Bank of England

Ed Balls Excerpts

Monday 26th November 2012 Commons Chamber

[Ed Balls (Morley and Outwood) (Lab/Co-op)]

I thank the Chancellor of the Exchequer for notice of today’s statement—although not of its content. I join him in thanking the outgoing Governor of the Bank of England, Sir Mervyn King, for his public service and I wish him a long and happy retirement. I commend the Chancellor on his choice of successor, Mr Mark Carney, to be the third Governor of the Bank of England since our decision to make it independent in 1997. We on this side of the House look forward to working with him closely in the coming months and years.

I have known Mark Carney for a number of years and have worked with him closely. He has a long and distinguished record of public service, great financial expertise and a track record of handling tough and complex challenges. He follows in a tradition established in 1997 when the first appointments to the Monetary Policy Committee included Willem Buiter and DeAnne Julius, neither of whom were British citizens at the time. In my view Mark Carney is a good choice and a good judgment, and his experience will be invaluable.

The Chancellor has made a short statement today, but this is a decision of great significance. With the leave of the House, I would like to ask a number of questions of the Chancellor concerning Mr Carney’s appointment and the role that the new Governor will step into.

At a time of economic stress, the new Governor will need to get to grips with a new and massively enlarged central bank that has new, onerous and complex responsibilities in prudential and consumer regulation as well as its role in monetary policy and financial stability. That is a near impossible job for one person, but in our view it is made harder by the way in which the Chancellor has drawn up the Financial Services Bill, which is still being considered in the other place. We remain disappointed that he is continuing to resist the amendments tabled by the Chair of the Treasury Select Committee and ourselves that would enable the complex new arrangements for the Bank of England to be properly scrutinised. In our view, the new Governor would be strengthened and enhanced, not weakened, by greater transparency. Will the Chancellor think again about that matter?

The Chancellor also needs to clear up the deep confusion at the heart of the new arrangements about who is responsible in a crisis, which he has not managed to clear up to our satisfaction under the current Governor. The Bill heaps far too much power on the new Governor, who, when dealing with the Chancellor, will be able to internalise and suppress the inevitable conflicts within the Bank of England between financial stability on the one hand and monetary stability, fiscal risk and moral hazard on the other. It makes no sense that the deputy governors, including the deputy governor who heads prudential stability, will have no undisputed right to put their views directly to the Chancellor, whether or not the Governor agrees. That is neither stable nor sensible. There is obfuscation in the Bill, and it is not good enough simply to have a memorandum of understanding with ad hoc committees. If the new Governor is to have a fair chance of success, the flaws in accountability and crisis management must be resolved. Will the Chancellor agree to sit down with the new Governor and sort this out?

The new Governor of the Bank of England also looks set to inherit a difficult external economic environment, a global economy that still has serious imbalances, the eurozone in continuing crisis, and, here in the UK, challenges to our banking system, to growth and to fiscal policy. So let me ask the Chancellor a further question about the relationship between the Treasury and the Bank of England that the new Governor will inherit.

Given the blurring of the relationship between monetary and fiscal policy following the recent decision to transfer £35 billion from the Bank of England’s quantitative easing programme to the Treasury coffers—a move that is set to reduce short-term Government borrowing and increase the longer-term burden on the taxpayer—I very much hope that the new Governor and the Chancellor will agree with the Institute for Fiscal Studies, which has stated today that they should

“exclude the impact of this change from all figures when assessing compliance with the fiscal targets”.

Is that a matter that the Chancellor has discussed with the present Governor, the new Governor, the Office for Budget Responsibility or the Office for National Statistics? Can he reassure us that the IFS’s recommendations will be taken on board?

Writing in the Financial Times earlier this year, I began an article by saying:

“Wanted, a new governor of the Bank of England. Only superhumans need apply.”

Superhuman or not, the new Governor of the Bank of England, Mr Mark Carney, is well qualified to take on the role at what will be a very difficult time. I am sure that I speak for the whole House when I say that we wish him and his family well.

[Mr Osborne]

Given the many fierce exchanges that the shadow Chancellor and I have across the Dispatch Box, it is only right for me to acknowledge my real gratitude to him today for welcoming this appointment. He knows Mark Carney, and he knows that he is an outstanding candidate for the job. I shall certainly cherish the words “I commend the Chancellor”, because I will probably never hear them from the right hon. Gentleman again. I sincerely thank him for that.

One of the important things about the independence of the Bank of England, which the right hon. Gentleman helped to establish with the previous Prime Minister, is that it commands cross-party support—it did not at the time; it does now—and we must try to keep the appointment of the Governor out of the day-to-day partisan debate. The right hon. Gentleman has certainly played his role in doing that today. Let me answer specifically his questions about the new role of the Bank of England.

First, on the shadow Chancellor’s point about the new responsibilities, the Bank has heavy new responsibilities because, in our judgment, the tripartite system did not work and was not properly co-ordinated. Indeed, the Select Committee of the last Parliament, which was chaired by Lord McFall—John McFall as he was then—said that it was not clear who was in charge. By insisting that the Bank of England is in charge of macro-prudential and micro-prudential regulation, we bring those things together.

It is also important, secondly, that we recognise that the Government have an important role. When there is a material risk to public funds, there is a clear responsibility in the Bill for the Bank of England to inform the Treasury, without deluging it on a day-to-day basis with everything that is happening and not differentiating the things that are significant and really important. We have taken in the Bill the power of direction that did not previously exist. In the memoirs of my predecessor, the right hon. Member for Edinburgh South West (Mr Darling), he made it clear that at one point he was considering using the almost nuclear power of direction in the Bank of England Act 1946, which no one had ever used, but that he backed away from it because he did not have a more targeted instrument. We now have that targeted power of direction, which the elected Government can use.

Thirdly, we have discussed the role of the deputy governors. Although it is incumbent on any good Governor and any good Chancellor of the Exchequer to try to make sure that views are heard, ultimately the Bank has to reconcile its internal differences rather than, as I have said, allowing the internal differences to be expressed externally without any attempt to resolve them internally. I make it my business in doing my job to see the deputy governors and to make sure that their views are heard.

Finally, let me deal with the asset purchase facility coupons. This was done with the support and acceptance of the Governor of the Bank of England and the Monetary Policy Committee, which discussed it and agreed that that was a more transparent way of accounting for the quantitative easing coupons and how they will affect the public finances through the coming years. I can confirm for the right hon. Gentleman that when the Office for Budget Responsibility produces its report next week for the autumn statement, it will clearly show the impact of the APF coupons on the public finances, both before and after.