Medical Innovation Bill [HL]

Lord O'Donnell Excerpts

Friday 12th December 2014 Lords Chamber

[Baroness Jolly]

My noble friend is right. The Government are suggesting that there should be a registry because it would make no sense not to record innovations. It could otherwise not be replicated. The Government’s preferred approach is to set up a registry but not to put that on the face of the Bill.

In Committee, my noble friend Lord Howe committed on behalf of the Government to explore constructively what might be useful in terms of record-keeping and reporting in relation to medical innovation. The Government have begun engaging with partners in the health system to discuss how to achieve this goal and will continue to do so as the Bill progresses. This mechanism should be developed with a sufficiently light touch so that clinicians see it as being facilitative of good practice rather than burdensomely bureaucratic. It is also important to consider the efficiency of the data-collection mechanism and how it can be developed in the most cost-effective way.

In response to my noble friend Lord Cormack, once we have a Bill, the Government will work closely with the professional bodies and all other organisations to help the health system and patients understand and prepare for the changes to the law made by the Bill, including producing any guidance that might be helpful.

[Lord O'Donnell (CB)]

As a strong supporter of this Bill, I back the idea that we must learn from the innovation. To be honest, I worry not about the successes but about the failures not being recorded. Therefore, I am grateful that a register will be set up. However, will it be compulsory? If it is not, that would not meet the requirements.

[Baroness Jolly]

At the moment, it is not the intention that it should be compulsory, but it should be such that doctors would not dream of not recording on the register. In that way innovation is spread but failures are disseminated, if that makes sense.

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[Baroness Warnock (CB)]

Surely it is important that this register should be compulsory. The obvious point is that if you innovate and it fails and then you do not register, that would destroy the whole point of having a register.

[Lord O'Donnell]

Perhaps I may come back on whether it is relevant for this Bill. As I understand it, the Minister said that the Government were deciding to set up this register and therefore it is not a question of what is in the Bill. We were asking whether the Government can make the register compulsory and how they would do that.

Financial Services Bill

Lord O'Donnell Excerpts

Tuesday 3rd July 2012 Lords Chamber

[Lord Flight]

My Lords, I support the Government’s amendments. I would like to make two small points to pick up on the point made by my noble friend Lord Trenchard. First, when it comes to the achievement of stability, having adequate competition in the domestic market is crucial. The problem with the banking system is that it became too much of a cartel without enough competition. When cartels exist, they tend to do the same thing at the same time and the resulting problems are often large in scale.

I well remember, following the Barings problem, having many discussions with the then Governor of the Bank of England, the late Sir Eddie George. What happened then was that the lender of last resort principle was deemed to apply only to banks that were too large to fail, so smaller banks such as Hambros were closed down and sold, and we ended up with a moral hazard problem and a cartel problem. I stress that adequate domestic competition is very much part of the stability objective, whereas with economic success it is international competitiveness that is arguably more important, particularly for the role of London.

We will come to this subject later on, but there is an important difference in the interplay between adequate domestic competition and being adequately competitive internationally in terms of the two objectives of stability and economic growth.

[Lord O'Donnell]

My Lords, I rise to support Amendment 35A and in particular to speak in favour of the phrase “subject to that”. It is important that we understand why this was put there for the MPC. The basic economic principle was that low and stable inflation was the best prerequisite for long-term sustainable growth. Shocks to economies happen, which mean that inflation will move away either above or below. When that happens, the MPC has a choice. It has a choice of which path of its instruments—we thought at the time of just interest rates but obviously QE is part of it—it should choose. The legislation gives a very clear answer to that because it says “subject to that, look to the broad economic objectives”, so it should be choosing that path which best meets those economic objectives while hitting long-term stable inflation.

It works for the symmetry with the FPC because we would all say that financial stability is a necessary and sufficient condition of sustainable economic growth. When you get shocks to financial stability—and boy have we had a shock—you then have choices about how you get back from those shocks. I strongly agree with the noble Lord, Lord Eatwell, that in these circumstances you do not want to have pro-cyclical regulation, which could make matters worse. It is really important that the “subject to that” is there and that that builds in the economic policy.

For those who want to explain economic policy in a lot more detail and put subsectors in, I would say that could be a very long list, so I think you have to rely on economic policy. The amendment is very clear. It refers to the Government’s,

“economic policy … including its objectives for growth and employment”.

