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

Richard Burgon Excerpts

Tuesday 9th February 2016 Public Bill Committees

[The Chair]

Copies of any written evidence that the Committee receives will be sent to Members and made available in the Committee room and online.

We will now begin line-by-line consideration of the Bill. The selection list for today’s sitting is available in the room. It shows how the selected amendments have been grouped together for debate. Amendments grouped together are generally on the same or similar issues. A Member who has put their name to the leading amendment in a group is called first. Other Members are then free to catch my eye to speak on all or any of the amendments within that group. A Member may speak more than once in a single debate.

Please note that decisions on amendments take place not in the order in which they are debated, but the order in which they appear on the amendment paper. In other words, debate occurs according to the selection and grouping list, and decisions are taken when we come to the clause that the amendment affects. I hope that that explanation is helpful. I will use my discretion to decide whether to allow a separate stand part debate on individual clauses and schedules following the debates on the relevant amendments.

Clause 1

Membership of court of directors

[Richard Burgon (Leeds East) (Lab)]

I beg to move amendment 9, in clause 1, page 1, line 7, at end insert—

“(2A) In section 1(2)(e), at end insert “who shall include four designated representatives including—

(i) Practitioner Representative,

(ii) Smaller Business Practitioner Representative,

(iii) Markets Practitioner Representative and

(iv) Consumer Representative.”

[The Chair]

With this it will be convenient to discuss the following:

New clause 2—Composition of the Court of Directors of the Bank of England—

“In making nominations to the Court of Directors of the Bank of England, the Chancellor of the Exchequer must have regard to the importance of ensuring a balanced representation from the nations and regions of the United Kingdom.””

New clause 5—Publication of transcripts of meetings of the Court—

“In paragraph 12A of Schedule 1 to the Bank of England Act 1998, replace the word “record” with the word “transcript” in each place where it occurs.””

Clause stand part.

[Richard Burgon]

It is a pleasure to serve under your chairmanship, Mr Wilson, and to serve opposite the Minister.

On part 1 of the Bill, which is on the Bank of England, it is our intention to make the case for increased transparency and increased accountability at the Bank. At a time when the financial services sector, as the political system does, faces a lack of public support and public trust—or rather, not as much as we would like—it is in the interests of the sector as a whole and the Bank of England itself for it to present itself and its decisions in the most open way possible.

Clause 1 relates to membership of the court of directors. Amendment 9 regards representation on that court. We accept the proposals in the clause regarding membership of the court, but I note that concern was expressed in Committee in the House of Lords about a potential reduction in the number of non-executive directors in the court. Will the Minister clarify the number of non-executive directors that the Government foresee sitting in the court? In the light of amendment 9, which is in my name, and new clause 2, tabled by Scottish National party Members, the Government should make use of the option of nine non-executive directors in the legislation to ensure the widest possible representation and fullest possible input into and scrutiny of the Bank’s work through the court.

Through amendment 9, we seek to amend the Bank of England Act 1998 to insert a requirement that, of the nine non-executive directors, four be designated as representatives of specific practitioner sectors, including a consumer representative. We recognise that the court, as it stands, includes representatives of a variety of backgrounds, including, historically, the trade union movement. We welcome that and believe that that tradition and representation should continue.

To improve that representation, we propose drawing on the practice at the Financial Conduct Authority and the categorisation of its statutory panels to ensure that a practitioner representative for larger firms, a smaller business practitioner representative for smaller firms, a markets practitioner representative and a consumer representative are included. That is all I have to say directly in relation to amendment 9.

We believe that providing transcripts of the court’s proceedings, such as Hansard provides of our own discussions in Parliament, allows for rich scrutiny of lines of argument and is a clear way to increase transparency and public awareness. In the United States of America, it is the practice to broadcast meetings of the chairs of the various Federal Reserve banks. In the new clause, Members have not asked the Bank to go that far, but we believe that that is a positive example. The aim is to enable the public to understand what is going on and to allow greater scrutiny of the Bank of England’s valuable work.

[George Kerevan (East Lothian) (SNP)]

I want to speak to new clause 2, which is a probing amendment. My response will be determined by the Minister’s response. We are asking that, when making nominations to the Bank’s court of directors, the Chancellor should have due regard to the importance of ensuring balanced representation from the UK’s regions.

