Bank of England (Appointment of Governor) Bill
(Limited Text - Ministerial Extracts only)
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John McDonnell
The roles are different, as I will mention later, but the Chancellor did give the Treasury Committee responsibility, in the way it is asking for here, for the appointment of senior members of the Office for Budget Responsibility. Obviously, then, he had sufficient confidence in the Committee to involve it in appointments.
The Financial Secretary to the Treasury (Mr Mark Hoban)
Of course, there is a distinction between the chairman of the OBR and the Governor of the Bank of England. The former does not have an Executive role; their role is more akin to that of the Comptroller and Auditor General.
John McDonnell
I shall come to that almost Jesuitical distinction between Executive roles.
It is critical that the right person be appointed to the crucial role of Governor of the Bank of England in this coming period. The new Governor will need to demonstrate not only that he or she is professionally competent, but that they can exercise sound ethical judgment. They must be able to convince the public and the markets that they can turn the liner that is financial services around. To have any credibility they will need to demonstrate that they have the confidence of not only the Chancellor of the Exchequer but of Parliament as a whole, and that they are independent—no crony, no place person, no political appointee—and able and willing to give robust independent advice. Given the scale of the task facing the new Governor and the heightened political atmosphere and context in which the banking reforms are to be developed, now, more than ever, this critical appointment cannot be left in the hands of a single Minister.
John McDonnell
I suggest that people listen to my speech. I will get to that point, but if I miss it out, perhaps the Minister can intervene again.
The wider engagement of Parliament in the appointment process is more likely to result in the appointment of a talented and competent professional whose independence is demonstrable and protected, and who will therefore have the authority to drive through the reforms and change of culture in our banking system for which we are all calling.
This is not a revolutionary proposal. To allow Parliament, via the Treasury Committee, to have a decisive say in the appointment of key posts is nothing new. If Members read the Institute for Government’s excellent report “Balancing Act”, by Akash Paun and David Atkinson, which the Committee recommended, they will see that the Bill stands in an evolutionary line on the growing role of Parliament in public appointments. In the past 30 years, there has been an evolution from all public posts historically being appointed by prerogative of the Executive through to pre-appointment hearings, confirmation hearings for the Monetary Policy Committee, to the current Chancellor granting the Treasury Committee a veto over the senior posts in the OBR. That was enshrined in the Budget Responsibility and National Audit Act 2011, the wording which I have simply transferred into my Bill.
The OBR is not the only area where appointments are made subject to the approval of a Select Committee. For example, last year the Ministry of Justice announced that the appointment of the Information Commissioner would not be made if the Justice Select Committee opposed it. The proposal in today’s Bill, then, is nothing new or revolutionary but simply part of the evolving relationship between Parliament and the Executive.
In line with the evolutionary progress in that relationship, when the Treasury Committee undertook its investigation into the accountability of the Bank of England, the report of which was published in October 2011, it examined parliamentary involvement in the appointment and dismissal of the Governor and concluded:
“The power of veto with respect to the OBR was given to ensure the independence and accountability of that body. The Governor of the Bank’s independence from Government is crucial for his or her credibility. Given the vast responsibilities of the Governor, the case for this Committee to have a power of veto over the appointment or dismissal of the Governor is even stronger than it is with respect to the OBR.”
The Committee recommended, therefore, that it be given a
“statutory power of veto over the appointment and dismissal of the Governor”.
That was a fair, appropriate and responsible submission from the Committee.
John McDonnell
It is a matter of striking a balance and, at the moment, the Governor’s independence is undermined by association with appointment by one Minister and the Executive. My Bill would spread the burden of accountability and responsibility for the appointment.
On the issue of politicisation, the argument was that the Committee veto would politicise the post of the Governor. However, spreading the decision, to include all parties in determining the appointment, would avoid the charge that the person had been appointed by one party or one coalition grouping and was therefore a party political appointee. The charge of politicisation also neglects to acknowledge that our Select Committees have, over decades, developed a good culture of cross-party working. Where there have been disputes over a ministerial appointment in the past, they have not been on political lines. There have been only two rejections of a Minister’s recommendation, and they were cross-party rejections. Having to secure the approval of the Treasury Committee would override any charge of a single-party or party political fix.
