Financial Services Bill

David Ruffley Excerpts

Monday 23rd April 2012 Commons Chamber

[Chris Leslie]

I was just coming to my conclusion and am conscious that other Members wish to speak, so I will not give way. I simply urge the House to vote for the amendment in the hope that the House of Lords will improve clause 5.

[Mr David Ruffley (Bury St Edmunds) (Con)]

I rise to support new clause 1 briefly. I had the privilege of sitting on the Joint Committee on the draft Bill and of being a member of the Treasury Committee, which is chaired by my hon. Friend the Member for Chichester (Mr Tyrie)—colleagues have noted that he is not a Privy Counsellor, but as far as many of us are concerned he is right honourable in spirit.

The main purport of new clause 1 is to establish a duty on the court of directors to conduct retrospective reviews of the Bank’s performance. The Governor of the Bank of England, in giving evidence to the Joint Committee and the Treasury Committee, has argued that it would be a bad idea to have a review into anything other than the processes by which certain policy decisions are reached. In other words, he does not want there to be a duty on the Bank to scrutinise retrospectively how good its decisions—meaning the decisions of the Financial Policy Committee or the Monetary Policy Committee—turned out to be. One of the reasons he gave was that there are lots of external commentators, such as outside economists in the City and the commentariat in the fourth estate, but it is fairly obvious that those entities are under no statutory duty to crawl through every decision of the FPC or the MPC and decide with hindsight whether they were good or bad.

The second reason the Governor gave is that the Treasury Committee holds the Bank to account, a point alluded to by the hon. Member for Nottingham East (Chris Leslie). The Treasury Committee, packed with talent though it is on a yearly basis, still has a huge amount of work to do and, not for the want of trying, does not have the amount of technical expertise or the number of macro- and micro-economists needed to conduct work month after month, tracking back and looking at how good or bad the judgment calls of the FPC, as constituted by the Bill, and the extant MPC turned out to be. My word, don’t we need such backward-looking analysis? If it had been present in 2007 and 2008, we might have avoided the difficulties of which we are all too well aware.

The Bill gives the Bank of England unprecedented powers. As a result of it, we will have a Governor of the Bank of England, whomever he or she is in the future, who will be chair of the Monetary Policy Committee, have a place on the court of directors of the Bank of England, chair the Financial Policy Committee and chair the Prudential Regulation Authority. With the creation of the FPC, alongside all the work that the Bank does on monetary policy, a lot of decisions are going to be made.

Not since the creation of the Bank of England in the late 17th century has its senior management and Governor had so much power, and, from even a cursory glance, the Joint Committee’s evidence and the evidence taken by the Treasury Committee in recent months all leads to one thing: one cannot have enough scrutiny of this big beast that the Bank will become as a result of the Bill coming into force.

The Treasury Committee argued forcefully for a severe new set of accountability and scrutiny powers. We advocated the creation of a new supervisory body inside the Bank of England in order to replace the court of directors, because the court, as everybody knows, is packed full of amateurs—well-meaning amateurs, but people who simply are not, by any stretch of the imagination, able to hold the Bank of England’s senior executive members, who are on the MPC and will soon be on the FPC, to account.

The court includes has-beens in the City, or “never-was’s”, and people with indifferent reputations in the trade union movement, in manufacturing and in all aspects of public policy. But the evidence shows that remarkably few of them have any expertise in central banking matters, in fiscal policy, in macro-prudential policy or in monetary policy. The court is desperately under-geared, and its intellectual horsepower is not what it should be.

A supervisory body, with a majority of external members, overseeing the FPC’s and MPC’s judgments and undertaking retrospective reviews is the best-case scenario; it is what the Treasury Committee thought would be the best solution for scrutinising this very powerful—all-powerful, I might add—Bank.

I understand why Ministers have concluded that they do not want to go into battle with the Governor and the senior executives about a supervisory body, because it is way too radical, but it is absolutely incumbent on this House to look at the purport of new clause 1 to see that it actually imposes more scrutiny than the Bill currently provides on the policy decisions of not just the MPC, but the FPC. Let us not forget that the MPC has recently acquired, or arrogated to itself, certain very significant discretionary powers over monetary policy—not in setting the bank rate, but in quantitative easing.

How many debates have we had in this Chamber about QE and its merits or relative de-merits? The answer is relatively few. The Monetary Policy Committee is held to account only by the Treasury Committee. It is my suggestion that the Treasury Committee, marvellous and wonderful though it is—I am a member of it, so I would say that—will need the assistance of ex-post reviews to look retrospectively at the quality of the decisions that the Bank, with its new powers, makes. I therefore urge colleagues to support new clause 1.

[Mr George Mudie (Leeds East) (Lab)]

I congratulate the Chairman of the Treasury Committee on new clause 1. I disagree with what was said about him becoming a right hon. Member. In my experience of this place, somebody as independent and straightforward has little chance of becoming right honourable.

On a more serious note, I follow my colleague on the Treasury Committee, the hon. Member for Bury St Edmunds (Mr Ruffley), in saying that the Minister would be well advised to accept the amendment or to indicate that further thought will be given to it. I agree with my colleague that the amendment could and should have been much harder. The problem is with the behaviour of the court of the Bank of England. It is not that it has not been given power; it is that it has accepted the boundaries and the servile role imposed on it by the Governor and the executives of the Bank of England. As I have said in this Chamber and as has been said to the Treasury Committee in all but terms, the court is allowed to count the paperclips, but that is about it. Anything serious or to do with policy is nothing to do with it. If its members had any dignity or self-regard, they would not be part of it, because apart from receiving a nice little stipend for going, one wonders what on earth they do.

The discussion in the Treasury Committee, and even in the Joint Committee on the draft Financial Services Bill, has been about bringing the corporate governance of the Bank of England into the 21st century with a proper board, and about stopping it being the fiefdom of one person. If I were the Minister, I would accept the new clause in spirit and say that I would speak quietly to people about it to strengthen the proposals and move on. He could well find himself having a much stronger position forced upon him, which would be good for the Bank of England in the long run.

I congratulate my hon. Friend the Member for Nottingham East (Chris Leslie) on amendments 22 and 23. I will deal with them briefly because many Members want to speak. This is not a political point, but the response to those amendments from Government Members is interesting, because my hon. Friend has raised a matter that deserves discussion and thought. The powers being given to the Financial Policy Committee will affect people, industries and firms, and there must be accountability. The problem arises from the fact that there is no consensus on the definition of financial stability, but the House is setting up a Financial Policy Committee, the objective of which is financial stability. The Chancellor of the Exchequer raised the most pertinent point before the Joint Committee, which was that although we do not want it to, the FPC could define financial stability as the “stability of the graveyard” and reach it. My hon. Friend the Member for Nottingham East raised that point today.

If the FPC had the responsibility for making the definition and wanted to do it without much fuss, it could set the required level of economic activity so that it neither pressed the ceiling nor went through the floor, but would that give us the growth and employment that the Government might want? Should not the FPC be asked to work towards the Government’s policy, whichever party is in government?