Overall, the Bill is useful in tightening regulation and in refocusing the organisation and direction of the Bank of England. In particular, there is much merit in tidying up the operation of the Bank’s three main committees overseeing micro and macroprudential activity and the operation of the Monetary Policy Committee and, if that is accepted, in ensuring that the Bank’s court becomes essentially the organiser of the organisation, with responsibility, as the main oversight, for how the Bank’s operation works and for ensuring that there is managerial competence and value for money and that resources are well deployed between the Bank’s various functions.

It has been generally recognised over the years that the court has sometimes had an ambiguous position halfway between being a proper corporate board and a policy-making institution. The Bill, correctly, separates the policy functions that go to the committees, leaving the board with the essential corporate governance. That is a step forward. My point is that, if we do that —if we redefine and concentrate the board’s activity—we must look at the composition of the board and ensure that it is fit for purpose—a new board for a new competence.

The composition of the current board is a little too narrow. I accept that it has moved beyond the days when the court consisted simply of City grandees. In recent years, appointment to the board has widened; the international influence has widened. It includes a South African and an American. There is some industrial representation, but by and large there is still a feeling in the wider financial community outside London and in the wider industrial and commercial communities outside London that it is too City focused. For a board that is about not simply managing the City, but managing the central bank, it would be in the interests of the central bank and of commanding the respect of the central bank if there were a wider remit in relation to appointments to the board.

In the new clause, I am trying not to be too specific. A board should not be federalised; it should not consist of delegates. A board has overall responsibility. I presume that most people around this table have been on the boards of companies, large and small. I have been on at least two dozen boards in my rather geekish lifetime. When boards have discussions about who should be on them, they say, “Well, what experience do we have? Who is not represented? What area of competence do we need that will help the board to function?” That is perfectly proper.

I am just saying that, given the key role that the Bank of England plays in the UK, there should be more representation of the regions and nations of the UK. That is particularly the case because the banking community is no longer concentrated simply in the City of London. There are operations in Manchester, Bristol, Glasgow, Edinburgh, Cardiff and beyond, and the industries and sectors there want to feel some confidence that the Bank of England listens to them.

I know of course that the Bank of England has long had a system of agents. I suppose that many of us around the table will have met the agents in our region over the years. However, the agents have a different function. We are talking about a new board for a single bank.

Let me say—I hope that the Government will respect this—that the principle has already been conceded in one respect, which has been referred to. It has been traditional since the post-war period for the Bank to have a representative of the labour movement, the trade union movement, on the grounds that labour and capital were the two great elements of the economy. Given that that principle has already been conceded, all we are talking about is extending it.

My final point is that the distinguished Governor of the Bank of England, Mr Carney, of course comes from Canada, where the principle is already accepted. There is a rule that, in composing the board of the Bank of Canada, due consideration should be given to the provinces being represented. There is not a rule that every province has to be represented on the board of the Bank of Canada; it is not as specific as that and nor should it be. However, if we look at the board of the Bank of Canada, we see that, strangely enough, all the provinces are represented. Mr Carney is perfectly comfortable with that, so we are not trying to impose a burden that he has not had to face in the past.

[Richard Burgon]

I will comment on new clause 2, in the name of the hon. Member for East Lothian. As I said, we see merit in the proposal for wider geographical representation on the board and we believe that it complements our proposals to ensure that different stakeholders are represented. We would be interested to hear a little more detail if possible. He spoke about different centres of employment—Birmingham is one example—but I would be interested to hear specific comments on whether this proposal relates to personal residency or employment and, crucially, does the SNP believe that devolved bodies should make recommendations to the Chancellor?

To clarify, our new clause 5, on the publication of transcripts of meetings of the court, is a small tidying amendment, but we hope that it would have a significant impact by opening up the discussions of the court to wider scrutiny and that it would ensure increased transparency and accountability. That is why I will seek a Division on new clause 5 and why I invite all hon. Members to consider voting for it.

