Financial Services Bill

Public Bill Committee, 28 February 2012.

Clause 3 - Financial stability strategy and Financial Policy Committee

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 29, in clause 3, page 6, line 27, leave out from ‘may’ to first ‘the’ in line 29 and insert ‘require or recommend’.

Good morning, Mr Leigh. It is a pleasure to be back again in this interesting and stimulating Committee. Hon. Members have been champing at the bit all weekend in anticipation of amendment 29, and here we are at last. I draw their attention to proposed new section 9G, entitled “Directions to FCA or PRA requiring macro-prudential measures”. That concerns the interstices—the internal wiring—of the relationship between the Bank of England and its Financial Policy Committee, and the downstream implementation of such policy measures. As we discussed in previous sittings, the macro-prudential powers are clearly significant and will have a big effect on the economy at large.

New section 9G(6) states:

“The direction may not require its provisions to be implemented by specified means or within a specified period, but may include recommendations as to the means to be used and the timing of implementation.”

In other words, the FPC will make recommendations to the Prudential Regulation Authority or the Financial Conduct Authority about how they implement particular measures, but it cannot require them to follow those recommendations. If the amendment were agreed, the subsection would read: “The direction may require or recommend the means to be used and the timing of implementation.”

We tabled the amendment partly because of the evidence given by the Governor of the Bank of England to the pre-legislative scrutiny Committee. He suggested that an amendment should be considered to allow the FPC to

“require or recommend its provisions to be implemented by specified means or within a specified period”.

He said:

“I think this a missed opportunity. It was the intention of the new framework that the FPC should be able to impose requirements on systemic stability grounds, and for this purpose it is very difficult, in my view, to justify limiting its power to specify timing and means. On many occasions the precise implementation of FPC directions can be left to the micro-prudential supervisor. But in other cases a key element of the FPC’s policy position will be about when or how a particular tool is to be used and, in some areas, there is likely to be a premium on pre-emptive, targeted and well-timed action.”

Sir Mervyn King therefore suggested the amendment that we have tabled.

Obviously, we might have an existential debate about the extent to which the Bank of England’s writ should run and how the regulatory authorities pick up on the FPC’s view. However, as we heard in previous debates, there is no clear-cut case for having the Bank of England separate from the PRA or the FCA. They should not be in little compartments with walls around them; there are connectivities between them all and there is a stream that flows downhill from the Bank of England and its FPC to those regulators. The Governor has therefore made an interesting point about the current drafting of the Bill. The Financial Services Authority has supported the concept of such an amendment. In its evidence it stated:

“The FSA is supportive of the concept, as laid out by the Bank of England, that the FPC can direct the PRA or the FCA both as to means and timing. However, it is important that this is restricted to the powers to direct rather than recommend. We would, accordingly, support the Bank of England’s suggested amendment.”

This is a probing amendment. The pre-legislative scrutiny Committee chewed over this question in detail and came to its own conclusions. It recommended:

“Where the FPC is to be given the power to direct the PRA and FCA to implement a macro-prudential tool it should also be given the power to direct the regulators as to the timing and means of implementing that tool. The FPC should use this power where the timing and means of implementation are likely to have a significant impact on the effectiveness of the tool. If these circumstances do not exist the decisions about timing and means are better left to the regulators—the PRA and FCA—who hold the expert knowledge.”

That is probably the right balance to strike, but to exclude the ability to specify means and timing might cause difficulties. We can imagine circumstances in a crisis situation, when being able to get legal advice about whether the FPC could make reference to a particular company or timing of a measure might not be desirable. We want proper clarity in the Bill in relation to such circumstances. I can also envisage circumstances—I am sure the Minister can, too—in which the FPC might have company-specific, or at least vehicle-specific, reasons for concerns. It might therefore want a response about implementation of a macro-prudential tool relating to means or timing of changes.

I want the Minister to give us a sense of why the Government have chosen this drafting, particularly given the stance of the pre-legislative scrutiny Committee, the Governor and the FSA. I should be grateful to hear his justification.

