Bank of England and Financial Services Bill [ Lords ] (Sixth sitting)

Richard Burgon Excerpts

Tuesday 23rd February 2016 Public Bill Committees

Question again proposed.

[Richard Burgon (Leeds East) (Lab)]

I would like to express my hearty support for new clause 3. Select Committees have routinely held pre-appointment hearings for a number of public appointments since 2008, with a number of candidates not approved. The previous coalition Government did develop the scrutiny agenda somewhat when the Chancellor agreed to the Treasury Committee having a power of veto over appointments to the Office for Budget Responsibility in 2010.

The Public Accounts Committee has a veto over the appointment of the Comptroller and Auditor General. Appointments to the Monetary Policy Committee and the Financial Policy Committee of the Bank of England are made by the Chancellor of the Exchequer and are then subject to a confirmation hearing by the Treasury Committee. The Treasury Committee has power over the chair and board members of the Office for Budget Responsibility, an arrangement that the Chancellor told the Treasury Committee he would put in place

“because I want there to be absolutely no doubt that this is an independent body”.

The Minister will be aware that, when it examined the proposals for the future Financial Conduct Authority in 2013, the Treasury Committee made a number of recommendations on the accountability of the new body to Parliament, including that the legislation provided that the chief executive of the FCA be subject to pre-appointment scrutiny by the Treasury Committee. The Treasury Committee was disappointed by the Government’s response, particularly in view of the deficiencies in the accountability mechanisms for the Financial Services Authority.

I would like to express support not only for the new clause tabled by the Scottish National party, but for the view of the Treasury Committee, as set out by its Chair, the right hon. Member for Chichester (Mr Tyrie), in his letter to the Chancellor of the Exchequer on 26 January, following the appointment of the current Prudential Regulation Authority chief executive, Andrew Bailey, to be the next leader of the FCA. In that letter the right hon. Gentleman set out his Committee’s view that it should have a veto over the appointment and dismissal of the chief executives of both the FCA and the PRA. Indeed, the letter said that the FCA’s chair, John Griffith-Jones, told the Committee that there was merit in that proposal when he met its members on 20 January.

It would be helpful to know whether the Chancellor has responded to that letter, and whether the Minister can share with us now the Treasury’s thinking on extending pre-appointment hearings and the power of veto to those two positions. I thank the hon. Member for East Lothian for flagging up this issue with his new clause, which we support and will consider returning to on Report, if the Government are not on board with it.

[The Economic Secretary to the Treasury (Harriett Baldwin)]

I am going to convince Opposition Members that this new clause is not necessary. I will give them an updated response on the Chancellor’s views and the process of recruitment for the new chief executive of the PRA, the deputy governor for prudential regulation. That newsworthy notification to the world is taking place in front of a large crowd, as we can see.

My understanding of the proposed new clause is that it would give the Treasury Committee a statutory veto over the appointment of the chief executive of the PRA, which is soon to be the Prudential Regulation Committee. I am well aware that the Treasury Committee, of which the hon. Members for East Lothian and for Bassetlaw are members, has proposed this measure. Last month, following the announcement of the appointment of Andrew Bailey as chief executive of the FCA, we received a letter from my right hon. Friend the Member for Chichester (Mr Tyrie), in which he argued that the Treasury Committee should have a veto over both the appointment and the removal of the chief executives of the FCA and the PRA. The Chancellor has replied to the Treasury Committee in a letter, which normally would be published by the Committee—I imagine that it has been published already. We believe that such an arrangement is neither necessary nor appropriate for the financial regulators, and I will articulate the reasons why.

First, such an arrangement is not necessary to protect the independence of the FCA and the PRA or of their chief executives. The model of independent regulation that we have in the UK gives the regulator a clear statutory framework of objectives and duties and ensures that regulatory decisions are taken in an objective and impartial way. Importantly, this legislative framework protects the independence of the PRA and the FCA chief executives. It includes provisions that require the terms of appointment to be such that the appointee is not subject to the direction of the Treasury or of any person.

