Financial Services Bill

Debate between Lord Eatwell and Lord Tugendhat

Tuesday 26th June 2012 Lords Chamber

[Lord Tugendhat]

My Lords, I was unable to participate in the early stages of the debate this afternoon because I was at a Select Committee, but now that I am here I should like, on the basis of experience, to support the proposition of my noble friend Lady Wheatcroft—not experience of the court of the Bank of England, I hasten to add, but of the European Commission. The President of the European Commission is appointed quite separately from the other members of the Commission and he has no particular power over who else is going to become a member. The way it is done leaves him at the mercy of Governments. My experience under a very strong and good president in the case of Roy Jenkins and under a much weaker and less effective president in Gaston Thorn is that if the chairman or president, whatever he is called, of a body has no influence over the appointment of his colleagues or over whether they stay or go, it seriously diminishes the significance of the person in charge.

As the noble Lord, Lord Burns, said earlier, we are trying to put together something that has a governance structure in keeping with the modern age and which sets an example, inasmuch as that is possible in a body such as the Bank of England which is quite separate from the corporate sector, to the rest of the country. If the chairman is to be taken seriously by the governor and, indeed, by the entire Bank of England beneath the governor, it is essential that he should be seen to be somebody who has played a significant role in the appointment. It would be quite unacceptable if a governor were appointed in whom the chairman did not have confidence. It would be quite unacceptable if the governor felt that the chairman did not have confidence in him, just as it would be unacceptable if the chairman felt that the governor did not have confidence in the chairman.

The noble Baroness, Lady Wheatcroft, has put forward a very sensible and practical proposition. As I say, I speak with experience of having served in a body where the chairman did not have the powers that the noble Baroness suggests. My experience is that that was not a very good way of doing things.

[Lord Eatwell]

My Lords, these amendments raise some interesting and important issues with respect to the person of the governor. Despite the warm words of the noble Lord, Lord Sassoon, about degrees of consultation, balance and so on, the idea remains that the person will be endowed, under this legislation, with quite extraordinary powers and therefore the process of appointment should be more transparent and subject to consideration by democratically elected Members. If we are to accept an unelected individual having these powers, at the very least the appointment process should be transparent.

The idea that the Treasury Select Committee should express its views is a very good one, but I am not sure about this notion of a veto. That goes a little too far. We do not want to politicise appointments to the extent that has occurred in the United States, which makes me nervous about the suggestion by the noble Lord, Lord Turnbull, that appointments might end up being considered by the whole House, which would inevitably be whipped and become very political indeed. The Treasury Select Committee, although it may sometimes be eccentric, is not party political in quite that sense. It is a good idea that the Treasury Select Committee is consulted about an appointment and it would be a bold Chancellor who would ignore the committee’s views. Since the committee does not have a veto, it is less likely to have the propensity to develop into an overly politicised hanging court. That covers Amendment 5, which is one of the amendments from the Treasury Select Committee in another place put forward by my noble friend Lord McFall and the noble Baroness, Lady Noakes.

I am sympathetic to the idea expressed in the amendment from the noble Baroness, Lady Wheatcroft, and found the arguments put forward by the noble Lords, Lord Burns and Lord Tugendhat, convincing. The notion that the chairman should be consulted and that the degree of confidence in the relationship between the chairman and the governor should thereby be established seems to have the ring of good sense about it. The Government should take this matter under serious consideration.

My noble friend Lord Peston referred to the role of the House of Lords. Although the expertise in your Lordships’ House often comes to bear most effectively and positively on Treasury issues, in the context of an appointment of this seriousness and magnitude, one really has to turn to elected Members. If the constitution of your Lordships’ House changes in the future, then perhaps the House of Lords could have a role in this respect. However, for the moment, the Treasury Select Committee should be the focus of consultation—

--- Later in debate ---

[Lord Eatwell]

My Lords, the amendment stands in my name and that of my noble friend Lady Hayter of Kentish Town. It takes us back, because of the way in which the Bill is constructed, to the court or supervisory board of the Bank of England. The amendment lays out the roles of the court to specify more clearly than current legislation does the role of the supervisory board or court—let us leave that argument aside and concentrate on the body—which the amendment states,

“will be responsible for overseeing the development and execution of the objectives and strategic policies of the Bank”.

It relates, therefore, to the development of strategic policies, as is laid down with respect to the Financial Policy Committee, as well as to the objectives and strategic policies. They are subject always to instructions from the Treasury, which are defined in statute, as are particular responsibilities of the Monetary Policy Committee. The idea is to ensure that the board has the status that I think everyone who has spoken today feels that it should have. That is the first part of Amendment 8; the supervisory board or court would have that appropriate status.