Mark Hoban (Conservative, Fareham)

It is a pleasure to serve under your chairmanship this morning, Mr Leigh.

The starting point for my argument and that of the hon. Member for Nottingham East is the quote from the pre-legislative scrutiny Committee. However, he emphasises the first part of the quote and I emphasise the second—that the Committee rightly recognises that it is the PRA and the FCA who hold the expert knowledge. It is because they hold such knowledge that I disagree with giving the FPC power to direct timing and means. Let me be clear: the FPC is a macro-prudential regulator; the PRA and the FCA will handle the day-to-day supervision of regulated persons. They will have the necessary expertise and experience to know how and when best to implement a direction from the FPC, which is important. The chief executives of both the PRA and the FCA will sit on the FPC to ensure that conduct and micro-prudential issues are taken into consideration, but the working-level supervisors will manage the day-to-day relationships with regulated persons. They will know how best to put directions into practice and what the right process is.

That is not to say that the FPC will be powerless with regard to the timing or means of a direction; the Committee can recommend how and when a direction should be implemented. Should it wish to underline the significance of its views on the matter, it can make its recommendation on a comply or explain basis, which would require the regulator to comply with the recommendation as soon as was practical, or explain why it had not done so. The provision will provide the FPC with a powerful means of influencing a direction’s implementation when it feels that that may impact on the tool’s effectiveness. However, regulator discretion is vital in ensuring that unintended consequences be avoided. A poorly calibrated direction on timing or means might have significant impact on regulated persons, and the regulator would have no choice but to comply unless the FPC revoked or amended the direction. Such a scenario would be highly undesirable and put potential uncertainty around the FPC’s exercise of its key function, potentially undermining its credibility and authority.

The Bill strikes the right balance. It gives the FPC some powers to be more specific about the use of the tool, but it also gives the micro-regulators—the FCA and the PRA—some latitude over the timing of the use of these tools. The existence of comply or explain powers provides a balance, so that if the PRA or the FCA feels that the direction from the FPC is not right, it can explain why. The balance is right and takes into account the proper relationships among the FPC, the PRA and the FCA.

If there had not been this process of direction and comply or explain, the hon. Gentleman’s arguments and those of the pre-legislative scrutiny Committee would be valid and would need reflection. It was because we thought about those arguments that we introduced the comply or explain power into this part of the Bill. I hope that the hon. Gentleman will take my points on board and recognise that his amendment is unnecessary, because the right balance has been struck.

Chris Leslie (Labour, Nottingham East)

I am grateful to the Minister for his justification of the Bill. We know that comply or explain is a favourite paradigm of the Treasury, going back quite some time, as a way of balancing regulatory burdens and the enforcement of those regulations. Comply or explain, of course, has its limits. Where the PRA or the FCA choose to differ on a regulation from the FPC, it may land us in circumstances where there is a row or a strong difference of opinion between the Bank and those creatures of the Bank—that is what the PRA and the FCA are—about the implementation of those particular changes.

Mark Hoban (Conservative, Fareham)

The hon. Gentleman has made this point about the PRA and the FCA being creatures of the Bank several times, but his amendment would make them more likely to be creatures of the Bank, rather than giving them the independence that the Bill sets out to give them.

Chris Leslie (Labour, Nottingham East)

I said at the outset that this is a probing amendment to test the view of the Governor of the Bank. As I said in my earlier remarks, there are ways in which it is important potentially to fetter the imperial writ of the Governor of the Bank. Given that the Governor made this specific point in the evidence session of the pre-legislative scrutiny Committee, I thought it was important to at least test it out. It would not be correct to go along with the pretence that the PRA or the FCA are somehow entirely independent, because they are not. The Minister takes a different view and thinks that they are independent, but we have already had discussions about the number of ways in which they are dependent on and steered and shaped by the Governor and his appointees.

Mark Hoban (Conservative, Fareham)

Could the hon. Gentleman explain who the Governor appoints on the board of the FCA?

