Financial Services Bill

Debate between Lord Eatwell and Lord Northbrook

Tuesday 3rd July 2012 Lords Chamber

[Lord Northbrook]

I support the very sensible amendment in the names of the noble Lord, Lord McFall, and my noble friend Lady Noakes. As the noble Lord, Lord McFall, stated, the MPC’s remit is to target inflation. Finding an indicator—or a set of indicators—for the FPC is difficult. There is merit in amending the Bill to ensure that a set of statistics is available to help external bodies, including the Treasury, to assess the performance of the FPC. The recommendation in the Treasury Committee’s report says:

“The selected range of indicators must be flexible and under constant challenge and review, not only by Parliament, Government and the Bank of England, but also by others such as financial industry practitioners, the media, academia and the public. The indicators should be published so that the performance in maintaining financial stability may be monitored and so that it can be held accountable for that performance. The FPC should report against these criteria at regular intervals”.

To the same extent, the Joint Committee said:

“The FPC should begin work towards developing indicators of financial stability in dialogue with the Treasury. They should be published and the FPC should report against them. The set of indicators should be flexible and subject to regular review”.

The recommendations of these two committees are very powerful and, as the noble Lord, Lord McFall, has already stated, the court was generally supportive but did not believe that they should be put in the Bill. I happen to disagree: I think it would be much clearer to have these in the Bill.

[Lord Eatwell]

My Lords, I support the amendment in the name of my noble friend Lord McFall, and the noble Baroness, Lady Noakes. This is—reflecting our earlier discussions—one of the Tyrie amendments. It is very cleverly drafted because it does not attempt to specify a particular set of indicators. It knows that the FPC is in a learning experience: that we are all going to be in a debate over indicators, instruments and so on in the years to come. Nothing could further that debate better than to propose a set of indicators, such as, for example, the rate of credit growth, which we have just been talking about, although not just in the UK. This is an extremely valuable amendment which, is, I hear, supported all round the Committee and I would expect the Minister to take account of the weight of this support.

Also in this group is a series of amendments in my name and that of my noble friend Lady Hayter. I would like to take a few minutes to address these. They are all concerned with the reports that the Financial Policy Committee is required to make and they all specify characteristics of the report. The first one requires the presentation of scenarios: the attempt by the Financial Policy Committee to look at various potential crises—stress-testing, we call it at a micro level—and assess the impact of their policies and of various events. We have learnt from the Office for Budget Responsibility how useful this technique can be and I am sure it will be extremely effective in the assessment of macroprudential measures. Amendment 73, requiring the presentation of scenarios, fits in with the philosophy of policy-making and of the empirical basis of evidence-based policy-making in finance today. I therefore hope the Government will accept it.

Amendment 74 is consequential upon today’s acceptance of the Government’s Amendment 35A, which we agreed earlier this afternoon. After all, if the Financial Policy Committee is required to take into account government policies on growth and employment, then it is surely appropriate that it should report on its performance on what it is required to take into account. This should really have been down as a consequential amendment to Amendment 35A but I am happy to help the Government out and introduce their consequential amendment for them.

Amendment 75, on the issue of indicators, referred to by the noble Lord, Lord McFall, and the noble Baroness, Lady Noakes, places those indicators in the reporting structure of the FPC. Amendment 76 would relate the FPC’s report to the functioning of financial markets and of the wider economy. If they do not discuss that then I am blowed if I know what they are going to discuss. So let us at least hope that that is agreed by everyone around the Committee.

These are just four amendments to flesh out the characteristics of FPC reporting which will be a crucial part of FPC accountability. Given that we are handing these powers to unelected officials, the reporting structure is an important component. That reporting structure— and the debates over the role of the FPC—would be enormously enhanced by the acceptance of Amendment 40 in the name of my noble friend Lord McFall and of the noble Baroness, Lady Noakes.

Financial Services Bill

Debate between Lord Eatwell and Lord Northbrook

Tuesday 26th June 2012 Lords Chamber

[Lord Northbrook]

My Lords, when I first saw the amendment and the reference to the public I thought it could mean consulting someone on the Clapham omnibus about the Bank’s financial stability strategy. However, the noble Lord said that he meant financial institutions and those with a financial interest rather than a broad definition of the public.

[Lord Eatwell]

Perhaps I may clarify that point. It is a term of art to say that you consult the public. When an institution such as the Bank of England or the Financial Services Authority initiates a general consultation and publishes a consultation document, they consult the public. In fact, it tends to be the financial services industry and other immediately interested parties who are consulted, not the gentleman on the Clapham omnibus.