House of Lords

Tuesday 6th November 2012 Lords Chamber

Tuesday, 6 November 2012.

14:30

Prayers—read by the Lord Bishop of Norwich.

NHS: Women Doctors

Tuesday 6th November 2012 Lords Chamber

Question

14:36

Tabled By

[Baroness Deech]

To ask Her Majesty’s Government how they propose to facilitate the retention of women doctors in the National Health Service.

[Baroness Hollins]

My Lords, on behalf of my noble friend Lady Deech, and at her request, I beg leave to ask the Question standing in her name on the Order Paper.

[The Parliamentary Under-Secretary of State, Department of Health (Earl Howe)]

My Lords, over the past 10 years, from 2001 to 2011, the number of female doctors in the National Health Service has increased by 75%. Female consultants have increased by 105%, female registrars by 288% and female GPs by 58%. The Government, in partnership with other organisations, including NHS employers, the NHS Leadership Academy and royal colleges, support good working practices, such as flexible working, job sharing and part-time working, which support the retention of female doctors.

[Baroness Hollins]

Is the Minister aware that part-time training in the NHS is becoming much less available because of workforce pressures and difficulties in filling hospital rotas? Now that the majority of medical students are women, does he agree that the challenge is how to support those doctors who wish to work part time, perhaps while their families are young or while they have other caring responsibilities, and then to support them to move between full-time and part-time work that makes proper use of their talents and training? I declare an interest as president of the BMA and also as someone who worked part time for seven years as a trainee doctor.

[Earl Howe]

My Lords, I agree with the noble Baroness. I think this is less of a problem with retention of female doctors than a problem with the career progression of female doctors, which is a serious and significant issue. The noble Baroness, Lady Deech, published a very well argued report about three years ago, and a number of worthwhile initiatives have been started as a result of that. I do think that these need greater focus with more support at a higher level. Women are in a significant minority in more senior leadership roles in the NHS, and that is a loss all round.

[Baroness Cumberlege]

My Lords, I declare an interest, and my interests are in the register. Does my noble friend agree that some of the brightest women in the land choose a medical career and are well equipped to take on positions of leadership? Does he also agree that they are under-represented on the boards of the new clinical commissioning groups? Can he suggest to the national Commissioning Board that it examines this issue before authorising the individual boards?

[Earl Howe]

My noble friend makes a very important point. There is good evidence that women doctors make safer decisions, are often better at communication than men and understand better the needs of women, and we need them to inspire the next generation of women doctors. Therefore, to fish for clinical leaders from half the talent pool is not a sensible thing to do. As for CCGs, my noble friend makes a very important point. The NHS Leadership Academy has established development opportunities, including action learning sets for female CCG leaders. But we recognise that more work is needed at a system level to aid progress in this area.

[Baroness Afshar]

My Lords, do we have any details about minority women in high positions in the medical profession? Many minority women, particularly Muslim women, would prefer to be seen by a woman expert if they can possibly do so, and it is a matter of regret that very often they cannot.

[Earl Howe]

The noble Baroness raises another very important issue. Unfortunately, I do not have any information in my brief on that point, but if I can obtain it I shall be happy to write to her.

[Lord Sharkey]

Does the Minister agree that monitoring the number of women in leadership roles in the NHS from consultant upwards will be a marker of appropriate career progression?

[Earl Howe]

Yes, indeed, my Lords. The noble Baroness, Lady Deech, raised that in her report as an action point. It can be done at a trust level or at a higher level in the health service. But it is certainly important to monitor—I understand that the term is “credentialing” —the skill sets of those doctors, who may move out of the health service and want to move back in again, so that jobs can be found for them more easily.

[Baroness Wheeler]

My Lords, I am sure the Minister will agree that recruiting women into the medical profession is just as vital as retaining them once they are trained and working. Given the high costs of university fees and the burden that these place on young people, particularly those from poorer backgrounds and those with family and caring responsibilities, how will the Government ensure that women are not put off applying to medical school?

[Earl Howe]

My Lords, there is no evidence that there is a problem with female recruitment into the health service. Indeed, the male-to-female gender balance over the past few years has decreased from 1.83:1 in 2001 to 1.25:1 in 2011. However, I recognise that we should not be complacent. Even with the increased participation of women in medicine, we appreciate that more can be done to improve the selection of senior doctors into senior positions.

[Lord Ribeiro]

My Lords, I declare an interest as a member of the committee chaired by the noble Baroness, Lady Deech. In 1998, I introduced the first job-sharing scheme for female trainees in London and Essex. This involved two girls who both had children and managed to complete their training before the 48-hour week was introduced. What efforts are the Government making to encourage job-sharing and less than full-time training?

[Earl Howe]

My Lords, the Government fully support flexible working. We encourage organisations to take account of the recommendation made by the noble Baroness, Lady Deech, on that subject and adopt working arrangements that are amenable both to doctors who are parents and doctors who are carers.

[Lord Patel]

My Lords, first, I declare an interest. In my family there are four women doctors—I do not call them “girls”. They are all higher achievers than I could ever be. Does the Minister agree that there are in some of the most demanding specialties more women doctors in higher positions than in some of the other specialties and that in the specialties where there are not, it is the attitude of the senior doctors—possibly even male doctors—that is the problem?

[Earl Howe]

I discussed this subject in my briefing with departmental officials. There are multiple and quite complex barriers to career progression, including a conflict of roles between someone’s clinical responsibilities and their domestic responsibilities. There are structural barriers, as I have mentioned, in relation to part-time work, and in terms of general practice there is the sessional GP contract, which is another barrier to progression. The lack of role models is a factor and we should not overlook individual and organisational mind-sets, to which the noble Lord alluded, which result in lower personal aspiration in this area.

International Development

Tuesday 6th November 2012 Lords Chamber

Question

14:46

Asked by

[Lord McConnell of Glenscorrodale]

To ask Her Majesty’s Government whether they will seek to include goals in relation to conflict and security in the successor to millennium development goals after 2015.

[Baroness Northover]

My Lords, conflict-affected and fragile states are the furthest from reaching the current millennium development goals. Conflict and security are also often overriding concerns for poor people. The Government recognise that a post-2015 framework will need to reflect the particular challenges faced by these countries, and address the root causes of poverty in all developing countries.

[Lord McConnell of Glenscorrodale]

My Lords, I thank the Minister for her Answer, and I understand completely the Government’s commitment to this agenda. The reality is, however, that in conflict-affected and fragile states, children are twice as likely to be undernourished, babies are twice as likely to die before the age of five, and none of these states is likely to reach any of the millennium development goals by 2015. Will the Government use their position of leadership, as a co-chair of the high-level panel on the post-2015 development framework, to take responsibility for the next generation? Will they ensure that, unlike the previous millennium development goals, the next set of goals for the international community reflect the importance of justice, security and peace, without which there cannot be development in these affected states?

[Baroness Northover]

The noble Lord is right about how the effect of conflict wipes away development gains. He refers to the high-level panel which the UN set up; the Prime Minister is one of its co-chairs, and it met last week. Given that it is seeking to address the causes of poverty, it is acutely aware that, as he says, no fragile and conflict-affected state will reach any of the MDGs.

[Lord Chidgey]

Is my noble friend aware that the aid effectiveness forum in Busan launched a new deal for fragile states, to give voice to the 1.5 billion people who did not benefit and are not benefiting from the MDGs? What position is the United Kingdom taking on the new deal’s five peacebuilding and state-building goals—the PSGs—which are quite separate from the MDGs?

[Baroness Northover]

My noble friend will be aware that my right honourable friend the previous Secretary of State for International Development was instrumental in trying to ensure that the peacebuilding and state-building goals were addressed at Busan. The current Secretary of State is taking this forward. We are very strongly in support of what was decided at Busan, and in fact, we are already taking this forward in South Sudan and Afghanistan, and are applying the principles in other countries as well.

[Lord Anderson of Swansea]

My Lords, do the Government believe that democracy and the rule of law should have a higher role and profile in the new goals?

[Baroness Northover]

We are at the beginning of working out how to take forward millennium development goals that will be signed up to internationally. However, I note that the UN task team that is considering what might underpin this is looking at social development, inclusive economic development, environmental sustainability, and peace and security. It is well understood that justice, fairness and security are all important in underpinning the relief of poverty.

[Lord Hylton]

My Lords, are non-recognised entities in the former Soviet Union and other special areas such as the Gaza Strip or ethnic minority regions of such countries as Burma and many others receiving their fair share of aid and technical assistance?

[Baroness Northover]

I may need to write to the noble Lord with details but I assure him that, as I think he knows, a great deal of United Kingdom assistance goes to support the people in Gaza.

[Baroness Nicholson of Winterbourne]

Following the Minister’s most helpful answers and given that not one of the conflict-ridden and sensitive countries has reached a single millennium goal, will the Government consider recommending to the United Nations that for those countries the single millennium goals in place now be retained rather than put something more complex in place which they would never reach?

[Baroness Northover]

There is a strong argument for keeping the current MDGs. They have been a great international focus and have done a great deal to relieve poverty around the world, get children into education and so on. I am somewhat sympathetic to that. However, these are to run until 2015. The important thing now is to build on the progress that has been made, carry forward the things that work well and learn some of the lessons of those MDGs: for example, universal education for children does not necessarily mean that those children in schools are actually learning something. All those things need to be addressed. However, my noble friend is right: we have to build on what has already been set in place.

[Baroness Kinnock of Holyhead]

My Lords, the Minister will, of course, be aware that women face disproportionate disadvantage and discrimination and that they are behind in all the development goals, especially in conflict-affected and fragile states. Will the Government call for a new post-2015 stand-alone goal on gender inequality and a specific target on violence against women and girls?

[Baroness Northover]

The noble Baroness is quite right about the disproportionate effect on women and girls. She will know that of the eight current MDGs, gender equality is the third and maternal health is the fifth. Given that the groups are looking at the causes of poverty and noting the disproportionate effect, as she has, I would be astonished if gender equality did not run right the way through any replacement of these MDGs.

Universal Credit

Tuesday 6th November 2012 Lords Chamber

Question

14:52

Asked By

[Lord Touhig]

To ask Her Majesty’s Government whether the information technology project required for the implementation of universal credit is on schedule.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)]

My Lords, the universal credit programme remains on schedule to launch the pathfinder in April 2013 and to go live in October 2013.

[Lord Touhig]

I regret that I do not share the Minister’s confidence in this matter but, on behalf of those who depend on benefits to survive, I sincerely hope that he will be proved right and I will be proved wrong. In Grand Committee the noble Baroness, Lady Stowell of Beeston, told me that,

“universal credit will be a digitally based process”—[Official Report, 8/10/12; col. GC377],

and confirmed that the Government intend people to claim this benefit online. However, work carried out by the noble Baroness, Lady Grey-Thompson, indicates that 8 million people in this country do not have access to a computer, and that of those, 3.9 million are disabled. What proposals do the Government have to ensure that people who are disabled and do not have access to a computer will be able to claim universal credit?

[Lord Freud]

My Lords, we did a survey on our complete claimant base and found, somewhat to our surprise, that 78% of them were already online, and, indeed, that 41% of them used online banking. Our target when we start next year is to have 50% of people going online, with others going to our other channels which support the online process. We plan to have a support and exceptions process to help the people who need support in getting their universal credit.

[Baroness Sherlock]

My Lords, is the Minister aware of the recent report of the Joseph Rowntree Foundation which showed that it will be very difficult for people to claim online because only 20% of people now do so and only 40% are ready and able? What will the Government do if people do not feel able to claim online? How far and for how long are the Government willing to extend paper applications to those who struggle?

[Lord Freud]

My Lords, I should make clear that we are not entertaining paper applications. We are looking at either face-to-face or telephone support groups. We have looked at pushing JSA online and the figures have gone up from 16% in September last year to 39% this September. We are moving people very rapidly to the online route.

[The Countess of Mar]

My Lords, the banks have shown us that computer systems are not infallible. Can the Minister tell the House what provision there is for back-up in case something goes wrong? These people are very vulnerable and cannot do without money for a long time.

[Lord Freud]

My Lords, we have a very substantial contingency prepared if, for instance, a disaster takes down our data centre—we have two data centres for that reason—and particularly if we have a cyberattack. We will have contingency built into the system to make sure that our payments systems do not go down because of these problems.

[Lord Stoneham of Droxford]

Can the Minister confirm that the Treasury is giving the fullest possible co-operation to his department on the computerisation of the universal credit system? In particular, are employers being sufficiently geared up to provide monthly pay information on their employees?

[Lord Freud]

My Lords, I am happy to confirm that the Treasury is whole-heartedly in support of this radical transformation of our welfare system. Part of the system relies on real time information through HMRC networks, and HMRC is driving ahead with a series of expanding pathfinders. It currently has 2 million employees or pensioners on the system today and is ramping it up into April and October next year.

[Lord McKenzie of Luton]

My Lords, the Minister will be aware, no doubt, of the KMPG survey undertaken recently. It concludes that:

“Moving to real-time information (RTI) reporting in which employers send payroll information to HMRC on or before every payday instead of after the end of the tax year is an enormous change. In the main, the larger employers are putting plans in place, or at least thinking about it. But many small and medium-sized businesses are likely to be blissfully unaware of this radical change”.

Is that not a cause for concern?

[Lord Freud]

My Lords, there is naturally a programme to get employers on board. HMRC has launched a major campaign—for instance, writing to 1.4 million employers so that they are ready in time. Even in the KPMG report, 75% of employers were aware of the change over and that was before this campaign got going.

[Baroness Armstrong of Hill Top]

Is the Minister content that people currently being moved from one benefit to another frequently have to wait three, four or more weeks because the system cannot cope? How is that meant to give us confidence in what the Minister and the department are proposing for next year?

[Lord Freud]

The noble Baroness is absolutely right on this particular problem. It is one of the reasons we are sweeping away the existing system—it is simply too complicated for people to operate. The real difference in the new welfare system is that we do not have a distinction between out-of-work benefits and in-work tax credits. You do not have to jump from one system to the other when you move category. You stay on the same system and do not have to suffer awful delays.

[Baroness Browning]

Will my noble friend confirm that people claiming disability benefits will be reassured that when the Government calculate the minimum amount they need to live on, the cost of maintaining a computer and purchasing internet access will now be part of that computation?

[Lord Freud]

My Lords, that is not how the benefits system is built up. It is not, and has not been ever under any Government, built up on the basis of needs. It is based on a particular set of payments for people in different categories. That will continue. In fact, under universal credit the gross amount for people who are unemployed will remain more or less unchanged as a direct result. Clearly people can get access to computers. They do not necessarily have to have them at home.

[Lord Bach]

My Lords, does the Minister accept that when universal credit comes in, an enormous number of wrong decisions are bound to be made? Is he aware that just when universal credit comes in, legal aid for legal help with benefit law will just have been abolished? Are those two facts merely coincidental, or is it a calculated act of policy, whose aim is to punish the vulnerable and the poorest?

[Lord Freud]

My Lords, when you turn what can be 200 pages of applications for the current suite of benefits into one very much more simplified system, clearly you will dramatically reduce the number of errors that people will make. I therefore think that the complaint is about the existing system and not about the system we are planning.

Justice and Security Bill [HL]

Tuesday 6th November 2012 Lords Chamber

Question

15:00

Asked By

[Lord Clinton-Davis]

To ask Her Majesty’s Government how they will respond to the view expressed by the Equality and Human Rights Commission that the proposals in the Justice and Security Bill [HL] regarding closed material procedures are incompatible with the Human Rights Act 1998.

[The Advocate-General for Scotland (Lord Wallace of Tankerness)]

My Lords, Her Majesty’s Government disagree with the EHRC’s analysis. Case law shows that closed material proceedings can occur compatibly with the right to a fair trial in Article 6 and the other rights contained in the convention. CMPs are explicitly made subject to Article 6 in the Bill. The UK Supreme Court affirmed as recently as last year in the case of Tariq that a procedure involving CMPs was compatible with Article 6 of the European Convention on Human Rights.

[Lord Clinton-Davis]

The proposals regarding CMPs are controversial and difficult, are they not? How do the Government now propose, as they must, to deal with the powerful criticism of the Equality and Human Rights Commission and others that CMPs are incompatible with a fair trial, in breach of Article 6 of the European Convention on Human Rights and fail to define clearly the national security concerns which are claimed to lie at the heart of the Government’s proposals? Are we too late to intervene and discuss the position with this body?

[Lord Wallace of Tankerness]

My Lords, I certainly agree with the noble Lord that these proposals are controversial, difficult and complex. Indeed, they have already been the subject of much debate in your Lordships’ House. As I indicated, the Government believe that they are compatible with Article 6. Upon introduction of the Bill, I signed a statement that its provisions are compatible, and the Government have published their own summary of the human rights issues in the Bill, which we gave to the Joint Committee on Human Rights and which has been published. The definition of national security was debated in your Lordships’ House in Committee, and there are many reasons as to why national security is not defined in many statutes. The noble Lord asked if there will be a further opportunity for discussion. Indeed, there will be such an opportunity because the future business set down for the House indicates that the Report stage will be held on the 19th and 21st of this month. I anticipate some informed and robust discussions during those debates.

[Lord Marks of Henley-on-Thames]

My Lords, my noble and learned friend the Advocate-General will no doubt agree that the opinion of John Howell QC obtained by the commission needs to be taken seriously. Have the Government yet had time to consider how far amendment of the Bill might address the thrust of the criticisms he advances—in particular, by ensuring that its impact is strictly limited to material that would otherwise be subject to public interest immunity and to cases where otherwise no trial at all would be possible, and by giving claimants as well as the Government the right to have such material considered by a court, with the assistance of a special advocate?

[Lord Wallace of Tankerness]

My Lords, I can certainly assure my noble friend that the Government give serious attention to representations from the Equality and Human Rights Commission and to this particular opinion, as I have indicated. There is a good response to the two key concerns that have been raised. It is the Secretary of State who applies for the CMP, but it is nevertheless the courts which decide whether to grant a declaration and, thereafter, which material will be heard in closed proceedings. With regard to criticism of the standard of gisting, we believe, as we said in Committee, that following the judgment in the Tariq case the Supreme Court found that the requirement of fairness can vary from case to case. The Bill states that closed material proceedings must comply with Article 6, when it applies, and we leave it to the courts to decide what Article 6 requires in any case. I am grateful for the constructive proposal of my noble friend. He will be aware that as well as considering seriously the opinion of the ECHRC, we will also consider the comments made in Committee, and I think we will receive before Report stage the report from the Joint Committee on Human Rights. I certainly look forward to giving that the consideration it deserves.

[Lord Beecham]

My Lords, given the dictum of the late Lord Scarman that public interest immunity is a matter of substantive public law, not private right, and that of the late Lord Bingham, that:

“It is an exclusionary rule, imposed on parties in certain circumstances, even where it is to their disadvantage”,

does the Minister agree with the opinion of leading counsel furnished to the Equalities and Human Rights Commission that,

“it is the duty of courts and tribunals to give effect to such immunity if applicable”—

on their own motion—

“even if the parties do not wish it”?

If so, what are the implications for the proposals in the Bill?

[Lord Wallace of Tankerness]

My Lords, again the issues regarding public interest immunity have been well aired and were referred to by my noble friend Lord Marks. I am sure that we will return to this on Report. The concern expressed during our earlier debates was that if PII is successfully asserted by the Secretary of State, that material in respect of which PII is successfully claimed has no part to play—it is not admitted to the proceedings. The Government’s concern is that there may well be situations where the Government have an answer to serious allegations made against them but, under the PII system alone, they are not able to bring that material before a judge. We believe that it is better if it is before a judge, subject of course to the proper safeguards in this Bill.

[Lord Campbell of Alloway]

My Lords, I support what my noble friend has said, having appeared before that court on more than one occasion and set up my own chambers in Brussels, and having had an interest there. However that interest was always in our country, which predominated over that of the interest of Europe.

[Lord Wallace of Tankerness]

In these debates, my Lords, I very much welcome my noble friend’s support.

Welfare of Wild Animals in Travelling Circuses (England) Regulations 2012

Tuesday 6th November 2012 Lords Chamber

Motion to Approve

15:07

Moved By

[Lord De Mauley]

That the draft Welfare of Wild Animals in Travelling Circuses (England) Regulations 2012 laid before the House on 12 July be approved.

Relevant document: 7th Report from the Joint Committee on Statutory Instruments. Considered in Grand Committee on 24 October.

[Baroness Oppenheim-Barnes]

My Lords, for many years I have been deeply concerned about all the issues that these regulations deal with. Unfortunately, I was not able to attend the Committee, but I read the reports and in particular the careful Explanatory Note that went with the regulations. I pay tribute to the Government for the work that they have done in a difficult and emotive, although narrow, field. We cannot have a full answer, but they have given us something which I believe to be very acceptable.

Motion agreed.

North Wales Abuse Allegations

Tuesday 6th November 2012 Lords Chamber

Statement

15:08

[The Parliamentary Under-Secretary of State, Home Office (Lord Taylor of Holbeach)]

My Lords, with the leave of the House, I will repeat a Statement made earlier today in another place by my right honourable friend the Home Secretary. It is as follows:

“Mr Speaker, with permission I would like to make a Statement on historic allegations of child abuse in the North Wales Police force area. In 1991, North Wales Police conducted an investigation into allegations that, throughout the 1970s and 1980s, children in homes that were managed and supervised by Clwyd County Council were sexually and physically abused. The result of the police investigation was eight prosecutions and seven convictions of former care workers. Despite the investigation and convictions, it was widely believed that the abuse was in fact on a far greater scale. But a report produced by Clwyd Council’s own inquiry was never published because so much of its content was considered by lawyers to be defamatory.

In 1995, the then Secretary of States for Wales, my right honourable friend the Member for Wokingham, appointed a QC to examine all the relevant documents and recommend whether there should be a public inquiry. The recommendation was that there should be not a public inquiry but an examination of the work of private care homes and the social service departments in Gwynedd and Clwyd councils.

This work revealed not only shortcomings in the protection of vulnerable children, but that the shortcomings had persisted even after the police investigation and subsequent prosecutions. In 1996, my right honourable friend the Foreign Secretary, then the new Secretary of State for Wales, therefore invited Sir Ronald Waterhouse to lead an inquiry into the abuse of children in care in the Gwynedd and Clwyd council areas.

The Waterhouse inquiry sat for 203 days and heard evidence from more than 650 people. Statements made to the inquiry named more than 80 people as child abusers, many of whom were care workers or teachers. In 2000, the inquiry’s report, Lost in Care, made 72 recommendations for changes to the way in which children in care were protected by councils, social services and the police; and, following the report’s publication, 140 compensation claims were settled on behalf of victims. But the report found no evidence of a paedophile ring beyond the care system, which was the basis of the rumours that followed the original police investigation, and indeed one of the allegations that has been made in the past week.

Last Friday, a victim of sexual abuse at one of the homes named in the report, Mr Steve Messham, alleged that the inquiry did not look at abuse outside the care homes, and renewed allegations against the police and several individuals. The Government are treating these allegations with the utmost seriousness. Child abuse is a hateful, abhorrent and disgusting crime, and we must not allow these allegations to go unanswered. I therefore urge anybody who has information relating to these allegations to go to the police.

I can tell the House that Mark Polin, the chief constable of North Wales Police, has invited Keith Bristow, the director-general of the National Crime Agency, to assess the allegations recently received, to review the historic police investigations and to investigate any fresh allegations reported to the police into the alleged historic abuse in north Wales care homes. He will lead a team of officers from the Serious and Organised Crime Agency, and other investigative assets as necessary, and the Child Exploitation and Online Protection Centre will act as the single point of contact for fresh referrals relating to historic abuse in north Wales care homes. He will produce an initial report reviewing the historic investigations and any fresh allegations by April 2013. I have made it clear to Mark Polin and to Keith Bristow that the Home Office is ready to assist with the additional costs of this work.

In addition, as the Prime Minister said yesterday, the Government will ask a senior independent figure to lead an urgent investigation into whether the Waterhouse inquiry was properly constituted and did its job. Given the seriousness of the allegations, we will make sure that this work is completed urgently.

Given that there have also been serious allegations about other historic child sex offences, I should also inform the House of the work being conducted by Her Majesty’s Inspectorate of Constabulary. This will establish a full picture of all forces that have received allegations in relation to Jimmy Savile, examine whether the allegations were investigated properly, and identify wider lessons from the responses of the police forces involved. I have been assured by HMIC that its work will also take into account any lessons that emerge from these latest allegations.

Before I conclude, I would like to warn honourable Members that if they plan to use parliamentary privilege to name any suspects, they risk jeopardising any future trial and therefore the possibility of justice for the victims that I believe the whole House wants to see.

I believe that the whole House will also be united in sending this message to victims of child abuse. If you have suffered and you go to the police about what you have been through, those of us in positions of authority and responsibility will not shirk our duty to support you. We must do everything in our power to do everything we can to help you, and everything we can to get to the bottom of these terrible allegations. I commend this Statement to the House”.

That concludes the Statement.

00:00

[Baroness Smith of Basildon]

My Lords, I am grateful to the Minister for repeating the Statement today because for the past few weeks we have reacted with increasing horror as new details of historic allegations of sexual abuse of children and young people have emerged. Your Lordships’ House will emphatically agree with the noble Lord that these are deeply disturbing allegations. It is not only that the crime itself is so despicable and that many young people’s lives have been deeply affected and in some cases destroyed. It is not just that the very adults who have abused children and young people seem to have enjoyed the protection offered by positions of trust and fame. The most evil and despicable aspect is that these children and young people have been failed by the very institutions charged with protecting them, including the criminal justice system. The noble Lord is right. It is clear that Parliament must act to ensure that justice is done and that the perpetrators are held to account. The Government are right to act and I welcome their swift response and the announcement today.

But I remain to be convinced that this is the most appropriate way forward given what could be the scale of the problem. The whole House will welcome the Government’s Statement that all allegations must be treated with the utmost seriousness. As the noble Lord said, child abuse is a hateful, abhorrent and disgusting crime. We would concur that anyone who has information must go to the police.

As my right honourable friend Yvette Cooper, the shadow Home Secretary, has said, we need to have a full criminal investigation and we also need to examine what further changes are needed in the way in which we protect children and investigate abuse. But we also need to know whether there has been institutional failure to deal with historic allegations, whether by turning a blind eye, by covering up, or by simply failing to get to the bottom of what has happened.

For any child or young person to report physical or sexual abuse takes an enormous degree of courage. Any and every abused child or young person has the right to expect that the authorities will take them seriously, believe them and take action to protect them and deal with the abuser. That is why we must examine whether there is a further, deeper problem, whether in north Wales, in the cases involving Jimmy Savile and the BBC, or in those of grooming and sexual abuse in Rochdale and Rotherham. If children and young people who have been physically and sexually abused have reported their abuse and the authorities have failed to believe them, or even worse have believed them but then failed to act, that is truly shocking. Those who have failed to investigate or have sought to protect abusers or cover up abuse are equally guilty.

Given the scale of this issue, it has become evident that we cannot look at the allegations in north Wales in isolation. I hope that the noble Lord will understand when I express concern that the Government’s response will not address the wider concerns and seek assurances from the Minister.

I welcome the new criminal investigation into the allegations in north Wales. In particular, I very much welcome the involvement of the Child Exploitation and Online Protection Centre, which has considerable expertise. But can the Minister confirm that the inquiry can go wherever the evidence takes it and will not be confined to north Wales?

Also, the Minister may be aware from our debate on the Crime and Courts Bill with his predecessor and the Parliamentary Questions that I have asked on this issue that I remain concerned that the transition to the new National Crime Agency may leave the organisation underfunded. I have raised this now on several occasions. Will the Minister confirm that these investigations will not in any way be hampered by a lack of funding?

On the second point about historic reviews, it is right to look again at the Waterhouse inquiry, but can the Minister explain what is meant by,

“whether the Waterhouse inquiry was properly constituted and did its job”?

Are the Government now questioning the terms of reference or the operation of the inquiry? Can the Minister be more specific about that point?

Does the Minister understand the widespread concerns about there being so many inquiries? I am aware that these have grown rather than being planned in this way, but in addition to the police investigations there are three BBC inquiries into Savile, a Department of Health investigation into Savile’s Broadmoor appointment and several individual hospital inquiries. There is the CPS inquiry into why Savile was not prosecuted; there is the new north Wales inquiry; there is the HMIC inquiry into other forces that may have received information about Jimmy Savile; and there are others.

