Bank of England (Appointment of Governor) Bill

Jeremy Corbyn Excerpts

Friday 6th July 2012 Commons Chamber

[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”—

[Jeremy Corbyn (Islington North) (Lab)]

So this is a filibuster.

[Stephen Hammond]

Let me finish the point. The Treasury Committee might have said, “How on earth can you as an insider bring insight into the rest of the system?”

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[Mike Freer]

I am grateful for your advice, Madam Deputy Speaker.

My worry is that the other place, in whatever form, will seek to flex its muscles and say, “If the Commons has a role in appointment and dismissal, why not us?” There could be a deadlock not only between the Executive and the House of Commons but between the House of Commons and the other place.

The Treasury Committee’s role is vital. I have no doubt that its role in expressing a voice in the appointment of a Governor of the Bank of England is crucial. Let me deal, however, with the issue of deadlock. In reality, if there were a deadlock, we are told that it could come down to an opinion being expressed on the Floor of the House. Given the potential for such an impasse to create instability in the markets, I remain unconvinced that this Bill provides proper safeguards to prevent this from occurring. In reality, a vote on the Floor of the House is likely to be whipped, and the Chancellor of the day would get his candidate. The Chancellor would have his way, but only after a delay and a bruising stand-off between the Committee and the Chancellor. How would the markets react if there were such a delay?

[Jeremy Corbyn]

Does the hon. Gentleman not accept that whoever was appointed would have greater legitimacy because they would have the authority of having been appointed by Members of Parliament and there would be a route of accountability to the appointment?

[Mike Freer]

That is one argument, but the contrary argument is that if the chosen candidate fails to carry the support of a substantial number of Members—there could be a majority of just one—there would be a credibility gap and the candidate would be damaged. What if the Chancellor were forced to withdraw a candidate or if the candidate chose to withdraw and we ended up with a second candidate or a third, eventually getting to the least worst candidate? That is not good governance; it is certainly not good for the credibility of the institution and cannot be good for the policy of the Bank of England.

People say, “Well, if there is a delay, it does not matter too much; it is more important to get the right person for the job.” Members will recall that when the former chairman—if that is the correct term—of the International Monetary Fund, Mr Strauss-Kahn, was forced to resign, the gap between his departure and the appointment of Mrs Lagarde caused a huge sense of drift in the international markets. That should cause the House to think twice about creating a scenario that could cause the same sense of drift here.

I have another objection to the Bill. We have already agreed to a fixed eight-year term for the Governor’s appointment. That is a difficulty in itself, because the eight-year period will not be coterminous with the fixed parliamentary terms, but if we continue to delay an appointment, a huge problem may be caused. Governors could be appointed mid-Parliament, which could lead to a politicisation of the appointment.

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[Joseph Johnson (Orpington) (Con)]

I congratulate the hon. Member for Hayes and Harlington (John McDonnell) on his extraordinary luck in topping the private Members’ ballot not once but twice, and on choosing this important subject from among the many that must have competed for his attention.

The Bill, which requires the Treasury Committee to consent to the appointment or dismissal of the Governor of the Bank of England, goes to the heart of a very important constitutional question about the precise nature of the responsibility of, respectively, the Executive and the legislature in relation to public appointments. As we suffer the after-effects of a profound financial crisis, none of us needs to be reminded that this is a matter of interest not just to constitutional experts. The quality of regulation and supervision can have dramatic effects on rates of economic growth and on the wealth of nations.

Furthermore, as the hon. Member for Hayes and Harlington said, at a time of great change in the regulatory framework, which deliberately places the Bank of England at the very heart of our financial system, it is entirely right to double-check that we do, indeed, have in place appropriate scrutiny mechanisms for the Governor. The Financial Services Bill, which is now in the other place, gives the Bank considerable new powers in macro-prudential and micro-prudential regulation, and in the assessment and management of financial crises. Its governance should, indeed, be appropriate to these new powers, as the Treasury Committee has argued in its review of the Bank’s accountability to Parliament.

