Financial Services Bill

Public Bill Committee, 21 February 2012.

Edward Leigh (Conservative, Gainsborough)

Before we begin, I have a few preliminary announcements. Members may remove their jackets, if they so wish. I am sure that we will have an orderly and enjoyable Committee, but I warn you that I frown on spitting and swearing. Please ensure that your mobiles phones are switched off or are in silent mode.

I remind Members that, as a general rule, my fellow Chair and I do not intend to call starred amendments which have not been tabled with adequate notice. The required notice period in Public Bill Committees is three working days. Therefore, amendments should be tabled by the rise of the House on Mondays for consideration on Thursdays and by the rise of the House on Thursdays for consideration on Tuesdays.

Not everyone is familiar with the procedure in Public Bill Committees, so it may help if I explain how we will proceed. First, the Committee will consider the programme motion on the amendment paper. That can be debated, but only for half an hour. We will proceed to a motion to report written evidence, and then begin line-by-line consideration of the Bill. I call the Minister to move the programme motion, which was agreed by the Programming Sub-Committee yesterday.

Mark Hoban (Conservative, Fareham)

I beg to move,

That—

(1) the Committee shall (in addition to its first meeting at 10.30 am on Tuesday 21 February) meet—

(a) at 4.00 pm on Tuesday 21 February;

(b) at 9.30 am and 1.00 pm on Thursday 23 February;

(c) at 10.30 am and 4.00 pm on Tuesday 28 February;

(d) at 9.30 am and 1.00 pm on Thursday 1 March;

(e) at 10.30 am and 4.00 pm on Tuesday 6 March;

(f) at 9.30 am and 1.00 pm on Thursday 8 March;

(g) at 9.30 am and 1.00 pm on Thursday 15 March;

(h) at 4.00 pm on Tuesday 20 March;

(i) at 9.30 am on Thursday 22 March.

(2) the proceedings shall be taken in the following order: Clauses 1 to 3; Schedule 1; Clause 4; Schedule 2; Clause 5; Schedule 3; Clauses 6 to 10; Schedule 4; Clauses 11 to 13; Schedule 5; Clauses 14 to 20; Schedule 6; Clauses 21 to 27; Schedule 7; Clauses 28 to 32; Schedule 8; Clauses 33 and 34; Schedule 9; Clause 35; Schedule 10; Clause 36; Schedule 11; Clauses 37 and 38; Schedule 12; Clause 39; Schedule 13; Clauses 40 and 41; Schedule 14; Clause 42; Schedule 15; Clause 43; Schedule 16; Clauses 44 to 90; Schedule 17; Clauses 91 to 94; Schedules 18 and 19; Clauses 95 to 99; Schedules 20 and 21; Clauses 100 to 103; new Clauses; new Schedules; remaining proceedings on the Bill.

(3) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 10.25 am on Thursday 22 March.

It is a pleasure to serve under your chairmanship, Mr Leigh, and I look forward to serving under your chairmanship and that of Mr Howarth.

The Bill is a major part of the Government’s legislative programme. The failure of the existing tripartite system of financial regulation was a key factor in the precipitation of the 2007-08 financial crisis, the severe effects of which we are still feeling. It is therefore important to get the legislation right. We seek to introduce significant reforms to the structure and style of regulation in this country, and to give consumers of financial services the confidence and protection that they need.

There have been three public consultations on the Bill. Since the draft Bill was published last year, it has been considered by a pre-legislative scrutiny Committee—the Joint Committee on the draft Financial Services Bill—which I am grateful to my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley) for chairing. Many of its recommendations have found their way into the Bill. The Treasury Select Committee, some of whose distinguished members are present, has also commented on aspects of the Bill. This Committee therefore has plenty of meat to get its teeth into during its 16 sittings. Notwithstanding the immense scrutiny that has already taken place, the Committee will be important in teasing out the issues behind the Bill and in putting on the record the reasons for the particular structure of the proposed regulatory framework. On Second Reading, the House showed that it is very interested in the Bill and is well informed about the issues that the Bill addresses.

The programme motion was agreed, through the usual channels, as a model of co-operation and negotiation. I should highlight for the Committee that we will not sit on Tuesday 13 March, for which I am grateful because I shall be at an ECOFIN meeting. On the morning of 20 March, Her Majesty will address Members of both Houses of Parliament, so it will be appropriate for us to attend on her rather than to be in Committee. As a consequence, in trying to meet the spirit of our agreement about the number of sittings, we will sit for just under an hour on 22 March. I hope that that will give the Committee time to explore in full all the issues, and that the Committee will endorse the programme motion.

Chris Leslie (Labour, Nottingham East)

May I say what a pleasure it is to serve under your firm but fair chairmanship, Mr Leigh? I also enjoyed your chairmanship of the Programming Sub-Committee yesterday, which, I think, met partly in private. It is probably, therefore, not in order to describe how that meeting ran, but perhaps the minutes will reflect some of our enjoyment.

I place on record my thanks to my colleagues for agreeing—or perhaps being press-ganged—to serve on the Committee. The Bill is extensive and it sets serious considerations before us, many of which were referred to on Second Reading. I, too, thank the right hon. Member for Hitchin and Harpenden for chairing the pre-legislative scrutiny Joint Committee, which gave great service in informing the process of the Bill. Hon. Members who have not had a chance to pick up their copy of its report should do so, as it is worth reading. Some of the amendments that we have tabled were partly inspired by the Joint Committee’s recommendations. Generally, our usual process of holding evidence sessions in Committee before we debate Bills is good. On this occasion, however, it is fair enough not to repeat the exercise that, essentially, the pre-legislative scrutiny Committee undertook. It might have been slightly better if a few more members of that Committee had been on this one, but we cannot have everything. It is important, however, for people to refer to the Joint Committee’s report.

I pay tribute to members of the Treasury Select Committee, who have taken time and care to consider the Bill’s proposals. I think the Committee was off on a trip to China or somewhere similarly exotic at the time of Second Reading, so it did not have as much input into the debate as it might have had, but its recommendations will inform our deliberations in a number of ways in relation to amendments and possible discussions.

I place on record my thanks to the Clerks of the House for their assistance and guidance so far to those of us who needed to blow away the cobwebs on Bill Committee processes. I declare an interest in relation to the support that we have received from PricewaterhouseCoopers, in the normal way, in the amendment and drafting process. While I am at it, I should declare that I am a Member of Parliament not only for the Labour party but also for the Co-operative party. Some of the Bill’s provisions touch on principles relating to mutuality, building societies and so on. Although those issues are tangential, it is important to place them on the record.

We find ourselves in a Committee with only one Minister, and I wish him all the best and good health over the next month. His civil servants might have characterised as very brave the decision to put only one Minister on the Committee. Let us hope that seasonal flu, colds and so on do not knock him sideways, because it is important that he stay and attend absolutely every minute of the next 16 or so sittings. I do not wish to put any pressure on him, and it is good of him to take the Bill through single-handedly.

The Bill is extensive, with 103 clauses and two volumes, including the schedules. It is regrettable that the Treasury has chosen to format it as an amending Bill rather than as a rewrite, because trying to fathom one’s way around the Bill’s various provisions is difficult. Many clauses delete sections of previous legislation and replace them with provisions that not only import some of the original text, but contain amendments within them. Trying to discern which parts of clauses are genuinely new policy areas and which are not is an extremely difficult task. The explanatory notes do not shed much light on that. Perhaps at some point—not today—we can revisit the process of what explanatory notes should contain, because I found them not massively helpful in shedding light on the Bill. I am sure that that is not intentional on the Treasury’s part, and that it wants to be as helpful as possible to the Opposition, so that we can delineate those elements of the Bill that are new and those that are not. The Minister might have some thoughts on that.

Mark Hoban (Conservative, Fareham)

To be helpful to the hon. Gentleman and to the Committee, I advise him that a consolidated version of the Financial Services and Markets Act 2000, including amendments that would be made by the Financial Services Bill, has been published on the Treasury website today. I am sure that the hon. Gentleman will print it all off in his lunch hour and bring it with him this afternoon.

Chris Leslie (Labour, Nottingham East)

I am delighted to hear that news, which is an exceptionally positive and wonderful piece of policy development. We are more than delighted to welcome the Government’s taking that initiative. We can work together from time to time and welcome things where we think that they are doing them well, and that certainly is one, although it would have been helpful if the document had been published slightly before the first day of Committee. It would have been nice to have had some copies on the table. Perhaps the Minister can have a word with his officials to see whether a few copies might be available for the Committee.

In fact, the Clerks have helpfully placed before the Committee copies of the Banking Act 2009 and the Financial Services and Markets Act 2000, which are some of the core texts that the Bill amends. We might also, however, need the Bank of England Act 1998 and the Consumer Credit Act 1974, with a couple of others thrown in as well. It might be that we need an adjunct of the Vote Office located up here for a short period of time.

With those comments—I thank my colleagues for their patience—I support the programme motion. It is a pity that there was a little difficulty in its gestation, but we are where we are and we have it before us today. I cannot say to my hon. Friends that the issues that we are talking about will all be ones that they are regularly confronted with in their postbag by constituents, but some of the questions that we have are fundamentally related to the prospects of the British economy: whether we have good and full employment, if that can be obtained, and whether we can have growth in the economy. I look forward to discussing the Bill’s provisions as we progress in Committee.

Edward Leigh (Conservative, Gainsborough)

Copies of the memorandums that the Committee receives will be made available in the Committee Room.

Clause 1 - Deputy Governors

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 1, in clause 1, page 1, leave out line 5 and insert ‘(1), (2) and (2A) substitute—

‘(1) There shall continue to be a court of directors of the Bank but it shall be renamed the Supervisory Board of the Bank of England.”.’.

Edward Leigh (Conservative, Gainsborough)

With this it will be convenient to discuss amendment 2, in clause 1, page 1, line 8, leave out ‘a Governor’ and insert ‘the Governor of the Bank.’.

Chris Leslie (Labour, Nottingham East)

These amendments address clause 1, which makes a set of changes to the provisions in the Bank of England Act 1998—as I have said, we do not have that in the Committee Room—particularly in relation to the composition of the court of the Bank of England and the deputy governors appointed to that court.

Amendment 1 would change the name of the governing body of the Bank of England from “court of directors” to “Supervisory Board”. It is an important amendment, given the debates that took place in the Treasury Select Committee in particular, as well as in the pre-legislative scrutiny Committee. The court of directors of the Bank is a structure that has a great deal of history. It is an old institution, established in a different era from the one we are living in. It started its life in 1694, when the Bank of England was the Government’s banker and debt manager. At that time, it had 17 clerks and two gatekeepers, but it has since grown in size and employs many more staff, who have included the hon. Member for West Suffolk. He has extensive experience of working at all levels in the Bank, and I am sure he will bring that to the fore in our scrutiny of the Bill.

The court of the Bank of England was also established in 1694, when its functions were essentially to declare the dividend and to conduct elections, but its role has obviously changed since that time. Following the second world war, the Bank of England Act 1946 set out the duties of the court as the governing board of the Bank. Under the previous Government, the 1998 Act changed the governance of the Bank and the role of the court, and those arrangements again evolved under the 2009 Act.

Just as the events and circumstances of the past 300 years or so have done, so the Bill will shape and influence the role, composition and responsibilities of the Bank and the court. Amendment 1 would replace the relevant words in line 5 with the phrase:

“There shall continue to be a court of directors of the Bank but it shall be renamed the Supervisory Board of the Bank of England.”

The Treasury Committee made a series of recommendations, and it is a pity that the Government did not pick them up and reflect them in drafting the Bill.

It is important that hon. Members recognise the context of the amendment. The Bill provides for significant rule-making powers to be handed to the Financial Policy Committee and, indirectly, the Governor of the Bank of England. The FPC will be able to make rules and give instructions to the new Prudential Regulation Authority and Financial Conduct Authority. Very considerable powers will be transferred to the Bank, and it is therefore important that there are stronger supervisory functions and arrangements within the Bank to ensure that it has proper checks and balances on the execution of those powers and that, if necessary, appropriate challenge is given. That is the normal situation in large public—let alone private—institutions and, as recommended by the Treasury Committee, such improvements should be made to the arrangements for internal challenge and scrutiny so that there can be a proper assessment of the Bank’s performance and rules.

Mark Garnier (Conservative, Wyre Forest)

I am grateful to the hon. Gentleman for taking the time to read the Treasury Committee’s report. However, I do not understand how, by simply changing the name of the court, his amendment would achieve any of the Treasury Committee’s recommendations.

Chris Leslie (Labour, Nottingham East)

On that issue, we need the assistance of the Government and officials to draft improved governance arrangements. It would be invidious for me to attempt fully to rewrite the interstices of the Bank of England’s constitution. The amendment is a useful proxy for the Committee to consider and possibly vote on—the Minister may accept it, if he so wishes—to signal that, having considered the provision, such a change needs further development and could be reconsidered on Report or in the other place. I thought that we should discuss, as a matter of principle, the question of whether we continue with the current arrangements for the court of the Bank or create a more effective supervisory board.

Most institutions of such a magnitude and importance have governance arrangements for internally challenging and scrutinising their own performance. Banks have modern corporate governance boards. It is a moot point to question their efficacy, but they are there. The UK code of corporate governance also makes a set of recommendations about governance arrangements, which could be brought to bear properly in the definitions of how we might want a decent supervisory function. Local authorities have scrutiny committees, as many of my hon. Friends may know. Police authorities have proper scrutiny and governing arrangements. I could go on and, no doubt, my hon. Friends might wish to do so as well.

It is an anomaly therefore not to have a court at the top of the Bank of England with the flexibility to provide that level of supervision. I am delighted to see that the hon. Member for Hereford and South Herefordshire is in Committee with us today. He, I think, is the only hon. Member here—he is talking to the Government Whip at the moment—who served on the pre-legislative scrutiny Committee. I wonder whether I can attract his attention for a moment.

Jesse Norman (Conservative, Hereford and South Herefordshire)

I can follow the hon. Gentleman.

Chris Leslie (Labour, Nottingham East)

He is multi-tasking, as ever. He served on the Committee, which also recommended changing the name of the court to a supervisory board as an important step that needed to be taken. The Treasury Committee’s report “Accountability of the Bank of England” 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.”

The report went further:

“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’.”

That was echoed by the pre-legislative scrutiny Committee report on the draft Financial Services Bill, which said:

“We support the idea that the Court should be replaced by a Supervisory Board”.

I hope that in tabling this amendment I am learning from the advice and experience of the hon. Gentleman and others who served on those Committees. I have listened closely to their recommendations, and I want to work with him in Committee. I tried my best to interpret the recommendations that his Committee made—no doubt he supported them—and I have tried to deliver an amendment that would have an effect by putting that in the Bill. I am interested to hear his thoughts on it.

As Shakespeare wrote:

“What’s in a name? That which we call a rose By any other name would smell as sweet”.

There is an awful lot, of course, in a name. Whether we call it a court or a supervisory board may be to some people a simple matter of description and not of any great importance, but it is an important principle, for the reasons that I gave to the hon. Gentleman previously. It is a single change that we need to send to the Treasury to show that this Committee believes that we need that higher level of scrutiny. I am not necessarily fixed on the term “supervisory board”. We could look at other names: governing court, superior committee or trustees’ cabinet. There are all sorts of other possible variants on that. It is important that we dispense with the term “court”. Prime Ministers may have a court around them. Monarchs used to have a court supporting them, but these days, to be appropriate and fitting to the circumstances of the hour, a supervisory board seems to be the better term. It is more straightforward and more appropriate for the change that needs to be made.

I was impressed with the article in The Times written by the hon. Gentleman. He writes some interesting pieces, from time to time. It was fairly recent and was titled “Let’s take King to Court”. My Latin is not particularly good and I have a feeling, Mr Leigh, that “Erskine May” prevents us using any languages other than English and Norman French.

Edward Leigh (Conservative, Gainsborough)

You may speak a little in Latin. I give you permission.

Chris Leslie (Labour, Nottingham East)

Quis custodiet ipsos custodes is the phrase, I think—I do not know whether my Cambridge or Oxford pronunciations are correct. “Who will guard the guard themselves?” That was the point that the hon. Gentleman made. I am trying to leaven the mood of the Committee somewhat, but this is a serious issue. Ultimately, the question is as old as the ancients. Who will supervise? Who will have an internal eye in the Bank of England on the immense power that the Governor will have at his fingertips? That is an incredibly important question. In his article, the hon. Gentleman referred to the Treasury Committee’s simple proposal

“that the Court should become a supervisory board in the true sense”,

which should

“deliberately recruit members with experience of prudential regulation and bank stability.”

I could not agree more. I hope that the Minister will respond sensitively to the suggestions that have been made, with more thought than I have been able to enunciate in Committee.

The court is the board under company law, but the history of this particular court of the Bank of England is unusual. There is some doubt about the court’s sovereignty at present, given that the Crown appoints the Governor and that other aspects are delegated in law to other committees, such as the Monetary Policy Committee. However, we think that a suite of improvements is needed to the core supervisory elements to enhance the new court arrangement.

The Treasury Committee was correct in its recommendations about parallels that can be drawn between the court as it is and a corporate unitary board, including that

“the Court is a single body with both externals and internal Bank executives as members, who have equal standing on the board in terms of responsibility and liability. The Court is responsible for ensuring that the committees of the Bank are properly resourced and that its proceedings are properly conducted... Like a corporate board, the Court of the Bank represents the interests of the shareholders. The Treasury is the only shareholder of the Bank and accordingly one of the Court’s functions is to ensure that the Bank uses resources efficiently and sparingly and that it manages financial risk prudently, so as to protect the interests of the Treasury in the Bank. However, it should do this while at all times protecting the Bank’s reputation for political neutrality and objectivity.”

The Treasury Committee went on to say that the court has

“neither direct executive responsibility nor immediate influence on many of the…important decisions made by the Bank, namely those on monetary policy.”

When Professor Garratt gave evidence to the Treasury Committee, he described the court’s structure as “very odd” and “quite alarming”. Furthermore, the Committee stated that, as the Governor of the Bank is appointed by the Crown, the court cannot, under current law, take any action of censure or otherwise,

“except in case of dereliction of duty, personal financial distress, or incapacity.”

That is unusual for a corporate board. We shall discuss those arrangements later in our proceedings.

A number of changes were made after the Bank of England was nationalised, when the court was asked to look at the “affairs of the Bank.” At the time, that phrase was interpreted to mean the day-to-day running of the organisation. Over the years, court members have complained that they have felt that they did not have a serious role and were simply observers or rubber stampers of decisions. The situation has changed a little in recent decades, but we must change it further: I want the Bill to modernise arrangements for the court of the Bank of England.

At first sight, amendment 2 might not appear fundamental. Clause 1 has two subsections. Subsection (1) provides that

“The court shall consist of the following members appointed by Her Majesty—

(a) a Governor,

(b) a Deputy Governor for financial stability,

(c) a Deputy Governor for monetary policy,

(d) a Deputy Governor for prudential regulation, and

(e) not more than 9 directors.”

Subsection (2) refers to the Governor of the Bank, the deputy governor for financial stability, and the deputy governor for monetary policy. Call me old-fashioned, Mr Leigh, but it seems anomalous to have one set of descriptors referring to the appointment of “a Governor” and another set referring to “the Governor of the Bank”. The amendment therefore seeks to replace the first phrase with the second one to make the drafting more precise and make it clear what kind of Governor the Bill refers to.

It seems inconsistent that the Bill has specific references in relation to the Monetary Policy Committee, but greater and potentially legal ambiguity in subsection (1). To the Minister, “a Governor” may clearly mean “the Governor of the Bank”, but the Bill might be taken to mean any governor—for example, the governor of a school. Some Committee members may belong to governing bodies of schools in their constituencies. Perhaps you are a governor, Mr Leigh. Prisons have governors, as do the states of the United States of America—that is a familiar term—and football managers are often referred to as such.

Edward Leigh (Conservative, Gainsborough)

You do not have to refer to me as Guv’nor.

Chris Leslie (Labour, Nottingham East)

But that would be very tempting.

I have discovered that my hon. Friend the Member for Leeds North East is a governor of the Northern School of Contemporary Dance, which may surprise the Committee. He is a governor and I am not therefore sure, in legal terms, whether the Bill might allow him to be appointed to the court of directors. That is a small and even a silly drafting point, but I cannot understand why the Bill is so drafted. The use of the indefinite article seems sloppy and imprecise. Will the Minister explain its use?

An indefinite article indicates that its noun is not a particular one identifiable to the reader. It may refer to something that is mentioned for the first time or it may mean that the precise identity is irrelevant or hypothetical, which is obviously not the case because the precise identity in the clause is important. In my view, a general reference to “a Governor” is insufficient. If the Minister wishes to withdraw the clause and to bring back a properly drafted one on Report, I will not object.

Mark Hoban (Conservative, Fareham)

I will return to the use of the indefinite article, to illustrate why it might be appropriate for the hon. Member for Leeds North East to be a governor of the Northern School of Contemporary Dance but not necessarily to be the Governor of the Bank of England. We all agree that the court of the Bank needs to evolve as the functions of the Bank do so, and I shall set out how that will be achieved after I have dealt with the amendments.

In their response to the Treasury Committee’s report on the “Accountability of the Bank of England”, the Government made it clear that we do not agree that the name of the court needs to be changed. The court has expressed reservations about the implications of using the term “supervisory board”. It has argued that it is not a supervisory board, as currently recognised, and that to rename it would cause confusion.

The more substantive and important questions are what role the court should have and how it is equipped and qualified to carry out its functions. The Treasury Committee’s report is clear about that and it makes several recommendations about how to enhance the court’s role as the governing body of the Bank of England and improve its accountability. There is consensus that the governance of the Bank needs to be strengthened to equip it better for the new roles it will be given by the Bill. The court has clearly acknowledged that need, stating that:

“The new responsibilities for the Bank of England in the area of financial stability will need to be accompanied by new accountability mechanisms.”

