Bank of England (Appointment of Governor) Bill

Kwasi Kwarteng Excerpts

Friday 6th July 2012 Commons Chamber

[Stephen Hammond]

The chairman of the 1922 committee is right on one thing and wrong on the other. It is very rare that I get to speak without a time limit, so I was not necessarily intending to conclude now—although I will, of course, do so very soon. As my hon. Friend will have noted from my argument, I was not trying to impugn the Treasury Committee or its candidate. I was merely pointing out that sometimes the outside observers of this House do not share the same faith in our institutions and decisions as we do. I was raising the possibility that a newspaper might impugn the reputation of a candidate by saying he is the only available candidate because he was the only one passed by the Treasury Committee. That would create a credibility gap in respect of that candidate, not only in the operation of financial regulation, but, more importantly, in the crucial international negotiations he will have to conduct on behalf of our country.

[Kwasi Kwarteng (Spelthorne) (Con)]

Is there not a danger that this whole process will create a media circus of the kind we see in the United States, and undermine the man or woman appointed as Governor before they even take up their position?

[Stephen Hammond]

My hon. Friend is absolutely right, and that is one of my concerns. I have tried to lay out some arguments suggesting that giving a veto to the Treasury Committee does not necessarily enhance the independence of the position of Governor.

Moving on now to my concluding remarks—my hon. Friend the Member for Altrincham and Sale West (Mr Brady), the chairman of the 1922 committee, will be pleased to hear that—I just want to bring the hon. Member for Hayes and Harlington back to his contention that this would not be a major change to our constitution. The Bill would put in place a legislative requirement for the Treasury Committee to have a veto over this appointment. The hon. Gentleman talked about the evolution of this role, but if he truly believed that, why does the Bill not seek to give Select Committees the power to veto all appointments—for there might be a number of Members of this House who would like to have parliamentary control of the appointment of the governor of the BBC, or the chief executive of Network Rail, or, closer to our hearts, the chief executive of the Independent Parliamentary Standards Authority? The hon. Gentleman said that private Members’ Bills give Members an opportunity to suggest changes to the Government. He might have had even wider support than he already has if he had introduced a Bill giving Select Committees the power of veto over appointments, so we could have had that more general discussion. To give that power of veto over this one appointment gives rise to considerable concerns, however, and it would create a major change in the constitutional position.

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[Chris Leslie]

I am glad I was not there.

The Bank of England was established in about 1694, and we obviously must not rush these reforms. I commend my hon. Friend the Member for Hayes and Harlington (John McDonnell) for introducing this sensible proposition. If, as I hope, the Bill moves into Committee, we can refine some of the details of the accountability mechanisms. The Opposition are of the opinion that there is a need for stronger parliamentary accountability in respect of the appointment of the Governor. That ought to be done by the House of Commons as a whole, on the recommendation and advice of the Treasury Committee, rather than simply be delegated to the Treasury Committee to decide.

The arguments have already been enunciated. It is important that pre-confirmation hearings take place, that recommendations can be made by the Treasury Committee, and that then Parliament as a whole can decide. That would be the best way to proceed.

I do not want to speak for long because I want my hon. Friend to have the chance to secure his Bill’s Second Reading and to pass it on to Committee, where we can talk about these details. The Government’s proposals will vest the Bank of England with significant and radical new powers, particularly over what is known as macro-prudential policy making, through the new Financial Policy Committee and the Prudential Regulatory Authority. The Minister rather coyly suggests that the Financial Conduct Authority does not have a dotted line to the accountability process within the Bank. We all know that this is not just about a powerful bank, but about the immensely powerful Governor of the Bank of England. Some have described that person as a superhuman individual and the appointment will clearly be of major national significance to our economy and to the finances of our constituents and businesses up and down the country.

We debated the question of improving internal checks and balances for the Governor of the Bank of England when we considered the Financial Services Bill. The Opposition said at the time that the court of the Bank of England needed radical improvement and that its role should be more supervisory. That recommendation came from the Treasury Committee, yet there was resistance from the Government. It is now not unreasonable to want to improve and enhance the external checks and balances on the Bank of England and I do not think that would in any way compromise the independence of the operational monetary policy decisions over interest rates. I do not think that those things are at all incompatible.

It would have been nice if the Financial Services Bill could have been amended in the Lords in such a way, but the Government resisted that. We need to ask why they are so frightened of giving Parliament—in which, by the way, they have a majority—the opportunity to have that debate on pre-confirmation hearings and given to give the Treasury Committee the power to make a recommendation that the House of Commons could make on its own.

It is important to note that other central banks in other jurisdictions have similar arrangements. In the United States, for example, Congress has oversight over the appointments.

[Kwasi Kwarteng]

The contrast with the United States of America is very interesting, but surely the point is that Congress in America has jurisdictional right of veto over a whole range of appointments. That does not apply to this House, so to focus simply on the appointment of the Governor of the Bank of England without considering other appointments seems to be slightly bizarre, if that is the development the Opposition want to see.

