Financial Services Bill

Lord Barnett Excerpts

Tuesday 6th November 2012 Lords Chamber

[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.

--- Later in debate ---

[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.

--- Later in debate ---

[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.