The court has been responsible for managing the affairs of the Bank since it was first nationalised in 1946. Subsequent legislation such as the Bank of England Act 1998 and the Banking Act 2009 have effected changes to the constitution and duties of the court. While the court is long established, it has evolved in both its function and its composition.

The changes being brought about in the Financial Services Bill herald a new era for the Bank: creating both the FPC and the Prudential Regulation Authority within the Bank of England group, enhancing the Bank’s responsibilities and giving it the tools and powers it needs to regulate effectively the stability of the financial services sector. As it has done with previous changes, the court will need to adapt and evolve to continue operating as an effective governing body that can oversee the transition to the new arrangements, as well as ensuring that the Bank is properly resourced to meet its new responsibilities, offering challenge to the executive and, importantly, accountability to Parliament.

To that end, in January, the court published its own response to the Treasury Committee’s recommendations. The court’s paper set out positive and constructive proposals to strengthen its oversight of the Bank’s financial stability activities and to enhance accountability. Chief among them is the creation of a new oversight committee for financial stability, which will be a sub-committee of the court with the remit of covering the entirety of the Bank’s financial stability activities. That wholly non-executive committee will have access to the meetings and papers of the Bank’s policy-making committees, including the FPC, and will be able both to review internal processes and commission periodic reviews of policy-making performance from expert external authorities. Those reports will be published, as will the minutes of the court’s meetings.

The court’s response signals important improvements to the transparency and accountability of the court, as well as a commitment to effective governance practices.

Chris Leslie (Labour, Nottingham East)

The Minister might not have it to hand, but can he elaborate a little on the proposed membership of that oversight committee? He said that it was wholly non-executive and I want just to get a sense of the relationship between the court and that oversight committee.

Mark Hoban (Conservative, Fareham)

The oversight committee will be entirely non-executive. That is absolutely vital to ensure that the non-execs are able to scrutinise the policy-making processes and outcomes. It will be well resourced and will be able to commission both internal and external reviews. It will be an important way of challenging the policy-making functions within the Bank. Clearly, the position of the oversight committee will be a matter for the court to decide. It requires the court to ensure that its membership is properly equipped to undertake these tasks.

The Government are keen to see effective governance of the Bank and to ensure that the court is properly equipped to carry out this role. The Government therefore welcome the court’s proposals. The Chair of the Treasury Committee himself acknowledged that there was much to welcome in the court’s response to the Treasury Committee’s recommendations. However, in its report published on 23 January, the Treasury Committee outlined a number of areas where it felt that the court’s proposals did not go far enough. The Committee reiterated its call for the replacement of the court with a new supervisory board.

The Government do not agree with the Treasury Committee that replacing the court with a new supervisory board is the only way to enhance the Bank’s accountability. Although the solution proposed by the court takes a different approach from that put forward by the Treasury Committee, there is no reason why it should not be just as effective in achieving the aims set out in the Treasury Committee’s report.

One area that the Treasury Committee raised in its 23 January report was the ability of the oversight committee to commission internal policy reviews. As a consequence of that, the Chancellor has agreed with the Governor and the chair of the court that the new oversight body will also be expected to commission retrospective internal reviews from the Bank’s policy makers of their policy making and implementation performance.

Jesse Norman (Conservative, Hereford and South Herefordshire)

May I say how much I welcome, as a member of the Treasury Committee, the Chancellor’s decision? I also welcome the emphasis that the Minister has placed on the substance of the supervision of the Bank, rather than on the language of the supervisory board. One of the weaknesses—if one can admit to it—of the Treasury Committee’s proposal was that the term “supervisory board” had a connotation of a German-style supervisory board. I do not think that anyone wants to bring that to the court of the Bank of England. The substance of his remarks is very much to be welcomed.

Mark Hoban (Conservative, Fareham)

I am grateful for that. My hon. Friend makes the important point that “supervisory board” has different connotations. One of the things that the court was keen to see was the maintenance of a unitary board that comprised both non-executives and executives. The hon. Member for Nottingham East, in his relatively brief description of the different types of supervisory arrangement, highlighted as options both the corporate boards that we see in public companies and the scrutiny panels that we see in our local councils. There is no single model. The challenge is to ensure that the model is effective in providing the necessary scrutiny and challenge. My hon. Friend is right to focus on the substance of the proposals.

I have not yet covered a point that the hon. Member for Nottingham East made in his remarks. He referred to how the Bill gives rule-making powers to the FPC. Let me be clear: it does not give rule-making powers to the Bank or the FPC. When the FPC’s decisions must be implemented via rules, it will be done by either the Prudential Regulation Authority or the Financial Conduct Authority under existing powers and safeguards. We will discuss such matters in subsequent amendments.

I set out why the court’s proposals, including the creation of an oversight committee, represent real and constructive measures to strengthen Bank of England governance and accountability. I hope that the hon. Members for Nottingham East and for Kilmarnock and Loudoun will accept my assurances and that the hon. Gentleman will withdraw the amendment.

I understand why the hon. Members who tabled amendment 2 paused over the reference to “a Governor” when other provisions in the Bill refer to “the Governor”, but I shall explain why their amendment is unnecessary. The provision replaces section 1 (2) and (2A) of the 1998 Act, which establishes the membership of the court of the Bank of England and creates a number of posts in statute. The posts of governor and deputy governors of the Bank are not created by any other legislation, which is why the wording in the provision takes the indefinite article. The hon. Member for Nottingham East alluded to that in his remarks.

Under the measure, “a Governor” will sit on the court of the Bank; we cannot refer to “the Governor” because without the provision, that post does not exist. When it has been established, however, all other references, such as those in new sections 9B and 9U, will be to “the Governor of the Bank.” The post must be created before other provisions can refer to “the Governor”, which is what new subsection (2) of section 1 of the 1998 Act does. I know that the hon. Gentleman has prepared well for this discussion, but he might wish to revisit the existing provision in the 1998 Act, which also uses the indefinite article in reference to the court’s composition. I hope that I have reassured him. I shall give way to the hon. Member for Foyle, who might suggest another reason why the indefinite article is inappropriate.

Mark Durkan (Social Democratic and Labour Party, Foyle)

I agree that the indefinite article is appropriate where it appears, for the reasons stated by the Minister. The provision might have been improved, however, if the reference were to not only “a Governor” but “a Governor of the Bank.” The concerns expressed by the hon. Member for Nottingham East might not then have occurred to anyone. The appointment should definitively be a Governor of the Bank.

Mark Hoban (Conservative, Fareham)

The hon. Gentleman makes a helpful point, but the current formulation has withstood the test of time. We do not agree with everything that the previous Government did, but inserting the words “a Governor” is something that we can all support. I hope that my clarification on the use of the indefinite article will be the last grammatical discussion that we have in our 16 sittings and that the hon. Member for Nottingham East will see fit to withdraw amendment 2.

Chris Leslie (Labour, Nottingham East)

The discussion has been very helpful. The hon. Member for Foyle—my hon. Friend—made a constructive suggestion to the Committee. If the Minister were to withdraw the clause and replace the wording with “a Governor of the Bank”, at least the ambiguity in the provision would be removed and the meaning would be put beyond doubt. I think it was the former United States President, Bill Clinton, who, in evidence given at his impeachment trials in Congress, spent a lot of time discussing the meaning of the word “is” and whether it applied to his predicament. We are not in quite the same situation in Committee—at least not that I know of at this stage. The word “a” or “the” can make a significant difference. Nevertheless, the Minister has a team—a phalanx—of very educated and worthy officials, who are able to advise on these elements of vocabulary and definition, so with great reluctance I would be prepared not to press amendment 2, although I reserve the right to bring it back at a later stage.

On amendment 1, I hear what the Minister says—that the court itself does not want to be renamed. That is not a massive surprise for a conservative institution; they tend to want to retain their traditions, even when quite palpably a name has expired as a modern and useful term in current parlance. I do not believe that the name “the court” should be retained simply because those who sit upon it do not particularly want to change it. It is a public body; it has ramifications for all our lives and the economy more widely, and it is important to have a simpler, more straightforward description. Setting aside for a minute the bigger issues about what the court—that supervisory board—ought to do, the Treasury Committee itself, in paragraph 41 of its 21st report, said:

“Whatever name is ultimately chosen, we strongly recommend that the term ‘Court’ is abolished.”

I agree with the Committee and its members, some of whom are with us in the Committee today, that that is an incredibly important point. Even if we take amendment 1 at face value, as it stands, simply to move away from the term “court”, I think it is an important amendment and I think we should make it.

I was hoping to hear the hon. Member for Hereford and South Herefordshire talk about his views, given that he has written so extensively on the subject, but maybe we shall still have an opportunity to hear from him on it beyond the intervention that he made.

I am not entirely convinced about the establishment of the oversight committee, given that we do not seem to know who will be on that sub-committee arrangement. The Minister said it would be a matter for the Bank to determine. That is not really good enough, given that this is supposed to be a check-and-balance process. At the very least, we should know now who will be on that oversight committee, to give us a sense of whether it will have teeth: whether it will be able properly to oversee some of those internal—what the Minister called policy-making—processes.

There is another discussion to be had, which we may have at a later stage of our scrutiny of the Bill, about what exactly the court—the supervisory board, as we would like to call it—ought to have the ability to look into. There is a debate about whether it should simply be looking at processology—minutes, matters arising, whether the agendas are in the right font and so on—or whether it can get its teeth into the effectiveness of policy, the activities of the Bank of England, the policy-making functions and the decisions that emerge from them. If there is to be a proper set of constitutional checks and balances, the court or supervisory board needs to be able to look at the latter and not restrict itself to the merely technical, functional elements of those arrangements.

Mark Hoban (Conservative, Fareham)

I hope that I have managed to reassure the Committee that the oversight committee will look at the substance of policy making—not necessarily the fonts or whether the minutes are in the right order—because it wants to be effective. That is why the argument is not about its name but about what it does and how it does it. I think the oversight committee will provide an effective challenge, and because it will have the power to commission both internal and external reviews, it will be able to scrutinise and hold to account the Bank’s executives and its committees in a way that represents a major step forward in accountability.

Chris Leslie (Labour, Nottingham East)

I am grateful to the Minister for clarifying that the oversight committee will have powers to scrutinise policy making, not just the procedural elements. That is quite an important point; it is a concession that should be welcomed. I am not, though, sure that it goes as far as it could by, say, creating a sub-committee of three non-executive members, or however many it might be, of the court of the Bank of England. Possibly even two would be sufficient to constitute a committee; I do not know. We already have a court of fairly limited size, and if this is going to an oversight sub-committee, we need a little more detail on that.

If the Minister can bring back a little bit more information on the Bank’s intentions on that when we come to discuss similar issues later in the Bill, that would be useful not just to myself but to other members of the Committee who are discussing some of these questions today.

I am happy not to press amendment 2 to a vote, but the principles are twofold when it comes to amendment 1. Of course the Minister is correct about what that supervisory board does, but we tabled this amendment because of the in-principle question about the tone with which the court conducts itself and the role it will have. Moreover, the phrase “court of the Bank of England” is an anachronism and something that should be replaced. If the hon. Gentleman claims to be a modernising Treasury Minister who believes in updating the terms in the Bill, he should surely move away from this outdated description. The Treasury Committee strongly recommends that. For those reasons, I seek to put amendment 1 to the vote.

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 3, in clause 1, page 1, line 12, at end insert—

‘(2A) The Chancellor of the Exchequer shall only appoint a person under subsection (2)(e) if he is satisfied that the person has knowledge or experience which is likely to be relevant to the Court’s functions and would enhance the diversity of the composition of the Court.’.

Proposed new subsection (2)(e) covers those nine directors who are not a governor or a deputy governor. Under the amendment, we seek to enhance the diversity of the composition of the court, to get a sense from the Minister about whether the court’s current composition is likely to change or evolve over time and to find out what he seeks to do in the exercise of his powers in making those appointments to the court. What sorts of experience and knowledge does he think should be available for the Bank on the court and what is the Government’s attitude to improving the breadth of the composition so that it reflects those parts of the economy—industry or the financial services sector itself—so that they can at least have a shot at being able to be represented on that court. Clearly, the composition of the court is not a mandated set of representatives who strictly come from one particular quadrant of the financial services sector, whether it is insurance or professional services. None the less, we feel that there is an important point to raise about the current composition of the court. Some eminent and skilled people sit on the court of the Bank of England, and I have no qualms with any of them on an individual basis. However, only one woman sits on the court in its current composition, together with a serious number of Bank officials and appointees. There are no representatives from consumer organisations, although some members come from the insurance sectors, and it is important to consider whether the diversity of the court can be improved. I have used the term diversity deliberately in this amendment, although not elsewhere in the Bill, because I want to get a sense of the attitude held by Ministers towards the diversity of public appointments in this instance.

Diversity has different meanings for different people. In this context, however, we want the term to be considered in as open and unconstrained way as possible. It does not simply concern the physical or personal characteristics that we know about, such as gender, ethnicity, sexual orientation, age or disability, but also diversity of skill, experience and background, which is particularly important to the composition of the court. The industrial and economic sectors of the economy are important, as are the regions and nations within the United Kingdom as they are represented. That issue will become increasingly important should developments of a constitutional nature that are currently in the air take their course, or head in the wrong direction, in the future.

Mark Garnier (Conservative, Wyre Forest)

I am grateful to the hon. Gentleman for clarifying what he means by diversity. We are talking about only nine people for the outside appointments. It is worth bearing in mind, however, that the court’s current construction includes Lady Susan Rice, who is managing director of Lloyds banking group in Scotland, and Brendan Barber of the Trades Union Congress. There is already a certain amount of diversity within the court. We are talking about a financial organisation that looks at the financial system, and while I welcome some diversity, with only nine outside members available, surely we could end up by having too much.

Chris Leslie (Labour, Nottingham East)

There are several points leading from that intervention. First, can we have too much diversity? It would be incorrect to say that particular segments of society should be represented in particular proportions, and I am not a believer in such things when it comes to public appointments of this sort. We should, however, expect the Chancellor to be satisfied that the appointments he makes have an eye to enhancing the diversity of the court, and ensure that a voice is given to parts of the economy that might not otherwise be heard.

We are seriously restructuring the Bank of England with extra new powers in an important way, and although diversity may not have been at the forefront of considerations in the past, perhaps now it should be. We are past the point of my early years in Parliament, when it was suggested during debates that only Labour Members believed in diversity while Conservative Members did not. I hope that we have now reached a broad consensus across modern political parties and recognise that, as far as possible, we need equal opportunities in such matters, at least in terms of gender representation.

As I have said, although I have no qualms with many of the skills of the current court, its membership contains a serious gender imbalance. Is that particularly difficult or dangerous? I am not sure, but in my experience, boards with a healthier level of diversity, particularly those with more women, bring different experiences and views to life. Enhancing the diversity of the board would also enhance the likelihood that it will capture issues that may not be seen due to the blind spots of members who come from single or narrow strata of society or the economy. That is my crucial point. If we end up with a court that predominantly comes from the south-east of England and a particular income decile, educational or experiential background and gender, we will not capture some of the issues that feature in a wider society. Ultimately, the Bank of England needs to be active and alert to all of the issues happening across all of the economy and all of society. That is a pretty simple, basic point.

David Rutley (Conservative, Macclesfield)

The hon. Gentleman makes a case for representation in terms not only of gender, but of regionality. Could he outline a test that would show that those criteria and objectives are being fulfilled?

Chris Leslie (Labour, Nottingham East)

That is a good point. Sometimes those of us who move an amendment have to be able to answer questions on enforceability. There are a number of provisions in the Bill that will put a duty on a Minister either to undertake a certain course or to have regard to a number of functions, many of which are not necessarily enforceable, but it is important that the principle is there.

When I was a Minister, I would receive recommendations from my officials on appointments to courts, magistrates or committees, or whatever it might be, and I had a set of criteria that those officials had to consider when making representations on the composition of a shortlist of potential appointees. It is important that officials have guidance in legislation on the necessary considerations when making recommendations to a Minister. The purpose of the amendment is to ensure that those people who advise Ministers on appointments are sent a signal of the sort of questions that need to be taken into consideration, which does matter. Such things can make a difference.

We know the history of groupthink at the banks, of course, much of it from the credit crunch and the global financial crisis. The banks thought that they were aware of a wide variety of issues, but partly because of their background and their blind spots on other issues, they did not raise concerns or alarms on certain activities as they were happening. The issue of groupthink has been raised by the Treasury Committee, the CBI and other esteemed economists, such as Willem Buiter.

The CBI has made its own recommendation that there must be a broad cross-sector level of expertise within the set-up of every regulatory body to ensure awareness and levels of understanding. In this case, the CBI particularly emphasises those segments of the economy that need to have a voice and perhaps some experience brought to bear.

Overall, experience should be reflected in the composition to ensure that we do our best by the UK economy. It is important that practical experience is also brought to bear. For instance, although the insurance sector is represented on the court, there are other committees on which the insurance sector is not properly represented, and we will come to those discussions at a later date. Enhancing the governance capabilities and allowing a diversity of voices to be heard is important.

Paragraph 102 of the Treasury Committee’s “Accountability of the Bank of England” report states:

“Groupthink will inevitably remain a potential risk in the Bank’s committees. Exclusive reliance on Parliament and the Chancellor to challenge the proceedings in the committees and ensure the external members of committees are able to challenge the executives of the Bank is inappropriate. The FPC and MPC have one non-voting Treasury representative in the committee meetings. We do not consider this to be a sufficient check or tool to allow the effective challenge of groupthink. The avoidance of groupthink is the responsibility of the Bank of England, and therefore should be monitored by the new Supervisory Board of the Bank.”

That is what inspired the amendment. We listened and tried to pick up on some of the signals sent to us by the Treasury Committee. Those are some of the important issues that need to be addressed today.

With those thoughts, it is clear that we need to make improvements, and I hope that the Government will consider the points I am making with this amendment.

Sheila Gilmore (Labour, Edinburgh East)

It is a pleasure to serve under your chairmanship, Mr Leigh. In an earlier intervention, Mark Garnier touched on the question of regional diversity and made the point that there is a representative from Scotland, Lady Susan Rice, on the court, but my understanding is that she was not necessarily chosen specifically because she was a Scottish person; that was accidental. We need to look to the future of the Bank of England, as it is named, which is our UK bank.

I do not know how much awareness there is about this, but there has been a lot of discussion in Scotland about the potential role of the Bank of England in the event of Scottish independence. I do not want to suggest in any way that I favour Scottish independence, but there will be a referendum in due course, in which the Scottish people will speak one way or the other. There has been an interesting debate about the future currency of an independent Scotland and the country’s relationship to the Bank of England. The fashion some years ago was to suggest that in the event of independence, certain people would be willing or even enthusiastic to join the euro, which would solve the problem. The latest suggestion, however, seems to be to keep the pound, and therefore to be strongly linked to the Bank of England, which it might be better to rename appropriately. Other interesting suggestions have been made, some of which were bizarre. I am sure it must have been a joke, but I read a suggestion that Scotland might link itself with the Chinese currency. If that was not a joke—and it might not have been—perhaps the suggestion was made on the basis that the Chinese currency is particularly strong, and it might be advantageous to a small—dare I say struggling?—independent country to link itself to a strong currency.

We must think about the fact that the economies of different parts of the United Kingdom—I strongly hope that they will remain part of the United Kingdom—move at different speeds. Different levels of economic growth and unemployment in Scotland, Wales and Northern Ireland cause difficulties, and we need to think about how the different parts of the UK work together to ensure the kind of financial stability that the Bill is all about.

It is important to make special provision for the representation of the different parts of the United Kingdom, particularly those that are accepted as nations within the United Kingdom—as I have said, I hope that they will remain so—but have distinct problems and ways of operating. It would be useful, not only in planning for the future but in analysing the present, to make provision in the court of the Bank of England for specific recognition of such regional and national diversity. Perhaps I should have tabled an amendment to suggest that we rename the institution the Bank of the UK, because that might be more appropriate. We recognise that we have strength in unity and we have diversity, and that the two can work very well together.

Mark Durkan (Social Democratic and Labour Party, Foyle)

I support the amendment, and it is important to stress that it makes it clear that appointments should be made by the Chancellor on the basis that the person appointed has knowledge and experience relevant to the court’s functions. Diversity is therefore not put first, above all else, but the amendment states that such an appointment

“would enhance the diversity of the composition of the Court”

as an additional consideration. It is for the Chancellor to be satisfied on that point, and it is not to be tested by anybody else.

Diversity comes in many shapes and forms; gender, for example, is not particularly well-reflected in the court’s current composition, and there is the question of people’s sectoral insights and experience. Given the Bank of England’s key role on the economy, economic performance and its assessment, questions arise over whether a more rounded representation should be sought, rather than only from those with a fairly narrow experience that perhaps gives them highly-rated CVs as far as posts in the City are concerned, but not necessarily with regard to the country’s wider interests, or the broader economic interests for which the Bank, the court and the Governor are responsible.

Diversity should not be seen only in terms of gender or geography and, although geographical considerations are important, they should not determine everything. The amendment does not talk about a representative court, stating that there would have to be a governor for Northern Ireland, Scotland or Wales. It does not stipulate that in any way. God forbid that we create a West Lothian question for the court of the Bank of England; we would not want to do any such thing, but it is important that future Chancellors, when making appointments, consider whether people’s broad experiences and insights cover the full range of the UK economy and its increasingly international perspectives and interfaces.

I can think of many people—not necessarily from Northern Ireland or the island of Ireland—who, by virtue of their business experience in the financial sector or other parts of industry, would have a strong affinity with the economic realities in Northern Ireland, or a strong knowledge of the banking business as it operates on the island of Ireland. Northern Ireland is in a bit of a twilight zone as far as the banking sector is concerned; there are some UK banks and some Irish banks, and we operate with that odd interface. I am not saying that the Chancellor should always appoint someone with direct experience of that situation. However, it is important to know, from time to time, that the Chancellor can say that some of those he has appointed have an affinity with or awareness of affairs in different parts of the UK—that not only applies to distinct regions such as Northern Ireland; it could relate to parts of England—and that should be shown in the composition of the court.