[Chris Leslie]

It is strange to hear ambitious and thrusting Government Back-Benchers seeking to continue to be neutered, saying, “No, please don’t give us any more of a say or any more powers. We don’t need any and it would be wrong for us to have any involvement whatsoever, even if that simply meant rubber-stamping the recommendations made by the Treasury Committee.” I am baffled that hon. Members should want to continue to hobble their role in such a way.

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[Brandon Lewis]

The hon. Gentleman makes a very strong point. I do not entirely agree because there is a clear difference between the type of appointments we are talking about and the role that those appointees take on and the powers that they have. However, a good argument can be made for the House to consider the role of Select Committees in public appointments, the associated power and at what level it sits. Perhaps he would like to come to business questions one week and make the case to the Leader of the House for time for such a debate, or make a case for it to the Backbench Business Committee.

The hon. Member for Hayes and Harlington argued that part of the aim of a private Member’s Bill such as this is to get the Government to listen, to hear a message, to take a view. The Minister will hear the points made in the debate. He will hear various arguments from various Members about the role of a Select Committee, its power or lack of power to appoint or veto an appointment, and will take that into account as part of the Government’s plans for the future. That is quite different from whether the Bill should have a Second Reading, when it is fundamentally flawed by giving priority and special treatment to one Select Committee over and above others. As much as I respect the Treasury Committee and all its members, I, as a member of the Work and Pensions Committee, do not think it fair that the Treasury Committee should be seen in a premier league, above the other Select Committees.

The Treasury Committee has argued for a role in appointing the Governor of the Bank of England by using as a precedent, as the hon. Gentleman did, the establishment of the OBR and the Budget Responsibility and National Audit Act 2011. The provisions of that Act give a statutory role, I agree, to the Committee in the appointment of the chairman of the Office for Budget Responsibility. Additionally, they give a statutory role to the Public Accounts Committee when a new Comptroller and Auditor General is appointed. However, that argument ignores a fundamental and crucial difference between the roles undertaken by those organisations and the role of the Governor of the Bank of England.

The Bank of England sets policy. Although the Office for Budget Responsibility is important, it primarily has an analytical or forecasting role, not an Executive ability to set monetary policy. It provides independent information to Government. That information is a powerful tool for Parliament to use in its scrutiny role and it is right, therefore, for Parliament to protect that role from political interference.

The Government’s position on the issue has been sensibly pragmatic. They have encouraged the involvement of the Treasury Committee in the appointment of the Governor. It has been interesting to hear from two speakers the private views of the Chairman of the Treasury Committee, my hon. Friend the Member for Chichester (Mr Tyrie), in his comment that what he thinks the Treasury Committee is looking for is the ability to have a clear and open influence on the role, which indicates that there is not necessarily a strong view from the Chair—it is a shame that he is not in his place, but he made a comment earlier—about having the power of veto or appointment. That is an important distinction from such an eminent Member of the House, who would be the Chairman who benefited from any change.

The Government made a commitment in the coalition agreement to

“strengthen the powers of Select Committees to scrutinise major public appointments”.

The key word is “scrutinise”. That emphasises a right to examine, challenge, query or inspect closely and thoroughly appointments to major public bodies. My Select Committee has done that as well. However, it rightly makes no mention of a right to appoint or veto. As my hon. Friend the Member for Wimbledon (Stephen Hammond) said, that would be a substantial constitutional change to the way in which Select Committees work.

It is worth exploring what would happen if there were a right of veto and the Government and the Treasury Committee reached a stalemate in the appointment of a new Governor. If the Government—the Treasury—were unwilling to back down, and the Treasury Committee were determined to uphold its right to veto, given to it by this Bill, that could lead to uncertainty, creating turmoil in the markets, and at the moment we do not need any more of that. We can certainly see what such turmoil means for international relationships as much as internal markets. It could lead to a loss in international confidence in the Bank of England and the United Kingdom, which we benefit from at the moment. The result would be untold economic chaos and damage.

[Kwasi Kwarteng]

What does my hon. Friend think about the lengthy process for Supreme Court appointments in America, where people very often wait for months before an appointment is made? What might be the repercussions for our financial position in such an instance?

[Brandon Lewis]

My hon. Friend makes a good point. The way in which the American system can create turmoil is the very point I am making. As my hon. Friend the Member for Wimbledon said, we in this House know that the Treasury Committee would deal with the issue properly. The problem is the perception outside of such turmoil. We have seen in the press how such matters have been dealt with in the United States, which shows that what matters is what the public and the markets would think of such an impasse, particularly if there is a lengthy process.

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[Brandon Lewis]

I thank the hon. Gentleman for further enhancing my point about where Executive power actually sits, in contrast to the scrutiny and forecasting role, as important as it is, which is very different from the Executive power wielded by the Government and some of the Executive bodies we are talking about.