[John Mann (Bassetlaw) (Lab)]

It is an honour and a privilege to serve under your chairmanship, Mr Wilson. The issue of the court and its lack of transparency— the amendments attempt to bring in some transparency—is one that has bypassed the majority of commentators and the general public. Hidden in the rather grand depths of the Bank of England, the court holds significant potential power, yet it has become embodied by not a concept of nepotism within the financial sector, but something akin to that. Perhaps “revolving door” is a better term. Someone goes in one door, they fail and go out of another door, and then they turn up in the same industry and at the same heights, time and again.

The criteria for who is on the board have always been shrouded in some secrecy. The hon. Member for East Lothian raised the question of the representation of the labour movement. That is a good and interesting point to examine in this context, because it remains the case today that Mr Prentis of Unison is on the court, as was Mr Brendan Barber of the TUC before him. I believe that Mr Bill Morris was on the court before that, and Mr Gavin Laird was too, in the distant past. Indeed, I used to see the papers that Mr Laird received at the time and the contributions he made. If they had been listened to at the time it would have had a significant impact on British competitiveness. Mr Laird used to argue repeatedly, very eloquently and in beautifully scripted speeches, that we were in danger of overemphasising the importance of finance at the expense of manufacturing. That is an issue not only for the Government, but for the Bank of England itself. Industry, as opposed to finance, needs to be in at the Bank. That is a fundamental weakness, because at present it is financiers as opposed to industrialists who are evident at the Bank, not so much in the expertise but in the mindset and the thinking which lead to decision making. The Bank thinks as financiers do, and it does not think more widely.

In the same way, my hon. Friends on the Front Bench propose to broaden the court with consumer champions and others who are missing at the moment. The Chancellor is decisively, deliberately and calculatedly removing consumerism and the consumer interest from regulation. Why? Because that is seen as a barrier to the ever onward growth and recovery of the big banks, not least RBS and Lloyds. Some commentators are speculating that there might be a fuel tax increase. That is quite wrong, in my view. What the Chancellor wishes to do is maximise his returns on the sale of shares in RBS and Lloyds. In itself, that is very sensible, and it is something that the Bank of England would support, does support and will support. However, speed and timing are critical in all of this. We have the Bank of England being unduly influenced by the Chancellor and the Treasury, while at the same time it is losing external influences from the world of industry. That includes both the employer and, potentially, the trade union influence.

There is the intriguing possibility of a more regional Bank. What would the world come to if there were people in the Bank of England who did not live in London or, more likely, in the commuter belt outside London? How would the world survive? It is a shame that my hon. Friends did not go even further and suggest that the court ought to meet not in the hallowed chambers on the third or fourth floor of the Bank, but in Manchester, Birmingham, Cardiff, Edinburgh, Aberdeen or Sheffield, in order that the public can see and hear it and get a feel for it. That would be an easy, significant win, and I am sure that the Bank’s representatives listening in will take note of that. I commend the amendments to the Committee; they are excellent and should be agreed.

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[Harriett Baldwin]

Nothing in my remarks this morning has suggested any change whatsoever in that policy, but it is important that the best people are selected for the roles and we do not accept the Opposition amendments, which would further constrain the selection process. I hope we can all agree that every member of the court, wherever they are from, should consider in their decision making the Bank’s impact on everyone in the UK, across the UK, not just in one region or one individual sector.

The amendments call for a different kind of court, made up of representatives from UK regions and representatives of narrow interests, and that would result in a court riven by conflicts of interest. We have tried that kind of court before and we know how the story ends. I hope that members of the Committee agree that we should not allow the amendment to take us back there.

[Richard Burgon]

We will not seek to divide the Committee on the amendment, but we might, of course, revisit the matter on Report.

On new clause 5, we have heard powerful interventions from the hon. Member for East Lothian, and insightful ones from my hon. Friend the Member for Bassetlaw, who speaks, on this and other matters, not only with great experience because of his role on the Treasury Committee but with great common sense about transparency and representation. I am disappointed, therefore, by the Minister’s lack of support for the new clause. She says that she supports transparency but, with respect, I do not believe that she has offered greater transparency in this regard, not even with the compromise of an above-the-line and below-the-line model for transcripts, which is used by local authorities and school governor boards. On that basis. I will wish to press the new clause to a Division and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[The Chair]

I remind colleagues that votes on new clauses will be taken at the end of the Bill proceedings.

Clause 1 ordered to stand part of the Bill.

