Bank of England (Appointment of Governor) Bill

Lord Harrington of Watford Excerpts

Friday 6th July 2012 Commons Chamber

[John McDonnell]

I am pleased that consensus was eventually reached yesterday and that the Chair of the Treasury Committee will now be able to perform his role in that inquiry. The Government’s confidence in the Treasury Committee Chair and its members in respect of that inquiry contrasts with their lack of confidence in respect of allowing the Committee a decisive role in the appointment of the Governor.

It is increasingly clear that the new Governor will have significant responsibility, and it is becoming obvious that we need root-and-branch reform of our financial services and our banking system. Therefore, whatever recommendations come out of the various inquiries, and especially the inquiry that was established yesterday, much of the work of implementing reforms will fall on the shoulders of the new Governor.

[Richard Harrington (Watford) (Con)]

The hon. Gentleman mentions the Treasury Committee’s role in the inquiry into LIBOR, but does he accept that inquiries are the traditional role of Select Committees, and that making Executive appointments is a very different role?

[John McDonnell]

The roles are different, as I will mention later, but the Chancellor did give the Treasury Committee responsibility, in the way it is asking for here, for the appointment of senior members of the Office for Budget Responsibility. Obviously, then, he had sufficient confidence in the Committee to involve it in appointments.

--- Later in debate ---

[Richard Harrington (Watford) (Con)]

I congratulate the hon. Member for Hayes and Harlington (John McDonnell) on bringing forward the Bill. I was slightly worried earlier when I looked up and he had moved over to this side of the House and was having a conversation with my hon. Friend the Member for Altrincham and Sale West (Mr Brady). I thought that perhaps the arguments of my colleagues had been so compelling that he had decided to move. I was concerned about his cynicism—he has been in the House for longer than I—that some of today’s contributions might be intended to filibuster and drag out proceedings. I hope that he does not think that I have that intention, because I have thought carefully about his Bill.

When I read the Bill and the words,

“the appointment and dismissal of the Governor of the Bank of England be subject to the consent of a Committee of the House”,

it seemed to me that it was okay. On the face of it, the Bill would add the Select Committee to the process that is nominally in the name of Her Majesty the Queen, but is really conducted, as we all know, by the Prime Minister, the Chancellor of the Exchequer and so on. It was only when I continued reading and thinking about the subject that I thought that there were a number of compelling reasons not to support the Bill. I do not say that because of dogma or because I have been told to by the Whips or anybody else. I am pleased to have the opportunity briefly to put those arguments forward.

The Chancellor of the Exchequer has announced quite a few improvements in the process for selecting the Governor of the Bank of England. Traditionally, it has been done behind the scenes, nobody has known quite how it has been worked out, and in the end there has just been an announcement. Some of the changes might seem superficial, such as the post being advertised. However, as far as I know, in no other democracy or comparable economy is a post of this magnitude advertised openly in publications such as The Economist. It is also clear who is on the selection panel. It will comprise members of the Treasury and No. 10, and will take the advice of the court of directors, which is effectively the board of the Bank of England. That is not dissimilar to the process for appointing chief executives in most major companies and other significant organisations.

The changes perhaps reflect the way in which society is moving. Every Member of the House to whom I have spoken generally welcomes the increasing transparency in these systems and procedures. I realise that that comes nowhere near the veto power that the hon. Member for Hayes and Harlington is proposing in the Bill, but I do not think that it can be taken as insignificant; it is a step forward.

Secondly, there is the question of how public the scrutiny can be for an executive position. Governor of the Bank of England is an executive position, not a scrutiny position or a non-executive position. It is effectively the chief executive of the Bank of England. I have tried to compare the Bank of England to a business, because most of my experience in life has been in business, from quite small businesses to larger ones, while reading about and observing public life. I am not one of these people who are obsessed with business and who say that everything is like a business. However, some matters of governance are comparable.

