Bank of England and Financial Services Bill [ Lords ] (Sixth sitting)
Debate between Lord Mann and Harriett Baldwin(8 years, 9 months ago)
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The Economic Secretary to the Treasury (Harriett Baldwin)
I am going to convince Opposition Members that this new clause is not necessary. I will give them an updated response on the Chancellor’s views and the process of recruitment for the new chief executive of the PRA, the deputy governor for prudential regulation. That newsworthy notification to the world is taking place in front of a large crowd, as we can see.
My understanding of the proposed new clause is that it would give the Treasury Committee a statutory veto over the appointment of the chief executive of the PRA, which is soon to be the Prudential Regulation Committee. I am well aware that the Treasury Committee, of which the hon. Members for East Lothian and for Bassetlaw are members, has proposed this measure. Last month, following the announcement of the appointment of Andrew Bailey as chief executive of the FCA, we received a letter from my right hon. Friend the Member for Chichester (Mr Tyrie), in which he argued that the Treasury Committee should have a veto over both the appointment and the removal of the chief executives of the FCA and the PRA. The Chancellor has replied to the Treasury Committee in a letter, which normally would be published by the Committee—I imagine that it has been published already. We believe that such an arrangement is neither necessary nor appropriate for the financial regulators, and I will articulate the reasons why.
First, such an arrangement is not necessary to protect the independence of the FCA and the PRA or of their chief executives. The model of independent regulation that we have in the UK gives the regulator a clear statutory framework of objectives and duties and ensures that regulatory decisions are taken in an objective and impartial way. Importantly, this legislative framework protects the independence of the PRA and the FCA chief executives. It includes provisions that require the terms of appointment to be such that the appointee is not subject to the direction of the Treasury or of any person.
We agree that it is important that the Treasury Committee holds a pre-commencement hearing before the new PRA CEO takes up their post. However, we believe that it is important that the Chancellor remains the person who is fully accountable for deciding on the right person for the job. Pre-appointment hearings are not common for chief executive posts. Hon. Members will understand that such a process would potentially introduce scope for delay and public disagreement, which would not help to recruit good candidates. For example, candidates who are otherwise very good might not want to disclose their interest to their current employer in advance of confirmation of the appointment.
The hon. Member for East Lothian has argued that the arrangements for the appointment of the chief executives of the FCA and PRA should mirror those for the senior leadership position at the Office for Budget Responsibility; that appointment requires the consent of the Treasury Committee. However, the financial regulators are materially different from the OBR. The OBR was established to examine and report on the sustainability of public finances and, by doing so, to help Parliament hold the Government to account for their fiscal policy decisions—the same argument applies to the Comptroller and Auditor General—and as such the OBR has a unique model of dual accountability to the Government and to Parliament.
The previous Government proposed the statutory veto of the Treasury Committee over appointments to provide an assurance of independence and to ensure that those individuals at the OBR have the support and approval of the Select Committee. However, we do not believe that that model of dual accountability is appropriate when regulators are independently carrying out executive functions of the state, such as regulating and supervising the financial services industry. As I have said before, I would welcome the Treasury Committee holding a pre-commencement hearing with the chief executives of the PRA and the FCA. That would provide an important opportunity for Parliament to scrutinise new appointees to those offices before they take up their posts.
Let me update the Committee on the process for appointing the next chief executive of the PRA, who will take over from Andrew Bailey. The Government are running an open competition. The post was advertised on Friday 19 February, which was last week, and the closing date for applications is 4 March—the window is still open should any members of the Committee wish to apply. The appointment is made by the Queen, on the recommendation of the Prime Minister and the Chancellor. Interviews will be conducted in mid-March by a panel chaired by Sir Nicholas Macpherson, together with the second permanent secretary, the chair of the court and one of the other deputy governors. It is expected that the new chief executive will take up the position as soon as possible, but by 1 July 2016 at the latest. You see, Mr Brady, we have all the breaking news after 2 pm in this Committee.
There is another argument that is not in my speaking notes, but which I strongly believe is the case. Let us hypothesise that whoever is appointed through that process then goes through the pre-commencement hearing with the Treasury Committee that we have agreed, and that Committee produces a report that is extremely unfavourable to the person nominated by the Government. I think we can all see that, from a practical point of view, that would be as powerful as having a pre-appointment hearing.
Let us look back at the recent examples of Andrew Bailey’s move to the FCA and, for those of us with slightly longer memories, the appointment in the previous Parliament of Mark Carney as the new Governor of the Bank of England. The Chancellor invested a lot of personal time in those appointment processes, persuading individuals to come across. Imagine if he had had to say, “It is not actually in my power to offer you these jobs; it is in the power of the Treasury Committee.” Would we have seen candidates of such quality prepared to put their names forward? I submit that we would not.
I therefore think that the Government have made the right judgment in agreeing to a pre-commencement hearing. I hope that I have explained to the Committee why I do not believe it would be appropriate to accept the new clause, and I hope that the hon. Member for East Lothian will withdraw it, or that the Committee will vote it down.
John Mann (Bassetlaw) (Lab)
Dear, oh dear. Democracy only goes so far. The United States, with all its systems, must be appointing terrible people, seeing as elected politicians there have a whole range of conferments or otherwise, from the top of the judiciary downwards. Not to give an august body such as the Treasury Committee, which is elected on a cross-party basis by Parliament, the ability to reject an unsuitable applicant demonstrates the fundamental weakness of the last few Chancellors and of the current one, in the style of his predecessor but one—Mr Brown was an example, and Mr Osborne closely mirrors him in every way. Chancellors perceive that they have all the wisdom, yet they are not confident enough to trust a cross-party Committee that would rarely even contemplate criticising, never mind vetoing.
