Bank of England (Appointment of Governor) Bill

Andrew Love Excerpts

Friday 6th July 2012 Commons Chamber

[Stephen Hammond]

I am grateful for the opportunity to hear the private views of my hon. Friend the Member for Chichester (Mr Tyrie), but as he is not present to justify them, it would be wrong for me to comment on them. I will say, however, that if those are indeed his private views, I am surprised that he supports this Bill. The Committee is already able to attend pre-commencement hearings with appointees to the Monetary Policy Committee and will be able to do the same in future with appointees to the Financial Policy Committee. Obviously that could potentially involve agreement with the Government.

Let me return to the issue of the independence of both the person and the institution of the Governor of the Bank of England from the Treasury Committee.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

Will the hon. Gentleman give way?

[Stephen Hammond]

Does the hon. Gentleman want to make a point about the issue of independence?

[Mr Love]

I apologise for intervening at this point, but having just spoken to the Chairman of the Treasury Committee, I think that he would want his attitude to be exemplified as a belief that the Committee should have a role in the Governor’s appointment. What he seeks, as does the hon. Member for Hayes and Harlington (John McDonnell), is a signal from the Government that they would be receptive to that idea.

[Stephen Hammond]

As I am not in the position of my hon. Friend the Financial Secretary—nor could I ever have the talent or ability to be so—that is not in my gift. We shall have to wait and see whether my hon. Friend chooses to make such a move later in the debate.

It seems to me that there are three crucial points to be made about the independence of the institution of the Governor of the Bank of England. Let me begin by saying that if the Governor were indeed appointed by the Treasury Committee, which would have the right of veto, the institution could be perceived to be tainted if the appointment reflected the politics or the political make-up of the Committee. That point was addressed by the hon. Member for North Ayrshire and Arran. The hon. Member for Hayes and Harlington said that it was not relevant in the United Kingdom, citing the report from the Institute for Government, but anyone with even a cursory knowledge of American politics knows that appointment by committee in the American House is supremely political, and therefore potentially damaging to the role of institutions in that country. I shall make the same point shortly about the role of the individual, as opposed to the institution.

As my hon. Friend the Member for Great Yarmouth (Brandon Lewis) pointed out, there is a question mark over the ability of the Treasury Committee to scrutinise the Governor, but there is also the possibility that the Governor, or the institution, might be perceived as being subservient in will to the Committee. There might come a time when there would be an impasse between the will of the Executive and that of the Committee, and that in itself could undermine the institution.

[Stephen Hammond]

I agree that Parliament must have the ability to scrutinise and that the body must be accountable, but I want the Governor to be independent as well. I am presenting some of the arguments that must be considered, or countered, if the Governor is to be independent in his operations. It is also true that the circumstance that I have just described would not arise if the Executive continued to make the appointment, because if the Treasury Committee did not have the power of veto, there could not be an impasse between the Committee and the Executive. However, my hon. Friend was probably referring to a point I made earlier.

[Mr Love]

The confirmatory hearings currently held by the Treasury Committee employ the criteria of competence and personal independence. Does the hon. Gentleman accept that the existence of a framework within which decisions must be made by Select Committees, minimises—although it does not exclude—the chance of political interference?

[Stephen Hammond]

It might and it could. I accept that point. But equally it might and it might not, and it could and it could not. That is the point I am trying to make.

The hon. Gentleman’s intervention leads me into the next part of my argument. My hon. Friend the Member for Orpington (Joseph Johnson) says the Treasury Committee Chairman wants to see some flexibility. There is already some flexibility in the system. The Committee has pre-commencement hearings for members of the Bank’s policy committees, which include both the Governors and deputy governors. The pre-commencement hearing is a process that allows parliamentary engagement, parliamentary scrutiny of appointments and parliamentary comment on appointments, but does not allow parliamentary veto. That is an evolving process that the Government have put in place and continue to support. It is, for a variety of reasons, the right mechanism.

