Bank of England and Financial Services Bill [Lords]

Roger Mullin Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Tuesday 19th April 2016 Commons Chamber

[Jonathan Edwards]

I fully agree with my hon. Friend on that point. I also agree with the points he made earlier about the north-south divide and the impact that monetary policy has had on that reality. It is no surprise that the UK is the most grotesquely unequal state in the EU in terms of geographical wealth, and one of the main reasons for that is that for far too long monetary policy has been determined in the interests of a very small part of it—namely, the square mile just down the Thames.

All current MPC members are either Bank staff or in one of the four positions nominated by the Treasury. Fittingly, there are four countries in the UK, which makes the MPC ripe for modification to ensure that all nations are represented when it comes to the highly important task of deciding interest rates. I am also interested in the emerging debate on changing the MPC’s remit with regard to setting interest rates. New clause 7 seeks to expand the mandated objectives of the MPC to include maximum employment. It is already specifically charged with keeping to an inflation target of 2%. Other central banks, such as the US Federal Reserve, to which reference was made in my exchange with the hon. Member for East Lothian, have a dual mandate that goes beyond inflation. In 1977, the US Congress amended the Federal Reserve Act 1913 and mandated the Federal Reserve to target long-term moderate interest rates and, critically, maximum employment. I heard with interest the Minister’s point that the Bank does consider the Government’s employment target, but there is a difference between that and a mandate for maximum or full employment.

New clause 8 seeks to improve the Bank’s accountability to Wales and the other devolved Governments. The British state is changing rapidly as powers and responsibility flow from Westminster to the devolved Administrations, although the pace is perhaps not as quick as those like me would want. We are not privy to the meetings between Treasury Ministers and the Governor and his senior team, but we can safely assume that they are frequent. On top of that, the Governor and his team meet the Treasury Committee at least five times a year. As I mentioned a moment ago, fiscal powers already exist in the devolved nations, with more planned, so I hope that the Bank and the Treasury agree that it is in their interests to strengthen relations with the devolved Governments and Parliaments. I am not aware of any formal structures for meetings between the Governor and Ministers of the devolved Governments, or for scrutiny of the Bank by the devolved Parliaments. In the interest of mutual respect, those structures need to be formalised.

[Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)]

I thought that I would come along to listen this afternoon, but I was stung into action by the Minister’s peroration, in particular her comments on new clauses 2 and 3.

[Tommy Sheppard]

Does my hon. Friend share my sense of regret and bewilderment that the Government can so casually dismiss the proposal to amend the long name of the Bank of England? Does he agree that it is disingenuous of the Conservative Government to talk about a respect agenda that embraces the contributions of all the United Kingdom’s nations when they refuse to recognise those contributions at the first opportunity, and state that only England should be in the name of this most significant institution?

[Roger Mullin]

I agree entirely with my hon. Friend. Indeed, it is particularly apposite that he makes that point now, because as my hon. Friend the Member for East Lothian (George Kerevan) pointed out, the Bank of England is a very different kind of bank from a few short years ago. It has a much more political role than it did, and it makes decisions that have a wider impact than before. Its name surely now needs to reflect the impact of its decision making.

The second reason why my hon. Friend the Member for Edinburgh East (Tommy Sheppard) is entirely correct is because of the changed political climate in the UK. The hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) made similar points about the need to recognise the role of Wales. This is important. It is not a flimsy point; it is fundamental for people who want to see an important central institution that has proper regard for all the nations that it seeks to serve. A short while ago, I was looking at a list of the court of directors of the Bank of England. Looking at the representation provided by its 11 members, one would be inclined to rename it “the Bank of the City of London”, because there is little proper representation for the UK’s nations and regions.

I enjoyed the analogy the hon. Member for Carmarthen East and Dinefwr made with cricket. It is not a subject in which I can claim particular expertise. [Interruption.] Or interest? No, I have some interest in it. The hon. Gentleman pointed out that there is the England and Wales Cricket Board. One Mike Denness, born not far from where I was born in Scotland, was the captain of the English cricket team some years ago; again, I am showing my vintage.

We must have proper regard to all the nations represented in the United Kingdom. I was stung by the Minister’s comment that the Bank of England represents the whole of the United Kingdom, the implication being that it had always done so, but I do not think that is at all true, in terms of its policy making. The hon. Member for Bishop Auckland (Helen Goodman) and my hon. Friend the Member for East Lothian made the telling point that the Bank has had undue regard for one part of the UK. Many commentators would say that the interest rate setting policy of the Bank of England pre-2008 paid undue regard to the City of London and surrounding areas, and too little regard to the north of England, the Scottish economy, the Northern Ireland economy and the like.

That leads me nicely on to new clause 2 and why there should be representation for the nations and regions that make up the UK on the Bank of England’s court of directors. A short time ago, I had a quick look on the internet to see who these esteemed figures are, and unless I am proven to be incorrect—or the internet is incorrect—one is also a non-executive director of the Financial Conduct Authority. Such interlocking directorships do not serve economic policy and the financial sector well. Do we have such a tiny pool of appointable people that bodies with such an important relationship to one another have to be represented by the same directors? That is not a sign of strength in our appointing arrangements, but a position of extreme weakness.

Why are these things important? My hon. Friend the Member for East Lothian mentioned a word that has cropped up many times in Committee discussions: he talked about the importance of avoiding group-think. Many studies show it to have been part and parcel of the flawed decision making that contributed to the crash in 2008. If we want to avoid group-think, we need people who are willing to think differently and to ask the critical questions, and we need a chairman willing to seek out those with alternative views. I do not see that happening today.

Some years ago, I was sitting within the confines of a company that was considering a large proposal. A paper was presented, and the chairman quickly went around all the directors asking for their thoughts. Every single person around the table immediately said, “I think this is a really great paper and we should go with its suggestion.” The chairman, being extraordinarily wise, said, “I am extremely uncomfortable that we have an immediate consensus, so I am going to postpone this discussion until our next meeting. I want you to go away and generate some alternative, critical views.” That is the wise course of action; it is about not being sucked into group-think. For all those reasons, new clause 2 deserves the support of all those who do not want to replicate the mistakes of the past.

[Philip Boswell (Coatbridge, Chryston and Bellshill) (SNP)]

Like many others in the Chamber and, as is clear, in the Treasury Committee, I welcome the progress made on the Bill but have serious concerns about it and, in particular, its role in the systematic gradual compromising of the independence of the two key regulators, the FCA and the Prudential Regulation Authority. Further to the Minister’s announcements in her opening remarks, which were touched on by many in this House, including my hon. Friend the Member for East Lothian (George Kerevan), I welcome the Government’s determination that more oversight is needed on the appointment of the chief executive of the FCA by the Chancellor. However, I have concerns about the new procedures, as announced. Until this legislation is in place, this is very much open for debate and I sincerely hope we will debate it thoroughly, in the way described by my hon. Friend the Member for Kirkcaldy and Cowdenbeath (Roger Mullin).

Another consideration is this: if the Treasury Committee recommends the appointment to be put forward as a motion to the House, the Government could simply whip votes to approve the Chancellor’s appointment. Select Committees provide substantially more apolitical deliberation of key specialised issues. For that reason, a direct Treasury Committee veto of the appointment needs to be considered.