This proposal is comparable to the chief executive of a major company being appointed and ratified not just by the board of directors, but by its shareholders, with Parliament as the shareholders. I know that we act on behalf of the general public, but we are a shareholder-type body. There is market sensitivity in big appointments in businesses, but it is as nothing to the market sensitivity that there is when a country’s financial system is involved. I do not think that it would ever be feasible to have this kind of open, televised, broadcast scrutiny for a chief executive’s position, even in a large company. I therefore do not think that it is suitable for the Bank of England.

Another significant point is that the Select Committee system is evolving. There is no doubt about that. The coalition agreement calls for an enhanced role for Select Committees. Most Members from both sides of the House have sat on Select Committees that have scrutinised appointments. As a member of the Select Committee on International Development, I have taken part in the appointment process for the independent scrutineer of the activities of the Department for International Development. An example that has been mentioned often by colleagues, including in this debate, is the appointment process for the Office for Budget Responsibility, in which a veto was used for the first time. However, those are all matters of scrutiny. They are all extensions of the Select Committee’s role in relation to bodies or individuals involved in scrutiny. They do not relate to executive appointments.

If I may use a DFID analogy, it would be difficult to reason that because Oxfam is a major beneficiary of DFID’s money, the International Development Committee should have a veto on the appointment of its chief executive. I do not say that to suggest that the roles of Oxfam and the Governor of the Bank England are of the same magnitude, but the principle is the same. Select Committees scrutinising the responsibilities of people or institutions is one thing, but their deciding on executive roles is completely different.

Parliament is perfectly free to decide that we need an American-type committee system, in which almost every appointment, including to the equivalent of ministerial roles, is approved in public committee hearings. I do not support that view, but I can understand it.

[Jacob Rees-Mogg]

Historically, there was a much better check on appointments to the Executive, because its members had to resign their seats and stand in a by-election. The public scrutinised appointments to the Cabinet, which was a fantastic system.

[Richard Harrington]

For once in my political career, I am completely speechless. I cannot claim before I scrutinise Hansard tomorrow that I fully understand my hon. Friend’s point, but I am sure that, being the person he is, he is absolutely right.

A further extension of the role of the Select Committee would make a fundamental difference to our system. It is not just a question of extent, as is the spreading practice of giving various Committees different scrutiny roles. Select Committees getting involved in hearings on major executive posts would be a fundamental change, and Parliament should discuss it if Members believe it is the right thing to do. That would an interesting and significant debate.

I would oppose the change. We have all seen the hearings that take place in America on the appointments of judges, Secretaries of State and so on, which are watched live all over the world. Although I do not feel that such hearings add anything to the democratic process, a valid argument can be made for them. However, they should not be introduced on a one-off basis in the case of the Governor of the Bank of England, because that would represent a fundamental change to our system. I do not think many people in this country would support judges being publicly appointed, and the same is true of many other roles including, I believe, the Governor of the Bank of England.

Select Committees are very good for scrutiny—that is their role. The Standing Orders, which I probably do not read enough, state that a Select Committee is

“appointed to examine the expenditure, administration and policy of the principal government departments”.

However, the control of executive appointments is quite different. The importance of that point should not be underestimated.

In 2000, in the report “Shifting the Balance”, the Labour Government stated:

“Any indication that a Ministerial appointment relied upon the approval of a Select Committee or was open to a Select Committee veto would break the clear lines of accountability by which Ministers are answerable to Committees for the actions of the executive”.

That is true. I ask the hon. Member for Hayes and Harlington to consider the fact that the Treasury Committee having a veto over the Governor of the Bank of England might allow a Chancellor or Prime Minister to say, “Well, it wasn’t my doing. That wasn’t the candidate I wanted”. That would give them an excuse, whereas now there is direct and clear accountability to Parliament.

I hope that no one, least of all the hon. Member for Hayes and Harlington himself, thinks I am saying that he has introduced the Bill with anything other than the best intentions, but the point about accountability should be considered. I believe in direct accountability, not in our senior elected politicians—or indeed junior ones such as myself—having an excuse to blame somebody else. I fear that that could be an unintended consequence of the Bill.

I believe in extra accountability and in making Select Committees strong, but I cannot support the Bill, because it goes totally against our current system. It is that system itself that Parliament should discuss and debate at length.