Turning to the question of independence, there is a real risk in respect of the credibility of the individual concerned. While I am sure that all candidates will be of the highest ability and there will be no possible suggestion in the fourth estate or anywhere else that the successful candidate had been chosen on the basis of some odd criteria or that he was the only candidate the Treasury Committee would pass, others less generous than I might think that. That would lead to a credibility gap. It is also therefore clear that the person being appointed might be open to the charge that they were being appointed for their politics, not their economics. The Governor of the Bank of England must be free of the charge of being a political candidate.

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[Brandon Lewis]

Not at all. I shall come to that in a few moments. That is not the point that I am making. There is a clear difference between a role in making an appointment to the OBR and a role in making an appointment to a position that has Executive powers and makes Executive decisions. If this were a Bill that considered the role of Select Committees, there would be an interesting debate to be had about whether Select Committees should have a power of appointment or veto, but that would apply equally to all Committees and all appointments, particularly where they have an Executive role. That is an important delineation, of which we should be aware.

It would be wrong to give one Select Committee, as important as the Treasury Committee is, a power of Executive appointment over and above that of other Select Committees, which I am sure would take the view that they have equal power and an equally important role in the House, but which would thereby potentially be put in a second category of Select Committee. Creating divisions and different types of Select Committee would impede the function of all Select Committees.

[Mr Love]

The Public Administration Committee had a debate on Executive agencies and appointments. The Public Accounts Committee has included its Chairman in the decision on the appointment of the Comptroller and Auditor General. The Treasury Committee has developed the chairmanship of the Statistics Commission. In other words, piecemeal change is going on. Does not the hon. Gentleman accept that the proposal is part of that piecemeal change, and that we ought to give the Bill a Second Reading not so that we can pass it in its current form, but so that Parliament can have an honourable debate about the arrangements between the Executive and the legislature in relation to major appointments?

[Brandon Lewis]

The hon. Gentleman makes a very strong point. I do not entirely agree because there is a clear difference between the type of appointments we are talking about and the role that those appointees take on and the powers that they have. However, a good argument can be made for the House to consider the role of Select Committees in public appointments, the associated power and at what level it sits. Perhaps he would like to come to business questions one week and make the case to the Leader of the House for time for such a debate, or make a case for it to the Backbench Business Committee.

The hon. Member for Hayes and Harlington argued that part of the aim of a private Member’s Bill such as this is to get the Government to listen, to hear a message, to take a view. The Minister will hear the points made in the debate. He will hear various arguments from various Members about the role of a Select Committee, its power or lack of power to appoint or veto an appointment, and will take that into account as part of the Government’s plans for the future. That is quite different from whether the Bill should have a Second Reading, when it is fundamentally flawed by giving priority and special treatment to one Select Committee over and above others. As much as I respect the Treasury Committee and all its members, I, as a member of the Work and Pensions Committee, do not think it fair that the Treasury Committee should be seen in a premier league, above the other Select Committees.

The Treasury Committee has argued for a role in appointing the Governor of the Bank of England by using as a precedent, as the hon. Gentleman did, the establishment of the OBR and the Budget Responsibility and National Audit Act 2011. The provisions of that Act give a statutory role, I agree, to the Committee in the appointment of the chairman of the Office for Budget Responsibility. Additionally, they give a statutory role to the Public Accounts Committee when a new Comptroller and Auditor General is appointed. However, that argument ignores a fundamental and crucial difference between the roles undertaken by those organisations and the role of the Governor of the Bank of England.

The Bank of England sets policy. Although the Office for Budget Responsibility is important, it primarily has an analytical or forecasting role, not an Executive ability to set monetary policy. It provides independent information to Government. That information is a powerful tool for Parliament to use in its scrutiny role and it is right, therefore, for Parliament to protect that role from political interference.

The Government’s position on the issue has been sensibly pragmatic. They have encouraged the involvement of the Treasury Committee in the appointment of the Governor. It has been interesting to hear from two speakers the private views of the Chairman of the Treasury Committee, my hon. Friend the Member for Chichester (Mr Tyrie), in his comment that what he thinks the Treasury Committee is looking for is the ability to have a clear and open influence on the role, which indicates that there is not necessarily a strong view from the Chair—it is a shame that he is not in his place, but he made a comment earlier—about having the power of veto or appointment. That is an important distinction from such an eminent Member of the House, who would be the Chairman who benefited from any change.

