Financial Services Bill

Baroness Wheatcroft Excerpts

Tuesday 26th June 2012 Lords Chamber

[Baroness Wheatcroft]

My Lords, I speak in favour of Amendment 6. The amendment concerns the corporate governance of the Bank, and we have heard much this afternoon about perceived gaps in that. I understand the desire to strengthen the court, but I think that this can be achieved without drastic changes either of name—as the noble Lord, Lord Eatwell, said, “What is in a name?”—or in structure. In particular, I have qualms about giving strong new powers to the Treasury Select Committee. Having heard my noble friend Lord Turnbull, I think that if we go in that direction, perhaps it should be the whole House that gets to answer the question of who should be the future governor.

However, we need not do anything quite so drastic yet. If we wish to strengthen the governance of the Bank, it seems to me more appropriate to do so by giving the court—or supervisory board, if you want to call it that—an enhanced role. The government amendments that will be moved later this afternoon go some way towards doing that with the formation of the oversight committee. It certainly enhances the remit of the non-executives from where it is currently perceived to be. It may be retrospective, but the power of being held to account retrospectively is quite a powerful force with regard to current behaviour.

Nevertheless, the court already has significant powers. The Bank of England Act 1998 stipulates:

“The court … shall manage the Bank’s affairs, other than the formulation of monetary policy”.

Some have interpreted that as being little more than looking after the housekeeping, and it has sometimes appeared that way. However, the Act goes on to say that,

“the court’s functions … include determining the Bank’s objectives (including objectives for its financial management) and strategy”.

Surely the ability to determine strategy is a pretty powerful one.

The noble Lord, Lord Burns, has pointed out that within the court there is pretty much the structure of a corporate board. Perhaps it has not always seemed that way, but we need the court to feel empowered to use the powers that it has. Much will depend on the ability and willingness of the members of the court to take a tough and challenging line; and there is no reason why they should not if they are well qualified and strong.

We have heard about the need for challenge; the court should be providing it. However, I believe that the Government need to send a firm signal about how important they believe the role of the court to be. In a normal company, the crucial role of the chairman is to ensure that the company has the best and most effective chief executive. Companies thrive best when the chairman and the chief executive have a constructive relationship and mutual regard. Is it not therefore imperative that, even though the Bank is no ordinary company, the chairman should at least have some involvement in the appointment of the chief executive?

This amendment does not call for drastic change, but in demanding that the Chancellor should consult with the chairman of the court—or the supervisory body, should that be preferred—it would underline the importance of the court and the notice that the Government want to take of it. It would encourage the court to be brave, perhaps braver than it has been in the past. Formal discussions may go on now between the Chancellor and the chairman of the court, but there is no mistaking what a low-profile role the chairman has had—indeed, some thought that the governor was the chairman of the court. I think that we need the chairman of the court to have a rather more effective, higher-profile role. That could start with a formal requirement that the Chancellor should negotiate and discuss the future governor.

[Lord Peston]

My Lords, I shall speak to Amendment 8A in my name and that of the noble Lord, Lord Barnett. In doing so, I shall not comment on Amendment 6 in the name of the noble Baronesses, Lady Kramer and Lady Wheatcroft, simply on the grounds that the subject is totally beyond me. I am no expert on governance whatever, and I could not tell good from bad governance if it hit me over the head. However, what the noble Baroness said sounded very persuasive, and I am sure that she is right.

I also apologise to my noble friend Lord McFall. I just did not notice his Amendment 10. If I had done so, I would have tabled an Amendment 10A as I have tabled Amendment 8A.

I take noble Lords back to the Bank of England Bill, which the noble Lord, Lord Barnett, and I played a full part in debating. Indeed, one thing that I still remember with enormous pleasure and some amusement is the fact that, while the noble Lord and I were enthusiastically in favour of the Bill and said so, Conservative noble Lords who were then on the opposition Benches were doubtful. One of my tasks was to try to persuade many Conservative Peers that what Gordon Brown was doing was not only the right thing but that it was a very strong move in a Conservative direction to give independence to the Bank of England for monetary policy. I still give the odd lecture, and I sometimes boast that I was once involved in educating the Conservative Party in the correct way in which to run monetary policy.

In the course of debating the Bank of England Bill, all references to feeding back were to the House of Commons. The noble Lord, Lord Barnett, and I put down an amendment—I think that it was the only one that was accepted from us—to say that wherever the word “House of Commons” appeared it should be deleted and replaced with “Parliament”, and the Bill was changed so that Parliament became the body, meaning that it included the House of Lords. That established the fact, on which Lord Williams of Mostyn got a definitive opinion from the Clerk of the Parliaments, that the House of Lords is fully entitled to look at any matters of this kind and to be consulted on them. The Commons does not have to take any notice of us on these matters, but we can certainly exercise our rights. That is why I object very much to the form of Amendment 10 in my noble friend’s name and feel that the correct wording should be, “Treasury Committee of the House of Commons and the Economic Affairs Committee of the House of Lords”. This is a matter of principle for your Lordships’ House. I am personally not persuaded by any of what might then happen, but that is another story. If it is going to be done, I feel very strongly that both Houses should have access.

That was all about appointment, which comes up several times later on other things, but I shall make one speech do for all the other times it comes up. In my total naivety, it never occurred to me that there was any question of removal from office being a serious matter. That is another reason why I apologise to my noble friend. I would probably emigrate if we got to a state in our society where we were dealing with the removal from office of the Governor of the Bank of England. I hope that that was what the noble Lord, Lord Turnbull, was saying as well. We are all very keen on science fiction, but I think that we can go a little too far.

--- Later in debate ---

[Lord Sassoon]

My Lords, just before the noble Lord, Lord McFall, sits down it may be worth being clear for the record that when I said the governor can be fired if he or she proves to be unfit to perform the role, that was completely right. In answer to the question from the noble Lord, Lord Peston, about whether the governor can be fired for wrecking the economy, I would suggest that at that point the Bank would probably decide that the governor was unfit. Without getting into a long debate about where unfitness comes into it, it is worth saying that at that point, unlikely though the scenario might be, wrecking the economy might lead the Bank to decide that the fitness test would apply.

[Baroness Wheatcroft]

I thank my noble friend the Minister for his reply; I confess I found it disappointing and I thank those noble Lords who spoke in support of my amendment. I was trying to find a simple means of showing that the court was held in some esteem and had powers to exercise. I do not doubt that informal conversations go on but I am slightly reluctant to rely on informal arrangements when we are trying to strengthen the corporate governance of the Bank. Not just to strengthen the corporate governance but to strengthen the perception of that corporate governance. I would ask my noble friend to think about this matter and maybe other ways in which he might strengthen perceptions of the corporate governance of the Bank. However, I shall not move my amendment.

[Lord McFall of Alcluith]

With a request to think again, I beg leave to withdraw the amendment.