Financial Services Bill

Baroness Noakes Excerpts

Wednesday 17th October 2012 Lords Chamber

Moved by

[Baroness Noakes]

190ZE: Clause 57, page 136, line 4, leave out from “to” to “the” in line 5 and insert “any of the Bank’s powers or functions, including but not limited to”

[Baroness Noakes]

My Lords, Amendment 190ZE is in my name and that of the noble Lord, Lord McFall of Alcluith. This represents the last of the amendments in our joint names which respond to the first report of this Session by the Treasury Select Committee in another place.

Clause 57 provides a welcome power of direction that enables the Treasury to direct the Bank of England when public funds are at risk. The Treasury Select Committee initially recommended that such a power be created when the Bank notified the Treasury that there was a material risk to public funds. The committee regarded such a power of direction as a necessary corollary of the leading role of the Chancellor in any financial crisis. Unfortunately, the Bank of England sought to water this down to a power of direction operating only in relation to certain instruments of crisis management. Even more unfortunately, the Government have sided with the Bank and have restricted the power of direction to the three areas listed in Clause 57(2).

The Treasury Select Committee remains unhappy with this and believes that if the legislation is to stand the test of time, it should not be restricted to the specific tools listed in subsection (2) but should be capable of being exercised in relation to tools not currently considered appropriate; for example, those tools that would be available to the Financial Policy Committee or other tools that have not yet been developed. The Treasury Select Committee believes that this power should be broader and future-proofed.

Amendment 190ZE seeks to achieve this by saying that the direction can relate to any of the powers or functions of the Bank of England, leaving the three specified tools as a non-exclusive list of such powers.

I am told that the House could not hear me in my previous position so I have moved.

[Lord Peston]

Start again.

[Baroness Noakes]

This is a probing amendment for today, not least because I think that it is too wide. For example, it would allow the Treasury to direct the Bank in relation to monetary policy functions, which would not be appropriate. Section 4 of the Bank of England Act 1946, which took the Bank into public ownership, has a general power of direction, which puts monetary policy out of scope. I believe that any Clause 57 power should similarly be constrained but I cannot see that there needs to be any further restriction on the Treasury’s power of direction when public money is at stake.

When my noble friend the Minister replies, can he also explain the relationship between the 1946 Act’s power of direction and the new powers of direction in Clause 57? The 1946 version is very broad and, monetary policy apart, seems to cover everything that is in Clause 57, and more. I do not believe that the 1946 Act power is being repealed or otherwise amended in this Bill, so I am puzzled as to the relationship.

I am aware that general powers of direction have rarely been used in practice, because their force lies mainly in the threat of their use rather than their actual deployment, but I hope that my noble friend the Minister can say what effect Clause 57 has on the existing power of direction. I beg to move.

[Lord Peston]

My Lords, this is a most interesting amendment, which enables us to clarify one or two aspects of the Bill. I literally did not hear the first part of what the noble Baroness was saying, so I was not joking when I suggested that she started again and she may well need to repeat what she said at the beginning.

This amendment brings into focus the relative power of the Bank of England in the areas that the Treasury is concerned with. This has worried quite a few of us throughout the proceedings on the Bill. To put it too simply, the question that emerges is: who really is in charge of the stabilisation process? Before I press that a little bit further, I take it that when in this part of the Bill we are talking about stabilisation powers, we are restricting ourselves to stabilisation powers within the financial services sector and not discussing a subject to which I have devoted most of my academic life; namely, powers to stabilise the whole economy—or, if people had followed my advice, probably destabilise the whole economy. We are not discussing the general question of the theory of economic stabilisation here. We are discussing just stabilisation.

Can the Minister throw some light on the simple question here? Who really is in charge? The noble Baroness includes in her amendment “not limited to”. However, unless this was part of what I did not hear, I do not think she said what else she had in mind that might then arise if it was not limited to these things. It may well be that she did say it and I missed or it may well be that she would like to say it now.

[Baroness Noakes]

It might help those Members of the Committee who did not hear my opening remarks if I say that my amendment is designed to ensure that the power of direction can be used for all of the functions of the Bank of England not simply those listed in Clause 57(2). I also said that it probably ought to exclude the functions related to monetary policy.

[Lord Tunnicliffe]

I spent some years sitting on the Benches opposite facing the noble Baroness, Lady Noakes, and it comes as a refreshing new experience to find myself so frequently in agreement with her on this Bill. I am sure that will distress her as much as it is distressing me. Unfortunately, her caveating remarks are every bit as important as the lead remarks recommending the amendment.

We would not be able to support the amendment as drafted because, as she rightly points out, it could involve a direction to the MPC. This part of the Bill is a limiting list. The noble Baroness may want to consider either extending the list—we would look at that with great interest—or reversing it and extending the powers to the whole of the activity as her present amendment does and then caveating it with a number of areas where this power could not be used. This is a very useful amendment to develop the debate. I look forward to the Minister’s reply and thank the noble Baroness for proposing it.

--- Later in debate ---

[Baroness Noakes]

My Lords, I thank all noble Lords who have taken part in this short debate. I thank my noble friend for his response. I take the point on general powers of direction. They have not been used since these have been written into statute. They existed in all the nationalised industry legislation, which gives rise to the question as to why they are there, but I am sure Ministers feel more comfortable that they have this nuclear option should nuclear war ever need to break out.

The Treasury Select Committee would still say that it thinks that the power is too narrow. If there were a crisis where it is clear that he should be in charge, the Chancellor should not be restricted in what he can direct the Bank to do. For example, he may feel the need to direct the Bank on the use of macroprudential tools. These are in the hands of the Financial Policy Committee. If the Bank were slow in using them and where it took a particular view on something on which the Chancellor took another, public money would be at risk. The Chancellor ought to be able to get his way on things. On that basis the Government have drafted too narrow a power, but I shall not pursue it any further. It is the Government’s choice, and I beg leave to withdraw the amendment.

Amendment 190ZE withdrawn.