The Government made a commitment in the coalition agreement to

“strengthen the powers of Select Committees to scrutinise major public appointments”.

The key word is “scrutinise”. That emphasises a right to examine, challenge, query or inspect closely and thoroughly appointments to major public bodies. My Select Committee has done that as well. However, it rightly makes no mention of a right to appoint or veto. As my hon. Friend the Member for Wimbledon (Stephen Hammond) said, that would be a substantial constitutional change to the way in which Select Committees work.

It is worth exploring what would happen if there were a right of veto and the Government and the Treasury Committee reached a stalemate in the appointment of a new Governor. If the Government—the Treasury—were unwilling to back down, and the Treasury Committee were determined to uphold its right to veto, given to it by this Bill, that could lead to uncertainty, creating turmoil in the markets, and at the moment we do not need any more of that. We can certainly see what such turmoil means for international relationships as much as internal markets. It could lead to a loss in international confidence in the Bank of England and the United Kingdom, which we benefit from at the moment. The result would be untold economic chaos and damage.

[Brandon Lewis]

My hon. Friend makes a good point. The way in which the American system can create turmoil is the very point I am making. As my hon. Friend the Member for Wimbledon said, we in this House know that the Treasury Committee would deal with the issue properly. The problem is the perception outside of such turmoil. We have seen in the press how such matters have been dealt with in the United States, which shows that what matters is what the public and the markets would think of such an impasse, particularly if there is a lengthy process.

[Mr Love]

The hon. Gentleman uses the term “turmoil” and makes lurid comparisons with the United States. The US Congress endorses literally hundreds of appointments every year. The Treasury Committee has had confirmation hearings, and on only one occasion has it vetoed an appointment. The Committee has no buy-in; they are only confirmation hearings. Is not the so-called turmoil that the hon. Gentleman suggests vastly overstated?

[Brandon Lewis]

The argument that something has not happened so it will not happen could have been put some years ago about the present financial turmoil in the eurozone. The argument that something will not happen because it has not happened before has unfortunately been proved wrong time and again. As has been said, one sees regularly in the press and hears in the markets in America the argument that a particular appointment has been made purely because it will get through a committee. There is no disrespect to the successful applicant, but it can give the impression that the appointment is a second choice. It is a matter of the most acceptable common denominator rather than the person wanted by the Executive or any other body; it is the person they can get through the door. That in itself detrimentally affects the individual’s credibility and authority to do their job. Such an impasse here, if the Treasury Committee and the Treasury were at loggerheads for any prolonged period in deciding on the appointment of the Governor of the Bank of England, could result in chaos in international markets and our markets.

I appreciate that it is unlikely that an impasse would result in an unfilled post. It is almost unthinkable, but, as we have seen in recent years, too often now the unthinkable can become the reality. I hope that, in reality, the Treasury and the Select Committee would reach a compromise, such as extending the tenure of the incumbent Governor until a successor was confirmed. Although before my time, some hon. Members will have seen how a person’s authority wanes as soon as it is known that they are about to go. Continued uncertainty about the next appointment, with no decision and no sign of an end to the impasse, would damage the Bank of England’s credibility, which would be hugely detrimental to the role, not just of the Governor but of the Bank of England itself, in both our internal and external markets.

The constitutional quagmire would be further exacerbated if the Treasury Committee adopted the procedure proposed by the Institute for Government. After a Select Committee hearing with the proposed candidate, the Committee would deliberate before announcing its verdict. Then it would have the opportunity to call the Chancellor before it to tell him why the nominated candidate was unsuitable, expecting him to justify why it should change its mind and agree with his proposal. Then we would be into further deliberation before the Committee decided that it did not wish to change its mind. Potentially, the appointment would then be referred to the House for resolution. If, after that lengthy process, the original candidate were confirmed, there is no doubt that their credibility and authority would have been fatally undermined by the whole political ping-pong between the Government and Parliament, never mind the trouble that that would cause to the markets during the weeks or months that passed while parliamentary time was made available.

