Bank of England (Appointment of Governor) Bill

Mike Freer Excerpts

Friday 6th July 2012 Commons Chamber

[John McDonnell]

That is an incredibly constructive proposal, and I hope the Minister heard it. There are other ways of approaching this matter and we should be open to considering them. Yesterday, the Government entrusted the hon. Gentleman with a major inquiry—the inquiry Committee will comprise members of the Treasury Committee and Members of the other House. If the Government have the confidence in Treasury Committee members to undertake that inquiry, it should have the confidence in their having a decisive role in the appointment of a new Governor of the Bank of England. I therefore welcome the hon. Gentleman’s constructive comments.

May I thank Kate Emms, the Clerk, and Gordon Nardell QC for their assistance in drafting the Bill and the explanatory notes? I am extremely grateful for their assistance. The Bill amends the Bank of England Act 1998 to give effect exactly to the recommendation of the Treasury Committee from its report of October 2011 that the appointment of the Governor should be subject to the approval of the Treasury Committee.

Between the time of choosing the appointment of the Governor of the Bank of England as the subject of my private Member’s Bill and debating it, the world has changed somewhat. Last week’s revelations about the role of Barclays bank—and, more than likely, others—in the LIBOR scandal have given the Bill a new context, and there is a new significance in the appointment of the Governor of the Bank of England. Mervyn King will retire in the next year, and the new Governor will play a pivotal role in what, it is increasingly clear, will of necessity be a radical reform and reconstruction of our financial system.

[Mike Freer (Finchley and Golders Green) (Con)]

From the debate yesterday, the Opposition seem to hold the view that the Treasury Committee is not qualified to investigate banking and banking reform, yet the hon. Gentleman today argues that the Committee is qualified to appoint the Governor.

[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.

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[Stephen Hammond]

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

[Mike Freer]

My hon. Friend makes a valid point about the Governor being likely to come from the world of banking. Given the close integration of all our major UK banks and the Treasury, how could we possibly find an independent banker?

[Stephen Hammond]

In this case, it would be for the judgment of the Treasury Committee or the Government. Someone with some financial experience might well be helpful in the current world.

This is not a filibuster, because this is exactly the point at which I am going to leave the history of the Governors of the Bank of England, merely making the point that the Treasury Committee might have rejected some of the candidates who have been appointed, even though they have been among the most excellent Governors of the Bank of England.

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[Chris Leslie]

We could have a long constitutional discussion, but essentially I do not think that anything is lost by airing more openly and transparently the background and the thinking of candidates for appointment as the Governor of the Bank of England in the Treasury Committee and then giving Parliament a say.

[Mike Freer]

The hon. Gentleman referred to openness and transparency and to my hon. Friend the Member for Spelthorne (Kwasi Kwarteng) as neutered—although I am sure he is not. As a former Minister in the previous Government, the hon. Gentleman will have been privy to discussions on openness and transparency. Can he share with us the views of the previous Government on openness and transparency in the appointment of previous Governors?

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[Mike Freer (Finchley and Golders Green) (Con)]

I, too, thank the hon. Member for Hayes and Harlington (John McDonnell) for introducing the Bill. He has a reputation as a firebrand in Parliament, so I was surprised and pleased at his thoughtful speech. He almost got me to cross the line and support him. However, I was somewhat surprised to realise, as the debate continued, that the Bill is a Trojan horse. It is not about the Governor of the Bank of England; it is about appointments in general and the power of Parliament in making them. The Bill should do what it says on the tin. If it is meant to be a prod for us to debate reforming the role of Parliament in making appointments, it should say so, but it does not. It is specifically about the power of appointment and dismissal of the Governor of the Bank of England.

[Matthew Hancock]

Is my hon. Friend surprised to hear some Members argue that they do not support the Bill as it stands but would vote for it on different grounds?

[Mike Freer]

I never fail to be surprised at the ability of hon. Friends and hon. Members to vote for what they do not really believe in, as we might see next Tuesday. [Laughter.] The Whips do not need to write that down.

Before I read the substance of the Bill, I thought I would look at the history of the Bank of England. I promise not to go too far back, but I glanced to see whether there was a precedent for Parliament’s being involved in the appointment of the Governor. The Bank of England was formed to raise money for the Government of the day, who could not raise the princely sum of £1.2 million themselves because they were not credit worthy, even though they had sought to attract money by offering 8% interest rates—an eerie echo of the problems of the Greek and Spanish Governments 318 years later. It is not the time, while we are dealing with sovereign debt crises, to discuss whether Parliament should appoint the Governor of the Bank of England, and I will talk later about what would happen if we had to appoint someone in the middle of a crisis.

