Bank of England and Financial Services Bill [HL]

Lord Davies of Oldham Excerpts

Monday 9th November 2015 Lords Chamber

[Baroness Wheatcroft (Con)]

My Lords, listening to the debate this afternoon, it is clear that many have concerns about the power and influence of the Bank of England. However, I cannot help but feel that this amendment takes that concern a step too far. Much as I have great admiration for Mark Carney, I cannot imagine how he is expected to predict the effect of artificial intelligence. The duties we are putting on the Bank are already extremely far-reaching. The responsibilities now placed on the Financial Policy Committee are deep and will have a huge impact, but to ask it to range as far as this amendment is surely to demand something beyond common sense.

The role of ensuring financial stability is crucial. It means keeping our financial institutions on the straight and narrow, and watching out for problems. However, to ask for those decisions to be taken in the light of what may be happening 20 or 25 years from now is surely a step too far. The role of Government in thinking about such issues is clear, but we would be in very dangerous territory if we thought of the FPC as the arm of government to influence such decisions.

[Lord Davies of Oldham (Lab)]

My Lords, I would like to join in this debate because, although I respect the expertise of the noble Baroness who has just contributed, I am rather more in sympathy with the arguments of my noble friend Lady Worthington and the noble Baroness, Lady Kramer. I hear what was said about placing obligations on the Bank, but we should also appreciate that we have the benefit of the present governor—on whom I have not lavished many plaudits this afternoon as I was rather concerned about the future structure of the Bank, for which he will be responsible. Nevertheless, we all recognise the governor’s merits in taking a wider perspective on aspects of the economy than has perhaps been the case heretofore. Certainly, the speech that he made not so very long ago, in September, to Lloyd’s of London, in which he said that climate change is the “tragedy of the horizon”, ought to wake all of us with alarm, but also make us ask how we can adjust and make responsive our institutions to the anxieties that obviously flow from the developing and clearly established dangers of climate change.

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Moved by

[Lord Davies of Oldham]

9: Clause 9, page 7, line 12, leave out “reasonable”

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[Lord Davies of Oldham]

My Lords, I shall speak also to the other amendments in this group. I will be brief. If ever I were cast before the Lord Mayor’s Show, it is in moving this rather marginal amendment when a huge, significant debate on the relationship of the Audit Commission to this legislation will take place as soon as we finish debating these rather minor amendments. I shall keep my remarks necessarily brief on this because I want to hear the more weighty contributions that are likely to be made on more fundamental aspects of the relationship of the Audit Commission to this Bill.

I think I can anticipate the Minister’s response to these amendments, particularly when he is at his most constructive, as he has been today. He will say that “reasonably” is used to limit excess, that it is a common legislative tool and that I have been at Westminster long enough to recognise that. I do, but I make no apology for the fact that I have introduced these amendments centred on “reasonably” merely to get some locus with regard to the important consideration of the National Audit Office. The Bill will allow the National Audit Office to initiate value-for-money studies across the entire Bank, other than for the financial audit of the prudential regulation functions of the Bank. It ought to be compatible with the—I hesitate on this word—desubsidiarisation of the PRA. The National Audit Office will be able to conduct any value-for-money study and is not to be concerned with the merits of the Bank’s general policy. It will consult the Bank of England regarding any proposed study.

Our amendments deal only with the practical arrangements between the National Audit Office and the Bank. They do not try to deal with conflicts that may present themselves between the Court of Directors and the National Audit Office or the proposed means by which various resolutions could be achieved. Nor am I seeking in any way, shape or form to pre-empt the much more substantial debate which is to take place in a few moments. However, we had a harbinger of that debate in the contributions by the noble Lord, Lord Bichard, at Second Reading, and the chair of the National Audit Office, Sir Amyas Morse, has also spoken publicly about his concerns. The issue is made more sensitive because of the Bill’s general approach to oversight and scrutiny, which we have covered in a series of discussions today. The National Audit Office’s concern with regard to its work mirrors many of the worries that we have already expressed about the Bill in its current form.

