Bank of England and Financial Services Bill [HL]

Baroness Noakes Excerpts

Monday 9th November 2015 Lords Chamber

[Lord Sharkey]

I thank the Minister for that response. There is no argument about the value of the CEO of the FCA being on the FPC. I fear that I was completely unconvinced by the argument that one more external member would make the FPC collapse into chaos and disorder; that seems a bit far-fetched.

The difference between us is whether the independence that the noble Lord maintains that the CEO of the FCA has is true independence. The test he seems to apply is simply that, well, the FCA itself is kind of independent, so she is obviously independent. In fact, the Minister did not mention my major concern, which is the influence that the Bank itself has over the CEO of the FCA. I give way to my former noble friend.

[Baroness Noakes (Con)]

My Lords, can the noble Lord explain why he thinks that the Bank has any influence whatever over the chief executive of the FCA? There are no provisions in statute that give any sense of influence, even, and I struggle to find where in practice you could point to where that influence could be deemed to exist.

[Lord Sharkey]

There are two partial answers to the noble Baroness’s question. The first is, as I mentioned, that the chief executive of the FCA can be summarily dismissed, presumably either at the instigation of the governor or at least with his permission and consultation—

[Baroness Noakes]

I ought to say two things to that. The chief executive of the FCA was not summarily sacked; as I understand it, he was informed that his contract would not be renewed, and there is a world of difference. As far as I am aware, there is no practical issue of the Governor of the Bank of England or any other senior official of the Bank of England having any locus in the decision whether to renew the chief executive’s contract. If the noble Lord has evidence of that, I should be happy to see it.

[Lord Sharkey]

The fine distinction between being summarily dismissed and not having his contract renewed temporarily escapes me, but I am sure that it will come to me. The point I am trying to make is that I believe that the Bank has influence over the CEO of the FCA. I was asking the Minister—because he did not deal with this—to explain why he clearly believes that it does not have influence over the head of the FCA.

I also point out, as I did in my initial speech, that the PRA itself can act to restrain and constrain the activities of the FCA, as I am sure the noble Baroness knows. The PRA is an organ of the Bank, so the actual independence of the FCA is somewhat compromised by that arrangement. That was the point that I was trying to make.

However, having said all that, and not being terribly convinced by the Minister’s arguments—I am sure that we will want to return to this later—in the mean time, I beg leave to withdraw the amendment.

--- Later in debate ---

[Baroness Noakes]

My Lords, the noble Lord, Lord Davies of Oldham, is being rather modest about these amendments. I think they are rather good. However, I do not understand why he has proposed amendments to Clauses 9 and 10 but not to new Section 7G introduced by Clause 11, which relates to the main value-for-money study power. Not being limited in the way that these amendments imply would be at least as important to the new powers introduced by Clause 11.

I hope the Minister’s reply is not cursory because this is quite an important point. We do not very often legislate on public audit matters. I can remember doing the Public Audit (Wales) Bill, and there was no restriction on the Comptroller and Auditor-General for Wales reasonably requiring certain information. Reasonable time was in the Bill, but not a requirement to demonstrate that he reasonably required the information. It seems to me that the more you try to constrain an auditor, the more you allow an organisation which is being audited to run rings around that auditor. Having been in the auditing profession, I feel rather strongly that we should not try to restrict auditors but should make it as easy as possible for them to get whatever information they want.

[Lord Higgins (Con)]

My Lords, the noble Lord, Lord Davies of Oldham, is always modest, but on this occasion he is excessively so. I agree with my noble friend because the implication of putting the words “reasonable” and “reasonably” in these clauses is that somehow the National Audit Office would act unreasonably, and I do not believe that that is the case. Perhaps the Minister will tell us where else in the legislation governing the National Audit Office such clauses are applied. These are quite unnecessary words. It may well be that, given the more formal auditing functions of the National Audit Office, as against the value-for-money provisions, there might be some occasion when it is necessary to get hold of documents at an unreasonable time. I hope the Minister will respond to this and agree to delete the words which appear in the amendments.

--- Later in debate ---

[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.

[Baroness Noakes]

My Lords, I support the amendments. I was deeply shocked to see that the Government proposed to give the Bank of England a veto over whether the Comptroller and Auditor-General could undertake a particular value-for-money study. I have believed for a long time that it has been an anomaly that the Bank of England has not been within the remit of the Comptroller and Auditor-General. I do not believe that any public body, however great and however independent, should be able to stand on that greatness and independence and say, “I do not want the National Audit Office or the Comptroller and Auditor-General to examine what I have been doing”. Public audit can be effective only when it is unfettered, and the concept of fettering the Comptroller and Auditor-General is, frankly, unacceptable.

[Lord Higgins]

My Lords, first, I express regret that I was not able to speak at Second Reading. I was preoccupied with the European Union Referendum Bill and other matters. However, I am certainly deeply concerned, as are other noble Lords, about the situation that now seems to have developed in the relationship between the Bank of England and the National Audit Office. I am sure that my noble friend was right in saying a moment or two ago that this ought to be resolved on Report. If necessary, that is what we will need to do.

I have a long history of involvement in this matter. I was much involved—this shows how long ago it was—when it was first suggested that the National Audit Office should carry out value-for-money investigations. However, it is very important to ensure that the NAO remains completely independent. I share the view expressed a moment ago that it would be wholly wrong for the NAO to have to get the permission of the people being investigated to carry out a review. I am extremely grateful to the noble Baroness, Lady Kramer, for explaining what I did not previously understand about the relationship between the amendment and the words being left out. I now understand the point that she made, which was extremely subtle, if I may say so.

Having said that, I am a little puzzled. I chaired the Treasury Select Committee for a decade or so and was succeeded by the noble Lord, Lord McFall. I was also a long-standing member of the Public Accounts Commission, which I chaired for some time. It is extremely important that we preserve the position of the NAO, and, as I said, I agree with those who say that it ought not to have to seek permission to carry out reviews.

I am just a little doubtful about what is meant by “policy”. This may turn out to be a rather fine line. For example, at the moment it seems to be the policy of the Bank, and indeed the governor, to give forward guidance on interest rates. That certainly needs inquiry as far as value for money is concerned, because the forecasts have been extraordinarily wrong on a number of occasions and a lot of people—for example, those renewing their mortgages—may have suffered considerably. In passing, I hope that the governor will reconsider whether that is an appropriate policy and perhaps no longer give forward guidance on interest rates.

The other points in relation to this matter have been made at Second Reading and in today’s debate. This is something that we have to resolve. We have to make sure that the relationship between the two bodies is maintained, otherwise the Comptroller and Auditor-General, very understandably, will have to think personally—the office of Comptroller and Auditor-General has always been a very personal one—about whether he can really operate in a situation where his independence is being questioned.