Even if the Treasury and the Select Committee could agree on a compromise candidate quickly—regardless of this morning’s examples, we all know what “quickly” can really mean—the new appointee would be undermined before they had even taken up the post. The media would portray a second-choice candidate as not having the confidence of the Treasury, the Chancellor of the Exchequer, the Government or the Select Committee, whichever had originally been against the appointment. In those circumstances, what confidence would the wider banking and financial sector have that the new Bank of England Governor would be able to fulfil their role while working closely with the Government?

As I said earlier, the very Select Committee that scrutinises the role of the Bank of England and the Governor might be the Committee that appointed the Governor. For that reason there is a strong argument for allowing the Executive to appoint the Executive-imbued role of the Governor, and for allowing the Select Committee to scrutinise and comment on it, rather than having a Bank of England Governor who is answerable to the Committee for their job in the first place. As was said earlier, we in the House know that the integrity of members of Select Committees is strong enough and powerful enough to deal with that properly, but what matters is not necessarily what we in the House think about the role of the Governor of the Bank of England, but what people outside think, and what the markets think. It is the perception that becomes the reality, and we need the markets to have confidence and faith in the Governor and in his ability and independence, which the House can scrutinise.

Why stop with the Governor the Bank of England? The Bill’s purported aim is to preserve the Governor’s independence, to remove the appointment from political considerations and pressures. As I have said, it would do quite the opposite, but why stop there? Surely if there is a suspicion that the system is sullied by political interference because the appointment is made on the recommendation of the Chancellor, the appointment of the deputy governor or any members of the court of the Bank of England are likewise politically contaminated. Yet we hear little suggestion that their appointment process politically compromises those positions. In fact, these people act as a powerful check and balance within the Bank of England’s internal governance structure, to prevent any Governor of the Bank of England acting in a politically motivated way. At the moment he does not have to be concerned about the views and role of those on the Select Committee who appointed him.

There is also a substantial list of other public appointments made by her Majesty the Queen following recommendation by the Prime Minister or other Ministers. The Bill’s supporters could end up advocating that the relevant Select Committees should have an opportunity to veto or to make those appointments too. As the hon. Member for Edmonton (Mr Love) said, with the changes that have already happened there is a drip, drip effect, and we gradually see the evolution of change around such appointments. If the Bill were to be enacted there would be a big jump, and bigger jumps would follow. Perhaps members of the Culture, Media and Sport Committee should have the ability and opportunity to veto or choose the appointment of the chairman, vice-chairman or other members of the BBC Trust. Perhaps members of the Defence Committee should have an opportunity to veto the appointment of the Chief of the Defence Staff. I have no doubt that members of the Environment, Food and Rural Affairs Committee would enjoy the power to veto the appointment of the chairman of the Forestry Commission or any of the other 10 forestry commissioners, particularly in the current climate.

Where should we stop? It is a valid question, and one that I think deserves some time in this House. Indeed, the power that Select Committees have to veto appointments might be a good topic for the Backbench Business Committee to put forward for debate. However, I do not think that it is right for a single private Member’s Bill to give that Executive power to a single Select Committee. The Minister is here and has heard the views expressed and no doubt will take those thoughts forward. Should Parliament have the final say on the president of the Valuation Tribunal for England, or on which judges are elevated to the Supreme Court, or even on who is installed as the next Archbishop of Canterbury, a debate that I am sure would be of great interest to Members on both sides of the House?

As odd as some of those examples might be, they are all appointments made by Her Majesty following recommendations from her Ministers. I could list many more examples, but I assure hon. Members that they will not have to listen to that right now. Those are all positions of which the holder has a responsibility for making decisions that affect people’s lives.

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[Brandon Lewis]

My hon. Friend makes a valid point, and one that counters the argument made a few moments ago on the continual drip, drip in that direction. He highlights the fact that that has not been happening. There have been some changes in some areas, but in others things have moved in a different way. It is also interesting that that decision was made potentially by the same Member who decided not long ago to ignore the Treasury Committee’s comments on the appointment of a member of the Bank of England’s Monetary Policy Committee.