If we are to extend the right to veto the appointment of one public official to any given Select Committee, the natural extension is to do so for other public appointments. In doing so, we would turn our Select Committee system and this House into a new form of Executive recruitment agency. Our Select Committees were established to scrutinise, investigate, consider, report and recommend. Principally, our Select Committee system is there to hold the Executive and other public officials and bodies to account. It was not created to veto the Executive, and it was not envisaged that the Committees would be used as quasi-recruitment advisers.

We should be striving to make the Bank of England more accountable to Parliament—I have no disagreement with that—but we should be looking to do so without shackling its sovereignty with more direct control over certain aspects by Parliament. Current concerns from constituents about the Bank of England do not focus on how the Governor is appointed. I certainly have not had in my postbag any letters, let alone a deluge of letters, on that.

[Kwasi Kwarteng]

I want to hear my hon. Friend’s view on my suspicion that constituents simply want the Bank of England to do its job and do not want the process to be politicised any more than it needs to be. A move towards a Treasury Committee veto would make it more political and less appealing to the very constituents to whom he has referred.

[Brandon Lewis]

I agree wholeheartedly with my hon. Friend. I attended a business forum meeting only 10 days ago and talked with businesses about the financial situation in our country. They were very optimistic and upbeat, but they were talking about what more we can do to make it easier for them to grow their businesses and create more jobs. Residents want to know what the Government are doing to allow more jobs to be created and to match the skills with the jobs that are available. They are not talking to me about how we choose the Governor of the Bank of England. They see a very clear difference—this relates to the interventions I have been enjoying from the hon. Member for Edmonton—between the Executive powers and the scrutiny powers and see that it is the Government’s job to set policy that will allow our economy to grow and, therefore, do not necessarily see, understand or have an interest in how the Governor of the Bank of England is appointed. They want to see that job being done properly and the Government setting out the economic policy correctly.

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[Mark Durkan]

The hon. Gentleman made a long contribution, and I am sure that that top-up will add value to it.

At the start of this debate and in a number of interventions, reference was made to yesterday’s motions and debate, and a challenge was laid down: “How could anybody support this Bill if they didn’t vote for the parliamentary inquiry yesterday?”. The argument was that the Bill seeks to give an enhanced role to the Treasury Committee and that we cannot support it if we did not support yesterday’s motion for a parliamentary inquiry.

I did not support the vote for the parliamentary inquiry yesterday; my name was on the other motion, precisely because I really value the role of the Treasury Committee and the service it provides to the House. People have talked about the dangers to the Committee if its gets the powers in the Bill, and that it will fall apart and start to divide along party political lines, but there is more danger to the Treasury Committee from the decision that the House took yesterday, because its Chairman will find himself committed to a significant inquiry, which we are told will be time-intensive and extensive.

The Chairman said yesterday that he wanted the membership of the inquiry Committee to be heavily drawn from the Treasury Committee, so a select number of the Select Committee will also be absorbed by the inquiry throughout the autumn when what the Treasury Committee needs to do is concentrate on many other things, not least following up what emerges from the Wheatley review, which the Chancellor has announced. That review will recommend amendments to the Financial Services Bill, so the Government have recognised that in the light of what has happened with Barclays and the whole LIBOR issue, significant amendments to that Bill will need to be considered.

In essence, the Bill that my hon. Friend the Member for Hayes and Harlington (John McDonnell) has tabled today is a prompt, which canvasses for a fairly modest amendment to the Financial Services Bill—a modest amendment that might have its case reinforced by whatever recommendations emerge from the Wheatley review and the amendments we make to that Bill. As hon. Members on both sides have said, it already creates significant added powers, responsibilities and potential difficulties for the Governor of the Bank of England, the Bank and the whole hinterland of authorities and agencies around it.

Parliament has devolved more responsibility to the Bank and the Governor, and the appointment of the Governor will remain an appointment of government, although, as the Minister in the Financial Services Bill Committee, when correcting me and others, insisted on saying, “It is not appointment by the Government or the Treasury, but by the Crown.” I understand the distinction; I do not believe the fiction; and it is quite clear from his hon. Friends’ contributions today that they do not, either. They are ruthlessly defending the appointment as an Executive—ministerial—appointment.

[Kwasi Kwarteng]

The hon. Gentleman talks about modest amendments, but what is his view of the Bill before us and the large constitutional change that it embodies?

[Mark Durkan]

The hon. Gentleman tries to take up a point that the hon. Member for Wimbledon (Stephen Hammond) made earlier, when he talked about the Bill representing “a major constitutional departure”, a phrase that he used, I think, three times. But he ended up criticising the Bill for not going far enough or ranging wide enough. He wanted a Bill to give all Select Committees responsibilities and powers of appointment in relation to all sorts of other things. Hon. Members can have it both ways in their own contributions, but they are not going to have it both ways in mine.