I, for one, would ask “What is the economic policy of the Government?”. The Prime Minister made that clear when he said that we do not live by GDP growth alone and that what really matters is maximising well- being. Therefore, I think we have an overall strong objective which allows us to get to the right policies. It is not about a simple mechanistic formula.

[The Lord Bishop of Durham]

My Lords, I would hesitate to disagree with the strong voices who have accused me of coercion. It is some time since I was last accused of coercion—not since the Church Commissioners sold off my palace with its dungeons. Coercion is much less of an opportunity than it used to be.

The amendment is not coercive and I disagree with the views that have suggested that it is intended to be. It is part of a series of amendments which are meant to open up the market and make it easier to have more stable and sustainable supplies of finance across the market. It refers to a stable and sustainable supply of finance; not to creating it but to enabling it—making it possible. One of the characteristics of many areas of economic stress, such as those in my diocese, is the creation of microeconomies, which may be much weaker or stronger than the national averages may indicate. Many contributions from noble Lords have tended to look at the macro and national picture and have forgotten some of the local and smaller problems that happen but which nevertheless affect many people. Adequacy of finance varies significantly even within one size or sort of company, as I remember from my days in the oil industry during a collapse in the oil price. SMEs in the south of England may find a very different position from what they will find in the north-east. The noble Viscount, Lord Trenchard, called it an amendment for a planned economy, but the word used is not “planned”; rather the intention is reflected in the word “promoting”.

The speeches of many noble Lords seem to assume that the present situation is working. In many parts of the country, it is not. Some areas are virtually demonetised, apart from cash, and this is a significant problem. The reports of the Bank of England agent in the north-east indicate the irregularity of finance. Anyone who has managed the finances of a company and a social enterprise, as I have, will know that that is a more serious problem than a continual supply or even a shortage of supply. You need to know what you are planning for. Moreover, a lack of attention to regulatory barriers to access to finance is likely to result, without attention, in a less competitive and open market that in turn will see a continuation of these inequalities across the country.

It may well be that the language of the amendment to which I have added my name is a little too forceful and coercive—I am rather attracted by coercion—and that seems to be a common view which I would probably be hard put to resist. I hope that the Minister will take note of the issues of closed and inadequately liquid markets in certain areas of our economy and of access to finance being more difficult in less fashionable areas where the need for employment creation is severe.

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[Lord Higgins]

My Lords, we should be grateful for the opportunity to have a debate this afternoon because it enables us to focus on what our priorities should be. We have essentially been considering two things: how wide an inquiry do we need and how urgent is it that it should produce results quickly? What has become quite apparent is that one inquiry is not going to be enough. What has happened is this: on the one hand we need a short-term inquiry, but on the other hand we need a strategic inquiry. We also need the kind of investigation which the noble Lord, Lord Carlile, has put forward, but in a sense it is a separate issue because the outcome of that inquiry will presumably be the prosecution of particular individuals. In no way would the noble Lord’s inquiry tell us how to reform the banking system. So that is something which is self-contained and separate.

We come then to the question of the best tactical answer. I fear that the position has been somewhat confused by the references to Mr Tyrie. Let me make it absolutely clear—I speak as someone who was the chairman of the Treasury Select Committee for 14 years—that I have the greatest respect for Mr Tyrie, who has been doing a magnificent job as chairman of the committee, which I understand is to take evidence from Mr Diamond this week. But the question then arises of whether Mr Tyrie should also be the chairman of the Joint Committee, the proposal put forward by the Government. I think that this confuses the matter. The shorthand around the use of the word “Tyrie” has actually become extremely confusing. Yesterday I expressed a view that I shall repeat now: to do the jobs both of chairman of the Treasury Select Committee and chairman of the Joint Committee is too much. It will distract from the normal work of the Treasury Select Committee, while the Joint Committee will need the full attention of whoever is appointed as its chairman.

I am not clear on how it suddenly became apparent that Mr Tyrie would chair the Joint Committee. My noble friend the Minister pointed out yesterday that the Joint Committee will presumably decide who its chairman should be. I would prefer Mr Tyrie to continue as chairman of the Treasury Committee because he is doing such a good job, and I believe that someone else should chair the Joint Committee. However, that will be a matter for him and the respective committees to decide. At all events, the Joint Committee is the right way to go as regards the immediate investigation and rapid conclusions on what needs to be done urgently. That leaves unanswered some of the more fundamental positions that need to be considered. The body which could most appropriately do that was suggested by the opposition Front Bench.