Clause 2

Term of office of non-executive directors

Question proposed, That the clause stand part of the Bill.

[Harriett Baldwin]

I am glad that you are finding it as confusing as I am, Mr Wilson, that there is a group 2 and a clause 2 and what have you. Clause 2 enables the Government to extend the appointment of a non-executive director. The standard length of appointment for a non-executive director is currently four years, and this will be maintained following the passage of the Bill. However, if necessary, the Government will have the power to extend the appointment by up to six months. If the individual is subsequently reappointed to the court, the length of their new tenure will be reduced by the length of the extension.

The ability to extend a non-executive director’s appointment provides a number of key benefits. First, the ability to extend the terms of appointments by a few months enables the end dates of non-executives to be staggered, which supports smooth transitions in membership, preventing a significant change in personnel at any one time. Secondly, should a member of the court resign or retire unexpectedly, extending the term of one or more non-executive directors can provide resilience during a potentially turbulent time. Finally, enabling this extension will bring the court in line with the FPC and the MPC, whose members can already have their term extended by up to six months.

[Richard Burgon]

I will be brief, because the Opposition are happy with the proposal to provide for the extension of the term of office of non-executive directors. However, we feel that this is an opportunity to highlight again the important role that non-executive directors can and should play, a point made effectively by my hon. Friend the Member for Bassetlaw in the debate on clause 1. There was a clear suggestion in the other place that the Government believe that a smaller body of non-executive directors on the court would be more efficient, and the Minister has made that clear again. I take this opportunity to reiterate the point that it is necessary to ensure broad representation and the appointment of active and dedicated members. As my hon. Friend has indicated, the world would not come to a stop if there was broader representation, both geographically and in terms of life experience.

[John Mann]

I warmly welcome—warmly—this clause, as I do the Minister’s confirmation to the hon. Member for East Lothian that the Government have no intention of removing the trade union representative from the court. I warmly welcome that. It is an exceedingly sensible approach that will resonate well beyond this place. This clause should be unanimously adopted.

[Harriett Baldwin]

Excuse me if I faint from astonishment, Mr Wilson. I do not think that that has ever happened to me before with the hon. Member for Bassetlaw.

Question put and agreed to.

Clause 2 accordingly ordered to stand part of the Bill.

Clause 3

Abolition of Oversight Committee

[Richard Burgon]

I beg to move amendment 10, in clause 3, page 4, line 5, after “would” insert “materially”.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 11, in clause 3, page 4, line 7, leave out “may” and insert “shall”.

Amendment 12, in clause 3, page 4, line 11, after “directors” insert—

“and

(c) for the review to be conducted by a person who is not an employee or director of the Bank.”

[Richard Burgon]

The abolition in clause 3 of the oversight committee was clearly a very controversial part of the original Bill, as evidenced at each stage of the debate in the House of Lords. My colleague in the other place, Lord Tunnicliffe, supported Lord Sharkey in seeking to challenge it. Labour Members believe that the abolition of the oversight committee is an attack on accountability within the Bank, and yet another example of the Government rolling back recent legislation. I am sure that we will come to that topic on another day.

Not only is the reverse burden of proof or the presumption of responsibility being removed before it is even implemented, but the oversight committee was established only in the Financial Services Act 2012, as hon. Members will remember. The Government clearly felt unable to sustain their line of argument, and in amending the clause to allow a majority of non-executive directors the power to initiate reviews, they have made a welcome concession. It remains our view that the abolition of the committee is a retrograde step. We are yet to be convinced that affording the non-executive directors this power without the existence of the previous forum for discussion will mean that power can be exercised effectively. Perhaps the Government can say how they believe the non-executive members will discuss their concerns outside of the meetings of the court. Will they have to organise something akin to a stand-alone non-executive directors meeting? Perhaps such a forum exists, and the Minister can inform and enlighten me about it.

Following the negotiations in the other place, we have decided to allow this change in the Bill to be made. We will keep a watching brief on how it works over the coming months and we will seek to take advice from the non-executive directors on how they feel it has affected their ability to carry out their oversight functions.