Such appointments would not be too hard a test for the Chancellor. Many boards and panels are appointed at a national level with people who can cover a range of interests and insights, because of their experience. Not everybody who is appointed will have had only one experience or one job. We are talking about people who will have been practitioners, not just in the financial sector, but at the coalface of industry as well. Some of them will have spent time in academia. Some, from any or all of those perspectives, will have come into contact with particular regional economies and operated in particular sectors of the market, whether it be industry or the property or housing market or any of those other areas of economic life that will be affected by the thinking and work of the Bank of England.

With that broad acknowledgment of the sweep of diversity that we are talking about, it is not too much to ask for some consideration to be given to that, alongside the important point that the person has knowledge or experience that is likely to be relevant to the court’s functions. It is not an override and it is not about making the court representative by parcelling up appointments to different regions; it is about ensuring that the Chancellor, in exercising his appointment function, has regard to the full needs and realities of the entire economy of what is called the United Kingdom.

Mark Hoban (Conservative, Fareham)

We have had a helpful debate and I will set out some of the constraints that affect the appointment process to the court of the Bank.

As the hon. Member for Nottingham East alluded to, the Treasury Committee, in its report into the accountability of the Bank of England, concluded:

“The new responsibilities of the Bank will require its governing body to have an enhanced mix of skills.”

The Government agree with that conclusion, and committed in our response to take that point into consideration when making future appointments. In our publication, “Corporate governance in central government departments: Code of good practice 2011”—a title that all members of the Committee will have on their Amazon wish list—the Government clearly state that a board should have a balance of skills and experience appropriate to fulfilling its responsibilities. Moreover, it stipulates that the membership of the board should be balanced, diverse and manageable in size.

In principle then, I am broadly in agreement with the position taken by the hon. Member for Nottingham East in his interventions, but it is not necessary to make a new legislative provision for this. The appointment of non-executive directors to the court is fully regulated by the Office for the Commissioner of Public Appointments, which ensures a fair, transparent and competitive process. It is worth bearing it in mind that the code for the Office for the Commissioner of Public Appointments states:

“Appointment on merit is the overriding principle within the public appointments process.”

It adds:

“Departments must seek to encourage a wide range of suitably qualified individuals from different backgrounds”.

Merit is the key consideration for the appointment of members to the court, but the Government should ensure that they seek a broader range of interest. For example, when an appointment was made last year to the court, the vacancy was advertised openly and the role profile sought people with substantial experience as: a board member or head of function in a major financial services organisation, and/or someone who had built up a successful enterprise of a significant size, and/or someone who had played a prominent role in a relevant area of public policy, the voluntary sector or a trade union.

The hon. Member for Nottingham East commented that he was happy with the suitability of the existing members of the court and then commented on their lack of diversity. All bar one of the non-executive directors were appointed under the previous Government and only one has been appointed since this Government came to power.

Chris Leslie (Labour, Nottingham East)

I am not necessarily one who believes that everything that went hitherto was perfection, but is the Minister satisfied with the current diversity of the court, notwithstanding individuals on it, or does he think that it could be improved?

Mark Hoban (Conservative, Fareham)

No doubt when we go through the process of appointments—of identifying people who could be appointed to the court—we will look at the various characteristics that they bring. I go back to the code of the Office for the Commissioner of Public Appointments: it is about merit. We established the point in the previous debate that we want the court to be able to hold people to account. The court is there to hold the policy makers of the Bank of England to account. We need people who are capable of doing that; that should be an important characteristic.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

May I press the Minister briefly on the points related to Scotland raised by my hon. Friend the Member for Edinburgh East? As the Minister is aware, the passage of the Scotland Bill will give significant additional powers to the Scottish Parliament, the Scottish Government, particularly in terms of tax-raising and borrowing. That is important because it influences the overall economy. The people of Scotland would believe that is a positive case for being part of the UK. There would continue to be recognition of the need and importance of having Scottish representation on key boards in relation to the economy. I recognise what has been said about Susan Rice already occupying one of those positions, but I think people would want some reassurance that that representation would be taken into account in future.

Mark Hoban (Conservative, Fareham)

The hon. Lady makes a helpful point. The previous Government legislated to reduce to nine the number of non-executive directors on the court. If we had a designated Scottish place, the hon. Member for Foyle would ask for a member to represent Northern Ireland. We do not have a Member here from a Welsh constituency—ah, the hon. Member for Islwyn, of course. He might argue for a Welsh member of the court. We are looking for a court that has the skills to do the job we are asking for. That is what we should aim for when it comes to appointments. We are looking for a court that is effective, that has depth and breadth of skill and experience. We can achieve that without the prescriptive legislative obligation in front of us.

I remind hon. Members that appointments to the court are not made by the Chancellor of the Exchequer. They are made by Her Majesty on the recommendation of the Prime Minister, who in turn relies on the recommendation of the Chancellor. I do not think it would be appropriate to impose a duty on Her Majesty to form a view of the candidate’s knowledge or experience, or the diversity of the court, before making the appointment. The hon. Member for Nottingham East might wish to make to that point to her when she comes to Parliament on 20 March.

Chris Leslie (Labour, Nottingham East)

I will.

Mark Hoban (Conservative, Fareham)

It is important to get the right balance. The hon. Member for Edinburgh East talked about what would happen in an independent Scotland. I do not know what will happen in future. If Alex Salmond wants to run a campaign about keeping the pound, I suspect my hon. Friends may have some material used in previous elections where that was a centrepiece of our campaign. There are important issues to bear in mind but I believe what we have before us is a recognition from the Government of their importance.

Lorely Burt (Liberal Democrat, Solihull)

My hon. Friend’s defence against the amendment is very cogent, but I wonder whether I might tempt him to express the wish that diversity—particularly with regard to the lack of gender diversity in the industry—might be improved through the future composition of organisations of this kind?

Mark Hoban (Conservative, Fareham)

Indeed. I think my hon. Friend would strike common cause with our hon. Friend the Member for West Suffolk, who has written about that recently. It is important to have diversity, but the key point is to ensure that appointments are made on merit. We must do all we can to bring forward people with a diverse range of backgrounds, who wish to apply for these posts.

As I said, the last time a vacancy was advertised, we reached out to try to attract people from a wide range of backgrounds. It is commendable that the general secretary of the TUC is a member of the court. In fact, he is the longest-serving member of the court, having joined in 2003. That is testament to the breadth of the experience in the court. There are people with international backgrounds, insurers, people from the banking sector and people with broader business experience, such as Sir Roger Carr and Sir David Lees. There is a wide range of people in the court. That diversity is important, but I think that sufficient checks are in place to ensure that that is the case, while at the same time we ensure that people are appointed on merit. Therefore, the amendment is not necessary and I hope that the hon. Gentleman will seek the leave of the Committee to withdraw it.

Chris Leslie (Labour, Nottingham East)

This has been a useful debate. The intervention from the hon. Member for Solihull as well as the interventions from other hon. Members eventually pressed the Minister into expressing some hope or desire that more consideration could be given to the diversity of the court, although he is getting very good at swerving to avoid particular questions that I think are fairly straightforward. I asked him whether he was satisfied with the current composition of the court in terms of its diversity, and he went off on a tangent. On this occasion, I will forgive him for doing so, but we must reach a position where he can answer a question in a straightforward way. He made some important concessions, but they are of course informal concessions. This Minister is here today, but he may be gone tomorrow. We do not know what his duration of office will be. Perhaps he will be here for a very long time. Who knows where the hon. Member for West Suffolk is at the moment? Perhaps he is with the Prime Minister, discussing his career prospects. Undoubtedly that is something that he does frequently. I just hope that the Minister can hang on for the duration of the Committee at least, because it would be cruel and unusual punishment to give the hon. Member for West Suffolk this portfolio midway through Committee.

My point is simply this: informal concessions from particular Ministers at a particular time are not sufficient. The OCPA code, from which the Minister quoted, is an important one and is correct. As my hon. Friend the Member for Foyle said, diversity should not be the overriding issue. Merit must be the driving force in the appointments process. However, the amendment is drafted in such a way as to deliver that. It is a fairly balanced and reasonable approach that I would have thought was fairly unobjectionable. We need to ensure that there is stronger sectoral insight—the phrase used by my hon. Friend—but we also want to ensure that we have a court that is fit for purpose. Yes, the members must have the skills and breadth of experience necessary, but to a certain degree they should reflect more effectively the composition of society and the economy and those industries working within it.

The Committee will know that this issue comes up in relation to other sub-committees of the Bank later, particularly with reference to the FPC, but given the importance of the question that my hon. Friends have raised about Scotland, Wales, Northern Ireland and the important voice that they need to have in these institutions, it is important to press the amendment to a vote to test the Committee’s view on the issue.

Chris Leslie (Labour, Nottingham East)

We have touched on some very specific aspects of the drafting of clause 1. I hope that the Committee was not offended by my simple questions about the difference between the indefinite and definite article, but there were some pretty important questions to do with the court of the Bank of England, including whether it will have a proper supervisory function and whether the membership will have sufficient diversity as well as merit.

There are some more substantial questions in clause 1 generally that merit pause for thought, chief of which is the creation of the post of the deputy governor for the Prudential Regulation Authority, which is a new principal actor in policy making. Hector Sants, who will be the chief executive of the new body, will be deputy governor, and is already in post ahead of this legislation, which is a slight issue. He is doing his job well but, stepping away from the individuals, it is a shame that Parliament increasingly finds itself legislating for changes which are coming into place. As the Government have learned to their cost in the Health and Social Care Bill, making a whole set of structural and expensive constitutional changes before legislation receives Royal Assent can be fraught with difficulties. If this Bill receives Royal Assent, we will have the PRA and the Financial Conduct Agency, with a deputy governor for the PRA being put in place. We are where we are with the legislation, although much of change has already taken place.

Jesse Norman (Conservative, Hereford and South Herefordshire)

Would the hon. Gentleman prefer Parliament to wait until this legislation had been cleared before putting in place these changes, given the howling economic and financial crisis that we are in at the moment?

Chris Leslie (Labour, Nottingham East)

I do not know whether Parliament should wait. Parliament needs to get on with the changes. This may be unavoidable, but if legislation and the process of scrutiny take place ex-post—after the changes have already taken place—that is not exactly desirable. Parliament should consider changes before they take place in reality. Ultimately, it would put undue pressure on Parliament if we consistently backed into a corner and said, “You can’t unwind this now because the changes have already been made in practice.” To be fair to the Minister, we have not yet heard the argument, “Please don’t reject this particular arrangement because we have already spent millions and millions creating a shadow PRA or a shadow FCA.” That has happened in other pieces of legislation under the previous Government. All I am saying is that it is slightly unfortunate that we find ourselves in an unavoidable situation of legislating for arrangements when in reality they have already taken place.

Jesse Norman (Conservative, Hereford and South Herefordshire)

It is good to hear the hon. Gentleman say that the situation is unavoidable. The contrast, as he was hinting at, is the situation in 1997 when we did not have a financial crisis, yet a series of ill-thought-through changes were rushed through Parliament on, in many cases, an ex-post basis without adequate thought, and we see the result around us now.

Chris Leslie (Labour, Nottingham East)

I am not sure that the independence of the Bank of England can be described as ill-thought through or rushed. There are certain circumstances in which Executive decisions have to take place for market sensitivity reasons, and I am not decrying that. I am simply saying that we are debating something after the fact, and after it has taken place. Parliament is not necessarily on the crest of the wave when it comes to discussion of these issues; we are almost just mopping up in the wake of decisions that have already been taken. However, that is just a passing observation.

On Second Reading, I said that the Labour party agreed with the need to enhance systemic oversight of our financial services. A system of prudential regulation has strong cross-party consensus, at least on the principles, although we have not really seen what it will mean in reality when it bites and comes into force. That is true of the operation of prudential regulation and the suite of policy changes that will deliver an eagle-eye view across the economy. We wait to see quite how the new arrangement pans out over time, but nobody would dispute that the principle is correct. The system needed improvement, and we welcome this aspect of the reforms to the Bank of England.

The clause creates three deputy governors, as opposed to two. Paul Tucker is the deputy governor for financial stability, Charles Bean is the deputy governor for monetary policy and Hector Sants will be the deputy governor for prudential regulation. It is important for the Minister to explain how he sees those three deputy governors working together in practice. For example, I would like him to explain in a bit more detail the differences between the roles of the deputy governors for financial stability and for prudential regulation, and where the join is between their two sets of tasks and job descriptions. Is there the potential for duplication? Are there risks of overlap? In a sense, overlap is less of a problem than underlap, but I want to know how we delineate the tasks of those two deputy governors. That is perhaps set out in their job description or job specification. The job spec I have seen for the deputy governor for financial stability says he has responsibility for risk-assessment and risk-reduction work, but my layman’s definition of prudential regulation would lead me, perhaps incorrectly, to expect that risk-assessment and risk-reduction work also to be part, perhaps indirectly, of the role of the deputy governor for prudential regulation. I want to get a sense of how the roles of those two deputy governors in particular line up.

Will the Minister say a word about the ranking of the deputy governors? Under current legislation, we have the Governor and two deputy governors. Presumably, in the normal parlance, a deputy has the ability to step up and be a principal in the absence of the Governor. What is the situation when we have three deputy governors? Who will act in the absence of the Governor? I would be grateful if the Minister elaborated on that.

We have a peculiar situation, in that the court is appointed partly externally but also has powers of its own. There are also executive members as well as non-executive members on the court, although that is not particularly unusual in other walks of life. However, given that we are talking about the court potentially having some scrutiny role in relation to the Bank, how can we avoid conflicts of interest involving the three deputy governors and the Governor—there is quite a large number of executives on the court as it is—when it comes to the broader scrutiny function of the court as a whole?

The Minister mentioned that the oversight committee will be composed solely of non-executive members. I do not know whether he has had any inspiration since we debated the issue an hour or so ago, but I would still quite like to know what the distinction will be between those executive and non-executive functions, when it comes to scrutiny activities.

I think that there is an exclusion in relation to the deputy governor being part of the Monetary Policy Committee. Under subsection (2) the deputy governor for prudential regulation is not, I think I am right in saying, a member of the MPC. I should be grateful if the Minister would explain the decision-making logic of that; why financial stability is represented by a deputy governor, while the prudential regulation governor has no role there. To what extent would the prudential regulation deputy governor be able to make his views known, if he had thoughts or recommendations to make about monetary policy? Is that entirely outside his remit? Will those questions come before him solely at the court, or will he have any impact on questions despite not being a member of the MPC?

There is also an interesting change, which was made in the Bank of England Act 1998, by which certain functions of the court were delegated to a sub-committee, which I think is known as the NedCo—the non-executive committee. That may well be the body that the Minister is renaming “the oversight committee”. I am not sure whether that is the case. It seems on my reading of the 1998 Act that certain functions of the court are delegated to that—to the nine non-executive directors of the Bank.

Those delegated functions are to keep under review the Bank’s performance in relation to objectives and strategy, monitor the extent to which the objectives set in relation to the Bank’s financial management have been met, keep the internal financial controls under review, determine remuneration and pensions issues, and keep under review the procedures followed by the MPC—and, presumably, the FPC, if that is established.

I do not know to what extent the 1998 NedCo arrangements are being changed or amended. Perhaps I have misread the clause; they do not seem to have been affected in the arrangement. I just want to get a sense of how the Minister is continuing the court as it is, in its existing composition. The Bank proposes to create an oversight committee, but will that take on some of the functions of the NedCo or not, and how will those two bodies work if they are to continue together?

Mark Hoban (Conservative, Fareham)

On the next amendment I will make some broader points about the clarity of the structure that we have tried to establish, and some of my remarks in this stand part debate will touch on that; but I shall deal first with the issue of the status of the current regulatory arrangements, and the extent to which they are front-running the Bill.

To make things clear, Hector Sants is still the chief executive of the FSA. He has not been appointed the chief executive of the Prudential Regulation Authority or a deputy governor, because those posts do not exist. At the moment he is overseeing the transition of the FSA to the new regime, assuming that the House and the other place pass the Bill.

None of the changes being made in preparation is irreversible; they could be undone, if Parliament disagrees. I am the first to say that Parliament should express its view, and not be bound by institutional changes being made at the moment. For further comfort, it has been made clear by both the Bank and the FSA that they have not sought to spend money on implementing the changes before Second Reading. They recognised that it was important to hear the will of the House.

Of course, as the Committee will know, the Bill received its Second Reading without a Division. That seems to provide a degree of support, although I think it was caveated to an extent by the speech of the shadow Chancellor. We are not pre-empting Parliament. We are putting it in place so that if Parliament approves the Bill and the Bill receives Royal Assent, it will be possible to implement the changes quickly and effectively. Given the state of the regulatory regime that we inherited and the lessons that need to be learned from the financial crisis, I think we would agree that it would be important, once the legislation is on the statute book, to implement the changes quickly and effectively. We would not want an undue lag in the process.

The hon. Member for Nottingham East asked about the deputy governors. We have sought to be clear about them throughout the process. One of the questions at the back of my mind and the Chancellor’s mind when looking at the system is the one posed by the Treasury Committee in one of its many reports on the financial crisis: who is in charge? We are therefore trying to create a system where there is clarity about roles and responsibilities, not just about the individual components of the regulatory structure, but about some of the players.

The three deputy governors have clear roles. The deputy governor for monetary policy is responsible, as his job title says on the tin, for the Bank’s monetary policy activities. The deputy governor for financial stability is responsible for its financial stability activities, including the work of the Financial Policy Committee and the regulation of important elements of the financial infrastructure. For example, the Banking Act 2009 gave the Bank responsibility for the regulation of payment systems, and that is a responsibility for the deputy governor for financial stability. The 2009 Act also set up the special resolution regime, and again, the deputy governor is responsible for that activity. The deputy governor for prudential regulation, which will be a new post to be created by this part of the Bill, will be responsible for, and will be the chief executive officer of, the PRA, and for the micro-prudential supervision of banks, insurers and systematically important investment firms.

I think that there is clarity of the responsibilities of each deputy governor. The deputy governor for financial stability is more responsible for systemic issues, whereas the deputy governor for prudential regulation will look at micro-prudential matters. There is a clear distinction between them.

Of course, there will be times when those responsibilities have to be discussed collectively, which is why there will be debates in court, in which everyone will be able to participate.

Chris Leslie (Labour, Nottingham East)

The Minister is helpfully setting out the different roles. I think it would be useful for the Committee to pause on the difference between micro-prudential and macro-prudential regulation. Many people may feel their eyelids begin to droop slightly when faced with such terms, but they know that it is important to get the distinction right. I want to test the Minister a little further on those two definitions.

As I see it, there are three layers in his particular structural proposition rather than two: conduct issues, in addition to micro-prudential and macro-prudential issues. Will the Minister explain the boundary between them a little more precisely? I think the matter will crop up time and time again.

Mark Hoban (Conservative, Fareham)

The hon. Gentleman makes an important point. He reminds me to correct something that the shadow Chancellor seemed to say on Second Reading. The shadow Chancellor seemed to be working under the assumption—I do not know if the hon. Gentleman is working under the same misunderstanding—that conduct issues are within the Bank of England’s responsibility. The Financial Conduct Authority will be separate from the Bank of England; it will be independent and outside the Bank of England group. It will have its own board, its own chairman and its own chief executive. Conduct issues are clearly outside the Bank of England group. [ Interruption. ] The quizzical look on the hon. Gentleman’s face suggests that that is new information.

Chris Leslie (Labour, Nottingham East)

My facial expression relates to the wiring that clearly exists between the Bank of England and the rules, recommendations and policies that the Financial Conduct Authority will have to follow, which are very much directly or indirectly set by the Bank of England’s policy arrangements. Perhaps we can have that debate when we come to clause 3. Will the Minister return to the question of the boundary between micro and macro-prudential regulations? I know it is a tutorial point rather than a legislative one, but it is important that we get a proper understanding because it roots right back into the different roles of the two deputy governors. Can the Minister elaborate?

Mark Hoban (Conservative, Fareham)

Let me go back to the FCA. We clearly need to discuss this more when we come to clause 3, but the FCA is independent of the Bank of England. There will be issues where the FPC as a macro-prudential body may need to highlight risks that affect systemic financial stability—it may be an issue that creates that risk—but we should be clear that the FCA is outside of the Bank family. It will have its own chairman and its own chief executive. The chief executive designate is Martin Wheatley, who is currently leading the conduct of business unit within the FSA. The FCA will have a separate existence.

Let us return to the macro and micro-prudential issue. It is not the talking point of the Jolly Farmer in Warsash, but it clearly needs to be a talking point here in Committee. The micro-prudential supervisory regulation is about the safety and soundness of individual firms. It is about the strength of the balance sheet of a bank or insurance company. The PRA will make decisions about the safety and soundness of individual institutions. The FPC’s task is to remedy a deficiency in the existing architecture, where no one has responsibility and power to look at systemic threats to financial stability. The FPC will be responsible for such things as looking at the boundary of regulation. For example, it will have responsibility for the exercise of macro-prudential tools. It will apply a policy measure that will affect a whole range of financial institutions, whereas the PRA will apply a policy measure that will affect individual institutions. The FPC looks at system-wide risks and responses to those risks, whereas the micro-prudential supervisor will look at firm-specific issues. I hope that that helps. I see that the hon. Member for Foyle is keen to chip in on those points.