To summarise, leaving the separate Carlile issue on one side, the Treasury Committee should continue with its work in the normal way; the Joint Committee should consider the immediate actions that need to be taken as it unearths the problems, as no doubt it will; and there ought also to be a longer-running inquiry. There will not then be any accusation that we are kicking the matter into the long grass, and at the same time we will get rapid results on the tactical situation. In the light of your Lordships’ debate, it is becoming increasingly apparent that that structure is the right approach.

[Lord O'Donnell]

My Lords, I support the sentiments expressed by the noble Lord, Lord Kerr, and the noble Baroness, Lady Kramer, and believe that we need to handle the very important issues raised by the noble Lords, Lord Eatwell and Lord Myners. There is a way of managing all of this.

First, importantly, we have a lot of information already. We want an inquiry to establish the facts, but we need to bear in mind that we have MoJ, CFTC, and FSA reports on the LIBOR issue that have raised enormous issues. I would very strongly support what the noble Lord, Lord Carlile said, but with the noble Lord, Lord Howard, variant, if I might put it that way; that is, that these reports have raised serious issues of criminality. We need to investigate those issues quickly, with sufficient resources, and with all the power and vigour that we would use if this were some other form of crime. That process is crucial. It should happen straight away, and it should not be resource-constrained.

Secondly, the Wheatley report will be important specifically to the way in which we handle the LIBOR issue. It is urgent, and plenty of others would like to take this business away from us. The Wheatley report, which should be with us through the summer, will suggest some amendments to this Financial Services Bill. I particularly like the suggestion of LIBOR being a qualifying financial instrument, which might well get us through a lot of these issues.

We then come to the more general set of issues on what is wrong with banking and how we can restore confidence in it. Those are very important questions. In my maiden speech, I suggested that we should have a Joint Committee of both Houses chaired by the chairman of the Treasury Select Committee who would have authority and power. Given the experience of Members of this House, it could come up with some answers that would get past the problem of reputational issue. Both Houses acting together would command confidence and such a committee more generally at what emerges from the LIBOR case.

Some issues will emerge directly from the LIBOR case which will relate to our future banking reform legislation, touching on the whole question of splits and the like. That Joint Committee could guide us as regards the changes we would need. I am in favour of changes to that legislation and I would look at total assets rather than only at risk-weighted assets, and at total leverage ratios rather than only at what is proposed. However, that is a separate issue that we will come to later in this House.

Financial Services Bill

Lord O'Donnell Excerpts

Tuesday 26th June 2012 Lords Chamber

[Lord Barnett]

My Lords, if anyone troubles to read the amendment, which stands in my name and that of my noble friend Lord Peston, they will see that I am asking why we need two more deputy governors. I do not know whether that means that they get higher salaries. Perhaps the noble Lord can tell us the salaries of the members of the Court of Directors. It is not clear to me just who is responsible for financial strategy. The Bill proposes the introduction of one deputy governor for financial stability and one for monetary policy. I do not know how many people are responsible for this. As has been said, there are supervisory committees, boards, a Court of Directors, the Financial Policy Committee, the Monetary Policy Committee and the Treasury, and I assume that ultimately the Chancellor might take a slight interest in financial stability and so on.

Why do we need two new deputy directors? They could be called deputy chairmen, or anything you like, but the point is that we should just let them chair the committees. I assume that the work they will do will be repeated elsewhere many times. I do not even know whether the Court of Directors will have the final word. To my knowledge, the Court of Directors has never made the final decisions in the past. The noble Lord, Lord Sassoon, once told me that when he was a senior official at the Treasury he attended the Monetary Policy Committee as the Treasury spokesman. I have never been able to find out, either from him or from anyone else, just what the Treasury spokesman spoke about at the Monetary Policy Committee. Clearly, he had some important things to tell that committee before it came to its conclusions.

I suppose that the question underlying our two amendments in this group is: who is ultimately responsible for these major issues? Is it the Court of Directors of the Bank of England, the Financial Policy Committee or the Treasury, and why do we need two new “deputy governors” rather than just “members of the court”? I beg to move.