Having sat on that Committee at four different times with a range of Members—indeed, I seem to recall that you, Mr Brady, were one of its leading members when I was first on it—I know that there has never been an instance when it has misused its powers on a partisan basis. Of course, there may be exchanges, particularly with Chancellors and Ministers, where one senses and smells more of a partisan element. However, there has never once been an inkling of that in decision making.
For the Executive to hold in these powers is dangerous for the Executive and for Parliament. The power is simply with a single name; there is no choice or selection process. The proposal from the hon. Members for East Lothian and for Kirkcaldy and Cowdenbeath, which is the same one unanimously put forward by the Treasury Committee in this Parliament, is for the ability to interview and, if necessary, vote against an applicant. That focuses on what the Government want from the post holder and the skills that the post holder will bring. It scopes out precisely how that remit is seen by Parliament. We are the elected representatives. Therefore, in exactly the same way, very successfully, Parliaments past brought in the Select Committee system and further democratised that process through elections to Select Committees. That is popular inside the House and, as time will show, it is increasingly popular outside, as the general public understand how it has strengthened our democracy.
Harriett Baldwin
Again, I have to disagree with the hon. Gentleman. There has been a very capable and competent acting chief executive at the FCA throughout this time. I submit that the hon. Member for Bassetlaw would rather that Bassetlaw were in America, from what he has said.
John Mann
The Minister should know her history. The Pilgrim Fathers and the pilgrim contract that created western democracy in the style of the United States originate from Bassetlaw, as does the Great Reform Act of 1832. The writer of the Great Reform Act lived in my house at the time. Bassetlaw and American democracy therefore go together, but we are English. We are part of the United Kingdom. We want our Parliaments to be confident enough to make decisions. If it is not good enough for the Monetary Policy Committee and the OBR, is the Minister really saying that we are not getting people of suitable calibre for those posts?
Harriett Baldwin
The Minister really is saying that. I am saying that these are Executive roles, which the Executive should continue to be able to appoint, obviously with a pre-commencement hearing by the Treasury Committee. I fear that the hon. Member for Bassetlaw’s ancestor’s ticket for this voyage must have got lost, but it was very interesting to hear about the connection with his constituency. Without more ado, I urge the Committee to reject this amendment.
Bank of England and Financial Services Bill [ Lords ] (Fifth sitting)
Debate between Lord Mann and Harriett Baldwin(8 years, 9 months ago)
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Harriett Baldwin
The website is well used. The feedback on face-to-face interactions has also been positive.
John Mann (Bassetlaw) (Lab)
Is not the clause a huge wasted opportunity? I can confidently predict that this will be the next major mis-selling scandal, which in five to 10 years’ time will come to haunt us for failing properly to enact effective legislation. People will have thrown away their pensions, mis-sold to them by the industry for short-term gain. The advice, people have told me, is that they are liable to die so they had better get the money quickly in order to spend it before it disappears. That is the kind of mis-selling that is going on. The clause is a huge missed opportunity, is it not?
Harriett Baldwin
I sense that the hon. Gentleman does not welcome the freedoms that the Government are proud to have given British retirees. We no longer require them—this was the case for so long—to purchase an obligatory product that might not be right for them at the time. Indeed, the evidence suggests that two thirds of people were not shopping around to get the right price, so I accept that awareness and education are an important part of the reforms. I cannot agree with him that the reforms have not made a huge step forward in trusting people who have worked hard all their lives, saving their money, and they now have more freedom to do what they want with it.
Harriett Baldwin
Again, I could not agree more that we need to take a long, hard look at the provision of advice in this country. As the hon. Gentleman is aware, the financial advice market review was launched last summer and the consultation closed at the end of December. A large range of people have been supportive of the aspirations set out in the review to make advice more widely available and more affordable for all our constituents. It is an ongoing piece of work, and he should wait for more exciting announcements—[Interruption.] He and I share excitement about many things, including the leptokurtic distributions that came up the last time we were on a Committee together. Clause 27 is narrowly focused on extending the Pension Wise service to those who are going to be accessing the additional freedoms that will come into force next April in relation to the secondary market in annuities.
People have rightly asked me about scams, and I want to put it on the record that there is absolutely no complacency about the potential for scams. However, the numbers thus far do not support the case that there has been an increase. Some people have a constant desire to take advantage of people, particularly the vulnerable elderly, in many ways. Nobody should ever accept a telephone call about pensions from anybody unless they have a pre-booked appointment for such a discussion. The single most important thing that we can do to alert people to the horrendous activities of people who prey on the elderly is to get that message out in our constituencies. The over-65s are the victims of some 80% of all attempts at financial crime. They are less familiar with the technology and more vulnerable when someone sounds plausible on the telephone. If any Member wants to work with me to spread the message more widely in their constituencies, I will be wholeheartedly in favour.
Harriett Baldwin
I will give way in a moment, but I first want to mention the National Crime Agency’s Project Bloom, a taskforce that includes the regulators, anti-fraud groups, Action Fraud and police forces. The FCA also runs ScamSmart and the Pensions Regulator has its Scorpion campaign, both of which give advice to businesses and consumers in writing about how to protect against scams. Action Fraud is the UK’s national reporting centre for fraud and internet crime. I am keen to work with hon. Members to see how we can get information disseminated widely in our areas.
