Bank of England (Appointment of Governor) Bill

Nick Smith Excerpts

Friday 6th July 2012 Commons Chamber

[Matthew Hancock]

It is to do with the appointment and dismissal of the Governor, and my argument is that the broad strategy of the Governor must be aligned with the broad economic strategy of the Government, and that this Bill could rend the two asunder.

What is currently happening in the eurozone serves as a definitive example of the problems that can arise when the views of Governments and of the leadership of a central bank diverge, and it shows what could happen if this Bill were to be enacted. The history is familiar to us all, so I will not go through it again in detail. Since the start of the sovereign debt crisis, the European Central Bank has injected euros and liquidity into the system, yet monetary policy in much of the eurozone remains very tight. That clearly harms some of the countries in the eurozone. There are tensions as a result of the relatively tight monetary policy and the need for some countries to tighten fiscal policy—there are no fiscal transfers between the members of that currency. That, compounded by weak banks, means that the monetary policy on the ground is even tighter. The lack of co-ordination between the ECB and the countries and Governments in the eurozone is highlighted on our television screens many nights of the week. Greek bond deals leapt more than 10 points to more than 100% when it was announced by the Government in November that there was to be a referendum on the bail-out package supported by the president of the ECB.

We have heard anecdotal evidence so far about the impact of a governor on financial markets and uncertainty. Adam Posen, who serves on the MPC, and Kenneth Kuttner wrote a paper in 2007 which found substantial academic evidence that the appointment of a central bank governor can have a direct impact on the markets, which my hon. Friend the Member for Spelthorne was speaking about. They concluded that

“financial markets tend to react to the appointment of a new central bank governor with larger-than-normal price changes, especially when a distinction is made between ‘newsworthy’ announcements…and those merely confirming an anticipated appointment.”

That is the problem that Members were talking about: uncertainty in the financial markets as a result of bank appointments becoming unclear and uncertain.

I want to take up the question of whether the Treasury Committee should have a veto. I said earlier that I am a member of the Standards and Privileges Committee, and I am also privileged to be on the Public Accounts Committee. That Committee’s power over the appointment of the Comptroller and Auditor General is, I think, similar to the power of veto that the Treasury Committee has over the OBR. The National Audit Office is obviously not Executive but merely a provider of sophisticated information about the Government and the wider world. That distinction between providing information in an independent way, separate from Government, and taking Executive action in the broad strategy set out by the Government is crucial.

As I come to a conclusion, I want briefly to consider the international evidence.

[Nick Smith (Blaenau Gwent) (Lab)]

I thank the hon. Gentleman for giving way. I know that he has been on his feet for close to an hour now, so he will not be aware that a Member from his own side, the hon. Member for Clacton (Mr Carswell), is saying on the Twittersphere that what is going on here is a Government ploy to talk out an attempt to make the Bank of England more democratically accountable. What does the hon. Member for West Suffolk (Matthew Hancock) say to that member of his own party?

[Jacob Rees-Mogg]

On a point of order, Mr Deputy Speaker. Is it really a proper proceeding if hon. Gentlemen do not come to the House to make their points but make them via Twitter? My hon. Friend the Member for Clacton (Mr Carswell) can come to this House and speak, rather than electronically communicating with us.