While I agree with the hon. Gentleman that the Bank must be accountable for its actions, I am reluctant to go as far as him, in calling for the radical step of providing the Treasury Committee with co-decision rights, in the form of a veto over appointment and dismissal. I will try not to linger over arguments that have already been very well made by many colleagues on the Government Benches, but let me reiterate that there has been an increase in accountability since the Bank acquired operational control over the setting of interest rates in 1997. While Bagehot’s dictum,

“We must not let daylight in upon magic”,

applied initially to the monarchy, it could have been said to have applied just as well to the Bank of England prior to 1997, but that is clearly not the case today.

Since 1997, the Treasury Committee has held regular pre-commencement hearings with the Governor, deputy governor and Monetary Policy Committee members, providing Parliament with a valuable opportunity to challenge key appointees before they begin work. Since 2009, these appointments have also been subject to open public competition. That was precisely what happened in 2009, when Paul Tucker became deputy governor, and this Government, like the previous Government, have agreed that that eminently sensible practice will continue.

The process of increasing accountability has carried on under this Government. Provisions in the Financial Services Bill for a non-renewable eight-year term, rather than the current system of a renewable five-year term, combined with internal reform of the Banks’ board arrangements, will further reinforce the Governor’s independence from the Government and the quality of oversight undertaken by the court of the Bank of England. The accountability deficit, which definitely existed, has therefore narrowed considerably over the past 15 years, and it will close still further if the Bill is enacted. Providing for a parliamentary veto over the appointment and dismissal of the Governor is not an ideal solution for closing what might remain of any accountability shortfall. I do not want to repeat what has already been said, in particular by my hon. Friends the Members for Wimbledon (Stephen Hammond) and for Great Yarmouth (Brandon Lewis) in their excellent speeches, but I worry that giving the Treasury Committee strong powers—in effect, powers of co-decision—in the appointment of the Governor might negatively impact on the Committee’s ability to scrutinise the Bank and hold the Governor to account for his performance. Put simply, Committee members will be unwilling to criticise the work of the Governor if they were complicit in his appointment in the first place. Having invested their own reputational capital in the appointment of the Governor, they will inevitably to some extent pull their punches in questioning him later. That is just human nature, and that is why we have a separation of powers in the Committee system.

[Jeremy Corbyn]

The hon. Gentleman is obviously experienced in these matters, but what about the parallel case of local government-appointed chief executives? Also, the fact that there is a joint appointment of the Metropolitan Police Commissioner by the London assembly, the Mayor and the Home Secretary does not fetter their ability to ask tough and robust questions, as they are required to do—and as we are required to do. I do not see why somebody who was involved in deciding who to appoint to a post will later not properly question what that appointee does. We are here because people have sent us here to ask tough questions.

[Joseph Johnson]

I thank the hon. Gentleman for his excellent intervention, but I would make an important distinction between being consulted and having the right of decision. That is a fundamental distinction and, on balance, arrangements that tilt towards giving the Select Committee system powers of decision over public appointments are going too far. The role of Select Committees might be better restricted to consultation than decision.

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[Kwasi Kwarteng]

Thank you, Mr Deputy Speaker. I am suitably bullied and shall proceed as I intended.

The Bill raises important constitutional issues. We have a Parliament, we have the honour of sitting in the House of Commons, and we all know the struggles the House had in order to assert its primary function and its principal character as the legislature and main law-making organ of government. I am afraid that the Bill represents a further encroachment of the powers of the House of Commons. I am a Conservative. I happen to think that there should be a balance and distinction between the Executive and the legislature. As someone who has read a little of the history of this place, I also recognise that the position of the House of Commons in the constitution should be guarded, but this new development—this assertion that the Treasury Committee should have a power of veto or even a power of appointment over the Governor of the Bank of England— represents an unprecedented extension of the powers of this House.