Mark Durkan (Social Democratic and Labour Party, Foyle)

Given what the Minister has just said about the FPC, does he believe that the FPC will be in a suitable position to make effective, targeted and timely judgments and interventions? As things stand, the regulatory authorities will not be equipped to form an accurate assessment of current and future risks to the financial system, or indeed individual financial institutions, because of the poor standard of reporting information that banks submit to regulators. In the Bill, no one is given clear responsibility to oversee the improvement of information standards for the Bank of England or for the financial services sector generally. The Joint Select Committee—

Edward Leigh (Conservative, Gainsborough)

Order. The hon. Gentleman can give a speech later if he wants.

Mark Hoban (Conservative, Fareham)

The responsibility of the FPC and the staff that support it is to look at the emerging threats to financial stability. They will get information from a wide range of sources, in part from existing regulators, but also from the experience and engagement that they have with the financial sector. They will play an important role in identifying risks. There is quite a lot of resource already deployed in identification of risk. There is always an issue about the quality of information that is available. We will talk in a later amendment about the leverage ratio as a macro-prudential tool and the disclosure of the Bank’s leverage ratio. We are always looking for ways to improve the quality of reporting and transparency, to gain a better understanding of risk, and if we think about what has happened during the past year in the context of the eurozone crisis, the increased information that is available to supervise that crisis, which is also available to the wider public and markets, about individual banks’ exposure to eurozone sovereign debt has helped to improve supervision and regulation, not only by the regulator but by the market. Reporting is an important issue, which I am sure we will come back to.

The hon. Member for Nottingham East raised the issue of who would be responsible in the absence of the Governor. The reality is that the Governor performs a range of roles: some are about monetary policy; some are about financial stability; and because the Governor is the chairman of the Prudential Regulation Authority, some will be about micro-prudential supervision and regulation. If the Governor is indisposed, it is very clear which deputy governor is responsible for which aspects of the Governor’s portfolio. That is vital.

The hon. Gentleman also asked why the deputy governor for prudential regulation is not on the Monetary Policy Committee. Again, it is about the clarity of responsibility. The deputy governor for prudential regulation is looking at the safety and soundness of individual institutions; that is his remit. There is cross-membership between the Financial Policy Committee and the MPC, which is important. And there is a facility in the Bill, which we will talk about later, for joint meetings between the two committees or for someone from one committee to be invited to observe the other committee. What is important is that there are clearly defined roles and responsibilities, and that applies not only to the overall structure but to the responsibilities of individuals.

The hon. Gentleman also talked about the composition of the court again. If we look at the nature of corporate boards in the UK, there are a mixture of executive directors and non-executive directors. That is a model that has been followed in the Bank of England. The court has executive directors, in other words the Governor and his deputies, and non-executive directors; I do not think there is anything particularly novel in that. The fact that there are four executive directors and nine non-executive directors is not unreasonable. Different boards in corporate structures will have a different ratio, but it is important that there is a majority of non-executive directors.

The hon. Gentleman talked about the issue of the non-executive directors committee of the Bank of England. There are minor modifications to the role of NedCo in the Bill and we will come to one of the hon. Gentleman’s amendments—an amendment to subsection (5) of clause 9B of the proposed new part 1A of the Bank of England Act 1998—in a later grouping of amendments. The oversight committee, which was referred to earlier, is different from NedCo. NedCo has particular statutory purposes, and the oversight committee is set up on a non-statutory basis and will determine its own composition. That deals with the issues raised by the hon. Gentleman.

However, let me reiterate the central point of many of the reforms that are set out in the Bill. It is about the clarity of purpose, the clarity of roles and the clarity of responsibilities, and by ensuring that there is a deputy governor for prudential regulation there will be very clear responsibility for the role that he undertakes, just as the deputy governor for monetary policy has clear responsibility for the role that he undertakes and the deputy governor for financial stability has a clearly distinct role. Those responsibilities are enshrined in clause 1 and when we discuss the FPC, the PRA and the Financial Conduct Authority, we will discuss how the different responsibilities of the different deputy governors are enshrined.

Mark Durkan (Social Democratic and Labour Party, Foyle)

The Minister has just made the point that there are very clear, distinct roles for the three deputy governors. I want to return to the adequacy of the information available, the enhancement of information standards in the financial system, the information available to the regulators in particular, and the information and intelligence available to the Bank of England. The US Dodd-Frank Act anticipated those issues and created the Office of Financial Research. There is no equivalent provision in the Bill, and perhaps the Minister will assure us that one of the deputy governors will be responsible in practice for such oversight.

In its report, the Joint Committee on the draft Bill stated:

“The Bill should be amended to place a duty on the Bank of England (or its subsidiary the PRA) to develop information standards for the UK financial services industry and to report regularly on progress in improving these information standards in order to support financial stability.”

Even in that recommendation, which has not been reflected in the Government’s amendments to the Bill, there is a reference to the Prudential Regulation Authority, so perhaps it will be the deputy governor for prudential regulation who will pay particular regard to that need; but there is also a reference to supporting financial stability, so perhaps it will be the deputy governor for financial stability. It would help if the rules were clear, and if we knew which it would be. That is not indicated anywhere, and given the absence of provisions elsewhere in the Bill, it is relevant, as we are scrutinising clause 1, to ask the Minister to enlighten us in that regard. As things stand, the Financial Policy Committee, which we have not yet discussed, will not be in a position to make the necessary judgments or activate the necessary interventions.

Mark Hoban (Conservative, Fareham)

May I draw the hon. Gentleman’s attention to page 13 of the Bill and new section 9V to the Bank of England Act 1998—“Directions requiring information or documents”? Subsection (2) gives the Bank the power to issue directions to the Financial Conduct Authority or the PRA requiring the regulators

“to provide the Bank with specified information or information of a specified description”.

That is the power for the FPC or the Bank to request information in pursuit of financial stability. I hope that the hon. Gentleman will be satisfied with that assurance.

Mark Durkan (Social Democratic and Labour Party, Foyle)

Does that answer the question: which of the deputy governors will have particular responsibility in that regard? Or will they all have consubstantial, as opposed to distinct, responsibilities?

Mark Hoban (Conservative, Fareham)

It is very clear. I suggest that the hon. Gentleman reads new section 9V, because the answer is there. To the extent that the FPC may require information from the PRA, the PRA is the responsibility of the deputy governor for prudential regulation. To the extent that the FPC asks for that, the FPC would be the responsibility of the deputy governor for financial stability.

Mark Durkan (Social Democratic and Labour Party, Foyle)

I am reminded of an experience in a Catholic school in my town. A priest was visiting the school one day and explaining an aspect of Catholic doctrine, but had an unfortunate throat problem and did not speak distinctly. A young student asked him to repeat something, because he had not understood it, and he received the answer, “You’re not supposed to understand: it’s a mystery.” I am in a similar position. Will the Minister say whether one or all of the deputy governors have clear responsibility in a way that is equivalent to the clear mechanism that was created in US legislation under the Dodd-Frank Act? Do we have clear equivalence or not?

Mark Hoban (Conservative, Fareham)

Mr Leigh, I suspect that you, the hon. Member for Foyle and I may be well equipped to discuss elements of Catholic theology, but I hope that the Bill is clearer than some aspects of Catholic theology. It is very clear that when the information is required from the PRA, the deputy governor for prudential regulation is required to provide it; he is responsible for that. The FPC, in asking for information, is the responsibility of the deputy governor for financial stability.

The hon. Gentleman alluded to the arrangements in the United States. We should remember that the landscape of financial regulation there is very different from that in the UK, in that it is much more fragmented. There are 50 insurance regulators, for example. There is the Office of the Comptroller of the Currency, which includes the Office of Thrift Supervision; and there is the Federal Reserve and the Securities and Exchange Commission—a whole plethora of bodies. There is greater need for an Office of Financial Research in the US than there is here. The Bill clearly sets out what the responsibilities are, where the information should come from, and who is responsible for providing that information.

Mark Durkan (Social Democratic and Labour Party, Foyle)

Under the Bill, quite a soap cast is being built up, so I would welcome more clarity. The Minister has helpfully clarified which deputy governor is expected to give the information. Will the same deputy governor have responsibility, through the PRA, for enhancing information standards and for keeping track of developments in information technology that might feasibly require there to be new information standards?

In the financial crisis, people said that they did not know that they were caught behind the pillar, because information systems were not available or because information technology had not been kept up to speed and reporting standards had not been made to conform to the new possibilities of that information technology. Who will be responsible for ensuring that information and reporting systems are state of the art and up to speed, so that no one can say that the problem was due to the fact that they were working on an old dashboard, when much better information would have been available had it been planned into the system?

Chris Leslie (Labour, Nottingham East)

I am grateful to my hon. Friend for bringing his history and background to bear. His anecdotes are immensely relevant to the Committee’s consideration.

I do not wish in any way to denigrate the Minister’s attempt to describe the structures; they are so simple and clear, how could we not see what is in the Bill? He has talked about the independence of the FCA and the varying roles of the deputy governors, but the more the Minister speaks—and we are only on clause 1—the more I start to think that the Bill is an over-egged, messy, overladen structural spaghetti tangle of new regulatory responsibilities and arrangements.

To go back to the point made by my hon. Friend the Member for Foyle about Catholic doctrine, it is important that the Minister should not fall back on saying that we must all have faith that the arrangements will become clear and that everyone’s responsibilities will all naturally fall into place. How could my hon. Friend not have seen, on page 13 of the Bill, how clear these matters are? The Minister made the point that the FCA is entirely independent. Page 13 relates to information requirements between the FCA, the PRA and the Bank, and page 29 relates to the duties of the FCA and the PRA to co-ordinate their functions. The PRA will be part of the Bank, so there will be more wiring there. On page 6, proposed new section 9G of the 1998 Act provides for the FPC to direct the FCA to implement measures.

The FCA does not sound like an organisation that is massively independent. It may be so under the Minister’s definition of “independent”; perhaps it is independent in the same way that he as a Minister is independent of the Chancellor of the Exchequer. I mean this in the most affectionate way, but the Minister is, of course, a cipher for the views of the Chancellor who, after the election, decided to implement in government the messy arrangement of structures that he had dreamed up in opposition. The hon. Member for West Suffolk, who was chief of staff to the Chancellor, and who perhaps had more of a hand in drawing up the architecture of the structures than the Minister did, may be able to elaborate.

The idea was clearly to pour opprobrium on not only the previous Government but the Financial Services Authority, as the body responsible for all the ills of the global financial crisis. That is, of course, a bit of nonsense, as the FSA can hardly be held responsible for what happened in the United States, never mind most of the other corners of the developed world. There was a set of political decisions to restructure the FSA, and a justification for that restructuring was then bodged together in a post hoc way in the Bill.

We have a political Chancellor who has been criticised for spending too much time on political strategy and not enough on financial and economic policy, and that possibly lies at the root of the mess that we are in. The devil, however, is in the detail, and it seems to be shouting loudly when it comes to the structural anomalies that are beginning to emerge, even in clause 1.

Mark Hoban (Conservative, Fareham)

I am sure that the hon. Gentleman has read the FSA’s report on the Royal Bank of Scotland and its supervision. One point that it makes concerns the confusion between conduct and prudential responsibilities. It refers to the fact that the FSA had a dual mandate, which was, in part, the cause of the problems it faced in properly supervising the financial sector. We are seeking to deal with that confusion in our reforms, and to answer the question about who is in charge. The clarity of the structure has much to commend it. If there is a failure, we now know who is responsible. Under the regime set up by the previous Government, everyone was allowed to duck responsibility.

Chris Leslie (Labour, Nottingham East)

Two wrongs do not make a right. I do not say that everything in the FSA was perfect, and there are important critiques to be made about prudential regulation. I am not sure, however, that the solution in front of us today will provide the route through. The Minister spoke earlier about the shadow Chancellor’s view on Second Reading. We were, and are, prepared to look in Committee at whether the Bill will become clear and can be improved, and will make a judgment on Report or Third Reading about whether to support it.

Even at this early stage, we are talking about the delineation of functions between deputy governors—macro-prudential, micro-prudential, and otherwise. The wiring is becoming unclear and there is danger in having opacity or ambiguity in regulatory reform. We should not, as the Minister would say, jump out of the frying pan into the fire.

My worry is that things are not as clear-cut as the Minister thinks. For example, we have already discovered that we will continue to have a NedCo to the court of the Bank of England, and an oversight committee as well. Presumably the NedCo will keep its role of reviewing the Bank’s performance in relation to its objectives and strategy, and the oversight committee will perform a similar role. That is a small part of the interstices of the structural constitution of the Bank of England, never mind any wider questions.

I am grateful to my hon. Friend the Member for Foyle for casting a light on the issue through his anecdote. Rather than us being made to feel that we are uninformed members of the Committee who ought to know better, and that things ought to be clear to us, the onus is on the Minister and the Government properly to explain the superstructure and the costs associated with it.

I may be prepared to let clause 1 stand for now, because we want to get to the meat of the Financial Policy Committee and other issues. However, this is an incredibly important moment in the Committee’s deliberations.

Clause 2 - The Bank’s financial stability objective

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 4, in clause 2, page 2, line 7, at end insert

‘(2A) The Bank shall also be under a duty to minimise, as far as possible, the use of public funds to support or rescue parts of the UK financial services industry.’.

The amendment would ensure that the Bank’s financial stability objective explicitly aims to reduce the likelihood of recourse to public funds in the event of a crisis. The Committee will not need to be reminded of the history and circumstances of the financial crisis—well, perhaps it will, because there has been a bit of revisionism by the Conservative party—and the impact that it had, requiring the UK taxpayer and the Treasury to step in and make sure that the cash machines still worked. There was the sad, unfortunate necessity of rescuing the banks, which led to the public finance situation that we are now saddled with, and that we see the Government making little progress in getting out of.

Jesse Norman (Conservative, Hereford and South Herefordshire)

Of course, it is within the hon. Gentleman’s formal rights to accuse the Government and Government Members of revisionism but, lest we forget the reason why the banks had to be taken over, there was no resolution regime under the previous Administration. Why was there no resolution regime? Because of the incompetence of the previous Government. That is the problem, if we are sticking to the facts of the matter, which the current situation is designed to resolve.

Chris Leslie (Labour, Nottingham East)

I did not want to go down the avenue of a partisan defence, but it clearly has to be done, notwithstanding that we are talking about amendment 4 and the need to minimise the use of public funds. The idea that the financial crisis can be wholly laid at the front door of the previous Government is specious nonsense and, if Government Members—I cannot remember if the hon. Gentleman was in the previous Parliament, because I was not—are legislating from that perspective, they are bound to make errors of judgment on the prescriptions to follow.

Edward Leigh (Conservative, Gainsborough)

Order. We will have a long debate if we talk about the origins of the financial crisis, so keep it narrow.

Chris Leslie (Labour, Nottingham East)

Exactly. In a different context yesterday, I was trying to coin the concept of mutually assured summation in our debates. We must keep an eye on the time and make as much progress as we can.

As I said, it is important that we listen to the recommendations of the Treasury Committee and of the pre-legislative scrutiny Committee. On page 37 of the 21st report of the Treasury Committee, it recommended that:

“Clause 2…should be amended so that the reference to the stability…takes account of the Chancellor’s proviso about not requiring the support of taxpayers’ money.”

The report of the pre-legislative scrutiny Committee stated, on page 20:

“The FPC’s objective should be amended to require it to ‘reduce the likelihood of recourse to public funds’.”

That was in respect of the FPC and we are discussing the Bank, but the point is broadly similar and an important principle on behalf of the taxpayers, who are suffering as a result of the banks’ failures. The banks are ultimately responsible for the mistakes—we can blame the policeman for sometimes failing to capture crime, but surely the criminal involved is culpable of the criminality. The parallel in a regulatory arrangement is that we can blame regulators or Governments for not having the resources or for not spotting a particular problem at a particular time, but the culpability has to rest with the actors principally caught in the act. That is a truism that even the hon. Lady would accept.

Lorely Burt (Liberal Democrat, Solihull)

I shall restrain myself from commenting on the fact that the whole problem arose because of the tripartite system, which the Bill is seeking to correct, in particular in this part. Does the hon. Gentleman not agree that built into the whole function is the minimisation of any further cost to the taxpayer after what happened under the jurisdiction of his previous Government?

Chris Leslie (Labour, Nottingham East)

I have no objection to improving regulatory structures—we are all present, spending our time, to try to do that. However, if the hon. Lady seriously thinks that the root cause of the problems of the global financial crisis was the design of the tripartite regulatory structures, I seriously disagree. If she and Ministers are coming from that point of view, that that is the causal problem at stake, they are completely deluded. I do not wish to diminish in any way anybody’s attempts to improve regulatory structures. As I have said, we need absolutely to learn lessons and enhance prudential regulatory capabilities. I am all for that. However, I disagree with the hon. Lady’s comments that it was a structural causation. I am afraid that I cannot go as far as that. That issue is really important because we will spend our consideration of the rest of these clauses ripping apart and refashioning all those structural arrangements. If she therefore thinks that everything will be fine and rosy and that is the solution, I am afraid she is sadly wrong.

Lorely Burt (Liberal Democrat, Solihull)

I agree with the hon. Gentleman that the structures will not necessarily ensure that we never get into the same situation again. However, does he not agree that it is extremely unfortunate that, along with structures, if there are not strong regulating and monitoring organisations, which is what the Bill is intended to deal with, whatever structures are put in place will not necessarily be satisfactory?

Chris Leslie (Labour, Nottingham East)

I do not disagree. We are obviously not a million miles apart. The hon. Lady makes the point that the policy approach and those changes are more important than necessarily who the actors are. I am not defending the current structure of the FSA and so on, but I do not think that it would have been impossible to place duties on the FSA that would have allowed it to improve and enhance its ability to undertake prudential regulatory activities. It would not have been absolutely impossible to achieve that.

We must, in a sense, judge whether the structural changes in the proposals before us today are absolutely functional in delivering that improved prudential regulatory step forward, whether they are possibly a second order question or whether they will inhibit or possibly complicate the clear lines of prudential regulatory approaches that we might want to have in future. In terms of what we are trying to achieve, we might be on a similar wavelength but, in terms of some of the structural arrangements, I am beginning to think that we might be stepping backwards rather than forwards. However, I am prepared to hear the Minister defend and advocate his case.

I digress slightly because the amendment is ultimately supposed to be fairly uncontroversial, and we should be able to achieve a degree of cross-party support. We surely would all agree that the Bank should be under a duty to minimise as far as possible the use of public funds to support or rescue parts of the UK financial services industry. That is something the Chancellor has said. Indeed, there are various triggers later in the Bill that relate to the Bank informing the Chancellor if those circumstances begin to arise. However, having a duty on the Bank is important and reasonable.

Matthew Hancock (Conservative, West Suffolk)

Could the hon. Gentleman explain how he proposes minimal cost to the taxpayer will be defined? Is it in the narrow cost of any cash transfers? Does it include the wider impact on the economy? Over what period? Is it over the immediate period of the rescue, over the period of recovery or over a period when there are wider economic consequences? Unless he can answer those sorts of questions, having a legal duty to consider those things seems to write into law something that will only confuse when it would be better for such matters to be tackled through the judgment of those who are charged with financial stability.

Chris Leslie (Labour, Nottingham East)

Sometimes it is important to say in a Bill—on the tin—what we want an individual, an Act or an institution to do. If we say that we want the Bank of England to be under a duty to have in its mind the need to minimise the recourse to public funds, it is pretty straightforward stuff. When I was a Minister, from time to time, I would be given advice to rebut an amendment. “Resist” is usually the advice given in big, bold capital letters to the Minister—resist, resist, resist. Of course, advice is given on arguments that could be made. Sometimes an argument about drafting—the technical wording—and enforceability is deployed. I advise the hon. Gentleman that that is not the best tack when trying to rebut this amendment. Most people would understand the importance of minimising recourse to public funds; the hon. Gentleman should not be dancing on the head of a pin about a definition.

Matthew Hancock (Conservative, West Suffolk)

The hon. Gentleman said that the proposal was simple. In that case, can he answer the question?

Chris Leslie (Labour, Nottingham East)

I just have. If the hon. Gentleman really wants an answer to the question about enforceability, the duty would not be justiciable—people would not be suing the Bank of England over it. However, the Bank would need to be mindful of its duty to minimise recourse to public funds when making decisions. That is not a particularly difficult concept to grasp, even for someone of the capabilities of the hon. Gentleman. [ Interruption. ] I did not think it was a cutting remark. He is clearly going places in the Government, almost as we speak.

It is important to ensure that we have a view to scenarios and policies that the Bank of England might be pursuing as a powerful new institution with a financial stability objective. At all times, it must keep in the back of its mind that it must be careful about taxpayers’ money. That is the intent behind our amendment. As far as I recall, we have still not had a full review of the role that the Bank played in the most recent global financial crisis. I want to discuss that at a later date. One of the interesting things that must come out is the extent to which the Bank has regard to taxpayers’ money. Ultimately, all our constituents are suffering as a result of Bank mismanagement and the risks that it took, so it is not—[Interruption.] The Government Whip, the hon. Member for Chelsea and Fulham, says that that is not so, but surely he is not trying to say that the banks are not responsible for this.

Jesse Norman (Conservative, Hereford and South Herefordshire)

Two issues arise from the amendment: one is whether the proposed duty on the Bank to minimise cost to taxpayers would be justiciable if it were written into legislation. Someone might reasonably say, “Actually, that is a matter for court.” The second point—

Edward Leigh (Conservative, Gainsborough)

One point is enough.

Chris Leslie (Labour, Nottingham East)

Thank you, Mr Leigh. The jusiciability of duties on Ministers, Secretaries of State and banks is important, however. The Committee may have realised that I am not a lawyer, which is a rare thing in Parliament these days, when most people have one law degree or other. I do not have such an educational background, so I wait to hear the Minister’s rebuttal of my amendment and whether he thinks that there is a problem.