John McDonnell
That charge was laid before, but when the Institute for Government examined it in detail, it found no example of that happening, because the Select Committee system—
John McDonnell
The decision in the case that my hon. Friend the Member for North Ayrshire and Arran (Katy Clark) raised was not accepted. The Select Committee system has worked remarkably well, and when people have served on them, they have done so on a cross-party basis. However, the point the Minister makes still does not undermine the argument that it is better to have a group examining, interviewing and then coming to a decision about an appointment on a cross-party basis than to leave it in the hands of a single, party politician.
Stephen Hammond
I can only concur.
The Financial Services Bill, now in the other place, is designed to redress the inadequacies of the current regulatory regime. As the hon. Member for Hayes and Harlington noted, the new proposals view the Bank of England as absolutely at the heart of the regulatory system. It will now be charged, which it was not previously, with the protection and enhancement of the UK’s financial system. I do not need to rehearse in detail the fact that the Bank of England is therefore charged with looking at the working of the Financial Policy Committee and, underneath it, the Prudential Regulatory Authority and the Financial Conduct Authority.
Mr Hoban
To clarify, let me point out that the Financial Conduct Authority is not part of the Bank of England; it is an independent body. Failure to understand that is a mistake that the hon. Member for Nottingham East (Chris Leslie) regularly made in Committee, and I would not want my hon. Friend to make the same mistake.
Stephen Hammond
The Minister is technically correct, but I think he would agree that there is a line, dotted or otherwise, between what the Financial Policy Committee and the Financial Conduct Authority would do and their respective impacts.
Mr Hoban
My hon. Friend is correct, but I would not want to say that that makes the Financial Conduct Authority a part of the Bank of England. It will have an independent board. Martin Wheatley, the chief executive designate, has been appointed and is leading the review of LIBOR. The FCA is very much an independent body. Engagement with the Financial Policy Committee is relevant only when the FPC identifies a threat to financial stability that requires some action from the FCA. The circumstances in which the Prudential Regulatory Authority can veto acts of the FCA are limited. It is very clear in this approach that the FCA is not part of the Bank of England family.
Stephen Hammond
I bow, of course, to my hon. Friend’s greater knowledge of this matter. My key point was that the Bank of England and its family, cousins and outside friends will now have a much greater role at the centre of the regulation of our financial system and, indeed, of our overall economy.
It is in some ways understandable that the immediate drive of the Bill before us is to increase the powers of parliamentary accountability, but I think there is some confusion between accountability and independence. Parliament will gain further powers of control, scrutiny and accountability under the Financial Services Bill. The exact powers are clearly defined, with reference made to the new financial stability objective, to the position of the deputy governor and the Financial Policy Committee, to the Governor’s appointment for eight years and to the fact that the Treasury Committee and, indeed, Parliament can hold the Bank of England to account. That being so, it is not necessarily the case that giving the Treasury Committee the power of veto over the appointment of the Governor would enhance that accountability, although it might impede the Governor’s independence. It is right for Parliament to have greater accountability and greater scrutiny, but we need to be clear that the Governor, who is at the centre of the operation of macro-economic policy and macro-financial and prudential control, must be independent.
The Bill before us contains not only a power of veto but a power of appointment, which could be seen as a step backwards in the whole argument about independent policy making. The Bank of England Act 1998 took a momentous step forward in respect of the independence of the Bank and the Governor by giving the power of decision over interest rates to the Monetary Policy Committee. That was, and will remain, the historic achievement of the Labour Government. It followed from and was a continuation of what the previous Governor had introduced, in tandem with the then Chancellor, my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke), with the publication of the minutes of the interest rate-setting committee.
Brandon Lewis (Great Yarmouth) (Con)
I oppose the Bill. Based on the principles and the ethos expressed by the hon. Member for Hayes and Harlington (John McDonnell), I share one or two common interests with him. I understand that he attended the local grammar school in my constituency of Great Yarmouth in his formative years, and I am sure that he still holds our town in great affection, as do I as its Member of Parliament. His reason for introducing the Bill is to ensure that there is full and proper scrutiny and an open and transparent approach to the appointment of such an important position, but I fear that that is the only principle on which, for this morning at least, the hon. Gentleman and I are likely to agree.
The Bill threatens us with direct parliamentary interference in the appointment of the Governor of the Bank of England and, through that, unnecessarily jeopardises the wider political independence of the Bank. I want to address two particular elements of how the Bill approaches the problem, on which some comment has already been made. First, does it provide the right mechanism in how it goes about considering an appointment? I will come to that point in a few moments. Secondly, what effect would such a change have on how the Select Committee works and on the role of a Select Committee? As a member of the Select Committee on Work and Pensions, I fully appreciate its scrutiny role, and we have also considered appointments and commented on them. To my knowledge, there has not yet been a cry from our Committee to have the direct power of veto or appointment. It is simply important that the Committee has the chance to interview, take a view and make clear our opinion on a particular appointment.