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[Mark Durkan]

I do not think that it is a major constitutional departure; I think that it would be a significant step and gain for Parliament. I do not go as far as my hon. Friend the Member for Nottingham East (Chris Leslie) in saying that the appointment of the Governor of the Bank of England should be subject to a full debate and vote in this Chamber, however, because that would cause all sorts of difficulties. Many of the difficulties that people allege could occur if the Treasury Committee had the role given to it by the Bill would certainly become risks in a highly charged debate and Division in this Chamber on the appointment of the Governor of the Bank of England. The issue would become highly political and potentially partisan, and it would cause market shakes and do nothing for the reputation of this House.

This Bill, which would give a parliamentary stamp of approval to the appointment, is a modest measure, because it would involve the relatively contained, constrained and considered forum of the Treasury Committee. In yesterday’s debate many hon. Members told us how special the Treasury Committee is. They said that it was a partisan-free zone where people are wise and worthy and do not go into it with any ulterior agendas. Then suddenly we are told today that if it were given the extra role that it seeks for itself in the context of the Financial Services Bill, all that would change. I do not believe that it would. This is not the power of appointment that Conservative Members are describing; it is a power of consent and confirmation. The Treasury Committee would not be doing the interviews, drawing up the shortlists, and so on.

[Kwasi Kwarteng]

Will the hon. Gentleman give way?

[Mark Durkan]

No. I have already been generous enough, and some Members were too greedy in terms of the length of their speeches.

The Treasury Committee would have a power of confirmation. Some hon. Members are saying that it would have a power of veto, but what appear to be powers on paper would not be exercised in that way.

Earlier we heard reference to appointments to the National Audit Office. Some appointments are notionally appointments by Parliament because they are subject to votes in this House—for example, appointments to bodies such as the National Audit Office and the Electoral Commission—and my hon. Friend the Member for Nottingham East would say that there could similarly be a vote on the appointment of the Governor of the Bank of England. However, I do not believe that that is a comparable situation. Given the significant extra powers and functions that the Governor will have, particularly after our experiences over the past few years and the allegations that we heard yesterday about the whole murky interface between the Government, the Bank of England and the City, it would be remiss of Parliament to say “We’re quite happy to leave this in that odd black box that exists somewhere between Whitehall and the City. We as Parliament do not want to step up to the plate and say, yes, when this appointment is made in future there will be a parliamentary stamp on it.” That is all that the Bill is asking for, and it would entrust and delegate that parliamentary stamp to the Treasury Committee.

[Mark Durkan]

I am not ignoring anything that the Treasury Committee does, but nor am I here to filibuster and rehearse everything that it does. The hon. Gentleman needs to recognise that the Committee itself has unanimously recommended this change.

We heard in yesterday’s debate, and we heard from the Chancellor on Monday, about the importance of a parliamentary Committee of inquiry being able to produce a unanimous report and about its being worth nothing if it is not unanimous. Here we have a unanimous recommendation from the Treasury Committee, and the very people who have been telling us about the power and significance of parliamentary Committees and the compelling power of unanimity are saying, “We don’t care about it, we don’t want to know.”

[Kwasi Kwarteng]

Will the hon. Gentleman give way?

[Mark Durkan]

No. The hon. Gentleman will have plenty of time to come back to this or any other point.

It has been argued that the Bill could be dangerous because it might enable the Treasury Committee or other Committees to go on shopping sprees for all sorts of other powers or abilities. I do not believe that this is a vanity trip on the part of the Committee. Most people would think it odd if the parliamentary Committee that was considering a change of the scale and importance of the new architecture in the Financial Services Bill did not say that Parliament wanted to have at least a bit more of a role regarding the key appointment to this fixed eight-year term. I will not get into the arguments that we had in the Bill Committee about the Putin clause whereby a Governor might be reappointed as a deputy governor for certain reasons.

In yesterday’s debate we heard people who supported the call for a parliamentary inquiry say that it was about Parliament stepping up to the plate. In many ways, the Treasury Committee seeking this role is about Parliament stepping up to the plate. If there is another financial crisis or banking scandal in a few years’ time and the new regulatory regime is seen as confused and difficult to understand—as we heard earlier, even hon. Members who support the Financial Services Bill do not understand what it means and are confused about its architecture—people will turn round and ask, “Who’s to blame this time?” Of course, the current Government will simply blame the previous Government for the way in which legislation has come about. In my view, yes, legislation can be blamed on the Government who sponsored it, but when it is wrong and flawed, that is also the fault of Parliament. Parliament, as well as the Government, should take its fair share of the blame when we get legislation wrong. We will be to blame, as a Parliament, if there are mistakes in the current Government’s legislation such as those that I hope they will remedy when they make further changes to the Financial Services Bill after the Wheatley review in the autumn.