The Bank was originally a private bank paid for by private subscriptions. I read through its book of subscriptions from 1694—in fact, I have a copy of it with me. I was tempted to read it all out. I have the scars on my back from introducing the London Local Authorities Bill. I am pleased to see my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) here, because he taught me that the way to prolong a debate was to read out, in detail, the coat of arms of all the London boroughs, so it was tempting to read out the list of original subscribers.

[Jacob Rees-Mogg]

I am delighted to note that the time spent debating that Bill was not wasted.

[Mike Freer]

I can assure my hon. Friend that I learned a huge amount from the painful experience of taking that Bill through the House.

I wanted to find out whether anything could be learned from seeing who were the original subscribers to the Bank. One of them was the Receiver of Their Majesty’s Customs. I thought it was rather odd that a tax collector—a modern day Treasury Minister—was a founder of the Bank of England. Under the column headed “Quality” are listed merchants, widows, haberdashers, scriveners, grocers and apothecaries. Even clerks were allowed to subscribe to the original Bank of England.

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[Madam Deputy Speaker (Dawn Primarolo)]

Order. That might be the hon. Gentleman’s opinion and the opinion of people outside the House, but the hon. Member for Finchley and Golders Green (Mike Freer) is in order. If he was not, I would prevent him from speaking. I appreciate that that is the view of the hon. Member for Hayes and Harlington (John McDonnell), and that he has now put it on the record, but the hon. Member for Finchley and Golders Green will be in order if he wishes to advance this argument.

[Mike Freer]

Thank you, Madam Deputy Speaker. I shall indeed turn to the substance of the debate, but I find it rather sad that an hon. Member seeking to restore the rights of Parliament should seek to deprive another hon. Member of the right to continue the long-established tradition in the House of speaking at length, if they so choose.

I was talking about the original subscribers, so I—[Interruption.] I cannot hear what the hon. Member for West Ham (Lyn Brown) is chuntering about. If she wishes to intervene, she should please do so. [Interruption.]

[The Lord Commissioner of Her Majesty's Treasury (Michael Fabricant)]

She’s moving!

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[Lyn Brown]

It felt longer.

[Mike Freer]

As did that intervention.

[Madam Deputy Speaker (Dawn Primarolo)]

Order. I am sorry to interrupt the hon. Gentleman again, but let me say to the hon. Member for West Ham (Lyn Brown) that she can either sit on the Benches behind the Front Bench or sit on the Front Bench. I am afraid that she cannot go backwards and forwards as and when she wishes to intervene.

[Mike Freer]

With the forbearance of the House, I will come to the substance of the Bill, but I want to set out the historical perspective for a few more minutes, if the House will indulge me.

Looking at the original subscribers, I was surprised to see the clerk of Eton college. Nothing changes: those Eton chaps get everywhere. Sadly, however, I could find no forebears of the Eton alumni who serve in the current Executive, but I did find a Mr du Bois, a Mr Gape and a Mr Wollaston, so I wondered whether there was an historical link to my hon. Friends the Members for Enfield North (Nick de Bois) or for Totnes (Dr Wollaston) or the hon. Member for Ilford South (Mike Gapes). The index of subscribers was clearly a list of butchers, bakers, candlestick makers, tinkers, tailors and soldiers, but sadly I could see no spies—although, suspiciously, there was a rather large number of French names.

Although the Bank was not a modern-day co-op, it was owned by ordinary people until nationalisation in 1946. At the Bank’s inception, the original subscribers—the original owners—could appoint an agent to act on their behalf. That brings me to the present day—I am grateful to the House for indulging me to this point. The Bank is now technically owned by the people and, through the people, this House. Acting for the people, we have appointed the Prime Minister and his Ministers to act as our agents. The appointment of the Governor of the Bank of England by the Executive is therefore entirely in accordance with the tradition of the Bank from its original founding fathers—the original subscribers.