The Minister will be aware that we have already called for all the Savile inquiries to be held together. Is there not a strong case for a single, overarching, robust inquiry, not just about the abuse itself but also about whether individuals or groups used positions of influence—either their own or that of friends—to evade criminal prosecution? Of course we need to get to the bottom of what happened in each and every case but we also need to see if there are common themes and problems to prevent them happening again. There is a genuine concern that too many individual and specific inquiries is not the proper way to learn the right lessons for effectively and properly safeguarding children and young people. Time and again, evidence of serious institutional failures is presented; a single overarching inquiry into whether these allegations were ignored, or if there was a cover-up to protect abusers from public exposure and prosecution, is now essential.

The Waterhouse report led to, I believe, 72 recommendations and significant changes in child protection. The Children’s Commissioner was introduced, there is the Care Standards Act and the child protection Act, and we saw a strengthening of the law in introducing new measures and policies on safeguarding children and young people in schools and in social services. We saw the creation of the Child Exploitation Online Protection Centre, but yet again we are now presented with evidence that children and young people who came forward to report abuse were not taken seriously. We know that abuse was ignored for far too long against girls and young women in Rochdale and that concerns raised in Rotherham were not acted upon.

The Minister may be aware of previous debates we had with his predecessor about our concerns on the weakening of the vetting and barring system, our concerns about the changes to CEOP as it was merged into the new National Crime Agency, and our concerns about the funding of the new National Crime Agency. PCTs have warned that child safeguarding has been jeopardised by confusion and transitional arrangements in NHS reforms. Is the Minister confident that the fragmented inquiries announced today will give a clear picture of the action that is needed to really protect children from abuse in the future?

It demands enormous courage for a child or young person to speak out and report sexual or physical abuse; if they are not believed or if their reports are not acted on, it only compounds that abuse. I believe the Minister and your Lordships’ House are united in the objective of wanting the most effective and robust inquiry possible for lessons to be learned and for actions that will really make a difference, because only then can we truly provide justice to those who have suffered.

15:23

[Lord Taylor of Holbeach]

I thank the noble Baroness, Lady Smith, for her response to the grave Statement that we have had to make to the House today and for her general welcome for the way in which the Government are responding promptly to the issue. I agree with her that perhaps the most serious issue is whether there has been institutional blindness, if one can put it like that. I absolutely agree that this must be the key to the agenda going forward in order to make sure that the interests of victims are properly recognised, that the police prosecute without fear or favour, and that justice is seen to be done.

The noble Baroness asked whether there would be restrictions on these investigations. Police investigations are police investigations and they go wherever the evidence takes them. She asked, too, about the funding. The Government understand that there will be resource pressures because these investigations will involve all of the authorities engaged in them in additional work. The Home Office will encourage those organisations to apply to it so that any extra additional costs can be considered as part of the funding provided to them by the Home Office.

The thrust of the noble Baroness’s questions was whether it would be better to wait and set up an overarching inquiry in order that the lessons may be learnt. I do not believe that that is the right approach. I believe that these allegations demand immediate investigations. The lessons that will be learnt by these investigations may well require a comprehensive review of child protection in this country—that is a reasonable conclusion to come to—but I do not believe that the House would thank us if we stood by and delayed the investigations involved. I hope that I have the support of the noble Baroness in that. If I have misunderstood the noble Baroness, I apologise. I think the Government are on the right track here and doing what the House would wish of them.

On the question of organisational change and whether it will impede or assist these investigations, as the noble Baroness said, this issue has been debated over time and in all ways. All I can say is that Keith Bristow will be heading up an organisation which has considerable resources available to it through the National Crime Agency. These bodies will be there to do their task, to assist him to achieve our objective of better child protection for all young people.

[Baroness Stowell of Beeston]

My Lords, perhaps I may assist the many noble Lords who I am sure will want to contribute today by reminding them that the Companion advises that, in order that as many people as possible are able to contribute, today is an opportunity for brief comments and questions only.

15:27

[Baroness Hamwee]

My Lords, one area which has not been mentioned in the Statement is support for the victims. Justice will be one form of reparation, but can the Minister say anything about any other form of support that will be given to individuals?

Quite separately, following the question about what is meant by inquiring,

“whether the Waterhouse inquiry was properly constituted and did its job”,

can the Minister assure the House that for every inquiry—I am not talking only about police inquiries—there will be consultation as to its terms so that the best, most proper terms are put in place? If the remit is not right then the outcome will tend not to be right. In this case, for instance, the involvement of the Children’s Commissioner in the terms of the inquiry seems quite obvious.

[Lord Taylor of Holbeach]

I thank my noble friend for her questions. Clearly, the victims are at the heart of this inquiry and providing them with the confidence to come forward is one of the most important things that we can do. I hope that we in this House will echo the wishes of the Home Secretary by giving that support.

The terms of reference of inquiries are very important to the outcomes they produce. I am particularly concerned that we make sure that the original inquiry in North Wales, the Waterhouse inquiry, was indeed set up in such a way. The noble Baroness, Lady Smith, asked about that but I did not reply to her. However, my noble friend has given me the opportunity to do so. We must make sure that that inquiry addressed the right issues. We now have an opportunity to revisit the inquiry and to make sure that it was not too restrictive in what it was seeking to do.

[Lord Lloyd of Berwick]

My Lords, am I right in thinking that Mr Justice Waterhouse was appointed to investigate allegations of abuse within the care system but he in fact investigated allegations of abuse outside the care system? We know that he sat for 203 days and found no evidence at all to support those allegations. Should that not have been an end to the matter? I do not know whether the noble Lord is aware of the principle that there should be an end to litigation; so also there should be a principle that there should be an end to investigations.

[Lord Taylor of Holbeach]

Were it so easy just to put an end to these things, that would be fine, but we are faced with a situation where it is quite clear that this matter was not at an end. Allegations are still being made that should cause a responsible Government to be prepared to revisit the matter. That is not to cast aspersions on the work that was done at the time, but everybody would expect us to look again to make sure that we know exactly what the scope of child abuse was in those very far-off days.

[Lord Roberts of Conwy]

My Lords, I have a copy of Lost in Care, the late Sir Ronald Waterhouse’s report—all 937 pages of it. It is a very thorough piece of work, as one would have expected from a High Court judge. The terms of reference are spelled out in this report, as is an explanation of why he ordered that names should not be published, largely for the protection of the victims, as in rape cases. Does my noble friend really think that, after all these years, any new evidence will actually emerge as a result of these further inquiries? I have heard most of the media reports over recent days and, frankly, I have heard nothing new. There is also the further point that the report contains a subsidiary report by Sir Ronald Hadfield, the assessor of the police activity in this context. His report comes right at the very end of the Waterhouse report and is critical of some of the police operations.

[Lord Taylor of Holbeach]

I am very pleased that my noble friend has made that contribution to the debate. If I disagree with him, it is not because I do not respect his experience and the fact that he was active in politics in that part of the country at the time when this report was being produced. He has a copy and has no doubt studied it. However, if I thought that nothing more was going to come out of this further investigation, all I would say is, “Fine. That is very good”. If there is nothing more to be found, we can rest content that the matter is indeed closed. However, if we find that there is other material, we should know of it. We are right to seek to pursue this matter even though many of the individuals involved may long ago have disappeared.

[Lord Campbell-Savours]

My Lords, on 17 June 1996 I asked the then Secretary of State, Mr Hague, whether all the cases that have been referred to in the appendices to the Jillings report had led to prosecutions. I was told that that was not the case, and that there were names which were still outstanding. Can we be assured that, as a result of what the Government are planning, those outstanding names will be reconsidered with a view to prosecution if at all possible?

[Lord Taylor of Holbeach]

I am sure that is the purpose of the further inquiries that are being made.

[The Earl of Listowel]

My Lords, does the Minister agree that it will be a considerable comfort to those children who were abused in the past to know that children are not abused in this way in the care system today? However, he will know that it is unfortunately still the case that children are being abused; the deputy Children’s Commissioner’s report finds that thousands of children are still being abused and sexually exploited today. Does he hope that this report might contribute to the swell of public feeling to say that we will do better for these children in care, ensure that their staff have the qualifications they need to give the excellent care and protection that these children need and change legislation to ensure that these occurrences will not take place so frequently?

[Lord Taylor of Holbeach]

The whole House will be awaiting the results of the inquiry from Sue Berelowitz which is likely to come out later this month. However the noble Earl is absolutely right: we have perhaps been complacent in the past. We can no longer be complacent on this issue. I hope that the Government are making it clear that they do not intend to be complacent and will pursue all these matters so that we have a better environment for child protection in this country.

[Baroness Walmsley]

My Lords, following on from what the noble Earl has just asked, will the reports that the Minister has just announced be free to make recommendations to public services and organisations? It seems likely that recommendations will be made to social services, the criminal justice system and the police. Health services, such as STD clinics where young girls go over and over again, are very often in a position to pick up warning signs, which they do not always pass on. This has recently come out in the report referred to by the Children’s Commissioner. Similarly, in the education service, schools can help to prepare children to understand the dangers and to protect themselves.

[Lord Taylor of Holbeach]

My noble friend is absolutely right. A multi-agency approach is the way in which this issue needs to be addressed across government. She quite rightly points to the fact that different aspects of government are able to assist in this process. It is certainly the Government’s objective to have a cross-departmental, cross-agency approach in order to make sure that the information that we have gained through these unfortunate events, and the public attention which has been drawn to the exposure of the Jimmy Savile case, can be properly addressed so that we can create a better place for young people in this country.

[Lord Touhig]

My Lords, I apologise to the Minister and the House. I had to absent myself from the Chamber for the first couple of minutes of the Minister’s Statement, but I did hear it in full in the other place. I have one question for the Minister. Clwyd County Council carried out an inquiry and produced its own report which was never made public, for legal reasons I believe. Can the Minister tell us whether the new inquiry will have access to examine this report?

[Lord Taylor of Holbeach]

I am sure that any new inquiry will have access to all relevant papers, including that original report.

[Lord Bates]

I commend my noble friend on the report that he has brought forward. The noble Baroness, Lady Smith, touched on the potential dangers of having multiple inquiries going on at the same time. Will my noble friend reflect on the possibility of consulting the right reverend Prelate the Bishop of Liverpool on the best way forward, the Lord Bishop having delivered a widely respected and thorough investigation into highly complex issues, illuminating a great tragedy and bringing out truth that previous investigations had failed to do?

[Lord Taylor of Holbeach]

As someone who holds the right reverend Prelate the Bishop of Liverpool in the highest possible regard, I would always be happy to consult him. I am not suggesting for one moment that there are not lessons to be learnt from these different inquiries that will need to be pulled together at some stage, but the House and the broader public would not thank us for failing to deal with the immediate issues facing us in order to get to the bottom of this.

[Lord Rowe-Beddoe]

My Lords, I express and share the concerns of the noble Baroness, Lady Smith, the noble Lord, Lord Roberts, and indeed the noble and learned Lord, about the characterisation in the Statement about whether the inquiry led by the distinguished jurist and High Court judge was properly constituted and did its job. There is already a commingling in the media between that aspect and new evidence that is contained further on in the Home Secretary’s Statement. For the benefit of people involved here, we should seek further clarity.

[Lord Taylor of Holbeach]

I have tried to provide a proper balance between my regard for the way in which the original report was undertaken by Sir Ronald Waterhouse and what we are seeking to achieve today. We would be wrong to ignore the terms under which that inquiry was held. It has much to contribute to discovering what went on in the light of the allegations being made today. We would be mistaken if we chose to preserve that inquiry in aspic and say that it did not have lessons to teach us about how to investigate these matters today.

[Lord Harris of Haringey]

My Lords, I am sure that we all welcome the fact that there is to be a new police inquiry into these matters, but I would be grateful for the Minister’s explanation of the thinking behind this being led by Keith Bristow, who is heading up the new National Crime Agency. I have enormous faith in Keith Bristow himself. However, given that the Serious Organised Crime Agency and the yet-to-be-created National Crime Agency are going through a period of enormous flux and confusion while this happens, and the job of the chief executive of an agency that is being set up is usually pretty highly committed to setting up that agency, how will it be possible for him to lead the sort of inquiry that all noble Lords have said they want—very thorough, potentially extremely lengthy and potentially extremely involved? In practice, where will the resources come from? I am not talking about the money but the individual officers. Who is going to co-ordinate that? How is that going to be practically done when the person you are asking to lead the inquiry is supposed to have a more than full-time job setting up a new government agency?

[Lord Taylor of Holbeach]

I remind the noble Lord that the Statement made it quite clear that it was the chief constable of North Wales Police, Mark Polin, who actually requested Keith Bristow to head up this investigation, and to do so using the resources that are available to him through SOCA and other assets that are available for serious investigations. Indeed, we will face a new world with the National Crime Agency, but that still has to come before your Lordships’ House and I would not presume on that. This is a recognition that the inquiry itself may well cross police boundaries; it may well be a matter that is quite properly addressed by an agency set up to deal with serious organised crime.

[Baroness Uddin]

My Lords, I declare my interest as a former child protection worker. Will the inquiry say why 80 people were named in the inquiry, but only eight prosecutions took place and seven convictions were made? It would be interesting to know what the Minister intends to do, not just in supporting and listening to those victims and survivors who are coming forward, but in terms of long-term support, which is critical. If I may echo what my noble friend Lady Smith said, this is a great opportunity to look generally at the level of abuse in different institutions. As the noble Earl also said, this is rampant and still the experience of hundreds and thousands of young people whom we are continuing to fail.

[Lord Taylor of Holbeach]

I thank the noble Baroness for her contribution, particularly as she speaks from direct experience as a child protection officer. I said earlier that the police will prosecute without fear or favour. The reason why these matters are being reopened is to make sure that the judgments that were made at that time were correct. Further information that the investigations uncover will, I suspect, lead to other prosecutions being brought; certainly, they should do if the investigations discover further evidence of child abuse. I hope that that will be one of the consequences.

A second consequence, to which the noble Baroness alluded, is support for victims. The Government are mindful of the fact that it is victims of crime who need support and we intend to implement policies to provide exactly that.

Financial Services Bill

Tuesday 6th November 2012 Lords Chamber

Report (1st Day)

15:47

Clause 1 : Deputy Governors

Amendment 1

Moved by

[Lord Sassoon]

1: Clause 1, page 1, line 6, leave out “members” and insert “directors”

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, this group of government amendments comprises two straightforward technical concessions, which I signalled in Committee. The first, government Amendment 20, responds to an amendment moved by my noble friend Lady Kramer in Committee. This helpfully highlighted that the legislation does not expressly prohibit the Chancellor from appointing the governor, or one of the deputy governors, of the Bank to be chair or deputy chair of court. As I assured my noble friend at the time, the policy intention—indeed long-standing practice—has always been for non-executives to play these crucial roles. However, Amendment 20 puts this beyond all doubt by explicitly prohibiting the governor and deputy governor from being appointed as chair or deputy chair of court.

The other amendments in the group deal with the terminology around the Court of Directors. In Committee, various noble Lords, including my noble friend Lord Philips of Sudbury and the noble Lord, Lord Burns, commented on the oddity of the Court of Directors being comprised of directors, which refers to the non-executive members only, and the executive members, who are not classified as directors at all. I make a commitment to go away and look at options for clarifying this, and the amendments in this group are the result. The amendments would change all references to “director” to “non-executive director”. This means that all the members of court are now directors, with the legislation distinguishing clearly between non-executive and executive directors. As I have said, these are straightforward concessionary amendments, which usefully tidy up the court arrangements, and I hope that the House will support them. I beg to move.

[Lord Eatwell]

My Lords, I congratulate the noble Lord on the improvement to the drafting of the Bill that these amendments secure. It is worth pointing out that this is not a mere clarification. A persistent feature in the development of corporate governance in this country in the past several years has been the enhancement of the role and responsibilities of non-executive directors. Clear recognition in the Bill that these are non-executives carries with it the potential for them to play a proper role in the overall oversight of the Bank, a matter which we will come on to later when we discuss the role of the oversight committee. I support the Minister’s amendments.

Amendment 1 agreed.

Amendment 2

Moved by

[Lord Sassoon]

2: Clause 1, page 1, line 12, leave out “directors” and insert “non-executive directors”

Amendment 2 agreed.

Amendment 2A

Moved by

[Lord Eatwell]

2A: Clause 1, page 1, line 12, at end insert—
“(2A) The Directors of the Bank of England shall only be appointed if Her Majesty is satisfied that they have the relevant knowledge and experience, and that their appointment will enhance the mix of skills and experience of the Court.”

[Lord Eatwell]

My Lords, in Committee my noble friend Lady Hayter and I sought to ensure that the body of what we can now comfortably refer to as “non-executives” was suitably diverse to overcome the dangers of groupthink. Groupthink, combined with a persistent failure to challenge the executive, has been all too evident at the Bank of England over the past five years and, indeed, in the years preceding the economic and financial crisis.

We were criticised at the time for the imprecision of the term “diverse”, which we included in our amendment in Committee. We have taken those criticisms on board. We have gone away and thought about them. In particular, we were very struck by the words of the noble Lord, Lord Sassoon, in criticising our position:

“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”.—[Official Report, 26/6/12; col. 176.]

We have decided to assist the noble Lord in taking it into consideration by using exactly those words, to which he has already agreed, in this amendment.

Let me reiterate the main point. Until now, those involved at the Bank in a non-executive capacity have not shown themselves capable of holding the executive to account. That is a serious failing in corporate governance. Until now, those involved in a non-executive committee at the Bank have been seduced by groupthink or overwhelmed by the power of the governor or deputy governors. This is again a serious failing in corporate governance. It is simply not good enough for the Government to say, “Well, we understand and we’ll do better in future”. It is simply not good enough to provide vague assurances. If we are to create a new Bank of England with new major powers and responsibilities, it should be capable of dealing with those responsibilities in a clear structured way with suitable non-executive scrutiny. That is what Amendment 2A would achieve using the words to which the noble Lord, Lord Sassoon, has already agreed.

Amendment 6A, which is also in this group, makes the same point with respect to the mix of skills on the Financial Policy Committee. Of course, the skills mix will be different on the FPC from on the court. There will be a need for more technical expertise. For example, it would be a huge mistake to rely just on people with experience of working in financial services. I notice, for example, that no one appointed to the interim FPC has done any serious economic research into the phenomenon of systemic risk—not a single one. That is exactly the phenomenon on which the FPC is supposed not merely to opine but to take action. Therefore I think that a degree of diversity in the skill set of non-executive directors appointed to the FPC will greatly enhance its effectiveness and indeed its reputation.

I hope, particularly since I used his own words in my amendment, that the Minister will be happy to accept these two constructive amendments. I beg to move.

[Lord Sassoon]

Noble Lords may be aware that a similar amendment to Amendment 2A was tabled and debated in another place. Then, as now, and as I said in Committee, the Government do not believe that such a legislative provision is necessary or appropriate. Starting with the question of knowledge and experience, the Government have repeatedly confirmed their commitment, as I did in words quoted by the noble Lord, to ensuring the appointment of serious, knowledgeable and experienced candidates who have the appropriate qualifications and skills to carry out the functions of non-executive directors of court. These appointments are fully regulated by the Office of the Commissioner for Public Appointments, which ensures a fair, transparent and competitive process. The code is binding and the Treasury is responsible for ensuring its compliance, thereby ensuring that appointments to court are made openly, transparently and on the basis of merit.

Even without a prescriptive legislative obligation, in order to build an effective court the Treasury is mindful of the need to seek not only an appropriate depth but breadth of skills and experience. Ministers can and do take this into account in forming their recommendation without the need to further impose a duty on Her Majesty to form a view as to the candidate’s knowledge or experience before she makes the appointment.

I turn to the question of diversity, which I understand to mean not only of gender, geography or ethnic background but also of sectoral experience, insight and knowledge, as is suggested by Amendment 6A. Court and, in future, FPC appointments are advertised openly, and applications are welcomed from candidates from a variety of backgrounds. For example, the role profile for the most recent court vacancies sought people with substantial experience as board members, as head of function of major financial organisations and as senior managers in a relevant area of public policy, or in the voluntary sector or a trade union.

The latest iteration of the Government’s code of good practice for corporate governance in central government departments clearly states that,

“a board should have a balance of skills and experience appropriate to fulfilling its responsibilities. Moreover, it stipulates that the membership of the board should be balanced, diverse and manageable in size”.—[Official Report, Commons, Financial Services Bill Committee, 21/2/12; col. 22.]

However, given the size of the non-executive contingent on court and the number of external members of the FPC, it would simply not be possible to prescribe a set of criteria to ensure full diversity—that is, to ensure that each and every different background and characteristic is represented on the board and committee —without severely limiting the potential field of qualified applicants. It is therefore a question of judgment.

I stand by exactly what I said in Committee, which is that the Government are committed to ensuring an appropriate breadth as well as depth of skills; and this is as true of the FPC as it is of the court. While I agree entirely with the sentiments and principles behind these amendments, I do not believe that it is necessary or appropriate to legislate to achieve these aims.

I hope that I have provided sufficient reassurance to the noble Lord and that he will be able to withdraw his amendments.

[Lord Peston]

Could the Minister confirm that all these appointments will be advertised in appropriate places? I think that he said it but I am not sure that I caught what he said.

[Lord Sassoon]

That is what I said, and I am sure that it will be clear on the record when the noble Lord reads it.

[Lord Flight]

Could I ask the Minister whether he feels that the arrangements as they stand, where these posts are advertised and people apply, have actually delivered the sort of Court of the Bank of England that is appropriate to the needs going forward? There has been, I believe, fair criticism of the court for not being a robust enough body, but the court is assembled by the very arrangements that the Minister is talking about.

[Lord Sassoon]

My Lords, the whole substance of the point here is that we are giving the court a very clear and enhanced mandate, particularly through the oversight committee, which we will come on to. In the context of the new role and mandate for the court, it will increasingly attract the very best people who go with the new mandate. The comparison with the past is not necessarily a fair one.

16:00

[Lord Eatwell]

The Minister in reply says that this amendment is not necessary or appropriate. However, in attempting to substantiate those propositions, he referred to the policy of the Public Appointments Committee, which is not responsible in any way for a mix of skills but simply for the quality of the individuals who come before it. When he referred to the variety of backgrounds, he did exactly the thing that I was afraid he would do: he referred to people with senior board experience in commercial and financial organisations and not to anybody who actually understands systemic risk or how to manage it. If they did, perhaps we would not have got into the mess that we did. So I am surprised—well, I suppose that I am not surprised—but I am disappointed that he finds it neither necessary nor appropriate.

[Lord Sassoon]

Can I clarify that I was citing the advertisement for the most recent court appointments and not for FPC appointments?

[Lord Eatwell]

That is very helpful, and I thank the Minister for it, but my point on the FPC is reinforced by what he has just said. I would hope that in FPC appointments some reference would be made to the appropriate skill set, which was not that quoted, although it may be appropriate for the court. Perhaps if I could nudge the Treasury in that direction when making an advertisement, that might be a result. Having said that, I beg leave to withdraw the amendment.

Amendment 2A withdrawn.

Amendment 2B

Moved by

[Lord Eatwell]

2B: Clause 1, page 1, line 12, at end insert—
“(2A) Within one month of the appointment of a person under subsection (2)(a), Her Majesty’s Government must make parliamentary time available for the House of Commons to debate and express a view on that appointment.”

[Lord Eatwell]

My Lords, this moves us on to a rather serious matter. Everybody in the House will be aware that there is considerable and growing disquiet about the powers heaped on the Governor of the Bank of England; he or she will chair the court, the Monetary Policy Committee, the Financial Policy Committee and the Prudential Regulatory Authority. On top of that, he or she is designated by the Bill to be the sole interlocutor between the Bank and the Treasury in the designated meetings with the Chancellor. On top of that, the governor must guide the Bank’s other activities in policy and research. And on top of that, the governor will continue to represent the Bank in international fora. I suppose that just occasionally he or she will sleep.

This is a ridiculous amount of power in the hands of an unelected official. Kate Barker, a former member of the Monetary Policy Committee, said, in August this year, said that the,

“steady erosion of democratic control over regulation of the financial system would accelerate under proposals by the coalition government”,

and that,

“Mervyn King’s successor will be appointed to an unduly powerful role for an unprecedented eight-year term”.

Kate Barker has great experience in this field and seems to have captured exactly the problem. As noble Lords will be aware, there has been considerable disquiet from serious financial commentators about the future position of the governor.

There is another inevitable downside to this agglomeration of powers. The post of the governor has become—and will become yet more—excessively politicised. That is very unfortunate. However, that is the inevitable consequence of the Government’s proposals. If that is the Government’s wish, they should face up to the consequences, and permit Parliament to debate the appointment, at least after the appointment is made. Even then, the prospect of such a debate will focus the mind, let us say, of the Chancellor in making a recommendation, in the knowledge that he will have to defend it before the House of Commons. I beg to move.

[Lord Barnett]

My Lords, I strongly agree with much of what my noble friend has said. As I have said before, I have been extremely concerned about the new governor’s huge job. As my noble friend has spelt out, we would be giving enormous powers to that new governor. That is why I have expressed my dissatisfaction, to put it mildly, with the way that this Bill has been drafted. I hope that my noble friend will accept an amendment from me to his amendment; namely, that it should be available not only to the House of Commons but to Parliament. This House has scrutinised this Bill to an enormous extent. To say now that the appointment should be deferred only to the House of Commons is something that I certainly do not like. I hope that my noble friend will rearrange his amendment to accept the word “Parliament” rather than “the House of Commons”.

We will come later to the question of “must” and “may”, but I am very pleased to see that in this amendment my noble friend has put “must” rather than “may”. It is certainly crucial that it should happen, because the appointments are extremely important. Somebody should be doing the job that the current governor is not doing, and which he is not being asked to do. Now we are asking the new governor, whoever that may be, to do such an enormous job that some potential contenders have already withdrawn from the race—and understandably, because the job that will be asked of this man or woman is enormous. I hope to have the opportunity to propose an amendment a little later to reduce some of those powers, but for now I strongly commend my noble friend’s amendment, subject to my suggested draft amendment to his amendment.

[Lord Flight]

My Lords, I do not particularly see how having a debate about the appointment after the governor has been appointed does very much to improve accountability. Ongoing accountability is needed. The debate is whether or not that should be through the Treasury Select Committee, or whether potentially there should be much greater constitutional development in terms of appearing before one or both Houses of this Parliament, in the sort of way that occurs in the USA. I agree with the principle that there is a great deal of power, which needs to have some accountability. Looking back over the events of the past five years, there was certainly a period between autumn 2007 and summer 2008 when it was very clear that the Governor of the Bank of England was completely unaware that a major banking run was overtaking this country. A bit of accountability and some questions from this House or the other place would perhaps have stirred things up.

[Lord Phillips of Sudbury]

My Lords, I concur with what the noble Lord, Lord Flight, has said, and I am a bit foxed by the way in which the noble Lord, Lord Eatwell, introduced this amendment. I think I heard him say that these appointments have become more and more politicised, and that he regretted that. It strikes me that to require a debate to be held in the House of Commons after the appointment has been made is an invitation to the utmost politicisation, especially because, as far as I can see, there would be no consequence to that debate, in that the appointment would already have been made.

[Lord Sassoon]

My Lords, before I turn to the detail of this amendment, I thank the Bill team for dealing with a significant hatful of amendments, this being the first, that turned up from the noble Lord, Lord Eatwell, rather late yesterday evening.

[Lord Eatwell]

My Lords—

[Lord Sassoon]

I will give way in a moment. I will do my best to engage in constructive and meaningful debate. As I say, I am very grateful to the team because we did not have much notice of a number of these amendments.

[Lord Eatwell]

I am sure the noble Lord does not want to mislead the House. The amendments were sent to the Bill team on Friday afternoon and I had a long telephone conversation with it to discuss them. I assure the noble Lord that I had that telephone conversation. He says from a sedentary position, “not on all of them”. All the major items were discussed at that time. For him to suggest that they appeared only yesterday is inaccurate.

[Lord Sassoon]

My Lords, Amendments 2B, 2C, 3L, 3M, 6B, 6G and 7F, among others—maybe that is the lot—appeared at the Treasury late yesterday and not all the amendments were discussed in the conversation to which the noble Lord refers. However, there are some important and some not so important matters in these amendments and I will do my best to do them justice.