[Lord O'Donnell]

Perhaps I may respond to the noble Lord’s comments about the Monetary Policy Committee and the Treasury person on it, having been that Treasury person at a very large number of MPC meetings. That person is referred to as the Treasury representative. In the early stages of the meetings, they would explain what was going on in fiscal policy to allow fiscal monetary co-ordination to take place. However, the convention was that the Treasury representative did not get involved in the committee’s discussion about a decision on interest rates.

[The Lord Bishop of Durham]

I shall speak to the amendment in my name, which is in this group. The noble Lord, Lord Eatwell, and others, have commented that the governor’s powers under this Bill are extraordinary. In fact, in the internal running of the Bank the governor will become totally dominant and virtually unchallengeable, as it will the governor who sits on all the relevant key committees. By virtue not only of sitting on them but of chairing them, the governor will have power over the agendas and the conduct of business. That will enable the governor essentially to control the direction of the PRA, the MPC and the FPC completely.

The purpose of the amendment is to pick up some of the points that the noble Lord, Lord Barnett, made so well a few moments ago and which had been made earlier. It seeks to balance the powers in the committees so that the deputy governors have control of their own special areas and are capable of ensuring that the committees focus on the areas that they know well. Noble Lords are aware that in the crisis of 2008, part of the problem, which has been brought out in subsequent inquiries, was that the governor’s focus was inevitably on one area and that others were overlooked because they were not the governor’s principal concern at the time. It is therefore necessary to try to balance the internal powers to create a robust and demanding internal discussion within the Bank long before it comes to the oversight or review of what might have gone wrong in the past—in other words, to stop things happening before they happen rather than afterwards.

Government Amendment 13, which is a fascinating, interesting and useful amendment that will be discussed later, seems, with respect to the noble Lord, to be retrospective rather than prospective. There is quite a lot of closing the stable doors after the horses have left. We do not want another run on the banking system; we want people to stop one. It is the old pink elephant problem: how do you prove that the system has stopped pink elephants being around because you never see one? We will be looking backwards, not forwards, with Amendment 13. It is useful in helping us to understand what has gone wrong but not what happened at the time.

My other concern in trying to balance out these major three committees, two being chaired by a deputy governor, is to try to make the FCA slightly less of the runt of the litter. At the moment, with one person having so much control, the FCA, which is the only committee of the big four that the governor does not chair, ends up being overlooked, I fear. Will the Minister comment on whether he agrees with the point made forcefully earlier that the most rigorous models of governance today should be those that are modelled on the Bank, which include ways of ensuring that it is a learning organisation before rather than after disasters happen. What further action can he suggest to ensure that the FCA’s voice is heard clearly, given its widespread impact on consumer finance across the whole nation and not only in the major financial institutions in the City of London?

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[Lord Flight]

My Lords, these committees seem to me to be very different bodies. The MPC and the FPC are, in essence, intellectual bodies reviewing policy, one in the monetary area and the other in the stability of the system. They are not bodies employing hordes of people carrying out an executive function. This is in contrast to the PRA, which will be an organisation employing lots of people doing a detailed regulatory task, and the court itself, the board that runs the Bank of England which does all the banking and other things. They are very different entities, and the PRA and the court actually need chief executives. I think it very reasonable that the chief executive of the PRA—you can call him the deputy governor, that is fine—and the chief executive of the Bank of England should be the governor himself. Thus the governor should not be chairman of the court, which should have an independent chairman. When it comes to the MPC and the FPC, the chairman is actually the person who is hosting the taking of the decisions, and so I do not think it is inappropriate for the governor to be chairman of both or at least chairman of one.

[Lord O'Donnell]

I support the noble Lord, Lord Flight, in that and pick up on what the noble Lord, Lord Eatwell, was saying about this issue. I completely agree that the problem is whether the governor concentrates on one area to the exclusion of the other. You risk making things worse if you make the governor chair of one of these committees and not the other. I would say that you cannot have a Governor of the Bank of England who is not sitting on the Monetary Policy Committee. I just cannot see how you would have a governor who does not have a vote on the interest rate for this country. It does not seem to make any sense whatever. The Financial Policy Committee is going to take decisions on instruments such as loan-to-value ratios which will have quite an important bearing on macroeconomic issues which also matter to the MPC. I completely accept the issues about concentration of power. They are very important and should be handled through the accountability relationships that we set up. I also agree that the third body is very different and therefore the governor should not chair it, but the MPC and the FPC overlap so much that I do not think it is feasible not to have one person chairing both. If you were governor, and sent your deputy to chair one of these meetings, can you imagine how much time would be spent instructing them on what you thought they should do and getting feedback? It is far more transparent and open that one person chairs both.

