendment refer to non-executive directors they say non-executive directors, because there are four executive directors—the governor and three deputy governors. They are directors too.
Lord McFall of Alcluith
I thank noble Lords for their contributions. It has been a very interesting debate. I had more of an idea what things are about at the beginning of my speech than I did at the end and whether it is the oversight committee or the court. Perhaps the Minister could just clarify whether the chair of the court will chair the oversight committee and whether the oversight committee will be composed of non-executives, with no officer of the Bank on the oversight committee. I cannot see that detailed in the Bill.
I agree with noble Lords in asking why we need another committee. The reason why I asked the Minister questions earlier was that the Treasury Committee in another place is very firm that this proposal does not plug the gap. In the light of the debate, there needs to be a review from the Government and they need to come back to us on Report so that we can get some clarity when it goes back to the other House. The core of this is corporate governance. If we get good corporate governance on the court, there will be no need for the oversight committee at all.
The noble Lord, Lord Turnbull, had a very good suggestion. Why do we not combine my amendment with the Government’s amendment and then we can come back to this matter, look at it and, I hope, all agree? I beg leave to withdraw my amendment.
Lord McFall of Alcluith
“Publication of court minutes
(1) Section 2 of the Bank of England Act 1998 (functions of court of directors) is amended as follows.
(2) After subsection (5) insert—
“(6) After each meeting of the court, the Bank shall publish minutes of the meeting before the end of the period of two weeks beginning with the day of the meeting.
(7) Subsection (6) shall not apply to minutes of any proceedings where the court has decided that publication should be delayed for reasons of confidentiality or because publication would endanger financial stability.
(8) Where any part of the court’s minutes is not published under the provisions of subsection (7), the Chairman of the court shall inform the Chairman of the Treasury Committee of the House of Commons of the reasons.
(9) Any part of the minutes of a meeting of the court must be published as soon as the court has decided that the considerations in subsection (7) no longer apply.””
Lord McFall of Alcluith
My Lords, the MPC is obliged to publish minutes of its meetings, but the Financial Policy Committee has just been asked for a record. In the other place, Mark Hoban, the Minister, pointed out that,
“the FPC also produces what it calls a record of its meetings, which is a very full account of the debates that go on in the FPC, and we will expect a similar process to be undertaken for the court’s meetings”.
What is good for the MPC should be good for the FPC as well.
As a veteran of Labour Party constituency meetings during the 1970s and 1980s, I really know the difference between the record of a meeting and the minutes. There can be many battles behind the scenes on that. This is not as arcane debate as we think it is.
When the Minister replied in the other place during the passage of the Bill, Chris Leslie, the opposition spokesperson, said:
“I just want to be clear about what the Minister is saying. Is he saying that when the Bill comes before the other place for consideration he will accept retrospective reviews and publication of minutes or that he will simply consider it?”.
The Minister replied:
“We are clear that we want to see the court’s minutes published”.
The chairman of the Treasury Committee, Andrew Tyrie, then asked a further question:
“when he says that he is committed to the publication of the court’s minutes, does he mean the publication of the full minutes or only a summary record of them, which it appears is what was proposed before”.—[Official Report, Commons, 23/4/12; col. 766.]
That question has still to be answered. This amendment is put down for the sole purpose of eliciting that information.
Baroness Hayter of Kentish Town
My Lords, I will speak to the amendment standing in the name of my noble friend Lord Eatwell and myself while supporting Amendment 12, moved by the noble Lord, Lord McFall. I am sorry to do so in his absence, but I particularly welcome Amendment 144, in the name of the noble Lord, Lord Sassoon, to which I very happily added my name. The Government responded speedily to a request for the FCA’s minutes to be published, following, I am sure, my intervention at Second Reading and for no other reason. I am pleased about that because it was as late as February that the Government saw the publication of board minutes as a matter for the FCA board rather than for legislation. However, we believe that publication is particularly important when considering the difficulty faced by those seeking to represent the long-term interest of consumers, be they savers, borrowers or debtors, as they follow every twist and turn of a regulator’s wide remit. The minutes are invaluable to lay out the narrative of the FCA’s focus.
The regular publication of minutes is undoubtedly a matter for public policy and therefore correctly in the Bill rather than being for the board itself to decide. After all, it is its work that will be scrutinised by this openness. I know that the Government’s move will be welcomed by Which? and the Financial Services Consumer Panel, as well as by the wholesale market players, for whom the FCA is of particular importance.
However, consumers’ interests go further than the FCA, important though that is. The vital work and the decisions undertaken by the Bank, the FPC and the governor can only benefit from greater debate by, and input from, a range of commentators, be they the press, academics, market participants, representative organisations, other regulators or indeed users. Publication both improves the internal thinking through the debate that it generates and has an important role in accountability. The Government have described the FPC as,
“a powerful new authority sitting at the apex of the regulatory architecture”.
It is therefore beholden on us to ensure that the mechanisms to ensure the FPC’s democratic accountability are commensurate with the strength of its powers. This starts with transparency and the beginning of a new culture of democratic dialogue.
The Treasury Select Committee report of 19 October is already familiar to us and will become more familiar. It argued for the need for clear transparency both in the publication of the remit and in the FPC’s responses. It said:
“There should be the presumption that ex-post reviews would be published, except where confidentiality needed to be maintained”,
in which case a redacted version could be published or publication delayed. It also said that,
“the Chairman of the Treasury Committee should be shown an unredacted version of the findings with an explanation of the reasons for non-publication”.
We endorse that recommendation. The committee also stressed that,
“The date of publication should then”—
in other words, if it has been withheld—
“be reviewed periodically until such a time as full publication would not endanger confidentiality or financial stability”.
I turn to the issues mentioned by my noble friend Lord McFall. Mark Hoban in the other place agreed that there was,
“a clear need for the Bank’s accountability arrangements to be strengthened through the publication of the court’s minutes”.