As we have heard, this amendment relates to the role of Parliament in the appointment of the Governor of the Bank of England and has been the subject of much debate both here and in another place. Specifically, Amendment 2B seeks to secure a debate in another place following the appointment of the governor, something which I do not believe is necessary or appropriate. The Government are committed to maintaining an appointments process that is proportionate and attracts candidates of the highest quality. It is important to ensure the credibility of the candidate and safeguard his or her independence. If the appointment was subject to a debate in another place, I suggest that there is a significant risk of politicising the process and undermining the appointment of the new candidate. Of course, it has been argued that such a debate could enhance the credibility of the candidate but previous governors have achieved credibility without being subject to such a debate. Credibility ultimately stems from effective action to meet the Bank’s objectives. If the appointment were subject to a debate in another place, the candidate would not be present to answer questions or defend him or herself.

The noble Lord, Lord Eatwell, has already quoted me in the previous debate. I quote what he had to say on this matter in Committee on 26 June. He said:

“We do not want to politicise appointments to the extent that has occurred in the United States”.

The suggestion that appointments might end up being considered by the whole House made him “nervous” as it would,

“inevitably be whipped and become very political indeed”.—[Official Report, 26/6/12; col. 165.]

I very much agree with that. Therefore, the Government believe that the pre-commencement hearing held by the Treasury Committee strikes the right balance in terms of scrutiny of this executive appointment and allows for a more constructive debate with the candidate in attendance to satisfy the committee’s concerns about his or her personal integrity and professional competence. The Government welcome the Treasury Committee’s ongoing role in holding such hearings and, importantly, as my noble friend Lord Flight reminded us, holding the governor to account throughout his or her tenure. I hope I have provided sufficient reassurance and that the noble Lord feels able to withdraw this amendment.

[Lord Peston]

I wish to make a comment and ask the Minister a question. My comment is that there are no long words in this amendment. I would have thought that the average person who had been at school could just about understand it in a few minutes of reading it. The idea that the Minister cannot address your Lordships’ House without several days, if not weeks, of Treasury back-up seems to me absolutely preposterous. He should stop bellyaching about this sort of thing.

My question to him is: if this debate took place in both your Lordships’ House and the other place, has it not occurred to him that that debate might be devoted mainly to saying what an excellent appointment has been made in this case, what an extremely good person has been chosen and wishing him well in his very arduous task? Why is the Minister taking it for granted that the debate would be mostly about slagging off whoever the appointed person may be?

16:15

[Lord Sassoon]

My Lords, I am not taking it for granted. I am merely quoting the fears of the noble Lord, Lord Eatwell, when he addressed this issue in Committee. “Inevitably be whipped and become very political indeed,” were his words, not mine. However, I agree that this is the way that these things tend to go. The concept of a congratulatory first is not one that sits easily with another place.

[Lord Eatwell]

My Lords, I am grateful for the comments that have been made—some accurate, some less so. First, with respect to the issue of being politicised, my concern is motivated primarily by the powers being translated from elected persons to an unelected person. That is what is happening in this Bill. This will inevitably make the position of the governor much more of a political focus rather than the markets and technical focus it has been very much in the past—perhaps not in the 1930s with Montagu Norman, but in recent years. That is where the politicisation has come from. We need to recognise that powers have been transferred from the elected to the unelected by giving the elected some role.

The Minister did me the honour of quoting me, although of course out of context. I was referring—as I am sure he would agree—to pre-appointment hearings as are common in the United States. This is not the intention of this amendment at all. However, a series of important issues is going to come up again and again unless the Government take very seriously the very considerable conglomeration of powers in the hands of the governor, given by this Bill, and the fact that powers are being moved from the elected to the unelected. It is vital that Parliament should consider this crucial issue. I hope that the Minister will take some of these considerations away and think very carefully about them. In the mean time, I beg leave to withdraw the amendment.

Amendment 2B withdrawn.

Amendment 2C

Moved by

[Lord Eatwell]

2C: Clause 1, page 1, line 12, at end insert—
“(2A) Any persons appointed under subsection (2)(e) shall be appointed with the consent of the Treasury select committee.”

[Lord Eatwell]

My Lords, the noble Lord, Lord Sassoon, has made it clear today that the non-executives will play a major role in the governance of the Bank. This amendment seeks to ensure that non-executives, essentially here in the court, are appointed with the consent of the Treasury Select Committee. The point is being reiterated. Given the powers invested in the Bank, including and especially the FPC powers that have previously rested only with the Chancellor or other elected persons, it is appropriate that there should be some political oversight of the appointments. The Treasury Committee is surely the right place.

What are the major arguments against this pre-appointment scrutiny? First, that the procedure will be unduly intrusive and onerous; and, secondly, that it will be too politicised. As a result, suitable persons will not apply. I think that the arguments in the context of what is being done in this Bill are ill founded. The Government decided to politicise the position of the Bank by giving it powers previously reserved for elected persons. The Government decided to load on to the Bank virtually all regulatory functions and control of monetary and credit policy. In this context, the Government should accept that the Treasury Committee’s scrutiny is entirely appropriate. Let us remember that that committee has played a serious non-partisan role for a number of years, both when chaired by my noble friend Lord McFall and now, as chaired by Mr Tyrie. The committee does an excellent, non-partisan, technical and difficult job. In that context, it could play an important role in monitoring those persons to whom the powers previously assigned to elected persons are now to be given.

While Amendment 2C relates to the non-executive directors of the Bank, Amendment 6B in the group extends the same principle to the independent members of the Financial Policy Committee. If anything, the point is even stronger here, because these are people who will be participating in decisions that directly affect individuals’ lives. The members of that committee will be making decisions about your mortgage rate and the availability of credit in general to individuals in society. It is therefore surely right that appointments should be subject to the consent of the political part of national governance, as represented by the Treasury Select Committee, which is handing over these powers.

Sometimes, we in Britain are a bit overly sensitive about appointments procedures. I remember that university appointments used to be totally confidential to appointments committees. Now appointees have to appear before the whole faculty and the students, give lectures to demonstrate how good they would be and defend themselves.

[Lord Peston]

Is that true?

[Lord Eatwell]

Yes, it is true. They have to do that prior to any form of appointment. Therefore, the sort of sensitivity I mentioned is overdone. Greater transparency and more robust procedures would serve us well. Most important of all, there must not be an abdication of powers that in the past were reserved to elected persons without some substitution of proper political oversight, as provided for in Amendments 2C and 6B. I beg to move.

[Lord McFall of Alcluith]

My Lords, I agree with my noble friend on this issue. Anyone with experience of the Court of the Bank of England would say that its impact has been less than useful over past years. Given the powers that we have given to this Governor for an eight-year period, it is important that the sentiments expressed in the other place as regards accountability are satisfied, because, paradoxically, if that is not the case, it will make the role of the Governor even more political and members of the court will come under pressure.

I had personal knowledge of this during the height of the financial crisis. My concern at that time was to ensure both the political and the financial stability of the situation. It is therefore important that that is adhered to. There needs to be, as the Treasury Committee said, proper records of the court’s proceedings. If transparency is not available, the accountability element will not be pursued. The Government are making a big mistake by establishing what is, in effect—although some people may disagree—a multinational corporation with one person at its head, with little corporate governance best practice.

There needs to be a stage at which the Government can listen to Parliament on this, make the Bank truly accountable to Parliament and ensure the best outcome for the country. We have the Financial Policy Committee and the Prudential Regulation Authority, but there is no doubt that there will be conflicts of interest there. There will be one individual responsible, while the Government and Parliament are spectators and bit players. That should not be the case, and the Government really need to think very clearly and seriously about this issue.

[Baroness Noakes]

My Lords, as a former member of the court, I feel slightly under attack this afternoon, but I was long gone before the financial crisis. In the context of the previous amendment, my noble friend Lord Flight pointed out that the important way to express accountability is on an ongoing basis, not at the point of appointment. The most important thing, going forward, is whether or not the new oversight committee will do its job and who will make sure that it is held to account. It seems to me that it should be the Treasury Select Committee in another place and it is not something for which we need to legislate. The Treasury Select Committee is well apprised of the need to ensure that there are proper accountability mechanisms to act as a counterweight against significant additional powers for the Governor of the Bank of England; and that there are proper checks and balances within the Bank of England and then from the Bank to Parliament.

[Lord Sassoon]

My Lords, I am grateful to the noble Lord, Lord McFall of Alcluith, and to my noble friend Lady Noakes. My noble friend was an estimable member of the court and I am sure that she brought great distinction to its deliberations. As she reminds the House by referring to the oversight committee, the noble Lord, Lord McFall is right to say that the court has not always necessarily done everything that Members of Parliament would have wished in recent years. Critically, that is why the oversight committee that we are introducing changes the way that the court and particularly non-executives on the court will operate. I am grateful to be reminded of this critical background to our discussion. The other background point to make is that the noble Lord, Lord Eatwell, has made a number of references in this and earlier debates about politicisation and transferring powers from elected politicians to the Bank. This is a red herring. I am sure that I should not say it is nonsense, but I simply do not accept this background analysis.

Powers are not somehow being moved from elected politicians to the Bank. The Bank is being granted a range of powers which are regulatory in nature. Financial regulation has been undertaken by independent regulators for over a decade in the UK and before that, of course, large swathes of it were not in any way carried out by elected politicians or even properly constituted regulators. They were done in a self-regulatory way. So this idea that somehow we are transferring stuff from politicians to the Bank, as if some heinous crime was being committed and that we need lots of belts and braces, is the wrong background.

Let me specifically address the amendments here and the role of Parliament in key appointments. As we have heard, they are different in some respects from the previous amendment about appointing the Governor. The appointments of non-executive directors of the court are not currently subject to a pre-commencement hearing by the Treasury Select Committee. As with the Governor, the appointments of non-executive directors are made by Her Majesty and governed by the OCPA code. As I explained earlier, this stipulates certain practices in terms of a robust and fair appointment process, with appointments made principally on merit. Members of the court are accountable to Parliament and it is right that the Treasury Select Committee can and does invite them to give evidence at the appropriate juncture. However, the non-executive directors are not policymakers. Their role is to oversee the running of the Bank and it would be highly unusual to make such appointments subject to the consent of the Treasury Select Committee. The Government therefore believe that the current appointments process for non-executive directors of the court remains the right one. Similarly, the appointment of external FPC members will be subject to a robust process that seeks qualified and experienced candidates. External members of the FPC will be subject to pre-commencement hearings—as was the case with the appointees to the interim FPC. The FPC will be accountable for its actions to the Bank’s oversight committee and directly to the Treasury Select Committee, which we expect to take regular evidence from the external members of the FPC, as it does already from the MPC and the interim FPC.

As with the roles of governor and external members of the MPC, the market-sensitive nature of these roles means that the combination of pre-commencement hearings and Treasury Select Committee scrutiny in-post offers an appropriate balance in terms of parliamentary scrutiny. Again, the Government welcome the ongoing role played by the Treasury Select Committee. I hope that I have provided sufficient reassurance for the noble Lord to withdraw his amendment.

16:30

[Lord Eatwell]

My Lords, I am grateful to everybody who took part in this short debate, and especially for the support of my noble friend Lord McFall, who has such experience in these areas. I always take very seriously indeed the opinions of the noble Baroness, Lady Noakes. I quite understand her concern that accountability should be a phenomenon that is ongoing and not just on appointment. Why not on appointment, too, so to speak?

I was puzzled by the introduction with which the noble Lord, Lord Sassoon, prefaced his remarks. He stated that financial regulation had been going on for a decade. It has been going on at an international level since 1974. The whole point of this legislation is that macroprudential legislation has not been done at all before. That is why the various reports such as the Turner review by the FSA, the report of the US Treasury in 2009, and the report of the high-level committee of the European Union led by Monsieur de Larosière, all identified a new role for financial regulation in dealing with macroeconomic variables, which it had never done before. This is a new area of financial regulation which is specifically the responsibility of the Financial Policy Committee.

The Minister said that there had been no transfer of responsibilities. Was not the control of credit in our economy the responsibility of the Treasury? Has it not been so since the Second World War? Did not the various Acts on the control of credit start as Treasury Bills? Now the availability of credit is predominantly the responsibility of the Financial Policy Committee. That is a transfer of powers. I wonder if the Minister would like to consider that example.

The Minister then said something truly extraordinary. He said that the non-executive members of the court were not policymakers. Perhaps I may refer him to Clause 4 on financial strategy, which states:

“The Court of Directors must … determine the Bank’s strategy in relation to the Financial Stability Objective”.

That sounds to me as if they are policymakers. They must “determine the Bank’s strategy”. Are the non-execs therefore to sit down and keep quiet?

[Lord Sassoon]

My Lords, will the noble Lord, Lord Eatwell, concede that that is the responsibility of the Court of Directors as a whole, not of the non-executive directors as a group?

[Lord Eatwell]

Certainly, but that is not what the Minister said. He said that the non-executive directors were not policymakers—but they are to participate as a nine-member majority of the court, including the chair, as he pointed out. However, we now hear that they are to sit silently while the executive directors determine policy. That is nonsense and the Minister knows it. These individuals are policymakers—and rightly so; they should be. That is why we need the right sort of people, and why it is right that there should be suitable hearings preceding their appointment, as suggested by the amendment.

The Minister is getting into a muddle. He should go away and think hard about what the Financial Policy Committee is required to do, recognise that there has been a transfer of powers and that macroprudential regulation is something entirely new that has not been done before; and try to get some of the legislation right. In the mean time, I beg leave to withdraw the amendment.

Amendment 2C withdrawn.

Clause 3 : oversight committee

Amendment 3

Moved by

[Lord Sassoon]

3: Clause 3, page 2, line 19, leave out “directors” and insert “non-executive directors”

Amendment 3 agreed.

Amendment 3A

Moved by

[Lord Eatwell]

3A: Clause 3, page 2, line 21, at beginning insert “overseeing and”

[Lord Eatwell]

My Lords, this is a major amendment that I had the pleasure of discussing with the Bill team on Friday. I was going to preface my remarks by saying that there is a developing consensus that the Government are piling responsibilities on the Bank of England. But I hear that consensus is not developing on the other side of this Chamber, since the noble Lord, Lord Sassoon, does not seem to recognise that the Bank and the governor are having these extra responsibilities or indeed that there has been transfer of powers.

Interestingly enough, others do recognise that. Mr Tyrie, just last week, with the oversight committee already in the Bill, referred to the Bank’s defective governance. Then, Mr Bill Winters, a former executive at JP Morgan and author of one of the very tightly constrained reviews into the Bank’s operations that was published last week, concluded that the Bank was too “centralised and hierarchical”. Then Sir John Gieve, a former deputy governor, commented on the same review saying,

“how do you bring more challenge into a hierarchical organisation?”.

That was last week, with the oversight committee in place. Those comments echo criticisms made by a number of former senior Bank of England staff and by serious commentators in the financial press. This is a serious issue.

I have already listed the major issues, but I will list them briefly in the context of this amendment because it may help the House. With respect to the powers assigned to the governor in the Bill, the power of an unelected person will be equivalent almost to that of the Chancellor of the Exchequer. Indeed, it will exceed the Chancellor’s powers in that the Chancellor is under constant scrutiny from Parliament whereas the governor is under less intense and less constant scrutiny.

We have to remember that the governor will not only chair every financial policy committee in the land with the sole exception of the FCA, but will be the lone high-level interlocutor with the Chancellor. He holds these positions while having no statutory responsibility to consult or involve other senior officials at the Bank or non-execs. He may consult and he may delegate, but it is entirely up to him or her. If they do not wish to do so they can ignore them all.

In Committee, the Government took an important step by creating the oversight committee. But noble Lords will notice that within the designations of the responsibilities of the oversight committee, there is one notable oddity. There is a notable absentee. Nowhere does there appear the verb “to oversee”. We have an oversight committee that does not oversee. In fact, a careful reading of the designated activities of the oversight committee reveals that all its key responsibilities are retrospective. It must keep under review. It must monitor. It must review procedures. It must conduct performance reviews. The only thing that it must not do is oversee. This is not an oversight committee, it is a hindsight committee—a valuable role, no doubt, but hardly an activity to moderate the powers of the “Sun King” governor other than by retrospective embarrassment, and governors of the Bank of England seem to be peculiarly impervious to embarrassment.

The amendment introduces the verb “to oversee”. It gives the oversight committee the power of oversight. This will have a number of beneficial consequences. The governor and the executive will, as in all good governance systems, be accountable to the non-executives for their activities and their policies. As in all well run organisations, the non-executives will not design the strategy or tactics of the Bank—that is the job of the executive—but they will be the advisers and the arbiters. They will oversee.

Instead of being either a glorified review committee in the shape of the noble Lord’s hindsight committee, or creatures of the executive, as in the court, the quality of a person likely to be willing to devote a considerable amount of time and effort to the job of non-executive of the Bank will be significantly enhanced because they are getting a real job. The foundations will be laid for the creation of a modern governance structure within the Bank of England, appropriate to the 21st century and to the major powers now vested in the Bank.

In this group there are also Amendments 3B, 3G and 3H, which are a direct consequence of the recognition of the role of the oversight committee in overseeing the activities of the governor in particular, and of the Bank in general. If the oversight committee is to exercise this role effectively it should have the final sign-off to the policies prepared by the court and by other executive institutions. I should be clear that in all well run firms it is the task of the executive to prepare policy and to execute it, but it is the role of the non-executives—of the oversight committee—to scrutinise and sign off the executive’s proposal. The oversight committee should oversee.

Amendment 3K makes clear that the role of the oversight committee in its task of overseeing is to approve the policy prepared by the court; it is the precise role of non-executives in all well run companies. Amendment 6C makes clear that the oversight committee is not to be confined to the impotent ghetto of reviewing procedures of the FPC but can also review the FPC’s policies. After all, if it cannot review policies what will the performance review be about? If it is given the task of performance review, surely it should review policies and not simply procedures.

I quite understand that the Government have not had long to consider this core idea, although they have had a bit longer than the noble Lord earlier suggested. I give credit to the Bill Committee and I understand the pressures it is under; similar pressures are experienced in my office.

[Lord Sassoon]

I do not want to labour the point but would the noble Lord, Lord Eatwell, accept that I did not list Amendment 3A as one that came late? I fully accept that this is not one of the hatful that I referred to as arriving late. We have indeed had longer to consider this amendment.

[Lord Eatwell]

Then I am sure that the noble Lord, having given the amendment such mature consideration, will be able to accept it.

I hope that, at the very least, the Government will agree to take this proposal away and think about it. After all, if we are going to have an oversight committee it should oversee; otherwise perhaps the Government should simply change the committee’s name. I beg to move.

[Baroness Noakes]

My Lords, I am a bit puzzled by these amendments and I should say that while the Minister’s officials may have had them since last Friday, those of us who are trying to take part in this Report stage saw them only first thing this morning, which comes of when the party opposite chose to table its amendments.

The noble Lord says that there is no oversight in the new section dealing with the oversight committee. If I were to define oversight I would say it is about reviewing and monitoring; that is the very nature of what is involved. The noble Lord suggests it means some real-time involvement by the non-executives in what happens on a daily basis within the Bank. That simply cannot be—it seems to me the noble Lord misunderstands the role of non-executive directors.

This group of amendments also contains the concept of the non-executive directors, via the oversight committee, approving the strategy. The oversight committee is a sub-committee of the Court of Directors and is not there to approve what the court should be doing. This is correctly formulated in that it is the court that is preparing the strategy. The oversight committee has no role in relation to that except by virtue of the membership of the individual non-executive directors who are also members of court. I really do not understand this sequence of amendments.

16:45

[Lord McFall of Alcluith]

I support my noble friend’s amendment. It is important to emphasise oversight because we are setting up a more complex body than the one we had before; we are going from a tripartite body to a quadripartite body. There are many interstitial areas and oversight is even more important in those areas.

As I mentioned earlier, there will be many conflicts between the FPC and the PRA. On the relationship between the Prudential Regulatory Authority and the Financial Conduct Authority, will prudential regulation trump conduct of business, which has happened in the past? Will the FCA feel inferior to the PRA as the FSA felt inferior to the Bank of England?

As to the culture, we can have all the rules we like but, within a plethora of rules, there can be a monoculture which reports to the top and a diverse range of opinions do not get listened to. There are many lessons to be learnt there. An oversight committee is very important in order to look at that and ensure that the Bank of England is indeed exercising the best corporate governance and best practice.

[Lord Hodgson of Astley Abbotts]

My Lords, like my noble friend Lady Noakes I have some difficulty in understanding the thrust of these amendments. I see the issue of the nomenclature, which may be unfortunate, but I have to say, as a director of a company, that keeping under review and overseeing are almost one in the same. I do not see the difference between those two functions. It is absolutely clear that keeping under review and oversight are running on similar tracks.

The dangers behind the noble Lord’s amendments are that we are starting to find a way of dividing responsibilities. We are moving from clear lines of responsibility to a situation where a sub-committee of the board, as appears in the Bill, is starting to dictate the pace of the board itself. That is an unworthy, unnecessary and potentially dangerous development.

[Lord Myners]

My Lords, I support my noble friend’s amendment. The decisions on the aggregation of power within the Bank of England are now set. The Government are clear in their determination to achieve that.

In my view, no one form of regulatory architecture can be assuredly more successful than others. Looking around the world at what happened with the global financial crisis, we saw many different structures of regulatory architecture come under strain. Some point to the twin peaks system associated with Canada as evidence that the Government’s current thinking in this area is consistent with a model that appeared to work better there than in other jurisdictions. However, if one wishes to understand why Canada did not experience the same harsh consequences of the global financial crisis, as in the United States, Europe and the United Kingdom, one finds the answer in matters other than regulatory architecture—including the nature of the economy and control of lending and leverage—which are inherent in the Canadian system and distinct from those followed elsewhere.

If we are going to aggregate this power in the hands of the Bank of England, we have to ask ourselves questions about checks and balances because we learnt from the failure of individual UK banks and institutions that, in almost all cases, there was an overly dominant individual in charge of the organisation that failed. That is the big lesson, which the FSA has not picked up completely in its reports on the collapse of RBS and HBOS. However, it is a clear lesson, whether it is Sir Fred Goodwin at Royal Bank of Scotland or Mr Adam Applegarth at Northern Rock; and similarly Mr Crawshaw at Bradford & Bingley and Mr Cummings, Mr Hornby and others at HBOS.

Are we creating an architecture here in which we are putting too much power in the hands of one person? I think we are. I was a member of the court for four years and have seen how it and the Bank operate. One must be careful not to extrapolate from the behaviours of the existing incumbents of senior positions in the Bank and members of the court into the future, but a very clear lesson to me was that the court just could not be effective at corporate governance, as both the noble Baroness, Lady Noakes, and the noble Lord, Lord Hodgson, referred to earlier. The court cannot be effective in that way. When I was a member in 2007, three members of the court sought to escalate matters to the Treasury about the Bank’s management of liquidity and of risk. It simply was not possible for my two colleagues and me to register with the Treasury or anyone else, in any meaningful way, our concerns about the Bank’s failure to understand the risks that were accumulating in the system.

Are we creating a structure now in which that could not happen again in the future? I do not think we are. We are not clear as to the role of the court. We give it some responsibilities but very little power to influence the responsibilities that we give it. We must ask important questions about the constitution and membership of the court to ensure that, in future, it is not simply a ceremonial body that is, on the whole, discouraged by the governor from asking questions, but something that at least approaches the independent challenge that one would expect—

[Lord Hodgson of Astley Abbotts]

My Lords—

[Lord Myners]

I will give way in a moment to the noble Lord, Lord Hodgson, who has had his opportunity. We must look to create a body that is capable of appropriately challenging the current governor and governors in the future. I am not sure that this is necessarily seriously advanced by the language we are using here. Perhaps I will anticipate the point on which the noble Lord, Lord Hodgson, wishes to intervene by saying that he is quite correct about perhaps dancing on the head of a pin when it comes to whether these are questions about supervisory roles or oversight. However, it is absolutely critical that we ensure, in this Bill, that the court is able to appropriately challenge and check the authority that this Bill places in the hands of the governor. We have learnt painfully in recent years about the consequences of coping with a dysfunctionality between the governor and members of the court. I give way to the noble Lord if he still wants to come in.

[Lord Hodgson of Astley Abbotts]

The noble Lord was quite right. I understood the force of his polemic and the seriousness of the point he was making but could not see how that is in any way addressed by adding the word “overseeing” to “keeping under review”, which seems to me, as he indicated, to be a distinction without a difference.

[Lord Myners]

The words proposed by my noble friend take us a little further in the right direction. I would like to go a great deal further but am more than happy to support my noble friend’s amendment.

[Lord Blackwell]

My Lords, despite the cogent words of the noble Lord, Lord Myners, I share the confusion on this side of the House about what these amendments are intended to do. Everyone agrees that it is vital that there should be strong oversight of the governor and the executives of the Bank by the non-executive directors and that we have proper accountability and scrutiny. But what is proposed here is a court that will have a clear and very sizeable majority of non-executive directors. The amendments proposed by my noble friend earlier made it clear that all the members of that court would be directors, and would be directors in common, sharing responsibility for the decisions of the Bank. However the non-executive directors would be in a majority, and if those non-executive directors disagreed with what the executives proposed, they could make that clear in the court and they would have the majority to hold sway.

According to these amendments, the court, involving all directors, would be able only to propose policies and then a sub-committee of the board of only the non-executives would then go away and approve them. That seems to turn corporate governance on its head. Either we have a supervisory board of non-executives, which is a totally different structure, or we accept that the Court of Directors is indeed the Court of Directors and should, with all its members, accept responsibility. What we have here is a very sensible proposal for an oversight committee of non-executive directors that will play its role in allowing non-executive directors to review and scrutinise offline, but to report to the full court, as is normal in any governance process. All directors must share equal responsibility in the end for the decisions of that organisation.

[Lord Nickson]

My Lords, I apologise for the fact that I have not taken part in the proceedings and I did not intend to do so today. I am completely out of date in that my experience goes back a long way. When I was the chairman of a Scottish bank, which belonged to an Australian bank, Fred Goodwin, as chief executive, reported to me, before he went to RBS for five years. We got on very well. I am quite thankful that he went to RBS and that I did not have responsibility at the end.

I completely sympathise with the points of view that have been put from the government Benches. The principles are exactly the same. It is impossible to conceive that one would appoint a majority board of non-executive directors along with an executive. They have the responsibility for oversight. You might have a sub-committee, but I would be very surprised if any candidate for the position of governor would actually accept it having power over the non-executives in the Court of the Bank of England. Therefore, I think that the amendment is nonsense in practical terms. Although I may be out of date, I strongly believe that it should be rejected.

[Baroness Wheatcroft]

My Lords, I share the qualms that have been voiced about this group of amendments. I believe that the court needs to exercise far more power than it has appeared to in the past, although I am intrigued to hear the noble Lord, Lord Myners, say that when three members of the court tried to make their views and their concerns known, they had no impact at all. That would seem to be a failing of the Government rather than the governance of the court.

The amendment that causes me particular concern is Amendment 3B, which proposes that the Bank’s strategy should for the time being be “prepared” by the Court of Directors. It does not seem to me that “preparing” a strategy should be for the non-executives. It may well be, and should be, their right to determine whether that strategy is the right strategy. However, we want them to “determine” rather than “prepare”.

[Lord Flight]

My Lords, it seems to me that none of these things makes any difference. The real issue is that if a board of directors cannot sack the chief executive if it thinks that he is not doing his job properly, then it is an enfeebled board. That is the fundamental issue. As long as we have the chief executive appointed for a term period and not able to be removed by the board, then there will be an issue about the effectiveness of that board.

[Lord Kerr of Kinlochard]

My Lords, I did not take part in the Second Reading debate. I should have done so. I support what the noble Baroness, Lady Noakes, said, which seemed to me to be absolutely correct. On the point made by the noble Baroness, Lady Wheatcroft, I find Amendment 3B the most bothersome in this group. If the court is merely preparing, not determining, who is determining? There is a danger here of the decision-taking power moving to this oversight committee.

I cannot see that Amendment 3A has any real effect. Clearly, there is an overseeing role if the committee is called “oversight”, but I think that the noble Baroness, Lady Noakes, is quite right about that.