[Lord Sassoon]

My Lords, this has been a very interesting discussion. Let me first deal with Amendments 3 and 4 in the names of the noble Lords, Lord Barnett and Lord Peston, and remind the House of one or two background issues with the deputy governors. First, we are not creating any new positions here. We are talking about two deputy governors who were created in the Bank of England by the Bank of England Act 1998. For the avoidance of doubt, we are not talking about anything new, but about existing deputy governors. Of course, the details of their pay and that of all other members of the Bank’s senior management are set out in the annual report and accounts. If it helps the noble Lord, Lord Barnett, page 41 of the 2011 accounts sets it all out in full detail. We are not talking about something new here.

As to the question of the noble Lord, Lord Peston, about job descriptions, when the role is advertised for a new appointment, a full job spec of the sort that he would expect is indeed produced. If he will forgive me, we will come on to questions of appointment in a further grouping, when no doubt we can come back to that point.

The two amendments open up a discussion about why we have deputy governors and what is their role, so I should say a word or two on that. I suggest that the role of the deputy governors is crucial. It would be enormously challenging for the governor to handle the breadth of policy and operational responsibilities of the Bank without support from the two specialist deputy governors. Each of the existing deputies is responsible for the Bank’s activities relating to one of its two statutory objectives: monetary policy and financial stability. That in itself goes 90% of the way to explaining the job description in very clear terms. The deputy governors run those areas on a day-to-day basis; they take the lead in many cases in international negotiations in those areas; they communicate with the public; and they have a major role in the relationship with the Government and Parliament in their respective areas.

Particularly given the enhanced responsibilities that the Bill will give to the Bank, I see absolutely no reason why we would want to weaken the Bank’s senior executive team by removing the deputy governors. I hope that that is not what the noble Lords who tabled the amendment would want, although that would be its effect. Rather the reverse: the capacity of the Bank’s senior team must be strengthened to equip it for its new responsibilities, which is precisely why Clause 1 creates a new deputy governor post. The third deputy governor will be the chief executive of the PRA and will be responsible for prudential regulation within the Bank. This has been a useful teasing out of what the deputy governors do, and I hope that that explanation has proved useful.

I turn to Amendment 9 in the name of the right reverend Prelate the Bishop of Durham, which would require the court to remove responsibilities from the governor. It will be no surprise to the Committee when I say at the outset that I do not believe that that is appropriate. The governor is the most senior executive in the Bank and is ultimately accountable for all the Bank’s decisions and actions. Of course, a great deal of Bank policy-making is delegated by statute to policy committees, including the MPC and the FPC. Indeed, it could be argued that most of the Bank’s most vital decisions are taken by the FPC and the MPC—and, in future, also by the PRA board.

I largely agree with the three noble Lords who are very distinguished former Permanent Secretaries to the Treasury. The Committee should be very grateful that they are here and able to illuminate this debate with such clarity. However, having heard the noble Lord, Lord Turnbull, in particular, at Second Reading, I suspect that there may be moments later down the track when we may not be in complete agreement. The interventions of the noble Lords, Lord Turnbull and Lord O’Donnell, on the amendment have been illuminating. The noble Lord, Lord O’Donnell, quite rightly highlighted the co-ordinating role and the need for balance and the noble Lord, Lord Turnbull, rightfully made the point about where the buck stops. I suggest that it is right that the governor, as the head of the Bank and being fully accountable for the decisions taken by the Bank’s policy-making bodies, should chair these committees.

I will come on to some rightful concerns about that position in a moment but I add, in parenthesis, that I am also grateful to the noble Lord, Lord O’Donnell, for answering the question that I have had on a number of occasions from the noble Lords, Lord Barnett and Lord Peston, about what the Treasury representative does on the MPC. I was privileged to be there on one occasion; even the Permanent Secretary to the Treasury needs a holiday in August occasionally, so I deputised. I hope that the very clear explanation from the noble Lord, Lord O’Donnell, will mean that we do not get the question quite as often in the next two years, so I am grateful for that.