We cannot turn round in future and say “It was all the fault of the Government—it was their legislation. The Bank of England got it wrong and the regulatory regime did not work. It is the Governor’s fault and the Bank appointed him.” The public are fed up with politicians washing their hands of responsibility—with all of us being in the business, as we saw in yesterday’s debate, of trying to fix the blame rather than trying to fix the problem and taking responsibility. If hon. Members trust the new arrangements in their Financial Services Bill, they should be prepared to trust Parliament to take its stake in the key decisions that will be made. We are told that Governor of the Bank of England is a key appointment, but it is odd that it should not receive a parliamentary stamp of involvement and approval despite the fact that people want that parliamentary stamp on many other appointments.

That is why I support the Bill. It is not a starter for 10 whereby we then go on to say that we will appoint the deputy governors and others. It is modest even on its own terms. It does not even say that the Treasury Committee should have the power of consent over the appointment of the deputy governors. Those are also key appointments given the distinct roles that they will play. Conservative Members need to stop exaggerating in their arguments against the Bill. They need to listen to the compelling case for it and to remember that this would be a much more modest amendment than the significant changes that we will probably have to make to the Financial Services Bill in the autumn.

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[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.

[Kwasi Kwarteng]

Does my hon. Friend not agree that the plan for an eight-year fixed term is a much better safeguard for independence, and for the ability of the Governor to do his or her will and act according to his or her abilities, than the Bill’s proposal to make the appointment contingent on the will of the Treasury Committee?

[Mike Freer]

I certainly agree that the fixed-term appointment is a huge step towards independent stability. As I was trying to explain, what concerns me is that if the vacancy arose after a change of Government, the new governing party could seek to ensure that the new Governor was much more in tune with its own political views. I fear that both the appointment and the removal are much more likely to be politicised if the Select Committee gets its way.

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[Joseph Johnson]

Thank you, Madam Deputy Speaker. I will follow that guidance.

I am equally concerned that giving the Treasury Committee a veto over the dismissal of a Governor could, in certain circumstances, create an unacceptable situation in which the Governor has lost the confidence of the Government but hangs on as a lame duck. That would clearly be unacceptable given the Executive powers he would be discharging on behalf of the state. That is exactly why the Government have historically attempted to address those issues by limiting the Treasury Committee’s role to non-statutory pre-commencement hearings with members of the Bank’s policy committees, which of course already include the Governor and deputy governors.

Let us not forget that the Treasury Committee already has a huge impact through its oversight, as Lord Burns noted in another place,

“simply by the way it brings people in, talks to them, summarises its opinions and then leaves it in the hands of Ministers to decide how far they wish to take account of those views”.—[Official Report, House of Lords, 26 June 2012; Vol. 738, c. 163.]

[Kwasi Kwarteng]

Does my hon. Friend think that the Bill would give the Select Committee enormous powers that are totally incommensurate with its constitutional functions in this House?

[Joseph Johnson]

Yes, I could not agree more with my hon. Friend. Like other Members who I will not mention again, I think that it would be far preferable for the Treasury Committee, if it is to have a formal role in any appointment of the Governor of the Bank of England, to be a statutory consultee. I do not believe that it would be remotely appropriate, however, for it to be given powers of decision over any such appointments.

In my view, moving towards the system of making the Select Committee a consultee, perhaps through a tweak to the Financial Services Bill as it goes through the other place, would be a more sensible system that would not cloud lines of accountability and would, in my view, avoid putting the Treasury Committee in the position in effect of having to mark its own homework. That would inevitably be the case if it were given veto rights over a candidate that it had itself jointly chosen in a binding pre-appointment hearing. From Parliament’s perspective, I believe that it would be better and preferable to stick with the status quo, whereby the appointment of the Governor is a matter for the Crown on the advice of the Chancellor and the Prime Minister. That enables the Treasury Committee to do its job of holding the Bank to account regularly and effectively in hearings with policy committee members.

In support of calls for a parliamentary veto of the appointment of the next Governor of the Bank of England, much has been made of the supposed precedents set by the Treasury Committee’s veto in the appointment of the head of the Office for Budget Responsibility. Reference has also been made to the rather more long-standing role of the Chairman of the Public Accounts Committee in the appointment of the Comptroller and Auditor General. The CAG is an officer of Parliament but until 1983 was appointed by the Executive. Since the passage of the National Audit Act 1983, the CAG has been appointed following a vote in the Commons on a motion proposed by the Prime Minister with the agreement of the Chair of the PAC. The selection process preceding that is run by an unusual partnership between Parliament and the Government, with the Chair of the PAC sitting on the selection panel with representatives of the Executive.

I happen to think that the comparisons are rather misleading and unhelpful. The role and responsibilities of the Governor in economic and financial policy making are completely different from the role of the Chair and members of the OBR, who are responsible collectively for producing forecasts and other analyses twice a year. In the case of the OBR, a parliamentary veto of the appointment can make sense in terms of providing assurance about the independence of the role of the OBR. The role and responsibility of the Governor are completely different. Whereas the OBR performs an important function in providing an independent and unbiased forecast on which Government policy can be based, the Governor carries out Executive functions on behalf of the state and has responsibilities delegated to him for key areas of economic policy.