I understand that the Bill was drafted in response to the comments made in wider circles, including by the Treasury Committee, about the need to have a greater say in the appointment of the Governor of the Bank of England. That has arisen partly through the extension of powers provided by the Financial Services Bill. That Bill, as we know, is being examined in Committee in another place at this very moment and I am sure that that scrutiny will involve comment on whether there is any need for direct parliamentary involvement in the appointment of the Governor of the Bank of England.
Mr Hoban
I want to offer some assistance to my hon. Friend and to the House. The subject was debated in the other place recently and the noble Lord McFall withdrew his amendment suggesting that the Treasury Committee should have such a role, in recognition of the fact that many in the other place felt that that was going far too far.
Brandon Lewis
I thank my hon. Friend for that intervention, which highlights the fact that when this subject was considered in depth in the other place the view was taken that the Bill might not be the right way forward. When their lordships considered whether the non-statutory arrangements for scrutinising the appointment of the Governor and the deputy governors were adequate, they will have done so in the light of the extensive new powers in the Bill and will have considered whether the Treasury Committee might or might not require a more formal role in the process. They have clearly commented on that. That process and involvement would require legislation to enshrine it in law and the Bill endeavours to formalise that process within the law. I am sure the hon. Member for Hayes and Harlington will have read carefully the Lords deliberations in Committee to see whether there are any pronouncements in favour of the course of action that he prefers. So far, as we heard from the Minister, the Lords seems to have taken the view that that is not necessarily appropriate.
I shall listen carefully to the views expressed today and those expressed in another place. At present my view is that the Bill would interfere with, rather than strengthen, the Select Committee’s scrutiny. The current system used for the non-statutory hearings that precede the appointment of members of the Monetary Policy Committee is working and should continue to be used for the appointment of the Governor of the Bank of England. The Treasury Committee has held those hearings since 1997 and has carefully scrutinised, reviewed and commented on appointees.
Members of the Select Committee have disagreed with the Government’s nominee. They urged the then Chancellor of the Exchequer to think again about appointing the economist Christopher Allsopp to the MPC. Well known in some circles for his flexibility on policy, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) promptly took no notice of the Committee’s recommendation and went ahead with that appointment. That was his ministerial prerogative, as he was exercising the powers that he was given as a member of the Executive. A Treasury Committee report after that incident was still able to observe that the hearings played an important role nonetheless.
In a parliamentary democracy it is right for Ministers to make Executive decisions and it is also right for Parliament to scrutinise those decisions. I stress the word “scrutinise”. There is a clear line of differentiation in the current structure between the Executive and Parliament’s ability and role in scrutiny, and it is one that we should protect. It would be wrong for Select Committees to have Executive power, in effect, and such a change would create an Executive power for a Select Committee in an appointment.
Mike Freer
Thank you, Madam Deputy Speaker. I shall indeed turn to the substance of the debate, but I find it rather sad that an hon. Member seeking to restore the rights of Parliament should seek to deprive another hon. Member of the right to continue the long-established tradition in the House of speaking at length, if they so choose.
I was talking about the original subscribers, so I—[Interruption.] I cannot hear what the hon. Member for West Ham (Lyn Brown) is chuntering about. If she wishes to intervene, she should please do so. [Interruption.]
The Lord Commissioner of Her Majesty's Treasury (Michael Fabricant)
She’s moving!
Lyn Brown (West Ham) (Lab)
I am moving places. Let me gently say to the hon. Gentleman that talking at length on a Bill is indeed an honourable tradition, and it is called filibustering.
Joseph Johnson
My hon. Friend is right. It is important to focus on the substance of what needs to change at the court, rather than on the men in pink coats and the silver platters. That means ensuring that members of the court, or the supervisory board, as the Treasury Committee would prefer it to be called, have the ability and willingness to take a tough and challenging line, with a chairman who is prepared to take on a rather more effective and higher profile role than has, perhaps, been the case in the past.
Logically, if anyone should be given a right to consent to the appointment or removal of the Governor of the Bank of England, it should be the chairman of the court of the Bank of England, rather than the Treasury Committee as a whole. That avoids many of the constitutional difficulties to which many of my hon. Friends have referred.