Given that elsewhere in the Bill duties fall on Ministers and the Bank in other contexts, we probably do not have to flick far through it to find similar provisions. That is not the core issue, especially as the Treasury Committee asked for this change, and the pre-legislative scrutiny Committee asked for it to be included in the Bill. I understand that the Government responded to the Treasury Committee and the pre-legislative scrutiny Committee in January, saying that they agreed generally. However, they said:

“The FPC will not have a role in crisis management and will therefore not be in decisions made when there is a material risk to public funds”.

They said that the proposed

“‘public funds’ objective for the FPC would therefore not be appropriate.”

Of course, those comments relate to the FPC, which we shall discuss later, but that response seems slightly odd. It is important to take the public funds issue into account. I agree with the Treasury Committee’s view that the best place to include this change is in the Bank’s financial stability objective.

The Bank’s decisions might have an impact not only on rescue plans for financial institutions, but on the Financial Services Compensation Scheme, on the national loans fund and—heaven knows—even on the International Monetary Fund in certain circumstances. Public funds issues crop up from time to time, so it is important for us to hear the logic behind the Minister’s views on the amendment.

Mark Garnier (Conservative, Wyre Forest)

I do not want to take up a huge amount of time, as we have only started page 2 of 312 and we need to move on. I will repeat one or two of the points made this morning by the hon. Member for Solihull and others. The amendment discusses the bank’s duty to minimise as far as possible the use of public funds. I want to make three points. The first is that the entire Bill is all about minimising the use of public funds. The purpose of this great long process is to prevent another situation in which we must use huge public funds to bail out the banks and rescue the financial system. The whole thing is about mitigating the use of public funds.

My second point is this. The hon. Member for Nottingham East said that the Governor of the Bank of England should be considering a limit on the use of public funds, but since the Treasury Select Committee reported in November on the Bank of England’s accountability, the process has moved on somewhat and the Treasury has come back with a draft memorandum of understanding between it and the Bank with regard to crisis resolution. In that respect, although it is incredibly nice to see that Labour Members are unreservedly backing the Treasury Committee—I suspect that they see an opportunity to split the coalition with the members of the Treasury Committee and others on the Government side—the fact is that it will probably be a little tricky for him to find a fault line between us, on the basis that things have moved forward.

On that point, the crisis resolution introduces an ability for the Chancellor of the Exchequer, who is accountable to Parliament, to step in and make guidance when public funds are at risk. That is an incredibly important and welcome development.

Chris Leslie (Labour, Nottingham East)

The Treasury Select Committee came to a view that clause 2 should be amended so that the reference to stability takes account of the proviso not to require the support of taxpayers’ money, but the hon. Gentleman is saying that since that time, he has seen the memorandum of understanding and feels now that it is not necessary. Is that view shared by the Treasury Select Committee more widely? Has the Committee discussed it and decided to recant that particular recommendation, or is that just his view?

Mark Garnier (Conservative, Wyre Forest)

I certainly speak on my own behalf. I hesitate to say necessarily that we have all gathered together, but as we keep hearing from all sorts of people, as events change, one’s opinions change. As far as I am concerned—I will wait to see whether any other members of the Select Committee come forward to agree with me—I feel reassured that we are in a much more stable position now that the Chancellor of the Exchequer can step in and protect public funds.

Another important point about the Bank of England is this. One thing I do not want in a crisis is for those involved in dealing with the crisis, particularly those who deal on an executive level within the Bank, to sit there wondering what on earth constitutes a significant risk to public funds. Earlier, when the hon. Gentleman took an intervention, we discussed his definition of where the limit should be. The limit is incredibly important. What is an acceptable or an unacceptable limit on the use of public funds? My hon. Friend the Member for West Suffolk raised that point.

My final point might sound contradictory, but it is not meant to be. If we start writing a specific limit into legislation, even if we discover collectively in one way or another what that limit should be, will it necessarily help the financial stability objective? At the end of the day, markets will look at the financial system and the regulatory regime in the UK and ask whether the system will ultimately be protected and underwritten by the Government. We are trying to get away from having the Government underwrite every single financial crisis, but many financial institutions are coming to the area and people are investing their money in the UK. If we were to set an absolute limit on the amount of money, by any definition on which I am sure the hon. Gentleman will put his undoubtedly impressive brainpower to work in order to come up with, at some point, the markets may turn around and say, “Other countries do not have a limit, but this country does. It is less stable.”

Chris Leslie (Labour, Nottingham East)

I want to be clear about what the hon. Gentleman is saying. [ Interruption. ] It is important that my brain can understand the even more impressive statements of the hon. Member for Wyre Forest. I do not think that he disagrees with the spirit of the amendment. Does he think that the Bank should have regard to the need to minimise the use of taxpayers’ funds in any rescue arrangement? It seems that he is disagreeing with the drafting of the amendment. He said earlier that he did not want the banks sitting and thinking about what the impact on public funds would be. I am sure that that is not quite what he meant.

Mark Garnier (Conservative, Wyre Forest)

It is a fair point, and I ought to clarify mine. We, collectively, go through a great deal of trouble to ensure that people who are involved in the court of the Bank of England, the MPC, the PRA and the rest of the three-letter mnemonics that we can come up with are extraordinarily good at their jobs. One would hope that those people are selected on the basis that they naturally have an idea about the issues. To then hobble them by putting a specific limit—we still do not know what it is—would direct their attention away from what they are good at and ask them to try to deal with issues within the confines of some arbitrary level. At the end of the day, I feel uncomfortable that the amendment would not allow the Court of the Bank of England to be able to do what it wanted.

Fabian Hamilton (Labour, Leeds North East)

I appreciate that the hon. Gentleman is talking about a specific limit, and I understand and accept his points. The amendment states:

“The Bank shall also be under a duty to minimise, as far as possible, the use of public funds to support or rescue parts of the UK financial services industry.”

It does not set a limit. Does he accept that that would be a perfectly reasonable amendment, which simply adds to that duty to not exacerbate the amount of public funds going in? “A duty to minimise” is all the amendment says.

George Howarth (Labour, Knowsley)

Order. I remind the Committee that interventions should be brief and, preferably, stick to the question.

Mark Garnier (Conservative, Wyre Forest)

I will wind up now, because we could go on all afternoon about the issue. The problem is that the amendment is subjective. It does not give any clear definition. We have heard from my hon. Friend the Member for West Suffolk that the amendment does not come up with any sort of hard idea. As such, it would not add to the Bill.

Mark Durkan (Social Democratic and Labour Party, Foyle)

Taking up some of the points made by the hon. Member for Wyre Forest, as the hon. Member for Leeds North East pointed out, the amendment does not refer to any limits and would not require a limit to be fixed, either in absolute terms or in the event of any particular circumstance. The amendment seeks to make good a clause that changes some of the handles that are used in the existing financial stability objective. We have had the experience of the past few years. In essence, the clause will leave the financial stability objective to stand as was. I know that we have been told that there are some changes later in clause 3, but, in primary terms, the clause before us basically changes

“contribute to protecting and enhancing”

to “protect and enhance” and “systems” to “system”. It changes those words to refer to the two new vehicles that will take over the Financial Services Authority. The message seems to be that the financial stability objective stays the same. All that changes is some of the terminology.

The amendment of my hon. Friend the Member for Nottingham East, to which I have added my name, deals with the fact that over the past few years, many people have questioned whether the financial stability objective puts the financial system and the players within the financial services sector above the national and public interest. This amendment tries to ensure that part of the financial stability objective is not just to stabilise the financial system against all sorts of systemic risk but to protect the public purse. It is simply a balancing of that and a rounding off of that objective.

Many people think that the financial stability objective is all about ensuring that the whole state system—the whole apparatus of Parliament and the Bank of England—is there to bail out the excesses and inadequacies of the financial system and that the public purse should be at the call of that system. For exactly the reasons that the Treasury Committee has identified––that this clause should be made more complete and more balanced and that people should know that we were carrying the experiences of the last few years with the heavy exposure that there has been in relation to the taxpayer––the amendment is simply showing that Parliament has learned that lesson, is wise to the risk and is mandating the Bank of England in its job description. I take on board the Minister’s point. In essence, he is saying that if we look at the Bill as a whole, we will see that it is trying to ensure that the risk is minimised, but that is a bit like the old story of everyone and no-one. We cannot say that the financial stability objective is there in the whole Bill. It is either in the key job description of the Bank of England or it is not. Currently, it is not, and this amendment would put such a measure into the key job description of the Bank of England. What is wrong with that?

Chris Evans (Labour, Islwyn)

It is a pleasure to serve under your chairmanship, Mr Howarth. I was not going to speak because I have a blinding migraine, which has meant that it has been quite quiet in Committee today.

I speak in support of this amendment. The Government have accused it of being quite narrow, but I see it as going towards the first step. If this Bill is about anything, it is about protecting the banking industry. I do not want to go into any detail about why we have ended up in the place that we are in now. The key is protecting the taxpayer in the future. We do not want to be faced with a situation in which we are in deficit and have to bail out the banks again, because that has a knock-on effect on the wider economy. That is why we need some protection to say that there is a limit. If the banks end up in trouble again, we do not want the taxpayer bailing them out. We have heard both sides of the House saying that the banks failed because they thought that they were too big to fail. It is always dangerous from a market-driven point of view if we say to a company that it does not matter how it runs its business. It would be dangerous to say, “If you run your business into the ground, we will protect you.” It would be like saying, “You can do whatever you want; you will always be bailed out.” It is important to have some measure in place. [Interruption.] When the Government look at this, we can talk about definable measures, but this is the first step. That is all I will say because the lights are bright and my head is banging.

Mark Hoban (Conservative, Fareham)

It is a pleasure to serve under your chairmanship this afternoon, Mr Howarth. The hon. Member for Islwyn, who is suffering from migraine, got to the heart of this debate. It is about the cost of failure, how that cost is borne, who bears the cost and who decides what an appropriate cost is. My remarks will therefore cover both the cost and who decides. Who decides is key to this clause and key to the whole Bill, so I want to expand a little more widely than the strict confines of the amendment to give a sense of what the Bill is about and to tackle the blurring of responsibilities that the amendment would result in if the Committee accepted it. We need to be clear about the architecture that we are debating.

No one should be in any doubt about the importance placed by both Government and Parliament on the need to protect taxpayers’ money when there are problems in the financial system. The events of the financial crisis of 2008-09, during which billions of pounds of public money were needed to prop up failing banks, were unacceptable. One of the Government’s overriding priorities is to take steps to ensure that we never find ourselves in that position again. We set up the Vickers commission to examine some of these issues. I will not go into detail about that now—I will save that delight for another day and another Bill—but changing the structure of the banking sector is clearly one of the ways in which we are trying to make the system more stable and to reduce the risk posed to taxpayers by failure in the banking sector. Part 4 makes fundamental changes to the way in which financial crises will be managed in the future.

The legislative provisions, together with a detailed crisis management memorandum of understanding, will for the first time provide absolute clarity about the respective roles of the Bank of England and the Treasury in a situation in which public funds might be put at risk by a problem in the financial sector. A key element of the clarification of those roles is that the Bill creates a new power for the Treasury to direct the Bank where public money is at risk. That power will underpin and underline the overriding principle that it is the Chancellor of the Exchequer who takes decisions involving public funds. It is that principle and the need to avoid diluting or obscuring it that makes me uncomfortable about the amendment proposed by Opposition Members.

Before I deal with the detail of the amendment, I should like to explain in more detail why the Government believe that it is vital to maintain absolute clarity of responsibilities between the different bodies in the regulatory system and the distinct roles that they fulfil within it. This is the first of a number of Opposition amendments that would blur those clear responsibilities. It is therefore important, in order to avoid repetition of the argument in Committee, to say a few words about that.

One of the main flaws in the system that we inherited from the previous Government was the blurring of the boundaries of responsibility. That problem was particularly acute in the area of crisis management and financial stability. As the Treasury Committee pointed out:

“The biggest failings of the Tripartite’s handling of Northern Rock were that it was not clear who was in charge, and, because the Tripartite took a minimalist view of their respective responsibilities, necessary actions fell between three stools.”

We therefore need to be clear about the roles of each of the bodies that we are creating.

Chris Leslie (Labour, Nottingham East)

I do not in any way seek to blur the responsibilities of each of the bodies, but I take issue with the Minister’s logic in relation to asking the Bank of England to keep an eye on whether decisions that it takes or recommendations that it makes may incur or have the effect of incurring taxpayers’ money in any rescue in a crisis. I do not see how that is in any way—what was his phrase?—“diluting or obscuring” the primary duty that the Chancellor has. Why should it be a case of one or the other?

Mark Hoban (Conservative, Fareham)

I will deal with that question in due course. I will not duck answering it, but I want to build my argument first. It is because of the lack of clarity on responsibilities that the Government are adamant that it is vital in the new system that the respective roles of each of the bodies in the financial system are clearly delineated. That will ensure that the system is based on mutual respect and mutual recognition of the expertise of each body. It will avoid duplication of work and provide clarity and certainty for firms.

This morning, we talked about the Financial Policy Committee as the macro-prudential regulator. Its remit is to focus on systemic risks, which are the risks that affect the entirety or a significant part of the financial system. Its job is to focus on the big picture and the big risks. The Prudential Regulation Authority and the Financial Conduct Authority will be responsible for the regulation of individual firms, from a prudential and conduct perspective respectively. Their remit is to focus on the safety, soundness and conduct of individual firms. Their job is to deal one-on-one with firms, questioning their business models, their levels of risk and their behaviour towards customers and other firms.

In constructing the new bodies provided for by the Bill, we have emphasised that each body should have a clearly defined remit, and the tools and expertise that it needs to be expert within that remit. It would be inconsistent with that approach to confer overlapping remits on the FPC and the regulators, or to allow the FPC, which will not have micro-regulation expertise, to trump the judgments of regulators on micro-regulatory matters. That would take us back to the bad old days of the tripartite system, where the lines of responsibility and accountability were blurred. We are also concerned about the impact that that type of overlap would have on the regulated community and their relationship with the regulator. We would not want the FPC to encroach on or second-guess the decisions and judgments of regulators when it comes to the regulation of individual firms. That would be disastrous for the regulators and for the companies that they regulate, which would never be certain whether a firm, specific decision by the regulator was the last word or whether the FPC could overrule that decision at a later date.

If we allow the FPC to spend its time duplicating or second-guessing the work of the regulators, which will be looking at the bigger picture, that would be problematic too. We need the FPC to play the vital role that everyone agrees was missing in the run-up to and during the financial crisis; that of a strong and expert macro-prudential authority, with the remit to look at rifts across the system and to take action to mitigate those risks. That is why the powers of the FPC are constrained. It cannot make directions or recommendations that are targeted at individual firms. Instead it must refer to classes or types of firm or activity when making directions or recommendations.

Let me come back to amendment 4. As the Government set out in our response to the TSC’s report, we agree entirely that protection of public funds should be the core priority for the new regulatory system, and clearly the Bank of England has a fundamental role to play in that system. As part of its objective to protect and enhance financial stability, the Bank will be responsible for reducing the likelihood of serious threats to stability that might have the potential to put public funds at risk.

However, the principle that I have already set out about the importance of the responsibilities and remits of each body being clearly delineated applies in the same way to this matter as it does to the relationship between the FPC and the regulators. Once there is a material risk of circumstances where public funds might be needed, the Bank is under a statutory duty to notify the Treasury. Effectively, from that point onwards, the ultimate responsibility, including any use of public funds, passes to the Chancellor. Giving the Bank an explicit duty to minimise recourse to public funds would risk diluting and undermining the principle that it is ultimately the Government’s responsibility to protect public funds. As I have set out, ensuring clarity of responsibilities is a central tenet of the reforms set out in the Bill and we are not willing to compromise that tenet by giving the Bank a statutory duty for something that ought to be the exclusive responsibility of the Government of the day, who are accountable to Parliament.

Chris Leslie (Labour, Nottingham East)

I want to get this matter absolutely clear, because the Minister’s elaboration will henceforth prove very useful. We will call this his compartmentalisation speech. We will consider this idea of clear delineations in little boxes as the Fareham doctrine.

Is the Minister saying that the Bank of England’s decisions need to disregard any impact on public funds and instead, when responsibilities pass to the Chancellor, the Bank should rely entirely on the Chancellor to be the guardian of public funds? I ask because that is how I heard his description.

Mark Hoban (Conservative, Fareham)

There are two points that I will make in response to that question. First, the Bank of England is the guardian of financial stability and, as I have said, what it should be doing in its role of tackling financial instability is minimising the risk that a firm will fail. That is not to say there will be no failures. Also, through the work that the PRA will do, and its interventions, the safety and soundness of individual firms will be looked at. So there is a clear role to be played.

However, a question arises: when there is recourse to public money, or if there is a risk of recourse to public money, who should be making decisions about how it is spent, and the nature of the resolution? I think hon. Members would expect the Chancellor of the Exchequer and the Government of the day to be responsible for making the decision.

I will address in a moment the point made by my hon. Friend the Member for West Suffolk in an intervention, because that also suggests a wider responsibility on the part of the Government. It is for the Government to take decisions about public money and how it should be spent. If we had said that the Bank should decide, the Opposition and Parliament more broadly would say that it is surely the Government’s responsibility—and it is.

The Government are there to decide how public money is spent and what is the best use of it. The Bank has a role in managing financial stability and minimising the risk of failure, but ultimately, when there is a risk to public funds, the Government should be in the driving seat.

The hon. Member for Foyle is itching to get in, so let me take his intervention and then make progress.

Mark Durkan (Social Democratic and Labour Party, Foyle)

The amendment would not alter the role of the Government or the Chancellor in that regard. It would simply make it clear that the Bank of England would have a duty, in its pursuit of the financial stability objective, to have regard to ensuring that there was no undue recourse to public money. Is the Bank of England now being told that that is not its job and it does not have to worry about it?

Mark Hoban (Conservative, Fareham)

Hon. Members need to reflect for a moment on the fact that plenty of legislative and non-legislative provisions already make it clear that the Bank has a responsibility to act in a way that minimises the need for public funds. The amendment is not right because it creates confusion about the responsibility—about who is accountable for the use of public funds.

Matthew Hancock (Conservative, West Suffolk)

Is the Minister surprised, as I am, that the proposition from the Opposition that we discussed this morning pushed for more clarity about who is responsible for things, whereas the amendment before the Committee muddies clarity about that? Is not there some inconsistency in the amendments?

Mark Hoban (Conservative, Fareham)

My hon. Friend is right. The problem that the Opposition have is that whereas previously lines of accountability were blurred, confused and obscured, the reforms are intended to clarify responsibilities; but the Opposition seem almost desperate to return to those days of obscurity and blurred lines of responsibility, where no one was felt to be in charge. We are being very clear about who is responsible for which parts of the process.

The hon. Member for Nottingham East asked earlier, from a sedentary position, where the legislative and non-legislative means of ensuring the Bank is aware of its responsibilities in relation to public funds are set out. I draw his attention to paragraph 22 of the draft memorandum of understanding on crisis management, which makes it clear that the Bank must

“take account of the Treasury’s need to use public funds in a way which meets standards of regularity and propriety and provides good value for money.”

There are constraints there, but ultimately clarity and responsibility must rest with the Chancellor of the Exchequer.

Chris Leslie (Labour, Nottingham East)

The Minister may need a little inspiration at this point. He has quoted from the draft memorandum of understanding, which is not a legislative provision. In draft form it currently states that the Bank should have some regard to public funds. I suppose that that is a step in the right direction. The Minister has grasped an opportunity to accuse us of blurring the arrangements, but it appears that the draft memorandum is guilty of a sin similar to that committed by our amendment.

The Minister said that there were legislative and non-legislative provisions. Where are the legislative provisions under which the Bank must have regard to public funds?

Mark Hoban (Conservative, Fareham)

The Bank’s financial stability objective gives it a clear remit for identifying and addressing risks to stability, which would include those with the potential to require public funds. [ Interruption. ] Hold on. The hon. Gentleman and the hon. Member for Foyle said that the amendment would just require the Bank to have regard to the use of public funds.

Chris Leslie (Labour, Nottingham East)

A duty to minimise.

Mark Hoban (Conservative, Fareham)

Exactly, and a duty goes much further than having regard to something. One cannot just say that it is semantics or flip the words between the two. There is a clear difference between them.

I want to tease out the broader issue that my hon. Friend the Member for West Suffolk highlighted. He asked a question about how public funds would be defined in this context. The hon. Member for Nottingham East did not have a substantive answer. It is a genuinely difficult issue to resolve. It is not a technical drafting question; it is a question that goes to the heart of the effect of the amendment. Clause 54 of the Bill places the Bank under a duty to notify the Chancellor of risk to public funds. It sets out the circumstances in which public funds should be taken as being at risk. They range from the special resolution regime to a national loans fund to support payment by the Financial Services Compensation Scheme.

The Bank will have an important role to play in relation to such cases, but it is clearly not responsible for all the decisions or for ensuring that interventions are handled effectively. Ultimately, that is the responsibility of the Government. As my hon. Friend suggested, there are other elements of a wide-ranging policy to take into account—for example, the overall management of the economy in a financial crisis and the impact of a crisis on economic growth and the fiscal position. Those would also come into play under such a duty. Those are clearly the responsibility of the Treasury as the UK’s finance and economics ministry directly accountable to Parliament. They are not matters for the Bank of England.

A broad and legally enforceable duty on the Bank to minimise recourse to public funds would go way beyond the Bank’s responsibilities and areas of influence.

Chris Leslie (Labour, Nottingham East)

Will the Minister give way?

Mark Hoban (Conservative, Fareham)

Let me conclude. I may resolve the hon. Gentleman’s question.

The proposal would impose a duty on the Bank that it does not have the tools to discharge. Contrary to the view that he expressed before lunch, the Government consider that such a duty would give rise to litigation. There is no reason why a person with sufficient interest, who thinks that the Bank has failed to discharge such a duty, could not bring judicial review proceedings. No doubt a court would give a wide margin of appreciation to the Bank’s judgment in this area. However, I do not consider that the court would refuse to consider the matter at all or declare that the whole matter was non-justiciable.