John Mann
I thank the Minister for the offer to help her get the word out. We may be occupied with other things over the next four months, but, even beyond then, is it not Parliament’s role to legislate for regulation? Anyone who is a conduit to information or puts out information should be effectively regulated. Instead of hoping that the word will somehow get out, the Minister should be introducing legislative changes in regulation to improve the system. A gentleman came to see me and said that he had less than a year to live and wanted to get hold of his pension. He came back a year later, having survived through the NHS, and was doubtless reassured that he did not need to fritter his pension away, hoping to spend it on trips around the world because he was about to die. We do not need to get the word out; we need regulation. Will the Minister come back with additional proposals?
Harriett Baldwin
Clearly, it is regrettable that although we often pass regulations in this House—this is a very regulated area—people still choose to prey on the vulnerable, particularly older people, and do things that are illegal and completely against the regulations. We ought to combine regulation with informing people about the regulations and when they should have their antennae twigged to the fact that something might not be a good idea.
The hon. Member for Wolverhampton South West raised a range of important points about auto-enrolment, the reports in The Times today and master trusts. I can let him into a little secret on that: the Government will bring in legislation on master trusts and on the points he raised as soon as practically possible. We had considered bringing it in as part of this piece of legislation, but we felt that since the Bill had gone through the House of Lords it would be very late on in the legislative process to introduce something as extensive as that. That was my judgment, and I hope that he will support me on that. However, we aspire to find very soon the first appropriate vehicle that could be scrutinised by both Chambers to bring in the regulations relating to master trusts and auto-enrolment.
The Chair
We now come to new clauses, some of which have already been debated in our proceedings, but new clause 1 has not.
New Clause 1
Illegal money lending
(1) The Financial Services and Markets Act 2000 is amended as follows.
(2) After Part 20A insert—
“Part 20B
Illegal Money Lending
333S Financial assistance for action against illegal money lending
(1) The Treasury may make grants or loans, or give any other form of financial assistance, to any person for the purpose of taking action against illegal money lending.
(2) Taking action against illegal money lending includes—
(a) investigating illegal money lending and offences connected with illegal money lending;
(b) prosecuting, or taking other enforcement action in respect of, illegal money lending and offences connected with illegal money lending;
(c) providing education, information and advice about illegal money lending, and providing support to victims of illegal money lending;
(d) undertaking or commissioning research into the effectiveness of activities of the kind described in paragraphs (a) to (c);
(e) providing advice, assistance and support (including financial support) to, and oversight of, persons engaged in activities of the kind described in paragraphs (a) to (c).
(3) A grant, loan or other form of financial assistance under subsection (1) may be made or given on such terms as the Treasury consider appropriate.
(4) ‘Illegal money lending’ means carrying on a regulated activity within Article 60B of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544) (regulated credit agreements) in circumstances which constitute an authorisation offence.
333T Funding of action against illegal money lending
(1) The Treasury must, from time to time, notify the FCA of the amount of the Treasury’s illegal money lending costs.
(2) The FCA must make rules requiring authorised persons, or any specified class of authorised person, to pay to the FCA specified amounts, or amounts calculated in a specified way, with a view to recovering the amount notified under subsection (1).
(3) The amounts to be paid under the rules may include a component to recover the expenses of the FCA in collecting the payments (‘collection costs’).
(4) Before the FCA publishes a draft of the rules it must consult the Treasury.
(5) The rules may be made only with the consent of the Treasury.
(6) The Treasury may notify the FCA of matters that they will take into account when deciding whether or not to give consent for the purposes of subsection (5).
(7) The FCA must have regard to any matters notified under subsection (6) before publishing a draft of rules to be made under this section.
(8) The FCA must pay to the Treasury the amounts that it receives under rules made under this section apart from amounts in respect of its collection costs (which it may keep).
(9) The Treasury must pay into the Consolidated Fund the amounts received by them under subsection (8).
(10) In this section the ‘Treasury’s illegal money lending costs’ means the expenses incurred, or expected to be incurred, by the Treasury—
(a) in connection with providing grants, loans, or other financial assistance to any person (under section 333S or otherwise) for the purpose of taking action against illegal money lending;
(b) in undertaking or commissioning research relating to taking action against illegal money lending.
(11) The Treasury may by regulations amend the definition of the ‘Treasury’s illegal money lending costs’.
(12) In this section ‘illegal money lending’ and ‘taking action against illegal money lending’ have the same meaning as in section 333S.”
(3) In section 138F (notification of rules), for “or 333R” substitute “, 333R or 333T”.
(4) In section 138I (consultation by FCA)—
(a) in subsection (6), after paragraph (cb) insert—
“(cc) section 333T;”;
(b) in subsection (10)(a), for “or 333R” substitute “, 333R or 333T”.
(5) In section 429(2) (regulations subject to affirmative procedure), for “or 333R”
substitute “, 333R or 333T”.
(6) In paragraph 23 of Schedule 1ZA (FCA fees rules)—
(a) in sub-paragraph (1) for “and 333R” substitute “, 333R and 333T”;
(b) in sub-paragraph (2ZA)(b) for “section 333R” substitute “sections 333R and 333T”.—(Harriett Baldwin.)
This new clause gives the Treasury power to make grants and loans, and provide other financial assistance, for the purpose of taking action against illegal money lending. It provides for certain Treasury costs relating to illegal money lending to be recovered from authorised persons by a new levy, administered by the FCA.
Brought up, and read the First time.
Harriett Baldwin
I beg to move, That the clause be read a Second time.
The new clause gives the Treasury a power to provide financial assistance to bodies for the purpose of taking action against illegal money lending. It also gives the Financial Conduct Authority an obligation to raise a levy, which will apply to consumer credit firms, in order to fund that assistance. Illegal moneylenders prey on some of the most vulnerable people in society. The new clause will ensure that the perimeter of the consumer credit market continues to be enforced effectively, and that vulnerable consumers remain protected from loan sharks.