He agreed that the Government would consider this further when the Bill came to this House for its scrutiny. However, he made it clear that he wanted to see the court’s minutes published, as well as retrospective reviews,
“so that Parliament and stakeholders can hold the Bank to account for the way in which it has used its powers not just when it comes to the Financial Policy Committee”,—[Official Report, Commons, 23/4/12; col. 766-67.]
but more widely. We welcome those sentiments and hope that the Minister will now be able to signify his support for the amendments, which I think are in line with the recommendation of the Minister in the other House.
Lord Northbrook
My Lords, I support the amendment of the noble Lord, Lord McFall. I noted that in the Treasury Committee’s first report on the Financial Services Bill of 23 May, Mark Hoban was quoted as having spoken in the other place as follows. I hope that the Committee does not mind me repeating it, because it is quite important:
“My hon. Friend the Member for Chichester also mentioned publication of the court’s minutes. The Bank has committed to publishing what it terms a record of future court meetings. It is worth pointing out that the FPC also produces what it calls a record of its meetings, which is a very full account of the debates that go on in the FPC, and we will expect a similar process to be undertaken for the court’s meetings. Let me be clear: I believe that there is a clear need for the Bank’s accountability arrangements to be strengthened through the publication of the court’s minutes and the enhanced scrutiny of the court’s work, although I believe that the changes announced by the Bank help address the concerns raised by my hon. Friend and the Treasury Committee. He made some powerful arguments that have been echoed by other members of the Committee, and we will consider further whether these arrangements should be put in the Bill. We will reflect on these matters and reconsider them when the Bill goes to the other place. I hope that that helps to reassure the House on how seriously we take these matters and our willingness to listen and respond to the concerns raised by Members during the debate”.—[Official Report, Commons, 23/4/12; col. 766.]
I ask the Minister to consider those comments by Mr Hoban in the other place.
Lord De Mauley
My Lords, in its report on Bank of England accountability, the Treasury Select Committee indeed recommended that the court publish minutes of its meetings. In its response to the Treasury Select Committee, the court accepted this recommendation in principle and agreed to begin to publish a record of its meetings once the new structure was in place. By putting this requirement into the Bill, as we propose to do through government Amendment 97, we ensure that this important transparency mechanism will remain in place.
As the Treasury Committee itself recognised, the court is likely to discuss extremely sensitive matters that are unsuitable for publication—for example, the provision of emergency liquidity assistance to an ailing bank. Therefore sub-paragraph (3) of new paragraph 12A establishes that the record must not contain any information whose publication would be against the public interest. I am pleased to see that Amendment 12, tabled by the noble Lord, Lord McFall, contains a similar provision. However, in a divergence of opinion, perhaps similar to that discussed by my noble friend Lord Sassoon in the previous group, the Government do not agree that the court should be required in all cases to notify the Treasury Select Committee of the reasons why information might have been withheld for public interest reasons from publication.
When the Bank takes actions that involve risk to taxpayer money, such as liquidity operations indemnified by the Treasury, it is the responsibility of the Treasury rather than the court to ensure that the relevant parliamentary committees are informed, on a confidential basis if necessary. There are already formal and informal mechanisms in place for this to happen, including in the new crisis management MoU. When a court discusses sensitive matters that are not related to public money, I do not see the value in creating a bureaucratic requirement for the court to notify the TSC, or to keep under review material that it excludes from meeting records, with a view to publishing it at a later date. Of course, the court may publish information on discussions that were originally excluded from the record at a later date if it believes it appropriate to do so.
The same arguments apply to Amendments 72 and 86 in the name of the noble Lord, Lord Eatwell, in relation to material excluded from the records of FPC meetings and meetings between the Chancellor and the governor. There is also widespread agreement that the Financial Conduct Authority should publish a record of its board meetings. The future leadership of the FCA has agreed to this. We have therefore brought forward Amendment 144, which makes similar provision for the FCA. Indeed, the FSA will publish in early August a record of its June board meeting, consistent with the provisions proposed.
Amendments 70 and 80, tabled by the noble Baroness, Lady Hayter, attempt to include the word “minutes” in other places in Clause 3 where the word “record” is used. That goes to the point made by the noble Lord, Lord McFall. The specific word used is not important. I hope we can agree that what is vital is ensuring that the record provides a clear public account of decisions taken by the court, the FPC and the FCA, and of the rationale and arguments that were put forward by members in favour of and against each decision. Sub-paragraph (2) of proposed new paragraph 12A, which sets out what the record must contain, ensures that that will be achieved for the court. Identical new provisions cover the FCA under Amendment 144. New Section 9R(2) similarly sets out precisely what the FPC’s meeting record must contain.
I move on to Amendment 85, which was also tabled by the noble Lord, Lord Eatwell, and the noble Baroness, Lady Hayter. Subsection (5) of new Section 9U requires the Treasury to consult the Bank before publishing the record of the meeting between the governor and the Chancellor. That will ensure that the Bank’s views about whether material is suitable for publication will be taken fully into account. The noble Baroness can be assured that the Treasury would not publish any material which the Bank believed was sensitive.
Amendments 20, 59, 60, 71, 77, 78, 83, 84 and 85 are generally speaking to do with websites. Transparency and openness are a critical part of any regulatory system. Transparency of decision-making is a vital aid to the public understanding of regulatory actions. In all cases where the Bill provides for certain documents to be made public, including those affected by amendments in this group, I would of course expect the publications to be made available on the relevant website. That is because the internet is at present the primary method for the public to access this type of material. However, I ask noble Lords to accept that technology advances at a tremendous pace. Fifty years ago, neither the internet nor websites existed. It is impossible to foresee how far digital communication will have advanced in the next five years, let alone 50.
As well as publishing documents on their websites, the Bank, the Treasury and the FSA already make use of Twitter, Flickr, YouTube and RSS to communicate with the public. Any one of these, or some other new form of media, may become the most widespread way to communicate with the public in the future. That is why we should not make provision in the Bill for specific types of communications media that may be superseded sooner or later. That is in line with the long-standing principle of future-proofing new legislation. While I think we agree on the principle of transparency and openness, I hope that the noble Lord will be persuaded to withdraw the amendment.