Chris Leslie (Labour, Nottingham East)

My understanding is that the chief executive of the FCA is appointed by the Treasury, but the other members of the FPC are top heavy with executives within the Bank. Although the Treasury makes the appointment of the FCA chief executive, I think I am right in saying that there is a requirement to consult the Bank in the appointment of the FCA chief executive. I may be wrong.

Mark Hoban (Conservative, Fareham)

He is.

Chris Leslie (Labour, Nottingham East)

I am delighted to hear that. The Government—this is important clarity—are labouring under the impression that the FCA is entirely independent from the Bank of England, yet we are talking about how the FCA implements FPC recommendations and how it must comply with them or explain why it has not done so. The Governor of the Bank is clearly under the impression that he should have power to direct the FCA, not only in those general terms, but in specific ones. The Minister may have clarified the point for me, but he should write a note to the Governor to let him know that the FCA might not be as under his thumb as he might have supposed, given the impression he gave in evidence.

This is a probing amendment and we have clarified some of the Government’s thinking. The pre-legislative scrutiny Committee envisaged circumstances in which the FPC might recommend, but not order, a requirement on the PRA to raise banks’ capital ratios to

“a minimum of X%, recommending this be done within three months.”

The PRA would then have to increase capital ratios, but could choose to do so over a longer period, such as six months rather than the recommended three. The Governor says that it might be desirable for him to be able to specify the time period, but, let us be clear, the Minister does not want the Bank to have that power. I am happy to accept his judgment, but setting out the exact boundaries of the Bank’s powers is incredibly important. The Minister has clarified that the FCA is entirely independent from the Bank, so I am more than happy to beg to ask leave to withdraw the amendment.

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 34, in clause 3, page 7, line 40, after ‘Committee’, insert ‘and the public’.

Edward Leigh (Conservative, Gainsborough)

With this it will be convenient to discuss the following: amendment 35, in clause 3, page 7, line 42, after ‘Committee’, insert ‘and/or the public’.

Amendment 36, in clause 3, page 7, line 43, at end insert—

‘(c) where an order is made under subsection 2(b) above, the reasons for not consulting the Committee and/or the public shall be subject to scrutiny by the Treasury Committee.’.

Chris Leslie (Labour, Nottingham East)

We move rapidly on. Proposed new section 9K relates to macro-prudential measures, which are a significant part of the clause 3 provisions. Under it, before making an order, the Treasury must consult the FPC. That makes sense, because the FPC was the genesis of the macro-prudential rules, so I suppose the Treasury would consult it on the technicalities of enactment of a particular macro-prudential measure. In addition,

“if the Treasury considers that the delay involved in consulting the Committee would be prejudicial to the stability of the UK”,

it must consult the Governor of the Bank.

I have no problem with circumventing consultation arrangements in crisis scenarios. In emergencies, actions must be taken rapidly, and I have no objection to that. However, in normal circumstances, the Treasury should be able to consult more widely on the technical way in which a macro-prudential measure will be enacted. Amendment 34 would insert the words “and the public” after “Committee” in line 40, because we want a public consultation on such matters. Amendment 35 proposes something similar in that the public could be consulted even in circumstances relating to emergency situations, although it would not mean that no action could be taken until the consultation were closed. A facility to consult the public should exist, however.

If an order were made in rapidly developing situations and it would be prejudicial to the UK’s stability to go through a full FPC consultation, it is important that the Treasury Committee, at least, be given reasons for the lack of consultation with the FPC or the public. The Treasury Committee could make a judgment, ex post, about the rapidity of those order-making powers and the extent to which wider consultation might have been beneficial.

In this day and age, it is not onerous or difficult to consult the public. Public consultation would hopefully improve the detail and nature of Government orders, including draft orders, allowing them to tap the widest possible sources of information and so improve the quality of decisions and ensure that they are desirable. It might be beneficial to alert policy makers to concerns in industries and businesses affected by such draft orders—consumers might also have views—especially if, inadvertently, policy makers or the Minister had not picked up details arising through a consultation process. Public consultation would also help to ensure healthier monitoring of how policy changes affect existing policy and to consider, perhaps in a dialectic process, whether such changes are in fact needed.