Joseph Johnson
I thank the Minister for that intervention. The Governor can be removed only with the assent of the court of the Bank of England, but the chairman of the court is not at present a statutory consultee in the appointment of the Governor. One of the means of strengthening the court as an oversight mechanism might be to consider whether the court, through the chairman of the court, could be made a statutory consultee in any appointment process. If the chairman and the court are to be taken seriously by the Governor, and given that it would be unacceptable if a Governor were appointed in whom the chairman of the court did not have confidence, it is essential that he should be seen to be somebody who has played a significant role in the appointment of the Governor. I am therefore sympathetic to the idea—originally floated, I acknowledge, by Baroness Wheatcroft in the other place—that the chairman of the court of the Bank of England should be consulted by the Chancellor, and I hope that the Government might consider tweaking the Financial Services Bill to that effect on Report in the other House.
The legislation as it stands does not prohibit the Chancellor from consulting widely before recommending that a candidate be appointed as Governor, and in practice the Bank of England and the Treasury work closely together to recruit key Bank of England posts. The Financial Services Bill would strengthen the governance of the Bank of England if it specifically mentioned the chairman of the court as a statutory consultee, and thereby indirectly achieved the principal objective of the Bill before us without introducing all of the constitutional risks that come with giving the Treasury Committee a veto.
As I said earlier, there is an important distinction between binding pre-appointment hearings and advisory confirmation or pre-commencement hearings. We more or less have the balance right today between those two forms of parliamentary scrutiny, and I strongly urge the House not to veer wildly to an extreme that it may later come to regret.
I have made clear my concern that the Treasury Committee’s ability to scrutinise the Bank of England effectively would be impaired if we were to make it complicit in the appointment of the Governor. I have also argued that the supposed precedents set by the role of Parliament in the appointment of the head of the OBR and the Comptroller and Auditor General are misleading. With an enhanced role for the chairman of the court of the Bank of England, potentially with a consultee role for the Treasury Committee; with an enhanced and streamlined court of the Bank of England, whose members are empowered to create a real atmosphere of challenge; with the introduction of a single eight-year term for the Governor rather than renewable five-year terms; and with regular scrutiny of the Governor, his deputies and policy committee members by an impartial Treasury Committee, we are putting in place a stable and strong governance structure for the 21st-century Bank of England that will equip it to play a central role in this country’s economic and financial system.
Matthew Hancock
I agree with my hon. Friend in one respect, which is that changing the separation between the Executive and the legislature that scrutinises them would have great constitutional implications. I ask Members to draw their own conclusions on the contrast between that and merely changing the form of appointment to one of the two Houses of the legislature. That is a matter simply within the legislature, rather than to do with the role of the Crown in Parliament, which is the basis of our constitutional monarchy.
Let me bring the debate down to more practical considerations. If the Treasury Committee were to reject the Government’s preferred choice of Governor, a small number of MPs would effectively have vetoed a Crown appointment. The whole House would not have made that rejection; a small number of MPs would have done so. I do not think that there is any precedent for such a challenge, whereby a small number of MPs who are not Ministers challenge, through the power vested in them, the authority of our Executive—at least not since the days of Charles I, and we all know how that turned out.
Where would the Bill leave the royal prerogative? That question needs to be addressed. What would it mean for the role of the Crown in Parliament? In this jubilee year, as we celebrate 60 glorious years of Her Majesty, these are questions to which we need answers. It is perhaps no coincidence that the original proponent of this broad constitutional change was himself an avowed republican, with a history of great hostility to the Crown’s role in government: Tony Benn. Indeed, I understand the heartfelt and strongly held republican position of the hon. Member for Hayes and Harlington. He does not contradict me, so I presume that is his position. The Bill directly challenges that question of parliamentary accountability.
The Governor of the Bank is already accountable to the Treasury Committee for his or her decisions on monetary policy and financial stability, but I turn to the question of the increasing role of the Bank, because there is no doubt that under the Financial Services Bill it will have a bigger role than hitherto. The separation of bank regulation from monetary policy is a flaw and a mistake that has had grievous consequences, not least because the banking system is the conduit for monetary policy’s impact on the real economy.
