Bank of England and Financial Services Bill [HL]

Lord Young of Cookham Excerpts

Monday 9th November 2015 Lords Chamber

[Lord Young of Cookham (Con)]

My Lords, I will make a brief intervention in this debate as a former Treasury Minister and ex officio member of the PAC. As we have heard, Clause 11 sets up a new interface between two public institutions, both of which are independent: on the one hand the Bank of England, independent since 1997, and on the other the Comptroller and Auditor-General, who has been independent for a lot longer. In establishing this new interface, clearly one has to get the balance right.

From the exchange before the Treasury Select Committee last month, it is quite clear that the original drafting caused difficulties for the Bank of England and was amended. If one looks at Mr Roxburgh’s answer to a question posed by Helen Goodman, it is clear that there was an agreement that there had been a change in the drafting because of the reservations of the Bank of England. However, it is quite clear that the clause as now drafted causes difficulties for the other partner, namely the Comptroller and Auditor-General. The briefing note says that it “greatly limits” the Comptroller and Auditor-General’s freedom of action and that it does not provide him with,

“the independence that is essential to accountability”.

If one looks back at the C&AG, there is no history of him looking at policy issues in his investigations. There is of course concern that if the Bank of England is given an exemption of this nature, other institutions subject to audit by the C&AG might seek a similar exemption—the BBC is a possible example. At Second Reading my noble friend who wound up the debate said that the concerns that were ventilated then were,

“well argued and should be taken very seriously”.—[Official Report, 26/10/15; col. 1082.]

Obviously, it is important to avoid a public spat between two important independent institutions. The sensible way forward is for the Minister to promote bilateral discussions between the NAO and the Bank of England to see if they can come up with a memorandum of understanding, which, if necessary, might then be incorporated into the Bill if an amendment is necessary. However, there should be some discussions before Report so that there can be an agreement on the appropriate terms of trade between these two public bodies.

[Baroness Kramer]

My Lords, I will briefly join in the debate. We have two very highly regarded independent organisations—the Bank of England and the NAO. I say to the Government that it is unfortunate that legislation has come forward without resolving the relationship between the two of them. This House should not be in this position today, and neither should either of those two institutions. I very much hope that the Government will take the advice proffered and bring these various parties together to get a resolution here. Both are key institutions that need to have their independence appropriately protected.

In answer to the question asked by the noble Lord, Lord Higgins, the two lines about which he was concerned a moment ago, which are taken out and replaced by what he read as almost two identical lines, almost get to the crux of this matter. The amendment strengthens that assurance that the NAO and the Comptroller and Auditor-General do not in any way seek to question the merits of policy objectives. It is trying to make that absolutely clear by putting in a stronger statement to that extent. The problem the NAO has, as the noble Lord, Lord McFall, said, is that due to the way in which the language is now drafted, the Bank effectively now has a veto over which studies are undertaken. Frankly, that is, I think, unacceptable to every party.

We in Parliament depend very much on the NAO and the reports it provides to us. It is very important for us to be able to receive that information, knowing that it is impartial and independent, for us to be able to perform the role we play. All the discussions today have talked of the importance of oversight. While we very much respect the Bank of England, we are all incredibly conscious that it has made very serious mistakes in the past which have cost us dear, and that we all need to play a role in interacting and making sure that we understand and are appropriately taking on our responsibilities toward that institution. Frankly, it is very hard to see how we in this House or in the other place can do that without effective reporting from the NAO.

I hope that the Government will take this matter away for reconsideration because these are significant concerns. I take great heart in hearing from the noble Lord, Lord McFall, that the Federal Reserve board in the United States is one of the bodies on this globe that most asserts its independence and integrity. The Federal Reserve accepts a similar kind of oversight from the US Government Accountability Office, and it seems to me that we have a template there. If it works for the Federal Reserve, surely it can work for the Bank of England.

I hope that these amendments will be taken exceedingly seriously. While the noble Lord, Lord Bichard, is not in a position to speak himself, there are many in this House, including the noble Lord, Lord Higgins, and the noble Baroness, Lady Noakes, who will be able to appreciate the importance of the points that he would have made had he had the opportunity.