We have proposed a number of amendments to improve the clause, particularly amendment 12, which seeks to increase the authority of the non-executive directors. On Report in the Lords, the Government stated that the initiators of a review among the non-executive directors would determine that they have the power to decide who should carry it out. It could be someone external or someone internal, from the independent evaluation office.

During a Treasury Committee hearing, the Governor was questioned at length, and told the Chair of the Committee that the IEO’s work is set by the court. Therefore, our amendment seeks to give the non-executive directors a duty to bring in external expertise and analysis to conduct such a review into the work of the Bank. Amendments 10 and 11 would further clarify and strengthen the Bill in that regard.

[George Kerevan]

I, too, had reservations about the abolition of the oversight committee. I warm to it to the extent that we have clarified, or are in the process of clarifying, the role of the court in a narrower sense as a proper functioning board of a wider organisation, although the Minister’s responses in the previous debate have given me some cause for concern.

It is important to grasp that the existing oversight committee is nothing more than the non-executive directors meeting as a body, so the existing oversight body gives some official grounds for the non-executives to meet. I have been on many boards where it was quite the norm for non-executives to meet informally, and one trusts that the non-executives on the court are of sufficient experience to be able to do that. Nevertheless, there must be a worry if the current ability to meet separately and to be resourced as the oversight committee is taken away. Therefore, the amendments being proposed to the clause are a useful way of just stressing on the part of Parliament that what I have described is what we expect the non-executives to do.

It might be important to consider circumstances where the non-executives might want to discuss the overall direction of the Bank. We have had one such experience in the last couple of years. The major activity of the Prudential Regulation Authority, which is soon to be the Prudential Regulation Committee, has been to conduct the stress tests on the banks. It does so under separate legal obligations from Europe. The stress testing is a highly extensive and highly resource-driven activity, and there were issues in the first round of stress testing because resources were clearly being directed from other parts of the Bank to help the PRA to do its job. There were issues about who was making decisions, and about whether enough resources and staff time were being made available from the other parts of the Bank to the PRA. A number of the non-executive directors became slightly alarmed about how the stress tests would be conducted and about the availability of the necessary resources.

There can be quite significant points when the non-executive directors would have to say, “We are worried about the deployment of resources by the executive directors. We want to stand back and look at how this is being done.” The non-execs must have the power as a body to lean against the significant influence of the executive. The Bank of England is one of the major institutions of the UK and of global banking, and the Governor of the Bank, Mr Carney, for whom I have a great deal of respect, is one of the most senior central bankers in the entire world. Leaning against him when he says, “Do this or do that,” is difficult. The amendments would give the non-executives some backbone, so when they are worried about the direction of resources they can say, “Whoa.”

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[Harriett Baldwin]

The line-by-line consideration of this provision in the other place and here this morning has been extremely helpful. Before I speak to the amendments, let me give the Committee an example of the problems in the oversight committee’s current arrangements which I think will inform our debate. The hon. Member for Bassetlaw mentioned the 2013-14 foreign exchange market investigation, which sought to establish whether any Bank officials were involved in or aware of the FX market manipulation. In October 2013, the Bank’s governors initiated an extensive internal review, and they regularly briefed the court at its meetings from November 2013 onwards. In March 2014, it became clear that an independent investigation would be appropriate. The oversight committee took over the investigation and appointed Lord Grabiner QC. That is a very good example of the oversight functions. In practice, the executive needed to join the oversight committee discussions for the oversight functions to work and be effective, both as the investigation progressed and once attention turned to delivering the recommendations. It would be better practice to make the oversight functions the responsibility of the whole court. That is the purpose of the clause.

I welcome the opportunity to speak to the amendments and to explain the improvement in the oversight arrangements at the Bank of England and the power we have ensured for the court’s non-executive majority. The Bill brings the court closer to the model envisaged by the Treasury Committee, which called for a board with powers to conduct ex-post reviews of the performance of the Bank; for board members to be authorised to see all the papers submitted to the Monetary Policy Committee and the Financial Policy Committee; and for the board to be responsible for reviewing the processes of the Bank’s policy committees. Making the oversight functions the responsibility of the whole court makes it clear that every member of the court, executive and non-executive, can be held to account for the use of these functions. No member of court can claim that the oversight functions were not their job, since they will now rightly be the responsibility of all.