I therefore strongly and passionately support the relevant change in the Financial Services Bill, but it does not follow directly that, under it, the position of the Governor is stronger than hitherto, because up until and including today in matters of financial stability the Governor has been imperial within the Bank of England. Executive powers over the areas of financial stability for which the Bank is responsible are the sole responsibility of the Governor in person, accountable to the court of the Bank and to the Treasury Committee.
Under the new proposals, the Governor will chair the Financial Policy Committee, and it is in that committee, rather than in the individual, that powers over financial stability will be vested. So on matters of financial stability not only will there be accountability externally, but decision making will be conferred on a committee that the Governor chairs, rather than on the person of the Governor himself.
Mr Hoban
Does my hon. Friend, who served with me on the Financial Services Bill Committee, not share my view that we risk over-personalising the debate by suggesting that the Governor exercises all judicial power? My hon. Friend is right to highlight the fact that the Governor will be chairman of the Financial Policy Committee, is chairman of the Monetary Policy Committee and will have three deputy governors to work with. These powers are and will be vested in the institution, not in the person of the Governor.
Matthew Hancock
I am grateful to the Financial Secretary to the Treasury for making that clear, and I agree wholeheartedly. In the debate about accountability under the Financial Services Bill, one fact often overlooked is that, whereas previously a power vested in the Bank of England involved a decision by the Governor alone, for which the Bank’s deputy governors would take collective responsibility, it will now formally involve a decision by a committee, of which the Governor will be chair. That is an important distinction. Despite concerns about increased power going to one individual, in fact the increased power goes to an institution, but the internal arrangements at the institution are being changed in order to reflect that increased power. That is why I strongly support the Financial Services Bill not only in principle but in the design of the system that we are discussing.
To whom would the Treasury Committee be accountable if it had this Executive power? In the words of Juvenal, “Who watches the watchmen?” Under this proposed amendment to the Bank of England Act 1998, the Treasury Committee could stall or reject the appointment of a perfectly qualified candidate for whatever reason it chose— perhaps, heaven forfend, even in order to raise the personal profile of a member of the Committee. Given the powerful investigations by Select Committees over recent months—for instance, into phone hacking—I am sure that we would all be sceptical about the idea that any member of a Select Committee could possibly try to change the way in which an inquiry went forward in order to raise their own personal profile. I am absolutely certain that that does not happen.
Matthew Hancock
It was, but I would not wish to return to private subscription for the ownership and governance of the Bank of England, because of its role in our political economy. My hon. Friend the Member for North East Somerset might wish to push for that, but I believe that the settlement reached after nationalisation in 1946, whereby the Bank of England has its own capital base but is effectively part of the national political economy and one of the national institutions of economic governance, is the right one, rather than having private shareholders.
Since the Bank Charter Act 1844, other banks have been able to issue notes in sterling, and I believe that nine other banks do so in Scotland and Northern Ireland, but they have to be 100% backed by Bank of England banknotes held in the vaults of either the Bank of England or the issuing bank. That ensures that control of the money supply is within the grasp of the Bank of England rather than any other bank. I know that there are some Members who would prefer to return to the system from before 1844, not least my hon. Friend the Member for Wycombe (Steve Baker), with whom I regularly debate the point. I did so yesterday. However, the broad and settled view of the House is that we should retain the current situation.
Because the central bank is the monopoly provider of money and the lender of last resort, it must share a common strategy with the Government even though it is vital that its operational decisions on interest rates and financial stability are independent. The current appointment process fulfils well the twin objectives of operational independence and broad agreement on strategy. It also means that the Government can appoint a Governor who broadly shares their philosophy of economic management, even if the Governor is kept at arm’s length from party political machinations, the 24-hour news cycle, headline grabbing, tweeting and retweeting, and the Westminster bubble culture, which is the special discourse of the modern political set-up.
Economic history shows us the importance of the broad strategic agreement between the Governor and the Government of the day.
Matthew Hancock
Absolutely, and the Minister will be delighted to hear that he has anticipated the next section of my speech.
The nine years war, which the Bank of England was set up to finance, was the first example of successful co-operation on a strategy between the Governor and the Government of the day. The first Governor was a man called Sir John Houblon—his face appears on a modern £50 bank note, so hon. Members will know him well. Like many of his successors, Sir John dealt with the City but was not part of it. He was a grocer by trade and rose through the East India company—he was a business man who came to the City to oversee the Bank. At that time, the Governor, deputy governors and directors of the Bank were voted for by private shareholders, who had to have a £500 shareholding—a huge amount in those days. The Governor had to have a £4,000 shareholding.
