Bank of England (Appointment of Governor) Bill

Sam Gyimah Excerpts

Friday 6th July 2012 Commons Chamber

[John McDonnell]

The decision in the case that my hon. Friend the Member for North Ayrshire and Arran (Katy Clark) raised was not accepted. The Select Committee system has worked remarkably well, and when people have served on them, they have done so on a cross-party basis. However, the point the Minister makes still does not undermine the argument that it is better to have a group examining, interviewing and then coming to a decision about an appointment on a cross-party basis than to leave it in the hands of a single, party politician.

[Mr Sam Gyimah (East Surrey) (Con)]

rose—

[Mr Graham Brady (Altrincham and Sale West) (Con)]

rose—

[John McDonnell]

I have allowed large numbers of interventions. If I can press on, I will see whether I can allow further interventions later.

Let me go through the other arguments that the Chancellor has made. He also argued that involving the Treasury Committee in determining the appointment of the Governor would blur the lines of accountability, saying that

“it is proper that the Government of the day chooses the Bank Governor,”

and

“is held accountable for that choice”.

However, the reality is that the Governor’s term of office rarely coincides with a Government’s term of office. Many Governments inherit the Governor appointed by the previous Government and can therefore barely be held accountable for that appointment. The involvement of Parliament in the appointment would simply mean that both the Executive and Parliament would be held accountable for it. That is perfectly proper and appropriate.

Let me turn to Executive functions. When challenged over his decision to allow the Treasury Committee a veto over an appointment to the OBR, but to refuse it one over the appointment of the Governor, the Chancellor argued that

“the Governor…is carrying out executive functions on behalf of the State,”

such as setting monetary policy and monitoring financial stability. In the evidence session on 5 July 2011, the Chair of the Treasury Committee pointed out to him the contradiction between that argument and the argument that the Committee should have a veto over the OBR appointment precisely because it would be carrying out Executive functions. The Chancellor then made a rather bizarre distinction between different Executive functions, which was beyond the Committee’s comprehension.

The other argument, which was raised in the other place, concerned market sensitivity. The argument was that the appointment of the Governor was market sensitive and that involving the Committee in the process could have a detrimental impact on the markets by creating uncertainty over the appointment. It could just as easily be argued that OBR appointments are extremely market sensitive. However, whether the appointment of the new Governor is undertaken behind the closed doors of the Treasury or openly and transparently in the Committee, there will still be speculation in the markets about which candidate will be appointed and what the impact will be. If the post is so market sensitive, it is even more important that the appointee is seen to have the approval and confidence of both the Executive and Parliament.

[Mr Gyimah]

Let me take the hon. Gentleman back to his point about the Governor’s term of office, which would be a single, eight-year term. In other words, once appointed, the Governor does not have to seek reappointment and so can act independently. Therefore, we do not really need the Treasury Committee to be involved to ensure that independence.

[John McDonnell]

The key aspect is independence at the point at which that person is appointed, so it is critical that the new Governor, when they are appointed, is seen to be completely independent, and also carries the House as well as the Executive. That is the point I am making.

I have spoken long enough and many other Members wish to speak, so let me conclude. Over the coming period a new Governor of the Bank of England will be appointed. The new Governor will not only have more powers and responsibilities than any Governor before him or her, but will face the immense challenges of reforming and restoring confidence in our banking system and financial services. My view—and, I think, the view of others—is that it is therefore critical that the person appointed to this vital post has the credibility, independence and authority to meet those challenges. Engaging Parliament in determining the appointment, along with the Executive, will ensure that the new Governor has that credibility, independence and authority.

Those are the arguments, but let me say this to the House. I hear that there has been organising among Back Benchers to filibuster today and talk this Bill out. We have been here before, so let me say this to hon. Members. That is an extremely short-sighted approach, and it is not in the interests of the Government or good governance. If we get into the puerile antics that we have seen before, it just brings Parliament into disrepute and increasingly encourages people to judge this House to be degenerating into an irrelevant farce, especially on today of all days, when, outside this House, there are flood warnings across the country. Many hon. Members will want to return to their homes and their constituencies to be with their constituents. I therefore urge Members to take this matter seriously and ensure that their speeches are as brief as possible—I apologise for speaking too long myself—to enable the House to come to a decision that the Government can then consider. If the Bill gets talked out today, I will deeply regret that, but let me say this to the Government and to the House. This issue will not go away; it will return at a later date. I ask the Government and the House to seize this opportunity to make this reform. I hope that wiser counsels will prevail. I therefore commend this Bill to the House.

--- Later in debate ---

[Chris Leslie]

It is strange to hear ambitious and thrusting Government Back-Benchers seeking to continue to be neutered, saying, “No, please don’t give us any more of a say or any more powers. We don’t need any and it would be wrong for us to have any involvement whatsoever, even if that simply meant rubber-stamping the recommendations made by the Treasury Committee.” I am baffled that hon. Members should want to continue to hobble their role in such a way.

[Mr Gyimah]

rose—

[Chris Leslie]

I will give way to the former employee of Goldman Sachs.

[Mr Gyimah]

I thank the hon. Gentleman for being so well versed in my career history. I want to ask him about the substance of the issue that he is supposed to be discussing. Let me go back to his point about the United States: the big difference is that in the United States the Executive is not part of the legislature. Here, the Executive are part of the legislature, so when the Chancellor and the Treasury Committee appoint the Governor of the Bank of England, we still have a route of accountability via the Executive and the Select Committee. We do not need the same veto as Congress given how our constitution works.

[Chris Leslie]

We could have a long constitutional discussion, but essentially I do not think that anything is lost by airing more openly and transparently the background and the thinking of candidates for appointment as the Governor of the Bank of England in the Treasury Committee and then giving Parliament a say.