The Government have fundamentally reformed consumer credit regulation, transferring the responsibility from the Office of Fair Trading to the Financial Conduct Authority, and we have ensured that the FCA has a wide enforcement toolkit to take action where its rules are breached. The FCA regime is already having a substantial positive impact, which is helping to deliver the Government’s vision for an effective and sustainable consumer credit market that meets consumer needs. However, the FCA is not best placed to investigate and enforce certain types of illegal money lending such as the type practised by loan sharks.
Loan sharks are currently investigated and prosecuted by the England and Wales illegal money lending teams and the Scottish Illegal Money Lending Unit. Those teams are made up of local trading standards officers who accordingly have broader powers than the FCA to prosecute the particular criminality that loan sharks are involved with, and relevant expertise in educating vulnerable consumers. They are also able to draw on geographically dispersed community intelligence officers who are crucial in identifying localised illegal lenders. The teams work alongside the FCA in policing the regulatory perimeter specifically to target loan sharks and to provide support and advice to the victims of illegal moneylenders. They also help educate local communities about the dangers of borrowing money from loan sharks.
The teams have been identified as the most efficient and effective way of combating loan sharks and they have a proven track record. The England and Wales teams have secured hundreds of prosecutions for illegal money lending and related activity and have written off £55 million-worth of illegal debt, helping nearly 24,000 people in the process.
Funding will be provided by the Treasury via a levy on consumer credit firms, which will be collected by the FCA. The Government believe that all participants in the consumer credit market benefit from the teams’ work and the credibility that comes from keeping illegal moneylenders out of the market. The current cost of the enforcement regime is about £4.7 million a year, so the cost to individual firms in the £200 billion consumer credit market is anticipated to be small. The FCA will consult on how the levy will be collected in its annual fees consultation.
The Government want a safe and fair regulatory framework for consumer credit that protects consumers from harm. As part of that, it is important that the market’s boundary is adequately policed. The illegal money lending teams provide crucial support to the FCA’s work in effective enforcement in the regulatory perimeter, which boosts confidence in the market. The new clause will ensure that funding for the enforcement of rules against illegal money lending is given a sustainable framework for the future and that the illegal money lending teams will continue to receive the funding they need to do their work. I hope that all hon. Members will support this move
John Mann
This is a most excellent new clause, which I hope my hon. Friend the Member for Leeds East and I will be able to use against those who may be doing illegal money lending in sports in the Leeds area. It prompts an interesting question, because the powers on claims handlers—the other side of consumer protection—are not vested in the Treasury. We would not expect them to be. They are vested in the Ministry of Justice, but here we see a power grab by the Treasury. We have the Chancellor versus the Justice Secretary, with the two battling for power. I appreciate that that may cause some concern and divided loyalty. It is essential, in supporting this new clause, that I give my wholehearted support to the Chancellor in his power grab. The Treasury, not the Ministry of Justice, is the best place for powers such as this to be vested in.
Should the Bill become law, I hope that the Minister will go back to the Treasury team and look at other powers that have been grabbed by the Ministry of Justice under previous Governments and used appallingly badly in protecting the people, from my experience—the coalminers’ compensation claim scandal being the prime, but certainly not the only, example. Let us have the Treasury take on those who fleece our constituents out of money, with the full might of the Chancellor, strongly supported by his party’s Back Benches—he is even more strongly supported on some matters these days by the Labour Benches. On this occasion, he has my entire endorsement in his battle against the Justice Secretary.
John Mann
May I disagree with my Front-Bench colleagues on their analysis? I have exactly the same question, but I am anticipating that this is a listening Chancellor—not least to the very point I made to him in the Treasury Committee three years ago, which he rebuffed in his stylistic way in giving a non-answer. I am seeking to clarify whether he is the listening Chancellor and that this is a bit of a roll, so that I can back him again, because he has listened to me on the issue, which I raised in some detail, including in correspondence and in other questions. At the time I did not get a sufficiently satisfactory response. This could be a significant moment. I am hoping that the Minister will clarify that the power being given to the FCA will be all-encompassing and include all ways of ripping off our pensioners, including the couple from Clayworth in Bassetlaw who first raised the issue with me some three and a half years ago.
Harriett Baldwin
I want to put on record that of course the Chancellor is a listening Chancellor. I am delighted that some of that listening includes listening to the hon. Gentleman, whose views on pasties I remember the Chancellor also listened to at one time. I see why his Whips put him on the Committee—because of his extensive and deep knowledge of so many of these things.
Let us face it, the topic of pensions can cause people’s eyes to glaze over—not of course those of hon. Members in Committee, but potentially those of people avidly reading the record in Hansard—so I want to clarify that the pension freedoms apply to defined contribution schemes. Those regulated by the FCA are covered by the new clause. The hon. Member for Wolverhampton South West asked about actuarial reductions, but schemes such as those that most Members of Parliament are members of are in the defined benefit section of the market. That is presumably why he has not found the language clear enough; the new clause does not apply to defined benefit schemes. In cases where actuarial reductions might be applied unfairly, we think it is important for the FCA to be given flexibility in the new clause.