We can only speculate who would get the job now if the late 17th century equivalent of the Treasury Committee had a veto over candidates. The House of Commons was, back in the day, notoriously corrupt and vice-ridden, unlike today. By way of illustration, the prospective parliamentary candidate for a by-election in Bath laid on a meal before polling day. There were 32 voters, but the meal consisted of two boiled haunches, two chines of mutton, four geese, four pigs, 12 turkeys, plain chickens, rabbits, an abundance of claret and sherry, and—my favourite—two venison pasties. A ball to persuade the voters’ wives followed. Glasses were broken and windows shattered at the end of it.
The modern system of corporate governance is similar to chief executive officers having skin in the game in financial organisations. As my hon. Friend the Member for Spelthorne (Kwasi Kwarteng) pointed out, when the Bank was given operational independence in 1997, it was returning to the independence it had enjoyed for 200-odd years until it was nationalised in 1946.
There are examples of when the Bank and the Government have agreed broadly on strategy and prosecuted it effectively, but there are also historical examples of how things can go wrong. The Bank was founded before the first Governor took office by an initial loan made by a Scottish banker called William Paterson. Founding the Bank was not Paterson’s only contribution to economic history; he was also the main instigator of the infamous Darien scheme, which involved a Scottish colony in Panama that was supposed to replicate the success of the English colonies in north America. With a monopoly company facilitating trade between the new and old worlds, the Scottish public went wild for the scheme and invested a quarter of the country’s gross domestic product in the embryonic New Caledonia. Of course, the reason the Panama canal is not called the firth of the Pacific is that the colony was a disaster—thanks to poor leadership, endemic diseases and weak demand for Panamanian goods—bankrupted Scotland and led, indirectly, to the Act of Union in 1707. Although William Paterson was not the last Scot to drive a country to the brink of financial ruin, he might have been the first.
I shall cite another example of the Bank and the Government having separate strategies that shows why the Bill would be a mistake. In 1716, a man named John Law, another Scottish gambler-turned-economist, managed to persuade the Government of France that, having defaulted on their debts four times between 1648 and 1715, they could create a scheme to end the national debt by enabling them to take control of the money supply and replace gold and silver, whose price was ruled by the markets, with something that he said would be more stable. He suggested creating a central bank in France along the lines of the Bank of England. In return for the deposits on gold and silver, there would be paper money deposited in a state-owned scheme that would turn it into something more valuable. This proved irresistible to the French people.
The Financial Secretary to the Treasury (Mr Mark Hoban)
This has been a thoughtful debate and some interesting issues have been raised by Members on both sides of the House. I commend the hon. Member for Hayes and Harlington (John McDonnell) on his success in getting the first Bill in the ballot for two years running. The odds on his being first again next year are about 14 million to one—roughly the same as winning the national lottery. If he tells us his numbers, we will all enter it, although I fear that it would make only a minor dent in the deficit that we inherited from the previous Government.
The hon. Gentleman made his arguments in a calm and considered way, but I felt that he did not do justice to some of the more complex issues that have been explored over the last few hours. I am grateful to my hon. Friends for their support in teasing out the issues that underpin the Bill. My hon. Friend the Member for Wimbledon (Stephen Hammond)—the Cliff Richard of Parliament, as he was described earlier—talked about the substantial constitutional change that the Bill would make. The hon. Member for Nottingham East (Chris Leslie), who is no longer in his place, made one of his shorter speeches at eight minutes. Those of us who served on the Financial Services Bill Committee would have welcomed more speeches of that brevity and concision.
My hon. Friend the Member for Great Yarmouth (Brandon Lewis) made a powerful and measured speech, using his experience from the Work and Pensions Committee and highlighting some of the challenges that exist. The hon. Member for Foyle (Mark Durkan), who is no longer in his place, made the second of only two Back-Bench speeches in support of the Bill. He got himself into a bit of a hole trying to justify why he voted against a parliamentary inquiry last night but was in favour of the Bill today.
My hon. Friend the Member for Watford (Richard Harrington) highlighted the importance of transparency and openness in appointments, which I hope to come on to in a moment. My hon. Friend the Member for South Derbyshire (Heather Wheeler), in her typically pithy way, made some important and powerful points about the changes that the Bill would introduce.
