Bank of England and Financial Services Bill [HL] Debate
Full Debate: Read Full DebateLord Ashton of Hyde
Main Page: Lord Ashton of Hyde (Non-affiliated - Excepted Hereditary)Department Debates - View all Lord Ashton of Hyde's debates with the Cabinet Office
(8 years, 9 months ago)
Lords ChamberMy Lords, I will try not to make this a habit, but I find the case persuasive.
My Lords, this has been a brief debate. I am sorry that it falls to me yet again to argue numbers with the noble Lord, Lord Sharkey, and I am afraid to disagree with his argument.
This is a superficially simple amendment which seeks to change the balance of the membership of the Financial Policy Committee by increasing the number of external members from five to six. The noble Lord, Lord Sharkey, was again correct in outlining the numbers on the FPC as they stand today: namely, the governor, the three deputy governors and the executive director for financial stability strategy and risk, who are the internal members; and the five other members, who I would describe as external, who are the chief executive of the FCA and the four members appointed by the Chancellor. There is also a non-voting member from the Treasury. This gives an equal balance of voting membership between the Bank executives and those from outside the Bank. The Bill adds two new members to the committee—the deputy governor for markets and banking and an additional external member—which preserves the existing balance between the executive and non-executive members of the committee.
We think that that is appropriate: it strikes the right balance between ensuring sufficient input from the Bank of England’s executive and internal expertise and supporting the external, non-executive members’ role of providing a challenge to members’ thinking. Crucially, the committee can draw on the expertise and resources of the Bank, while the non-executive members provide a strong challenge function by bringing outside perspectives and expertise to the committee’s discussions and preventing groupthink.
Although this has been a brief debate, it is an important one. Can the Minister describe why he takes the view that the chief executive of the FCA is not inherently different from a fully outside member of the FPC, particularly when prior legislation would indicate that there is a close family relationship?
I am certainly able to do that; I was just coming to that very point, I assure the noble Baroness.
We think that the balance of membership is appropriate, as the work of the FPC is one of the key elements of the Bank’s strategy to meet the financial stability objective. It is therefore essential that the Bank can be held accountable for its performance against that objective. The effect of the amendment would be to place the committee outside the Bank’s control.
I am sorry to interrupt the Minister again, but he said that the effect of this would be to place the committee outside the Bank’s control, so he is describing the chief executive of the FCA as part of the Bank family. That is the logic of that sentence.
I am sorry, but I do not think it is. If we say that the CEO of the FCA is one of the external members, that places it outside. I am coming to the question of whether you can describe the non-executive member as also external; I promise that I will come to that in a minute.
We should also consider the overall size of the committee. The noble Lord’s amendment would bring the number of voting members on the FPC to 13. Setting aside any superstitious concerns, there is a risk that the committee could become unwieldy and cumbersome. This could be particularly problematic for the FPC, as it is required to seek to make decisions via consensus, which of course becomes more difficult as it grows in size. The amendment would make the FPC the largest of the Bank’s policy committees. The MPC has only nine voting members and the PRC is likely to have 12 members. I believe that the additions to the FPC will be a net benefit to the FPC, but further expansion risks tipping the scales toward a detrimental impact on the workings of the committee.
I come to the question of the CEO of the FCA, to which the noble Baroness, Lady Kramer, referred. We are in no doubt that the FCA CEO should be counted as an external member of the FPC. The CEO of the FCA is not an executive of the Bank, and the FCA is entirely separate from the Bank.
There is no doubt that having the FCA CEO on the FPC is of huge value to the committee. It is true that her membership of the FPC brings particular benefits in terms of regulatory co-ordination, but she also has extensive relevant expertise, and, crucially, she brings an independent viewpoint and external challenge from outside Threadneedle Street, because the FCA is a completely independent body with a different set of objectives. It is also worth noting that this reciprocates the arrangement on the FCA board, where the chief executive of the PRA is counted, alongside the Treasury-appointed chair and the other members, as a non-executive. The CEO of the FCA is therefore eminently qualified to operate as an external, non-executive member of the PRA board.
In summary, the Government believe that it is appropriate to have an equal number of internal and external members, as the committee has today. This will ensure sufficient input from the Bank of England as executive and internal Bank of England expertise, while supporting the external, non-executive members’ role of providing a challenge to members’ thinking.
With those explanations in mind, I should be grateful if the noble Lord would withdraw his amendment.