A further important difference already touched on by my hon. Friend the Member for Great Yarmouth is that the appointment of a prospective Governor is clearly market-sensitive in a way that appointments to the OBR or National Audit Office in the case of the Comptroller and Auditor General clearly are not. Once an appointment is announced, his or her perceived policy leanings—whether or not, for example, the next Governor is perceived to be a hawk or a dove—can be duly factored into asset prices in an orderly way. Pre-appointment hearings of a sort that give MPs on the Treasury Committee a potential veto could quite easily cause anxiety and costly volatility in financial markets, for little obvious benefit—a point also made by my hon. Friend the Member for Spelthorne (Kwasi Kwarteng).

To reiterate the central point, rather than giving the Treasury Committee a veto, a better option would be to upgrade and modernise consultation arrangements, potentially to include not just the Chair of the Treasury Committee—a point that I made earlier—but the chairman of the court of the Bank of England. It is important that we upgrade and modernise the court of the Bank of England so that it can perform its oversight function more effectively than it traditionally has done and so that it feels properly empowered to use the rights that it already has under the Bank of England Act 1998, which are to manage the Bank’s affairs, other than the formulation of monetary policy. That means much more than simply addressing what many have described as an excessively deferential culture at the “court of King Mervyn”, as the Financial Times cheekily described it some time ago. It means more than changing the court’s somewhat archaic name, or removing a little of the flummery—the men in pink coats deferentially bearing silver platters around the Bank, and so on.

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[Matthew Hancock]

Indeed. The English-speaking world and countries more widely have been wise to mirror that structure because it leads to strong Executive Governments who can deliver for the people in good times and bad. The Bill would have us rend asunder the gossamer fabric of the British constitution. I note that the hon. Member for Foyle (Mark Durkan), who is no longer in his place, supported the Bill, but described it as a significant constitutional departure. However, he also said that it was not a major constitutional departure. I will not go into an analysis of the difference between a significant departure and a major one, but I think that the Bill would wrest a key instrument of Executive power—the power of appointment—away from Her Majesty’s Government and confer it instead on a single Committee of this House.

[Kwasi Kwarteng]

Other Members have made the point that if we are to go down this route, we should perhaps seek to extend the powers of this House and its Select Committees, whereas the Bill relates to only one appointment. We should really be looking either at the mass or not considering the Bill at all.

[Matthew Hancock]

Like my hon. Friend, I find it odd that some Members have concentrated on the implications of the Bill, rather than on the Bill itself, and others have made the point he raises clearly. Because that discussion has already been aired quite a lot and I want to keep my comments relatively concise, I will leave it where it is, other than to say that I agree with the broad thrust of his point.

Another implication was raised by my hon. Friend the Member for South Derbyshire (Heather Wheeler) in her short speech. She pointed out that the decisions of the Treasury Committee, and indeed those of all Select Committees, are technically referred to the Floor of the House for what is in almost all circumstances a rubber-stamping exercise. I am a member of the Standards and Privileges Committee, which does in fact have some executive powers, but they are over the running of this House, not the Executive functions of the UK Government under the Crown. That distinction is as vital as the distinction between oversight and scrutiny on the one hand and Executive power and veto on the other—voice not veto, as it has been eloquently put. The constitutional implications are not inconsiderable. Given that the Government have already proposed to spend 10 days in Committee of the whole House discussing a constitutional change of a broadly similar size, the idea that we should pass this Bill—

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[Matthew Hancock]

The argument appears to be that we should give the Treasury Committee a power of veto, unless the whole House disagrees with that veto. However, the majority in the House support the Government and it is the Government who initially propose who should be Governor, so the Government could never be overruled in extremis. To support a Bill in which the ultimate safeguard is the abolition of the Select Committee system is a little extreme.

[Kwasi Kwarteng]

Does my hon. Friend not think that this knotted discussion about the relative powers of the Select Committee and the Government demonstrates the quagmire of indecision and delay that the route proposed by the Bill would lead us into?

[Matthew Hancock]

I do not think that the principles in the Bill have been well thought through. That is why I started by arguing that the constitutional implications of the Bill are profound and underestimated by its proponents. Many of the questions that are being raised in interventions on me are ones that I had not even thought of while I was wondering what view to take on the Bill.

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[Matthew Hancock]

I have no doubt that the appointment of a Governor of the Bank of England should be above politics. We should appoint somebody for their economic, financial and policy-making experience. They should be somebody of weight from that world. The position has rarely been filled by somebody from the world of politics, and for good reason. As well as having to engage in the political world of the country, the Governor has great duties in putting the economic and financial interests of the nation to the fore. I would therefore be concerned if a potential Governor chose not to put their name forward because they did want to get involved in the quagmire of party politics during their appointment. The point that my hon. Friend the Member for Great Yarmouth (Brandon Lewis) makes is an important one, and it anticipates a point that I have on page 36 of my speech. Since I am only on page 4, perhaps I should make some progress.

