Bank of England (Appointment of Governor) Bill

Debate between Stephen Hammond and Andrew Love

Friday 6th July 2012 Commons Chamber

[Stephen Hammond]

I am grateful for the opportunity to hear the private views of my hon. Friend the Member for Chichester (Mr Tyrie), but as he is not present to justify them, it would be wrong for me to comment on them. I will say, however, that if those are indeed his private views, I am surprised that he supports this Bill. The Committee is already able to attend pre-commencement hearings with appointees to the Monetary Policy Committee and will be able to do the same in future with appointees to the Financial Policy Committee. Obviously that could potentially involve agreement with the Government.

Let me return to the issue of the independence of both the person and the institution of the Governor of the Bank of England from the Treasury Committee.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

Will the hon. Gentleman give way?

--- Later in debate ---

[Stephen Hammond]

Does the hon. Gentleman want to make a point about the issue of independence?

[Mr Love]

I apologise for intervening at this point, but having just spoken to the Chairman of the Treasury Committee, I think that he would want his attitude to be exemplified as a belief that the Committee should have a role in the Governor’s appointment. What he seeks, as does the hon. Member for Hayes and Harlington (John McDonnell), is a signal from the Government that they would be receptive to that idea.

[Stephen Hammond]

As I am not in the position of my hon. Friend the Financial Secretary—nor could I ever have the talent or ability to be so—that is not in my gift. We shall have to wait and see whether my hon. Friend chooses to make such a move later in the debate.

It seems to me that there are three crucial points to be made about the independence of the institution of the Governor of the Bank of England. Let me begin by saying that if the Governor were indeed appointed by the Treasury Committee, which would have the right of veto, the institution could be perceived to be tainted if the appointment reflected the politics or the political make-up of the Committee. That point was addressed by the hon. Member for North Ayrshire and Arran. The hon. Member for Hayes and Harlington said that it was not relevant in the United Kingdom, citing the report from the Institute for Government, but anyone with even a cursory knowledge of American politics knows that appointment by committee in the American House is supremely political, and therefore potentially damaging to the role of institutions in that country. I shall make the same point shortly about the role of the individual, as opposed to the institution.

As my hon. Friend the Member for Great Yarmouth (Brandon Lewis) pointed out, there is a question mark over the ability of the Treasury Committee to scrutinise the Governor, but there is also the possibility that the Governor, or the institution, might be perceived as being subservient in will to the Committee. There might come a time when there would be an impasse between the will of the Executive and that of the Committee, and that in itself could undermine the institution.

[Stephen Hammond]

I agree that Parliament must have the ability to scrutinise and that the body must be accountable, but I want the Governor to be independent as well. I am presenting some of the arguments that must be considered, or countered, if the Governor is to be independent in his operations. It is also true that the circumstance that I have just described would not arise if the Executive continued to make the appointment, because if the Treasury Committee did not have the power of veto, there could not be an impasse between the Committee and the Executive. However, my hon. Friend was probably referring to a point I made earlier.

[Mr Love]

The confirmatory hearings currently held by the Treasury Committee employ the criteria of competence and personal independence. Does the hon. Gentleman accept that the existence of a framework within which decisions must be made by Select Committees, minimises—although it does not exclude—the chance of political interference?

[Stephen Hammond]

It might and it could. I accept that point. But equally it might and it might not, and it could and it could not. That is the point I am trying to make.

The hon. Gentleman’s intervention leads me into the next part of my argument. My hon. Friend the Member for Orpington (Joseph Johnson) says the Treasury Committee Chairman wants to see some flexibility. There is already some flexibility in the system. The Committee has pre-commencement hearings for members of the Bank’s policy committees, which include both the Governors and deputy governors. The pre-commencement hearing is a process that allows parliamentary engagement, parliamentary scrutiny of appointments and parliamentary comment on appointments, but does not allow parliamentary veto. That is an evolving process that the Government have put in place and continue to support. It is, for a variety of reasons, the right mechanism.

Turning to the question of independence, there is a real risk in respect of the credibility of the individual concerned. While I am sure that all candidates will be of the highest ability and there will be no possible suggestion in the fourth estate or anywhere else that the successful candidate had been chosen on the basis of some odd criteria or that he was the only candidate the Treasury Committee would pass, others less generous than I might think that. That would lead to a credibility gap. It is also therefore clear that the person being appointed might be open to the charge that they were being appointed for their politics, not their economics. The Governor of the Bank of England must be free of the charge of being a political candidate.