That replaces the current arrangement in which there is effectively an oversight committee overseeing the work of an oversight board. That is neither efficient, nor best practice. In fact, on Second Reading my right hon. Friend the Member for Chichester (Mr Tyrie), Chair of the Treasury Committee, put it well when he said:

“The oversight of the executive will be the responsibility of the court itself, rather than a sub-committee. Even though it was not called a sub-committee, it was, in fact, a sub-committee, and a weaker committee than the court.”—[Official Report, 1 February 2016; Vol. 605, c. 668.]

During the Bill’s passage through the House of Lords, we introduced the power, which has been welcomed by members of that House, that this amendment seeks to alter. This part of the Bill ensures that a majority of non-executives can always initiate performance reviews without needing to secure the agreement of a majority of the whole court. If just four non-executive directors want a review, they will be able to initiate it. Under our proposal to give more powers to the non-executive directors to do their job effectively, the initiators of a review would determine who should carry it out. This could be someone external or someone internal, including the Bank’s relatively new Independent Evaluation Office. The amendment would take away their discretion and make the new Independent Evaluation Office irrelevant.

The Bank’s Independent Evaluation Office reports directly to the non-executive chair of court. A few months ago, it published a review into the Bank’s use of forecasting—a clear example of where an internal review is appropriate. In our opinion, Lord Grabiner’s inquiry into Bank officials’ awareness of market manipulation in the foreign exchange market was an example of where an external review was appropriate.

The Bank’s non-executive directors, as we have heard in a previous debate, are selected for their ability to bring new perspectives and experience and to challenge and scrutinise the Bank’s executive. It is right to give them the powers to ensure they are able to fulfil this role. The amendment would send a message that we do not trust the non-executive directors to do their job. For the discretion of those high-quality non-executives to determine what reviews should be carried out and who should carry them out, it would substitute a conveyor belt of external reviews.

Those commissioning a review, whether the court as a whole or the non-executive directors, are best placed to decide whether an internal or external review is most appropriate. The Bill rightly allows that discretion for the whole court and for the non-executives. The amendment would take away that choice, which we think would be bad news for effective oversight. I hope the hon. Member for Leeds East has listened to the arguments. We all agree that the important power in the Bill for the non-executives to act independently to initiate reviews of the banks should not be constrained in this way, and I hope that after due consideration, and after the extremely valuable debate in both Houses, he will withdraw his amendment.

[Richard Burgon]

We do not intend to divide the Committee on the amendments to clause 3, although I will make one observation. I might get the quote wrong, but I remember a line in Shakespeare’s “Julius Caesar”:

“I come to bury Caesar, not to praise him.”

The oversight committee was praised by the Minister, but now, under clause 3, it is to be buried. It was praised by the Minister in response to an intervention by my hon. Friend the Member for Bassetlaw, and now we see that it is about to be buried, which we regret. We welcome the concessions that have been made. We do not wish to press the amendment, but we reserve the right to return to these issues on Report. I also point out that the Internal Evaluation Office can continue, tasked by the court. The amendment refers to decisions by non-executive directors. Internal evaluation is the Bank marking its own homework, which should worry us all. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

[Harriett Baldwin]

The clause gives the oversight functions previously delegated to the oversight committee, which has been a sub-committee of the court, to the full court. What do we gain by making the oversight functions the responsibility of the whole court? We want to keep those functions, which we all agree are important, and now every member of the court, executive and non-executive, can be held to account for the use of those functions. Should something go wrong, no member of court could ever claim that the oversight functions were not part of their job. They will now rightly be everyone’s responsibility.

We have heard how that arrangement was endorsed by my right hon. Friend the Member for Chichester on Second Reading, but it is worth harking back to what the Parliamentary Commission on Banking Standards recommended when it set up the oversight committee. In its report, the commission endorsed the Treasury Committee’s recommendation that the Bank’s board should be responsible for conducting the ex-post reviews of the Bank’s performance and we believe that that is precisely what the Bill will achieve. The commission went further—I am sure that hon. Members will have read its report before arriving this morning. On page 482, the commission rejected the oversight committee created in the 2012 Act. The commission denounced the committee and despaired that

“It, rather than the Court as a whole, will be responsible for monitoring the Bank’s response to, and implementation of, the recommendations of any review it commissions.”