The hon. Gentleman asked about the level of the cap. It is important to emphasise how well and constructively the industry has been working with the new pension freedoms to enable hundreds of thousands of people to take advantage of the freedoms. It is worth citing how excellent, innovative and adaptive many firms have been with the new freedoms, which came in with a degree of rapidity. However, there were some cases—I cited the example of a 10% cap—where charges were clearly egregious. The FCA will do further work in this area, in terms of its cost-benefit analysis process, but there have been efforts to collect evidence of the scale of the charges. In the vast majority of cases—I think that I am right in saying, off the top of my head, more than 90%—the charges have been under 2%. The industry, by and large, has worked very well with the reforms; I do not want people to get the impression that it has not. However, we think that where there are unreasonable barriers, in terms of charges that we would all regard as outrageous, the FCA is right to have these powers.
There will be cases in which, when someone removes their pension, the provider is right to apply a market value reduction, to readjust the value of the fund properly to reflect the performance of the market. Not all funds mark to market on a daily basis. We would not regard that as an early exit charge. It is right that market value reductions are specifically excluded from the new clause.
I hope that by answering all those questions, I have satisfied the Committee that this is another excellent clause from a listening Chancellor, and I commend it to the Committee.
Question put and agreed to.
New clause 7 accordingly read a Second time, and added to the Bill.
New Clause 3
Nomination of the Chief Executive Officer of the Prudential Regulation Authority: parliamentary oversight
“The Chancellor of the Exchequer shall not nominate a person as Chief Executive Officer of the Prudential Regulation Authority without the consent of the Treasury Committee of the House of Commons.”—(George Kerevan.)
Brought up, and read the First time.
Bank of England and Financial Services Bill [ Lords ] (First sitting)
Debate between Lord Mann and Harriett Baldwin(8 years, 9 months ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Economic Secretary to the Treasury (Harriett Baldwin)
May I say what a pleasure it is to serve under your chairmanship, Mr Wilson? I will speak to clause 1 and why it should stand part of the Bill before dealing with the amendments.
The clause makes the deputy governor for markets and banking a member of the court of directors—an important position that is not currently a statutory member of court. It also provides enhanced flexibility to add or remove a deputy governor or alter the title of a deputy governor, as well as the corresponding ability to make changes to the composition of the court, the Financial Policy Committee, the Monetary Policy Committee or the new Prudential Regulation Committee where a deputy governor is added or removed. Those important provisions will simplify the governance of the Bank.
Following the expansion of the Bank’s responsibilities through the Financial Services Act 2012, a deputy governor for markets and banking was appointed with responsibility for reshaping the Bank’s balance sheet, including ensuring robust risk management practices. That important position is currently filled by Dame Minouche Shafik, who is not a statutory member of court. We have talked about regional diversity this morning, but she ticks many boxes in terms of other forms of diversity, having been born in Egypt, worked a lot in America and being a British citizen. The clause amends the Bank of England Act 1998 to make that deputy governor a member of the court, ensuring equal status for all the Bank’s deputy governors and simplifying the Bank’s governance structure.
It should be noted that the power to add or remove a deputy governor will not permit the Treasury to remove a deputy governor or change his or her title while that deputy governor is in office. The measure will ensure flexibility for future need. At present, changes such as the creation of the new position of deputy governor for markets and banking can only be affected through changes to primary legislation. Instead, as a result of the clause, the Government will in future be able, by order and after consulting with the Governor, to adjust the size and shape of the Bank’s senior management team to meet future requirements—for example, to bring in new expertise if that proved to be necessary.
The hon. Member for Bassetlaw asks why we are changing the number of non-executive directors on the court. To be clear, that change is not being made by the Bill. The Bank of England Act 1998 requires up to nine non-executive directors, and following retirements there are currently seven non-executive directors on the court. A smaller board will be better for the Bank. The strong view of the Bank’s non-executive chair, Anthony Habgood, is that a smaller board makes for more effective challenge and accountability of the executive. When there are fewer non-executive directors, each member has greater opportunity to pose questions to executive members and to debate with them. A larger court might encourage a round table of individual speeches, rather than enabling effective back-and-forth discussions with and challenge to the executive.
Harriett Baldwin
The hon. Gentleman serves as a member of the Treasury Committee, and I believe he was also a member of that Committee in the previous Parliament, so he will remember that it produced a report in 2011 called “Accountability of the Bank of England” which recommended that the court’s membership be reduced to eight—smaller than we propose. It emphasised that a smaller court would allow for
“diversity of views and expertise”
while still being
“an efficient decision-making body”.
He may want to go back and look at the evidence base that the Committee looked at. It is important to emphasise that the Bill does not make a change in terms of the membership, which remains at possibly up to nine.
Harriett Baldwin
As a distinguished academic himself, the hon. Gentleman will know that academics often differ in their points of view. It is clear that in this case the distinguished Governor Warsh has come down in one way, and here in our deliberations we have come down in favour of producing a transcript, and Hansard performs that incredibly valuable role for us. I will make some further points, which I hope will convince him of the wisdom of the position that the Government are taking on transcripts.
When Governor Warsh looked at releasing transcripts of the day one deliberations, which he described as “safe space” deliberations, he found that
“Should the transcripts of the Day 1 deliberations be made public, the quality of the deliberative process would risk being materially impaired, to the detriment of sound policymaking.”
He went on to make a clear recommendation that
“the Day 1 policy discussions should no longer be recorded nor should they be transcribed.”
Publication of transcripts of meetings of the court would have a “chilling effect” on discussion and the quality of debate and harm decision making. I therefore hope that the hon. Member for Leeds East will not press his new clause.
John Mann
Having gone through in some detail an analysis of whether transcripts of meetings of the Monetary Policy Committee should be made available, on which there has been a thorough debate, including with members of the MPC, the Minister translates that to an amendment relating to the court. In relation to the court, what is the evidence base that suggests that the hearings or decision making of the court, as opposed to the MPC, would in some way be restricted by a transcript?