We agree that it is important that the Treasury Committee holds a pre-commencement hearing before the new PRA CEO takes up their post. However, we believe that it is important that the Chancellor remains the person who is fully accountable for deciding on the right person for the job. Pre-appointment hearings are not common for chief executive posts. Hon. Members will understand that such a process would potentially introduce scope for delay and public disagreement, which would not help to recruit good candidates. For example, candidates who are otherwise very good might not want to disclose their interest to their current employer in advance of confirmation of the appointment.

The hon. Member for East Lothian has argued that the arrangements for the appointment of the chief executives of the FCA and PRA should mirror those for the senior leadership position at the Office for Budget Responsibility; that appointment requires the consent of the Treasury Committee. However, the financial regulators are materially different from the OBR. The OBR was established to examine and report on the sustainability of public finances and, by doing so, to help Parliament hold the Government to account for their fiscal policy decisions—the same argument applies to the Comptroller and Auditor General—and as such the OBR has a unique model of dual accountability to the Government and to Parliament.

The previous Government proposed the statutory veto of the Treasury Committee over appointments to provide an assurance of independence and to ensure that those individuals at the OBR have the support and approval of the Select Committee. However, we do not believe that that model of dual accountability is appropriate when regulators are independently carrying out executive functions of the state, such as regulating and supervising the financial services industry. As I have said before, I would welcome the Treasury Committee holding a pre-commencement hearing with the chief executives of the PRA and the FCA. That would provide an important opportunity for Parliament to scrutinise new appointees to those offices before they take up their posts.

Let me update the Committee on the process for appointing the next chief executive of the PRA, who will take over from Andrew Bailey. The Government are running an open competition. The post was advertised on Friday 19 February, which was last week, and the closing date for applications is 4 March—the window is still open should any members of the Committee wish to apply. The appointment is made by the Queen, on the recommendation of the Prime Minister and the Chancellor. Interviews will be conducted in mid-March by a panel chaired by Sir Nicholas Macpherson, together with the second permanent secretary, the chair of the court and one of the other deputy governors. It is expected that the new chief executive will take up the position as soon as possible, but by 1 July 2016 at the latest. You see, Mr Brady, we have all the breaking news after 2 pm in this Committee.

There is another argument that is not in my speaking notes, but which I strongly believe is the case. Let us hypothesise that whoever is appointed through that process then goes through the pre-commencement hearing with the Treasury Committee that we have agreed, and that Committee produces a report that is extremely unfavourable to the person nominated by the Government. I think we can all see that, from a practical point of view, that would be as powerful as having a pre-appointment hearing.

Let us look back at the recent examples of Andrew Bailey’s move to the FCA and, for those of us with slightly longer memories, the appointment in the previous Parliament of Mark Carney as the new Governor of the Bank of England. The Chancellor invested a lot of personal time in those appointment processes, persuading individuals to come across. Imagine if he had had to say, “It is not actually in my power to offer you these jobs; it is in the power of the Treasury Committee.” Would we have seen candidates of such quality prepared to put their names forward? I submit that we would not.

I therefore think that the Government have made the right judgment in agreeing to a pre-commencement hearing. I hope that I have explained to the Committee why I do not believe it would be appropriate to accept the new clause, and I hope that the hon. Member for East Lothian will withdraw it, or that the Committee will vote it down.

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[George Kerevan]

I beg to move, That the clause be read a Second time. Forgive me, Mr Brady; I do not normally like the sound of my own voice quite so much as to speak so often, but I will get this over as quickly as I can.

New clause 4 suggests a change in the title of the Bank of England to the Bank of England, Scotland, Wales and Northern Ireland. I know I am at risk of being accused of triviality. In defence, because we are talking about a Bank of England Bill, I thought it was pertinent to bring the matter up. I accept that it is a minor aspect of the legislation.

I am not claiming ownership of the Bank of England for Scotland, even though that institution was first mooted by William Paterson in the 1690s. He suggested the original project to lend His Majesty’s Government the sum of £1.2 million. The geek in me made a quick calculation of what that would be worth today, and it comes out at about £26 billion, so that was quite a serious project for the time. The yield on the original loan was 8%, which was a good deal better than one would get today.

