Financial Services Bill

Lord Peston Excerpts

Tuesday 6th November 2012 Lords Chamber

[Lord Sassoon]

Noble Lords may be aware that a similar amendment to Amendment 2A was tabled and debated in another place. Then, as now, and as I said in Committee, the Government do not believe that such a legislative provision is necessary or appropriate. Starting with the question of knowledge and experience, the Government have repeatedly confirmed their commitment, as I did in words quoted by the noble Lord, to ensuring the appointment of serious, knowledgeable and experienced candidates who have the appropriate qualifications and skills to carry out the functions of non-executive directors of court. These appointments are fully regulated by the Office of the Commissioner for Public Appointments, which ensures a fair, transparent and competitive process. The code is binding and the Treasury is responsible for ensuring its compliance, thereby ensuring that appointments to court are made openly, transparently and on the basis of merit.

Even without a prescriptive legislative obligation, in order to build an effective court the Treasury is mindful of the need to seek not only an appropriate depth but breadth of skills and experience. Ministers can and do take this into account in forming their recommendation without the need to further impose a duty on Her Majesty to form a view as to the candidate’s knowledge or experience before she makes the appointment.

I turn to the question of diversity, which I understand to mean not only of gender, geography or ethnic background but also of sectoral experience, insight and knowledge, as is suggested by Amendment 6A. Court and, in future, FPC appointments are advertised openly, and applications are welcomed from candidates from a variety of backgrounds. For example, the role profile for the most recent court vacancies sought people with substantial experience as board members, as head of function of major financial organisations and as senior managers in a relevant area of public policy, or in the voluntary sector or a trade union.

The latest iteration of the Government’s code of good practice for corporate governance in central government departments clearly states that,

“a board should have a balance of skills and experience appropriate to fulfilling its responsibilities. Moreover, it stipulates that the membership of the board should be balanced, diverse and manageable in size”.—[Official Report, Commons, Financial Services Bill Committee, 21/2/12; col. 22.]

However, given the size of the non-executive contingent on court and the number of external members of the FPC, it would simply not be possible to prescribe a set of criteria to ensure full diversity—that is, to ensure that each and every different background and characteristic is represented on the board and committee —without severely limiting the potential field of qualified applicants. It is therefore a question of judgment.

I stand by exactly what I said in Committee, which is that the Government are committed to ensuring an appropriate breadth as well as depth of skills; and this is as true of the FPC as it is of the court. While I agree entirely with the sentiments and principles behind these amendments, I do not believe that it is necessary or appropriate to legislate to achieve these aims.

I hope that I have provided sufficient reassurance to the noble Lord and that he will be able to withdraw his amendments.

[Lord Peston]

Could the Minister confirm that all these appointments will be advertised in appropriate places? I think that he said it but I am not sure that I caught what he said.

[Lord Sassoon]

That is what I said, and I am sure that it will be clear on the record when the noble Lord reads it.

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[Lord Sassoon]

My Lords, Amendments 2B, 2C, 3L, 3M, 6B, 6G and 7F, among others—maybe that is the lot—appeared at the Treasury late yesterday and not all the amendments were discussed in the conversation to which the noble Lord refers. However, there are some important and some not so important matters in these amendments and I will do my best to do them justice.

As we have heard, this amendment relates to the role of Parliament in the appointment of the Governor of the Bank of England and has been the subject of much debate both here and in another place. Specifically, Amendment 2B seeks to secure a debate in another place following the appointment of the governor, something which I do not believe is necessary or appropriate. The Government are committed to maintaining an appointments process that is proportionate and attracts candidates of the highest quality. It is important to ensure the credibility of the candidate and safeguard his or her independence. If the appointment was subject to a debate in another place, I suggest that there is a significant risk of politicising the process and undermining the appointment of the new candidate. Of course, it has been argued that such a debate could enhance the credibility of the candidate but previous governors have achieved credibility without being subject to such a debate. Credibility ultimately stems from effective action to meet the Bank’s objectives. If the appointment were subject to a debate in another place, the candidate would not be present to answer questions or defend him or herself.

The noble Lord, Lord Eatwell, has already quoted me in the previous debate. I quote what he had to say on this matter in Committee on 26 June. He said:

“We do not want to politicise appointments to the extent that has occurred in the United States”.

The suggestion that appointments might end up being considered by the whole House made him “nervous” as it would,

“inevitably be whipped and become very political indeed”.—[Official Report, 26/6/12; col. 165.]