It is therefore important to stress that, through the Bill, the court as a whole will be made responsible for ensuring oversight of the Bank.

We have also talked about how the clause will enable full and frank discussion involving both the executive and the non-executive majority on how best to exercise the court’s oversight functions. The non-executives bring challenge, scrutiny and outside experience while the executive minority provides the in-depth knowledge of the Bank’s operations. By abolishing the oversight committee, we bring the court closer to the model envisaged by the Treasury Committee, which called for: a board with powers to conduct ex-post reviews of the Bank’s performance; board members to be authorised to see all the papers submitted to the MPC and the FPC; and the board to be responsible for reviewing the processes of the Bank’s policy committees.

It is important to emphasise that the Bill protects the ability of those non-executive directors to initiate performance reviews. We do not need them to secure the agreement of a majority of the whole court. Should a majority of non-executives wish to initiate a review, the rest of the court will not be able to block it. The initiators of such a review would determine who should carry it out. It should be someone external or internal, including the Bank’s new Independent Evaluation Office.

The clause safeguards the non-executives’ oversight of the Bank and provides additional protection against the emergence of groupthink. I commend the clause to the Committee.

Question put and agreed to.

Clause 3 accordingly ordered to stand part of the Bill.

Clause 4

Functions of non-executive directors

Question proposed, That the clause stand part of the Bill.

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[Harriett Baldwin]

I can canter right through the clause, which requires the court to establish a sub-committee of at least three non-executives to determine the remuneration of the Governor and deputy governors. Clearly, we would not want the executive to set its own pay, so to require that that power be delegated to at least three non-executives brings the legislative requirements for the Bank’s remuneration committee in line with UK corporate governance code. The current remuneration committee has four members.

[Richard Burgon]

I too will be brief. I will not be cantering as I know very little about horses, but as we have already discussed non-executive directors in the debate on our amendment to clause 1, I have nothing further to add.

Question put and agreed to.

Clause 4 accordingly ordered to stand part of the Bill.

Clause 5

Financial stability strategy

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[Harriett Baldwin]

This will be more of a trot—[Interruption.] There are no Trots opposite me today, obviously.

Clause 5 will provide the court of directors with an express power to delegate the production of the financial stability strategy within the Bank. Subsection (3) makes it clear that the court retains the ultimate responsibility for any delegated duty or power, including its duties in relation to the financial stability strategy. The clause will allow the Bank to utilise its internal expertise to produce the strategy, while maintaining a clear line of accountability to the court. The drafting reflects the discussion in the other place, where it was felt that the Government’s initial proposal lacked sufficient clarity. Those concerns were addressed by the Government amendments that bring us the clause as it stands today. I hope that the Committee agrees that the clause will afford the Bank the necessary flexibility when producing the strategy while ensuring that the court will be held to account for its contents. I commend the clause to the Committee.

[Richard Burgon]

In the debates on the clause both on Second Reading and in Committee in the Lords, it was argued that it should not simply confer on the Bank the power to set the financial stability strategy. The original proposal was vague, but although it was subsequently clarified by the Government amendment that conferred the power on the court of directors, the Opposition are not convinced that that is sufficient.

The impact assessment says:

“At present, the Bank’s financial stability strategy is set by the Court after consultation with the FPC…and HMT.”

It goes on to say that making the Bank responsible for setting the strategy and allowing the court to delegate its production within the Bank will ensure that the court is responsible for the running of the Bank and the Bank’s policy committees are responsible for making policy. The clause does not make it clear exactly what the financial stability strategy is supposed to be. All it does is create a power and impose the responsibility to create such a strategy relating to systemic risk in the UK financial system.

I shall repeat a concern raised by my colleague Lord Tunnicliffe regarding the financial stability strategy, because the response in the other place was not sufficient. Lord Tunnicliffe highlighted how a five-page strategy document was produced in 2013; it was then revised and published in the 2014-15 report, wherein it had been reduced to one column. In the Bank’s 2015-16 report, there was no mention of a financial stability strategy in the court’s ownership. Will the Minister confirm the importance of the financial stability strategy? It should be clear who is responsible for such a strategy.