Let me quickly get to the core: why change the name? I appreciate that it is an historic name known around the world and is a great brand. There is a minor irritation in the other parts of the kingdom at the use of the name England. That is no offence to the great people of England—my father is from Liverpool—but it is a minor irritation. But that is the least of it.

I talk of a great global institution, one that has played even more of a global role since the crisis of 2007-08. If it is to play that global role and represent a modern Britain, it needs a name that reflects a modern Britain. That is the issue for me. The intent of the Bill for the Government and the officers of the Bank of England is to modernise. What better opportunity to have a modern name?

I am suggesting a minimum change in legal terms to the Bank of England, Scotland, Wales and Northern Ireland. I suspect that in day-to-day operations it would be comparable to a company saying, “This is the legal name but trading as.” I am sure that for a generation to come it would still be known as the Bank of England, but honour would be settled by the fact that the legal title would be as I suggest. It is the minimum change, and it is put forward as an attempt to gain some common ground.

I know that a number of my colleagues—and not only in the SNP—are considering tabling other amendments with other names on Report. The issue is not going to go away, but I think this solution is doable and still retains the tradition of the Bank of England, which I am sure the Minister will defend.

[Richard Burgon]

What’s in a name? But we are happy to support the renaming of the Bank of England to the more accurately titled Bank of England, Scotland, Wales and Northern Ireland, purely on a principled basis, given that they all fall under its area of geographical responsibility.

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[John Mann]

Before my hon. Friend sits down, would he like to contemplate that in the unlikely event that Scotland becomes independent and I am an elected Member of this House, I will certainly not be voting to allow Scotland to remain within sterling? Therefore, the likelihood is that Scotland will be required to have the euro as its currency. So if the name were to change and Scotland was using the euro, would the Government of the day not have to change the name back again in order to give some proper accuracy and balance?

[Richard Burgon]

I thank my hon. Friend for that intervention. It is very helpful. I have to say that I cannot foresee any circumstances in which my hon. Friend would not be re-elected and re-elected as the hon. Member for Bassetlaw—he truly is a man of the people—but I can foresee circumstances where the SNP’s desire might not reach fruition. My hon. Friend raises complicated and important questions and I look forward to the Minister’s response to them.

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Brought up, and read the First time.

[Richard Burgon]

I beg to move, That the clause be read a Second time. This is a simple new clause to change the terminology and move the Bank into the modern world. We have heard the Minister talk in this Committee about the importance of modernising the institution, and we have also heard eloquent discussions of the need to modernise from both the hon. Member for East Lothian and my hon. Friend the Member for Bassetlaw. The clause is a very simple way of showing that we are serious about this.

The Bank and the court of directors were established, as the Minister reminded us, in 1694. A lot of things have changed since then. The Bank is the second-oldest central bank in the world, after the Swedish Riksbank, and it is the eighth oldest bank. The Bank’s own website states that,

“the few public companies formed at the time of the Bank’s foundation, in 1694, tended to be governed by Courts of Directors”.

The phrase “courts of directors” is not used in relation to companies these days. It is worth asking whether the term “court of directors” survived into the modern day in other institutions, and whether this matters at all. Of course, this term did not survive into the modern day in other institutions, unless the Minister can tell me that I am wrong in that regard. If this does matter, should we continue to call what is currently termed the court of the Bank of England by that name? The Treasury Committee report of October 2011, “Accountability of the Bank of England”, stated:

“The Court is the governing body of the Bank of England. In this respect, it is the board of the Bank”.

The report also said:

“Given that the Court has changed recently, its name is outdated and does not give a clear picture of what the Court actually does. In terms of corporate governance the Court is the Board of the Bank and its name should change to reflect that. To reflect the shift of emphasis in its role, we recommend that the governing body of the Bank (Court) change its name to the ‘Supervisory Board of the Bank of England’. References below to the Board of the Bank of England in this report use this term. Whatever name is ultimately chosen, we strongly recommend that the term ‘Court’ is abolished”.