Harriett Baldwin
The hon. Gentleman makes an important point. The court oversees the MPC, the FPC, and the PRC under the proposals in the Bill. We have not discussed yet—I will be happy to do so—the fact that on the prudential side of discussions, the people on that committee will looking at material that constitutes, by any judgment, non-public information on the soundness of important financial institutions in this country. I am sure that, as a member of the Treasury Committee, the hon. Gentleman will agree that such material ought to be treated as extremely market-sensitive in any circumstances.
John Mann
The Minister is now jumping to a third body. The amendment relates to the court. The court does not make decisions on interest rates. The court does not delve into the financial situation of individual banks or other financial institutions. The court oversees; the court is strategic. Will she explain the relevance of her case in relation to the court, as opposed to the committee dealing with prudential regulation or with monetary policy?
Harriett Baldwin
I would have thought that it spoke for itself. The fact that the court is overseeing all these different committees, some of which will be considering material that is non-public information—
Harriett Baldwin
If the hon. Gentleman will allow me, I will give way to him when I have replied to his previous point. We are proposing the publication of a record of the court’s meeting, and I agree with him that it is important for that record to be in the public domain. There is a clear difference between that record and a transcript.
Harriett Baldwin
In responding to the hon. Gentleman’s intervention I will be a little bit cheeky, if I may, and highlight the fact that even that august body, the Treasury Committee of this House, sometimes meets in private. There is a need for a safe space for discussions at certain points. We agree with the hon. Gentleman that it is important to have a degree of transparency in terms of the court. We think that the record provided is adequate. I hope that the hon. Gentleman will not press the amendment.
Harriett Baldwin
I would like to move on, but I will take another short intervention.
John Mann
I thank the Minister for giving way. Debate is important. The Minister now cites in evidence the Treasury Committee, which is a good example. The reason that minutes and transcripts of Select Committees are available is because of the strategic overview and public accountability that they provide. That is the whole point about the court. It is not making decisions on the minutiae or on the specifics. It is providing an overview and oversight, on precisely the same democratic logic as a Select Committee. That is the point of this excellent amendment. The Minister does not seem to understand the point of the court and what it is there for.
Harriett Baldwin
With great respect to the hon. Gentleman, I do understand that. Perhaps he would like some further examples. The court plays an important role in relation to emergency liquidity assistance at the time of a financial crisis. We have to agree as a Committee that there will be times when the court is discussing something that we do not want to have transcribed and put into the public domain. Personally, I thought that Governor Warsh was very convincing in comparing what happens on day one of the Monetary Policy Committee and what can happen at other times—not necessarily all the time—and how a record will be published. The hon. Gentleman will vote one way and I will vote another. I do not agree with the amendment.
Amendment 9 would require representation on the court of particular sectors, and require the Chancellor to have regard for balanced regional and national representation on the court. Obviously, the Bank of England plays a central role in the UK economy, and its policy decisions are vital to everyone in the United Kingdom. I therefore entirely agree with hon. Members about the importance of the Bank of England giving careful consideration to how its policy decisions affect people throughout the country. This is at the heart of the Bank’s mission of promoting the good of the people of the United Kingdom by maintaining monetary and financial stability—indeed, that is precisely what the Bank does.
I will give a few examples. The Bank has representatives around the country; those agents work from 12 agencies, in Scotland, Wales, Northern Ireland and the regions of England, to gather information from businesses operating across many different sectors, including financial and non-financial firms. The regional agents, often joined by the Bank’s governors and members of the policy committees, regularly meet and hold panel discussions with companies of a range of sizes across the UK to gauge economic conditions and inform the Bank’s monetary policy and financial stability work. I trust that all members of the Committee have had an opportunity to observe that activity in their constituencies. If they have not, I strongly recommend that they do so, because those Bank activities are extensive. To give hon. Members an idea of how extensive they are: in 2014-15 the agents visited some 5,200 companies drawn from firms in all sectors and in all corners of the country; also, panel discussions were held with 3,700 businesses. Undoubtedly, the Bank goes to great lengths to ensure that it develops a detailed understanding of the conditions for businesses in all sectors across the whole United Kingdom.
In addition, the Prudential Regulation Authority’s practitioner panel ensures that the interests of those who must put the PRA’s rules into practice are communicated to the regulator. The panel includes representatives of banks, insurers, building societies and credit unions. The Financial Conduct Authority’s consumer panel has a statutory right to make representations to the PRA, and the FCA chief executive sits on the Financial Policy Committee and the PRA board, and will sit on the new Prudential Regulation Committee.
Through this Bill we are going further in ensuring that the regulators take into account the diversity of business models operating in the financial sector. Specifically, we are making it clear that both the PRA and the FCA must take account of the differences between different types of firm, including mutuals, whenever they are discharging their general objectives. We argue that these amendments are unnecessary and, indeed, unhelpful. They would cloud the appointments process.
Harriett Baldwin
I do not think anyone disagrees with the idea that we would want to have a range of different abilities and skills on the court of directors. What we are fighting against in opposing the amendments is the propensity of such amendments to lead to a larger and larger group of individuals on the court. Importantly, in relation to highlighting the potential for conflicts of interest, the conflicts policy now makes it clear that, among other restrictions, members of the court should not accept or retain any interest that is in conflict with membership and should not normally be associated with a PRA or Bank-regulated firm, whether as a director, employee or adviser. That ensures that the wide-ranging expertise—we all agree that that is necessary—appointed to the court can be deployed without obstacles, and leaves the court better equipped to respond to a crisis. The amendment would unravel those arrangements, and I argue that we should oppose it; we should not allow it to take us backwards.