The substantive concern underlining Amendment 9, about the concentration of power in the Bank and in the governor as an individual, is an important issue. I was not going to argue for one minute, and will not argue, that the oversight committee is the answer to that point. No doubt we will come on to talk at length about the oversight committee which, among other things, responds to the Treasury Committee’s specific recommendation that reviews be retrospective in order to allow enough time to pass to learn the lessons effectively from decisions and actions that are taken by the Bank. We will come on to that but it does not address the issues we have here.

Let me suggest, in answer to the point in Amendment 9, that there are some effective checks and balances in the system. To start with, in each of the governor’s roles—as chair of the MPC, the FPC and the PRA, and as head of the Bank itself—he or she will be both supported and challenged by a group of experts. Those experts will include internal Bank executives such as the specialist deputy governors, who we have talked about; the executive directors and the non-executives of the two governing bodies, the court and the PRA board; and external members of the policy committees, the FPC and the MPC. I certainly agree with my noble friend Lord Sharkey that that challenge is important. It is already there and it will continue in the new construct so that in each area of the governor’s areas of responsibility, he or she will not be responsible for taking decisions alone. In the MPC and FPC, policy decisions are taken collectively, with each member having a voice and a vote.

On the specific issues raised by my noble friend Lord Sharkey, those votes do not always go the governor’s way. Members of the Committee may be aware that the governor has found himself on the losing side of the MPC vote on a number of occasions, most recently in the June MPC meeting. I suggest, first, that there is the right construct of individuals to challenge and that, secondly, we have evidence that challenge takes place and is effective. Equally, on the governing bodies of the Bank and the PRA, decisions will be taken collectively, with non-executive members being in the majority on both bodies. As chair of the PRA board, the governor will ensure strategic co-ordination between the PRA and the rest of the Bank group; that aspect of co-ordination is also important. That will help to ensure an effective and joined-up response to emerging threats to financial stability.

However, the governor will not play a hands-on role in the day-to-day running of the PRA. That will be the job of the deputy governor for prudential regulation in his or her role as chief executive. The governor will therefore be fully supported in all the different roles and will receive effective challenge from both Bank insiders and external members. It is entirely right that the responsibilities of the governor and the arrangements to ensure that he or she is both supported and held properly accountable should be determined and set by Parliament through the legislation we are scrutinising today, rather than delegated to the discretion of the Court of Directors of the Bank. For all those reasons, therefore, I cannot support the amendments in this group. I would ask the noble Lord, Lord Barnett, and the right reverend Prelate to withdraw their respective amendments.

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[Lord Sassoon]

My Lords, first of all, I am not going to respond to the challenge of how different governors have handled committee chairing. As I have explained, I have sat in on one meeting of the MPC. We have other noble Lords, or at least one, who have sat in on a lot of meetings. I am not sure where the noble Lord, Lord Peston, gets his first-hand experience from, but let us put that aside. I hear now that he has no first-hand experience. Well, I am glad to hear that, but let us put that on one side.

I appreciate that in this Bill, and under the present arrangements, the Governor of the Bank of England has a very challenging job. The essence of what we are putting back into the Bank of England is, of course, leadership in financial supervision, which was part of the historical role of the Bank, except for the last 15 years or so. The Bank has essentially had these responsibilities in the past. The governor is and will be very well supported, partly by the deputy governors, as I have explained, but also, of course, by the whole Bank and PRA executive. This whole construct has been discussed in detail with the present governor, so I am fully confident, without being able to go through the governor’s time and analyse it, that this has been carefully thought about and the new proposed role of the governor is entirely manageable with the support that the governor has and will have.

[Lord O'Donnell]

Having sat through large numbers of meetings of the Monetary Policy Committee chaired by Eddie George and Mervyn King, I know that the reality is that the chairman has one vote, although they have a casting vote. That dominates the style of the meetings; they are not so much dominated by the style of the individual who is chairing them. Having sat through all those, I do not think that the contrast is as great as the noble Lord, Lord Peston, makes out. It is certainly true that I remember one occasion when the vote was coming round to Eddie George and he was 4-3 down, and he chose to use his vote to make it 4-4 and then used his casting vote to make it 5-4. That was an interesting use of the chair’s power. It is important, though, that the chair has only one vote and that therefore, of the nine, they can be outvoted; indeed, that is a good thing.