Chris Leslie (Labour, Nottingham East)

This is one of those times when a Minister opens a box of arguments to resist amendments, but he is scraping the bottom of that box at the moment. He doubts that “minimise” can be quantified or enforced, but in the change that he makes in his own clause, he talks about enhanced financial stability. How are we to measure whether the Bank is enhancing? How is that not justiciable? He contradicts himself in his own clause.

Mark Hoban (Conservative, Fareham)

I am not sure whether the pot is calling the kettle black in bringing in other arguments. There is a fundamental point here. The amendment imposes a duty on the Bank of England to minimise the use of public funds. My argument, contrary to that of the hon. Gentleman, is that it is a matter that could go through the courts. This morning he thought that it would not. My legal advice suggests that it would. The point of substance is this: it is the responsibility of the Treasury, which is accountable to Parliament for the use of public money, to make decisions about the best use of public money. I am thinking not only about the actual cost of intervention, but the wider social, economic and fiscal effects of that intervention. I am sure that would have been the thought process that went through the mind of the right hon. Member for Edinburgh South West (Mr Darling) when he was Chancellor of the Exchequer and having to deal with the Royal Bank of Scotland and Lloyds Banking Group, and weighing up the conclusions. The Bank has a narrow focus.

I have an example of one of the responsibilities under legislation. The Bank has to minimise the use of public funds under the Banking Act 2009, under the special resolution regime. One of the objectives is to minimise the use of public funds in operating a resolution regime. However, this is a narrow area of debate. The Bank should not ignore the impact of its decisions on the use of public funds. As I said, financial stability and the MOU clearly have implications, but to impose a duty on the Bank to minimise such use ignores the fact that responsibility actually rests with the Treasury, which is accountable to Parliament. That responsibility should not be borne solely by the Bank of England.

The hon. Gentleman raised a legitimate point of debate about the use of public funds and where responsibility should lie, but he must recognise that the pressure from Parliament has been that decisions about public funds should rest with the Treasury, not the Bank. That is what we are implementing in the Bill. There is a clear set of responsibilities through the Bill and previous legislation. Imposing a duty on the Bank opens it up to making decisions beyond its capability and remit. It also opens it up to court action, which is not what we want.

Mark Durkan (Social Democratic and Labour Party, Foyle)

Will the Minister give way?

Mark Hoban (Conservative, Fareham)

I was just about to wind up. I hope that the hon. Member for Nottingham East will see the light and withdraw his amendment. It would create confusion where the current regime has clarity and go back to the days before the reforms, when it was clear that no one was in charge.

Chris Leslie (Labour, Nottingham East)

May I also welcome you, Mr Howarth, to the Chair? It is a pleasure to serve under your chairmanship. The Minister finished his remarks by hoping that we would see the light after having dared to ask that the Bank of England should have a duty to minimise, as far as possible, the use of public funds to support or rescue parts of the UK financial services industry. He then went for the Fareham doctrine, as I call it, of compartmentalisation. His approach, as I see it, is essentially to draw little boxes and walls and say, “That’s your duty; that’s not your duty. Thou shalt not think about these questions. It’s all got to be very circumscribed and precise.” In another context, he castigates the current regulatory regime for underlap problems, but I suppose there are dangers that his own doctrine could cause those problems to happen yet again.

The Minister quoted the Banking Act 2009, saying, “Well, actually, yes, that Banking Act”—which, by the way, we do not propose to amend in this respect—“does allow for the Bank to have a duty to minimise the use of public funds in special resolution regimes.” He does not disagree with the provision being in that legislation. In that context, it is not a blurring, yet it would be to put it into the Bank’s financial stability objective.

I accept that the grandiose objectives of big institutions, whether the Treasury, the Bank of England or others, are broad statements. Currently, the clause seeks to change the statement, as my hon. Friend the Member for Foyle said. Instead of reading “contribute to protecting and enhancing”

the financial systems, it will read

“protect and enhance”

the financial system.

Those are similarly qualitative concepts and phrases that are not quantified in the way that the hon. Member for West Suffolk called for. Ultimately, they are just as subjective as “minimise the use of public funds”. The Government are saying, simultaneously, that a duty to minimise the use of public funds would be impossible because it is subjective, but that it is okay to say “protect and enhance” financial stability. I find their logic difficult to see at this point.

It is absolutely right that the Treasury, as the guardian of public funds, is where primary responsibility should rest. I do not have a problem with the concept, as set out in the draft memorandum of understanding, that the bell should be rung when the Bank makes decisions or takes steps that might have an impact on public funds, but I do not see why that is incompatible with a general statement at the top of the objectives of the Bank of England that says, “If you don’t mind, please minimise the impact of the use of public funds to support or rescue parts of the UK financial services industry.”

We are amending the Bank’s financial stability objective at a time when, as my hon. Friends the Member for Foyle and for Islwyn pointed out, a great deal of taxpayers’ money has been used to save the banking system. Our constituents would expect nothing less than for us to say, “Under the new regulatory regime, those in charge have a duty to minimise the use of public funds in supporting or rescuing parts of the financial services sector.” It is almost the top thing that they would want us to do.

I am totally baffled that coalition Members—the Conservative ones at least—have said that they wish to vote against the amendment. I would have been happy if the Minister had said, “I’m kind of interested in doing this, so if you withdraw the amendment, we will look at it on Report, because I understand where you are coming from.” I do not think that this needs to be a party political point. Ultimately, how we frame and describe the financial stability objective of the Bank is important. On Bill Committees, I sometimes get the sense that we are wasting our time a little—the Minister has “Resist amendment” all the way through his folder—but I hope that is not the case, because trying to improve legislation through scrutiny ought to transcend party political debate. Making suggestions about how to enhance the text is the job that we are here to do.

Fabian Hamilton (Labour, Leeds North East)

As long as the Treasury and the Chancellor have the final say on the use of public funds, surely there is no contradiction in putting a duty on the Bank to minimise the use of public funds and the ultimate decision being with the Treasury and the Chancellor.

Chris Leslie (Labour, Nottingham East)

Absolutely, and there is a danger in the Minister’s statements today, which are in many ways contradictory. It felt as though he was saying at one point that the Bank must disregard questions of public funds because those are ultimately the responsibility of the Chancellor and it would blur the lines, and that therefore it should put forward recommendations no matter what the cost or impact on the taxpayer. It is for the Chancellor to spot the impact and ensure that he is the sole guardian, rather than ensuring that public bodies generally, which include the Bank, have an eye on it.

Mark Durkan (Social Democratic and Labour Party, Foyle)

Further to that point, does my hon. Friend agree that the danger is that the Minister’s argument today is that the Bank of England will essentially be told, “Worry about the system for its sake. Worry about the bankers. The taxpayers are not your concern”?

Chris Leslie (Labour, Nottingham East)

I know that there is a danger that the Minister’s remarks might send that message. I hope that that is not the Government’s view.

Mark Hoban (Conservative, Fareham)

I think that I made it clear. The hon. Gentleman may recollect that I referred to paragraph 22 of the memorandum of understanding and to the Banking Act 2009. The point I was trying to make is that when it comes to the decision about how much public money is used and who is responsible for that decision, the duty rests with the Chancellor, not the Bank. The amendment puts the duty on the Bank, not the Chancellor. The final decision should be with the Chancellor.

There are provisions in legislation and elsewhere that mean that the Bank has regard to the amount of public money spent, but the ultimate decision rests with the Chancellor. We have done that to avoid the confusion of the previous regime—the Chancellor is accountable, not the Bank.

Chris Leslie (Labour, Nottingham East)

Interestingly, that intervention may have shed light on the Minister’s thought processes. He seems to be labouring under the impression that inserting the amendment into the financial stability objective would in some way dilute or amend the Chancellor’s duty to be the guardian of public funds. It would not, however—and if he thinks that it would, he is misreading the amendment.

I cannot see any way in which inserting a duty on the Bank of England to minimise the use of public funds would dilute or water down the Chancellor’s responsibilities. It is as if the Minister is suggesting that there can be only one guardian of public funds. Why not have two in this context? Can only one institution play such a role? Of course not; that is nonsense.

If the Minister were in the mood to be constructive about how to improve the Bill, I would be happy to suggest that we come back to the matter on Report. If he prefers “have regard to” or thinks that the provision should be of second order compared with the Treasury’s primary responsibility, I would be happy to look at that. There is deep confusion and danger if the Government feel that a Bank of England that dares to have regard to taxpayer protection will in some way challenge the role of the Chancellor or be a bad or retrograde step. I completely disagree with the Minister about that, and many of our constituents would be surprised to hear such an argument.

On occasion, Governments have to rebut amendments or ask the Opposition to withdraw them and so on. However, the Minister should be careful about deploying arguments that could be construed outside the Committee as saying that what happens with the use of public funds has nothing to do with the Bank of England.

Mark Hoban (Conservative, Fareham)

Let me repeat again—for the third time, I think—that there are provisions in legislation, and things such as the MOU, that shape the Bank’s thinking on the use of public money. The hon. Gentleman is wrong to suggest that we would allow that focus to become blurred if we had multiple guardians of the use of public money.

Ultimately, decisions about public money are the responsibility of the Chancellor, who must take into account his wider responsibilities as a Finance Minister and an Economic Minister, and look at the broader context. The Bill, the MOU and the Banking Act 2009 ensure that the balance of responsibilities is right between those of the Bank and, crucially, those of the Chancellor.

We need clarity and focus regarding who is to make big decisions about the use of public money, and what considerations should be behind such decisions, and the Bill provides that where it was previously lacking.

George Howarth (Labour, Knowsley)

Order. I remind the Committee that my earlier point about interventions from Back-Bench Members also applies to those on the Front Bench.

Chris Leslie (Labour, Nottingham East)

I appreciate that, Mr Howarth. We may feel—the Minister certainly does—that we are reiterating certain points, but they are incredibly important. The Minister asks whether we realise that the 2009 Act already states that the use of public funds should be minimised in respect of resolution regimes, and that paragraph 22 of the draft memorandum of understanding—not a legislative document—also does the same, and says that that is sufficient.

The Minister almost implies that that is enough blurring of the line and we do not want any more, and that if this measure were to be put in the Bill it would cause too much blurring and too much care and attention would be paid to public funds, which would be a step too far. His logic suggests that he needs to go and have a word with the Chancellor and talk the measure through. The Treasury Committee and the pre-legislative scrutiny Committee also looked at this issue.

Mark Durkan (Social Democratic and Labour Party, Foyle)

My hon. Friend is encouraging the Minister to think again about this issue. Following on from that, perhaps the Minister will also think about some of the wording used. The amendment refers to

“the use of public funds”,

and that could cause the complication since the use of public funds would fall to the Chancellor. The Minister referred to recourse to public funds. Perhaps there should be an amendment that gives the Bank a duty to anticipate and minimise possible recourse to the use of public funds, which would not interfere with the Chancellor’s jurisdiction over the use of public funds.

Chris Leslie (Labour, Nottingham East)

My hon. Friend is correct, and I swear by my cub scout oath that, if the Minister wants to bring something back on Report that is framed in a more modest, precise and measurable way, I will not crow from the rooftops on the Floor of the House; I will welcome it and congratulate him, and I will say that it is part of the scrutiny process. I make that solemn pledge to him today. I think it is possible to achieve that. There are probably very few external press organisations listening to our proceedings today, although I am not necessarily sure of that, but on the Floor of the House I would be happy to congratulate him and be the first to say that the change would be useful.

I really think that the Minister needs to look at the logic of his arguments to rebut the amendment. He needs to recognise that, as a financial stability objective setting out at the top of the Bill the goals and aspirations for the Bank of England and how it should operate, it is important that we signal to our constituents that the use of taxpayers’ money or public funds, however we describe it, is an issue to which the Bank of England should show some care and attention. That is all we are asking.

I am afraid that I do not wish to withdraw the amendment. It is important, so that we might encourage the Minister to revisit the issue at a later date, that we put the amendment to the vote.

Chris Leslie (Labour, Nottingham East)

Our previous debate began to stray into some of the wider provisions of the subsections of clause 2, which, as my hon. Friend the Member for Foyle said, seeks to amend section 2A of the Bank of England Act 1998 so that the new objective is to “protect and enhance” the stability of the financial system, rather than

“contribute to protecting and enhancing”

the financial system. That objective was introduced by the Banking Act 2009, and, essentially, it is being preserved with a semantic change.

I am conscious that we are due a Division in the House imminently, so I just want to make a number of points before the Committee is suspended.

The Government’s choice to vest the task of protecting and enhancing the financial system so comprehensively in the hands of the Bank of England raises a set of questions, not entirely different from the discussion that we just had about protecting public funds.

If we are to take literally the move from contributing to protecting and enhancing, there is the implication—perhaps we are back to that Fareham doctrine of compartmentalisation—that Her Majesty’s Treasury or other bodies may not have as strong a duty to contribute to protecting and enhancing the stability of the system. I think it is possible for the Treasury to do that at the same time as the Bank of England. I would not expect the Treasury not to have a role in protecting and enhancing the financial system.

My first question to the Minister is this. As he thinks that the use of public funds is entirely in the permit of the Chancellor of the Exchequer, is the change he is making to the financial stability objective for the Bank in any way diluting or diminishing the role of Her Majesty’s Treasury and the Chancellor of the Exchequer in contributing to the protection or enhancement of the stability of the financial system?

Chris Leslie (Labour, Nottingham East)

I was asking the Minister my first question about how his doctrine of compartmentalisation applied equally, or not, to the role of Her Majesty’s Treasury in having a duty to protect and enhance stability in the financial system. We were discussing the semantic change in clause 2 in relation to the Bank’s objective becoming to protect and enhance the stability of the financial system.

I want to know to what extent the Treasury feels that it has a duty and an obligation to take steps to do that as well. I presume and hope that the Minister will say, “Yes, it is possible for Her Majesty’s Treasury to also contribute to the protection and stability of the financial system.” I hope that he will not say, “It isn’t anything to do with us. This is entirely the responsibility of the Bank of England.” That would be of great regret, to say the least. I would be interested to hear the Minister address that point when he speaks.

Mark Durkan (Social Democratic and Labour Party, Foyle)

As well as the point about the change in the language to protect and enhance, does my hon. Friend have any anxieties that such a change, which is pretty absolute, would open up possible challenges in relation to justiciability? The Minister said that that was a risk with the amendment that we previously discussed. Surely, it is a serious risk with absolute terms such as “protect” and “enhance”.

Chris Leslie (Labour, Nottingham East)

To be fair to the Minister, I did not think that it would be a particular risk to say “protect and enhance” the financial system, or that having that phrase in the financial stability objective would be a danger. However, in his earlier remarks, the Minister sought to rebut any other elaboration of that financial stability objective by saying that there is a risk of justiciability and judicial review of that clause. Therefore, I suppose that it opens the door to the prospect that an individual or firm who experienced difficulties—lost money—in a future crisis and felt that the Bank of England did not protect or enhance the stability of the financial system could take legal action against the Bank. That is the implication of the Minister’s comments.

This is the important second point for the Minister. Given what I thought would not be the case but he said is the case—that there is a prospect of judicial review—and given that the phraseology and the terms that we are using will indicate that it is the Bank’s duty not simply to contribute to something but to protect and enhance the stability of the financial system, that is pretty absolutist, as my hon. Friend says, and is a big responsibility. As I say, I did not think that it was in any way a bad thing to put in the Bill. The Minister, however, has painted a big old question mark above the clause, so he needs to explain how that change will not lead to a flood of litigation or other changes, given his earlier comments.

My third point is, to what extent can we have absolute confidence in the Bank to live up to that ultimate responsibility and the role placed on it by the clause? I hope that the Bank can fulfil that function, but the Committee will recall my earlier bemoaning of a lack of a thorough review and assessment of the role of the Bank of England during the 2008 to 2009 financial crisis. To this day, we have still not had the Bank review of its role or the contribution that it did or did not make to the circumstances back in 2008. It is all very well for Ministers to heap the blame on the Financial Services Authority and the previous Government, as they do, but the Bank of England surely had a role. Does the Minister think that we ought at least to open the lid on what the Bank of England’s responsibilities, frailties, successes and failures might have been, or is that something that we should sweep under the carpet, as we give more and more power to the Bank to take on what could be the sole role—given the Minister’s doctrine—to protect and enhance financial stability? I should like to know the Minister’s view. I want to press the Government on those three points.

An inordinate amount of taxpayer support has been given to the banking system. The National Audit Office report of July stated that explicit support for the banks was around £450 billion, down from a peak of more than £1 trillion some years ago. The total outstanding support is the equivalent of 31% of gross domestic product, as at March last year. The cash outlay is much less than the implied support—that safety net—which is still large and significant. We are still talking about serious sums of money directly and indirectly supporting the banking system. I do not want to reopen the debate on amendment 4, which we have just had, but there remains a gaping hole in the clause as drafted. Preferably, clause 2 ought to have regard to the need to protect the use of public funds in any future rescue, and I continue to hope that the Minister will find a way to do so. For the time being, I have made my three key points, and I should like to hear the Minister’s response.

Mark Hoban (Conservative, Fareham)

Let me make some broader points about clause 2 and respond to the questions asked by the hon. Member for Nottingham East.

The purpose of the clause is to revise the Bank of England’s financial stability objective, to make it clear that the Bank has primary responsibility for protecting and enhancing the stability of the UK’s financial system. That replaces the confusing and ineffective tripartite approach, in which responsibility for financial stability was shared between three authorities. The Bill makes the Bank of England a single point of accountability for financial stability in the UK.

I have been in this role for some time, so I have lived with the various manoeuvrings on financial stability and the role of the regulators. The previous Government’s 1998 reforms led to the Bank of England to have only one statutory objective: monetary policy. The other responsibilities were left with the court to decide on a non-statutory basis, so the Bank’s financial stability functions were demoted, diminished and devalued over the following decade. It was only after the failures of Northern Rock, Lehman’s, RBS and HBOS that the previous Government gave the Bank a statutory role in protecting financial stability. That was done under the Banking Act 2009, which stated:

“An objective of the Bank shall be to contribute to protecting and enhancing the stability of the financial systems of the United Kingdom”.

The wording of that objective, particularly the phrase “contribute to”, demonstrates some of the problems.

The 2009 Act sparked a debate about the role of the FSA and whether it should have a role in contributing to financial stability. The previous Government argued that the FSA had a market confidence objective, which could be seen as broadly the same as financial stability but not quite. When we got to the Financial Services Act 2010, the FSA was given a financial stability objective rather along the same lines as “contributing to”.

The current structure has caused some confusion. A number of bodies can play a role in financial stability, but none of them takes overall responsibility for protecting and enhancing it. Clause 2 amends the Bank of England Act 1998 to make it clear that the Bank of England takes the lead on financial stability, which will ensure that somebody is accountable for it and people know who in the structure takes the lead on the matter. I reassure the hon. Gentleman that it will be perfectly possible for the Bank of England to be taken to court on that, and one mechanism for accountability is legal action. It is highly unlikely that a huge torrent of litigation will surround this, but the duties are not imposed lightly and that mechanism for accountability will be available, as will judicial review.

The hon. Gentleman asked about the role of the Treasury. The Bank has primary operational responsibility for the UK’s financial stability but, as the Bill makes clear, the Treasury retains certain specific responsibilities. Among those are responsibilities relating to the legislative framework for financial stability, including setting macro-prudential tools—which we will discuss in later amendments—and setting the regulatory perimeter. In advising on the tools and setting the perimeter we will get advice from the FPC, but the Treasury has a key role to play in putting those macro-prudential tools in statute and moving the regulatory perimeter. The Treasury has overall responsibility for the UK’s international engagement on financial stability, so it has a role to play, but the focus is on the Bank of England for overall responsibility for financial stability. Through the change to the Bank of England Act 1998 that is set out in clause 2, we seek to be absolutely clear about where that primary responsibility rests. I think that that addresses the hon. Gentleman’s questions. He is waving his finger at me, so I may have forgotten one.

Chris Leslie (Labour, Nottingham East)

It was the point about the review of the Bank of England’s role in the crisis.

Mark Hoban (Conservative, Fareham)

Indeed. That raises an interesting question: what was the Bank of England’s role meant to be during the crisis? As I have made clear, at the time of the financial crisis the Bank had no statutory responsibility for financial stability. I recall the Governor of the Bank of England saying at a Mansion House speech that he had the power to make sermons, but that was about it. The Bank of England highlighted the fact that risk was mispriced, for example, but it did not have the tools to tackle that problem. The way in which the tripartite structure was set up meant that no one had responsibility for financial stability. The Bank was not responsible for it. The FSA had responsibility for market confidence, which was not the same as financial stability. So there was a gap there.

Chris Leslie (Labour, Nottingham East)

Will the Minister give way?

Mark Hoban (Conservative, Fareham)

Let me just continue. Under the previous Government we saw baby steps being taken to try to fill this. So there was the “contribute to” objective that we are amending today. That was introduced to the 1998 Act by the Banking Act 2009. The Financial Services Act 2010 gave the FSA some responsibility for financial stability but there was a lack of focus. So it would be wrong to say that the Bank failed in its duties on financial stability during the financial crisis because it had no duties around financial stability then. The Bill ensures that that focus is there.

Chris Leslie (Labour, Nottingham East)

I am grateful to the Minister for giving way. He forgot that a financial stability committee was also created. The improvement process should not stop at that point. I accept that the whole purpose of this Bill should be to make those improvements but I question the idea that the Bank had no role during the crisis. We can talk about its legislative formal theoretical role, but clearly it played a part at the time and therefore does the Minister not think that it is worth having a review of the role that the Bank played during that period?

Mark Hoban (Conservative, Fareham)

The point I am making is simply that it had no statutory responsibility.

Chris Leslie (Labour, Nottingham East)

It had a role.

