Financial Services Bill

Debate between Lord Tugendhat and Lord Sassoon

Tuesday 26th June 2012 Lords Chamber

[Lord Tugendhat]

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

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

[Lord Sassoon]

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

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

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

--- Later in debate ---

[Lord Tugendhat]

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

[Lord Sassoon]

My Lords, in legislation we come back regularly to this question of what needs to be spelled out and what does not. Elegantly or otherwise, I am not sure what more I can say other than that we have to take each case on its merits. Sometimes there are good arguments for spelling things out and at other times there are not. I know that I will disappoint my noble friend and it is a perfectly fair question, but I am not sure that there is much more that I can usefully add.

On the question from the noble Lord, Lord Eatwell, about Amendment 29, I will be clear. I do not accept Amendment 29 because I do not believe that it is necessary. I believe that Amendment 13, which I thought was helpfully clarified during this debate, more than covers the ground. I refer the noble Lord in particular to proposed new Section 3A(2)(a), which I would suggest makes it clear right at the beginning of the Government’s amendment that the function of the oversight committee and its ability to review performance is very widely drawn in relation to the objectives of the Bank and of the FPC. I believe that new Section 3A enables the oversight committee explicitly to review the activities of the FPC, which are there right at the beginning of this amendment.

Clearly I am having difficulty understanding the noble Lord’s concerns but I am absolutely clear that the substance as he has explained it and the specific example that he gave are completely within the ambit of what is being put in the Bill as the function of the oversight committee.

Banking Reform

Debate between Lord Tugendhat and Lord Sassoon

Thursday 14th June 2012 Lords Chamber

[Lord Sassoon]

Perhaps I might answer my noble friend first. I am grateful to her for welcoming these next steps as we implement Vickers. On the questions about timetabling, we are firm not only on implementation by 2019 but on sticking to our commitment to completing the passage of the legislation in this Parliament, which allows for time for pre-legislative scrutiny this autumn and a proper and full process. On her point about whether we have thought about the read-across to the Financial Services Bill, we have done so—for example, we have picked up the Vickers recommendation about the FCA having a competition objective, and that is already drafted in the Financial Services Bill. There will be other important elements, such as account-switching, that will come in from September 2013. Everything fits together. I appreciate her recognition that a more diverse banking sector has also been thought about; it is a very important element of this.

[Lord Tugendhat]

My Lords, I welcome the Statement and I congratulate the Government on the speed at which they are moving. I have one question: where one part of a bank is within the ring-fence and one part is outside, does the White Paper say anything about auditing? Would one expect there to be the same auditors for both parts of the bank, or would they expect to have different auditors? Does the White Paper take a view on that?

[Lord Sassoon]

As far as I am aware, there is no prohibition or restriction on the use of auditors. I am pretty sure that the audit position is not addressed, but if I am wrong about that I will write to the noble Lord.

Greece: Default Contingency

Debate between Lord Tugendhat and Lord Sassoon

Monday 20th June 2011 Lords Chamber

[Lord Sassoon]

My noble friend Lady Noakes asks a very good question. It is inevitable that people will ask: was the package appropriate? One should take comfort from the fact that the IMF has a long and successful record of implementing restructuring programmes. The IMF programme for Greece was put in place in market conditions and with a market outlook somewhat different from that which Greece and the eurozone subsequently encountered. The first requirement is for the Greek Government to be encouraged to get back on track, to stick to the agreed fiscal consolidation path. Beyond that, it is for the IMF to see what needs to be done. The key thing is for the original plan to be back on track. I therefore think that we should not at this point second-guess whether the plan is or is not appropriate.

I will not be drawn into whether the Greek situation would be better in one hypothetical scenario or another.

[Lord Tugendhat]

My Lords, does the noble Lord agree that, however brave the Greek Prime Minister is —he has shown extraordinary guts and determination—and however much a new Greek Government might wish to pursue the austerity programme and the conditions being laid down, there must be room for doubt whether any Greek Government can secure the degree of self-discipline within the country that would enable them to meet the conditions of the IMF and of the other European countries? That being the case, does the noble Lord not agree that the great interest of the United Kingdom Government lies in co-operating as closely as possible with our eurozone partners in putting together contingency plans to meet whatever eventuality may occur, because the Greek Government are extremely unlikely to be able to live up to their promises?

[Lord Sassoon]

My Lords, I am not going to be drawn by my noble friend Lord Tugendhat into giving a commentary on Greek politics, which I am not qualified, in any case, to do. However, the Greek Parliament will hold a vote of confidence on the new Government very soon—I believe that it may be tomorrow. Critically, the Greek Parliament will vote on a medium-term fiscal strategy consistent with the agreement into which they have entered. That vote in the Parliament is expected to be later this month. I think that it would be wrong to question the commitment of the Greek Government and Parliament to the package. On contingencies and close co-operation, I can only confirm that, either in terms of what is being done by the authorities in the UK or in co-operation with our European partners, we will certainly look at a wide range of contingency plans and scenarios.