Bank of England (Appointment of Governor) Bill

Nigel Evans Excerpts

Friday 6th July 2012 Commons Chamber

[Matthew Hancock]

I supported yesterday’s decision, because one thing we are dealing with now is the consequence of money being too loose, which is the deleveraging in the banking system, which is causing a huge drag on the economy. Therefore, the mitigation of that deleveraging, through loose monetary policy—low interest rates and in a quantitative sense—is something that I support. However, more strongly than I support the Bank’s decision, I support its ability to make it in a way that is unconstrained by political considerations.

[Mr Deputy Speaker (Mr Nigel Evans)]

Order. Any chance of mentioning the Bill from time to time?

[Matthew Hancock]

Absolutely; this argument is vital to the Bill. It is a question of whether the Governor’s appointment should be in the gift of the Government or should be capable of being vetoed by people who are not necessarily the Government’s appointees. I apologise if I did not make it clear why this is precisely and closely related to the Bill.

In considering the Bill’s impact, it is important to remember that the Governor is only one member of the Monetary Policy Committee and of the Financial Policy Committee. As we saw last month, the Governor voted in favour of quantitative easing a month before the Committee had a majority for it. In that light, it is slightly odd that the Bill considers only the Governor when the body that determines our monetary policy is the whole membership of the Monetary Policy Committee. There are nine members, five of whom are executives of the Bank of England and four are so-called external members. While the Treasury Committee has oversight of, and the ability to scrutinise, all the others, there is no proposal for the other eight Committee members or the other members of the Financial Policy Committee to be subject to a veto by the Treasury Committee. In that sense, those who support the arguments in this Bill—I do not—should support a veto over the appointment of the other members of the Committee.

The Bill makes it clear from line 20 onwards that the deputy governors are not subject to the oversight of the Treasury Committee. Given that the deputy governors have one vote each and the Governor has only one vote, too, although he does by convention vote last, the argument does not change with respect to the deputy governors and the Governor. There is thus a confusion at the heart of the Bill.

The proposed appointment process by the Treasury Committee ignores the measures in the Financial Services Bill, which I think removes the motivation for bringing this Bill forward now. The structure of the Bank of England will change from having an imperial Governor to having one who is the head of a committee—the Financial Policy Committee—on the financial stability side of the Bank.

The need for a common strategy between the Bank and the Government is more important now than it has been for a long time. The financial crisis laid bare the importance of co-ordinating monetary and fiscal policy. For a while, it was wrongly believed in this country that those two policies could be separate. Indeed, financial policy was separated again, so we had a tripartite system, with financial policy vested in the Financial Services Authority, monetary policy in the Bank of England and fiscal policy in the Treasury. It is not the case that they were separable. It is clear from how the world is having to manage the current difficult situation that these are not discrete entities, but aspects of one another.

The banks themselves are part of the transmission mechanism, too. I like to say that they stand in relation to the Monetary Policy Committee as the Higgs boson particle stands to matter: they give substance to the Committee’s decisions because they transmit interest rates and monetary policy into the real economy. Similarly, the level of debt in the economy is symbiotically connected to banking regulation because regulation of the leverage of banks has a direct impact on the amount of debt, and the removal of the regulation over leverage and the amount of debt in the economy was one of the main drivers of the over-leverage and vast expansion of the money supply that led to the grave difficulties we face in managing the current economy. That explains why it is so important for the broad strategy of the Government of the day to be supported by the Governor of the Bank of England.

What we do not want to see are more asset bubbles, and we might see those if we had a Governor who did not agree with the strategy of the day. Fiscal policy could work against monetary policy, rather than the two broadly working together both to deal with an over-indebted economy and to enable the decisive action that is necessary to stimulate the economy and prevent a banking crisis from turning into a slump. This is not, as some of my hon. Friends have suggested, a matter that has no impact on our postbags. Although few people write to me about the appointment process of the Bank of England, an error in that process could have a profound impact on our economy, and would doubtless hit our postbags very hard.

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[Matthew Hancock]

That would be an example of where monetary policy and the wider economic policies of the Government were not working in tandem. The Minister explained the procedures for the removal of a Governor, and they require the proposal of the court—I think the strengthening of the court is important. There are procedures in place, therefore. It might be thought that a wider discussion of this point would not be in order, but the Bill is about getting rid of the Governor as well as the appointment of the Governor. My hon. Friend might therefore want to touch on that point in more detail later. I had not considered it, but it is important and it should be scrutinised properly and at length by somebody who has considered it more closely than I have.

As for the counter-factual, or what happens when the views of the central bank are at variance with those of the Government, the problem in the years running up to the crisis was not that the leadership of the Bank was too close to the Government, but that the voice of the Bank was being ignored by the Government for political reasons, hence the fact that the growth of the money supply was too fast and the subsequent difficulties in handling the crisis. This was pointed out by the Bank, and Sir Andrew Large made a speech making clear the problems of over-rapid growth of the money supply in 2004. He pointed to the dangers of supposedly benevolent innovations such as the rise of securitisation, and he asked whether that was causing problems that our Government should be addressing. There was no response from the Government of the day.