The amendment that seems to be completely correct and would go some way to meet the point being made from the opposition Benches is Amendment 3C, which proposes that the committee should be entitled to a degree of professional support. That seems sensible to me.

16:59

[Lord Sassoon]

My Lords, I am grateful for this debate. The noble Lord, Lord Eatwell, started by welcoming the creation of the oversight committee as an important step, but then went a leap too far in getting rather confused about what, in his terms, “modern corporate governance” really means. As so many noble Lords have explained, it means that ultimately the governing body as a whole—the board of directors, the Court of the Bank of England—has to take the key decisions. As the noble Lord, Lord McFall of Alcluith, said, the principal role of the oversight committee is for learning lessons. I completely agree with him, and will go on to explain that the role of the oversight committee, as constructed in the Bill before these amendments, is completely in line with what the Treasury Select Committee envisaged.

My noble friends have explained all these things much more clearly than I could. The noble Lord, Lord Nickson, modestly said that he is out of date. I do not believe that he is out of date at all. He and the noble Lord, Lord Kerr of Kinlochard, who has great current experience of corporate governance in one of the UK’s largest multinationals, have got this right. I had been puzzled—I wondered whether I had missed something in all this—but I am grateful that the House shares my concerns.

To address the specifics, Amendment 3A would shift the oversight committee’s functions from a more backward-looking, reviewing role—the lesson-learning role that the noble Lord, Lord McFall, referred to—to a real-time overseeing role, which would involve scrutinising and perhaps second-guessing the Bank’s policy decisions while they are being taken. As my noble friends and other noble Lords have made clear, if that role is taken at the board level, it is taken by the board as a whole. I do not believe that this proposed new role would be at all appropriate.

As I have said, we can look to what the Treasury Select Committee in another place said when it recommended the introduction of ex-post reviews of the Bank’s policy performance. This is worth quoting at some length, from the committee’s 21st report of the Session, Accountability of the Bank of England:

“The Governor stressed to us that ‘the decisions that the PRA, FPC and MPC make on policy are not decisions that the Court needs to second guess’. We agree. The Bank’s governing body should place more emphasis on oversight and ex-post scrutiny. This does not require or authorise it to become involved in second guessing immediate policy decisions. But there is a need to analyse and learn lessons from the actions of the Bank on a routine and consistent basis, drawing on expertise from within the Bank. Ex-post review of the Bank’s decisions would, we believe, be in the interests of good governance of the Bank”.

The report went on to recommend that ex-post reviews of the Bank’s performance be carried out,

“not less than a year after the period to be reviewed”

in order to avoid,

“second guessing at the time of the policy decision”.

The current wording describes one of the functions of the oversight committee as,

“keeping under review the Bank’s performance”,

which is entirely consistent with the Treasury Select Committee’s recommendations and strikes the right balance between ensuring effective retrospective scrutiny of the Bank’s policy decisions and avoiding a situation where the non-executive members of the court would be second-guessing the policy decisions taken by the Bank’s expert policy committees and Bank executives. Of course, in this context my noble friend Lord Blackwell is quite right to point out that when these decisions are for the court as a whole, the non-executives are, as one would expect in any good modern corporate governance structure, in a majority.

I am a little puzzled by Amendments 3B, 3G, 3H and 3K, which seek to make the non-executives of the court solely responsible for determining the Bank’s financial stability strategy. Again, this is completely at odds, as the House has been told, with the way in which model corporate governance operates. Surely the reason for making the governing body as a whole, in this case the court of directors, responsible for the strategy is because it is that body, and in particular the executive members of that body, who will be accountable for delivering the strategy. Like other noble Lords, I struggle to see how the process that is proposed in these amendments could possibly work in practice. The oversight committee is made up of the non-executive directors of the court and those non-executives make up the majority of the court, as my noble friend has suggested.

On the role of the non-executives, I am sure that the noble Lord, Lord Myners, is right when he says he could not get the Treasury to take concerns seriously back in 2007, but I cannot answer for what happened in the Treasury under the previous Administration. All I can say is that if any member of the court of the Bank, whether executive or non-executive, came to the Treasury now, we would take their concerns extremely seriously.

I do not want to belabour the point, but I am not sure whether the noble Lord, Lord Eatwell, is envisaging situations in which the non-executive directors, coming from a court meeting in which they agreed the financial stability strategy, then go into an oversight committee meeting where they decide perhaps that the strategy agreed by the whole court was wrong in some way. We need to distinguish here clearly, as have many noble Lords, between the differing responsibilities of the court and of the non-executives on the court. The court, as the Bank’s governing body, is responsible for setting the Bank’s overall strategy, including its strategy for financial stability. It is the responsibility of the executives of the Bank, with the support of the court, to deliver that strategy. It is the responsibility of the oversight committee to hold the executive to account for how it delivers on the strategy by keeping its performance under review and, again in the words of the noble Lord, Lord McFall, for learning the lessons. This split of responsibilities in the Bill is appropriate and consistent with modern corporate governance.

Finally, Amendment 6C would add policies to the existing requirement in subsection (4) of new Section 9B that the oversight committee keep the procedures of the FPC under review. I can assure the noble Lord, Lord Eatwell, that this amendment is entirely unnecessary. The oversight committee is already responsible for keeping the policy and performance of the FPC under review. Subsection (2)(a) of new Section 3A of the 1998 Act, as inserted by Clause 3 of this Bill, clearly states that the oversight committee is responsible for keeping under review the Bank’s performance in relation to all of its objectives and strategy, including the objectives of the Financial Policy Committee. With the benefit of this useful debate, I hope that the noble Lord will see fit to withdraw his amendment.

[Lord Myners]

I want to be helpful and pick up one point about the references that have been made by several Peers to models of good corporate governance. The noble Lord, Lord Flight, with considerable experience and great standing in business in the City, has already pointed out one respect in which the court cannot be compared with a conventional board of directors: its ability in the end to remove the executive if it has lost confidence in it.

The point that I raised about our experience in 2007 is another distinct difference from corporate governance; namely, there is no shareholder to whom the non-executives can appeal. What happened in 2007 was that three members of the court had meetings with Treasury officials to raise their concerns about the absence of full challenge and the dominant influence of a single voice in the court. They expressed those views to Treasury officials, who shrugged their shoulders and said that there really was not much that they could do. The governor is ultimately appointed by Her Majesty and members of the court are elected to do their work, and there is nothing that the shareholder—effectively the Treasury—can do. That is another area where we must be very careful not to assume that we are just picking up the corporate model and inserting it into the Bank. The Bank is different by virtue of the very limited powers placed on the court and the absence of a shareholder.

Finally, I question whether the Minister’s constant references to good corporate practice would be reflected in the role of a board in overseeing ex post facto what a company does. My experience of sitting on boards is that boards are very much involved in reviewing the formulation and implementation of strategy on a constant basis, not in carrying out post-implementation exercises. Your Lordships’ House should be careful to recognise that there are limits to the complete applicability of corporate practice to the particular circumstances of the Bank of England, the court and the governor.

[Lord Sassoon]

My Lords, I know that the custom of this House on Report is that noble Lords do not make second substantive speeches, so the noble Lord will understand if I do not respond to his points—otherwise we will not make much progress. However, I will clarify one point in answer to the question asked by my noble friend Lord Flight about the removal of the governor and the suggestion by the noble Lord, Lord Myners, that the governor cannot be removed. This is of course wrong, as I am sure the noble Lord, Lord Myners, knows. If he would like to refresh his memory of the Bank of England Act 1998, paragraph 8 of Schedule 1 sets out precisely the conditions under which the governor can be removed.

[Lord Eatwell]

My Lords, I am very grateful for the discussion which I have enjoyed very much. I have been educated and entertained by the remarks made by noble Lords all around the House. The key position that we have to start from is that the Bank of England is different. Its structure is different and the structure of responsibilities is different. When we think about corporate governance, we have to think about the way in which we can maintain a suitable degree of accountability.

In Amendment 3A, I was attempting to nudge the Government a little further on the oversight committee which, as the noble Lord made clear in contradiction to what the noble Baroness, Lady Noakes, said, is entirely retrospective at the moment. In those circumstances, the maintenance of accountability is not really enough, given the degree of responsibility and powers that the Bank will have.

It occurred to me that a non-executive committee often has the final say. When things really go wrong, it is the non-executive committee that has to gather together and deal with what is going wrong in a company. Here the non-executive committee, by nudging it a little further and including the word “oversee”—for an oversight committee—would actually nudge the oversight committee, as conceived by the Government, in a direction in which it could hold to account the executive of the Bank to a greater degree than is the case at the moment. I think that the Government are being excessively complacent about this. We have this massive switch of powers, and we are being told that everything will be all right and that this Committee—which, as the noble Lord says, is entirely retrospective—will somehow create an aura of accountability. I just do not see that happening.

I regret that the noble Lord has not taken a constructive view of what we were trying to achieve. I would have been quite happy to accept some recognition by him that there is a degree of a problem in this particular institution and that we need—in this House and, indeed, in Parliament in general—to address this problem if we are to move forward successfully with the structure of financial regulation and oversight in this country. The noble Lord has given no indication of any sympathy whatever. Instead, he wants to keep the oversight committee purely retrospective, with no ability to take a broad view—not on a daily basis, of course not—and he wants the non-executives to have that specific role. Given that he has shown no interest at all and no understanding of the serious issues involved, I would like to seek the opinion of the House.

17:16

Division 1

Ayes: 158

---

Labour: 141
Crossbench: 8
Independent: 2
Democratic Unionist Party: 1
Bishops: 1

Noes: 237

---

Conservative: 136
Liberal Democrat: 58
Crossbench: 33
Ulster Unionist Party: 2
Bishops: 1
Independent: 1

17:25

Amendment 3B not moved.

Amendment 3C

Moved by

[Lord Eatwell]

3C: Clause 3, page 2, line 40, at end insert—
“( ) The Bank will ensure that the Oversight Committee has adequate economic, legal and research support.”

[Lord Eatwell]

My Lords, in the debate that we have just had we heard a lot about the values of the oversight committee and what an important job it has to do. The noble Lord, Lord Sassoon, made some comments about new Section 3C, perhaps inadvertently, while he was reflecting on the group of amendments that we have just looked at. The purpose of this amendment is to ensure that the oversight committee—or hindsight committee, as I think it should be called—has the resources to do its job.

We have to remember that the Bank of England has form in this respect. In the early days of the Monetary Policy Committee, independent members were deliberately starved of resources by the Bank in order to enhance the position of the executive members. We all hope that the Bank has learnt its lesson from the very negative publicity that that incident produced. However, we are now in different territory. The powers are greater, and the responsibilities are wider. Hence it is vital that the oversight committee should be well resourced. New Section 3C refers to the possibility of hiring people to conduct a performance review, but that is one step down the line. The committee needs its own staff to help determine exactly which performances should be reviewed, and who should be asked to do that sort of important secretarial work.

That is the purpose of the amendment before us. It can do nothing but strengthen the Bank of England, making the committee into an effective instrument of retrospective monetary and financial governance. I am sure that that is what the Government would like, so I would like to hear them accept this amendment, or at least give an undertaking to take the idea away and think about it with care. I beg to move.

[Lord Peston]

My Lords, I support this amendment in substance. The noble Lord will be delighted to hear that I also wish to make a couple of semantic points. My noble friend said that the committee should have its own staff. My view is that it should not only have its own staff but should appoint its own staff, thereby guaranteeing that the staff are its own, work for it and, to use the slang expression, are not “narks” of the governor. Therefore, the noble Lord ought to accept the amendment.

My two semantic points are as follows. First, I find the committee’s name most unattractive. Will the noble Lord ask the Bill team to look up the definition of “oversight” in the dictionary as it has a very definite meaning which I am sure the Government and the Minister do not wish to be associated with this committee. It may not be too late to choose a more felicitous name. I wonder whether I am the only person who has thought what a ridiculous name the committee has.

Secondly, I congratulate my noble friend Lord Eatwell on solving the problem with which, as your Lordships know, the noble Lord, Lord Barnett, and I are obsessed: that is, the “must/may problem”. My noble friend has solved it in a really interesting way. He does not use “must” or “may” but “will”. I would like the Minister to ask the Bill team whether it would consider going down the path of using “will” rather than “must” or “may”.

[Lord Sassoon]

If the noble Lord, Lord Peston, could persuade his noble friend to rein back to just a couple of amendments a day, I am sure that we could carve out time to look at all sorts of semantics. However, I shall stick to the substance of this amendment, which seeks to place the bank under a statutory duty to ensure that the oversight committee has,

“adequate economic, legal and research support”.

I entirely agree with the sentiment behind this amendment. As we have already discussed this afternoon, the non-executive oversight committee has a very important job to do in reviewing the Bank’s performance and will require access to the information and analytical support that it needs. That is why, for example, the legislation makes it clear that members of the oversight committee have access to the meetings and papers of the MPC and FPC and have a specific remit to commission work and reviews from external bodies and experts.

It is a well established principle that it is the responsibility of the governing body of any organisation to ensure that its members and sub-committees are properly supported. I recognise that the Bank was slow to realise that the external members of the MPC required dedicated resource and support. I am confident that the Bank has learnt its lessons on this. Both the MPC and the FPC members have access to all the analytical and secretariat support that they need. I am wholly confident that the Bank will similarly make support available to the oversight committee to make sure that it is adequately supported without the need for legislation on this point. I hope, therefore, with the further reassurance on that, the noble Lord will see fit to withdraw his amendment.

[Lord Eatwell]

What the noble Lord has said does not address the important issue here. He said that the oversight committee will have access to papers, be able to commission work and have access to the secretarial and research skills of the Bank. However, the point of this amendment is to give what every non-executive group really needs, which is access to independent advice. Any non-executive group of which I have been a member has always prized its access to independent advice: that is, its ability to seek advice outwith the immediate organisation of which it is a part.

The point has been made around the House this afternoon that the Bank of England is different in a series of ways with respect to its overall organisation. It is also different in terms of the sorts of powers which it will exercise. Therefore, I feel very strongly that it is important that the oversight committee, which is, after all, the committee of non-executives, has access to independent advice. It is regrettable that the Government feel that assurances are enough. I entirely accept that the noble Lord and, indeed, the officials who have looked at this question feel confident in giving their assurances but they cannot bind their successors. The point of this amendment is to ensure that successors who hold this responsibility both within the Treasury and within the Bank recognise the importance of the advice and support that the oversight committee should receive if it is to do its job. I hope that the noble Lord will take that away and think about it although I probably hope in vain. Nevertheless, I beg leave to withdraw the amendment.

Amendment 3C withdrawn.

Amendment 3D

Moved by

[Lord Eatwell]

3D: Clause 3, page 4, line 20, leave out “Bank” and insert “Oversight Committee”

[Lord Eatwell]

My Lords, I am afraid it is me again. These amendments refer to the decision to publish performance reviews. Let me remind the House that the performance reviews referred to in the particular clauses which are to be here amended are reviews that the oversight committee has commissioned or conducted. The amendment removes the Bank’s veto over the oversight committee: a veto which the Bill gives to the Bank—otherwise known as the governor—over the publication of such reviews.

Again, the Bank has form in this respect. As Members of your Lordships’ House will be aware, the Bank of England is the only major public institution directly involved in the financial crisis that has not seen fit to conduct and publish a full assessment of its own activities, procedures and policies during the crisis and to own up to the contribution it made to the crisis. The Financial Services Authority has done that as has the Treasury. The Bank has not seen fit to do that. The three reviews published last week have been very carefully circumscribed in their terms of reference to prevent proper consideration of the Bank’s record. You only have to read the Bank’s tepid response to the reviews—it did not refer at all to the comments on the Bank’s excessively hierarchical structure—to realise there is still a deep-seated cultural failing in this respect in the Bank. Where other organisations review what they have done, think through and learn from their experiences, the Bank seems to be unwilling to do this.

In these circumstances, it would be quite wrong to give the Bank a veto over the publication of the oversight committee’s reports. If this serious committee of non-executives—a majority of the court—put together a report and decide that it should be published, then why should there be a veto over them? The oversight committee is quite capable of taking the advice of the Bank, the governor or whoever on whether the publication is against the public interest. If the Government really want effective performance reviews and not whitewash I am sure they will support these amendments.

[Baroness Noakes]

My Lords, I share many of the frustrations that the noble Lord, Lord Eatwell, has exposed in relation to the reviews that were commissioned, late and inadequate, and I completely accept that the Bank’s response did not seem fulsome. However, I think we have to give the new Government’s arrangements within the Bank a chance. While the Bill says that the Bank will decide about publication, that should be the Court of Directors and, as we know, the Court of Directors has a majority of non-executives. I hope that they will be invigorated by the new context provided by the separate oversight committee. If we keep trying to make functions of the Bank be carried out by the oversight committee we will undermine the court. We need to ensure that the court is strengthened and takes its responsibilities seriously. I also sincerely hope that the Treasury Select Committee in the other place becomes more active in seeking to engage with the non-executives via the oversight committee on how things work in practice.

[Lord Barnett]

My Lords, I agree with my noble friend very strongly indeed. He has made a very strong point. I should declare an interest, I suppose. Until very recently I was probably the oldest living non-executive chairman of a plc. I hope I was a very active chairman. However, I know through many experiences of my own that some non-executive directors do not play a very constructive part, they just take their money and go and do very little—so there are two different kinds of non-executive directors.

I hope my noble friend manages to persuade somebody to change the name from the oversight committee. It is, as my noble friend Lord Peston said, a very strange name to have in the Bill, but it is not the only strange thing in the Bill. I hope the officials who advise the noble Lord, Lord Sassoon, will perhaps come up with a new name but on the whole I would like to commend the officials, particularly those headed by Mr Whiting. He has been extremely diligent in the job he has done on all sides of this Bill, sending things and meeting people. He has been excellent.

I wish I could say the same about the Minister. I like him personally but I cannot say the same about his response to the amendments. My noble friend has made a very important point that an important committee here—whatever we call it, it is now called the oversight committee—can be overruled by the governor. I find that quite unacceptable. I do not know whether the noble Lord, Lord Sassoon, shaking his head means he cannot overrule it. I would be glad to hear that, but that is what it seems to be saying. I would like to hear how he puts that given the wording of the Bill, but for the moment I strongly support my noble friend Lord Eatwell.

17:45

[Lord Kerr of Kinlochard]

I think one has to draw a line between the past and the future. I once again found myself very much in agreement with what the noble Baroness, Lady Noakes, said. If a report was made to the oversight committee and it believed it should be published, and the decision goes to the court, as it should because a subset of the court cannot decide that, it seems to me extraordinarily unlikely—almost unthinkable—that the governor, from a position of one or four against nine, would be able to overturn the view of the oversight committee. The decision must be taken in the court, but it will be a very rare occurrence when a decision as to what is the public interest is taken by the executives overturning the majority view of the oversight committee when the issue comes before the court, so I do not understand the amendment.

[Lord Peston]

My Lords, I do not understand the intervention. Why has the governor been given the power if he cannot use it? If you do not want him to use it you do not give it to him.

[Lord Armstrong of Ilminster]

My Lords, if I may take the semantic point raised by the noble Lord, Lord Peston, if the word “oversight” is capable of being misinterpreted why not use “supervisory”, which is just the Latin version and means exactly the same without the possible misunderstanding?

[Lord Sassoon]

My Lords, I am not at this point going to get sidetracked into semantics, fascinating though I find it, as noble Lords know. Let me echo again, because I had said already what a good job the Bill team was doing, that I completely agree about that. I am very sorry that the noble Lord, Lord Peston, thinks—I am sorry; I meant the noble Lord, Lord Barnett. Do forgive me. The noble Lord, Lord Peston, may think that I am doing an excellent job but I know that the noble Lord, Lord Barnett, does not. Anyway, it is entirely my fault and not the fault of my officials, as the noble Lord recognises.

Let me try to be brief on this one. This is not a question of the governor having a power to overrule the oversight committee, as other noble Lords have said. The construction in the Bill is that it is for the Bank as whole—the court of the Bank—to decide and to make an informed judgment whether damage might be caused by the publication of a report on a public interest test. I understand the starting point of the noble Lord, Lord Eatwell, which is some suspicion or concern that the people who commissioned the report—the oversight committee—should be the group of people who decide whether it should be published. However, it is appropriate for the Bank as a whole—that is, the court, with a majority of non-executive directors, as my noble friend has reiterated again—to take the decision.

[Lord Eatwell]

My Lords—

[Lord Sassoon]

Perhaps the noble Lord will let me finish. It is a decision of the Bank. The Bank is better placed to make that judgment and the noble Lord, Lord Kerr of Kinlochard, makes the point that it would be only in exceptional extraordinary circumstances —I cannot remember his exact words—that one would envisage this being overturned somehow on the whim, or rather the view, of the governor, when the Court of the Bank of England looks at it.

Let me make one more point before I give way to the noble Lord, Lord Eatwell, because one critical part of this is that the Treasury will receive copies of all reports, regardless of their sensitivity. I would expect the Treasury to come to its own view on whether each report is genuinely unsuitable for publication. If it believes that the public interest carve-out was not justified, it would challenge that decision where appropriate, because the Treasury ultimately has an even wider perspective on the public interest. It is therefore right to remember that there is that further fallback, because the reports in all cases will go to the Treasury. Let me, as well as asking the noble Lord to consider withdrawing his amendment, give way to him.

[Lord Eatwell]

I just wanted to ask a question of clarification. What particularly disturbed me about subsection (3) of new Section 3D was that it refers to “the Bank”. Can the noble Lord assure me that in that subsection “Bank” means “court”? If he can, I would be happy. That is the point that I was trying to make. I think that I confused the noble Lord, Lord Kerr, slightly in that respect.

[Lord Sassoon]

Yes, my Lords, the court is the governing authority of the Bank, and that is, I believe, completely the right construction for this particular matter.

[Lord Barnett]

What the noble Lord said just now seems to provide a new reason to change the name of the oversight committee. We do not need one. He is saying that the governor and the board of the Bank will know better than the oversight committee. Why bother with an oversight committee at all? That would be a simple solution.

[Lord Eatwell]

My Lords, I must say that I am very happy and I will now read through the Bill with great care and presume that wherever the term “Bank” appears, it means “court”. If that is so, I will check all the various clauses as we go along to ensure that “Bank” means “court” at all stages. If it means “court”, the Bill should say so and be clear—and that is what it is not.

[Lord Peston]

My noble friend should not really accept this, because no one reading the Bill could conceivably read the word “Bank” to mean “court”. “Bank” means the Bank, and the Bank, in practice, is the governor.

[Lord Eatwell]

With all due respect to my noble friend, these days, where matters are in dispute about the interpretation of Bills, reference is made to Hansard. The noble Lord has effectively amended this clause in his remarks by saying that “Bank” means “court”. On that basis, we have now clarified this section of the Bill considerably. We have had a successful debate and achieved something valuable.

Given the various comments on the name of the oversight committee, I must confess that until my noble friends pointed it out I had failed to notice the double entendre in that label. I thought that “oversight” meant to oversee or supervise. I take it as meaning “oversee”, and I will not go as far as my noble friends.

I will go through the rest of the Bill, note where it refers to the Bank and either write to the noble Lord or raise in the House those points at which there is ambiguity as to what “Bank” actually means. However, now that we are absolutely clear that in new Section 3D “Bank” means court, I am happy to beg leave to withdraw the amendment.

Amendment 3D withdrawn.

Amendments 3E and 3F not moved.

Clause 4 : Financial stability strategy and Financial Policy Committee

Amendments 3G and 3H not moved.

Amendment 3J

Moved by

[Lord Eatwell]

3J: Clause 4, page 6, line 1, after “Committee” insert “and the Treasury”

[Lord Eatwell]

In Committee, I raised the issue referred to in the amendment and not only argued that should the Treasury be able to make recommendations to the FPC at any time—which it appears not to be able to, given that it is left out here—but proposed to make subsection (3) consistent with subsection (2) of proposed new Section 9A. The amendment would allow the Treasury to approach the FPC at any time.

After the Committee stage, the noble Lord, Lord Sassoon, was good enough to write to me on this matter. I appreciated that. In his letter, he argued that there was no need for specific statutory provision because the Treasury could make recommendations at any time as it already had a common-law power to do so. This was one of those “not necessary” defences. Therefore, the common-law power was the basis for the Treasury being able to make recommendations at any time.

I have considered this matter carefully and, after long reflection, I regret that I find the noble Lord’s argument unsatisfactory for two reasons. First, it is not good enough in the complexity of financial legislation to rely on the common law. There are people who will use this Bill who will not be lawyers and, even if they are, they may be lawyers who are not fully conversant with the common law. For example, many of our European Union partners are not conversant with the common law, and members of the relevant European Union regulatory bodies that will need to understand the Bill will not necessarily have familiarity with the common law that we would expect in common-law jurisdictions. Therefore, relying on the common law is not good enough in this legislation. We need real clarity about who does what to whom and we ought to include the Treasury in the provision so that everyone knows that it can intervene with the FPC at any time. The European authorities in particular, which will have a locus in this respect, would understand that point.

Secondly, a fundamental problem with the regulatory system before the crisis was the lack of communication between the Treasury and the Bank, as the noble Lord himself argued in Committee. I am sure that he will remember saying that a real problem with the tripartite structure was that the Chancellor of the Exchequer and the Governor of the Bank never met. He said:

“One of the major problems leading up to the financial crisis was that the tripartite committee did not meet at principals level”.—[Official Report, 10/7/12; col. 1052.]

The amendment re-emphasises the need for regular communication and co-operation between the Treasury and the Bank in general, and the Treasury and the FPC in particular, given the FPC’s macroeconomic responsibilities.

As I said, there are two reasons for the amendment. First, we should not rely on the common law as there are lots of people who are not conversant with the common law who need to understand this relationship clearly. Secondly, we need to reiterate the importance of regular communication between the Treasury and the Bank, especially the Treasury and the FPC. I beg to move.

18:00

[Lord Sassoon]

My Lords, I find it is bizarre and slightly disappointing to see this amendment again. My noble friend Lord De Mauley explained in Committee why the FPC requires an express power in statute to make recommendations whereas the Treasury does not. As the noble Lord, Lord Eatwell, recognises, I wrote to all interested noble Lords on 2 July setting out that explanation again, so I had rather hoped that the matter was resolved. I fear I should again explain the legal position, which is that the Government are clear that both the Treasury and the FPC should be closely involved in the ongoing development of the Bank’s financial stability strategy. I am happy to put that on the record. I have said a lot of other things which I am happy to be quoted on, such as comparing the practice under the old tripartite regime of people not talking to each other on a regular basis with what I now observe, which is much more regular communication. However, by amending this part of the Bill, I suggest we will not do anything more on that front. The Government are clear on that, which is why subsection (2) of new Section 9A of the Bank of England Act, as inserted by Clause 4 of the Bill, requires the court to consult both the FPC and the Treasury before determining or revising the Bank’s financial stability strategy. We do not need to overlabour the point, but it is a critically important one that the noble Lord raises and it is in there.

Moreover, the Government’s view is that neither the FPC nor the Treasury should have to wait to be formally consulted on the strategy. This should be part of the normal ongoing dialogue. If either body wishes proactively to suggest changes or amendments to the Bank’s strategy for financial stability, it should and will be able to do so. In order to ensure that this is the case, it is necessary to create an express power for the FPC to make recommendations to the court regarding the Bank’s strategy. As I have said before, this is because the FPC is a creation of statute, which means that the FPC’s main functions need to be set out in the legislation. That is why new Section 9A gives the FPC a power to make recommendations to the court on the financial stability strategy. If the provision did not exist, it would be unclear whether the FPC had the power to do so. In contrast, it is not necessary to create specific statutory provision to allow the Treasury to make recommendations. The Treasury already has a common-law power to make recommendations at any time to whoever it wishes.

Of course, the noble Lord, Lord Eatwell, does not challenge that underlying basis, but he makes a huge drama out of European authorities and overseas bodies needing to understand whether the Treasury has authority to do this, that or the other. I find it very unlikely that European bodies would need to do that, but if they did, their lawyers would understand very clearly the common-law construction, which would be explained to them. If we went down the line of not relying on the common law in legislation, I hate to think how a Bill like this would grow like Topsy.

I am genuinely puzzled by all this, but I hope that the explanation of the common-law position is clear and that it can be explained in these unlikely situations that the noble Lord postulates. Of course, these European authorities will have the benefit of reading Hansard as well. It is an important point that the interaction is much better than in some respects it has been in the past. We expect that to be the case. I would like to think that perhaps we have finally put this point to rest and I ask the noble Lord to withdraw his amendment.