Let me reassure noble Lords that this should not be taken to imply that the new authorities will not make use of the internet to promote transparency and openness. The interim Financial Policy Committee has already published two financial stability reports and a record for each of its five meetings on the Bank’s website, with the latest record to be published on 6 July. In addition, last year the Bank published on its website a public consultation on macroprudential tools. I have no doubt that this will continue, but in general I contend that it is sensible to allow the publishing authority to decide in what manner to reach interested parties most effectively, which is why I hope noble Lords will understand why I cannot support Amendment 82, which seeks specifically to remove this discretion from the Treasury. I hope that noble Lords will accept government Amendments 97 and 144 and be prepared not to press their own.
Baroness Hayter of Kentish Town
Did the Minister mean to refer only to the Treasury Select Committee? Our amendment related to the decision taken not to publish and whether only the chair of the Treasury Select Committee would be informed of the reasons. He did not actually comment on this.
Lord De Mauley
I think I have an answer. The point is that the principle is as I outlined, whether it is an individual or the committee.
Lord McFall of Alcluith
I apologise to the House; I am away in another world. I still believe that there is quite a difference between a minute and a record. However, given that the Government have come forward with a number of proposals, I withdraw the amendment.
Lord Sassoon
“Oversight Committee
(1) The Bank of England Act 1998 is amended as follows.
(2) For section 3 substitute—
“3A Oversight Committee
(1) There is to be a sub-committee of the court of directors of the Bank (“the Oversight Committee”) consisting of the directors of the Bank.
(2) The functions of the Oversight Committee are—
(a) keeping under review the Bank’s performance in relation to—(i) the Bank’s objectives (that is, the objectives specified in relation to it in this Act and the other objectives for the time being determined by the court of directors of the Bank),(ii) the duty of the Financial Policy Committee under section 9C, and(iii) the Bank’s strategy as for the time being determined by the court of directors of the Bank (including its financial stability strategy);(b) monitoring the extent to which the objectives set by the court of directors of the Bank in relation to the Bank’s financial management have been met;(c) keeping under review the internal financial controls of the Bank with a view to securing the proper conduct of its financial affairs;(d) the functions conferred on the Oversight Committee by the provisions listed in subsection (4).(3) The Bank may arrange for specified functions of the Bank to be discharged by the Oversight Committee.
(4) The provisions referred to in subsection (2)(d) are—
(a) section 9B (review of procedures followed by Financial Policy Committee);(b) section 16 (review of procedures followed by Monetary Policy Committee);(c) paragraph 14 of Schedule 1 (remuneration of Governor and Deputy Governors);(d) paragraph 5 of Schedule 2A (terms and conditions of office of members of Financial Policy Committee appointed under section 9B(1)(e));(e) paragraph 9 of that Schedule (removal of members of Financial Policy Committee appointed under section 9B(1)(e));(f) paragraph 4(2) of Schedule 3 (terms and conditions of office of members of Monetary Policy Committee appointed under section 13(2)(c));(g) paragraph 9 of that Schedule (removal of members of Monetary Policy Committee appointed under section 13(2)(c));(h) paragraph 15 of Schedule 1ZB to the Financial Services and Markets Act 2000 (terms of service and remuneration of members of the governing body of the Prudential Regulation Authority).3B Oversight Committee: procedure
(1) The chair of the court (designated under paragraph 13 of Schedule 1) is to chair meetings of the Oversight Committee (when present).
(2) The Committee is to determine its own procedure, but this is subject to subsection (1) and subsection (5).
(3) The Committee may invite other persons to attend, or to attend and speak at, any meeting of the Committee.
(4) The Committee may delegate any of its functions to two or more of its members.
(5) If a member of the Committee (“M”) has any direct or indirect interest (including any reasonably likely future interest) in any dealing or business which falls to be considered by the Committee—
(a) M must disclose that interest to the Committee when it considers that dealing or business, and (b) the Committee must decide whether M is to be permitted to participate in any proceedings of the Committee relating to any question arising from its consideration of the dealing or business, and if so to what extent and subject to what conditions (if any).3C Reviews
(1) In the discharge of any of its functions, the Oversight Committee may arrange—
(a) for a review to be conducted under this section in relation to any matter by a person appointed by the Committee, and(b) for the person conducting the review to make one or more reports to the Committee.(2) The persons who may be appointed to conduct a review include an officer or employee of the Bank.
(3) A review under this section is a “performance review” if it—
(a) is arranged by the Committee in the discharge of any of its functions under section 3A(2)(a) and (b), and(b) relates to past events.(4) If the person to be appointed to conduct a performance review is an officer or employee of the Bank, the appointment requires the consent of the Governor of the Bank.
(5) In the case of a performance review, the Committee must have regard to the desirability of ensuring that sufficient time has elapsed—
(a) for the review to be effective, and(b) to avoid the review having a material adverse effect on the exercise by the Bank of its functions.3D Publication of reports of performance reviews
(1) The Bank must give the Treasury a copy of any report made to the Oversight Committee by a person appointed under section 3C to conduct a performance review (as defined by subsection (3) of that section).
(2) Subject to subsection (3), the Bank must also publish the report.
(3) Subsection (2) does not require the publication of information whose publication at the time when the report is made would in the opinion of the Bank be against the public interest.
(4) Where the Bank decides under subsection (3) that publication of information at the time when the report is made would be against the public interest, it must keep under consideration the question of whether publication of the information would still be against the public interest.
(5) Where the Bank decides that publication of any information is no longer against the public interest, it must publish the information.
(6) The Treasury must lay before Parliament a copy of any report or other information published by the Bank under this section.
3E Recommendations resulting from review
(1) This section applies where a report made by a person appointed under section 3C to conduct a review makes recommendations to the Bank as to steps to be taken by it.
(2) The Oversight Committee must—
(a) monitor the Bank’s response to the report, and(b) if or to the extent that the Bank accepts the recommendations, monitor the implementation of the recommendations.3F Oversight Committee: further provisions
(1) The documents to which the Oversight Committee is to have access in the discharge of its functions include documents considered, or to be considered, by the Financial Policy Committee or the Monetary Policy Committee.