In May 2006, the current Governor warned that

“a potentially large social problem, with many households getting into difficulty with their debts, is materialising.”

He was in a position to know, because he had received in the post a piece of junk mail—a credit card application from a bank—and the literature said:

“We have the solution, Mervyn, for your bankruptcy.”

The bank in question did not realise that Sir Mervyn King was not bankrupt—and I certainly hope he would never be bankrupt. Indeed, there was a worse problem: one bank—RBS—sent a credit card to a—

[Mr Deputy Speaker (Mr Nigel Evans)]

Order. What has this got to do with the Bill?

[Matthew Hancock]

It is important that the Governor of the day has the same broad strategy as the Government—but I will move on, Mr Deputy Speaker.

We have one further, and chilling, example.

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[Mr Deputy Speaker (Mr Nigel Evans)]

I think that it is up to any hon. Member to use whatever communicating devices are at their disposal, quite frankly. The House is clearly here for the hon. Member for Clacton (Mr Carswell) to come to and speak, if he so wishes; if he does not wish to do so, it is up to him.

[Matthew Hancock]

Hear, hear, I say. I think that all sorts of communication are very useful in this modern age. I respect my hon. Friend the Member for Clacton (Mr Carswell) a great deal—and the hon. Member for Blaenau Gwent (Nick Smith)—but I have a very simple response. As I said at the start of my speech, I think that this proposal would mark a significant constitutional departure. It is about the distinction between the legislature and the Executive and about blurring that distinction. The idea that we should pass the Bill after only five hours of debate on a Friday lunchtime, compared with the 10 days of debate in Committee of the whole House proposed by the Government on House of Lords reform, which merely changes the architecture within that legislative branch, is absurd. If we want to make a change of such importance, we should be able to debate it fully and frankly. Going through some of the historical and international comparisons is vital to a significant change.

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[John McDonnell]

On a point of order, Mr Deputy Speaker. Whatever Members might think of the Bill, I think that it is worth putting on the record the abundant criticism on Twitter and elsewhere about what is happening in the House today. In normal circumstances there would be an opportunity to claim to move that the question be now put—a closure motion—but that is not possible today because many Members have returned to their constituencies because of the flooding. It is completely understandable that they should do so to look after their constituents’ interests, but it is worth putting it on the record that that is one of the procedural issues we have had to face today.

[Mr Deputy Speaker (Mr Nigel Evans)]

I do not think I really need to comment on the hon. Gentleman’s statement.

[Jacob Rees-Mogg]

Further to that point of order, Mr Deputy Speaker. This is completely proper parliamentary procedure. Otherwise, you and your predecessors in the Chair would have ruled it out of order. It is absolutely proper that things are debated and it is up to Members to decide whether to be here or in their constituencies on any day of the week. It is quite wrong to criticise Members for debating things fully; that is what we are here for.

[Mr Deputy Speaker]

I am extremely grateful to you, Mr Rees-Mogg, for doing my job and responding to the point of order that I had decided not to respond to.

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[Kwasi Kwarteng]

Absolutely—

[Mr Deputy Speaker]

Order. Let us not have a debate about the debate. Let us please just move on to the Bill.

[Kwasi Kwarteng]

I want to make a remark about the Bill, and not of a partisan nature. I am very grateful to be able to speak fully, and I will not be intimidated or bullied into truncating my remarks to make them shorter than I had anticipated—

[Mr Deputy Speaker]

Order. May I now gently bully the hon. Gentleman into moving on to the Bill?

[Kwasi Kwarteng]

Thank you, Mr Deputy Speaker. I am suitably bullied and shall proceed as I intended.

The Bill raises important constitutional issues. We have a Parliament, we have the honour of sitting in the House of Commons, and we all know the struggles the House had in order to assert its primary function and its principal character as the legislature and main law-making organ of government. I am afraid that the Bill represents a further encroachment of the powers of the House of Commons. I am a Conservative. I happen to think that there should be a balance and distinction between the Executive and the legislature. As someone who has read a little of the history of this place, I also recognise that the position of the House of Commons in the constitution should be guarded, but this new development—this assertion that the Treasury Committee should have a power of veto or even a power of appointment over the Governor of the Bank of England— represents an unprecedented extension of the powers of this House.

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[Stephen Pound (Ealing North) (Lab)]

As it is fairly obvious that we are running into the sands of procrastination and filibustering—

[Mr Deputy Speaker (Mr Nigel Evans)]

Order. Mr Pound, resume your seat. If I heard a filibuster taking place, clearly I would have ruled it out of order. Mr Kwarteng, after his initial little problem, has been in order.

[Stephen Pound]

I profoundly apologise, Mr Deputy Speaker; I abase myself before you.

I put it to the hon. Gentleman that he might just as logically say that dictators dictate. Surely there can be no greater or more magnificent ornament of the constitution than the Chair of the Home Affairs Committee, to whom I listened last week as he interviewed a preferred nominee for the post of Her Majesty’s chief inspector of constabulary. A little bit of democracy is not that painful; it is rather a healthy thing.