The third and most important concern about the amendments is that they would impose unnecessary and undesirable constraints on appointments to the court. In the past three years, the court has been transformed. The Chancellor has appointed the highest-quality team, with significant experience of running large organisations and deep expertise in matters relevant to the Bank. The Government look far and wide for the best candidates, with roles advertised in the international press. Let me be clear: obviously, there are highly competent and highly qualified individuals who work in the sectors proposed and from all the regions across the UK. The amendments would constrain the appointments process utterly unnecessarily, potentially preventing us from forming the highest-quality, most experienced board for one of the most important institutions in the country.
Harriett Baldwin
Not off the top of my head. I cannot specifically think of anything, other than to highlight the fact, in relation to the previous life of the court, when we were dealing with a much larger organisation, that all the reviews since the financial crash have highlighted the unwieldiness of that organisation and the lack of clarity in terms of conflicts of interest as being among the underlying imperfections in the financial regulation that we inherited in 2010.
John Mann
The decision in Sweden, for example, to move to negative interest rates, the collapse in oil prices, the mistake that the Chancellor made with the timing of the RBS shares sale and the successful prosecution in relation to LIBOR are all issues that have originated within the past three years. Did the court in its wisdom say anything about any of them in giving advice to the Bank?
Harriett Baldwin
As the hon. Gentleman will be aware, a number of different independent reviews have been commissioned by the oversight committee during the past few years. I completely dispute his point about the sale of RBS shares. Given how much lower they are today, I would have thought he would welcome the fact that the Government were able to sell the first £2 billion-worth in the market last August. He and I will clearly vote along different lines on this matter. The Government feel that the amendment would constrain the appointment process, to the detriment of effective decision making in the court and in effect, therefore, to the detriment of the Bank’s overall effectiveness. Undoubtedly the court should have a breadth of experience and knowledge, and we certainly want different perspectives to be brought to bear.
It is also important that the court is able, when necessary, to commission the kind of review about which the hon. Gentleman speaks. There has been the Plenderleith review to increase emergency liquidity assistance capabilities and the Stockton review, which made recommendations on how the Bank communicates its forecasts. We have even spoken this morning about the Warsh review, which has made the very recommendations that we are considering, regarding MPC procedures and the governance of the Bank of England.
The current court contains a remarkable collection of experience and talent. Among the directors are the chief executive of a major telecoms provider.
John Mann
I warmly welcome—warmly—this clause, as I do the Minister’s confirmation to the hon. Member for East Lothian that the Government have no intention of removing the trade union representative from the court. I warmly welcome that. It is an exceedingly sensible approach that will resonate well beyond this place. This clause should be unanimously adopted.
Harriett Baldwin
Excuse me if I faint from astonishment, Mr Wilson. I do not think that that has ever happened to me before with the hon. Member for Bassetlaw.
Question put and agreed to.
Clause 2 accordingly ordered to stand part of the Bill.
Clause 3
Abolition of Oversight Committee
John Mann
My view is similar to that of the hon. Member for East Lothian, in that I do not object to removing the oversight committee if the functions are effectively outlined. In addition to the example of the stress tests, there are various potential events—some would call them calamities, others opportunities—that would affect the structure and ethos of the Bank of England. They include British exit from the European Union or Scottish independence. They would require the court to act effectively and strategically. If there is a feeling of conflict in direction—direction being what should happen and what people should spend their time on—the ability to draw in external reserves and expertise is key. The power to do that has to be there.
Amendment 12 in particular would be useful to the Government and would complement their approach. I put it to the Minister that it would be helpful, given the direction of travel. I tend to concur with the Treasury Committee’s general view on this point, but only if the court is right and the non-execs have that power. The Treasury Committee, on behalf of Parliament, has made it clear that bringing the non-execs from the court into the Treasury Committee and having that dialogue in public and producing transcripts of it, which has not happened in the past, will be an important feature in the future.
Harriett Baldwin
The line-by-line consideration of this provision in the other place and here this morning has been extremely helpful. Before I speak to the amendments, let me give the Committee an example of the problems in the oversight committee’s current arrangements which I think will inform our debate. The hon. Member for Bassetlaw mentioned the 2013-14 foreign exchange market investigation, which sought to establish whether any Bank officials were involved in or aware of the FX market manipulation. In October 2013, the Bank’s governors initiated an extensive internal review, and they regularly briefed the court at its meetings from November 2013 onwards. In March 2014, it became clear that an independent investigation would be appropriate. The oversight committee took over the investigation and appointed Lord Grabiner QC. That is a very good example of the oversight functions. In practice, the executive needed to join the oversight committee discussions for the oversight functions to work and be effective, both as the investigation progressed and once attention turned to delivering the recommendations. It would be better practice to make the oversight functions the responsibility of the whole court. That is the purpose of the clause.
I welcome the opportunity to speak to the amendments and to explain the improvement in the oversight arrangements at the Bank of England and the power we have ensured for the court’s non-executive majority. The Bill brings the court closer to the model envisaged by the Treasury Committee, which called for a board with powers to conduct ex-post reviews of the performance of the Bank; for board members to be authorised to see all the papers submitted to the Monetary Policy Committee and the Financial Policy Committee; and for the board to be responsible for reviewing the processes of the Bank’s policy committees. Making the oversight functions the responsibility of the whole court makes it clear that every member of the court, executive and non-executive, can be held to account for the use of these functions. No member of court can claim that the oversight functions were not their job, since they will now rightly be the responsibility of all.