Mark Hoban (Conservative, Fareham)

The hon. Gentleman is asking for a review of an organisation that had no responsibility in law for financial stability. This is part of the problem that we are trying to address through this Bill. He rightly pointed out that the Banking Act 2009 gave the Bank a partial mandate to contribute to financial stability and it set a vague financial stability commitment but I do not think he is focusing on what happened post 2009. He is focusing on what happened in 2007 and 2008. The reality is that there have been extensive reviews, many conducted by the Treasury Committee, and the question that we are trying to answer in the Bill is the question that the Treasury Committee itself posed to the Governor: who is in charge?

The problem was that no one was in charge of financial stability because no one had that statutory objective. This is what we are trying to remedy in the Bill by being very clear what the duties and responsibilities of the Bank, the FPC, the PRA and the FCA are. We are trying to create some clarity where before there was none. We are trying to fill in some gaps. That is what the Bill seeks to achieve. It is a matter for the court to decide what sort of review it wants to undertake. But some quite extensive reviews have been undertaken by the Treasury Committee over recent years. The Bill is about tackling the hole that is at the heart of the financial regulation in this country.

Chris Leslie (Labour, Nottingham East)

I do not see how the Minister can say that he has learnt the lessons of the global financial crisis as it applied in the UK without having had a look at the role that the Bank of England played at the time. It is all very well saying, “There were no statutory responsibilities on the shoulders of the Bank and therefore I don’t need to open that box. I don’t need to look into it” because quite obviously the Bank did play a role at the time. That was the practical experience within the crisis as it unfolded within the UK. It is invidious of the Government to argue that there was no statutory objective: I am not sure that that is the case because there were responsibilities on the shoulders of the Bank of England and it got involved and it had a part to play.

The key thing is this: the Bill seeks to lavish powers on the Bank of England to have responsibility, as we see here, to protect and enhance the stability of the financial system. So suddenly, we are going to give it pretty much everything. Yet we are not even going to test or ask whether the Bank of England was fit for purpose in terms of its practical role during that particular time. I pay tribute to the Treasury Committee and the others who skirted around that question, but it is important that the Bank looks inward and takes the opportunity to say that it could have done things differently about not only its statutory obligations, but also the day-to-day unfolding events and how they were addressed at the time. Governors and deputy governors have for decades been involved in role-playing and theoretical exercises about what would happen in a crisis. One then came upon them and they had to deal with it for real. I would like to know what the Bank’s assessment is of its own performance, and I would have hoped that the Minister would have agreed. We should perhaps discuss on Report whether the Bank should be required to have that assessment. I have not tabled an amendment to that effect today, but it is surprising that the Minister seems to say that such a review is not needed.

I am grateful, however, to the Minister for setting out some of the legal responsibilities that rest on the Treasury and the Chancellor in terms of specific financial stability responsibilities. He mentioned international engagement and macro-prudential tools, which we will come to shortly, and the regulatory perimeter, and those are helpful. It does not blur the lines and it is perfectly possible to have the Treasury involved in those particular financial stability tasks. The Minister is breaching his doctrine slightly by having the Treasury involved in those tasks, but I am grateful that he has done so.

I am surprised by the point about the justiciability of the financial stability objective. The Minister embraces it as a sign of an extra facet to the accountability to which we can say that the Bank will be held. All the applicants and writs that pour through the door at Threadneedle street are therefore a jolly good thing, because that is about holding the Bank to account, perhaps for its failure—I hope not to protect the stability of the financial system in the future. But I do not know whether the Bank has ever acknowledged that it is potentially liable. I do not know whether the Treasury—perhaps the Minister can say—has ever made any assessment of the impact of possible litigation, of the damages that might accrue in such circumstances, and of the tests that might arise. It is interesting that the Minister has confirmed that litigation will be possible. I do not know whether it is something that individuals can pursue through the small claims court or whether a writ will have to be made through the High Court. Perhaps the Minister can elaborate on that at another opportunity, and it may be something that we return to.

Mark Durkan (Social Democratic and Labour Party, Foyle)

As well as possible legal challenges in the event of somebody saying that they are in circumstances because of a failure to protect, are there risks in terms of Parliament’s relationship with the Bank of England if, say, in years to come the Treasury Committee says that a situation that arose demonstrated that the Bank had not adequately discharged its duty to protect? What would the implications then be for the Governor? If proposals for change from the Treasury Committee were resisted by the Bank, would that be a failure of the duty to enhance?

Chris Leslie (Labour, Nottingham East)

It is interesting. The Minister has opened Pandora’s box when it comes to the legal challenge for the Bank of England, and he may regret it. Of course, we know that the Bank of England is increasingly good at printing money. Quantitative easing, as they call it, is perhaps the solution to any damages that may need to be paid out to those making claims—get the printing press rolling again.

George Howarth (Labour, Knowsley)

Order. I do not know about Pandora’s box; we are dealing with clause 2.

Chris Leslie (Labour, Nottingham East)

Indeed. It is important, in looking at the responsibilities that will fall on the Bank of England from tits new duty specifically to protect and enhance financial stability, that we consider the downstream consequences and the possible costs to the Bank.

As my hon. Friend the Member for Foyle said, should Parliament at any point judge that the Bank has failed to protect and enhance financial stability, that would be a big piece of evidence that could be prayed in aid in a court of law by any individual or company seeking to take action against the Bank. The box has been opened, and I do not understand where that might lead. As I said at the beginning of this stand part debate, I did not have any problem with the wording of the clause until the Minister spoke. It is only since he elaborated on it in response to some perfectly reasonable questions from my hon. Friends that I started to think that there may be difficulties with the phraseology.

For the time being, given that we are in Committee and that we could return to the clause at a later stage, I am prepared to agree to it without making further objections. I am grateful to the Minister for at least putting some definition on the question marks that clearly hang over the clause.

Clause 3 - Financial stability strategy and Financial Policy Committee

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 37, in clause 3, page 2, line 21, after ‘strategy’, insert

‘including the proposed range of macro-prudential measures available to the Bank.’.

George Howarth (Labour, Knowsley)

With this it will be convenient to discuss amendment 38, in clause 3, page 2, line 26, after ‘Treasury’, insert ‘(c) the public’.

Chris Leslie (Labour, Nottingham East)

We have come on quite quickly to clause 3, and I am grateful to the Committee for ensuring that we have made such good progress. The amendments are slightly different, in that amendment 38 relates to public consultation, while amendment 37 relates to the court of the Bank, its role in determining the financial stability strategy of the Bank and the proposed range of macro-prudential measures available to it. That is a pretty important issue, and I hope to probe the Government on whether the court can have a role in determining that strategy.

The Institute of Chartered Accountants in England and Wales has suggested that the Bill requires several changes. One of them is the need for an approach that not only seeks to ensure that the court of directors of the Bank has responsibility for determining the strategy but, in accepting that responsibility, provides the opportunity for wider public consultation on the decisions and recommendations of the Bank. That is why it makes sense for the amendments to be grouped.

If the court determines the Bank’s financial stability strategy, it should also be able to confirm the suite of systemic oversight and intervention powers that have been recommended to the Treasury. Proposed new section 9A of the 1998 Act states what the court of directors must determine and whom it should consult in doing so, which is important because, currently, the consultation process is simply with the FPC of the Bank—with itself, essentially—and Her Majesty’s Treasury. Amendment 38 would ensure that that consultation process was widened out to the public at large. Of course, in reality that will mean consultation with expert organisations, and potentially with Parliament and other representative bodies.

Mark Garnier (Conservative, Wyre Forest)

For most of the day, the hon. Gentleman has been extolling the virtues of the Treasury Committee, and yet strangely in this one particular amendment he leaves out mention of the Committee. I would be very grateful if he could explain why the love-in has now finished with amendment 38.

Chris Leslie (Labour, Nottingham East)

I would be grateful if the hon. Gentleman would give us the view of the Treasury Committee on amendment 38, if it has one. I am more than happy to see if I can dig up a quote from the hon. Gentleman himself to pray in aid in support of the amendment, if he so wishes. I am sure that he has said at some point in the past that the public should perhaps have some say in some of these pretty big measures, and if that is indeed the case then I say “Hear, hear.” I am all in support of his wisdom on these particular issues.

Lorely Burt (Liberal Democrat, Solihull)

I was just wondering what assessment the hon. Gentleman has made about the level of delay that might be incurred when we are trying to make changes and there is a public consultation, which I am sure he is aware can be a lengthy process. Has he weighed up the swings and roundabouts on this issue to establish just how much of a deleterious effect subjecting everything to a public consultation will have, as opposed to not making this change at all?

Chris Leslie (Labour, Nottingham East)

I thought that the Liberal Democrats were in favour of consulting with the public, but obviously I was wrong. It is not necessarily burdensome to ask the public for their views on pretty serious and large quasi-legislative changes, which is essentially the direction we are heading in by vesting so many powers in the Bank; of course, ultimately the Treasury and Parliament will rubber-stamp those powers, but we are heading in that direction.

There are provisions in the Bill for emergency circumstances, and everyone would entirely accept that in crisis scenarios, lengthy consultation processes need to be truncated or undertaken ex post. I have no problem with that in those scenarios, if that was the point that the hon. Member for Solihull was getting at. However, it is not impossible to ensure that there is a bit more transparency in the new, significant, rule-recommending set of powers that we are vesting in the Bank of England. That is why it is important to make this particular change.

Ensuring that the macro-prudential measures are part of the issues determined by the court will in turn ensure that they can be consulted on more thoroughly as a matter of course, rather than just being considered by the Financial Policy Committee or the Treasury. There are a number of points that I want the Minister to address in respect of amendments 37 and 38. In particular, the Committee may be aware that in December the Bank of England published a discussion paper jointly with the Financial Services Authority on instruments of macro-prudential policy. I do not know whether anyone got that paper for their families for Christmas, or if it was in their own stockings, but it is a very interesting document, because it talks about the initial suite of macro-prudential tools that the Bank is likely to recommend under the powers that we are considering.

It is a bit of a pity that having the Bill before us today does not give us the opportunity to scrutinise the actual macro-prudential powers that the Bank and the FPC want. We have general headings—suggestions as to the first tranche of powers that they may want—but, again, we are legislating to give all the powers to the Bank; at a later date, the Bank will make its decisions, and say to the Treasury, “This is the set of macro-prudential powers we want.” We will then hear what those powers will be.

I want to ask the Minister for his view on that first tranche of macro-prudential tools, because this is the first opportunity we have had to discuss those tools properly. The Bank thinks that balance sheet tools are necessary, including

“maximum leverage ratios, countercyclical capital and liquidity buffers, time-varying provisioning practices, and distribution restrictions.”

They are not exactly described in plain English, but they are pretty comprehensive powers none the less. I want a sense of how the Minister thinks that set of tools would impact practically on businesses and consumers.

The Bank also wants sectoral capital requirements, or variable risk weights. At certain points in the cycle, it wants to be able to

“apply different risk weights to new and old loans to influence the flow of new lending relative to its stock.”

A firm that has depended on a particular supply of credit in any given circumstance might find that its ability to access that credit is diminished significantly as a result of that macro-prudential tool.

The Bank has asked for tools that influence the terms and conditions of loans. Has the Minister held any further discussions with the Bank about precisely what loan terms and conditions it might want to vary? It might say to a company, “Your term loan is for 10 years, but a macro-prudential tool could be used to truncate the term, so that the loan must be paid in eight years.” Conversely, repayments might no longer need to be made in the original time frame if the term were extended to 12 or 15 years. The Bank is requesting a significant set of powers. Has the Treasury had any further dialogue on those?

The Bank wants to be able to restrict the quantity of lending at high loan-to-value ratios. We have heard about mortgage customers and others who found that LTV ratios changed following the financial crisis and varied subsequently. Many of our constituents who are struggling to gain mortgage or even re-mortgage finance may not realise that the first set of macro-prudential tools will come into force because of a decision made by the Bank of England, which was rubber-stamped by the Treasury and, ultimately, by Parliament. Despite the lexicon and jargon that surrounds this suite of macro-prudential tools, we need to appreciate that the changes in the Bill are very real and important.

Similarly, the Bank wants powers to restrict loan-to-income ratios, so an individual’s income might restrict their ability to take out loans secured on property or unsecured lending. Such powers might be a perfectly good thing, but we should assess exactly what the Bank is asking for. At the very least, will the Minister tell us when the order for the first set of macro-prudential measures will be introduced?

The Bank wants powers

“to impose and vary minimum margining requirements or haircuts on secured financing and derivative transactions.”

Although those are complicated matters that are of more concern to experts and practitioners in the market, we must shine a light on what those powers will be. The Bank requests a set of market structure tools, which include

“obligations to conduct financial trading on organised trading platforms and…to clear trades through central counterparties.”

It wants to be able to limit

“uncertainty about specific exposures or interconnections”,

which is a broad phrase. The Bank is requesting a pretty broad-ranging power. I do not know whether it has something particular in mind in the short term, or whether it will simply take a wide-ranging regulatory power that the Treasury will approve and the Bank will be able to apply firm by firm, or sector by sector. I would like a sense of where we are going with those powers.

The Bank also says that direction must

“be confined to areas where the United Kingdom has sufficient national discretion; the key hurdle here being that UK regulatory powers in some areas may be constrained by current and forthcoming EU legislation”.

That is a separate issue that I would like the Minister to explain for the Committee. How can he square the new macro-prudential rule-making intentions of the Financial Policy Committee and the Treasury with current and forthcoming EU legislation? To what extent will capital requirements directive 4 curtail the Bank of England’s ability to act, particularly in its first suite of macro-prudential rule-making requests?

The Bank has set itself four tests for what it regards as an effective macro-prudential tool. First, it believes that a macro-prudential tool needs to be effective, which means it should have speed and durability. Secondly, it needs to be efficient while avoiding adverse effects; that also seems sensible. Thirdly, it needs to be transparent about the nature and use of the particular tool. Lastly, it needs adequate coverage but also independence, which basically means that the coverage must be broad enough to tackle the main risks at hand.

Can the Minister confirm that he agrees with the four principles set out by the Bank? I would like a sense that the Treasury is generally on board with the Bank’s direction of travel when it comes to the principles applying to the macro-prudential tools that the Bank seeks. I have specific questions about the first tranche of macro-prudential tools, but I would be grateful if he addressed some of these points as well.

On amendment 38, it should not be impossible to broaden consultation with the public. The Institute of Chartered Accountants in England and Wales says that the current structure gives no opportunity for consultation on the public interest, or with financial and business stakeholders. Although it should be possible to consult the public on setting the financial strategy, which should include the range of macro-prudential measures that the Bank expects to have available, it might not be practical or in the interests of financial stability to consult the public in advance of emergency situations, as I said to the hon. Member for Solihull. Where emergency powers are needed, the Institute of Chartered Accountants says that they should be subject to scrutiny after the fact by the Treasury Committee.

I think that the public should be consulted on the draft financial stability strategy. Broader perspectives always help, or should help, to improve and enhance the authorship and conclusion of a particular strategy. The public interest is clear when it comes to ensuring that the public are taken into account in the set of policies agreed. Excluding the public would not be fair or necessary.

These days, public consultation exercises are cheap, easy and affordable, and need not be particularly onerous. The internet is a newfangled invention of which I am sure the Minister is aware. If he wishes to undertake a public consultation through the miracles of the interweb, I am happy. It is also important to consult the public because that much transparency is necessary given the significant ramifications of the macro-prudential tools for the public, the economy and businesses downstream. That is the rationale behind our amendments, and I hope that the Minister will accept them.

Mark Hoban (Conservative, Fareham)

I understand and to some extent share the motivation behind the amendments tabled by the hon. Member for Nottingham East. The scope of the macro-prudential toolkit available to the Financial Policy Committee has the potential to impact on every business and everybody in the United Kingdom—it is an important set of tools. It is vital that the Government seek a wide range of views on the content of the toolkit and that its content is subject to approval by this House and the other place, but we do not need the amendments to deliver that. I want to set out the process that will apply in determining the content of the FPC’s toolkit.

The Government recognise that macro-prudential tools are, relatively speaking, less well understood than monetary policy instruments, for which the academic thinking and practical evidence are well established. That is why we have asked the interim FPC to undertake analysis of potential macro-prudential measures. The Bank published a discussion paper in December seeking comments on its analysis, and the hon. Gentleman has highlighted some of its thoughts. It was a discussion paper—no decisions have been taken about what tools the Bank should have. Those decisions will be taken by this House and in the other place. The Bank received more than 30 responses to that paper and we expect to receive the committee’s recommendations after its next meeting on 16 March.

The Government will take a transparent approach on deciding the FPC’s initial toolkit. We have committed to a public consultation during the passage of the Bill on the statutory instrument that will establish the FPC’s toolkit of macro-prudential measures. We believe that industry, Parliament and consumer groups have an important role to play in shaping the Government’s proposals. Once the Bill has received Royal Assent, the Government will lay the statutory instrument before Parliament, where it will be subject to affirmative procedure. The order must be approved by a resolution of each House before it can be made. When the FPC is established in statute, the Bill requires it to produce and maintain statements of policy. For each tool, that will be set out in general terms, explaining how the FPC plans to employ the tool and the circumstances in which it might be used.

The hon. Gentleman made some specific points. I will not go into the merits of each tool—there is a time and place for that. He referred to the principles that the Bank set out in its paper. The four principles are broadly sensible. When we consider the FPC’s recommendations we will take those criteria into account, but we will also include our own criteria. I also emphasise, in addition to the four principles raised by the hon. Gentleman, the socio-economic impact of these tools. They can have a significant impact on society as well as the economy, and it is right to consider that impact.

On EU legislation, the hon. Gentleman referred correctly to CRD IV. He should recognise that the debate about macro-prudential tools is not taking place in a vacuum; there is an international debate. Clearly, the European systemic risk board is interested in this too. We are working to ensure, through CRD IV, that there is sufficient discretion to enable the FPC to use the tools that are set out.

I hope that the hon. Gentleman is reassured that we take public consultations seriously. There will be a proper consultation, not just as a consequence of the publication of the documents by the Bank—the December document and the one in March—but as we go through the formal process of consultation, as part of the introduction of statutory instruments that will give the FPC those tools.

On amendment 38, the hon. Gentleman suggests that the court should consult the public before determining the Bank’s financial stability strategy. I am not by nature prescriptive about such things. There is some value in the Bank consulting on the financial stability strategy, but I do not think it would be proper to prescribe in the Bill that the court must do that. It would be more proportionate to leave it up to the court to decide whether and when public consultation is required, and whether it would be valuable. The court might want to produce the Bank’s strategy first, then allow people to comment on it.

Public engagement is important. One of the important tools that the FPC has is disclosure and transparency in its views and operations. It will need to think what the appropriate point is for public consultation. As I said initially in response to the hon. Gentleman, I share the sentiment behind them. It is important that the public have their say, particularly on the macro-prudential tools. I just do not feel it necessary to put that in the Bill. I urge the hon. Gentleman to withdraw the amendment, in recognition of the fact that the Government share his view that consultation is appropriate.

Chris Leslie (Labour, Nottingham East)

It has been helpful to hear the Minister’s view. I am grateful that he says there is some value in public consultation on the Bank strategy. Ultimately it will be for the Bank to decide. I do not think there would be any harm in asking the Bank to open that process on what is one of the most important functions it will have in the financial stability strategy. It would be perfectly reasonable to do that. As we have other provisions in the Bill on consultation arrangements that can affect the public, I do not see why it would not be possible to include that particular provision. Perhaps the Minister will take a look at that another time.

In respect of the role of the court in determining the strategy in respect of the proposed range of macro-prudential measures, it is important to ensure that the court is involved in the process, especially as those are significant questions. For example, two things that jumped out at me in the paper from the Bank on the proposed potential instruments of macro-prudential policy were those two areas of rule-making powers that it will want to have: varying the terms and conditions of a loan—a pretty big and wide-ranging ask—and limiting specific or excessive exposures, presumably of financial services firms to other firms internationally, and to other sectors in different ways.

It is important to get a sense of how significant an intervention that could be. It may be necessary to have those measures, but I do not feel there has been a proper appreciation of the enormous size of the requests from the Bank when it comes to those pretty basic issues of a transaction: a business requiring a loan, entering a contract and potentially having ex-post changes imposed on those contractual terms by a third party. It may be necessary to do that for financial stability reasons, but it is a pretty big change. I do not think my constituents and those of other hon. Members have appreciated that.

As for public consultation, I wonder whether the Minister might say to the Bank that, if it is to engage in public consultation—albeit not of a statutory nature—a plainer English version of what it is asking would not go amiss. I am not surprised to hear that it received only 30 responses to its discussion document, given how impenetrable the text is. As I was going through those aspects of the Bank’s recommendations, I sensed that perhaps for a split second I might have lost the Committee, which might not have been with me 100% in attending to the significance of the measures I was talking about, perhaps because of how they are described in the consultation paper. I counsel the Minister to suggest to the Bank that a test from the Plain English Campaign might not go awry, given that when ordinary businesses throughout the country see what is around the corner they may have something to say about the new suite of quasi-legislative powers that are being taken.

It is useful that the Minister said that he saw virtue in public consultation, and I am sure that the Bank will listen to that. I think he said that the court will also need to have insight into, and a role in, the macro-prudential policy-making arrangements. I beg to ask leave to withdraw the amendment.

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 6, in clause 3, page 3, line 7, leave out ‘sub-committee of the court of directors’ and insert ‘committee’.

George Howarth (Labour, Knowsley)

With this it will be convenient to discuss amendment 7, in clause 3, page 3, line 31, leave out ‘sub-committee’ and insert ‘committee’.

Chris Leslie (Labour, Nottingham East)

We are making rapid progress, Mr Howarth. Amendment 6 refers to the Financial Policy Committee, which is a pretty big section of new part 1A of the 1998 Act. The first line of new section 9B to the 1998 Act states:

“There is to be a sub-committee of the court of directors of the Bank (the “Financial Policy Committee”) consisting of…the Governor”

and deputy governors, and so on. The amendment would simply replace “sub-committee” with “committee”. Amendment 7 does the same in line 31. New section 9B(5) states that the committee’s

“function under subsection (4) is to stand delegated to the sub-committee constituted by section 3.”