[Lord Eatwell]

My Lords, it would be easier to withdraw the amendment if the noble Lord had actually answered the points. Essentially, all he has done is reiterate the common-law point and make the rather bold assumption that European-trained lawyers on the European Systemic Risk Board would understand the common law. However, if he is confident that that is the case and that a suitable number of British-trained lawyers, or the equivalent, can be seconded to that body, then perhaps things will work out in a satisfactory manner. I am glad to hear that he is confident that the interrelationship between the Bank, the Financial Policy Committee and the Treasury is ongoing and regular today as it was not in the past. That is a considerable improvement and I am pleased to have that assurance. However, there is an important element in financial legislation which the noble Lord overlooks. Financial legislation in a global financial market has to be really clear to all those around that market who read it. Simply saying, “We know because we are trained in the common law,” is really not good enough. I was trying not to change the relationship but to make it clearer. However, given that the Government are apparently not interested in doing that, I beg leave to withdraw the amendment.

Amendment 3J withdrawn.

Amendment 3K not moved.

Amendment 3L

Moved by

[Lord Eatwell]

3L: Clause 4, page 6, line 9, leave out “3 years” and insert “1 year”

[Lord Eatwell]

My Lords, once again, we return to an issue that we discussed in Committee and I promised at that time to return to it on Report. I am keeping that promise. Subsection (6) of new Section 9A requires the court to review the financial stability strategy once every three years. That is far too long. Let us consider what has happened over the past three years. Since 2009 there has been a fundamental change to the overall economic environment, a radical change in government policy, and a double-dip recession. Really significant things have happened, which should be taken on board in assessing the strategy. The idea that, over that period, the court would not review the financial stability strategy in the light of events is, I believe, inconceivable. If the court really is going to review the strategy in the light of events, the markets need to know that. A regular report once a year would be a significant reassurance, even if that report says no change. Indeed, that would be a significant reassurance to the markets that the financial stability strategy is unchanged.

I quite understand that strategies are not designed to be the creatures of current events, but it is important to learn from events and not plough on regardless when the facts change. An annual review would provide the court with ongoing insights into the systemic risks associated with the financial stability strategy. That is far better than a review which is postponed, as facts change, for three years.

Let us then suppose that something really dramatic happens so that there has to be a review before the three-year time limit is up. What effect will that have on confidence? How much better to pursue the reasonable strategy of an annual review, both to ensure that the financial stability strategy is up to date and to provide appropriate confidence that the Bank’s strategy deals with matters with which the markets are concerned. I beg to move.

[Lord Phillips of Sudbury]

My Lords, I wonder whether the noble Lord, Lord Eatwell, has taken sufficient account of the provision in proposed new Section 9A(1)(b) that allows the court to review the strategy at any time. There is reference later in the proposed new section to revision of the strategy. I would have thought that those provisions covered precisely the concern that he correctly raised.

[Lord Hodgson of Astley Abbotts]

My Lords, I am slightly concerned at the proposed obligation to conduct an annual review. The role of directors is constantly to keep a strategy under review and to see whether it is still relevant. However, to impose this would impose a burden. A proper strategy review is an extremely expensive and far-reaching undertaking. It would be far better to have a backstop of a three-year requirement and rely on the good judgment and good sense of the directors, in particular the non-executives, to call for more frequent reviews as and when they are needed. It is inconceivable that we would go through the sorts of events that we have been through since 2008 and that non-executives would sit and say, “We do not need to look at the strategy”. It is part of their role to do that and we should rely on their judgment, not on process, with a backstop of the three years, as proposed.

[Lord Myners]

My Lords, I will pick up on a term in the final sentence of the contribution of the noble Lord, Lord Hodgson. He referred to relying on the judgment of the non-executives. Many issues around the court will depend on the quality of the people appointed, and how they conduct themselves. A slightly less than perfect structure, superbly implemented, is likely to give a better outcome than a perfect structure that is poorly implemented. The Minister on a number of occasions referred to best corporate practice. Can he envisage any situation in which a corporate board performing effectively would not carry out an annual review of strategy? Every board of which I have been a member has had an annual strategy session to look again at past strategy and in many cases endorse or modify it in the light of circumstances. Regardless of what we say here, court directors seized by their legal responsibilities would almost certainly want to carry out an annual review. Does the Minister agree with that observation?

[Lord Sassoon]

My Lords, I certainly agree with the construction of my noble friends Lord Phillips of Sudbury and Lord Hodgson of Astley Abbotts. I think that essentially they are agreeing with the noble Lord, Lord Myners, that boards will take sensible views on these matters, and that we do not need to require the court to review the Bank’s stability strategy on an annual basis because a perfectly sensible arrangement will emerge that will to some extent involve a strategy that is set for a longer period than a year. Clearly, to some extent, a strategy needs to look out further—as the noble Lord, Lord Myners, agreed. Equally, of course a board will look to see how a strategy is going on a more frequent basis.

I have not changed my view since Committee on the lack of need for the provision proposed in the amendment. The interventions in this discussion reinforced my view. The legislation does not set out how regularly the Bank’s strategy should be reviewed. In practice the court has revised the financial stability strategy on an annual basis. That is understandable, given the sheer volume of legislative and other changes that there have been in the system of financial regulation in the past three years. On the other hand, as the noble Lord, Lord Myners, agreed, a strategy needs also to be a longer-term, forward-looking document. We do not need to hardwire in an annual review and suggest in any way that we require a short-term, business-plan view to be taken rather than a genuine strategy. That is why new Section 9A will require the court in future to revise the strategy at least every three years—so that it is a longer-term document—but there will also be flexibility for the court to revise the strategy earlier. I continue to believe that a three-year timeframe is the correct requirement for the Bill. It leaves plenty of flexibility.

I will add that I am conscious that in talking about this matter I use “court” and “Bank” to mean different things. I did not want to prolong the earlier debate, but I did not say then that court equals Bank. I am sure that the noble Lord, Lord Eatwell, did not believe that to be the case, or that I suggested it. What I suggested in the earlier context was that there were certain critical issues on which the court would take a decision. The matter that we talked about—the public interest test in connection with publishing reports—was one. Here is a clear example of a case where we are talking about the court setting a strategy for the Bank. There will be many more examples as we go through the Bill of cases where “court” and “Bank” mean different things. We need to look at each instance as it comes up. With that slight digression, I hope that the noble Lord has been comforted by this further discussion of the strategy timeframe issue.

18:17

[Lord Eatwell]

My Lords, we are debating two things at the same time. I will refer first to my amendment dealing with the timing of reviews of the financial stability strategy. Writing into the Bill that there should be a backstop of three years is a major mistake because it creates the possibility—even probability—that a review will have to take place in a shorter timeframe, as the noble Lord, Lord Phillips, pointed out. If that is done, what will be the effect on confidence? It will give the impression that the Bank is panicking and is not willing to go to its three-year period; it has suddenly had to shorten things. The reaction will be: “My gosh, something is really going wrong”. That is why the notion of an annual review has solidity and regularity. It fits in with the publication of the financial stability review, which is twice per year. So every year there would be a review, even if it endorsed a policy of no change to the financial stability strategy. Including the three-year figure is a major mistake because it will tend to excite apprehension when reviews take place more frequently.

[Lord Phillips of Sudbury]

Is the noble Lord not assuaged by the wording of the Bill, which seems to be extraordinarily wise? It calls for a strategic review, which it later defines as coming every three years. It then states that the court of directors must,

“from time to time review, and if necessary revise, the strategy”.

Surely that is exactly what the noble Lord was talking about. If circumstances take an unexpected and dramatic turn, that stipulation is precisely germane. I do not see why the noble Lord is not satisfied with what seems to be an extremely sensible arrangement: a report every three years, but also a power of review.

[Lord Eatwell]

I am sorry that I did not make myself clear. I was referring to a review taking place other than at three years and the effect that that might have on the confidence of the markets. They might feel that the Bank is not sticking to its usual three-year timetable but is bringing things forward because something is going badly wrong that it knows about and perhaps the markets are not fully informed about. An annual review is embedded in so many companies. The annual away-day where everybody goes off and does the annual review is such a standard procedure that I think the three-year business is a mistake.

I want to return to the noble Lord’s revisionist comments on the position that he took on the earlier amendment when we were referring to the business of the oversight committee and the public interest notion of publication. I asked the noble Lord whether in this section Bank meant court. I think that I made clear that if it did mean court, the best option would be for it to say so. Therefore, the best option would be for him to come back at Third Reading and say, “Look, the word Bank occurs all the way through the Bill. It is used in different contexts in different places and let us be absolutely clear who is responsible. We will amend this clause at Third Reading to say ‘court’ because that is what I mean. It is not what I say; it is what I mean”. Let us now say that the noble Lord means court.

I was quite deliberately saying that if the noble Lord really wants the word Bank to mean court throughout the Bill I would read through it. I was confident that I would have no difficulty finding a number of cases where he did not want it to mean court. That is why he has now stood up, having received the advice of his officials, to correct what he said earlier.

[Lord Sassoon]

My Lords—

[Lord Eatwell]

I am just finishing.

With respect to new Section 3D, it is important that we are clear that Bank means court there. We will take on advisement what the word Bank means elsewhere in the Bill.

[Lord Sassoon]

I merely wanted to say that I was not standing up to correct anything I said before: I stand exactly by everything that I said before. I wanted to head off the noble Lord, Lord Eatwell, from wasting a lot of time by going through and analysing the precise meaning and the underlined way in which the powers of the Bank would be exercised situation by situation in the Bill. It is up to the court as the governing body of the Bank as to what it takes unto itself and what it delegates to the executive of the Bank. I was merely trying to make a helpful suggestion that perhaps the noble Lord would find himself doing quite a lot of wasted work if we went too literally down this path.

[Lord Eatwell]

My Lords, I am sorry to prolong this, but now we are told that the court can delegate to the executive of the Bank. Is that the case in new Section 3D, which we discussed before? I am sorry to prolong this but I thought that the noble Lord made absolutely clear that in that section, Bank meant court—not a delegation to the executive or the governor or anyone else. He actually said himself, if I recollect accurately, that the court contains the nine members of the oversight committee, they would be sitting there and therefore they would not contradict themselves. There was no notion of delegation. They had a role. It is very important that legislation, particularly in financial policy, is clear. Can we please be clear on this particular element?

[Lord Sassoon]

I do think that the noble Lord, Lord Eatwell, is trying to get into semantic games. There is an important point. I was completely clear before and I think it is understood. It would be complete nonsense if a recommendation on such an important matter of the oversight committee, which is a committee of the court of the Bank, was taken by anything other than the court itself. That is plain and completely clear. That is what I said before and that is what I stand by. It would be absurd to suggest that the court would delegate such a matter. That is what I said and that is clear. But there are plenty of other matters throughout the Bill on what the Bank does where, equally, it would be ridiculous to suggest that the court did something itself and did not delegate.

[Lord Eatwell]

Well I rest on the proposition that I made earlier. If that is what the noble Lord means, why does he not say so instead of leaving this ambiguity on the face of the Bill?

However, returning to the issue of three years, I think that it is unfortunate for the reasons that I have spelt out. Annual reviews are completely usual and normal in the corporate and financial worlds. Everyone knows what they are. Three years leaves too much of a gap for unfortunate and disturbing events to occur that could then be exacerbated by the Bank’s seeming need to change tack at that time.

I hope people go away and think a little about this. I know that I almost certainly hope in vain, but hope springs eternal. In the mean time, I beg leave to withdraw the amendment.

Amendment 3L withdrawn.

Amendment 3M not moved.

Amendment 4

Moved by

[Baroness Noakes]

4: Clause 4, page 6, line 25, leave out “2 members” and insert “one member”

[Baroness Noakes]

In moving this amendment, I will also speak to Amendment 5 in this group. In so doing, I hope to give the noble Lord, Lord Eatwell, a break from his obsession with the difference between the court and the Bank.

The amendments concern membership of the Financial Policy Committee. In Committee, the noble Lord, Lord McFall of Alcluith, and I tabled an amendment that reflected the conclusion of the Treasury Select Committee in another place that there should be a majority of external members on the FPC to mitigate against groupthink. The Joint Committee that examined the Bill had reached a similar conclusion.

The Bill prescribes 12 members of the FPC in total. There should be six from the Bank, the chief executive of the FCA, four external members and a representative from the Treasury. I will ignore the Treasury in my remarks because the Treasury person cannot vote and his views can be ignored quite a lot of the time according to Schedule 1. I will talk about the 11 active and voting members.

The Government like to portray this composition of the FPC as a 6:5 split, putting the chief executive of the FCA in the external-to-the-Bank category, with six internal to the Bank and five outside. But the chief executive of the FCA, while he is external to the Bank, is not a completely independent member because of the many and varied associations and interactions between the FCA and the PRA which are envisaged in this Bill. While the chief executive of the FCA will have independent responsibilities in relation to the FCA, he will inevitably be susceptible to the kind of groupthink that the Treasury Select Committee warned against. The de facto ratio in the Bill is 7:4, because seven members have custodianship of the financial system as part of their day jobs and only four would be independent of that. I do not believe that that ratio is a healthy one.

In Committee, my noble friend the Minister argued against having external members in the majority because it would interfere with the holding of the Bank of England to account in some way. I think that that is a highly arguable position but my noble friend will be relieved that I am not going to argue with it this evening. Instead, I propose with Amendment 4 a more modest rebalancing of the FPC and I am delighted that my noble friend Lady Wheatcroft and the noble Baroness, Lady Kramer, have added their names to this amendment.

18:30

By virtue of Amendment 4, one of the Bank of England insiders would come off the FPC so that the Bank membership would then be the governor, the three deputy governors and one other Bank member, probably the executive director for financial stability, the person covered by Amendment 6 in this group. There would then be 10 members; five Bank insiders, one from the FCA and four independent external members. The external members would not be in the majority but their relative position within the FPC would be better balanced. An alternative way would be to increase the size of the external component of the FPC and Amendment 5 does this by adding one extra external member, which would take the total active membership to 12, five of whom would be independent members.

In Committee, my noble friends Lord Hodgson and the Minister objected to the FPC getting larger because it would become unfocused and unwieldy, and I completely agree with this. When Sir David Walker produced his report on bank governance in 2009 he included a particularly interesting annexe on the psychological and behavioural aspects of boards. One paragraph from that said:

“The optimum size of a sub-committee—”

—and that is what the FPC is—

“is between 5 and 9. To ensure quality thinking and effective interaction, sub-committees should be groups of not less than 5 and not more than 9. At 5 a group becomes more of a team, at 7 thinking is optimised; above 9 the ability of the cognitive limit of the group is exceeded”.

So I do not advocate my alternative, Amendment 5, and note that even with the modest change in my Amendment 4 the FPC would number 10, or 11 if you include the Treasury, and would thus be outside the cognitive limit referred to in Sir David Walker’s report. If the Government cannot face telling the Bank it cannot have two extra people on the FPC, the solution is available to them by adding one, as in Amendment 5, although the Government would have to recognise that this solution would be sub-optimal. I beg to move.

[Lord Myners]

My Lords, I support the amendment in the name of the noble Baronesses, Lady Noakes, Lady Wheatcroft and Lady Kramer. I, too, have been struck by the potency of the Walker report appendix on group effectiveness, drafted by the Tavistock Institute. My experience leads me to conclude that the larger the group, the less effective it becomes. The R-squared is actually extraordinarily high and making the FPC any larger would not be the right solution, although it would be better than doing nothing.

Amendment 4 is, in my judgment, significantly superior to Amendment 5 and I think the noble Baroness, Lady Noakes, has, as she so often does, put her finger on the issue. It is almost certainly the governor who is insisting on having this right to appoint additional people to the committee. The past culture of the Bank is that it speaks with a single voice and that voice expresses the opinion of the governor. The more people around the committee table who therefore speak with that single voice, the better it is from the perspective of the executive. From the perspective of a functioning committee, that is almost certainly not an optimal outcome. In fact, if the Tavistock Institute had been invited to comment on the existence of a cabal or blocking group within a committee, I am sure it would have been even more powerful in its views about its appropriate constitution.

The central thrust of everything we are doing in helping the Government get this legislation through Parliament is to try to ensure that we have as many checks and balances in place as is appropriate. One of them must be a check on the strength of the voice of the executive of the Bank on these committees and, while both of the amendments put forward by the noble Baroness, Lady Noakes, will achieve that, Amendment 4 is preferable to Amendment 5.

[Baroness Wheatcroft]

My Lords, Amendment 4 will achieve an improvement in the balance of the FPC and I support the other amendments in this group, tidying-up amendments which would bring the number of extra appointees from the Bank down to one instead of two. It is obviously better to have a balance, if we can, between the Bank team and the outsiders—as they will undoubtedly feel that they are to start with.

We have heard about groupthink. There obviously has been a fair amount of groupthink at the Bank in the past, although it is worth remembering that on the Monetary Policy Committee the Governor of the Bank of England has been outvoted on several occasions, so it is possible for people to disagree with the governor and for the committee to go against him. However, on the basis that a balance would be better, bringing down the level of Bank people represented on the FPC would be an improvement.

[Lord Deben]

I merely suggest that in these detailed discussions, when we hear mainly from those who are very expert, it is as well to consider views from outside, from business as a whole. A trick which all businessmen know is that there are two ways in which you can control a committee. One is to have a very small committee mainly related to you, and the other is to have a very large committee in which you know very well that you can organise the dynamics. I am much impressed with the arguments of the noble Baroness, Lady Noakes, who has put her finger on a very important issue. I hope that the Government would accept that nowadays there is a good deal of expertise looking at these matters and the Tavistock Institute has much of it. I would be unhappy if we suggested that we knew better than its experience, over a very long time, of how best to do these things. I hope the Government will see this as a perfectly reasonable thing, a balanced situation. The noble Baroness, Lady Noakes, and I do not always agree on matters—indeed, there are lots we disagree on—but on this occasion, coming from my understanding of trying to run boards and companies, this would be a good thing to do and not to do it would seem a little perverse.

[Baroness Kramer]

My Lords, I cannot pretend to have the expertise on boards that the previous speakers have had and I do not want to repeat the very powerful arguments they have made; I merely add two quick comments. I think that the Minister will have understood from the debate that has gone on for much of today that there is still a general uneasiness over the amount of power that flows to the Governor of the Bank of England under this new framework. Here is a sensible way to put a bit more challenge into the system. I think that we all feel that a bit more challenge would be a good way in which to make sure that the governor has to do the thing that is the greatest check on any individual: to persuade others to go along with him. That is rather more necessary in an absolutely core function, one of financial stability and economic growth.

Secondly, we have all been somewhat concerned about the role of the FCA and the kind of status that the chief executive of the FCA may have in comparison to his peers in the regulatory family that falls more directly under the Bank of England. His role becomes a little more pivotal when you look at Amendment 4 and I suspect that that is no bad thing. It also makes sure that the FCA voice is heard rather more clearly and independently than it might have been without this amendment. I hope that the Minister will take all that on board.

[Lord Eatwell]

My Lords, I have added my name, as has my noble friend Lady Hayter, to Amendment 5, which is the second-best amendment of the noble Baroness, Lady Noakes. However, even in this second-best version, achieving what the noble Baroness, Lady Kramer, referred to as “a bit more challenge” is an excellent and desirable objective.

[Lord Sassoon]

My Lords, this is an interesting and important area. The balance of the FPC’s members between the Bank and non-Bank executives is an issue that has been raised a number of times in this House, in another place and in the committees that have scrutinised the Bill. My noble friends who have spoken to this issue have done so with characteristic clarity and eloquence.

There is clearly an important argument about the possibility of rebalancing the membership of the committee away from the Bank executives and towards the external members. The external members will need to provide an outside perspective and challenge function to the deliberations of the FPC and, crucially, Amendment 4 achieves the important objective of enhancing the role of the non-Bank members while avoiding creating a situation where the Bank would be in a minority on the committee, which would make it virtually impossible to hold the Bank accountable for the FPC’s actions.

I see a great deal of sense in the alternative ways of doing this, but in the Amendment 4 approach rather than the Amendment 5 approach—the second best approach, as we now know it. I could not talk in the language of cognitive limits and other good stuff but, in a practical sense, I understand why having only nine voting members, which is comparable with the MPC, is better than having 11 members with a Treasury observer. Making the FPC larger by creating additional members would risk making the group unwieldy, and I now understand—which I did not before—that the Tavistock Institute provides a theoretical underpinning to what I see as a practical argument.

On balance, the proposal put forward by my noble friends to rebalance the committee by removing a Bank member is not only preferable to the one of adding an external member but has some attractions. The tone of my noble friend Lord Deben’s remarks was to assume that of course I would dismiss all this out of hand. However, this is a serious point and the committee has come back to it. We have been here before in a number of respects and it is important.

Amendment 6 would ensure that it is the executive director with responsibility for the analysis of markets who would be removed from the FPC. Although the person in this position may have an important role in providing information relating to financial markets to the committee, it is true that this role could be achieved without that person being a voting member. The executive director who would remain as a voting member on the FPC would be the director with responsibility within the Bank for financial stability, and I agree that that executive director would seem to be the appropriate person.

The remaining amendments are consequential in nature and simply remove a later reference to the executive director with responsibility for the analysis of markets and reduce the quorum of the FPC from seven to six, reflecting its reduced size.

18:44

So where does this leave me? Given the importance placed on this issue by the House, reluctant though I am to agree on many things, although I agree on some, with the noble Lord, Lord Myners, and even though I would go a different route—the noble Lord, Lord Eatwell, clearly shares the view of the House about the desirability of rebalancing—I accept the thrust of my noble friend’s amendments. If my noble friend will permit me, I would like to reflect on the debate, and particularly on the wording of the amendments, to make sure that we have got it right. If my noble friend will consider withdrawing her amendment now I will commit to tabling a government amendment at Third Reading to rebalance the membership of the FPC by removing a Bank executive as provided in Amendment 4 and the following consequential amendments.

[Baroness Noakes]

My Lords, I thank all noble Lords who have taken part in this important debate and I thank the Minister for his welcome remarks. I believe the technical response in this situation is “bingo”. With that, I beg leave to withdraw my amendment.

Amendment 4 withdrawn.

Amendments 5 to 6C not moved.

Amendment 6D

Moved by

[Lord Eatwell]

6D: Clause 4, page 7, line 6, leave out “subject to that,”

[Lord Eatwell]

My Lords, my noble friend Lord Peston, who tabled this amendment, had to leave earlier this evening, but he asked me to move it on his behalf. I do so because it is an important and valuable amendment.

In Committee, the Government conceded the arguments made by the Treasury Select Committee and by Members in the other place that the growth and employment objective should be written into the terms of reference of the Financial Policy Committee. However, they have undermined the pursuit of this objective by the way in which it has been incorporated into the Bill. The phrase “subject to that” in proposed new Section 9C(1)(b) makes the growth and employment objective secondary to the stability objective.

Perhaps the Government are over influenced by current events here. Any Government who have presided over the economic policy of the past two-and-a-half years and continually justified their own actions with reference to levels of interest rates and financial stability will undoubtedly be motivated to downplay the growth and employment objective in the Financial Policy Committee’s considerations. However, in the longer view this is surely a mistake. Under the Bill as currently constructed, the Financial Policy Committee could cite the financial stability of a persistent recession as evidence that the objective has been met—stability, but the stability of the economic grave.

How much better that the Financial Policy Committee should take a balanced and mature view of the relationship between financial stability and growth and employment? I am confident that, if we get the right people in place, the committee will be able to take that mature view and would much better serve the overall financial stability strategy of the Bank. My noble friend’s amendment would achieve this and it deserves both serious consideration and support. I beg to move.

[Lord Deben]

I am distressed that the Minister should feel that on the previous occasion I suggested that he would be other than magnanimous, for he is always magnanimous. I speak in his support because we have to be very careful about constantly adding all the good things that we might like to have taken into account in all circumstances. Financial stability in these circumstances is exactly what we should be saying first and we refer to the other, perfectly rightly, because it is necessary. I find it incredible that any committee, in any circumstance, would get up and say it thinks it is a frightfully good idea to have the stability of total sterility. I do not understand where the noble Lord, Lord Eatwell, really thinks that anybody would come to that conclusion. This seems a totally unnecessary amendment and I hope very much that the Minister will refuse it.

[Baroness Kramer]

My Lords, I feel positively disturbed by this amendment. I am far more concerned that ultimately we will have to resist the optimism and buy-in to “all is going well, let’s take the leash off”, and the erosion of regulation and structural protection. It is important that financial stability should be the primary objective for the Financial Policy Committee. It was important to add the economic growth objective to sit alongside it, but in a secondary role—to say that if the requirements for financial stability are met, the committee should make sure that, alongside and within that, economic growth has the chance to take place. That is an appropriate balance, which has been achieved by earlier amendments to this Bill.

To pull away that protection now and put us back exactly where we were—perhaps I may say, under the last Labour Government—would suggest that people have not learnt their lessons. That is the great fear: we have a crisis and people immediately react to counter the crisis. However, my goodness, our memory is short. As soon as times become good, it is very hard for a regulator to continue to impose constraint and manage risk. It is absolutely crucial that we make clear that this is meant to be a permanent feature of the Financial Policy Committee, not just a feature for now.

[Lord Phillips of Sudbury]

My Lords, I will add a rather mundane legal point. I do not believe that the amendment tabled by the noble Lord, Lord Peston, would achieve anything, even if it were accepted. Subsection (1), whose two limbs cover the matters to which the Financial Policy Committee must have regard, is quite clear about the stability objective. However, in a situation where the Government had no objective for growth, it would not bite, even if you took the words “subject to that” out of the clause. That is, as I said, a very mundane lawyer’s point.

[Baroness Noakes]

My Lords, I recall that when the previous Government set up the Monetary Policy Committee, they formulated its secondary policy objective in precisely this form, “Subject to that”. Can the Benches opposite explain when they had a damascene conversion on this topic?

[Lord Sassoon]

No? Sometimes silence speaks volumes. We can all—

[Lord Eatwell]

I am sorry, I will say something. The Monetary Policy Committee has had a damascene conversion. You can see it in the quantitative easing policy. Indeed, the Treasury continuously encourages the Bank to take a more aggressive monetary policy with respect to growth and employment and to ignore the high rate of inflation.

[Lord Sassoon]

My Lords, first, this is well trodden ground for the House so I will be brief. In any case, my noble friends have all made extremely telling points, which knock this one pretty comprehensively on the head. The FPC’s primary focus must be financial stability. That is its primary purpose, in the same way that the MPC’s primary focus must be price stability. Both financial and monetary stability are necessary prerequisites for stable and sustainable growth, so both committees already contribute to growth by achieving their primary purposes. Subject to doing so, they should act to support the Government’s economic objectives. The result of giving the FPC dual, equally weighted objectives for financial stability and economic growth would be to allow the FPC to take action that would damage financial stability with the aim of encouraging growth. This would take the FPC outside its remit and expertise, and frustrate its primary purpose—which has got to be financial stability.

I do not believe that the model proposed in this amendment is appropriate or workable and I ask the noble Lord to withdraw it.

[Lord Eatwell]

My Lords, this has been an intriguing discussion, since it appears to ignore the economic history of the last two years. I was struck by the comment from the noble Lord, Lord Deben, that nobody would possibly accept the notion that financial stability was important when growth was absent. He should come more often and listen to the noble Lord, Lord Sassoon, justifying the current policies of the Government. The Minister continuously says it is vital that the policy which has produced zero growth over a year, and leaves us with a level of output about 3.5% lower than the peak in 2008, is entirely justified by the need to secure financial stability. He refers to low interest rates and financial stability all the time. If the noble Lord would like to hear someone justify that position, he can just turn up and listen to the noble Lord, Lord Sassoon, justifying the Government’s policy. He will get that straightaway.

[Lord Deben]

The noble Lord really must not interpret what I said in a way that is convenient for his argument and then blame the noble Lord, Lord Sassoon, for speeches that I have certainly heard and with which I agree. All I am saying is that the noble Lord’s idea that somehow or other, unless this is in here, nobody will take any notice of growth at all and that everyone will want a kind of sterile system is just not true. Nor is it sensible.

[Lord Sassoon]

I really do not want to prolong this too long, but the idea that somehow financial stability is the same as a sustainable fiscal position is really stretching the concepts a bit far. However, there we are.

