Bank of England (Appointment of Governor) Bill

Debate between Lord Johnson of Marylebone and Jeremy Corbyn

Friday 6th July 2012 Commons Chamber

[Joseph Johnson (Orpington) (Con)]

I congratulate the hon. Member for Hayes and Harlington (John McDonnell) on his extraordinary luck in topping the private Members’ ballot not once but twice, and on choosing this important subject from among the many that must have competed for his attention.

The Bill, which requires the Treasury Committee to consent to the appointment or dismissal of the Governor of the Bank of England, goes to the heart of a very important constitutional question about the precise nature of the responsibility of, respectively, the Executive and the legislature in relation to public appointments. As we suffer the after-effects of a profound financial crisis, none of us needs to be reminded that this is a matter of interest not just to constitutional experts. The quality of regulation and supervision can have dramatic effects on rates of economic growth and on the wealth of nations.

Furthermore, as the hon. Member for Hayes and Harlington said, at a time of great change in the regulatory framework, which deliberately places the Bank of England at the very heart of our financial system, it is entirely right to double-check that we do, indeed, have in place appropriate scrutiny mechanisms for the Governor. The Financial Services Bill, which is now in the other place, gives the Bank considerable new powers in macro-prudential and micro-prudential regulation, and in the assessment and management of financial crises. Its governance should, indeed, be appropriate to these new powers, as the Treasury Committee has argued in its review of the Bank’s accountability to Parliament.

While I agree with the hon. Gentleman that the Bank must be accountable for its actions, I am reluctant to go as far as him, in calling for the radical step of providing the Treasury Committee with co-decision rights, in the form of a veto over appointment and dismissal. I will try not to linger over arguments that have already been very well made by many colleagues on the Government Benches, but let me reiterate that there has been an increase in accountability since the Bank acquired operational control over the setting of interest rates in 1997. While Bagehot’s dictum,

“We must not let daylight in upon magic”,

applied initially to the monarchy, it could have been said to have applied just as well to the Bank of England prior to 1997, but that is clearly not the case today.

Since 1997, the Treasury Committee has held regular pre-commencement hearings with the Governor, deputy governor and Monetary Policy Committee members, providing Parliament with a valuable opportunity to challenge key appointees before they begin work. Since 2009, these appointments have also been subject to open public competition. That was precisely what happened in 2009, when Paul Tucker became deputy governor, and this Government, like the previous Government, have agreed that that eminently sensible practice will continue.

The process of increasing accountability has carried on under this Government. Provisions in the Financial Services Bill for a non-renewable eight-year term, rather than the current system of a renewable five-year term, combined with internal reform of the Banks’ board arrangements, will further reinforce the Governor’s independence from the Government and the quality of oversight undertaken by the court of the Bank of England. The accountability deficit, which definitely existed, has therefore narrowed considerably over the past 15 years, and it will close still further if the Bill is enacted. Providing for a parliamentary veto over the appointment and dismissal of the Governor is not an ideal solution for closing what might remain of any accountability shortfall. I do not want to repeat what has already been said, in particular by my hon. Friends the Members for Wimbledon (Stephen Hammond) and for Great Yarmouth (Brandon Lewis) in their excellent speeches, but I worry that giving the Treasury Committee strong powers—in effect, powers of co-decision—in the appointment of the Governor might negatively impact on the Committee’s ability to scrutinise the Bank and hold the Governor to account for his performance. Put simply, Committee members will be unwilling to criticise the work of the Governor if they were complicit in his appointment in the first place. Having invested their own reputational capital in the appointment of the Governor, they will inevitably to some extent pull their punches in questioning him later. That is just human nature, and that is why we have a separation of powers in the Committee system.

[Jeremy Corbyn]

The hon. Gentleman is obviously experienced in these matters, but what about the parallel case of local government-appointed chief executives? Also, the fact that there is a joint appointment of the Metropolitan Police Commissioner by the London assembly, the Mayor and the Home Secretary does not fetter their ability to ask tough and robust questions, as they are required to do—and as we are required to do. I do not see why somebody who was involved in deciding who to appoint to a post will later not properly question what that appointee does. We are here because people have sent us here to ask tough questions.

[Joseph Johnson]

I thank the hon. Gentleman for his excellent intervention, but I would make an important distinction between being consulted and having the right of decision. That is a fundamental distinction and, on balance, arrangements that tilt towards giving the Select Committee system powers of decision over public appointments are going too far. The role of Select Committees might be better restricted to consultation than decision.