I have listened to the hon. Member for Hayes and Harlington and to the arguments of other Members—specifically, those on the Treasury Committee, whom I admire greatly. When considering whether to speak in this debate, I noted that my hon. Friend the Member for Chichester (Mr Tyrie) had put his name to the Bill, which gave me pause to wonder whether it had some merit. I appreciate the view that the way in which the Governor has been appointed has not changed substantially since the Bank was nationalised in 1946 and that some feel that reform is required. I also appreciate the wider point that the relationship between the Executive and the legislature in this House should be rebalanced. I welcome the current Government’s moves to do so thus far. Others have compared the appointment of the Governor of the Bank of England with appointments to the Office for Budget Responsibility, but there is a huge difference between bodies that can advise and people with the power to intervene. There is a big difference between the Bank of England and the Office for Budget Responsibility.

A consensus appears to be developing that Select Committees are an under-utilised parliamentary tool. However, we have recently seen a national focus—indeed, an international focus—on the Select Committee on Culture, Media and Sport and, this week, on the Treasury Committee, which is so ably chaired by my hon. Friend. Although new to these Benches, I have sensed a shift, both inside and outside the House, in the role of Select Committees. They no longer simply scrutinise expenditure or the performance of Departments; they now have an investigatory role. That is valued, but there is a huge difference between scrutinising and investigating, and getting involved in appointments. I am particularly worried by the parallels with congressional committees in the United States, because of the precedent set by the vitriolic stand-offs and deadlocks between the Executive and Congress over appointments. I vividly remember the appointment—or the non-appointment—of Clarence Thomas. Whatever the merits of that particular case, the whole drawn-out saga and the blood on the political floor were deeply damaging to the institutions involved. I fear that if this Bill passes, we will go down the same path.

I welcome reform, but I have a number of concerns about the Bill. The Treasury has already agreed new powers for the Governor, and I remind the House that the Governor is one of the most important financial figures not just in this country but in global finance. He or she—as it might well be in the future—is of vital importance not just to the UK economy, but to the world economy. Tinkering with our constitution has ramifications not just for us, but across the world.

My concern about constitutional tinkering is that it is like a thread. If we pull that thread, we will not know where it leads. As my hon. Friend the Member for Wimbledon (Stephen Hammond) said, why stop at appointing the Governor of the Bank of England; what about other public bodies? The thin end of the wedge argument carries a lot of weight, as does the argument that we are tinkering with the constitution.

I refer hon. Members to what will happen next Tuesday. If it comes to pass, the House of Lords will be abolished or “reformed”, as it is euphemistically called. We will have a new elected body at the other end of the building. How long will it be before that body starts to—

[Madam Deputy Speaker (Dawn Primarolo)]

Order. I have to tell the hon. Gentleman that what he is saying now is not in order. He is speculating about something that has not yet happened. I suggest that he concentrate on this Bill, either on a historical or contemporary basis, and not refer to Bills that we have not yet debated.

[Mike Freer]

I am grateful for your advice, Madam Deputy Speaker.

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

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

[Jeremy Corbyn]

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

[Mike Freer]

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

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

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

[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.

[Mark Durkan]

The hon. Gentleman has suggested that the Government might have a partisan agenda in appointing the Governor. Surely the best way of protecting the appointment from the allegation that the Chancellor’s motivation was purely partisan is to give the Select Committee a role, whether the appointment is made at the start of a Parliament or, even more interestingly, at the end.

[Mike Freer]

The hon. Gentleman is absolutely right. I do not think that any appointment is without politics, but I fear that a Select Committee is much more likely to adopt a political method. We have recently seen Select Committee investigations involving minority reports, and the pursuing of party political agendas in the interrogation of witnesses.

[Mark Durkan]

Did the hon. Gentleman vote for a parliamentary inquiry yesterday? Did he support all the arguments that were advanced in its favour? He seems to be contradicting those arguments now.

[Mike Freer]

I did vote for a parliamentary inquiry, and I do not disagree with some of the points that the hon. Gentleman has made. However, I believe that a Select Committee’s role is to investigate. There is a huge difference between investigating issues and appointing executives with Executive powers who can intervene daily in monetary policy, and there is a significant difference between making such appointments and the interviewing of bank chief executives for wrongdoing.

I have not set myself against reforms. I have no doubt that the appointment of Governors and other senior public officials requires greater transparency than we have seen hitherto. What worries me is that, while pre-commencement hearings are a good thing, involving the Select Committee in the right of veto will not help and, indeed, could hinder the appointment of Governors. I believe that the Treasury Committee should have a voice but should not have a veto, and I therefore cannot support the Bill.