(2) One or two members of the Oversight Committee may attend any meeting of the Financial Policy Committee or the Monetary Policy Committee, but a person attending by virtue of this subsection may not speak unless invited to do so by the person chairing the meeting.
(3) Subsection (2) does not affect—
(a) anything done in relation to the Financial Policy Committee by a member of that Committee who is also a member of the Oversight Committee,(b) the powers of the Financial Policy Committee under paragraph 13 of Schedule 2A, or(c) the powers of the Monetary Policy Committee under paragraph 13A of Schedule 3.”(3) In section 4 (annual report by the Bank), in subsection (2), for paragraph (a) substitute—
“(a) a report by the Oversight Committee on the matters for which it is responsible, and”.(4) In section 16 (functions of court of directors)—
(a) in subsection (1), for “court of directors of the Bank” substitute “Oversight Committee”,(b) in subsection (2)—(i) for “the court’s function” substitute “the function of the Oversight Committee”,(ii) for “the Committee” substitute “the Monetary Policy Committee”,(c) omit subsection (3), and(d) accordingly, in the heading, for “court of directors” substitute “Oversight Committee”.”
Lord Eatwell
( ) the public”
Lord Eatwell
My Lords, I rise to move Amendment 16. The issue here is simply that with respect to the financial stability strategy we believe that consultation should be as widespread as possible. The main reason for stressing this is that the area of financial stability is at present unformed. There is as yet no clear analytical framework to which everyone can appeal, as is the case with monetary policy, and a number of ideas and empirical observations are, if you like, the grist to the mill, but what comes out of the mill is not necessarily consistent or widely accepted. Therefore consultation and ideas from a wide range of sources, particularly within the financial services industry, are immensely valuable as the financial stability strategy is developed.
Lord Northbrook
My Lords, when I first saw the amendment and the reference to the public I thought it could mean consulting someone on the Clapham omnibus about the Bank’s financial stability strategy. However, the noble Lord said that he meant financial institutions and those with a financial interest rather than a broad definition of the public.
Lord Eatwell
Perhaps I may clarify that point. It is a term of art to say that you consult the public. When an institution such as the Bank of England or the Financial Services Authority initiates a general consultation and publishes a consultation document, they consult the public. In fact, it tends to be the financial services industry and other immediately interested parties who are consulted, not the gentleman on the Clapham omnibus.
Lord De Mauley
My Lords, as I said in the debate on the last group of amendments, the Government recognise the need for transparency and accountability in financial regulation. The Bank also places great value on transparency and openness. It uses a variety of methods to engage with the public on issues of policy, including FPC and MPC meeting records, financial stability and inflation reports, public speeches, policy papers, consultations, regional agencies and various forms of social media. The Bank and the FPC further demonstrated their commitment to transparency in their work on macroprudential tools by publishing a discussion document in December that invited public opinion.
The Bank’s court will be responsible for setting the Bank’s strategy in relation to its financial stability objective. The Bill requires that the court consults the Treasury and the Financial Policy Committee about a draft of the strategy before determining or revising it. The Bill does not prohibit the court seeking the opinions of others. For example, the court might wish to consult the European Systemic Risk Board to get is opinion on the outlook for financial stability in the European Union; it might wish to consult the International Monetary Fund or the Financial Reporting Council, as the noble Lord, Lord Eatwell, mentioned; it would almost certainly want to consult the PRA board and perhaps the FCA too. The list goes on. The Bill is drafted in a flexible way which allows the court to consult anyone on its strategy.
As to Amendment 16 specifically, the current drafting of the Bill already allows the court to consult the public on its financial stability strategy. The Bank’s financial stability strategy is currently published annually in the Bank’s annual report and is available on the Bank’s website. It is open to any organisation or member of the public to send the Bank comments on its financial stability strategy if they wish. I would expect the Bank to take seriously any contributions from the public and, where appropriate, to take them into account when revising the strategy. Given that revisions to the financial stability strategy will be less frequent—every three years—the court may well choose to undertake a public consultation process in advance of revising its strategy, particularly if the Bank were considering making any significant changes to it.
Such a public consultation process may not be necessary or even possible on every occasion. For example, the changes being made might be minor and technical and so not warrant a public consultation. In other cases, the changes to the strategy may be urgent and so there may be inadequate time for public consultation.
While I entirely support the sentiment behind the amendment, I do not think that it would be appropriate to put in the legislation a prescriptive requirement for public consultation in all cases. On that basis, I hope that the noble Lord will feel able to withdraw his amendment.
Lord Eatwell
My Lords, I was very struck by the Minister’s speech because it was rather better than mine in support of my amendment. He said that the public would typically be consulted. The only slightly off-base comment that he made was that the financial stability strategy would be revised every three years. That is not according to the Bill, which says,
“complete a review … before the end of each relevant period”.
“Before the end” could be one month, six months, two years, 11 months or 30 days, whichever is relevant. The notion that revisions will take place irregularly—in fact, on a three-yearly basis—is not what is in the Bill.
The Minister then shot his fox by saying that urgent revisions might have to be made. In that case, given that revisions can take place at differing intervals depending on the exigencies of the time—let us remember that financial markets can change their character and behaviour quite rapidly and unexpectedly—and if this impinges on strategy, it should be appropriate that consultation takes place. My amendment provides that variations in strategy be widely consulted on, including among the public. A public consultation would take place, and the relevant authorities listed so accurately by the Minister would no doubt participate.
I do not understand the Minister’s rejection of what I would think is an extremely helpful amendment given what he had to say. However, we will come back to this matter on Report. In the mean time, I beg leave to withdraw the amendment.
Lord Eatwell
Lord Eatwell
The amendment relates to what I think is a mistake in drafting because there is failure in symmetry between the two new subsections. We have just discussed new Section 9A(2), which states that the Court of Directors must consult the Financial Policy Committee and the Treasury. New Section 9A(3) states:
“The Financial Policy Committee may at any time make recommendations to the court of directors as to the provisions”.