We must be clear that in all the positions I have mentioned the holder has responsibility for making decisions that affect people’s lives. As has been commented on a few times now, there is a clear and precise line between those positions and the appointments in which some Select Committees have been involved—the Public Accounts Committee and the Treasury Committee, with the Office for Budget Responsibility and the Comptroller and Auditor General—because those Committees have a different type of role. They have a scrutiny role and a statistics role, but they do not have Executive powers to make decisions affecting people’s lives. That is what we in this House are elected to do through legislation and the appointments that flow from Ministers.

[Mr Love]

The OBR is responsible for bringing forward an economic forecast on the basis of which the Government must set out their public expenditure plans. That makes it an incredibly important body that can have significant influence on the direction of the Government’s economic policy.

[Brandon Lewis]

It is a joy to be able to agree wholeheartedly with the hon. Gentleman, who makes a good point. He highlights and confirms the argument I am making. The OBR makes forecasts, but it does not have Executive power to set monetary policy. As he has just pointed out, it is the Government, following those forecasts, who make Executive decisions on how to move forward. Indeed, the Governor of the Bank of England might use Executive powers to decide the Bank’s monetary policy. There is a difference between the role of making forecasts and scrutinising and the Executive power that the Government hold.

[Mr Love]

The Government, through the Chancellor, set the inflation target for the Monetary Policy Committee, so it is the Government who set the benchmark. It is for the Governor and the Monetary Policy Committee to try to target that benchmark.

[Brandon Lewis]

I thank the hon. Gentleman for further enhancing my point about where Executive power actually sits, in contrast to the scrutiny and forecasting role, as important as it is, which is very different from the Executive power wielded by the Government and some of the Executive bodies we are talking about.

If we are to extend the right to veto the appointment of one public official to any given Select Committee, the natural extension is to do so for other public appointments. In doing so, we would turn our Select Committee system and this House into a new form of Executive recruitment agency. Our Select Committees were established to scrutinise, investigate, consider, report and recommend. Principally, our Select Committee system is there to hold the Executive and other public officials and bodies to account. It was not created to veto the Executive, and it was not envisaged that the Committees would be used as quasi-recruitment advisers.

We should be striving to make the Bank of England more accountable to Parliament—I have no disagreement with that—but we should be looking to do so without shackling its sovereignty with more direct control over certain aspects by Parliament. Current concerns from constituents about the Bank of England do not focus on how the Governor is appointed. I certainly have not had in my postbag any letters, let alone a deluge of letters, on that.

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[The Financial Secretary to the Treasury (Mr Mark Hoban)]

This has been a thoughtful debate and some interesting issues have been raised by Members on both sides of the House. I commend the hon. Member for Hayes and Harlington (John McDonnell) on his success in getting the first Bill in the ballot for two years running. The odds on his being first again next year are about 14 million to one—roughly the same as winning the national lottery. If he tells us his numbers, we will all enter it, although I fear that it would make only a minor dent in the deficit that we inherited from the previous Government.

The hon. Gentleman made his arguments in a calm and considered way, but I felt that he did not do justice to some of the more complex issues that have been explored over the last few hours. I am grateful to my hon. Friends for their support in teasing out the issues that underpin the Bill. My hon. Friend the Member for Wimbledon (Stephen Hammond)—the Cliff Richard of Parliament, as he was described earlier—talked about the substantial constitutional change that the Bill would make. The hon. Member for Nottingham East (Chris Leslie), who is no longer in his place, made one of his shorter speeches at eight minutes. Those of us who served on the Financial Services Bill Committee would have welcomed more speeches of that brevity and concision.

My hon. Friend the Member for Great Yarmouth (Brandon Lewis) made a powerful and measured speech, using his experience from the Work and Pensions Committee and highlighting some of the challenges that exist. The hon. Member for Foyle (Mark Durkan), who is no longer in his place, made the second of only two Back-Bench speeches in support of the Bill. He got himself into a bit of a hole trying to justify why he voted against a parliamentary inquiry last night but was in favour of the Bill today.

My hon. Friend the Member for Watford (Richard Harrington) highlighted the importance of transparency and openness in appointments, which I hope to come on to in a moment. My hon. Friend the Member for South Derbyshire (Heather Wheeler), in her typically pithy way, made some important and powerful points about the changes that the Bill would introduce.