My hon. Friend the Member for Finchley and Golders Green (Mike Freer) came with a list of original shareholders of the Bank of England and tried to identify whether any of their successors were in the House of Commons. I have with me a list of Governors of the Bank of England. [Interruption.] No, just be patient. I wondered whether Humphry Morice, the Governor between 1727 and 1729, was related to the hon. Members for Easington (Grahame M. Morris) and for Livingston (Graeme Morrice), but unlike them he was not called Graeme or Grahame. My hon. Friend the Member for Orpington (Joseph Johnson) will be interested to know that Reginald Eden Johnston was the Governor between 1909 and 1911. My hon. Friend quoted Bagehot, and I have my own Bagehot quote to trade with him. I think it rather neatly encapsulates some of the problems with the Bill. He said:
“No result could be worse than that the conduct of the Bank and the management should be made a matter of party politics, and men of all parties would agree in this, even if they agreed in almost nothing else.”
That highlights the problem at the heart of the Bill. The power in it could be used to politicise the appointment of the Governor in a way that would be to the detriment of how the Bank functions.
My hon. Friend the Member for West Suffolk (Matthew Hancock) made an impressive speech—
Mr Hoban
In its quality, too. The hon. Gentleman should acknowledge that.
Among the many facts that my hon. Friend gave, I have to correct one or two. He said that only nine banks could still issue notes in Scotland and Northern Ireland, but in fact it is only seven. The Bank Charter Act 1844 was the beginning of the move towards the Bank of England’s note issue monopoly, after which no new banks were permitted to issue notes and the stock of notes could not be increased. I am sorry that my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) is no longer in his place, because the last bank to issue notes was one called Fox, Fowler and Company, which was based in Somerset. Sticking to tradition is a feature of what my hon. Friend does, so perhaps that is not a surprise to him.
Mr Nuttall
We have heard from several Back Benchers, but is the Financial Secretary as disappointed as I am that we have not heard the views of any of our coalition colleagues the Liberal Democrats?
Mr Hoban
I hate to say it, but I thought my hon. Friend was uncharacteristically uncharitable about our hon. Friends the Liberal Democrats. Perhaps they did not get the three e-mails that I got from the hon. Member for Hayes and Harlington imploring me to be here today. I answered that call, and I am sorry that more Members on his side of the argument did not do so.
Mr Hoban
No, I think I ought to have the opportunity to summarise the Government’s position on the Bill.
We are committed to maintaining the appointments process for the Governor, which is proportionate, attracts candidates of the highest quality and represents value for money for the taxpayer. It is important to ensure the credibility of the candidate, and to safeguard his or her independence and prevent them from becoming a political pawn.
The Financial Services Bill, which is currently in the other place, already contains provisions to strengthen the Bank’s governance arrangements, including moving the Governor to a single eight-year term. Much has been made of the enhanced powers that the Financial Services Bill bestows on the Governor, but it is important to remember that the Bill does not create new responsibilities for the Bank. Rather, it is returning the Bank to a role more akin to the one it played prior to the creation of the Financial Services Authority, when it was responsible for financial stability and prudential supervision of banks. In a way, we are going back to the situation prior to the Labour Government.
The Governor is already accountable to the court and to Parliament, and the Treasury Committee holds pre-commencement hearings for the Governor and deputy governors. That is the right balance. Of course, the Governor—rightly—is regularly called before the Treasury Committee. The market-sensitive nature of the Governor’s role makes it unsuitable to be subject to the approval of the Treasury Committee. Such a step risks uncertainty, delay and disruption to financial markets. That is also true in respect of the proposal to make the dismissal of the Governor subject to the approval of the Treasury Committee. I therefore cannot offer the Government’s support for the Bill.
Mr Love
The Minister will be pleased to note that his speech does not come as a surprise, because the Government have laid out their position, not least in the Financial Services Bill. However, the relationship between the Executive and the legislature is evolving. Ad hoc relations, such as those with the Comptroller and Auditor General and the Electoral Commission, have been mentioned. Will the Minister give serious consideration to taking into account the views of both the Treasury Committee and Parliament? Can he envisage a role for them in the process?
Mr Hoban
The Treasury Committee already has a role—it conducts, for example, pre-commencement hearings for members of the Monetary Policy Committee. Paul Tucker and Charlie Bean, the two deputy governors, have been through that process, which we envisage will continue.