Why is the Treasury included in subsection (2) but not in (3)? Surely, if the Court of Directors must consult the Financial Policy Committee and the Treasury about a draft of the strategy, then if, from time to time, the Financial Policy Committee or the Treasury wishes to make recommendations to the court, the Treasury should be able to do so on the same terms.
I think that there is just a mistake in drafting here. If subsections (2) and (3) are to be symmetrical, my amendment should be accepted. I beg to move.
Lord De Mauley
My Lords, there are already a number of measures in the Bill relating to the Treasury’s involvement with the setting and revision of the Bank’s financial stability strategy. The court must, for example, consult the Treasury before setting or revising the strategy. In addition there is nothing to stop the Treasury making proactive recommendations to the court on the content of the strategy on a non-statutory basis. I believe that these arrangements strike the right balance between insulating the Bank from political pressure while ensuring that the Treasury’s voice will be heard.
I am not sure that this goes entirely to address the specific question from the noble Lord, Lord Eatwell, but the Treasury can at any time, if it wants to, make recommendations to the court as to its strategy. Express provision is needed for the FPC to make such recommendations since the FPC is a creation of statute and its functions need to be set out in statute. The Treasury is not a creation of statute and has the ability under common law to provide advice to anyone. I ask the noble Lord to withdraw his amendment.
Lord Eatwell
I am sorry—once again, I really do not understand. New Section 9A(2) is absolutely clear that the Court of Directors must consult the FPC and the Treasury in developing a proper financial stability strategy. That is good—after all, this particular strategy is a very complex thing and it is going to involve direct intervention in the growth, or limitations of the growth, of credit in the economy. New Section 9A(3) states that the Financial Policy Committee may at any time make a recommendation, which is perfectly reasonable. It is doing its research, it comes up with an idea, it finds that something has been left out that is terribly important, and so it goes along to the Court of Directors to say that it really needs to consider it.
Surely the Treasury should have the symmetric right as from new Section 9A(2) to new Section 9A(3). Unless the noble Lord can point to somewhere else in the Bill where this right is available to the Treasury, then this is the point at which to include the Treasury’s ability to make a recommendation on its observations on changing circumstances. After all, it has the widest observation of changes in economic circumstances, both domestic and international. If the noble Lord can point to another part in the Bill which I am overlooking then I will certainly withdraw my amendment. At present, I am not convinced. I would be grateful if he could enlighten me.
Lord De Mauley
I understand the question from the noble Lord, Lord Eatwell, but I do not have an answer for him now. It is an important question so perhaps I may look into it and write to him.
Lord Eatwell
It would be churlish to say no. On that basis, I shall leave the question on the table and, for the moment, beg leave to withdraw the amendment.
Lord Eatwell
Lord Eatwell
All right, here we go again. I shall speak also to Amendment 19, which is in my name and that of my noble friend Lady Hayter. The important point here is that the requirement for the relevant period at which there is to be a review of the financial stability strategy is defined as three years. I would remind noble Lords that it is just three and a half years since the collapse of Lehman Brothers. Given everything that has happened and the way that the financial world has changed dramatically year by year in the past three and a half years, it seems quite unreasonable that the relevant period should be deemed to be three years. That is really much too long. Surely there should be an appropriate annual review of the strategy. That would provide an opportunity for the sort of consultation on the financial stability strategy that the noble Lord tells us that the Government are seeking, and on that annual basis we could really have a rolling, learning process.
Three years as the defined relevant period is surely much too lengthy. After all, companies are required to produce annual reports and to deposit them with Companies House. The purpose of that is to keep a continuous, rolling review of the company’s strategy and performance. It is an important part of transparency in a market system and of conveying information. Similarly, discussion of the development of the financial stability strategy should be done annually to enable appropriate consultation and an appropriate learning experience both for the Financial Policy Committee as it deals with these extremely difficult and changing circumstances and for the regulated community. I beg to move.
Lord Northbrook
My Lords, as a historian, although I have some sympathy with the amendment of the noble Lord, Lord Eatwell, I feel that sometimes you need a little more perspective on these problems. Sometimes a gap of time can be useful, particularly when a crisis has had such complicated origins and effects which keep continuing. I would rather keep the three years as in the Bill.
Lord De Mauley
My Lords, Amendments 18 and 19 would require the court to review the Bank’s stability strategy annually. The extant legislation, the Bank of England Act, requires the court to determine and review the bank’s strategy in relation to the financial stability objective. That legislation does not set out how regularly the strategy should be reviewed. In practice, the court has recently revised the financial stability strategy annually. That is understandable given the sheer volume of legislative and other changes to the system of financial regulation in the past three or so years.
However, a strategy ought to be something for the long term. If the strategy is revised annually—ad infinitum, I contend—there is a risk that the short timeframe would lead to focus on short-term issues, reading more like what one might call a business plan than a genuine strategy. That is why new Section 9A will require the court in future to revise the Bank’s stability strategy at least every three years—more in line, I suggest, with a long-term strategy. Of course, if circumstances mean that the strategy must be changed in a shorter timeframe, new Section 9A allows the court the flexibility to revise the strategy earlier, as the noble Lord, Lord Eatwell, pointed out in an earlier debate.
We believe that a long-term financial strategy should provide vision, purpose and certainty for the Bank, its staff and the industry alike. That is why I believe that a three-year timeframe for a strategy is appropriate, so I ask the noble Lord to withdraw his Amendment 18.
Lord Eatwell
My Lords, once again, I thought that the noble Lord was making a better speech than me in support of the amendment. As he pointed out, the significant changes which have taken place over the past three years have required annual revision. Once one gets into a sequence of annual revisions, some of which can be looking back quite a long way—there is no reason why they should focus on the short-term—that creates an environment in which the regulated community knows what to expect every year, can consider the report, and if it says that the strategy is unchanged, that provides a great deal of comfort to the regulated community.
If there is no report, the regulated community is left hanging in the air, thinking, “Yes, it is all the same, but is something going on that is not quite so important but that they do not want to reveal to us?”. Surely, if there is a regular annual report, that provides a decision-making environment optimal for the financial services industry. Once one goes to three years and then is forced to do things once a year because so much is changing, think of the pessimism that one creates, think of the loss of certainty created in such circumstances. The industry wonders, “Why are they changing their three-year cycle? Why are they moving to one year? There must be something going on that we do not really know about. Perhaps something really bad is happening”.