My hon. Friend the Member for Finchley and Golders Green (Mike Freer) came with a list of original shareholders of the Bank of England and tried to identify whether any of their successors were in the House of Commons. I have with me a list of Governors of the Bank of England. [Interruption.] No, just be patient. I wondered whether Humphry Morice, the Governor between 1727 and 1729, was related to the hon. Members for Easington (Grahame M. Morris) and for Livingston (Graeme Morrice), but unlike them he was not called Graeme or Grahame. My hon. Friend the Member for Orpington (Joseph Johnson) will be interested to know that Reginald Eden Johnston was the Governor between 1909 and 1911. My hon. Friend quoted Bagehot, and I have my own Bagehot quote to trade with him. I think it rather neatly encapsulates some of the problems with the Bill. He said:

“No result could be worse than that the conduct of the Bank and the management should be made a matter of party politics, and men of all parties would agree in this, even if they agreed in almost nothing else.”

That highlights the problem at the heart of the Bill. The power in it could be used to politicise the appointment of the Governor in a way that would be to the detriment of how the Bank functions.

My hon. Friend the Member for West Suffolk (Matthew Hancock) made an impressive speech—

[Mr Love]

Impressive in its length.

[Mr Hoban]

In its quality, too. The hon. Gentleman should acknowledge that.

Among the many facts that my hon. Friend gave, I have to correct one or two. He said that only nine banks could still issue notes in Scotland and Northern Ireland, but in fact it is only seven. The Bank Charter Act 1844 was the beginning of the move towards the Bank of England’s note issue monopoly, after which no new banks were permitted to issue notes and the stock of notes could not be increased. I am sorry that my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) is no longer in his place, because the last bank to issue notes was one called Fox, Fowler and Company, which was based in Somerset. Sticking to tradition is a feature of what my hon. Friend does, so perhaps that is not a surprise to him.

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[Mr Hoban]

No, I think I ought to have the opportunity to summarise the Government’s position on the Bill.

We are committed to maintaining the appointments process for the Governor, which is proportionate, attracts candidates of the highest quality and represents value for money for the taxpayer. It is important to ensure the credibility of the candidate, and to safeguard his or her independence and prevent them from becoming a political pawn.

The Financial Services Bill, which is currently in the other place, already contains provisions to strengthen the Bank’s governance arrangements, including moving the Governor to a single eight-year term. Much has been made of the enhanced powers that the Financial Services Bill bestows on the Governor, but it is important to remember that the Bill does not create new responsibilities for the Bank. Rather, it is returning the Bank to a role more akin to the one it played prior to the creation of the Financial Services Authority, when it was responsible for financial stability and prudential supervision of banks. In a way, we are going back to the situation prior to the Labour Government.

The Governor is already accountable to the court and to Parliament, and the Treasury Committee holds pre-commencement hearings for the Governor and deputy governors. That is the right balance. Of course, the Governor—rightly—is regularly called before the Treasury Committee. The market-sensitive nature of the Governor’s role makes it unsuitable to be subject to the approval of the Treasury Committee. Such a step risks uncertainty, delay and disruption to financial markets. That is also true in respect of the proposal to make the dismissal of the Governor subject to the approval of the Treasury Committee. I therefore cannot offer the Government’s support for the Bill.

[Mr Love]

The Minister will be pleased to note that his speech does not come as a surprise, because the Government have laid out their position, not least in the Financial Services Bill. However, the relationship between the Executive and the legislature is evolving. Ad hoc relations, such as those with the Comptroller and Auditor General and the Electoral Commission, have been mentioned. Will the Minister give serious consideration to taking into account the views of both the Treasury Committee and Parliament? Can he envisage a role for them in the process?

[Mr Hoban]

The Treasury Committee already has a role—it conducts, for example, pre-commencement hearings for members of the Monetary Policy Committee. Paul Tucker and Charlie Bean, the two deputy governors, have been through that process, which we envisage will continue.

Even the Labour Front-Bench spokesman in the House of Lords was wary of the proposed increase of authority for the Treasury Committee. Although there has been a broader debate on the role of the House in appointments and whether there should be pre-appointment hearings, this is not the time to make those broader points. If there is to be such evolution, we need a much broader debate. Alighting on the appointment of the Government as a peg for that debate is not the right way to go about things. If I make more progress, I shall highlight the Government’s response to the Liaison Committee, which has discussed increasing the role of Select Committees.