[Lord Eatwell]

I was merely describing the way that the noble Lord continuously justifies the current squeeze that the Government wish to exert on the economy. The other really intriguing point is that it is the Government’s amendment that has introduced the growth and employment objective here, but he now tells us that it is outwith the committee’s expertise. So he has now introduced an amendment that is outwith the expertise of the committee that he has asked to consider it, even if as a secondary objective. I have been very struck by the debate, which has also failed to recognise, as I suggested earlier, the dramatic change in policy by the Monetary Policy Committee, urged on by the Government. This amendment simply attempted to believe, perhaps naively, that the Government might recognise what is happening in the policy-making of their institutions at the moment might give the FPC some credit for being able to make a mature and balanced judgment, given its overall responsibility for financial stability. However, I was no doubt overly naive there. On that basis, I beg leave to withdraw the amendment.

Amendment 6D withdrawn.

Amendment 6E

Moved by

[Lord Eatwell]

6E: Clause 4, page 7, line 19, at end insert—
“( ) factors likely to lead to a loss of confidence in the financial system as a whole”

[Lord Eatwell]

My Lords, this amendment seeks to include in the list of factors that are to be considered as systemic risks the factors likely to lead to a loss of confidence in the financial system as a whole. I am afraid that this is a significant bugbear among those of us interested in the economic foundations and problems of systemic risk. The list of elements that are included here—

“structural features … distribution of risk … unsustainable levels of leverage, debt or credit growth”—

are all essentially microeconomic. They miss the whole point about macroprudential regulation and the macroeconomics of risk, which the FSA tried to put forward in the Turner review and the US Treasury put forward in its review. They missed all that. The point is that at the macroeconomic level, there can be a transmission of risk which is not observable in the microstructures of the market, and is transmitted through a loss of confidence. Factors which can lead to a loss of confidence may not be identifiable in precise microeconomic connections.

I understand that this list is not intended to be exhaustive. That is why I composed this amendment to be a very general statement. I was not attempting to be precise, just presenting factors which can lead to a general loss of confidence. The point is to recognise that the systemic risk which we encountered in the last four or five years does not derive simply from the observable microeconomic variables listed here, but derives—most importantly, or at least, equally importantly—from the general loss of confidence which can sometimes be associated with these variables, and sometimes with others.

19:00

That is why I wanted to include some recognition of what has now become the accepted economics of systemic risk, the macrogeneration of risk. Macropropagation of contagion as risk is a crucial element which must be taken into account in any assessment of overall financial stability related to general macroeconomic systemic issues. After all, what is the definition of macroprudential regulation? It is concerned with matters which are not associated with the characteristics of individual firms. That is what it is about. That is why it is important that that dimension should be included in the overall considerations of the FPC. It is simply the recognition, if you like, of where the analysis has got to, and indeed, what we have learnt over the last three years. I beg to move.

[Lord Sassoon]

My Lords, again, this was an issue on which there was a comprehensive debate in Committee. As set out in subsections (1) and (2) of proposed new Section 9C of the Bank of England Act, the FPC is tasked with contributing to the Bank’s financial stability objective by identifying and monitoring systemic risks and taking action to reduce or remove those risks.

Subsection (5) defines “systemic risk” to mean,

“a risk to the stability of the UK financial system as a whole or of a significant part of that system”.

That means that any risk to UK financial stability is captured within the FPC’s remit. At the prompting of the Joint Committee that scrutinised the Bill in draft, we added subsection (6) to underline the fact that,

“it is immaterial whether the risk arises in the United Kingdom or elsewhere”.

Let me be clear: the FPC must identify and address any risk that could compromise the stability of the UK financial system regardless of its origin.

The purpose of subsection (3) is to specify certain types of systemic risk which the FPC should look for. This does not limit or restrict the FPC’s remit in any way. In other words, just because a systemic risk is not listed in subsection (3) does not mean that the FPC has any less of an obligation to identify, monitor and address it. There could perhaps be a temptation to continue adding to subsection (3) in an attempt to try to define all possible sources of systemic risk. But this would be a fruitless, and potentially counterproductive, endeavour.

Amendment 6E seeks to add,

“factors likely to lead to a loss of confidence in the financial system as a whole”,

to the list. I agree that a loss of confidence can magnify cross-sectional or structural risks captured in the financial system. But I do not believe it would be appropriate to expand subsection (3) in this way. As I have said, the list is not intended to be exhaustive, rather it is designed to highlight the broad categories of systemic risk that have been identified by academic research, something which the noble Lord is rightly keen that we should factor in. Subsection (3) as it stands already serves this purpose by describing the main categories of cross-sectional and cyclical risk. I hope that, on the basis of this explanation, the noble Lord will withdraw what I continue to see as an unnecessary amendment.

[Lord Eatwell]

Before the noble Lord sits down, I heard but one argument against the case that I was making, which was that it was not appropriate. Will he explain why it is not appropriate?

[Lord Sassoon]

My Lords, I thought that was what I had done in the last three minutes. I explained that this is not an exhaustive list. Yes, the factor that the noble Lord identifies is an important consideration, but we have included the much more specific categories of systemic risk which are identified in the research. If we started putting looser considerations in there, it would be difficult to know where the list should stop. Indeed, as one extends lists like this, it risks by implication leaving out other important factors. I do believe that subsection (3) and the whole of proposed new Section 9C as drafted completely embrace the ability and the requirement for the FPC to pick up what the noble Lord is getting at, but does not run the risk of us trying to draft in some of the other things that we all might be able to think of.

[Lord Phillips of Sudbury]

Before my noble friend sits down, will he comment on the essential point made by the noble Lord, Lord Eatwell, about the risks defined in subsection (3) covering only “micro” rather than “macro” risks? It does seem that the language is actually “macro”. It talks about systemic risks, structural features and so on. Does the Minister agree?

[Lord Sassoon]

Yes, I agree with my noble friend. He makes an important point.

[Lord Eatwell]

Well, yes, my Lords, the logic of the noble Lord’s argument is either to accept my amendment or delete proposed new subsection (3) altogether, because one has to ask: what does it do? It says:

“Those systemic risks include, in particular”.

In particular, this is what the committee should be looking at. That is misleading in that it focuses on structural issues of the economy, which are microeconomic —on leverage and on debt, which are microeconomic, and on credit growth, which is moving into the more macroeconomic area. What it fails to do is to take in the general point of the loss of confidence which can come from other sources.

As I pointed out when I introduced this amendment, I deliberately constructed it so as not to get into the trap of attempting to produce a detailed list. It certainly does not do that. It simply alerts the committee. If the committee is to be alerted to deal with a number of factors in particular, it seems that it should also be looking in particular at those factors which might lead to a general loss of confidence in the economy as a whole.

So if the Government really wish to ask the committee to focus in particular on some things, I would like my amendment to be accepted. If, on the other hand, it is quite happy to rely on subsections (5) and (6), I suggest that subsection (3) be deleted, so as not to create this spurious concentration on a particular list of points.

However, given that the argument has made little progress, I beg leave to withdraw the amendment.

Amendment 6E withdrawn.

Amendments 6F to 6Q not moved.

Amendment 7

Moved by

[Baroness Noakes]

7: Clause 4, page 12, line 13, at end insert—
“(1A) If the Treasury considers it appropriate to proceed with the making of an order under section 9L, the Treasury may lay before Parliament—
(a) a draft order, and(b) an explanatory document.(1B) The explanatory document laid under subsection (1A) must—
(a) introduce and give reasons for the order,(b) explain why the Treasury considers that the order serves the purpose in section 9L, and(c) be accompanied by a copy of any representations received from the FPC or the Governor of the Bank.(1C) Subject as follows, if after the expiry of the 40-day period the draft order laid under subsection (1A) is approved by a resolution of each House of Parliament, the Minister may make an order in the terms of the draft order.
(1D) The procedure in subsections (1E) to (1H) shall apply to the draft order instead of the procedure in subsection (1C) if—
(a) either House of Parliament so resolves within the 30-day period, or(b) a committee of either House charged with reporting on the draft order so recommends within the 30-day period and the House to which the recommendation is made does not by resolution reject the recommendation within the period.(1E) The Minister must have regard to—
(a) any representations,(b) any resolution of either House of Parliament, and(c) any recommendation of a committee of either House of Parliament charged with reporting on the draft order, made during the 60-day period with regard to the draft order. (1F) If after the expiry of the 60-day period the draft order is approved by a resolution of each House of Parliament, the Minister may make an order in the terms of the draft order.
(1G) If after the expiry of the 60-day period the Minister wishes to proceed with the draft order but with the material changes, the Minister may lay before Parliament—
(a) a revised draft order, and(b) a statement giving a summary of the changes proposed. (1H) If the revised draft order is approved by a resolution of each House of Parliament, the Minister may make an order in the terms of the revised draft order.
(1J) For the purposes of this section, an order is made in the terms of a draft order or revised draft order if it contains no material changes to its provisions.
(1K) In this section, references to the “30-day”, “40-day” and “60-day” period in relation to any draft order are to the periods of 30, 40 and 60 days beginning with the day on which the draft order was laid before Parliament.”

[Baroness Noakes]

My Lords, this has taken me a little by surprise—I thought I had another few minutes’ rest before we got to my amendment.

Amendment 7 deals with the parliamentary procedure for approving the Treasury’s direction to the FPC setting out the macroprudential measures that the FPC can impose on the PRA and the FCA. Under proposed new Section 9N of FiSMA, as inserted by Clause 4 of the Bill, the procedure is to be the draft affirmative one. My amendment seeks to convert that into a super-affirmative procedure.

The draft affirmative procedure requires parliamentary approval of the draft of an order before the final order is actually made. It gives slightly more opportunity for parliamentary scrutiny than an ordinary affirmative order, but the end result of the parliamentary procedure is binary—it is either approved or not. Such an order is not amendable and the only option available to either House would be to reject the whole order. The political composition of the other place effectively means that an order is always passed, whether draft or not. It does not matter whether the debate is in a Committee Room or, as has been suggested by the Chancellor of the Exchequer, on the Floor of the House. The end result is the same. In this House, technically we can reject an order but by convention we do not do so. It has happened only very rarely and is rightly regarded as a nuclear option.

Like the Joint Committee that scrutinised the draft Bill, the Treasury Select Committee in another place concluded that the content of an order setting out macroprudential measures deserves an enhanced level of parliamentary scrutiny. The Treasury Select Committee believes that the situation satisfies the Erskine May formula that talks of the super-affirmative procedure being used where,

“an exceptionally high degree of scrutiny is thought appropriate”.

The super-affirmative procedure in my amendment would require the Treasury to set out, in some detail, why the order is to be made. It would allow either House of Parliament to make recommendations on the draft order, which the Government would have to have regard to before returning with the final version of the order. Neither House would have any power of amendment but would have the power to recommend amendments, which the Government would have to consider.

It was suggested in Committee that macroprudential measures are very technical and not amenable to amendments—the noble Baroness, Lady Kramer, made this point. That may or may not be correct, depending on the particular measure. It is certainly true that the wider economic impact of the use of macroprudential tools is a proper subject for parliamentary debate, and either House may well want to say to the Government that their chosen tools are perhaps too wide or not wide enough. In contentious cases, Parliament may well say that the tools should be sunsetted or should be subject to additional reporting to Parliament on the impacts of the measures over time. Many important things could come out of a proper parliamentary debate that may or may not represent suggestions for amendment.

I have no particular concerns about the initial macroprudential toolkit. The FPC has been open about what it wants and why, and the Government are consulting transparently on their draft order. However, the initial tools are probably the easy ones because they largely align with international developments, and my amendment is directed at the development of the measures over time. For example, the FPC deliberately held back from asking for loan-to-value or loan-to-income powers, recognising that these should be decided by Parliament and that a full public debate would be necessary before such measures were introduced. If enforced, loan-to-income or loan-to-value rules could have a massive impact on the availability of mortgage credit and therefore raise wider societal issues as well as financial stability ones. Without the backstop of the super-affirmative procedure it is far from clear how Parliament could ensure that its—or anyone else’s—voice would be heard.

19:15

The Government’s main objection to this enhanced parliamentary scrutiny concerns the potential for delay. If the macroprudential measures were straightforward and uncontroversial, I do not believe that the super-affirmative procedure would add a very significant delay. If there are concerns and matters are contentious, the process certainly could take longer under the super-affirmative procedure—but so it should if there is to be effective parliamentary scrutiny. I do not believe that the time limits set out in my amendment, allowing up to 60 days, are unreasonable.

The limits that I am proposing are more modest than those which the Government accepted in your Lordships’ House during the passage of the 2011 Public Bodies Bill because, unlike that Act, my amendment omits a prior 12-week public consultation period. I could have argued that what is good for the abolition of a minor quango ought to be the minimum standard for something which could impact on the financial health of our economy and our citizens, but I have proposed a shorter timetable for macroprudential tools.

I also stress that my amendment has absolutely no impact on the ability of the Treasury to make—and remake—an order in urgent cases using the made affirmative procedure under new Section 9N of FiSMA. I doubt there will be many instances where a macroprudential measure is genuinely urgent but I am completely prepared to trust the Treasury if the need for urgent action arises. My amendment is directed at what I believe will be the normal case, where careful deliberation and scrutiny are desirable before making law.

I conclude by reminding noble Lords that the way that statutory instrument scrutiny generally works gives almost all the cards to the Government and almost none to Parliament. In opposition, we got this and I hope that my Front Bench remembers it today. The super-affirmative procedure is the right approach to orders that are potentially of huge significance to the economy and individuals in this country. I beg to move.

[Lord Sassoon]

My Lords, of course, this is another issue that was discussed at some length in Committee. The Government recognise the importance of proper public and parliamentary scrutiny and accountability for macroprudential tools. That is why the Bill requires that macroprudential orders be subject to the affirmative procedure.

The Government have given a number of undertakings to further demonstrate our commitment to ensure transparency and effective scrutiny of macroprudential orders. In another place the previous Financial Secretary to the Treasury, Mark Hoban, clearly stated the importance that the Treasury places on taking a consultative approach to policy-making, and that he expected this to apply to macroprudential tools. In addition, my right honourable friend the Chancellor of the Exchequer has said that he would be happy for debates on tools to take place on the Floor of the House, subject to arrangement through the usual channels.

The Government have also committed to consult on their proposals for the FPC’s initial toolkit. I note that my noble friend has no complaint on that score. Nevertheless it is important to recognise that the consultation document containing the Government’s proposals, a draft order and an impact assessment on those proposals was published on 18 September. The consultation will run for a full 12 weeks. In Committee a number of noble Lords highlighted the 90-minute restriction on debates and the inability for orders to be amended. However, I believe that consultation and the statement made by the Chancellor address these concerns effectively. I encourage noble Lords to read the consultation and respond if they feel able to improve the drafting of the order. I also hope that the relevant parliamentary committees will make their views on the Government’s proposals known.

Importantly, the Government’s stance on the parliamentary control of these macroprudential orders has been endorsed by the Delegated Powers and Regulatory Reform Committee. Maybe I did not notice it, but I do not think that my noble friend referred to the DPRRC. I know that she regards the committee, in her words, as an early warning system of problems for Parliament to address. In this instance, it has considered our proposed procedure and determined that there is not a problem to address.

As I suspect my noble friend knows, the DPRRC has stated:

“The importance of the power is recognised by the application of the draft affirmative procedure or, in urgent cases, the 28-day ‘made affirmative’ procedure … The Joint Committee on the Draft Bill and the House of Commons Treasury Select Committee have recommended an enhanced affirmative procedure for the non-urgent orders, based on that in the Public Bodies Act 2011. But the affirmative procedure provided for in the Bill should be a sufficient safeguard against inappropriate use of these powers”.

It is also important to remember that orders made under new Section 9K will not always be major pieces of legislation. It could be the case that minor technical amendments need to be made to the tools over time. Under such circumstances, requiring the super-affirmative procedure would be a disproportionate use of parliamentary resources. I note that my noble friend has made some adjustments to the super-affirmative procedure that would make it less onerous, and she has addressed those at some length in her remarks. I still feel that her proposal would require a disproportionate amount of parliamentary time and resource.

The bare minimum amount of time to pass an order under these proposals is 40 days, which can be increased to 60 days by resolution of either House or by recommendation of a committee of either House. The time taken to make an order where the consultation process shows that substantial changes are required is even greater. Even once the 60-day period has elapsed, this amendment would require the Treasury to obtain prior approval to the amended instrument before it could be made. This would introduce a significant amount of uncertainty around the time it would take to amend the FPC’s macroprudential toolkit.

I have stated many times that the Government place great importance on public and parliamentary scrutiny of the macroprudential tools. Given the steps already in the Bill and the commitments made by this Government, I ask my noble friend to withdraw her amendment.

[Baroness Noakes]

My Lords, I am disappointed with my noble friend’s response on this. He has repeated that in the other place there can be a debate on the Floor of the House, but the location of a debate on a statutory instrument is completely irrelevant. The outcome is exactly the same. He has rested on the full process for the early order but, as I said, those ones, with a high degree of international agreement on what the early phase of macroprudential tools should be, were easy to do. That is not really an issue. My noble friend rightly raises the Delegated Powers and Regulatory Reform Committee, for which I have the highest respect. I have equally the highest respect for the Joint Committee which scrutinised the draft Bill, and high regard in particular for the Treasury Select Committee in another place, which has been tireless in its scrutiny of this legislation. I have two committees to play one.

The best parliamentary procedure would in this instance be the super-affirmative. I can only say that I am extremely disappointed with my Government for hiding behind the easiest option of parliamentary procedure, but I will accede to my noble friend’s request and beg leave to withdraw.

Amendment 7 withdrawn.

Consideration on Report adjourned until not before 8.25 pm.

Housing Benefit (Amendment) Regulations 2012

Tuesday 6th November 2012 Lords Chamber

Motion to Approve

19:24

Moved by

[Lord Freud]

That the draft Housing Benefit (Amendment) Regulations 2012 laid before the House on 28 June be approved.

Relevant documents: 6th Report from the Joint Committee on Statutory Instruments, 7th Report from the Secondary Legislation Scrutiny Committee. Considered in Grand Committee on 15 October.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)]

My Lords, we have already conducted a debate on these regulations in Committee and I am under no illusion about the strength of feeling that many noble Lords have on this measure. Clearly we have been through the issue thoroughly as we went through the Bill. We went through that a number of times. The Commons gave us a response and noble Lords will remember that at the conclusion of those debates I proposed undertaking some research to make sure that we understood the impact of this measure. On that basis in the Bill process it was decided not to proceed any further.

Let me summarise some of the main issues. We are not introducing this change lightly. There are a number of important principles behind this reform. There is a major financial imperative behind it; there is a compelling argument for reining in housing benefit expenditure and spending more generally. I know that many noble Lords do not disagree with the need to bring spending under control, but would no doubt wish to find a saving of £500 million a year from somewhere else. The question is, exactly where from? I have not yet heard any clear alternative for finding this kind of saving. That is why it would be quite wrong for the Government to backtrack on this measure now.

Another reason for this reform is that we believe that it will result in more efficient use of social housing stock over time, which in turn should help us to tackle some of the overcrowding. At the very least I hope that noble Lords agree that we need to do everything we can to improve the way that we use our housing stock. Doing nothing is not an option, not when we are paying for something approaching one million extra bedrooms for those affected by this measure and when there are more than a quarter of a million households living in overcrowded conditions in the social rented sector in England. In 2010 we inherited the highest level of overcrowding in the social rented sector since the published data began in 1993, with 7.1% of those households in England living in overcrowded accommodation. That is a fact we cannot ignore.

The noble Lord, Lord McKenzie, has asserted that this measure will risk costing more than it will save. Even if some people move—the Housing Futures Network research suggests that around 25% of people might move—that does not mean that we will not save money.

Where a claimant moves to smaller accommodation, it is important to consider the bigger picture rather than to look at just that one household. Even where a claimant moves into the private rented sector, that frees up accommodation in the social rented sector that can be relet to other families needing that accommodation. The relet may still generate housing benefit savings if, for example, the property is offered to claimants who would otherwise be renting privately or who were currently placed in more expensive temporary accommodation. I beg to move.

Amendment to the Motion

Moved by

[Lord McKenzie of Luton]

As an amendment to the above Motion, at end to insert “but this House regrets that the measures under the draft Regulations to introduce size criteria restrictions to the calculation of housing benefit for working age claimants living in the social rented sector are blunt and take no account of whether alternative accommodation is available; will result in cuts to the incomes of some of the poorest in society; fail to provide sufficient safeguards to protect the most vulnerable claimants and ensure that they are not pushed into poverty and homelessness; will not achieve their aim of tackling under-occupancy; and will risk costing more than they will save.”

[Lord McKenzie of Luton]

My Lords, for many people who are out of work, disabled or on low incomes, housing benefit is a crucial safety net and a vital support to help pay the bills at the end of the month. I am moving this Motion of Regret at the measures to introduce size criteria restrictions in the calculation of housing benefit for working-age claimants living in the social rented sector because we see this as a very important issue.

It is but one of the changes to housing support introduced by the coalition which overall will result in around 2 million households receiving lower benefits. The National Audit Office tabulates the range of losses as running on average from £5 a week for those affected by the CPI uprating of local housing allowance to £91 a week for those affected by the overall benefit cap. The size criteria restrictions—called the bedroom tax by the noble Lord, Lord Best—are estimated by the DWP to affect 660,000 claimants with an average weekly loss of £14. Most underoccupy, as defined, by just one bedroom with the average weekly benefit loss being £12. Half of those affected will lose between £10 and £15 per week. Of those affected, 390,000 will be local authority tenants and 270,000 will be housing association tenants. Alarmingly, 420,000 of the households contain a family member with a disability. Noble Lords will recall the extensive and intense debates on this issue and the strong views expressed by your Lordships’ House in opposing these measures. The Minister referred to them a moment ago.

The overriding issue is fairness. The arguments have not changed and will not go away. Hundreds of thousands of tenants have been penalised for the circumstances in which they find themselves, with no ready means, for most of them, to mitigate what is perceived to be their alleged offence. Of course we recognise the need to deal with the deficit, but it is who you choose to bear the burden that is at issue here. In an era when we are producing tax cuts for millionaires, we are asking 660,000 of the poorest people in our country to bear a cut of £14 a week. Most people deemed to underoccupy will not have a smaller alternative property to which they can move. All housing benefit claimants of working age considered to have spare bedrooms will see their benefit cut by 14% for one extra bedroom and 25% for two or more extra bedrooms. The reality is that this is not a serious attempt to address underoccupancy but is about cutting people’s benefit.

Of course underoccupancy must be addressed. We agree with the Minister on that. Many councils have imaginative schemes to do so for the elderly, who are not affected by these regulations, as well as for working-age tenants. The DWP’s own impact assessment is clear that there is a mismatch between household size and the availability of suitable houses in the social sector for underoccupying claimants to downsize to. The NAO’s report reached the same conclusion, noting that there is a mismatch between need and availability. Modelling by the National Housing Federation found that while 180,000 social tenants in England are underoccupying two-bedroom houses, only 85,000 one-bedroom social homes became available for letting in 2011-12. It concludes that the lack of mobility in the sector is not a product of tenants needlessly underoccupying larger homes but rather of the logjam created by a national shortage of affordable homes.

What choices do tenants have if they are to avoid the benefit hit? The Government say that they can make up the shortfall by using their other income or their savings, which is the same argument we heard in relation to the benefit cap. Is this really living in the real world? What level of savings do the Government think these families may have? An alternative is that tenants can move into work or work longer hours. This is notwithstanding that many are not, under the stringent rules that apply to conditionality, required to be available for or seeking work. For those who are, it presupposes that they are not already trying to, that the current claimant obligations are somehow deficient and that the level of support available via the work programme is not helping them. As for taking in a lodger, for many, this will be an unworkable and unreasonable option putting the safety and privacy of the family at risk.

The alternative is to take the hit or move to accommodation that better suits the current size of the household, assuming that it is a stable size. But where? It is not very likely in the social rented sector, where there is not only a shortage of supply but, as has been identified, a dearth of one and two-bedroom properties. A move to the private rented sector would inevitably lead to higher rents and higher benefits. There would be no certainty of that being cancelled out, as I think the Minister suggested, by a move in the opposite direction to a cheaper area, but given the allocation policies of local authorities, that is likely to be only in the private rented sector.

The Housing Futures Network found that 50% of claimants would not be likely to move home when they were faced with a cut. Over one-third considered that they would be likely to run into arrears, so we have a certain recipe for driving the poor into greater poverty and debt. We have seen the now-familiar tactic of the bit extra in the discretionary housing payment fund each year, albeit funded by bumping up the percentage reductions for underoccupancy. While this will undoubtedly give some help where the properties of disabled claimants have been subject to significant adaptations and to foster carers between placements, it should be compared with the annual cut of half a billion pounds that the Treasury is seeking.

A review of the consequences of this is right, but it will not help with the misery that these provisions will cause in the mean time. The discretionary housing payment fund has a fixed budget and is having to cover an increasing range of circumstances, as we discussed on the benefit cap when my noble friend Lady Lister referred to it as “the loaves and fishes” concept. We challenge whether it is an appropriate or sufficient method to deal with disability issues. The DWP’s equality impact assessment shows the disproportionate effect the size criteria measure will have on the 420,000 sick and disabled tenants. An additional £25 million of discretionary housing payment for tenants whose homes have been adapted will undoubtedly be challenged as being insufficient mitigation, and rightly so. It is not a reliable safeguard against rent arrears, evictions and homelessness for chronically sick and disabled tenants.

True to form, the Government seek to offer some justification for this approach by juxtaposition with some other group, in this case, those in the private rented sector. As we have heard, the argument goes that private rented sector claimants receive housing benefit for accommodation based on the reasonable needs of their household, while in the social rented sector, it is based on the accommodation that they occupy. This is not comparing like with like. The nature of the tenancies is different and, in any event, when tenants are first placed in accommodation in the social rented sector, it would typically have regard to the size of the family. The reality is that household composition and need can change over time. The changes may not be permanent. Families grow with children and reduce as children fly the nest. The logic of underoccupation provision is that each change should drive a change of home; what a nonsense. It is a back-door way of undermining security of tenure in the social rented sector.

The National Housing Federation is deeply concerned that no flexibility has been given to social rented sector landlords to define whether a property is underoccupied. For example, if a home has a double bedroom and two box rooms, according to the regulations it would be underoccupied if a couple and two children were living in it, despite the reality being that the home is fully used. If the landlord reclassifies the property as a two-bedroom unit, it would lose money, which simply does not seem right. This is just another anomaly of the system.

This is a grotesque experiment in behavioural economics. The department has no idea how tenants will react, and the Government do not seem to care. Indeed, they hope that tenants will sit tight and take the hit because that way the Treasury maximises its saving. It is a callous piece of public policy that will put people into debt, drive increased homelessness and fracture communities, and we should have none of it. I beg to move.

[Baroness Turner of Camden]

My Lords, I rise to support my noble friend in his amendment. I agree with him fully that the new regulations before us are unfair to vulnerable people. They are being introduced at a time of a housing crisis that is particularly acute in places such as London. The situation in London is that rents are too high and wages are too low. The right to buy was fine for some, but it reduced the number of social homes available for rent. The social homes should have been replaced but, of course, that did not happen. Now local authorities are already looking to acquire premises for alternative social housing, often on sites very many miles away from where the individuals concerned are actually living and where they have some sort of support. This would be particularly difficult for people who are disabled, for disabled people require the support services that are often where they happen to live. It is quite unfair that they should be placed in the position of having to worry about future housing.

As far as London is concerned, my own neighbourhood has a particularly acute situation. When I first moved to West Hampstead, the area in which I now live, it adjoined Kilburn and was never regarded as a very posh area. Unfortunately that is no longer the case. The rents now being charged are absolutely enormous, and I do not understand how ordinary working people can be expected to afford them. It is quite common for large houses to be converted into one-bedroom flats, and the landlords charge as much as £500 a week for a one-bedroom flat. That is the kind of area and range of accommodation that is available in the area, and I do not see how working people on very low incomes can possibly afford it.

As for underoccupancy, quite frankly domestic circumstances for people change. Children move away; sometimes, nowadays, they move back because they cannot find anywhere to live. There are people who require support because they are ill. Sometimes they die. Domestically the whole situation changes for people, and it is unfortunate that they should be placed in the position of worrying, every time there is a domestic change, about what is going to happen to their living accommodation. It really is quite unsatisfactory.