Clause 5 creates a problem. A future financial stability strategy will emerge from somewhere within the Bank of England. It would be preferable if the people who are to be directly responsible for its production were identified in the Bill, rather than responsibility being conferred on the court with powers to delegate elsewhere. It would make most sense if the people made responsible for producing the strategy were the members of the Financial Policy Committee, as we have set out in new clause 6, which we will discuss later.

[John Mann]

The debate on the clause is very important, because the little-discussed danger is that we are creating an all-powerful Governor who determines, in his or her ultimate wisdom, a financial stability strategy for the country—as if everything will then be fine.

The current Governor obviously has a bit more time on his hands because interest rates have not risen since 2009. The MPC, with its monthly meetings having gone down to eight a year, has not had a great deal to do other than maintain the status quo. In some ways, that is precisely the problem that was there previously. Before the 2008 crisis the Governor was responsive—looking at things, making speeches about what had happened in the past month or two and trying to tweak the system—and examination of the underlying problems in the system, in the sector and on occasion in the economy as well simply did not happen. The danger is that we again become complacent about such things. That is precisely why the Treasury Committee was keen to see an enhanced and powerful court of directors taking responsibility. It would be useful to have a clear statement from the Minister, endorsed by Parliament, that the model being created is not that of the all-powerful Governor, and nor is it one that we expect to see in future.

The Treasury Committee is a wonderful body, with great membership over the years and reasonable membership even to this day, but a clear message about what is expected of it by Parliament would be valuable: the Committee, on behalf of Parliament, is expected to hold the court to account properly and effectively. That has not been the case over the past decade. The chair of court has appeared, but the non-execs have been invisible. With the court having a more important role, it is critical that the Treasury Committee be given a clear indication by Parliament that it is expected to give a reasonable amount of its time to holding the court to account publicly for the new powers, whether the Committee likes it or not, or does it joyously or reluctantly.

It will be useful to hear from the Minister about those two points, so that we get her views on the record.

--- Later in debate ---

Proposed new subsection (7B) would require the Financial Policy Committee to publish a record of its discussion within six weeks of each policy meeting. I am sure the hon. Members for Leeds East and for Wolverhampton South West will be reassured to hear that, under the Bank of England Act 1998, there is already a requirement in section 9U for the FPC to publish a record of its policy meetings within six weeks of them taking place. I hope I have convinced the Committee that clause 6 should stand part of the Bill and that new clause 6 is unnecessary. I hope the hon. Member for Leeds East will not press the new clause.

[Richard Burgon]

As the Minister explained, the Financial Policy Committee is to be transformed into a committee of the Bank of England. As she explained, it had existed previously as a sub-committee of the court. Again, we see what one commentator, Professor Alastair Hudson, described as a spaghetti of committees. Perhaps we need to look at simplifying them so that the people we represent can understand better the system that is intended to serve them.

The FPC should be a body that takes a much more visible role when there are systemic challenges to the UK financial system. The problem that is created by the so-called spaghetti of committees issue is that it is unclear when and if it will relate to finance as opposed to economic policy more generally, and when it will relate to systemic risk rather than simply to the solvency risk associated with an individual financial institution. The spaghetti of committees issue means that the individual bodies have to fight for their role within the regulatory structure, instead of having their regulatory role clearly established by statute.

We believe that considerable thought should be given to how the FPC could play a more active role in the creation of policy relating to systemic risk. At one level, the body that is supposed to analyse the highest levels of risk to the UK economy ought to be one that regularly takes the lead in relation to policy formulation in that context. The Minister explained and reiterated quite rightly how many external views are published, but it would be helpful for the economy as a whole if the views of the members of the FPC were given greater publicity.

Our intention in proposing new clause 6 is to propose requirements on the FPC to regularly publish external research into the level of systemic risk to the stability of the financial system in the UK. I note the points that the Minister has made on that. Furthermore, as we seek greater transparency, we have again sought publication of a record of the meetings of the Financial Policy Committee within a reasonable timeframe. I am delighted that the Minister has clarified that that is indeed the case, and that that takes place within six weeks. I am reassured by much of what she has said regarding the provisions of section 9W of the 1998 Act on research and surveys and the provisions of section 9U on the publication of that research. Given that, and given the comments made by the Minister, we will not press new clause 6.