Hon. Members may think that I am raising a semantic point, but I assure them that I am not. The point is important, and was highlighted by the Treasury Committee and the pre-legislative scrutiny Committee. The Treasury Committee stated in its 21st report:

“There is some concern that the position of the FPC within the Bank may appear anomalous with regard to the MPC”—

the Monetary Policy Committee. The pre-legislative scrutiny Committee concluded:

“The new Financial Policy Committee should become a committee of the Bank”,

and it recommended a

“new Supervisory Board, with equal status”

To the Monetary Policy Committee. That was on page 1 of its executive summary, so it was a signal change that it wanted to make to the clause.

It is perfectly reasonable to ask the Government why they seem to believe that there should be unequal status between the Financial Policy Committee and the Monetary Policy Committee. There are strong arguments for saying that equal status should be given to the new FPC. Indeed, the “Oxford English Dictionary” defines a sub-committee as a “secondary committee”. That definition is pretty short, succinct and unambiguous. I am not sure that the Financial Policy Committee should be a secondary committee. Given the importance of the issues that we have been discussing, I think the FPC should be a committee in its own right, and should be given the same status as the Monetary Policy Committee, so that it is not regarded as being lower in the hierarchy or subordinate in some other way to the MPC. It is important that the Committee recognise that under the Bill as it stands the FPC will be a committee of the court of directors of the Bank, whereas the MPC will be a committee of the Bank itself.

In written evidence to the Joint Committee, Barclays bank said:

“The FPC should, like the MPC, be a committee of the Bank rather than a committee of the Court of Directors of the Bank of England (the “Court”). At the very least, there should be shared membership of the independent non-executive members between the Court and the FPC. Otherwise, the FPC is only accountable to the Court through the shared executive directors of the Bank.”

There are good reasons to think that the Government have been dismissive of the concerns raised by the pre-legislative scrutiny Committee and the Treasury Committee. The Government stated, in response to the Joint Committee, that they noted not only the observations of the two Committees, but the response of the court itself on the matter. Therefore, having had the Treasury Committee make that particular recommendation, the Treasury lined the proposals up against the court’s own view. Whereas the court wanted to retain the FPC as a sub-committee, some thought that, as this is an important new facet of financial regulation—the FPC is a major body with significant new powers—committee status would be necessary, and I think that is a perfectly reasonable thing to ask.

The Joint Committee did not make a proposal in the absence of facts or balance. It considered the Bank’s arguments when it made the recommendation, and its pre-legislative scrutiny report explicitly states:

“We do not find these arguments convincing. Whether it is a committee of the Bank or the Court the draft Bill requires the FPC to take account of the strategy laid down by the Court. The governance arrangements in the draft Bill—where the FPC is a committee of the Court and the MPC is a committee of the Bank—risk giving the impression that one body is more important than the other. The FPC should be made a committee of the Bank.”

The Bank’s senior management have made their arguments, and parliamentarians, on the other hand, through the pre-legislative scrutiny Committee and the Treasury Committee, have made their views clear. We are fortunate that some Committee members serve on the Treasury Committee and were on the pre-legislative scrutiny Committee, and I would be interested to hear their views. [Interruption.] Indeed, there are other members of the Treasury Committee, but it would be particularly useful to hear the views of Members who were on the Committees at the time the reports were agreed. I am sure they have opinions, and it would help the Committee no end to hear them.

The Minister needs to take into account representations from the Treasury Committee and the pre-legislative scrutiny Committee, and to take them far more seriously. I find them compelling, and I would be grateful if the Minister explained in detail the Government’s position.

Mark Hoban (Conservative, Fareham)

As the hon. Gentleman indicated, questions have been raised about the FPC being a sub-committee of the court, in contrast with the MPC’s role as a committee of the Bank. However, I do not share his concerns, or those raised by the Treasury and pre-legislative scrutiny Committees. We have sought to follow the model of the MPC, where it is possible and appropriate to do so. A later amendment tabled by the hon. Gentleman proposes to change the model and make relevant aspects of the FPC and MPC slightly different. We are not being precious about exact replication of the MPC in the FPC’s establishment, and we will look at what works, and at changing it where appropriate.

We need to bear in mind the fact that the court overall wants to hold the Bank as an entity to account on financial stability. As we have indicated elsewhere, there are other aspects of the Bank’s work that do not fall within the FPC’s work but are related to financial stability. I talked earlier about the special resolution regime and the Bank’s role in supervising systemically important payments infrastructure. Because it is outside the remit of the FPC, if we want the court to hold the Bank to account on such matters, it is important that the court has overview of this, which requires the FPC to be a sub-committee of the court, not a committee of the Bank. Unless the FPC is a sub-committee of the court, the court would not have oversight of its activities and would have a slightly dislocated overview of financial stability activities. The FPC as a committee of the court, rather than a committee of the Bank, facilitates the court’s strategic oversight across the whole range of the Bank’s financial stability activities. That goes to the trend we are keen to see of enhancing the court’s role in holding the Bank to account. That was in the Treasury Committee’s report, which we have already discussed.

I understand the reason for the hon. Gentleman’s amendment, but I think it would remove an important aspect of the Bank’s financial stability work from the oversight of the court. It is therefore an ill-advised change. The hon. Gentleman did not spend as much time as I thought he might on amendment 7 to subsection (5) of proposed new section 9B, but the committee constituted by section 3 of the 1998 Act is not the FPC, but NedCo. For that reason, although I am always loth to use the argument that an amendment is technically defective, I am afraid that in this case the amendment is technically defective.

Chris Leslie (Labour, Nottingham East)

This is a useful opportunity to raise an important point from the ashes. Could the Minister explain the difference between NedCo and the oversight committee? We have raised the point in previous discussions, and, therefore, if amendment 7 addresses NedCo, he knows my anxiety, which I voiced earlier, that NedCo—those nine non-executive directors of the court—will have some responsibility for overseeing the performance of the Bank in a similar way, as he said, to the oversight committee. So could he explain how those two will not be duplicates?

Mark Hoban (Conservative, Fareham)

The point to recognise is that in any sort of corporate governance structure there are a range of committees with different tasks. In a plc, there will be a nominations committee, a remuneration committee, a risk committee and an audit committee, which does not necessarily imply some sort of direct hierarchy of committees. So there can be committees constituted for different roles. I suggest to the hon. Gentleman that it is not quite as neat and tidy as he would like. The oversight committee is a subset of NedCo, perhaps entirely comprised of non-executive directors, but that does not mean to say that it is a sub-committee of NedCo. The two committees will perform different functions, as audit committees perform different functions from remuneration committees. I am not going to be doctrinaire, but there will be different structures for different purposes, which is not unreasonable. I hope I have resolved the situation, although I suspect I have not.

Jesse Norman (Conservative, Hereford and South Herefordshire)

I am grateful to the Minister for his comments on the structure of the Bank and the committees and sub-committees. On the Treasury Committee, our concern was that the sub-committee structure would not give the proper authority to the Financial Policy Committee, but from what he is saying now I understand that the point is to strengthen the responsibilities and authority of the court. Am I right in thinking that?

Mark Hoban (Conservative, Fareham)

I am keen to strengthen the oversight of the court’s role in this. There is a danger that we get theological about sub-committees of the court and committees of the Bank. We need to focus principally on what we think will work in terms of scrutiny, and not get overly fussed about the nomenclature. We might even come back to visit some of that.

On NedCo oversight, the court has proposed that the nominations committee of the Bank should decide on the composition of the oversight committee. It could be the case that the oversight committee consists of all nine NEDs, in which case it would be the same membership as NedCo. We need to reflect for a moment. One of the strands that we talk about from time to time is cross-membership. There is one member of the FPC, Michael Cohrs, who is also on the court. Would we want the oversight committee to include Michael Cohrs scrutinising himself? That is why I think we should not get too bound up on membership. It is important that it is composed of non-executive directors. We like the idea of some degree of overlap, but we should not be too prescriptive about the composition, because there may be situations in which the composition is not necessarily appropriate.

On the two amendments, let us focus on what we think will work in terms of accountability. Let us think about how the court holds the Bank to account on the full range of its financial stability objectives, including the FPC and other matters, and how it is checking carefully the membership of NedCo and the oversight committee. The structures will take time to work through to get their effectiveness right. There is a clear commitment by the Government, the Bank and the court to ensure that the structures work properly. That is what we all want to see achieved.

Chris Leslie (Labour, Nottingham East)

I am grateful to the Minister for pointing out the defective nature of amendment 7. He has shone an unintended spotlight yet again on the rather bizarre set of internal committees and sub-committees existing within the Bank of England. The Minister asks us not to be doctrinaire or theological, and not to get too bound up or prescriptive about the compositions. That is an important point. I will try to remember that and quote it back to him at a future date.

If the Bank responds to the pressure that the court should become a proper supervisory board, and its response is to create a new oversight committee, whose role is to oversee the performance and activities of the Bank as a whole, including the Financial Policy Committee, it is reasonable to ask why we also then have a NedCo—a non-executive director committee. According to the Bank’s website, its functions include

“keeping under review the Bank’s performance in relation to its objectives and strategy for the time being determined by Court…monitoring the extent to which the objectives set in relation to the Bank’s financial management have been met…keeping under review the procedures following by the Monetary Policy Committee”,

as well as others, and

“determining…the Monetary Policy Committee”,

and so on. Existing NedCo arrangements are pretty broad as they stand. It prompts the question, what will an oversight committee bring to the party that the NedCo does not currently undertake? The issue of looking inside the Bank at its sub-committees is probably something that only members of the Bank itself would be concerned about, but it is important, given the principle that the Minister is expressing. Clarity matters, knowing who is responsible matters, and scrutiny and accountability with checks and balances matter as well. At some point, possibly later down the line, we need to look at the rather messy and blurred arrangement between the oversight committee and the NedCo. I do not know why that has not yet been spotted or resolved. I do not know whether the NedCo meets frequently, or whether the oversight committee is just about to be set up rather than has been set up. Perhaps we could talk about those issues on another occasion. Given that it was an unintended consequence of amendment 7, I will not push the amendment to further on at this point.

Regarding amendment 6, the question of a sub-committee and a committee matters. I understand the Minister’s logic: he wants the FPC to be a sub-committee of the court, so that the court can scrutinise it. However, I am now starting to think, “Hang on a minute. I thought that that function is being delegated to the oversight committee rather than to the court.” The mist is beginning to descend on where the lines of accountability between all the various committees go.

Fabian Hamilton (Labour, Leeds North East)

This is an interesting, if rather obscure, debate. Does my hon. Friend agree that for the public who are looking into the way the Bank of England regulates the financial services sector, it is essential to have transparency, not opacity? Would the amendment that he has tabled not try to make the whole system of regulation a little more transparent and less obscure?

Chris Leslie (Labour, Nottingham East)

Yes. I cannot claim credit for the amendment. I was inspired by those members of the Treasury Committee who made the argument in the first place, and quite rightly too. They have spent a great deal of time looking at the issues and are clearly eager. Many of them wanted to sit on this Committee to make the contributions that they have been making. It is important to note that they made the recommendations. I am here merely to propose them to see if they have merit. The Minister does not think that they do, and that is a great pity. So far, I have not seen as many concessions as I would have liked to see to the Treasury Committee’s point of view on the matter, but for the time being, I am happy to withdraw amendment 6, on the proviso that we need to return to the issue properly to understand the committee, the sub-committee, the oversight committee, the NedCo, the nominations committee and so forth. A bit of spaghetti is beginning to form within the Bank of England, and it matters. I beg to ask leave to withdraw the amendment.

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 9, in clause 3, page 3, line 14, leave out ‘4’ and insert ‘6’.

George Howarth (Labour, Knowsley)

With this it will be convenient to discuss the following: amendment 8, in clause 3, page 3, line 24, after ‘functions’, insert—

‘and must have regard to the desirability of ensuring a broad representation of practitioners and consumers in the UK financial services sector.’.

Amendment 10, in clause 3, page 3, line 27, at end insert—

‘(c) allow sufficient time for the Treasury Select Committee to hold appointment hearings with candidates to be appointed under (1)(e) before their appointment to the Committee.’.

Chris Leslie (Labour, Nottingham East)

We now move on to what I regard as quite important questions regarding the composition of the Financial Policy Committee. Amendment 9 seeks to change the number of persons appointed by the Chancellor of the Exchequer to the FPC from four to six. Amendment 8 touches, in many respects, on the diversity of expertise that we ought to see on the FPC. Amendment 10 seeks to give the Treasury Committee time to hold proper appointment hearings with candidates to be appointed under subsection (1)(e), on the recommendation of the Chancellor of the Exchequer to the FPC. The set of amendments is quite significant.

First, regarding the number of members that we think ought to be appointed externally by the Chancellor, due to the importance of the FPC, its nature and composition should be more balanced. As the Bill stands, a large majority of the FPC will be Bank of England executives. If Members turn to page 3 of the Bill, they will see in proposed new section 9B that the Financial Policy Committee will consist of:

“(a) the Governor of the Bank,

(b) the Deputy Governors of the Bank”—

of course, that is all three of them—

“ (c) the Chief Executive of the FCA,

(d) 2 members appointed by”—

guess who?—

“the Governor of the Bank after consultation with the Chancellor of the Exchequer,”.

So that is seven people so far appointed from within the Bank. The Bill then states:

“(e) 4 members appointed by the Chancellor of the Exchequer, and

(f) a representative of the Treasury.”

Although I do not think that that representative has rights to vote—or necessarily to speak—when attending that Financial Policy Committee. So it is a committee with seven people appointed from within the Bank compared with four appointed by and one extra representative from the Chancellor.

That is a little bit top-heavy in terms of Bank employees, who are subservient, of course, to their boss—the Governor of the Bank. Therefore, when people say that the Financial Policy Committee basically does what the Governor wants, they can make a reasonable argument. I am sure that that will not in reality be the case and that other members of the committee will be independent of mind and spirit and, even if they are a deputy governor or chief executive of the FCA, they will bring their own views to bear. However, those positions very much fall under the auspices of the Governor. Regarding the chief executive of the FCA, there is an argument to be made about whether there is independence, but very much the majority is under the auspices of the Governor.

Matthew Hancock (Conservative, West Suffolk)

Earlier, the hon. Gentleman was comparing the Financial Policy Committee with the Monetary Policy Committee, where there is also a majority of so-called internal members. However, experience shows that they frequently vote against the Governor and, indeed, that decisions have been made where the Governor has been in the minority. Does that not rather undermine his case, which anyway calls for a retained majority of internal members? I cannot see the force of the argument.

Chris Leslie (Labour, Nottingham East)

We are talking about a different committee from the Monetary Policy Committee, and a different set of roles and functions. A different set of judgments will be required than in the slightly narrower—although, nevertheless, important—parameters within which the Monetary Policy Committee has to make decisions in terms of assessing the nature and prospects of the economy and the monetary policy responses to it. Those are very much operational decisions that are being made in that context. The Financial Policy Committee is quite different and it is much more about policy-making processes. Therefore, stronger arguments can be brought to bear on ensuring that the composition of the FPC gives the opportunity to reflect the real economy and, indeed, real society—perhaps more than might normally be the case.

I am not defending the current balance within the MPC. There are perfectly reasonable grounds to say that we should look at the situation in terms of the numbers on the MPC. However, that is not being changed in the Bill. The proposals before us today are on the composition of the FPC, and this is the moment to consider that. The majority of people on the FPC are bank executives. That is in contrast to the PRA and FCA boards, which will both have a majority of non-executive directors.

Jesse Norman (Conservative, Hereford and South Herefordshire)

I am less moved by this issue than the hon. Gentleman by some distance. Let us consider the matter. The chief executive of the FCA operates under a board which will give him or her quite a high level of autonomy from any bank interference. Does he not share my view that the two members who will be co-appointed will not in practice be appointed by the Governor without an independent public decision being taken by the Chancellor? In fact, there is some doubt about whether he is correct in characterising there being a preponderance of bank insiders in any genuine sense.

Chris Leslie (Labour, Nottingham East)

Except that if we look at subsection (1)(d), we can see that the appointment of those two members by the Governor is only after consultation, not concurrence, with the Chancellor. If the Governor scribbles a little memo and posts it to the current Chancellor of the Exchequer, that would tick the box in terms of the requirement in the Bill to consult with the Chancellor. The point about the FCA chief executive is a reasonable one, but even if we take that into account, there would still be a minority of non-executive directors, and that is not the case with the PRA or the FCA.

Sheila Gilmore (Labour, Edinburgh East)

Is it not also the case that beyond the consultation, it is specifically stated that both of the people must have executive responsibility within the bank. They are very clearly bank employees working to an executive responsibility. They are not, in any sense, coming from a wider perspective.

Chris Leslie (Labour, Nottingham East)

Indeed, absolutely, and my hon. Friend always reads further down the clause than many of us do. She is quite right to spot that subsection (2) specifies the characteristics of those two members and their close relationship within the Bank. Therefore, the point still stands. The board is very much a creature of the Governor and the Bank. That contrasts with the boards of the PRA and FCA, both of which have a majority of non-executive directors.

Importantly, the Treasury Committee and the pre-legislative scrutiny Committee both recommend that the FPC has a majority of non-executive members. The Government responded to those arrangements by saying that the MPC and the FPC have a similar balance of bank executives and external members, but that is just not the case. As the Bill stands, the ratio would be 7:4 executives to external appointees. The constitution of the MPC is 5:4 executives to external appointees. Therefore, by tabling our amendment today, we are seeking to have an additional two members. They will be appointed by the Chancellor of the Exchequer. I am quite happy for him to have those powers and to choose who should be on the Financial Policy Committee. We are hoping to even out the distribution of members. Appointing six external members would create a better balance of externals to executives. We accept that the Governor should have the deciding vote in the event of a six-six split—in the same way that he does for the Monetary Policy Committee if there is a four-all split. This amendment would achieve the Government’s wish for a similar balance between executives and external members on the MPC and the FPC.

Will the Minister clarify his thinking on that particular issue because representations have been made by a number of organisations, which are concerned that their voice will not be heard in the decisions of the Financial Policy Committee when it makes those recommendations about those pretty important macro-prudential tools? We should try to avoid an imperial structure within the Bank that is built around the emperor model of a Governor of the Bank. There needs to be a collegiate approach, and it needs to be perceived as such. A fairer balance between those two would be better. There are good grounds to hope that representatives from the banking sector, the insurance sector, the professional services sector, the industrial sector, manufacturing, consumers and others could have a chance of being one of those external members. Changing over from four to six would make that more likely. It is not surprising that consumer organisations, insurance firms and other representatives from different sectors are saying, “Hang on a minute, the numbers that are currently being proposed are insufficient.”

Chris Leslie (Labour, Nottingham East)

I am conscious of the time, so I will try to be as brief as possible. [ Interruption. ] A welcome first intervention from the hon. Member for West Suffolk.

I had covered most of the arguments regarding amendment 9 and changing the number of external appointees to the FPC from four to six. Amendment 8 is designed to increase the breadth of experience and knowledge of its members. Members will recall that I have been discussing the four non-executive board members. When making appointments, the Chancellor must

“be satisfied that the person has knowledge or experience which is likely to be relevant to the Committee’s functions”.

That is quite vague and ambiguous. It does not say “knowledge and experience”; it says “knowledge or experience”. As the Bill stands, it is perfectly possible that there could be four non-executives with knowledge and not a single person on the FPC with experience, or vice versa. We need a broader representation of voices on the committee, and our amendment would mean that the Chancellor must also

“have regard to the desirability of ensuring a broad representation of practitioners and consumers in the UK financial”

sector when making appointments to the FPC, which was also highlighted by the CBI in its submission. Legal & General also made the point that the legislation

“should explicitly require external members of the FPC…to have sufficient breadth of knowledge and experience across all financial industry sectors”,

and the Association of British Insurers made a similar point. The Financial Services Consumer Panel also argued that the FPC ought to have

“adequate information from a consumer perspective”

and it obviously hopes that a consumer voice would have a chance of being heard on the committee. The pre-legislative scrutiny Committee also recommended that the FPC membership should

“include experts from across the financial services industry, including insurance and the wider economy.”

Some have said that there are potential conflicts of interest, which might be a difficulty if certain people with certain industrial or economic experience are also on the committee, but that is not an insurmountable barrier. We can design in industry experience on to the FPC, and that is why amendment 8 has been framed in such a way. I would like to hear the Minister’s thoughts on that at a later date.

Amendment 10 talks about giving the Treasury Select Committee sufficient time to hold pre-appointment hearings with candidates to be appointed to the FPC under subsection (1)(e). There are concerns about a democratic deficit in the FPC appointment process. The Government have made some changes in the draft Bill in terms of trying to fill that gap, but important deficiencies still remain, such as the appointment hearings, which are necessary to ensure parliamentary accountability. Appointments to the FPC committee are subject to pre-commencement hearings by the Treasury Select Committee, but that does not give members of that Committee the power to have pre-appointment hearings, so that they can vet candidates before the decision is taken to appoint them. Our amendment would therefore ensure that a sufficient period of time was allowed to facilitate those TSC appointment hearings. The TSC itself has asked for the power to undertake appointment hearings and that is why we have tabled amendment 10. I am sure that members of the Treasury Select Committee recall paragraph 92 of that 21st report recommending that that take place.

The Government have said in response that that cannot take place because of the market-sensitive nature of MPC and FPC appointments, which make them unsuitable for pre-appointment hearings. I do not think that that argument washes. The Minister should give some examples of how a pre-appointment hearing could have a damaging impact on the market. Conversely, will he explain how the lack of a pre-appointment hearing does not represent some sort of market shock, which, of course, it could? That is the rationale behind amendments 8, 9 and 10.