As for general housing, I well remember what the situation was like at the end of the war—I am old enough to remember that. There was an acute social housing crisis because a lot of London had been bombed and there was no accommodation available. So what did the then Labour Government and the subsequent Governments do at that time? They had a very bold policy of social housing that was radically put up; we used to call these houses prefabs, and some of them are still in existence. There was a set of regulations that involved rent tribunals. In those days, if you were overcharged, you could go to a rent tribunal and your rent would be reduced. That meant that you could go on living in your accommodation. If you were concerned about it, the rent tribunal had the final say about what the rent should be. That meant that your rent had some relationship to the general level of wages, and therefore people were able to go on living in their homes because they had legislation to support them.

19:45

In my view the situation in London is so serious and so dire that the Government should be looking at something rather like that, because unless you can do something about the level of rents that are being charged, those people are not going to be able to afford to live in London at all; and that is a ridiculous situation. I hope that the Government will think seriously about what has been said this evening, in particular about what my noble friend has had to say in his amendment, which I fully support.

[The Lord Bishop of Norwich]

My Lords, there is a logic, if a rather cold one, in suggesting that those on housing benefit should not be supported from the public purse if they live in homes larger than they need. However, as we have already heard, it is the lack of availability of alternative accommodation in reasonable proximity that may make this proposal so socially disruptive and prompts me to support this amendment.

If, as we are told, 660,000 households will be affected, a great many people might be on the move. A couple in middle life whose children have left home would be entitled to only one bedroom, although they may have lived in their rented home for many years. There would be no room for an adult child to return after a failed relationship, which then creates a greater burden on much-needed housing. It would be tough on those in their 50s in this situation when their pensioner neighbours would be excluded from the reach of this regulation. Households such as this will be given a stark choice: move to a smaller home or take a substantial cut in housing benefit—on average, £14 a week. Housing associations are telling us that even if people want to move, there is not sufficient housing stock of the right size to enable them to do so. In practice, tenants will mostly have no choice but to remain in their own home and cover the shortfall out of their other income; this on top of reductions in council tax benefit and rising fuel prices.

A significant proportion of those who will be affected have become single because of the breakdown of relationships and, in many cases, the removal of their children elsewhere. They want to see them regularly. What looks like unoccupied space in the house is very important to them. Many single people rely on the local social networks that they have built over the years. That is where they find such stability as they can. A job, even a poorly paid, part-time one, may be lost and not replaced. Depression may set in. Alcohol or drug abuse may compensate for loneliness. Social disruption has economic consequences. While the housing budget may reduce, other budgets may rise. Worst of all, those affected may think that they are not treated as being of much value in our society. A loss of human dignity has a great many social and spiritual consequences. We save a bit of money, perhaps, but we are a lot worse off in all sorts of other ways.

What concerns me is that that will not be simply an urban problem. In rural areas the possibilities of alternative accommodation are even scarcer, the disruption greater, and the harm to diverse social networks larger. The Christian charity Housing Justice estimates that between 25% and 30% of rural social housing tenants will be affected.

One reason why rural deprivation is so hidden in our small villages, hamlets and settlements is that they often have the very wealthy, the vulnerable and those living on benefits living in close proximity, even in small numbers. That is one of the reasons why rural England is comparatively socially healthy. People in rural areas often cope with smaller incomes than their urban counterparts, while the cost of rural living is actually higher. They live more simply, even if their accommodation is a bit larger than seems logical to someone devising a system in a government department. It would be a tragedy to undermine all this, and I believe that the potential cost to our social fabric, especially in rural areas, could be very large indeed.

[Baroness Lister of Burtersett]

My Lords, we have heard some powerful speeches in support of the amendment. I take us back to the debate in Grand Committee on 15 October and what the Minister had to say:

“A lot of people will decide that they will have enough money or that they will be able to take in a lodger or take extra work. Those are the kind of decisions that we expect to happen in the marketplace”.—[Official Report, 15/10/12; col. GC 485.]

How many of us think of our homes as the marketplace or the decisions that we make around our homes as market decisions? We are not just talking about bricks and mortar; we are talking about the homes that people live in and the local roots that nourish them. The Minister made it sound so simple, saying that people will decide whether they have “enough money”; we are talking by definition about people on a low income, as my noble friend Lord McKenzie said. Or, the Minister says, they can “take in a lodger”; my noble friend has explained why that is not always appropriate. Or, the Minister says, they can find “extra work”; that is not so easy, either to get a job or increase one’s hours.

According to the National Audit Office report, one-third of households surveyed by Housing Future expect to fall into arrears as a result of this policy. According to Citizens Advice, other debts are likely to increase because, initially at least, people will try to prioritise their rent. Yet the Minister made no mention of debt or arrears as a likely solution, if that is a solution, even though debt is identified by the Government as a primary cause of poverty. One thing that we discussed in Grand Committee was the disproportionate impact of this policy on disabled people. There is evidence about the particular effects on disabled people of debt, and how debt can itself create mental health problems.

I come back to a point that I made earlier, and I have made before. I know that I probably sound like a broken record, but I refer to the impact on social networks when people move as a result of this policy—to people’s lives and to their being able to find work. Often lone mothers can use those networks for childcare, and so forth. The Minister mentioned the evaluation that will take place, which I welcome. In our last gasp, when we were discussing the then Welfare Reform Bill and this provision, the Minister committed that the monitoring would include the impact on social networks. In every subsequent reference that I have seen to that monitoring, I have not seen a mention of that, so I would be very grateful if the Minister could recommit this evening that that monitoring will include the impact on social networks.

On discretionary housing payments, I will not labour the loaves and fishes point any further, but I would instead like to quote from the National Audit Office report that came out last week, which says:

“It is not clear how the current level of funding for Discretionary Housing Payments has been determined or whether it is likely to be sufficient for local authorities in tackling the impacts of reforms. The £390 million of funding over the Spending Review period represents around six per cent of the total £6.4 billion savings expected from Housing Benefit reforms during this period. This works out at around £200 per household affected … There is also no established process for reviewing the level of funding for Discretionary Housing Payments over time. For example there is no mechanism to assess whether the overall funding amount should change to reflect higher claimant numbers. Uncertainty about the basis for future funding in part reflects the fact that the Department is still reviewing how to provide support for housing as a result of broader welfare reforms … Monitoring of how payments are made by local authorities would improve the Department’s understanding of local need. At the moment monitoring is limited”.

I would be grateful if the Minister could tell your Lordships’ House what the department’s response is to those observations from the National Audit Office.

Letters have already been going out to people who are likely to be affected by this policy, and it is striking fear into their hearts. It is a mean-minded policy that shows scant concern for the lives of those affected—and, as the right reverend Prelate put it, shows no concern for the dignity of those affected. Human dignity is at the heart of human rights.

[Lord Best]

My Lords, the noble Lord, Lord McKenzie, attributes the phrase “bedroom tax” to me, so I take responsibility for this—because it is a tax. It is not about trying to ensure that people are allocated to the property that best suits their needs; it is about raising money and reducing the deficit. We all understand about deficit reduction. Where we differ on this is whether people on the lowest incomes should be contributing to that deficit reduction with what is in effect a tax. It is a payment, which the tenant makes out of their benefits—out of the other benefits they receive, such as disability living allowance, income support or child benefits. It goes to government; that is where the payment ends up, and it reduces the deficit. That is a perfectly valid objective, but I and others maintain that it should not be at the expense of people who are living on the very lowest incomes at present.

The noble Baroness, Lady Turner, attributed the underlying problem to the shortage of accommodation, which then means that rents are much higher than one would hope and expect that they should be. It is not the fault of the occupier that they pay a large rent. We say that it is a disgrace that people are paying these enormous rents, but it is not that people wish to pay large sums in rent; that is what the market has determined. It is very different in London, as the noble Baroness pointed out, as it is in so many other places.

I am collecting examples of people who have written to me with their own cases. One after another, they are cases in which any reasonable person would say, “In that particular case, it seems very unfair for people to have to pay a new tax that they didn’t pay before—in that case, I agree that there should not be this tax to be paid”. One such case I can cite comes from the diocese of the right reverend Prelate the Bishop of Norwich. I agreed very much with his words. I apologise to the Minister for repeating the content of an e-mail that I mentioned in Grand Committee, but it is such a typical case. The lady has lived 23 years in her council house and now it contains herself and her husband. It has three bedrooms. They have actually done quite a bit of work to the House; the garden is immaculate—this is their home. But it is a tax, and they will face a bedroom tax of £25 a week unless they can move out. They have been told that there is a place in another Norfolk town. It is 16 miles from where they live, but there will be a place there in due course. It is not available at the moment, but in due course they will be able to get a one-bedroom flat. The absolute last thing that they want to do is to leave the family home where they have been for 23 years, where their children still come back at Christmas and on other occasions, and where she has a base to look after her mother in the village. It will cost the social services an arm and a leg to have to send in carers to look after mum. At the moment she goes in three times a day: once in the morning, briefly at lunchtime, and once in the evening. She will not be there to do that once she has moved away to the town. This is all ridiculous, and anyone would say, “Look, in that case don’t charge them the tax. Leave them where they are”. Anybody can see that that is the sensible thing to do. However, it will be extremely difficult to make those special cases, and to find the resource that will bridge the gap in their rent in those cases.

20:00

Today the housing associations are very often the organisations, along with local authorities, which will have to collect the tax. They become reluctant tax collectors because the rent that they receive through housing benefit will no longer cover all of their rent. That gap of £14 for one room and £25 for two, that extra amount, that tax, must be paid, and housing associations have to collect it. The housing associations are doing good things, in trying to make sure that the problem is mitigated, and they inform people, telling them in advance. However, as I thought the other day when driving along, it is a little bit like the warning sign that says, “Beware low-flying aircraft”. There are some things that you can be told—but what do you do? “Yes, I am told that there are low-flying aircraft, but I can’t do anything about it.” This is how people who have been told in advance will feel next year. They will not be able to do much about it.

Regarding the opportunities to move, in a year’s time there will not even be the one-bedroom flat 16 miles away. The landlords are not able to supply the accommodation. Housing associations are responsibly explaining the options to people, but an awful lot of them are making serious provision against mounting arrears, because they do not believe that people will hand over the £14 every week. That money will just accumulate. Even if they go to the courts—and I hope that a lot of housing associations will not take that course—and say, “We have arrears mounting up”, the courts will make an award of perhaps £10 a week to pay them off, when it was already £14 a week. It will not be helpful, and the arrears will need to mount to £1,000 or £1,200 before the courts will evict people on the back of this.

This simply means that the landlord—whether that is the local authority or a housing association—will lose some of the income that it had had before. Housing associations and councils use those rental resources to do more nowadays than simply put the roof on and collect the rents. These have become powerful and important local players in helping the big society, working with local charities, doing employment schemes and all kinds of things in local communities. Those are the things that will have to be cut. That is the spin-off; the unforeseen circumstances that follow; the coming consequences. When the housing associations have to make provision for 35% more arrears—which is what some of them are doing—there is less to spend within local communities. There is less money for the other things that they do in those communities. In the poorest areas, that is money lost.

The one hope for Ministers and for the occupiers of these properties is that we can get the discretionary housing payments, which will be an opportunity for local authorities. We could give local authorities—sensible people in local government—that discretion. It is not an ideal solution, because each case has to be treated on its own merits, and has to be constantly reviewed, but if a substantial sum of money were available to each council for discretionary housing payments, then we might be able to rescue a number of people who we are otherwise treating in a most miserable fashion.

I keep working out these sums. We hear of the extra sums that are available as discretionary housing payments, but when you work out how much money is available, and look at the size and magnitude of the problem, these figures do not add up. I will spare your Lordships my more detailed calculations. I was very pleased that the Minister was able to find some extra money for those cases where people’s property had been adapted, as the noble Lord, Lord McKenzie, said. In those cases, it would be a nonsense to move them out, as the adaptations would probably have to be destroyed and the other property adapted in the same way. That £30 million—£25 million for that adapted properties and £5 million for the foster parents, who have foster children in their home—is great stuff.

However, this is a tiny drop in the ocean; very small numbers of people compared with the 660,000 from whom we will need to draw, over a period of time, something like £550 million in savings on the back of the bedroom tax. Remember that that is part of the £2.2 billion total housing benefit savings. All of that money will come from tenants’ pockets, because we are not seeing rents suddenly going down dramatically. The tenants are those who have £2.2 billion to pay. These are very small sums—the loaves and fishes which we wish would miraculously multiply and feed the many thousands—and it does not look possible. I say to the Minister that the small illustrations that I am gathering are just the tiniest drop in the ocean compared with the very many letters that Members of Parliament will receive; all those e-mails that in the end will all come back to the Department for Work and Pensions, asking “What can we do about these circumstances, in which it is very foolish for the community at large, as well as for the residents, to carry on with what is a bedroom tax?”.

[Lord Smith of Leigh]

My Lords, I rise to support my noble friend’s amendments, and express my concern about the impact of this bedroom tax. Before I do so, I declare my interest as leader of Wigan council. I will provide some hard evidence from Wigan about the impact that this would have in Wigan. In terms of council properties in Wigan, some 4,708 properties will be subject to the potential for a bedroom tax: 3,600 of the one-bedroom and over, and just over a thousand of the two-bedroom. In the private sector a further 300 houses will be affected. The financial implications, if the bedroom tax was paid on council properties, would be £2.9 million—an average of between £9 and £29 a week, depending on the property, and a further £250,000 in the private sector.

In introducing the measure, the Minister raised two factors which he said supported this. First, it would help to reduce the cost of the housing benefit budget, and secondly, it would tackle overcrowding. He could have added a third, which he sometimes uses: encouraging return to work. I could not deny those objectives, which many of us would share, but we are saying that this tax will not achieve any of those objectives. Cost reduction will only occur, of course, if tenants do not move, and pay the costs. If they move—and the evidence is that some will do so—different things will happen. I can give the example of a current case in Wigan. A mother aged 51 shares a three-bedroom property with her 26 year-old son. If they choose to move into the private sector, as they have indicated they want to do, they will look for separate properties: the mother for a one-bedroomed flat, and the son probably for a bedsit. In Wigan, the average three-bedroomed council house rent is £74 a week; for a one-bedroomed private sector property it would be £89 a week; and for a bedsit probably a further £75. Rather than saving housing benefit, therefore, the Government would be paying £5,406 more for that particular family, if they choose.

The second issue is about overcrowding. In a letter to one of my local MPs, the Minister said,

“The Government only expect a minority of claimants affected would actually seek to move”.

If that is the case—if very few people move—then how will that help overcrowding? If they are still in the same place, then it will not help overcrowding. The message from my noble friend Lady Turner of Camden was very powerful. She explained the London housing market, but it is not like that in Wigan. The problem is that people will not move because of the lack of suitable properties to move into. An insufficient number of affordable houses has been built in this country by a succession of Governments. We are now beginning to pay the price for that. The current waiting list for a one-bedroom or two-bedroom property in Wigan is five years, so people cannot move into these properties even if they wanted to. We have no shortage of three-bedroom properties in Wigan. You can move into a three-bedroom property more or less straight away. Therefore, there is a geographical imbalance in housing markets and the flat rate bedroom tax will not work. According to the Department for Work and Pensions’ own figures, 42% of families in the north-west of England will be liable for the bedroom tax but only 22% in London and the south-east, so clearly the measure is having a bigger impact on the markets that do not need it.

The third issue is about seeking employment. There are at least four jobseekers for every vacancy in Wigan, and that probably understates the number of people looking for work, so the people we are discussing will be in a very crowded job market. The consequences of this measure are not what the Government think they will be; there will be unintended consequences. Noble Lords have mentioned the impact on rent arrears. I believe the Cambridge study claims that 42% of people may fall into rent arrears. In Wigan that would mean just under 2,000 families getting into arrears. Substantial arrears would lead to a commencement of the legal process. Whether we like it or not, there will be evictions, which cost around £6,000 each. These people will probably largely move out of the public sector into the private rented sector and the cost of housing benefit will rise.

Noble Lords have mentioned the impact that the measure would have on incomes. By definition, people who receive housing benefit are on low incomes. Therefore, if the bedroom tax is introduced on top of all the other things that are to be introduced, poverty will inevitably escalate. As I said when we discussed the Local Government Finance Bill, the likes of Wonga.com and all the other payday lenders will rub their hands at the thought of more and more clients coming their way, seeking to get themselves out of a crisis only to get into a much deeper one. As the right reverend Prelate the Bishop of Norwich indicated, we want families to stay together and fathers to take responsibility for their children, but this tax negates the Government’s claim to be a family-friendly Government.

I am not sure whether people in Wigan would take in lodgers but I certainly remember that when I joined the council some time ago one of the big issues we had to deal with was that of houses in multiple occupation, such as terraced properties that were taken over by a landlord who let every available space to different tenants. Those properties had inadequate kitchen and bathroom facilities and constituted fire and health hazards. They were terrible and the council largely got rid of them. However, I can see these types of properties appearing again in the current situation because people will not be able to afford anything better.

During debates on the Local Government Finance Bill we discussed the single person discount which reduces the amount of council tax payable by individuals living alone. Clearly, that constitutes underoccupation as regards most properties in Britain. It is somewhat ironic that we are keeping the single person discount as a council tax benefit but if you are renting a council house such underoccupation will result in you being charged the bedroom tax. This is an unsafe tax. As I say, I do not disagree with the Government’s objectives but I do not think that this tax will achieve them. I think we will find that it leads to an increase in housing benefit rather than a reduction and increases poverty in this country.

20:14

[Lord German]

My Lords, I apologise to your Lordships’ House for missing the first few minutes of this debate. I was involved in another debate in the Moses Room at the time and it was difficult to shift sufficiently speedily between that Room and the Chamber.

I can well understand why many noble Lords want to reprise our lengthy debates on the Welfare Reform Bill. I also understand why people still have major concerns in this area. I do not think that any noble Lord present would say that these changes will be easy to accommodate. Difficult decisions will have to be made. As we all know, the changes are intended to relieve some of the strain on the housing benefit budget. However, the only fair element is that the benefit we are discussing will be brought into line with the local housing allowance.

Some noble Lords share my concern about the future of housebuilding. As the noble Lord, Lord Smith of Leigh, said, the previous Government did not meet housing demand. I only hope that the present Government will be able to build extremely quickly the number of houses that are needed to cope with society’s demand for them. We await action as regards achieving the number of houses that are needed.

There are two major concerns about the way these regulations will be implemented. The first is the ability of the housing stock to adapt and provide accommodation of the size needed in each area in order to allow those who wish to move to a different sized property to do so. The second issue relates to the changes affecting specific groups of people. I would like to ask some questions in relation to both those issues. I preface my remarks with mention of behavioural change. I have heard it said frequently in your Lordships’ House and in Committee that people’s behaviour in this area is of the worst kind. However, people do not always behave in a way that leads to the worst outcome for them. Some people behave differently.

There are two key issues I would like to ask questions about. My first question to my noble friend is: what assessment has the Department for Work and Pensions made, given the contact it now has had with people who will be affected by this measure, about the likely outcomes and the directions people will take as a result of what is happening? There undoubtedly will be, of course, some people who will wish to move. The issue then is the ability of the housing stock to be adapted very swiftly. Can my noble friend tell us what discussions there have been with housing associations, local authorities and private landlords to see whether adaptations can be made for people to move, probably into smaller properties, where house building has moved onto larger properties? Where are we in readiness for the sort of behavioural changes? I hope my noble friend the Minister can tell us.

I also wanted to ask about the £30 million of DHP—the £25 million for adapted properties and the £5 million for foster carers. This was an issue we pursued at some length during the course of the passage of the Welfare Reform Act. This was a very welcome area but I would like to really understand the Government’s dynamic on adapted properties. Will £25 million be provided over a longer period and what assessment has been made of the need for that length of time? Will £25 million be sufficient to cope with what it is thought will be the behavioural arrangements for people who live in adapted property where it would make no sense whatever for them to be moved on?

The second area I would like to investigate is rurality and rural housing, mentioned by the right reverend Prelate the Bishop of Norwich. Having spent some considerable time as an elected Member trying to get more social housing into rural communities, I do not underestimate the difficulties there have been in building social housing in rural communities. It is very much more difficult if people want to move to have to move away from a rural community into a quite different environment altogether. What estimate has my noble friend the Minister made of the demand and the pressures there will be on rural housing? Has he taken into account the community shift that would have to take place given the shortage of accommodation in rural areas and often the very high price of private sector rented accommodation there?

I also want to examine the issue of redesignation of properties. This is also one of the approaches that some housing associations are looking at. For example is a bedroom really a study or is a partition wall not really a partition wall? Have there been any discussions with housing associations and social landlords about the role and about designation, and about who has the authority to redesignate housing in this area? There is undoubtedly some scope for action for here. There is no national register of what is a room size. It would very difficult and probably a bureaucratic nightmare to try to create such a reference document. However, is it possible to look at the way in which housing associations can define their property differently where the circumstances provide and who would have the authority to undertake the redesignation, which may take some of the pressure off the ability to find appropriate housing? I do not envy the job of the Government and my noble friend the Minister in undertaking this obviously difficult task and I would be grateful if he could give me some answers to those questions.

[Lord Freud]

My Lords, this has been a powerful debate and I will do my best to answer the questions. We dealt with an enormous number of questions in Grand Committee and so, rather than me going on for a very long time, I would like to suggest that I confine my responses to the new issues that I have not already dealt with and then leave my responses on the other matters that are on the record in Hansard.

The noble Lord, Lord McKenzie, referred to the NAO report and to 2 million households receiving lower benefits. That assumes that claimants will not adjust their behaviour by doing the things that we are hoping they will do, such as taking on work, moving to more affordable or more appropriate accommodation, and so on. We are beginning to see evidence from local housing associations that with the change from 50% to 30% people are changing their behaviour.

As regards the point about the pressure on the supply of affordable housing, the early signs from the LHA are that there is no discernable impact on the levels of homelessness, which have remained steady. The housing benefit claims from people renting in the private rented sector are increasing, which suggests that people are able to find affordable accommodation.

The noble Baroness, Lady Lister, referred to the NAO report and to its observations on the monitoring of discretionary housing payments. We are currently considering the recommendations in the report and will look at how feasible it is to monitor the way that DHPs are used.

I have dealt with the point raised by the noble Lords, Lord McKenzie and Lord Smith, about movements. There are movements of people from underoccupied homes, presumably to smaller homes, which will allow larger families, if they are being supported in the private sector, to have cheaper accommodation and gain from making that exchange.

As regards the issue of room sizes, raised by the noble Lords, Lord McKenzie and Lord Best, and whether there should be an adjustment for single bedrooms, we wanted to keep the system simple and did not want to introduce something that might require landlords to go around measuring rooms. Indeed, the stakeholders, including the National Housing Federation, have welcomed that. It is therefore up to landlords and tenants to decide between them whether a property is appropriate for their needs.

When it comes to designation of what exactly constitutes a property, it is up to landlords to take that decision. They are unlikely to do that on a wholesale basis, but there will be individual properties where it makes sense for landlords to redesignate them as not being appropriate. There may be an individual property for which it is straightforward to do that. To be honest, we are not expecting there to be a massive effect, but there may be some instances of that.

The noble Baroness, Lady Turner, asked about temporary changes of circumstances. There are housing benefit rules to protect households from either temporary absence, such as going into hospital or being on remand, or where the death of a member of the household would result in the reduction of housing benefit. For example, housing benefit provides up to 12 months’ protection from rent restrictions if there is a bereavement in the family.

The right reverend Prelate the Bishop of Norwich asked about non-resident children. Where the tenant has non-resident children, housing benefit may already be paying for a room for the child or children in the place where they usually reside. It would be double provision potentially to fund an additional room in both parents’ properties.

The issue of rural impact was raised by the right reverend Prelate and my noble friend Lord German. The use of the percentage reduction, rather than a flat rate, means that the impact, because it is proportionate, is likely to be lower because rents are likely to be less in rural areas. On the specific question asked by my noble friend Lord German on the approximate amounts, roughly 10% of the impact is likely to be seen in rural areas.

As to my noble friend’s question on what evidence we have received so far, the responses by local authorities and housing associations indicate that there is a lot of activity—whether you are talking about the West Midlands making best use of a stock partnership that brings together seven local authorities and 11 housing associations in finding people the right number of bedrooms, speed dating in the London Borough of Southwark, or the Stockport homes initiative to look for joint tenancies. Indeed, Wigan Council, the council of the noble Lord, Lord Smith of Leigh, and Wigan CAB have developed Wigan Housing Solutions, which acts as a social lettings agency and is a natural progression from the existing bond-guarantee scheme. It is a bridge between the private and social sectors, with Wigan Housing Solutions helping to relieve pressure on the housing waiting list. There is a lot of activity.

20:30

My noble friend asked what we are doing about the housing shortage. That was probably his most important question. We are investing to provide more new homes for rent and to bring more empty homes into use, along with other measures substantially to increase housing supply. Our additional funding includes a £10 billion debt guarantee scheme to support delivery of new homes purpose built for private rent and for additional affordable housing. That is on top of the existing £4.5 billion investment in new affordable homes in the period to 2015, which will lever in an additional £15 billion of private finance. All this will help deliver up to 170,000 affordable homes by 2015 for rent and affordable home ownership. Already, 48,000 affordable homes have been completed in 2011-12.

We have put in place safeguards for the most vulnerable. As noble Lords have pointed out, we have added another £30 million to the discretionary housing payment fund. From 2013-14 that will make £90 million each year available to local authorities, and that is before including the extra we have added for the benefit cap changes. Of course, it will not cover every single shortfall and is not meant to, but we expect local authorities to think carefully about how they prioritise these payments and there is no reason to believe that they will not target help at the most vulnerable. There will be some difficult cases but it is too soon to know precisely how claimants might respond to these changes. However, claimants will not be left without access to advice and support to help them through these changes. I have already touched on some of the excellent examples of how landlords are responding to these changes. That is an activity that we want to encourage.

We will explore the effects of the size criteria changes through our research, including the effects on homelessness. Initial findings will be available in 2014, with the final report available in late 2015, and we will consider any findings very carefully. Our research will give us something tangible on which to base our future direction in continuing to tackle these long-standing housing problems. That is a responsible approach and one that is consistent with what we intend to achieve in terms of improving our supply of housing and the nation’s fiscal situation. As might be expected, we do not rely solely on research to tell us about the impacts from our reforms. The department monitors its policy changes in other ways, such as through feedback from stakeholders, local authorities, ministerial correspondence and contact from claimants, as well as through our own administrative sources. We will have a good idea of how these changes are bedding in.

We have debated at length the point made by the noble Lord, Lord McKenzie, that the measure is blunt and takes no account of whether alternative accommodation is available. Amending this measure so that it applied only where no alternative accommodation was available is simply not feasible. It would be very complex to make decisions about what constitutes alternative accommodation. In fact, it is not a blunt instrument. We have chosen an approach that gives claimants an opportunity to respond to the changing fiscal environment behaviourally. We are trying to find savings where it is possible for claimants to find different ways to meet a shortfall. That is why we have chosen to proceed with this measure.

There is nothing new in these regulations that we have not debated at length and several times. I have given a clear assurance about carrying out research on the effects of this change. That is something noble Lords asked for and something I have put in place. I hope noble Lords will understand my disappointment at this amendment being tabled, particularly when we seem to be going over old ground. I have done what I can to explain the Government’s position and I hope that I can urge the noble Lord not to press the amendment.

[Lord McKenzie of Luton]

My Lords, I start by thanking all noble Lords who spoke in the debate, particularly those who spoke in support of my amendment. I think that that was all noble Lords apart from—not surprisingly—the Minister, with perhaps a degree of equivocation from his noble friend on the LibDem Benches.

My noble friend Lady Turner spoke movingly about how the measures were unfair to vulnerable people—we heard about the London experience in particular—and about the impact of the right to buy scheme, about which we all too readily forget. The right reverend Prelate the Bishop of Norwich spoke about the changes that take place in family groups over time. He and a number of other noble Lords acknowledged that there is insufficient housing stock. He spoke in particular about the rural dimension and the cost to the social fabric of disrupting the current arrangements.