I understand that the Government still follows the Cabinet Office “Code of Practice on Consultation” in relation to policy making, which states that there should technically be 12 weeks between the publication and the implementation of a policy proposal. That 12-week period allows people to reflect on and consider the proposals and to make representations, and the Government should act only after the end of that period. That is an important principle, and having a consultation process is good practice because, after all, the changes may have significant effects on people and businesses.

The Institute of Chartered Accountants in England and Wales said:

“We think the Bill should be revised to ensure that a much wider range of expertise is used by consulting the public. The current structure gives no opportunity for consultation with public interest, financial and business stakeholders. While it should be possible to consult the public on setting the financial strategy, which should include the range of macro-prudential measures the Bank expects to have available, it may not be practical or in the interests of financial stability to consult the public in advance in emergency situations. Where these emergency powers are needed, they should be subject to scrutiny after the fact from the Treasury Select Committee.”

The three amendments seek to strike such a balance in that they would allow, in normal circumstances, for the doors to be opened, for there to be transparency and for consultation to take place, while also making sure that there is provision to circumvent and speed up the consultation, albeit ex post, once such arrangements are made.

On amendment 36, it is important that the Treasury provides reasons why, in some circumstances, it will not consult the public and why the Cabinet Office code is not relevant. The role of the Treasury Committee has clearly been important in considering such questions. I hope that the Minister agrees that we have framed the amendments so as not only to reflect external views, but to strike the right balance on transparency, and I would be grateful if he addressed my points.

Stephen Gilbert (Liberal Democrat, St Austell and Newquay)

It is a pleasure to serve under your chairmanship, Mr Leigh. May I ask a technical question? Do you also propose to have a clause stand part debate?

Edward Leigh (Conservative, Gainsborough)

Usually, I am happy to do so, unless the amendments range so widely that we have obviously covered the whole ground. In that case, we would clearly be wasting time, but at the moment I see no problem in having a clause stand part debate.

Stephen Gilbert (Liberal Democrat, St Austell and Newquay)

Thank you for that clarification, Mr Leigh. In that case, I will save the bulk of my remarks for that debate, although the Committee probably agrees that we have already had a wide-ranging and lengthy discussion on the clause. I have much sympathy for the points made by the hon. Member for Nottingham East about public consultation and the need to involve the widest possible group of stakeholders in decisions that may have a profound long-term effect on our economy. I shall comment more on that in the clause stand part debate.

It is interesting to note that the December 2011 discussion document from the Bank of England, which is perhaps the closest we have come to a public consultation on macro-prudential powers, uses terms such as “Countercyclical capital buffers”, “Sectoral capital requirements”, “Maximum leverage ratios”, “Time-varying provisioning practices”, “Restrictions on distributions”, “Margining requirements” and other such jargon, which, at the very best of times would be difficult for members of the public properly to understand. While I want to support the notion put forward by the hon. Member for Nottingham East that there needs to be the widest possible public consultation as these macro-prudential powers are discussed and debated, we need to ensure that that is done in proper English.

Chris Leslie (Labour, Nottingham East)

The hon. Gentleman is entirely correct. When we discussed these macro-prudential measures earlier and I started to summarise the Bank’s description of what its initial toolkit would look like, I got the sense that the Committee was glazing over. I might be wrong, but that is the tip of the iceberg in what the public might think about this. Clear, legible and straightforward explanations are necessary for the public. There were only 30 responses to the public consultation on the Bank of England document. That is a clear sign that there was not proper appreciation or communication of the calibre and importance of those measures.

Stephen Gilbert (Liberal Democrat, St Austell and Newquay)

I am afraid that I have to agree with the hon. Gentleman. When we are talking about loan to value and loan to income restrictions, we are essentially saying that Parliament will hand to the Bank of England the ability to set the leverage ratio on individuals’ personal debt levels or their ability to secure finance for mortgages. Like him, I am appalled that only 30 people and organisations across the country found that significant power both legible and significant enough to respond to. I am sure that there are more individuals and organisations across the country interested in responding to that issue than have so far come forward. A large part of that is the intelligibility of the December 2011 consultation.