As laid down in the previous Act, the governor has always had responsibility for financial stability, so it is a question of how they choose to use it. Like the noble Lord, Lord Peston, I worry about the sheer weight of meetings because it is not just these meetings but the international ones as well. That is an issue, and it may be that one of the things that we got wrong with the Bank of England Act was specifying precisely how many meetings there should be. On occasion, it would be nice if you could go through a period of longed-for financial and economic stability when you might be able to pass on one or two of these meetings and not be forced to have them quite so often when actually there was not that much to do. However, that is a nirvana that we are not that close to at the moment.

[Lord Barnett]

My noble friend and I put down the amendment not because we care too much about whether someone is called a deputy governor but to discuss the underlying problem here. The Minister might be saved a lot of work in future; as we have heard, we are very fortunate in this House as it is, without reform, in having three noble Lords who can answer our debates, and the Minister need not bother. I am grateful to them, and we are fortunate to have them here. I know that one of them is even worrying about the job of the governor and whether he can cope with it—I see the noble Lord nodding—and he may find at the end of our debates on this Bill that he would rather not bother.

The Minister has not replied to my questions, but of course I did not expect him to. He did not tell us what the salaries were or whether someone gets more of a salary as a deputy than as an ordinary member. He told us that the job was advertised and anyone could apply. I wish I had known that years ago; I might have thought of applying. I do not know who was on the committee then; it may have been those three noble Lords on the Cross Benches who decided on the candidates. Whoever it was, we have had an interesting debate. However, what we have not yet discussed, although no doubt we will have other opportunities to do so, is the job of,

“a Deputy Governor for financial stability”,

and “for monetary policy”.

After all this, I am still not clear what the Monetary Policy Committee does, what the Financial Policy Committee does, what these deputy governors and their committee do, what the governor is going to do, what the Chancellor is going to do and who the hell is doing what. I am sure that in our later debates the noble Lord, Lord O’Donnell, will be interested to know. As I have no intention of applying for any of these jobs, I would like to know how they are decided and who applies. Incidentally, as my noble friend Lord Peston said, it is interesting that there is never a woman anywhere in the Bank. There may be some lower down in some menial jobs.

Financial Services Bill

Lord O'Donnell Excerpts

Monday 11th June 2012 Lords Chamber

[Lord O'Donnell]

My Lords, as this is my maiden speech, I would like to take the opportunity to thank all the Members of your Lordships’ House, and all its officers and staff, for making me so welcome. I have had the privilege to serve and collaborate with many noble Lords on all sides of the House, not least our previous speakers, and I look forward to working with them again. As an ex-Cabinet Secretary and Permanent Secretary to the Treasury, I want to pay particular homage to my predecessors. Their advice has always been wise, their criticisms constructive and, thankfully, private. It was a particular privilege to work with the Prime Minister and Deputy Prime Minister as they took on the challenges of making the coalition work effectively, and I have been privileged to serve with other Prime Ministers. The strength of purpose of Sir John Major and Tony Blair over Northern Ireland; the decisive action of Gordon Brown at the London G20 summit during the financial crisis; and the coalition’s actions to help the people of Libya—all these examples demonstrate one clear principle. Strong leadership can transform situations that look almost impossible. This is a message that I would like to get across to the leaders of the eurozone.

I have been blessed with a highly supportive family. The O’Donnells have had an interesting journey from Roscommon in Ireland via the coal mines of Durham to the south-east of England, which explains my passion for improving social mobility. There are many other areas where I hope to contribute in this House, but today it is right to concentrate on economic and financial issues.

As someone who was heavily involved in the five tests analysis on UK membership of the euro, published nine years ago, I will be observing very closely how the euro crisis unfolds. The nature of the resolution will have profound effects on our economy, and particularly our financial sector. No one can be sure what will emerge, which is why the changes proposed in the Bill need to be robust across a range of outcomes.

Before I turn to my specific comments on the Bill, I need to register two interests, one actual and one potential. Having obtained the approval of the business appointments committee, I will be working as a strategic adviser to Ed Clark, the chief executive of Toronto-Dominion Bank in Canada. Mr Clark is one of the most respected bankers in the world, and the regulatory regime in Canada has enabled its banks to weather the financial storms remarkably well. Mr Carney is, interestingly, both governor and chair of its Financial Stability Board.