[Mr Hoban]

That is a fair point. The weight of opinion has been to oppose the Bill. I gave a list of hon. Members who have spoken—I forgot to add my hon. Friend the Member for Spelthorne (Kwasi Kwarteng), who was the last Back-Bench speaker—but the balance of views has been against the proposal. There has been some discussion of the fact that the debate has continued until almost 2.30 pm, but the hon. Member for Hayes and Harlington, despite his three e-mails, could not get the 100 hon. Members required for the closure. The House has expressed its view today.

The appointment veto was proposed by the Treasury Committee. There was a consultation on, and pre-legislative scrutiny of, the Financial Services Bill prior to its Second Reading but, except for the Treasury Committee, no one called for the appointment of the Governor to be subject to its approval.

We need to recognise the changes being made to the accountability and governance of the Bank. It is facing pretty significant organisational change, and it is right that the arrangements for its governance and accountability be thoroughly debated as part of that process. In November, the Committee published its report on the accountability of the Bank and in it made several recommendations on governance. As a consequence, we have tabled amendments in the other place to strengthen and modernise the Bank’s governance arrangements.

Those amendments will replace the current committee of non-executive directors of the Bank with a non-executive oversight committee that will have a broad remit to oversee the Bank’s performance against its objectives and strategy, and provide for explicit powers to commission and publish internal and external reviews of the Bank’s policy-making process. In the Bank’s annual report and accounts, published on Monday, the Governor said in the foreword that the Bank must carry out its new responsibilities with

“openness and transparency, and be held accountable for them to Parliament and the public, just as”—

it is “for monetary policy”—an important signal from the Bank about its role.

Since the Bank’s nationalisation in 1946, appointments have been made by Her Majesty the Queen on the recommendation of the Chancellor and the Prime Minister. The Bill would require that the appointment be made by Her Majesty with the consent of the Treasury Committee as well. The current legislation states that the Bank may, with the Chancellor’s consent, remove the Governor from office in certain circumstances, but again the Bill would require that the Treasury Committee consent to that removal. We have made our position clear: we do not believe that giving the Treasury Committee a statutory power over appointments or dismissals is either necessary or appropriate.

[Mr Love]

The Minister indicated that we were returning to the Bank powers over financial stability and oversight of the banking industry, but he forgot to mention that it already had powers over monetary policy, which it never had in the past. In effect, the Bank and the Governor have unprecedented powers. I accept that parliamentary oversight has been strengthened—sometimes at the behest of the Treasury Committee—but, given these unprecedented powers, will the Government consider going further and putting in place appropriate parliamentary scrutiny to ensure that the powers are being used effectively?

[Mr Hoban]

We are improving the parliamentary scrutiny of the Bank. As a result of the Financial Services Bill, we will see more regular reports on regulatory failure, and I expect the Governor to appear before the Treasury Committee. On financial stability decisions, we are trying to ensure that the Bank’s six-monthly financial stability reports are transparent and open, and that they explain the risks facing the economy, what the FPC will do about them and what the consequences might be. There is, then, a great deal of transparency in the work of the Bank. That is a significant leap forward, and I pay tribute to the work of the Treasury Committee in encouraging that increase in transparency. We listen to the Committee and respond to its conclusions.

The Government believe, as did the previous one, that the existing appointment process is robust, appropriate and ensures the independence and accountability of the Governor. We are introducing a single eight-year term for the Governor, which will preserve his independence. That was a proposal from the Treasury Committee but also one that we made when in opposition. It will help to strengthen that independence. There are risks, however, in giving the Treasury Committee a veto over appointments. There could be an impact on market stability, with a risk of undermining market confidence. There is also a risk of creating a party political or politicised process—the very danger that Bagehot warned us against.

It would be wrong for the Bill to receive a Second Reading, although there is much more that I would like to say about the matter. I do not think that we have properly explored the issues, but I am grateful to hon. Members on both sides of the debate for their contributions. These are weighty matters that deserve proper parliamentary attention and—