My noble friend Lady Lister, as ever, spoke movingly, in particular on the point that homes should not be treated as a marketplace; that is not how we should view things. The impact of social networks was a strong theme that she rightly continues to pursue.

My noble friend Lord Smith told us about his practical experience of how these things are playing out in the area for which he has responsibility; about the problems arising from the lack of suitable alternative accommodation; and about the impact on rent arrears. He also gave us some history about HMOs and the drive to get rid of them in the past.

The noble Lord, Lord Best, confirmed our view that this is about raising money, not tackling underoccupation. The noble Lord made the point that it is not the fault of occupiers that they have to pay higher rents; it is the fault of the market. He spoke in particular about the significance of all this to housing associations, which effectively will have to collect the tax, about what it means to their finances, and about how potentially it could restrict the role that they can play and have played in the big society.

The noble Lord, Lord Freud, talked about the NAO figures and said that they did not assume behavioural change. I accept that, but it is exactly the basis on which the Government have costed the savings that they hope to achieve. He said that homelessness appeared to be steady under the current statistics. The reality is that the big impact of the changes that are coming is just about to start. The underoccupation rule will come into effect in April, along with the benefit cap. These will be the big drivers of change and concern, driving people into debt and homelessness. That is yet to come—a point made by the noble Lord, Lord Best.

The Minister said that he was unhappy to see the amendment before us tonight. I certainly do not propose to press it, because it would not change anything. The points that noble Lords raised are already on the record, or will be as a result of this debate. I do not promise the noble Lord that he has seen the last of this. We feel very strongly that the contributions in the Chamber tonight focused predominantly on the problems that the legislation will create. We are getting closer to them as the regulations come towards implementation. I have no doubt that we will have to return to the matter again and again in the hope that we can persuade the Government to change course. The circumstances that will arise when the regulations come into effect will help the Government realise how draconian, unfair and unjust their provisions are. In the mean time, I beg leave to withdraw the amendment.

Amendment to the Motion withdrawn.

Motion agreed.

Financial Services Bill

Tuesday 6th November 2012 Lords Chamber

Report (1st Day) (Continued)

20:40

Clause 4 : Financial stability strategy and Financial Policy Committee

Amendment 7A

Moved by

[Lord Eatwell]

7A: Clause 4, page 12, line 33, after “Committee” insert “after consultation with the Treasury”

[Lord Eatwell]

My Lords, noble Lords will notice that this group includes Amendments 6M and 6Q. I apologise to the House for not moving those amendments at the appropriate time, but as noble Lords may recall, there was considerable confusion between the Deputy Chairman and the clerks and everyone here. The noble Lord, Lord Sassoon, was not confused. He never is. But in the confusion I inadvertently failed to move these amendments. I also apologise that at that time I failed to support the noble Baroness, Lady Noakes, when she presented her arguments for Amendment 7, which I wholeheartedly support, as indicated by the fact that I added my name to hers. With the leave of the House, I will proceed with the remaining amendments in group 19, namely Amendments 7A, 7B and 7C.

The purpose of this group of amendments is to ensure that there is regular consultation between the Treasury and the FPC over the FPC’s directions and its recommendations. Leaving aside—since the time has passed—the question of directions, even though they are more important, Amendments 7A, 7B and 7C serve to emphasise the interest that we all have in requiring that regular consultation takes place. The idea is simply that in making a recommendation the FPC would have a discussion with the Treasury about that to ensure that both sides are, if you like, singing from the same hymn sheet.

This is part of the endeavour that we have on this side of the House to ensure that the whole development of the financial stability analysis, the financial stability strategy and the financial stability actions is co-ordinated effectively between the FPC and the Bank as a whole—whether Bank means court or Bank or whatever—and the Treasury. I beg to move.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, this group of amendments seeks to require the FPC to consult with the Treasury before issuing a recommendation, directing the PRA or FCA to take action or revoking an existing direction. I am certain that not only are these amendments unnecessary, they would damage the independence of the FPC.

As I am sure noble Lords are aware, the Bill provides for a non-voting representative of the Treasury to be a member of the FPC. This Treasury representative will be able to ensure that the views of the Treasury are available to the committee if required. This renders these amendments unnecessary.

Let me explain why, more seriously, I feel that the amendments could be harmful to the work of the FPC. The Government have drafted the Bill so that the FPC will be housed within the independent Bank of England. It is paramount that macroprudential policy decisions are insulated from political considerations. The purpose of the FPC is to “take the punchbowl away” when the party is getting too raucous, something that politicians of any affiliation may be reluctant to do.

By insulating the decisions of the FPC from political considerations, it will be much easier for the committee to be a credible and effective policy-making body. The amendments would risk that credibility by requiring the FPC to consult the Treasury before it makes any policy decision. For that combination of reasons, I ask the noble Lord to withdraw his amendment.

20:45

[Lord Eatwell]

My Lords, the noble Lord has left me somewhat puzzled with his final point. First, as he is well aware, consultation does not necessarily mean acceptance of any argument or the idea that there should be any direct influence of the Treasury on the FPC. All we are trying to do is to ensure that there is effective communication. As I noted earlier, the Minister has in the past raised the fact that communication between the Bank and the Treasury has been very poor. There are other issues about the lack of communication which will be raised on Report.

The Minister says that somehow consultation between the Treasury and the FPC would endanger the credibility of the FPC and of the macroprudential strategy. Yet earlier it was argued that under the common law, as he put it, the Treasury may at any time make recommendations on the provisions of the Bank’s financial strategy. Is the Treasury involved or not? Surely recommendations and discussion are very valuable at all times, but that does not in any way limit independence. Perhaps the failure of the Bank and the Treasury to communicate, which the Minister has referred to in the past, arose from a mistaken idea that independence means non-communication. It does not; communication is important to the development of coherent policy. If he is saying that consultation would undermine independence, this is a very serious matter for an area of macroeconomic policy with which the financial stability strategy and the Financial Policy Committee, as its agent, will be intimately involved.

I find the Minister’s remarks very disturbing indeed. They suggest a fundamental misunderstanding of the way in which we can take forward constructive developments in this novel and important area of economic policy. It is a matter to which we may have to return but for the moment I beg leave to withdraw the amendment.

Amendment 7A withdrawn.

Amendments 7B and 7C not moved.

Amendment 7D

Moved by

[Lord Eatwell]

7D: Clause 4, page 14, line 32, leave out from “9H” to end of line 33

[Lord Eatwell]

My Lords, this amendment refers to an oddity in the drafting of new Section 9T(1)(a). The Bill requires the Financial Policy Committee to review each direction that it makes over the relevant period, which is 12 months, other than,

“a direction revoked before the end of the review period”.

I do not understand this business about leaving out directions revoked before the end of the review period. Suppose the direction has been a great success but was enforced for only 11 months. Or suppose the direction was a great failure but lasted for only 11 months. Should not these directions be reviewed? Can lessons not be drawn from them just as much as from directions which are in force for 12 months? Why would you have a direction that has been revoked from which we are not allowed to draw lessons but a direction that has been kept in place from which we are? This is too limiting in a novel area of economic policy from which we should seek to get all the information and draw as many lessons as we possibly can, whether or not a direction has been revoked within the relevant period. I beg to move.

[Baroness Noakes]

My Lords, what the noble Lord, Lord Eatwell, has said is entirely sensible. I cannot see the distinction between those directions which have been made and continue in force and those which have been made and revoked. This is about public communication, the directions being made and their effect. The information that we gain from a revocation must be at least as good as from the making of a direction.

[Lord Sassoon]

My Lords, the amendment reflects a slight misunderstanding of the purpose of the reviews that we are talking about in new Section 9T of the Bank of England Act, as inserted by Clause 4. The purpose of these reviews centres around live actions and requiring the FPC regularly to look again at all live actions—in other words, at the directions and recommendations that still have effect—and to review whether or not the action is still needed. That is a rather different matter from the admittedly important question of reviewing past actions and learning lessons, which is not the subject of the clause.

The idea behind the new section is to ensure that FPC actions do not remain in place if the circumstances which originally merited them have disappeared or changed substantially. Of course, we would expect the FPC as a matter of course to keep its past actions under review and revoke them once they are no longer needed, but new Section 9T ensures that this will be the case by creating a formal requirement for the FPC to review regularly all of its live directions and recommendations.

Amendment 7D seeks to remove the wording in subsection (1)(a) which provides that the FPC need not review directions that have already been revoked. The provision is appropriate because once a direction has been revoked there is no need for the FPC to review it to determine whether it is still needed; the direction is already defunct. It is as simple as that.

The concern of the noble Lord, Lord Eatwell, lies clearly in the importance of the FPC evaluating the impact of its actions. I can reassure him that mechanisms already exist elsewhere in the clause to address this issue. First, new Section 9S requires the FPC to set out for each of its actions an explanation of its reasons for believing that the action is compatible with its objectives and associated “have regards”, including where practicable an estimate of the costs and benefits of the action. Secondly, subsection (4)(b) of new Section 9W requires the FPC to include in each financial stability report an assessment of how its actions have succeeded in achieving its objectives. Finally, the new oversight committee of the court has an explicit remit to oversee the FPC’s performance and can undertake or commission a more comprehensive review of the FPC’s past actions or approach where appropriate.

I am confident that the FPC’s actions are already subject to extensive mechanisms of oversight and evaluation and, as I said at the outset, that the amendment reflects, perhaps, a slight misunderstanding of what the purpose of the specific provisions in new Section 9T is all about. I hope that on the basis of that explanation the noble Lord will feel able to withdraw his amendment.

[Lord Eatwell]

My Lords, my immediate reaction is that if that is what the new section meant, why did it not say so? We persistently have a point where there is a lack of clarity in the Bill and, time and again, the noble Lord says, “That is what we said but it is not what we really meant”. It is truly unsatisfactory.

On the areas which he says cover the issues that I raised, proposed new Section 9S specifically refers, I think—although of course it may not mean this—to a prior explanation of specified purposes. It provides for an explanation of why the FPC is doing something, which seems to be a prior requirement, not an assessment of effect.

The Minister is on stronger ground on new Section 9W(4)(b), which refers to whether the functions of the FPC have succeeded, but it refers generally to its functions rather than to the specific issue in new Section 9T, which refers to the very sensitive and important area of directions.

There is another important point. It is quite possible that a direction would be introduced to deal with a particular set of circumstances and revoked because those circumstances have been mitigated, but then reintroduced some time later because the problem reappears. In those circumstances, all this stuff about live actions is irrelevant. We need to learn from both those actions that are contemporaneous and those that may be introduced from time to time to deal with specific circumstances. I really feel that this is a very unsatisfactory approach to the general issue of review.

I will keep talking so that the Minister can get his note and say why I have got it wrong; he has it now. The issue of keeping matters under review should include those matters that only last for a period within the relevant 12 months, as well as those that go forward. Shall I sit down? No, the Minister did not get a good reply in that note. This is an issue that I want people to think about: either the clause is badly drafted and not clear, or the amendment should be considered appropriate. However, for the moment I beg leave to withdraw the amendment.

Amendment 7D withdrawn.

Amendment 7E

Moved by

[Lord Eatwell]

7E: Clause 4, page 17, line 13, after “Bank” insert “, the Chief Executive of the FCA, the Chairman of the PRA”

[Lord Eatwell]

I assure the House that this is going to stop soon. First, I draw attention to a drafting error in the amendment as tabled. It refers to the “Chairman of the PRA”, who is of course the Governor of the Bank of England, rather than the chief executive. The objective of the amendment is to widen the group who meet to assess the importance of the Financial Stability Report, a very important document that has been one of the most interesting and creative documents published by the Bank for some years, not least because of the major intellectual influence of the executive responsible for financial stability. Since the FCA and the PRA are the vehicles through which the FPC—I apologise, everything is just three letters—exercises its influence, it is important that informed discussion and assessment between the Treasury and the Bank should include the chief executives of those two bodies and not simply be between the governor and the Chancellor.

The amendments have the added advantage that, should we have a governor who wishes to delegate responsibilities in order to reduce the excessive load placed on his or her shoulders by this Bill, this would in no way reduce the value of the Bank-Treasury meeting and the quality of the assessment of the Financial Stability Report. It seems enormously valuable to have these two individuals—the chief executives of the FCA and PRA—there, because they are the people who implement the proposals of the Financial Policy Committee and will help in the general assessment of the Financial Stability Report. I beg to move.

[Lord Sassoon]

My Lords, are we inserting “chief executive”?

[Lord Eatwell]

It was a drafting error. It should not have said “Chairman”.

[Lord Sassoon]

So it is chief executive. I am not sure whether I heard chairman or chief executive but it should have said, “Chief Executive of the PRA”.

In responding to Amendment 7E it may help if I explain the purpose of the meetings set out in new Section 9X of the 1998 Act. The success of the new regulatory structure will rely heavily on the relationship between the Treasury and the Bank of England. As has already been noted this evening, one of the major problems leading up to the financial crisis was that the tripartite committee established under the previous Government’s regime did not meet at the principals’ level for a decade. The Chancellor and the governor simply did not meet often enough to discuss financial stability. When the crisis hit—I am sorry the noble Lord, Lord Eatwell, thinks this is an amusing matter. Unfortunately, this was one of the most serious issues when it came to handling the crisis.

21:00

[Lord Eatwell]

I agree with the Minister. It is a terribly serious matter. When he adds the phrase “for a decade”, it is such desperately bad news that some degree of amusement is the only relief to the depression that one feels at the failure of this mechanism.

[Lord Sassoon]

Believe you me, I was on the standing committee of deputies for three years and I saw it at first hand. There we are—we understand the difficulty. At a personal level and in terms of institutional arrangements and practices, the absence of meetings clearly has a very significant impact when it comes to handling a crisis. However, everything is now different and as it should be. The Chancellor and the governor now meet often. Indeed, under the previous Government, once the crisis hit, of course that was also the case. But it was not always the case, as I have said, and as we understand. Without the requirement in new Section 9X, there would be no guarantee that the regular meetings would happen in the future, once the individuals concerned change and memories of the current crisis have faded.

New Section 9X therefore places a legal requirement on the Chancellor and the governor, in his capacity as chair of both the FPC and the PRA, to meet formally at least twice a year, shortly after the publication of the FPC’s twice-yearly Financial Stability Report. I agree that it is a truly creative, in the best sense of the word—which I am sure the noble Lord, Lord Eatwell, meant—and important document.

Of course, both the Chancellor and the governor may invite others to attend the meeting. For example, the Treasury’s Permanent Secretary or another senior official may attend. The Chancellor’s private secretary may also be in the room. On the Bank’s side, the governor may well choose to invite another deputy governor or the executive director responsible for financial stability to attend the meeting with him. However, I believe the approach taken in the Bill—for the legal requirement to meet to be on the Chancellor and governor only, leaving it up to each attendee to decide if others should be present—is the correct one. The governor will be best placed to decide, based on the content particularly of the Financial Stability Report and the wider financial stability context, which, if any, of his senior executives should attend the meeting.

If the chief executive of the PRA were required by statute to attend every meeting, surely there would be an argument for all the other senior Bank officials who had some responsibility for financial stability to also be added to the list. Equally, if the CEO of the FCA were required by legislation to attend every meeting, would there not be an equal argument for the external members of the FPC also to be required in the room? This could go off in all sorts of directions. A small, personal meeting between the Chancellor and governor could easily turn into a large committee if we were to take that approach.

This is an important opportunity to restate our common objective: to make sure that the principals meet. It should not be necessary to have such a meeting in legislation, but regrettably history has shown that it is. That is the purpose of the requirement, as a backstop for those meetings to happen, but it continues to be the Government’s view that the attendance of others should be left to the discretion of the principals. On the basis of that explanation I again ask the noble Lord to withdraw his amendment.

[Lord Eatwell]

Before the noble Lord sits down, perhaps we could probe the discretion of the principals a little. Supposing the governor wants to turn up alone and the Chancellor wishes the chief executive of the PRA to attend, would that be possible?

[Lord Sassoon]

That is not then a question of legislation but a question of common sense and how the parties get on with each other, and I am sure that common sense would prevail. For that sort of circumstance, no amount of legislation is going to get around people behaving sensibly. If we put a particular attendee or two into these meetings the same question arises about others who one side or the other might believe would be sensible to have at a particular meeting given the topics that might be under discussion. We have to rely on the good sense of the principals here.

[Lord Eatwell]

Yes, well, we hoped that we could rely on the good sense of the principals to run the Financial Stability Committee, but they did not meet for a decade so they were not very sensible, were they?

If I may respond to the noble Lord, I feel that his vision of the committee extending to indefinite size is really excessive. We are identifying the chairman of the Financial Policy Committee, namely the governor, and the two operational figures—the chief executive of the FCA and the chief executive of the PRA—to be in this meeting to assess the financial stability position in the light of the financial stability report. I think that would be valuable. I quite understand that others can be invited in but, as we have seen in the past, these matters are not necessarily as well handled as, in retrospect, we would like. I hope that this matter might be reconsidered in due course, but for the moment I beg leave to withdraw the amendment.

Amendment 7E withdrawn.

Amendment 7F

Moved by

[Lord Eatwell]

7F: Clause 4, page 18, line 40, at end insert—
“9ZZA Financial Stability Advisory Panel
(1) There will be a Financial Stability Advisory Panel.
(2) The membership of the Panel will be—
(a) the Deputy Governor for Financial Stability;(b) 6 members appointed by the Treasury, subject to approval by the Treasury Committee of the House of Commons; and the members appointed under paragraph (b) will be academics, members of staff of international organisations, practitioners, or others with particular skills in the analysis of systemic risk.
(3) The Financial Stability Advisory Panel will—
(a) provide written advice to the Financial Policy Committee concerning the analysis of systemic risk;(b) once a year prepare a report assessing the analysis of systemic risk by the Financial Policy Committee over the preceding 12 months (the first report to be twelve months after this section comes into force);(c) assess the effectiveness of measures prescribed under section 9K in the attainment of the financial stability objective of the Bank;(d) assess the effectiveness of directions and recommendations of the Financial Policy Committee under sections 9G and 9N in the attainment of the financial stability objective of the Bank;(e) prepare an annual report on matters referred to in section 9ZZA(3) to be presented by the Supervisory Board of the Bank, and subsequently published on the Bank website.”

[Lord Eatwell]

My Lords, Amendment 7F picks up an amendment that I moved in Committee and promised to return to on Report, concerning the establishment of a financial stability advisory panel.

I will not go through the whole argument of different forms of financial stability arrangements as between this country and the United States and so on, but I will deal with one central issue: we want people of very high quality advising and reflecting on financial stability issues. The appointed members of the Financial Policy Committee are crucial but there is going to be some difficulty in identifying them satisfactorily because there will be a number of conflicts of interest in the financial services industry that will be difficult to manage.

We can overcome that difficulty by creating an advisory panel that does not have powers, as such, to make decisions, but which can advise on a variety of areas, including the success of measures taken and general effectiveness, by presenting a report to the oversight committee—not the “Supervisory Board”, as mistakenly referred to in the amendment as printed on the Marshalled List. We could gather together a wider group of people who felt it to be their responsibility to follow carefully the actions of the Financial Policy Committee and to express their views even if they have significant conflicts of interest, because these could be taken into account in the assessment of their views. Of course, they are distanced from any actual decision-making, unlike the appointed members of the Financial Policy Committee, who are right at the heart of decision-making.

Given that we are dealing with an area of policy which, as I have said already this evening, is novel, we are going to encounter entirely new problems. We will probably make some mistakes. We want to be able to assess a very wide horizon of experience around the world, where the European Union, the United States and other major jurisdictions are introducing financial stability committees of one sort and another to deal with the issue of macroprudential regulation. An advisory committee could be a valuable supplement to the information and assessment to which the Bank and its committees have access. I beg to move.

[Baroness Noakes]

My Lords, we do not need to hardwire this into legislation. If the FPC thinks that it needs some form of advice from other parties in relation to most of the matters mentioned in subsection (3) of the amendment of the noble Lord, Lord Eatwell, it can arrange it. Similarly, if the oversight committee thinks that it needs any assistance from outside parties in relation to matters mentioned in paragraph (e) of subsection (3) of the amendment of the noble Lord, Lord Eatwell, it can arrange it. I do not see why these matters need to be enshrined in law. If there are gaps within the resources available to the Bank, it can supplement them, or it may have them sufficiently internally. The statute does not need to deal with these matters.

[Lord Sassoon]

I completely agree with my noble friend Lady Noakes. This amendment was debated in Committee, as the noble Lord, Lord Eatwell says. The gremlins seem to have been getting into one or two of these amendments. He has already pointed out that this has been retabled in the previous form that it was in and should refer to the oversight committee and not the supervisory panel.

Putting that aside, the nub of this is that I am puzzled and disappointed that the noble Lord, Lord Eatwell, does not agree that the oversight committee that we have already created will have responsibility for carrying out the function of performance evaluation referred to in this amendment, and that the oversight committee will have a wider-reaching role looking over the entirety of the Bank’s financial stability remit. That is surely better than an advisory panel with rather limited and specific terms of reference.

I am also disappointed that the noble Lord, Lord Eatwell, feels that an independent oversight committee led by non-executives would be either inadequate or insufficient to hold the Bank to account. I cannot see how it is better to create a committee chaired by an executive of the Bank who would simultaneously be a member of the FPC, responsible for providing advice to the FPC and expected to assess its performance.

Of course, the Bill already creates in the FPC a committee on which the deputy governor for financial stability sits, together with external members, some of whom may indeed be academics. As we have discussed before, there is plenty of provision for either the FPC or the oversight committee to take on any additional expert, academic or other advice that it requires at any point. The FPC will have a statutory responsibility to assess risks to financial stability and to take action to mitigate them. If it wants to take advice it is entirely able to do so, but it should have the autonomy to do so on its own terms if it is to be properly responsible for financial stability.

In conclusion, the effect of the amendment of the noble Lord, Lord Eatwell, would be to create duplication of responsibilities, to blur accountabilities and to diminish focus. As such, there is no way that I could accept such an amendment and I hope that, on reflection, he will withdraw it.

21:14

[Lord Eatwell]

Before the noble Lord sits down, if the FPC wished to seek external advice, would it be suitably resourced to do so?

[Lord Sassoon]

Unequivocally, yes.

[Lord Eatwell]

In that case, I am far more content than I thought I would be, and I beg leave to withdraw the amendment.

Amendment 7F withdrawn.

Schedule 1 : Bank of England Financial Policy Committee

Amendment 8 not moved.

Amendment 9

Moved by

[Lord Sassoon]

9: Schedule 1, page 198, line 35, after “bankrupt,” insert “that a debt relief order (under Part 7A of the Insolvency Act 1986) has been made in respect of M,”

[Lord Sassoon]

My Lords, this is a group of minor and technical amendments. They update the Bill in the light of changes to EU law that have been made since the Bill was introduced to Parliament to reflect the effect of existing law by providing expressly that requirements imposed on firms may have indefinite duration, and to clarify the drafting of some sections of FiSMA. I am happy to discuss in more detail any particular amendment, but I beg to move.

Amendment 9 agreed.

Amendments 10 and 11 not moved.

Schedule 2 : Further amendments relating to Bank of England

Amendments 12 to 21

Moved by

[Lord Sassoon]

12: Schedule 2, page 201, line 18, after “2” insert—
“(a) for “director” substitute “non-executive director”, and(b) ”

13: Schedule 2, page 201, line 20, at end insert—
“( ) In paragraph 4, for “director” substitute “non-executive director”.”

14: Schedule 2, page 201, line 21, after “5” insert—
“(a) in sub-paragraph (1), for “director” substitute “non-executive director”, and(b) ”

15: Schedule 2, page 201, line 24, leave out “director” and insert “non-executive director”

16: Schedule 2, page 201, line 28, leave out “director” and insert “non-executive director”

17: Schedule 2, page 201, line 30, leave out “director” and insert “non-executive director”

18: Schedule 2, page 201, line 32, at end insert—
“( ) In paragraph 7(2), for “director” substitute “non-executive director”.”

19: Schedule 2, page 201, line 34, after “(1),” insert—
“( ) in that provision, for “director” substitute “non-executive director”,”

20: Schedule 2, page 202, line 20, at end insert—
“( ) In paragraph 13, after sub-paragraph (3), insert—
“(3A) But a member of the court who is the Governor or a Deputy Governor of the Bank may not be designated under paragraph (a) or (b) of sub-paragraph (3).””

21: Schedule 2, page 202, line 21, at end insert—
“( ) In paragraph 15, for “director” substitute “non-executive director”.”

Amendments 12 to 21 agreed.

Amendment 22

Moved by

[Lord Sassoon]

22: Schedule 2, page 203, line 38, leave out from beginning to “in” and insert—
“(1) Section 244 of the Banking Act 2009 (immunity) is amended as follows.”

[Lord Sassoon]

My Lords, like the FSA, the PRA and FCA have statutory immunity from liability in damages for anything done in pursuit of their statutory functions. The Bank has a similar immunity in its capacity as the monetary authority which includes its regulatory functions. This is necessary because it would be very difficult for the regulators to take effective regulatory action if they thought that at any moment they could be bogged down in litigation resulting in multimillion pound awards of damages.

These amendments modify the immunity to ensure that where one regulator or a member of its staff carries out an investigation or produces a formal report for another regulator, that person is also covered by the immunity. This is being done to ensure that, where necessary and appropriate, the PRA can outsource the operational element of its enforcement activities to the FCA—in particular, the work of carrying out investigations into firms.

Prudential regulation involves far less enforcement work than conduct regulation, as it primarily involves the setting and monitoring of prudential standards, rather than, for example, detailed investigations into possible money laundering. It is therefore likely to be a far more efficient approach for the PRA to outsource these functions to the FCA, rather than maintain its own standing expertise. This approach is also likely to ensure that these investigations are well co-ordinated.

Enforcement is a highly litigious area in which the subject of an investigation is likely to cast around for any possible chink in the armour of the regulators’ statutory immunity. There is a risk that vexatious litigation could slow down or undermine the progress of an investigation. These amendments are therefore intended to ensure that when investigations are contracted out to another regulator, they can be undertaken without risk of litigation.

Government Amendments 22 and 23 provide that the Bank of England has statutory immunity if it is appointed to carry out an investigation or to produce a report on behalf of the PRA or the FCA under Sections 97, 166 to 169 and 284 of FiSMA. Government Amendment 63 provides that if the FCA or a member of the FCA’s staff is appointed to carry out an investigation or produce a report, their actions and omissions are treated as actions and omissions of the FCA for the purposes of the immunity. Amendment 69 makes the same provision for the PRA.

I trust that the House will agree that these are sensible provisions which will allow the regulators to take an efficient approach. I beg to move.

[Lord Eatwell]

My Lords, I agree that these are indeed sensible measures. I have just one question. These days many actions and investigations by regulators are taken on behalf of what are truly other regulators—that is, regulators in other jurisdictions—and that exchange of information and co-operation is a hugely important activity. When the British regulators are taking very sensitive information in an area where there is a great deal of legal activity—for example, the relationship between the FSA and the regulator in Austria is a particular case—would they have immunity in that case as well?

[Lord Sassoon]

If the situation that the noble Lord is suggesting is one in which the FSA or a successor body was taking an action at the request of the Austrian authorities, I can confirm that in that case the immunity provisions would apply to the actions of the UK regulators.

Amendment 22 agreed.

Amendments 23 to 25

Moved by

[Lord Sassoon]

23: Schedule 2, page 203, line 43, at end insert—
“( ) After subsection (2) insert—
“(2A) The Bank’s functions under the Financial Services and Markets Act 2000 are to be taken to include any functions that it may exercise as a result of an appointment under any of sections 97, 166 to 169 and 284 of that Act.””

24: Schedule 2, page 204, line 1, at end insert—
“ In section 4 of the Bank of England Act 1998 (Bank’s annual report), in subsection (4)(a), for “directors” substitute “non-executive directors”.”

25: Schedule 2, page 204, line 3, at end insert—
“ In Part 3 of Schedule 1 to the House of Commons Disqualification Act 1975 (other disqualifying offices), in the entry relating to the Bank of England, for “Director” substitute “non-executive director”.
In Part 3 of Schedule 1 to the Northern Ireland Assembly Disqualification Act 1975 (other disqualifying offices), in the entry relating to the Bank of England, for “Director” substitute “non-executive director”.”

Amendments 23 to 25 agreed.

Consideration on Report adjourned.

House adjourned at 9.21 pm.