If one sticks to a steady one-year cycle, apart from emergencies—to which the noble Lord referred, and on which I entirely agree—that creates the comfort and certainty which the financial services industry really needs with respect to, let us remember, the utilisation of instruments, such as leverage collars and countercyclical provisioning, which will have a major impact on business plans and performance of the whole financial services industry.
I really would press the Government to take this under advisement and to think carefully about it. We will return to this on Report because leaving the period at three years is not the way to effectively manage confidence and expectations in an industry in which confidence and expectations are paramount in decision-making. In the mean time, I hope that the Government will take it away and think about it, and I beg leave to withdraw the amendment.
Lord McFall of Alcluith
Lord McFall of Alcluith
My Lords, I beg to move this amendment in the name of the noble Baroness, Lady Noakes, and myself. It is quite a simple amendment. The principle behind it is that the external members of both the Monetary Policy Committee and the Financial Policy Committee should be in the majority, to counter groupthink within the Bank itself. The Treasury Select Committee had taken evidence on this and was very clear on it, as was the Joint Committee on the draft Bill, which recommended that there should be a majority of non-executives on the MPC. Both the Government and the Bank of England disagreed. The Bank of England said very clearly,
“Decisions about the relative numbers of internal and external members of the MPC and FPC are ultimately for Parliament.”.
If those decisions are for Parliament and there is a cross-party consensus on that, Parliament’s will should be observed in this case. The Bank made the point that,
“diluting internal membership to the point where the Committees could not be presented as distinctively Bank Committees would undermine the Government's purpose of asking the Bank to undertake these activities in the first place”.
If the Government feel, as they have said, that increasing the number of external members on the Monetary Policy Committee would make it unwieldy, given that that would take the number to 11, there is a simpler way of doing that. That is to ensure that there are two fewer members of the internal executive on the committee, which would result in the MPC’s internal members numbering four and its external members numbering five. When we talk about external members, I am very much aware of the experience that I had and that you can get groupthink with external members as well.
The concept of diversity is really important and, as was mentioned in other debates in the Chamber today, we should be ensuring that there is representation of women on the committee. The MPC and the FPC have exclusively all-male boards. There are women who were at senior level at the Financial Services Authority and who have now left—for example, Margaret Cole, who was the managing director of its conduct business unit. She made a great contribution in ensuring that the industry listened to the Financial Services Authority, and she made a lot of real improvements on insider dealing. Sally Dewar left the authority too. These women have left, so that needs to be taken into consideration here as well.
One concept that has not been addressed in the financial services industry overall has been the consumer. I battled for years to get a consumer representative on the Financial Services Authority, and we eventually got one on it. Let us think on a wider front and keep in mind the words of the former Monetary Policy Committee member Professor Charles Goodhart, who said, as someone echoed today, that if you are excluding 50% of the population then you do not have the best talent pool. Let us have external members, eliminate groupthink and let the will of Parliament prevail.
Lord Flight
My Lords, my two amendments follow those in the name of the noble Lord, Lord McFall, and are essentially probing. They up the stakes from having six members appointed by the Chancellor of the Exchequer to having eight and require that all members of the FPC are,
“sufficiently independent of the Bank of England”.
To me, the issue is this: the FPC will be crucial. Its job is to detect things going wrong in the financial system and to direct institutions to put things right if they are in trouble. My view is that if the FPC is just part of the Bank of England, it runs the risk of being overdominated by what I will call the Bank of England establishment. It is important that FPC members are independent and, if they can be persuaded, may be people with central bank experience from other economies, who are the sort of people who will be good at the job for which they are chosen.
That gives rise to another issue which I have only just appreciated. The wording is slightly ambiguous. The implication is that members of the FPC must be directors of the Bank of England, members of the court. That seems to be slightly questionable. I am not sure that all members of the Monetary Policy Committee are members of the court. The FPC is parallel to the MPC in its role, and it would not be satisfactory if the Court of the Bank of England got to such a size that it was unwieldy. I question, therefore, and think it might be worth considering, whether there should be the requirement that FPC members are directors of the Bank of England. That does not seem to add anything.
However, the main point is to achieve a body of people that delivers the job it is there to do. It is not directly relevant, but I am mindful that the one banking system that entirely escaped all the troubles of 2007-09 was that of the Lebanon. The governor of the Central Bank of Lebanon, who is a very wise old bird and has seen many things before, spotted the trouble coming in terms of mortgage instruments and kept the banks of the Lebanon out of it all in good time. We want an FPC that, whatever the next problem is that faces us, will be capable of steering in that sort of direction. The wider the experience it has, the better.
Lord Hodgson of Astley Abbotts
My Lords, I do not wish to upset the noble Lord, Lord McFall, or my noble friend Lord Flight, but I urge my noble friend to resist these amendments. If we look at the objectives of the Financial Policy Committee, it needs to be a pretty focused, pretty small body. Having 14 people, or 12 people, depending on which of those amendments one is addressing, seems not to lead to the operational focus and directness that this particular policy committee will need. Having four external members will give a perfectly adequate external perspective; more would be more likely to confuse than to illuminate.
Lord Burns
I argued at Second Reading that it would be very useful if we were able to get some balance between the way the MPC is formed and behaves and the way that this new FPC works. The MPC has existed on the basis of four internal members, four external members and the governor, which is a total of nine. The other important principle that has always been emphasised is that each member of the committee had to act as an individual. They were not there to behave as a collective body; indeed, we have often seen, in the case of the internal members of the Bank of England, that they have voted in different ways. I would see great merit in carrying over the principles of the MPC into the FPC, which is that there should be a governor plus equal members, excluding the governor, from inside the Bank and outside the Bank.
