Bank of England (Appointment of Governor) Bill

Debate between Jacob Rees-Mogg and Stephen Hammond

Friday 6th July 2012 Commons Chamber

[Stephen Hammond]

I am grateful to the hon. Gentleman.

The Bill is supported by large numbers of Members from both sides of the House, including many right hon. and hon. Friends whose judgment and intellect I respect and admire. However, let me start by setting out the four points on which there are internal contradictions in the hon. Gentleman’s argument or where there are reasons to oppose the Bill. First, the role is unique, and its extension increases that uniqueness. Secondly, the Government are already putting safeguards in place through the Financial Services Bill. Thirdly, despite what the hon. Gentleman has argued, a lot of people would accept that what he proposes is a fairly major constitutional change. Moreover, an underlying point he made is that this Bill somehow fits with the principle “for the people, by the people” so that anything other than that would be unacceptable.

I recently participated in a transport debate and gave what I thought was a fairly good detailed speech; indeed, one or two people were kind enough to say it was useful. I was pleased to note that my hon. Friend the Member for Preseli Pembrokeshire (Stephen Crabb) who was the duty Whip at the time, said something like, “That was one of the dullest speeches I have ever heard; more time limits, please”! I hope the Whips will find my speech today to be equally dull; perhaps there is a case for time limits in debates such as this.

It might bring a little colour to the debate as well as a sense of purpose if we look at one or two of the Governors of the Bank of England over the last century who have been extremely powerful figures on the economy and powerful figures in respect of their independence from Government. We could reflect on how their appointments were made. Montagu Norman, for example, the Governor of the Bank of England from 1920 to 1944 was described by many as more of a bohemian artist than a banker. He liked to wear Sherlock Holmes-type clothing, was prone to nervous breakdown, regarded politicians as asses and openly said so. I just wonder what the Treasury Select Committee might have said to him when he was appointed.

[Jacob Rees-Mogg (North East Somerset) (Con)]

When Montagu Norman was Governor of the Bank of England it was a private company, so I do not think it would have been right, prior to nationalisation, for a Select Committee to have had any involvement in the appointment.

[Stephen Hammond]

Indeed. We could have a long discourse about the fact that Montagu Norman was the initiator of sound monetary policy, but in view of the strictures set out by the hon. Member for Hayes and Harlington, I shall not go down that course today.

It might be worth referring to two more modern Governors. Lord Kingsdown, who was Robin Leigh-Pemberton at the time he was Governor, was in some ways a classic figure. He had been a lawyer for many years and had no banking experience. He was appointed chairman of Nat West bank and was then invited to become Governor of the Bank of England. I am sure we could envisage the Treasury Committee saying, “But you are a lawyer, and we want a banker or someone with financial services experience”. The current Governor’s predecessor, Baron George, went from Cambridge to the Bank of England and never left it. Again, can we not hear the Treasury Committee saying, “But you are an insider in the Bank of England. You have no experience anywhere else. How on earth”—

--- Later in debate ---

[Stephen Hammond]

I bow, of course, to my hon. Friend’s greater knowledge of this matter. My key point was that the Bank of England and its family, cousins and outside friends will now have a much greater role at the centre of the regulation of our financial system and, indeed, of our overall economy.

It is in some ways understandable that the immediate drive of the Bill before us is to increase the powers of parliamentary accountability, but I think there is some confusion between accountability and independence. Parliament will gain further powers of control, scrutiny and accountability under the Financial Services Bill. The exact powers are clearly defined, with reference made to the new financial stability objective, to the position of the deputy governor and the Financial Policy Committee, to the Governor’s appointment for eight years and to the fact that the Treasury Committee and, indeed, Parliament can hold the Bank of England to account. That being so, it is not necessarily the case that giving the Treasury Committee the power of veto over the appointment of the Governor would enhance that accountability, although it might impede the Governor’s independence. It is right for Parliament to have greater accountability and greater scrutiny, but we need to be clear that the Governor, who is at the centre of the operation of macro-economic policy and macro-financial and prudential control, must be independent.

The Bill before us contains not only a power of veto but a power of appointment, which could be seen as a step backwards in the whole argument about independent policy making. The Bank of England Act 1998 took a momentous step forward in respect of the independence of the Bank and the Governor by giving the power of decision over interest rates to the Monetary Policy Committee. That was, and will remain, the historic achievement of the Labour Government. It followed from and was a continuation of what the previous Governor had introduced, in tandem with the then Chancellor, my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke), with the publication of the minutes of the interest rate-setting committee.

[Jacob Rees-Mogg]

Does my hon. Friend believe that the conduct of monetary policy from 1998 to 2008 was any better than it was when the Bank of England was not independent and when previous Conservative Governments from 1979 onwards were interfering in monetary policy very considerably?

[Stephen Hammond]

Again, my hon. Friend presents me with a tempting line of debate. It is reasonable to suggest that the period between May 1993 and May 1997 will be regarded as one of the golden eras of the operation of monetary policy. It was the period that drove the first 12 quarters of growth before 1997, and it was the period during which my right hon. and learned Friend the Member for Rushcliffe and Baron George—who, as I said earlier, might not even have been appointed by a Treasury Committee—operated monetary policy. I am sure that my hon. Friend and I could enjoy a happy morning discussing monetary policy, but, as I have said, I will not go down that line.

The protections and requirements introduced by the Financial Services Bill seem to me to be exactly the same as those introduced by the Bank of England in terms of independence. What concerns me is that if the Treasury Committee can hold the Bank responsible for its actions in the past as well as its immediate decisions, it does not necessarily need a power of veto over the Governor’s appointment. It has the power of accountability and of scrutiny.