[Jeremy Corbyn]

The hon. Gentleman makes an interesting point, but will he not care to look at the matter slightly differently? Yes, the Bill extends greater powers to the House of Commons, but in reality these are currently powers of patronage over which the House has no control. The Bill represents a very small encroachment on those powers of patronage, which are the Achilles heel and bedevilment of the British parliamentary system.

[Kwasi Kwarteng]

The hon. Gentleman makes a very good point, and he talks about patronage, which is a feature of our system, but if we are to talk about patronage, we should do what other Members in the debate have suggested and talk generally about the powers of the Select Committee system. It seems rather bizarre that in the Bill we should debate the appointment of a single public official, because we should debate—if that is what we want to do—the powers of Select Committees over other appointments.

[Jeremy Corbyn]

I agree that we should debate and, indeed, extend the powers of Select Committees, because I do not see any reason why, if a Select Committee is so minded, it should not be allowed to introduce legislation as well as to supervise appropriate appointments within its purview. That after all is one reason why we are elected to Parliament—in order to have some democratic influence over what in our society are largely undemocratic institutions.

[Kwasi Kwarteng]

I appreciate the hon. Gentleman’s remarks, but Mr Deputy Speaker, with your forbearance, I suggest that this debate is about the appointment of the Governor of the Bank of England. We can have more extensive and general debates about the appointment of other officials, but I think that our current system works well. I would not want to see, for example, the Archbishop of Canterbury hauled up in front of a religious affairs Committee for “ratification”.

[Jeremy Corbyn]

We can leave that very difficult problem of the Archbishop of Canterbury to one side by simply disestablishing the Church of England.

[Kwasi Kwarteng]

The hon. Gentleman leads me down a dangerous path.

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[Kwasi Kwarteng]

The right of veto proposed in the Bill, which apes the structures in the United States of America, is totally inappropriate and would take the constitution down a road that we have not travelled down before. My hon. Friend the Member for West Suffolk talked at length—but to the point, I must say—about the structures in the United States. It is important that we understand what goes on in the United States in order to understand what might happen here if the Bill becomes law.

We well understand the recent financial history of the world. I was working in the City in 2000—[Interruption.] I am not ashamed that I had a job outside this House. I do not think that it is something I should apologise for. I worked on a dealing room floor in 2000 at the time of the election in the United States. The financial uncertainty that prevailed in the markets as a consequence of the indecisive nature of that election, with the fight between Bush and Gore being taken up to the Supreme Court, was debilitating. I have first-hand experience of that.

I would not want to see a situation in this country in which a candidate to be the Governor of the Bank of England was scrutinised by the Treasury Committee and an impasse reached, resulting in days or even weeks without an appointment being secured. I know from first-hand experience that that is the worst message that could be sent to the financial markets in what are perilous and uncertain times. It would be irresponsible of us to delay or complicate the process in that way.

[Jeremy Corbyn]

Does the hon. Gentleman not feel that in his opposition to the Bill, he is in danger of treading down the rather dodgy road of saying that he supports some kind of technocratic Government, with democratically elected politicians becoming observers, rather than the participants and the controllers? Surely the whole point of the US constitution was that democratically elected politicians were trying to assert their power over the structures of society. I realise that there is much corruption in the US financial system, but surely the principles of the US constitution are not entirely wrong.

[Kwasi Kwarteng]

I agree with the hon. Gentleman. All I am suggesting is that the balance of powers is about right. We know that the House of Commons had a long struggle against King Charles I and the Executive. However, I think that the current constitutional balance is about right.

I do not think, as I suggested earlier, that the Archbishop of Canterbury, the Chief of the Defence Staff or the chairman of the BBC should be scrutinised by Select Committees, but that is a debate for another time. I cannot support this Bill because it would add an element of uncertainty to the financial markets, which is the last thing that we need at this time. I thank Members of the House for indulging me in my brief remarks.