I have two questions to add. The first is, does the Minister understand that the arrangement will be the same as for the MPC, which is that the members of this committee are being asked to behave as individuals, and to have individual, rather than collective, responsibility? That is important. The second question is that, as I read this, there is scope for all three deputy governors to be on this committee. Will all three deputy governors be on the MPC? I cannot remember what happens. If that were the case, it would change the balance of the Monetary Policy Committee. The membership includes the chief executive of the FCA. I can quite see that he would wish to be present at the meeting, but it does not seem to me that he needs to be a voting member of the FPC, given that his responsibilities are somewhat distant from the FPC’s main tasks.
My main point is about individual accountability as far as the people are concerned, not an expectation that the internal members would be acting as a group. As far as possible, we should hold some kind of symmetry between how the MPC and the FPC are set up, otherwise I can see that, over time, there would be constant pressure, with one saying, “Well, the other one is set up in a different way—shouldn’t we move to that?”.
Baroness Hayter of Kentish Town
My Lords, we support Amendment 21, moved by my noble friend Lord McFall, and his comments on women’s representation. It was within this century that I joined the Board for Actuarial Standards, and I was the only woman there. It is extraordinary for some of us to find that we are still fighting for that goal. Not only did they put lots of women on the board after me, which I think was a good thing, but the new chair who took over yesterday is also a woman.
I shall speak particularly to the three amendments standing in the name of my noble friend Lord Eatwell and myself, which cover two particular issues: one is to correct the composition of the FPC itself and the other is to deal with pre-appointment hearings. On the composition of the FPC, we should first recall that the FPC’s work will impact throughout the economy, on the financial sector itself but also on businesses large and small, and on consumers. The latter categories need to have confidence that there is someone on the FPC who understands their interests and is speaking up for them. As Mark Hoban said in the other place, we need,
“more challenging voices in the board room, not fewer”,
and that must be equally the case with the FPC. So merit is a clear necessity but, as we said on an earlier amendment, so is a range of backgrounds, experience, interest and knowledge, whether from the wholesale markets, insurance, deposit-takers or others. So too, as was mentioned by my noble friend Lord McFall, is the voice of consumers, be they SMEs, businesses or indeed individual consumers. The FPC may have a role in loan-to-value decisions, for example, but the consideration of the FPC of this has to have input from those who are further down the food chain who will feel the impact of any change in policy.
On the question of pre-appointment hearings by the Treasury Select Committee, I argue that there is less market sensitivity over these than could possibly be the case even if we accept it in the case of the governor. There would be much less for these appointments. Indeed, when challenged on this very issue in the other place by Chris Leslie, Mr Hoban was quite unable to give any examples of where this might be an issue. Mr Tyrie made the point in the other place in April that as the Treasury Select Committee intends to hold hearings anyway, and if the person failed to find favour with the Treasury Select Committee, it would probably be pretty untenable for that person then to take up their appointment, because without the confidence of Parliament it is hard to see how they could do their job. It would therefore be sensible to engage with the Treasury Select Committee earlier in the appointment process.
The FPC has a vital public role to play. It acts on behalf of the nation—including Scotland, for the moment, so maybe we could have it there so long as it chooses to stay in the United Kingdom—so it needs the confidence of people’s elected representatives, which the Treasury Select Committee pre-appointment can of course help.
Lord Sassoon
I need every cheer I can get at this hour of the evening—I am very grateful to my noble friend. Let me press on. This group deals with various aspects of FPC membership, and I will address in turn each of the amendments that have been moved.
Amendments 21 and 21A would fundamentally alter the balance of membership of the FPC by adding either two or four additional external members. Following the advice of my noble friend Lord Hodgson, I disagree with these amendments for three reasons. First, the ratio of the FPC between Bank executives and non-Bank members is six to five, which closely mirrors the MPC, where the ratio is five to four. In answer to the noble Lord, Lord Burns, I can confirm that as with the MPC, the FPC members will act as individuals, and that no change to the membership of the MPC is proposed in this. The MPC model has worked well, and is much admired around the world, and we should not fix something that is not broken.
Lord Flight
I thank the Minister for giving way. Is it six or seven members? By my account there are the governor and the two deputy governors, the chief executive and the two members appointed. That makes seven. The whole point of my private amendment, which suggested that there should be eight members, was to give a majority. Are all three deputy governors to be members?
Lord Sassoon
The three deputy governors are to be members—I count that up as a six to five ratio. It is not correct that the Bank has seven insiders. The Financial Conduct Authority is an independent regulator, which is emphatically not one of the Bank members. I doubted whether I could count to six at this hour, but it is six. However, I am grateful to my noble friend for getting that clarification.
Lord McFall of Alcluith
Would the Minister expand on that clarification? At present, the MPC contains two deputy governors, Charlie Bean and Paul Tucker, and there will be a third one, who will take the membership up to six. However, there are only four external members of the MPC at the moment: Ben Broadbent, David Miles, Adam Posen and Martin Weale.
Lord Sassoon
My Lords, no change is being proposed to the membership of the MPC, which will remain with five internal and four external members. The third—the new deputy governor—will not join the membership of the MPC. Let me press on.
Baroness Hayter of Kentish Town
I will not hold the Minister for too long. He has stressed, and it was stressed in the other House, the independence of the Financial Conduct Authority, but of course there is a veto—the financial regulator is able to override the Financial Conduct Authority. It is, therefore, independence up to a point.
Lord Sassoon
My Lords, I am sure that we will come back to that point later on in our discussions. I would, however, absolutely refute any idea that the FCA will not be independent of the Bank of England. It will be completely separately constituted; there will be a number of links, of which the noble Baroness mentions one, but I would not characterise that as in any way impinging on the independence of the FCA.
That was the first reason for rejecting these amendments. The second reason is that the change suggested would create a committee of 13 members, a committee so large that it could prove to be unwieldy, which could obstruct effective discussion and decision-making. There is a genuine risk that having too many external members without sufficient time or space within the meetings to put their points across effectively could undermine their ability to provide an external viewpoint and challenge, which I know the Committee wishes to see. In addition, of course, these points are even more relevant to the amendment proposed by my noble friend Lord Flight, which would increase the size of the FPC to 15 members, or 16, if one includes the Treasury representative.