I will not dwell on the argument that the constitutional precedent would be much wider than simply the implications for the Treasury Committee. My hon. Friend the Member for Great Yarmouth made the point that the Chief of the Defence Staff might have to be confirmed by the Defence Committee, so I shall cross that line out of my speech. A potential head of MI6 might have to be scrutinised by and avoid a potential veto from the Intelligence and Security Committee before being given the job. There are more extreme and absurd examples showing that we should not take this lightly and push a new principle through the House on a Friday afternoon.

My point about Parliament and our system of government is only one consideration, but it is the reason why the principle of the Bill deserves serious and profound reflection. Its ramifications could outlive the Government of the day and last many Sessions of Parliament, because once such changes are made they tend to take hold. The appointment of the judiciary is a long-standing and slowly evolving matter, and very few Members would support the idea that the Justice Committee should have a veto over the appointment of High Court judges, but that is analogous to the proposition in the Bill.

I will go through some of the lessons from history and some of the international lessons that are pertinent to the Bill. Central banks are unique financial institutions and have a delicate balancing act to perform. As has been pointed out, the Bank of England was set up in 1694 to finance the nine years war against France. We won that war largely because Britain had the ability to finance a standing Army effectively, through the Bank of England. Instead of borrowing directly from the market, Britain established the Bank of England to issue debt on behalf of the Government. From then on, the strength of the institution was watched and repeated in countries around the world. In 1844, the United Kingdom broke new ground by issuing to the Bank of England a monopoly on the supply of money, so that competing banks could no longer issue banknotes of their own.

[Kwasi Kwarteng]

Was not one of the principal features of the Bank until its nationalisation that it was entirely independent of the Government? Does my hon. Friend think that was important in any way?

[Matthew Hancock]

It was, but I would not wish to return to private subscription for the ownership and governance of the Bank of England, because of its role in our political economy. My hon. Friend the Member for North East Somerset might wish to push for that, but I believe that the settlement reached after nationalisation in 1946, whereby the Bank of England has its own capital base but is effectively part of the national political economy and one of the national institutions of economic governance, is the right one, rather than having private shareholders.

Since the Bank Charter Act 1844, other banks have been able to issue notes in sterling, and I believe that nine other banks do so in Scotland and Northern Ireland, but they have to be 100% backed by Bank of England banknotes held in the vaults of either the Bank of England or the issuing bank. That ensures that control of the money supply is within the grasp of the Bank of England rather than any other bank. I know that there are some Members who would prefer to return to the system from before 1844, not least my hon. Friend the Member for Wycombe (Steve Baker), with whom I regularly debate the point. I did so yesterday. However, the broad and settled view of the House is that we should retain the current situation.

Because the central bank is the monopoly provider of money and the lender of last resort, it must share a common strategy with the Government even though it is vital that its operational decisions on interest rates and financial stability are independent. The current appointment process fulfils well the twin objectives of operational independence and broad agreement on strategy. It also means that the Government can appoint a Governor who broadly shares their philosophy of economic management, even if the Governor is kept at arm’s length from party political machinations, the 24-hour news cycle, headline grabbing, tweeting and retweeting, and the Westminster bubble culture, which is the special discourse of the modern political set-up.

Economic history shows us the importance of the broad strategic agreement between the Governor and the Government of the day.

--- Later in debate ---

[Kwasi Kwarteng (Spelthorne) (Con)]

I was particularly interested to hear the contribution of my hon. Friend the Member for West Suffolk (Matthew Hancock), who added an international and historical dimension to the debate, which I think should be broadly appreciated. I congratulate the hon. Member for Hayes and Harlington (John McDonnell), my near neighbour, on bringing the debate to the House. I think that his measure would contribute in some way to scrutiny, but I am afraid that the Bill raises important constitutional considerations and, on those grounds, I am reluctant to support its Second Reading.

Another feature of the debate has been the frequent comments, often from a sedentary position, about the length of the speeches. I have been a Member for two years and know that the constant refrain is that proceedings are guillotined, debates are not fully developed, ideas are not fully expressed and that there is far too little consideration or earnest debate on important matters on the Floor of the House. Today, by contrast, we have had a very full debate, yet some Members are complaining about that. They cannot have it both ways. They cannot complain about the truncated nature of many of our debates and then complain about the full and thoughtful speeches that have been made today. Those are inconsistent principles.

[Brandon Lewis]

Does my hon. Friend agree that it seems particularly odd to hear those comments from some Members, as we have had to sit in the Chamber at 1 o’clock, 2 o’clock and even 3 o’clock in the morning listening to long speeches from Opposition Members?