I hope it will be recognised that I am not going to press these amendments today. I am not even going to ask the Minister to give much more than a cursory reply to them. They were tabled against the background that at Second Reading we had an expression of real concern about the role of the National Audit Office as conceived in the Bill, and I cannot wait for that debate to take place. I promise the Committee I will play, if any, a small, supportive role. I beg to move.

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[Lord Bridges of Headley]

My Lords, as my noble friend Lady Noakes said, the noble Lord, Lord Davies, is once again being incredibly modest and reasonable about his reasonableness amendment. I think the amendments merit a full response, so I hope he will forgive me. I will try my best, and I will pick up on the point made by the noble Lord, Lord McFall. I heed what he said about this in the past.

I shall set out the Government’s position. Clause 9 gives the Comptroller and Auditor-General a new role in the financial audit process of the Bank. The Comptroller and Auditor-General will be consulted on the appointment of the financial auditor and on the work programme that that auditor sets out to deliver. The Comptroller and Auditor-General will have the right to attend the relevant parts of the meetings of the Bank’s audit and risk committee. This is intended to assist the NAO in conducting value-for-money examinations of the Bank under Clause 11.

Clause 10 provides for increased public scrutiny in circumstances where a Treasury indemnity has been granted to the Bank, or to a company of the Bank. Fortunately, times when a Treasury indemnity is deemed necessary are rare, but it is right that where there is a direct risk to public funds the Treasury can require the Bank to prepare a financial report on any activities that have been indemnified, so that the extent of the risk to public funds can be assessed, and that this report is subject to review by the Comptroller and Auditor-General. I agree that in both of these contexts the question of access to information is critical. It is central to the ability of the Comptroller and Auditor-General, assisted by the National Audit Office, to carry out effectively the roles defined for him in the Bill. So I am pleased that the noble Lord, Lord Davies, has tabled the amendments and that the issue has been raised, but I am unable to accept them.

To address my noble friend Lord Higgins’s point, the language used in the Bill regarding the Comptroller and Auditor-General’s access to information mirrors the relevant wording from the National Audit Act 1983, which provides in Section 8 that,

“the Comptroller and Auditor General shall have a right of access at all reasonable times to all such documents as he may reasonably require, for carrying out any examination under section 6 or 7”,

in the National Audit Act,

“and shall be entitled to require from any person holding or accountable for any such document such information and explanation as are reasonably necessary for that purpose”.

As far as I am aware, the inclusion of requirements of “reasonableness” in this section has not created difficulties for the Comptroller and Auditor-General in the context of value-for-money examinations carried out in relation to other public bodies, and I see no reason why it should cause a problem now.

Some may argue that the Bank would be able to use this reasonableness requirement to delay examinations, but if the Bank did not comply with its obligations under this clause then the Comptroller and Auditor-General would be able to seek an injunction from the courts to enforce his rights. As such, it seems to me that the amendment is unnecessary, and I ask the noble Lord to withdraw it.

[Lord Davies of Oldham]

My Lords, I am not going to withdraw it without first expressing my enormous appreciation for the support from the government Benches for what I had regarded as modest amendments. The noble Baroness, Lady Noakes, often expressed herself with great vigour against any proposals that I put forward when we were in government, but today I have found some favour with her when I did not quite anticipate it. Obviously the noble Lord, Lord Higgins, is always reasonableness itself, so I knew that he would speak very well on this matter.

The issue was not so much that I did not think it was worth airing the question of reasonableness. I accept very much the Minister’s coherent and proper response to this very short debate, and I think that we very much appreciated the tone that he adopted. The reason why I was concerned about these amendments at this stage was against the background that they are immediately before what we all recognise is a pretty substantial issue regarding the Bill, and I know that others are going to present that argument with considerable force. It seemed only reasonable if on this occasion I couched my expressions in modest terms. I promise not to make a habit of that, and beg leave to withdraw the amendment.

