Watchdogs (Industry and Regulators Committee Report)

Baroness Finn Excerpts

Monday 9th September 2024 Lords Chamber

[Baroness Finn (Con)]

My Lords, I congratulate the noble Lord, Lord Hollick, on the work of his committee in producing such a comprehensive and insightful report. It has brought into focus an important issue that has a huge impact on the wider public. Many years ago, I worked at the Financial Services Authority at its foundation.

A common refrain from commentators, frustrated with democratic politics, is, “Things would be so much better if only experts were in charge”. However, I suggest that the proliferation of regulators throughout the United Kingdom has tested that theory, and the committee’s report provides ample evidence of the trade-offs inherent in delegating matters to regulators.

As many in this House will know, decision-making in government consists of an endless flow of problems. These problems, almost without exception, involve distributional trade-offs between competing voices in society, each of whom has a legitimate claim on public resources. Every decision creates winners and losers: those who stand to gain or suffer from the effects of public policy. That is why I welcome the committee’s recommendation that, where decisions necessarily involve distributional trade-offs, there should be some facility for regulators to seek guidance from the Government as to how to proceed. There is a good case for making that facility more formal.

The only plausible qualification for taking distributional decisions is democratic consent. Accountability to the electorate is the only effective deterrent for decision-makers to resist the temptation to serve factional interests over wider public interests. Since 2008, the Bank of England has engaged in almost £1 trillion-worth of quantitative easing. In evidence to the Economic Affairs Committee of this House, Bank officials stated that they “hope”—their word—that the effect of this stimulus would be to inflate existing asset prices, making asset-holders richer and thus prompting them to spend more money. That is a distributional decision, the consequences of which impact on us all, and one which Parliament played no role in authorising. I therefore also welcome the committee’s recommendation that the accountability of regulators to Parliament must be strengthened, although I doubt whether the committee’s recommendation for yet another statutory body will enhance that accountability.

The power of regulators is supposedly curtailed by their having clearly defined statutory duties that limit their freedom of manoeuvre. I fully agree with the committee’s finding that many regulators today suffer from a proliferation of conflicting statutory duties that read more like shopping lists than legal direction. However, when a regulator catastrophically fails to exercise its statutory duties, there are seldom any consequences. The 2008 financial crisis was unambiguous evidence of the failure of the institutions responsible for supervising the financial services sector, yet the central culprit of that failure—the Financial Services Authority—was simply rebranded, with some of its responsibilities moved down the street to the central bank. The bulk of its personnel did not change, nor did their working practices. The very culture that gave rise to such failure was left to fester, and the FCA can often seem to take a greater interest in the diversity of the board members of those it regulates than it does in the macroeconomic risks arising in the financial services sector.

The report also makes a number of recommendations about the appointments to regulators’ boards, including the timeliness of such appointments. This is an entirely fair criticism, but, having had some experience of such appointments inside government, I highlight that the data about these important appointments is often woeful. In the then BIS department, it took officials almost six months to pull together the data on upcoming appointments. This is important in the appointments to regulators’ boards, since those who are most qualified to undertake these roles will almost certainly have conflicts of interest and will need to be approached in good time and, often, persuaded to apply. They are not the sort of people who will check the public appointments website, so it is vital that the departments give such appointments the attention that they deserve, with officials of appropriate seniority in charge.

I close by emphasising that regulators, with few exceptions, seem to have fallen prey to the temptation of governing not in the wider public interest but in the factional interest of those they apparently exist to regulate. A different incantation of statutory words cannot resolve this. The only answer, as the noble Lord, Lord Hollick emphasised, is for our democratic decision-makers to play a more meaningful role in the regulation of the British economy.