[Kwasi Kwarteng]

Absolutely—

[Mr Deputy Speaker]

Order. Let us not have a debate about the debate. Let us please just move on to the Bill.

[Kwasi Kwarteng]

I want to make a remark about the Bill, and not of a partisan nature. I am very grateful to be able to speak fully, and I will not be intimidated or bullied into truncating my remarks to make them shorter than I had anticipated—

[Mr Deputy Speaker]

Order. May I now gently bully the hon. Gentleman into moving on to the Bill?

[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.

[Brandon Lewis]

The points that Opposition Members have made go to the heart of the problem with this Bill, because it would be stage one of—to quote what an hon. Member said earlier—a drip-feed effect that changed the very way in which Select Committees worked by changing their power from one of scrutiny to one that is linked to the Executive.

[Kwasi Kwarteng]

Absolutely. If the hon. Member for Islington North (Jeremy Corbyn) wants to debate that point, he should include it in his own private Member’s Bill, if he is fortunate enough to introduce one. He should introduce a Bill, and then we might have a lengthy debate.

The specific proposal before us is not appropriate, however, and I shall say why. The historical examples, which have been too little regarded, are very important. We have to look at the development of Parliament, to understand its powers and to understand the evolution of the Bank of England and its unique role in the historical and current governance of political economy. We have to understand a range of things.

As my hon. Friend the Member for West Suffolk said, we have to look also at international examples from recent history and throughout the world, and it is quite wrong for Opposition Members to try to curtail or to truncate debate. As I said at the beginning of my speech, I do not think it wrong for the House of Commons to debate things fully, and, on that basis, I turn to what Parliament does and what we are trying to do.

We scrutinise the Executive. Our job is not to make Executive appointments, to opine upon or to veto people appointed by the Crown; it is simply to scrutinise the Executive. The appointment of a Bank of England Governor is a matter for the Executive, and has been ever since the Bank’s nationalisation in 1946. One of the more interesting speeches today related to the origins of the Bank, because we have to understand where it has come from, and I repudiate any attempt to curtail Members’ right of speech when they are describing the history of the Bank. Everything is contingent: one has to understand the history of institutions to understand better how we can develop them.

The Bank of England was for almost 270 years an independent institution. It was a private bank, and its governor would spend two years in the role on a rotating basis. That broke down after the first world war, in 1920, when Montagu Norman was appointed Governor of the Bank of England. The hon. Member for Hayes and Harlington suggested that the new Governor—this superman or superwoman—would have such enormous powers and influence that no Governor has ever equalled them. That is completely unhistorical and false. Montagu Norman was Governor of the Bank from 1920 to 1944. He was Governor in 1925 when we went back on the gold standard and in 1931 when we came off the gold standard. He was Governor in 1939, just before the second world war, when exchange controls were imposed. He only left, dragged kicking and screaming from his post, after 24 years. He was a man of enormous power and influence, and it is very unlikely that any subsequent Governor will exercise the same kind of power. The simple reason is that under the current proposals we suggest that a Governor should have a single term of eight years, so there is no question of a man or woman being Governor for the same length of time as Montagu Norman or, similarly, Kim Cobbold, who was Governor for 12 years.

Members who are trying to make the case for supervision are utterly exaggerating the nature of this man or woman’s power once he or she is appointed to this important role. That is obviously due to their desire to exaggerate the power of the Governor to try to justify the appropriation of power on the part of the Treasury Committee. Under the Bill, that Committee, which is made up of 13 Members of this House, would have inordinate powers unequalled by that of any other Select Committee. That would distort the relationship of the Treasury Committee to this House and give it a preponderant influence in relation not only to scrutiny but to the Executive branch through its power of veto.

The proposal imports an alien structure from the United States, and that frustrates and disappoints me. The American constitution is a very different beast with a very different history from ours. As my hon. Friend the Member for East Surrey (Mr Gyimah), who is no longer in his place, pointed out, it has a strict division of powers. In America, no members of the Executive sit in the legislature. It is therefore right and proper that the legislature, as embodied in Congress, should have the power of scrutiny over an Executive who have no role in the legislature.

[Heather Wheeler]

We are getting to the heart of the issue. Surely this debate is about the fact that Governments govern and Select Committees scrutinise—full stop.

[Kwasi Kwarteng]

Absolutely. In her very direct way, my hon. Friend hits the nail on the head.

[Stephen Pound (Ealing North) (Lab)]

As it is fairly obvious that we are running into the sands of procrastination and filibustering—

[Stephen Pound]

I profoundly apologise, Mr Deputy Speaker; I abase myself before you.

I put it to the hon. Gentleman that he might just as logically say that dictators dictate. Surely there can be no greater or more magnificent ornament of the constitution than the Chair of the Home Affairs Committee, to whom I listened last week as he interviewed a preferred nominee for the post of Her Majesty’s chief inspector of constabulary. A little bit of democracy is not that painful; it is rather a healthy thing.

[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.