Amendment 9 withdrawn.

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[Lord Davies of Oldham]

My Lords, I do not enjoy the role of opposition a great deal but, just for once, in the light of this debate I am glad that I am here this evening and not where the Minister is sitting. He has been presented with a very difficult situation. I assure him that it is not often that in this House we have not just the Official Opposition presenting a strong case on an issue but two very experienced Members on his own Benches—on this occasion, the noble Baroness, Lady Noakes, and the noble Lord, Lord Higgins—pressing the need for change in a Bill. The equally experienced—although more so in the other place than here—noble Lord, Lord Young, indicated that there has to be some way out and that it is time the Government pursued it. It certainly is.

What a mess the Government are in and what great difficulty, I am sure, the Minister will have in defending how they arrived at this ridiculous situation. Time is of the essence. Even if the Government stagger through this House without too much challenge—I am still not convinced about how sharp that challenge should be—the other place will consider this matter shortly and there will certainly be a great deal of difficulty down there unless change is effected. I accept what the noble Baroness, Lady Noakes, suggested: it is best to get it right in this House before Report, so the Minister does not have too much time.

[Lord Bridges of Headley]

My Lords, it is always nice to start off with some sympathy for my position from the noble Lord, Lord Davies. I thank all noble Lords who have spoken and made some very thoughtful contributions. I start by letting your Lordships know that detailed discussions are ongoing between the Bank, the NAO and the Treasury to find a way forward on this issue that all sides find acceptable. These discussions have not yet concluded but I hope to be able to update the Committee before Report.

I should like to set out the Government’s position and will address the amendments and the stand part debate relating to Clause 11 in one fell swoop. However, before I continue, I thank the noble Lord, Lord Bichard. He met me last week and talked me through the amendments that he had hoped to table for today. I thank him for engaging so constructively and I very much hope that that dialogue with me can continue, even if he is unable to contribute to this debate in Committee.

I begin by emphasising that by extending, for the first time, the NAO’s ability to conduct value-for-money reviews of the Bank, the Bill will deliver a significant increase in the transparency and accountability of the Bank to the public and Parliament. The Government are strongly of the view that enhancing the accountability of the Bank of England is in the public interest but it is also in the Bank’s interest—strengthening public trust in the Bank will only add to its credibility.

The issue of how the Bank uses public resources is long running, as my noble friend Lord Higgins said. There has been debate on it ever since the Bank was nationalised in 1946. While researching this debate, I came across correspondence on this issue from my grandfather, who happened to be a Permanent Secretary at the Treasury in 1946 and during the 1950s. So something in the Bridges genes means that we have to deal with these things, although I do not know quite know what that is.

Since the 1950s, the relationship between the Bank and the Government has clearly evolved. Now, we regard the independence of the central bank as critical to our economic security and prosperity. As the noble Lord, Lord McFall, said, independence has been an issue of debate not just here but elsewhere. As Ben Bernanke, a previous chair of the Board of Governors of the Federal Reserve System, said:

“A broad consensus has emerged among policymakers, academics, and other informed observers around the world that the goals of monetary policy should be established by the political authorities, but that the conduct of monetary policy in pursuit of those goals should be free from political control”.

As a number of your Lordships have said, today the Bank of England occupies unique territory in the foundation of the UK economy, and policy decisions by the Bank are of vital importance to everyone. To deliver its mandate effectively, it is essential that the Bank’s independent status is preserved.

The NAO also plays a vital role as Parliament’s auditor. Its own independence is crucial to ensuring that there is effective review of the effectiveness and efficiency of the public sector and for maximising public accountability. Parliament, and in particular the Public Accounts Committee, relies on the work of the NAO to scrutinise properly the value for money of taxpayer-funded activities. It is therefore important that the NAO be allowed to do its work in as unfettered a way as possible.