Even the Labour Front-Bench spokesman in the House of Lords was wary of the proposed increase of authority for the Treasury Committee. Although there has been a broader debate on the role of the House in appointments and whether there should be pre-appointment hearings, this is not the time to make those broader points. If there is to be such evolution, we need a much broader debate. Alighting on the appointment of the Government as a peg for that debate is not the right way to go about things. If I make more progress, I shall highlight the Government’s response to the Liaison Committee, which has discussed increasing the role of Select Committees.
Matthew Hancock
Will my hon. Friend take into account the views of Back Benchers who are not on the Treasury Committee, and note that a majority of hon. Members who have spoken today spoke against Second Reading?
Mr Hoban
That is a fair point. The weight of opinion has been to oppose the Bill. I gave a list of hon. Members who have spoken—I forgot to add my hon. Friend the Member for Spelthorne (Kwasi Kwarteng), who was the last Back-Bench speaker—but the balance of views has been against the proposal. There has been some discussion of the fact that the debate has continued until almost 2.30 pm, but the hon. Member for Hayes and Harlington, despite his three e-mails, could not get the 100 hon. Members required for the closure. The House has expressed its view today.
The appointment veto was proposed by the Treasury Committee. There was a consultation on, and pre-legislative scrutiny of, the Financial Services Bill prior to its Second Reading but, except for the Treasury Committee, no one called for the appointment of the Governor to be subject to its approval.
We need to recognise the changes being made to the accountability and governance of the Bank. It is facing pretty significant organisational change, and it is right that the arrangements for its governance and accountability be thoroughly debated as part of that process. In November, the Committee published its report on the accountability of the Bank and in it made several recommendations on governance. As a consequence, we have tabled amendments in the other place to strengthen and modernise the Bank’s governance arrangements.
Those amendments will replace the current committee of non-executive directors of the Bank with a non-executive oversight committee that will have a broad remit to oversee the Bank’s performance against its objectives and strategy, and provide for explicit powers to commission and publish internal and external reviews of the Bank’s policy-making process. In the Bank’s annual report and accounts, published on Monday, the Governor said in the foreword that the Bank must carry out its new responsibilities with
“openness and transparency, and be held accountable for them to Parliament and the public, just as”—
it is “for monetary policy”—an important signal from the Bank about its role.
Since the Bank’s nationalisation in 1946, appointments have been made by Her Majesty the Queen on the recommendation of the Chancellor and the Prime Minister. The Bill would require that the appointment be made by Her Majesty with the consent of the Treasury Committee as well. The current legislation states that the Bank may, with the Chancellor’s consent, remove the Governor from office in certain circumstances, but again the Bill would require that the Treasury Committee consent to that removal. We have made our position clear: we do not believe that giving the Treasury Committee a statutory power over appointments or dismissals is either necessary or appropriate.
Mr Love
The Minister indicated that we were returning to the Bank powers over financial stability and oversight of the banking industry, but he forgot to mention that it already had powers over monetary policy, which it never had in the past. In effect, the Bank and the Governor have unprecedented powers. I accept that parliamentary oversight has been strengthened—sometimes at the behest of the Treasury Committee—but, given these unprecedented powers, will the Government consider going further and putting in place appropriate parliamentary scrutiny to ensure that the powers are being used effectively?
Mr Hoban
We are improving the parliamentary scrutiny of the Bank. As a result of the Financial Services Bill, we will see more regular reports on regulatory failure, and I expect the Governor to appear before the Treasury Committee. On financial stability decisions, we are trying to ensure that the Bank’s six-monthly financial stability reports are transparent and open, and that they explain the risks facing the economy, what the FPC will do about them and what the consequences might be. There is, then, a great deal of transparency in the work of the Bank. That is a significant leap forward, and I pay tribute to the work of the Treasury Committee in encouraging that increase in transparency. We listen to the Committee and respond to its conclusions.
The Government believe, as did the previous one, that the existing appointment process is robust, appropriate and ensures the independence and accountability of the Governor. We are introducing a single eight-year term for the Governor, which will preserve his independence. That was a proposal from the Treasury Committee but also one that we made when in opposition. It will help to strengthen that independence. There are risks, however, in giving the Treasury Committee a veto over appointments. There could be an impact on market stability, with a risk of undermining market confidence. There is also a risk of creating a party political or politicised process—the very danger that Bagehot warned us against.
It would be wrong for the Bill to receive a Second Reading, although there is much more that I would like to say about the matter. I do not think that we have properly explored the issues, but I am grateful to hon. Members on both sides of the debate for their contributions. These are weighty matters that deserve proper parliamentary attention and—