The second part of the amendment—which proposes that the supervisory board should have its own secretariat,

“charged with providing economic, legal and monetary advice and research support to the Supervisory Board”—

arises because, I regret to say, the Bank of England has form in this area. In the early days of the Monetary Policy Committee, its independent members were denied access to satisfactory technical support. The Governor of the Bank of England at the time declared that if they should have suitable support, it would undermine the status of the Bank. It was only after a public outcry once the governor’s position was made clear that suitable economic and secretarial support was given to the independent members of the Monetary Policy Committee to enable them to do their job. The governor had prevented them having that support until there was a public outcry.

Members of your Lordships' House who have been non-executive directors of boards will know how important it is for the non-executive directors to be able to access independent advice at times in order for them to fulfil their proper fiduciary role. Having access to advice—whether it be legal or, in the case of the court of the Bank, economic and monetary—is a crucial part of the independent directors being able to do their job.

If the Bank had not behaved in this way in the past, I would not feel that the amendment was necessary, because one would say, “Well, of course, they should have appropriate support”. Unfortunately, however, important independent members operating within the structure of the Bank have not in the past been given the support that they needed to do their job. It is therefore important that independent members of the court should have access to the advice and research support that can make them effective non-executive directors. I beg to move.

[Lord Tugendhat]

My Lords, I support the amendment of the noble Lord, Lord Eatwell. He draws the lesson from what happened to the outside directors of the Monetary Policy Committee. It might be said that the Bank has learnt its lesson on that and that the situation will not arise in the future, but as I pointed out at Second Reading, the Bank has behaved unacceptably in relation to having an inquiry into its performance during the financial crisis. Whereas the FSA had an inquiry and the results were published, the Bank of England rather stuck to Montagu Norman’s axiom, “Never explain, never excuse”. The Bank of England is a fine and venerable institution, but it finds it difficult to change. Unless there is some provision of the sort that the noble Lord, Lord Eatwell, suggests, one cannot be sure that the supervisory board—or whatever it is going to be called—will necessarily have the economic, legal and monetary advice and so forth that is required. The role that it is taking on is complex. It will deal with highly competent officials in the Bank. It is essential that the non-executives on the supervisory board have absolute certainty that they have all the back-up they require.

When one looks at the demands being placed on non-executive directors of more normal financial institutions, it is clear that, if they are going to fulfil their functions, they will need much more back-up than non-executive directors were accustomed to in the past. Their responsibilities and accountabilities are greater and they will need absolute certainty and right of access. That applies to the Bank of England and I hope that the Government will take into account that, if we are to have proper governance, it requires proper support.

[Lord Sassoon]

My Lords, we debated earlier amendments tabled by the noble Lord, Lord Eatwell, which sought to convert the Court of Directors into a supervisory board. Following on from those amendments, Amendment 8 sets out some of the functions of that board. There is little between the noble Lord and the Government on the substance of the amendment, but my key argument is that the amendment is not needed because its most important parts are addressed by government Amendment 13.

Government Amendment 13, which I will talk to at much greater length when we get to it, will give the new oversight committee responsibility for overseeing the Bank’s performance against its objectives and strategy—precisely what the first part of Amendment 8 seeks to achieve. As for the second part of Amendment 8, I appreciate that in the past the Bank was slow to realise that the MPC members needed their own dedicated support. That lesson was learnt a considerable number of years ago, and both MPC and FPC external members now have access to appropriate resources. The point about the FPC is important and relevant because that has been created in shadow form only very recently.

We can see the considerable output that the FPC is already producing, which it could not possibly do without that support. I am wholly confident that the oversight committee will have sufficient support once it comes into being, and I do not believe that it is necessary to put it into the Bill. I ask the noble Lord to consider withdrawing his amendment.

--- Later in debate ---

[Lord Eatwell]

My Lords, is the Minister accepting my Amendment 29? He seemed to say that it was referring to the right sort of thing. If he is not accepting it, why is proposed new Section 9B(4) left in the form that it is, referring only to procedures? I have another question, but would he answer that one?

[Lord Tugendhat]

May I add a question so that the Minister can answer both together? The Minister is dealing with these matters with such grace and elegance that I feel very bad in questioning his or the Government’s motives in any way. Nevertheless, when we were dealing with the question of whether the chairman should be consulted on the appointment of the governor, basically what the Minister said was that reasonable people will behave in a reasonable fashion and there is no need to spell all this out, because it will be done in the normal course of events. Here he is insisting on absolutely spelling it out so that in practice the governor has a block. Of course I agree that in a properly run organisation, as I am sure the Bank would be, an employee would not be appointed contrary to the wishes of the governor; the relationship between the chairman and the governor would overcome that. None the less, to give the governor an absolute block is a sort of belt and braces that is completely at odds with what the Minister said in an earlier discussion. That means that one does look with some suspicion as to why, as I said earlier, there is one sauce for the goose and another for the gander. If he wants to spell it out here, why could he not spell it out earlier?