I very much agree with that. Therefore, the Government believe that the pre-commencement hearing held by the Treasury Committee strikes the right balance in terms of scrutiny of this executive appointment and allows for a more constructive debate with the candidate in attendance to satisfy the committee’s concerns about his or her personal integrity and professional competence. The Government welcome the Treasury Committee’s ongoing role in holding such hearings and, importantly, as my noble friend Lord Flight reminded us, holding the governor to account throughout his or her tenure. I hope I have provided sufficient reassurance and that the noble Lord feels able to withdraw this amendment.

[Lord Peston]

I wish to make a comment and ask the Minister a question. My comment is that there are no long words in this amendment. I would have thought that the average person who had been at school could just about understand it in a few minutes of reading it. The idea that the Minister cannot address your Lordships’ House without several days, if not weeks, of Treasury back-up seems to me absolutely preposterous. He should stop bellyaching about this sort of thing.

My question to him is: if this debate took place in both your Lordships’ House and the other place, has it not occurred to him that that debate might be devoted mainly to saying what an excellent appointment has been made in this case, what an extremely good person has been chosen and wishing him well in his very arduous task? Why is the Minister taking it for granted that the debate would be mostly about slagging off whoever the appointed person may be?

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[Lord Eatwell]

My Lords, the noble Lord, Lord Sassoon, has made it clear today that the non-executives will play a major role in the governance of the Bank. This amendment seeks to ensure that non-executives, essentially here in the court, are appointed with the consent of the Treasury Select Committee. The point is being reiterated. Given the powers invested in the Bank, including and especially the FPC powers that have previously rested only with the Chancellor or other elected persons, it is appropriate that there should be some political oversight of the appointments. The Treasury Committee is surely the right place.

What are the major arguments against this pre-appointment scrutiny? First, that the procedure will be unduly intrusive and onerous; and, secondly, that it will be too politicised. As a result, suitable persons will not apply. I think that the arguments in the context of what is being done in this Bill are ill founded. The Government decided to politicise the position of the Bank by giving it powers previously reserved for elected persons. The Government decided to load on to the Bank virtually all regulatory functions and control of monetary and credit policy. In this context, the Government should accept that the Treasury Committee’s scrutiny is entirely appropriate. Let us remember that that committee has played a serious non-partisan role for a number of years, both when chaired by my noble friend Lord McFall and now, as chaired by Mr Tyrie. The committee does an excellent, non-partisan, technical and difficult job. In that context, it could play an important role in monitoring those persons to whom the powers previously assigned to elected persons are now to be given.

While Amendment 2C relates to the non-executive directors of the Bank, Amendment 6B in the group extends the same principle to the independent members of the Financial Policy Committee. If anything, the point is even stronger here, because these are people who will be participating in decisions that directly affect individuals’ lives. The members of that committee will be making decisions about your mortgage rate and the availability of credit in general to individuals in society. It is therefore surely right that appointments should be subject to the consent of the political part of national governance, as represented by the Treasury Select Committee, which is handing over these powers.

Sometimes, we in Britain are a bit overly sensitive about appointments procedures. I remember that university appointments used to be totally confidential to appointments committees. Now appointees have to appear before the whole faculty and the students, give lectures to demonstrate how good they would be and defend themselves.

[Lord Peston]

Is that true?

[Lord Eatwell]

Yes, it is true. They have to do that prior to any form of appointment. Therefore, the sort of sensitivity I mentioned is overdone. Greater transparency and more robust procedures would serve us well. Most important of all, there must not be an abdication of powers that in the past were reserved to elected persons without some substitution of proper political oversight, as provided for in Amendments 2C and 6B. I beg to move.

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[Lord Eatwell]

My Lords, in the debate that we have just had we heard a lot about the values of the oversight committee and what an important job it has to do. The noble Lord, Lord Sassoon, made some comments about new Section 3C, perhaps inadvertently, while he was reflecting on the group of amendments that we have just looked at. The purpose of this amendment is to ensure that the oversight committee—or hindsight committee, as I think it should be called—has the resources to do its job.

We have to remember that the Bank of England has form in this respect. In the early days of the Monetary Policy Committee, independent members were deliberately starved of resources by the Bank in order to enhance the position of the executive members. We all hope that the Bank has learnt its lesson from the very negative publicity that that incident produced. However, we are now in different territory. The powers are greater, and the responsibilities are wider. Hence it is vital that the oversight committee should be well resourced. New Section 3C refers to the possibility of hiring people to conduct a performance review, but that is one step down the line. The committee needs its own staff to help determine exactly which performances should be reviewed, and who should be asked to do that sort of important secretarial work.

That is the purpose of the amendment before us. It can do nothing but strengthen the Bank of England, making the committee into an effective instrument of retrospective monetary and financial governance. I am sure that that is what the Government would like, so I would like to hear them accept this amendment, or at least give an undertaking to take the idea away and think about it with care. I beg to move.