That replaces the current arrangement in which there is effectively an oversight committee overseeing the work of an oversight board. That is neither efficient, nor best practice. In fact, on Second Reading my right hon. Friend the Member for Chichester (Mr Tyrie), Chair of the Treasury Committee, put it well when he said:
“The oversight of the executive will be the responsibility of the court itself, rather than a sub-committee. Even though it was not called a sub-committee, it was, in fact, a sub-committee, and a weaker committee than the court.”—[Official Report, 1 February 2016; Vol. 605, c. 668.]
During the Bill’s passage through the House of Lords, we introduced the power, which has been welcomed by members of that House, that this amendment seeks to alter. This part of the Bill ensures that a majority of non-executives can always initiate performance reviews without needing to secure the agreement of a majority of the whole court. If just four non-executive directors want a review, they will be able to initiate it. Under our proposal to give more powers to the non-executive directors to do their job effectively, the initiators of a review would determine who should carry it out. This could be someone external or someone internal, including the Bank’s relatively new Independent Evaluation Office. The amendment would take away their discretion and make the new Independent Evaluation Office irrelevant.
The Bank’s Independent Evaluation Office reports directly to the non-executive chair of court. A few months ago, it published a review into the Bank’s use of forecasting—a clear example of where an internal review is appropriate. In our opinion, Lord Grabiner’s inquiry into Bank officials’ awareness of market manipulation in the foreign exchange market was an example of where an external review was appropriate.
The Bank’s non-executive directors, as we have heard in a previous debate, are selected for their ability to bring new perspectives and experience and to challenge and scrutinise the Bank’s executive. It is right to give them the powers to ensure they are able to fulfil this role. The amendment would send a message that we do not trust the non-executive directors to do their job. For the discretion of those high-quality non-executives to determine what reviews should be carried out and who should carry them out, it would substitute a conveyor belt of external reviews.
Those commissioning a review, whether the court as a whole or the non-executive directors, are best placed to decide whether an internal or external review is most appropriate. The Bill rightly allows that discretion for the whole court and for the non-executives. The amendment would take away that choice, which we think would be bad news for effective oversight. I hope the hon. Member for Leeds East has listened to the arguments. We all agree that the important power in the Bill for the non-executives to act independently to initiate reviews of the banks should not be constrained in this way, and I hope that after due consideration, and after the extremely valuable debate in both Houses, he will withdraw his amendment.
Bank of England and Financial Services Bill [Lords]
Debate between Lord Mann and Harriett Baldwin(8 years, 9 months ago)
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John Mann
I have said many times in the past and repeat it briefly now that there should be a differential in the risk for retail banking.
We know what is going on here. The Chancellor has a problem—his accounts do not add up. I confidently predict that he will not get the surpluses he wants, as we will find out with the OBR report at the time of the Budget. He is therefore desperate to sell off the shares in Lloyds and RBS. That is what is going on. That is why all this is happening. That is why he wants a new settlement with the banks. He wants to maximise the price in order to create the surplus that he has created in his head and in his Budget for all of us. That is what is going on politically.
John Mann
I shall end now; there is plenty of opportunity to join the debate.
We have heard about Google in the past week, but we have not heard enough about the bank take. We keep being told that the banks are the engine of the British economy. Well, they are certainly not the engine of tax receipts because most of them are not paying tax. We see that with the overseas banks. We know that seven out of the biggest 10 investment and commercial banks are paying zero tax. We see Lloyds paying zero UK corporation tax. We see Citigroup paying zero UK corporation tax and Credit Suisse paying zero. We see HSBC paying £160 million out of its £11.3 billion worldwide profits. That is all the tax they are paying. Perhaps the example that sums up the problem the most is Goldman Sachs, which generated £2 billion in UK profits last year, but what tax has it paid on that? It is less than it pays to the individual partners—so less to the state and the Exchequer for the defence of the realm, the health service, broadband, the infrastructure, education and the welfare state. It paid less than it paid to one individual—a measly £27 million.
That is not good enough. That is what this Bill is missing. I look forward to contributing further.
Draft Financial Services Bill (Joint Committee)
Debate between Lord Mann and Harriett Baldwin(13 years, 4 months ago)
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John Mann
It is good that serious interventions are being made. On Treasury matters, there is a historical bias going back over the centuries, but this Parliament has not got to grips with it. We made exactly the same mistakes when establishing the Select Committees. The usual channels have brought forward names and those names are not reflective of the House or the country. That is a fundamental weakness.
Harriett Baldwin (West Worcestershire) (Con)
Will the hon. Gentleman be moving on to the next point, which is the disproportionate number of people called David on this Committee?
John Mann
I will not be making frivolous points about the forename or surname of any of the Members put forward for this Committee. However, the question of gender balance is not going to be knocked off the agenda so easily, because it is fundamental to the whole workings of Parliament. If Parliament in the modern era is portraying itself through one of the very first Joint Scrutiny Committees to be established and the elected House of Commons manages to get itself in a bind whereby all the Members put forward are English males, we are letting the country down. We are also letting down the principle of modernisation, which, superficially at least, is shared by those on both sides of the House. If we are really trying to encourage a wider array of people to take an interest in this House and, in future years, to stand for this House, how we portray ourselves in the Committees that we create is a fundamental principle.
I put it to the House: in what other way can the House manifest its commitment to an inclusive Parliament—a Parliament that is representative of all parts of the country, of all sections of the country and of both sides of the gender division within the country? There is a fundamental point at issue, which the Government, in failing to give proper time to have this proposal debated, are shying away from. That is a weakness at the heart of government.