Those are the words of the Treasury Committee report in October 2011. I know that the court of the Bank, in replying to this report, did not express any opposition to this modest proposal to rename it. The court’s response read:

“Whether or not to rename Court is a matter for Government. We simply note that Court itself is divided on the balance of the arguments”.

In considering the cases for and against the renaming of the court of the Bank of England, the court stated:

“On the one hand, renaming would recognise the considerable changes in Court’s actual and prospective responsibilities in the past decade. On the other hand, it could give rise to serious misunderstandings, since amongst central banks ‘Board’ is often used to refer to an executive and/or policy making committee, as exemplified by the Federal Reserve Board and the Executive Board of the European Central Bank”.

We believe that such concerns can be overcome. The board—or the supervisory board, as the Treasury Committee would prefer to call it—would not be changing its responsibilities with this name change. Such a change, however, would be one small statement to help connect it to modern practice in terminology in major financial institutions. It would also cut through some of the mystery of the workings of the Bank and help make it more accessible to everyday people.

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[Harriett Baldwin]

What is in a word? The hon. Gentleman has set out the case for changing the name of the court. I do not know about you, Mr Brady, but I rather like some of our old traditions in this country.

The court has existed since the Bank’s inception in 1694. The composition and structure have obviously changed over its long history. Initially, there were 26 individuals on the court, while today it is much smaller, with the executives and non-executives, and is much more characteristic of a modern, unitary board. The term supervisory board, used by the hon. Gentleman, is more redolent of the German approach to corporate governance than the British one. I am sure he will provide me with examples. It is not the Americans this time, but the Germans.

For me, there is charm in the term “court”, which is rooted in this long history. It has no particular mystery about it; it merely refers to the Bank’s governing body, which does indeed operate like a modern board. I do not feel we should argue over semantics. We should look at how the court functions. As the Committee has already heard, the court is now far smaller and far more effective than it was historically. There is a clear division between the role of the chief executive and the non-executive chair. The court is comprised of a majority of independent non-executive directors, and there are formal, transparent appointment procedures for executive and non-executive directors alike.

The changes in the Bill, which we have discussed at such great length, will further enhance the role of the court, making it a stronger decision-making body. In particular, to remind the Committee, we are making the oversight functions the responsibility of the whole court, ensuring that every member of the court—executive and non-executive—can be held to account for the use of these functions.

This brings the court into line with the recommendations in the Treasury Committee report. My view and that of the Government on the amendment is clear. Changing the name of the court would make absolutely no difference to how it operates in practice. It is the provisions in the Bill that will do that. I oppose the suggestion to change the name from the rather quaint and old-fashioned term of “court”, which has for me some charm.

[Richard Burgon]

That was indeed a charming oration from the Minister about how things were done in the past and continue to be done to this day. As much as I like many aspects of the history of this country, I am not persuaded that we should not press the matter to a vote. In the name of modernity, I seek to divide the Committee on this issue.

Question put, That the clause be read a Second time.

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[Harriett Baldwin]

Mr Brady, as we come to the final question of our proceedings, I put on record the Committee’s gratitude to you and Mr Wilson for having chaired our sittings so effectively. I also thank the Clerks and the Hansard reporters. For their incredibly diligent work behind the scenes—so often it is unsung—I also thank the Treasury officials, the Treasury legal team and, in this case, the Bank of England’s legal team. I put those thanks and that gratitude on the record. I also thank all members of the Committee for the care and attention that they have given to the line-by-line scrutiny of the Bill.

[Richard Burgon]

I echo the sentiments expressed by the Minister. I thank you, Mr Brady, and Mr Wilson, the co-Chair of the Committee, for your chairmanship. I thank the Clerks and the staff. I thank the Minister for her patience and courtesy and for the detailed responses she has given throughout our proceedings. I also thank my hon. Friends and all members of the Committee. We have no objection to the Bill being reported to the House.

Question put and agreed to.

Bill, as amended, accordingly to be reported.