[Lord Peston]

My Lords, I support this amendment in substance. The noble Lord will be delighted to hear that I also wish to make a couple of semantic points. My noble friend said that the committee should have its own staff. My view is that it should not only have its own staff but should appoint its own staff, thereby guaranteeing that the staff are its own, work for it and, to use the slang expression, are not “narks” of the governor. Therefore, the noble Lord ought to accept the amendment.

My two semantic points are as follows. First, I find the committee’s name most unattractive. Will the noble Lord ask the Bill team to look up the definition of “oversight” in the dictionary as it has a very definite meaning which I am sure the Government and the Minister do not wish to be associated with this committee. It may not be too late to choose a more felicitous name. I wonder whether I am the only person who has thought what a ridiculous name the committee has.

Secondly, I congratulate my noble friend Lord Eatwell on solving the problem with which, as your Lordships know, the noble Lord, Lord Barnett, and I are obsessed: that is, the “must/may problem”. My noble friend has solved it in a really interesting way. He does not use “must” or “may” but “will”. I would like the Minister to ask the Bill team whether it would consider going down the path of using “will” rather than “must” or “may”.

[Lord Sassoon]

If the noble Lord, Lord Peston, could persuade his noble friend to rein back to just a couple of amendments a day, I am sure that we could carve out time to look at all sorts of semantics. However, I shall stick to the substance of this amendment, which seeks to place the bank under a statutory duty to ensure that the oversight committee has,

“adequate economic, legal and research support”.

I entirely agree with the sentiment behind this amendment. As we have already discussed this afternoon, the non-executive oversight committee has a very important job to do in reviewing the Bank’s performance and will require access to the information and analytical support that it needs. That is why, for example, the legislation makes it clear that members of the oversight committee have access to the meetings and papers of the MPC and FPC and have a specific remit to commission work and reviews from external bodies and experts.

It is a well established principle that it is the responsibility of the governing body of any organisation to ensure that its members and sub-committees are properly supported. I recognise that the Bank was slow to realise that the external members of the MPC required dedicated resource and support. I am confident that the Bank has learnt its lessons on this. Both the MPC and the FPC members have access to all the analytical and secretariat support that they need. I am wholly confident that the Bank will similarly make support available to the oversight committee to make sure that it is adequately supported without the need for legislation on this point. I hope, therefore, with the further reassurance on that, the noble Lord will see fit to withdraw his amendment.

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[Lord Kerr of Kinlochard]

I think one has to draw a line between the past and the future. I once again found myself very much in agreement with what the noble Baroness, Lady Noakes, said. If a report was made to the oversight committee and it believed it should be published, and the decision goes to the court, as it should because a subset of the court cannot decide that, it seems to me extraordinarily unlikely—almost unthinkable—that the governor, from a position of one or four against nine, would be able to overturn the view of the oversight committee. The decision must be taken in the court, but it will be a very rare occurrence when a decision as to what is the public interest is taken by the executives overturning the majority view of the oversight committee when the issue comes before the court, so I do not understand the amendment.

[Lord Peston]

My Lords, I do not understand the intervention. Why has the governor been given the power if he cannot use it? If you do not want him to use it you do not give it to him.

[Lord Armstrong of Ilminster]

My Lords, if I may take the semantic point raised by the noble Lord, Lord Peston, if the word “oversight” is capable of being misinterpreted why not use “supervisory”, which is just the Latin version and means exactly the same without the possible misunderstanding?

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[Lord Eatwell]

My Lords, I must say that I am very happy and I will now read through the Bill with great care and presume that wherever the term “Bank” appears, it means “court”. If that is so, I will check all the various clauses as we go along to ensure that “Bank” means “court” at all stages. If it means “court”, the Bill should say so and be clear—and that is what it is not.

[Lord Peston]

My noble friend should not really accept this, because no one reading the Bill could conceivably read the word “Bank” to mean “court”. “Bank” means the Bank, and the Bank, in practice, is the governor.

[Lord Eatwell]

With all due respect to my noble friend, these days, where matters are in dispute about the interpretation of Bills, reference is made to Hansard. The noble Lord has effectively amended this clause in his remarks by saying that “Bank” means “court”. On that basis, we have now clarified this section of the Bill considerably. We have had a successful debate and achieved something valuable.

Given the various comments on the name of the oversight committee, I must confess that until my noble friends pointed it out I had failed to notice the double entendre in that label. I thought that “oversight” meant to oversee or supervise. I take it as meaning “oversee”, and I will not go as far as my noble friends.

I will go through the rest of the Bill, note where it refers to the Bank and either write to the noble Lord or raise in the House those points at which there is ambiguity as to what “Bank” actually means. However, now that we are absolutely clear that in new Section 3D “Bank” means court, I am happy to beg leave to withdraw the amendment.