--- Later in debate ---

[Brandon Lewis]

I agree wholeheartedly with my hon. Friend. I attended a business forum meeting only 10 days ago and talked with businesses about the financial situation in our country. They were very optimistic and upbeat, but they were talking about what more we can do to make it easier for them to grow their businesses and create more jobs. Residents want to know what the Government are doing to allow more jobs to be created and to match the skills with the jobs that are available. They are not talking to me about how we choose the Governor of the Bank of England. They see a very clear difference—this relates to the interventions I have been enjoying from the hon. Member for Edmonton—between the Executive powers and the scrutiny powers and see that it is the Government’s job to set policy that will allow our economy to grow and, therefore, do not necessarily see, understand or have an interest in how the Governor of the Bank of England is appointed. They want to see that job being done properly and the Government setting out the economic policy correctly.

[Mr Gyimah]

On that point, is there therefore a risk that if the Treasury Committee were included in this process, to the extent of having a veto, ministerial responsibility could be blurred in relation to the appointment of the Governor of the Bank of England?

[Brandon Lewis]

My hon. Friend makes an interesting point, and not one that I had planned to make, so I hope that he will expand on it later.

In addition to the risk of having a Governor who is perceived to be a second choice or a lowest acceptable common denominator, which I hope I have outlined graphically, there is also the risk that that politicisation itself is part of the problem. In recent weeks many Members have made the point that we should focus our time and effort less on the process, which our constituents are not interested in, and more on the result and how we deliver for them and for our country. Suddenly giving a Select Committee the power to veto an appointment would detract from its ability, power and credibility to scrutinise what the Executive are doing to improve our country, because it would actually be focusing on being part of the Executive.

As I have said, the concern that our constituents might have about the Bank of England’s role in the banking and financial sectors, which is particularly prominent at the moment, is that its decisions are transparent. Any concerns they have about the Bank’s enhanced role under the Financial Services Bill focus on whether those functions are open to proper public scrutiny through Parliament. The inalienable political independence of the Bank of England is something that we, as Member of the House of Commons, should cherish, defend and uphold, which I think we do. When the former Chancellor of the Exchequer, the right hon. Member for Edinburgh South West (Mr Darling), published his insider’s account of the financial crisis that beset this country in 2008, I was alarmed at his suggestion that he considered overruling decisions made by the Governor of the Bank of England. He so seriously considered that course of action that he sought advice from Treasury officials to ascertain whether it was within his competences to do so as Chancellor of the Exchequer. If he had done so, the political uproar would have been enormous. The media and other commentators would and, no doubt rightly, could have criticised it as a blatant attempt at political interference, and, as Members will know, we had a debate along those lines just yesterday.

I urge Members to create no similar furore through this Bill, which blatantly attempts to assert direct parliamentary control over the appointment of the politically independent Governor of the Bank of England. Such unnecessary interference risks turning the appointment into a political football between the Executive and the legislature, which our financial markets would not tolerate or consider a sensible way forward. Indeed, they would, I believe, go into complete turmoil again, and our constituents would not thank us for being the ones who put them in that potential position.

The hon. Member for Hayes and Harlington said earlier—I made a note—that the Select Committee would seek consensus on the appointment, but our current system allows for that. The threat of a veto or the power to appoint moves things in a different direction, to an Executive role, and the appointment would therefore become an Executive one. It would be a mistake for the House to go down that route. Select Committees rightly have the power to scrutinise, but we must be clear about where the line is between the ability to scrutinise and comment as a critical friend and, from time to time, a non-friend, and the ability to adopt a decision-making power in an Executive role. That is something which rightly lies with the Executive—the Government—themselves, and I therefore oppose the Bill.

--- Later in debate ---

[Mark Durkan]

No. I have already been generous enough, and some Members were too greedy in terms of the length of their speeches.

The Treasury Committee would have a power of confirmation. Some hon. Members are saying that it would have a power of veto, but what appear to be powers on paper would not be exercised in that way.

Earlier we heard reference to appointments to the National Audit Office. Some appointments are notionally appointments by Parliament because they are subject to votes in this House—for example, appointments to bodies such as the National Audit Office and the Electoral Commission—and my hon. Friend the Member for Nottingham East would say that there could similarly be a vote on the appointment of the Governor of the Bank of England. However, I do not believe that that is a comparable situation. Given the significant extra powers and functions that the Governor will have, particularly after our experiences over the past few years and the allegations that we heard yesterday about the whole murky interface between the Government, the Bank of England and the City, it would be remiss of Parliament to say “We’re quite happy to leave this in that odd black box that exists somewhere between Whitehall and the City. We as Parliament do not want to step up to the plate and say, yes, when this appointment is made in future there will be a parliamentary stamp on it.” That is all that the Bill is asking for, and it would entrust and delegate that parliamentary stamp to the Treasury Committee.

[Mr Gyimah]

The hon. Gentleman seems to be ignoring the fact that the Treasury Committee already scrutinises the work and operations of the Bank of England. In fact, only last week the Governor gave evidence to the Committee. There is already parliamentary scrutiny of the substance of what the Bank of England does, and I do not see why we need to give the Treasury Committee this major constitutional power to veto the appointment as well.

[Mark Durkan]

I am not ignoring anything that the Treasury Committee does, but nor am I here to filibuster and rehearse everything that it does. The hon. Gentleman needs to recognise that the Committee itself has unanimously recommended this change.

We heard in yesterday’s debate, and we heard from the Chancellor on Monday, about the importance of a parliamentary Committee of inquiry being able to produce a unanimous report and about its being worth nothing if it is not unanimous. Here we have a unanimous recommendation from the Treasury Committee, and the very people who have been telling us about the power and significance of parliamentary Committees and the compelling power of unanimity are saying, “We don’t care about it, we don’t want to know.”