There has also been press speculation that I may be a candidate to take over from Sir Mervyn King as Governor of the Bank of England. As I have already made clear, I will decide whether to compete for the job when it is advertised. However, I have already noted two issues from today’s debate. First, the noble Lord, Lord Eatwell, has made it clear that whoever takes this job will be driven mad within a few short weeks. Secondly, I have realised that whatever experience I may have, the right reverend Prelate the Bishop of Durham has far more financial experience in trading.

Coming back to the banks, Sir Mervyn has been a governor during a very stormy time for the world economy. He worked successfully with the Government to limit the damage of the global financial crisis and established the Monetary Policy Committee, which is envied in many parts of the world. His intellectual leadership has proved invaluable. In short, he will be a very hard act to follow. I have to plead guilty to the suggestion of the noble Lord, Lord Myners, that the governor and I had been collaborating on the tennis court. This is certainly true but it was very important from a policy point of view that we demonstrated to our US counterparts that fiscal/monetary co-ordination in the UK exceeded that in the US—and we won.

It is fair to say that the financial crisis has inevitably exposed some weaknesses in our current structures, as it has for a very large number of countries around the world. I believe that it is right to give the Bank control over macroprudential regulation, but this is not without severe dangers for the Bank, the governor and the economy. The new arrangements concentrate a lot of power in the Bank. With power goes the need for accountability. The Treasury Select Committee, under Andrew Tyrie, has done an excellent job of holding the Bank to account. The Joint Committee has also done a good job of pre-legislative scrutiny. As a result, the Bill overall contains much that I strongly support. However, I believe that we should make one further change to the accountability structure. We should set up a new standing joint committee, under the chair of the Treasury Committee, to assess the effectiveness of the new arrangements once they are established. The new committee would combine the advantages of the democratic legitimacy of the Commons with the undoubted expertise that lies in this House, as we have already heard. In particular, it would look at how well the Bank’s proposed oversight committee was operating. I agree very much with the right reverend Prelate the Bishop of Durham on that point.

As a number of speakers have said, it is important not to lose sight of the overall objective, which is to enhance the well-being of the country by having a financial system that is both stable and supportive of the whole economy. This will inevitably involve judgments on how to balance the need to have enough capital to withstand shocks with the need to support British industry. As the noble Lord, Lord Turnbull, said, the Bank of England Act calls on the Bank to hit an inflation target but, subject to that, to support the Government’s economic policy,

“including its objectives for growth and employment”.

Similarly, I believe that the Financial Policy Committee should have the objective of financial stability but, subject to achieving that, it should be required to support sustainable growth and employment. A healthy financial sector that makes a fair contribution to the tax base, supports all sectors of the economy and has a sensible, more symmetric remuneration system would be a real asset to this country—we have a comparative advantage in this area—but never again should taxpayers pay for the consequences of failure when the rewards of success are concentrated in the hands of so few.

There is one important imbalance that the Bill cannot correct: that is, the imbalance between the resources available to the financial sector, the Bank and the Treasury respectively. The Treasury is a brilliant department and I was proud to be its Permanent Secretary, but it is in danger of being swamped by the pressures placed upon it. As Sharon White’s excellent report makes clear, the Treasury’s turnover rate is far too high and its pay levels too low.

It is in the interests of all of us that the Treasury is able to continue attracting the best and retaining their skills and experience. To avoid this being at the expense of the taxpayer, perhaps the part of the Treasury dealing with financial services and stability should be funded in the same way as the Bank and the FSA, namely by the financial industry which benefits from their work. Otherwise, the Treasury is in danger of cutting off its arms as well as its nose to make its hair shirt fit.

Finally, can I urge the Government and all Members of this House to try to write legislation that will endure for the long term? We should not be fixated by today’s problems, important as they are. We need a principles-based system that is not overprescriptive. It must allow the accountable individuals to have the freedom to tackle crises in what might be a very different and fast-changing environment. That is why we should concentrate on getting the objectives right and sorting out the accountabilities for those whose job it is to handle whatever this dynamic and volatile world throws at them. This Bill will have a profound impact on the well-being of our nation, and it has been an honour to be able to contribute to what has so far been an excellent debate.