Thirdly, I do not agree that the Bank executives on the FPC should be in a minority. Ultimately, both the MPC and the FPC must be Bank committees if we are to hold the Bank to account for the decisions that they make.
On the amendments that relate to the experience, knowledge and potential interests of external FPC members, I assure your Lordships’ House that the Chancellor will take great care to ensure that the independent members of the FPC are sufficiently qualified and experienced to provide diverse and effective expertise and challenge to the FPC’s decision-making. Finding strong candidates with breadth as well as depth of experience will clearly aid the committee in achieving its objectives.
Specifically on Amendment 24, the Government recognise the importance of the contribution of the different constituent parts of the UK to the financial services sector. The sector is often wrongly characterised as being confined to the City of London. This is plainly wrong. Regional issues and intelligence already form an important part of the Bank’s policy-making process. The Bank has 12 agencies in a national network across the United Kingdom that assess economic conditions in their regions. This feeds into the policy-making process.
On appointments to the FPC, the Bill already requires the Chancellor to be satisfied that the candidate has knowledge or experience that is likely to be relevant to the committee’s functions. This will include relevant experience within the financial services and regulatory sectors, not only within the constituent parts of the UK but internationally. All four of the current independent members of the interim FPC have experience in financial services as a practitioner or a regulator.
I should add that while we have been having this discussion, my Front Bench has had a ratio of two women to every man. Therefore, I certainly appreciate, as do the Government, the importance of appointments that recognise gender diversity. It will be an important consideration when deciding on external members of the FPC. The Government believe that there are certainly many credible and expert female candidates out there for permanent FPC appointments. We will continue to encourage women to apply for future vacancies on the FPC.
The noble Lord mentioned the importance of having consumer views on the FPC. I agree that it will be vital. I accept that it took a long time with the FSA. It is fully recognised that we must have a broad spectrum of views, experiences and relevant knowledge if the FPC is to deliberate in an even-handed way. However, consistent with arguments over the size of the FPC, it will never be possible to ensure that all interested groups are represented on it at all times. We need to be clear about that.
On Amendment 27A, I reassure my noble friend Lord Flight that, in appointing external members, the Chancellor will be very mindful of the need for those people to offer a genuinely external and independent perspective. However, some familiarity with the workings of the central bank may well prove useful for external members, so I would not want completely to rule out individuals with some experience of working for the Bank becoming members of the FPC. For the sake of clarity, I add that there is no requirement for the FPC’s external members to be members of the court. One current member, Michael Cohrs, was subsequently appointed to the court, but there is no requirement for that to be the case. Nor is it the general case at the moment.
Amendments 26 and 27 deal with the role of the Treasury Committee in appointments to the FPC. As I have said at some length today—I will not labour the point—the Government strongly support the Treasury Committee’s role in holding hearings with individuals who have been appointed as members of the MPC, and now the FPC, before they take up their appointment. However, for the reasons that I gave earlier, those hearings should not take place before the appointment. In one case, just as with the appointment of the governor, the decision is that of Her Majesty on the advice of the Prime Minister and the Chancellor. In the case of the FPC and the MPC, it is rightly a decision for the Chancellor to take. There are risks in the rather febrile environment that we have had for a number of years now—risks that arise from market speculation about the balance of the committee and where the candidates may be coming from. So, yes, there should be pre-commencement hearings, but pre-appointment hearings would create the potential for danger and damage, which we should not entertain.
The Government place paramount importance on finding strong candidates for the FPC. I can reassure the Committee that future appointments of new independent members to the FPC will follow a process similar to that used to appoint MPC members, including an open, public competition. This, in addition to the pre-commencement hearings held by the Treasury Committee, will ensure that qualified and experienced candidates are appointed to the FPC, while avoiding the uncertainty that could arise from holding those hearings before the appointment is finalised.
On the basis of that short and focused debate, I ask the noble Lord, Lord McFall of Alcluith, to withdraw his amendment.
Lord McFall of Alcluith
It may please the House to hear that I withdraw my amendment.
Lord Sassoon
Lord Eatwell
My Lords, I think the noble Lord said that he was going to take Amendment 28 away to consider it with Amendment 29. Surely he is not moving it now.
Lord Sassoon
My Lords, I have no recollection of saying that. I would like to move it formally.
Lord Eatwell
Lord Eatwell
In those circumstances, I think that I should reconsider. The noble Lord did say that he was going to take Amendment 28 away to consider the relationship between Amendments 28 and 29. I do not quite understand why he has now moved Amendment 28.
Lord Sassoon
What I said earlier was that of course I would consider whether there were any consistencies in drafting. I think that the noble Lord asked about a number of areas, and I said that I would look at them, but I certainly did not say that I would withdraw the amendment. I said that I would make sure that there was nothing that he had identified that created any difficulty through oversight in the drafting. Of course I will do that, and if we find anything wrong it can be corrected at a later stage. I certainly did not agree to take away Amendment 28.
Lord Sassoon
Baroness Anelay of St Johns
My Lords, it may be convenient at this point if I explain why the House is resuming and will adjourn before we have reached the agreed target, which was agreed in the usual channels this morning, of Amendment 32. It has been agreed after constructive discussions in the usual channels this evening that we should finish as close to 10 o’clock as possible, even if, as I understand from my noble friend the Minister, the next group of amendments might take only a matter of a few minutes. But we came to an agreement, and I stick by my agreements, as I know that the noble Lord, Lord Eatwell, sticks by his—and that is valued.
The understanding between the usual channels is that, after two days in Committee, the opposition Chief Whip’s office will sit down and work with the Bill team to provide accurate guidance for Back-Benchers as to which subjects will be dealt with in the remaining days in Committee. Overall, all of us have a care to ensure that those on the Back Benches, who are playing an important part in this Bill, know which amendments may be taken on which days and roughly at what time of day, because that is how the House works well. I am aware from what my noble friends have said today that those who have worked in Committee today have taken care to give proper scrutiny to the Bill. I am sure that the discussions that we have had in the usual channels tonight will enable that to take place again in future days.