I have a range of other comments that I want to make in the clause stand part debate.

Sheila Gilmore (Labour, Edinburgh East)

Will the hon. Gentleman clarify his position? Is he suggesting that, if he has fears that it will not be clear, there should be no consultation, or that there should be consultation with the public, but it is essential that it should be clear?

Stephen Gilbert (Liberal Democrat, St Austell and Newquay)

Clearly, I was not being clear enough in what I was saying. It is very much the hon. Lady’s latter point: we should have consultation and it should be clear. This reminds me of when I was at the royal courts of justice yesterday, where there was a great debate about a competent appropriate authority and an appropriate competent authority. The hon. Lady is entirely right: we should have proper public consultation, conducted in plain English. I will leave my comments there for now in the hope that, Mr Leigh, I can catch your eye—

Chris Leslie (Labour, Nottingham East)

Before the hon. Gentleman finishes, would it be possible for him to write a joint letter with the Deputy Prime Minister on the amendments that he would be keen to see in the Bill? I know that that is a novel facet that is developing in our body politic, but I would be more than happy if he wanted to do a joint letter with the Deputy Prime Minister. We could even publish it; it would be helpful for these proceedings.

Stephen Gilbert (Liberal Democrat, St Austell and Newquay)

As ever, the hon. Gentleman is tempting in his generous offers. Perhaps I come from a different generation from the hon. Gentleman, but I am more likely to tweet my right hon. Friend the Deputy Prime Minister than I am to write to him with quill. I do not yet see the capacity for joint tweeting. On that note, I hope to catch your eye, Mr Leigh, at a later point.

Edward Leigh (Conservative, Gainsborough)

Would the Minister like to tweet?

Mark Hoban (Conservative, Fareham)

No, definitely not, but I wish that I could keep my remarks to 140 characters. I do not think that these amendments are necessary—I am not sure how many characters that is. They are not necessary for two different reasons. One is about consultation. I have made it clear in previous debates about macro-prudential tools and legislation relating to them, that there will be a consultation process. The hon. Member for Nottingham East is right that there are Cabinet Office guidelines, which we are committed to following in consultations. I point out, however, that the guidelines permit circumstances in which consultations can be undertaken in periods shorter than 12 weeks. We are clearly committed to transparency, whether on statements of policy on the FPC’s tools, the financial stability report or public records of meetings, so that people can understand what is going on in the FPC.

The interim FPC’s December paper has been widely quoted this morning and in previous sessions, which demonstrates that that practice is out there and that the FPC rightly wishes to engage with people. As a matter of course and as part of the usual statutory instrument process, I expect that the Treasury will consult on macro-prudential tools. Hon. Members should not think that the debate has been in private or in secret. Had it been, the FPC would not have published its paper in December. In fact, we particularly asked it to do that work and publish its results to inform the debate because of the potentially significant socio-economic impacts of macro-prudential tools.

Chris Leslie (Labour, Nottingham East)

I am sorry if I am exhausting the Minister so early, but this is important. Given the point made by his colleague, does the Minister think that the December document from the Bank of England genuinely engaged the public in the importance of the possible effect of macro-prudential powers? Could it have been more effective in having a stronger, clearer communication with the public?

Mark Hoban (Conservative, Fareham)

The hon. Gentleman comes from a strand of politics that seeks to micro-manage every aspect of public life, perhaps including providing a prescriptive set of language for the FPC to use. We must ensure that there is a public debate, which is not necessarily only to be done through FPC documents and the one that he suggested. That said, there is a broader point about the wider education of people in some of the more complex areas of finance that have a big impact. People are much more aware of such issues now than they were in the run-up to the financial crisis. The FPC must think carefully about how it gets the message across and about how it could engage with others to help it to do so.

Matthew Hancock (Conservative, West Suffolk)

Is not the point about the December document slightly spurious? Inevitably, some FPC decisions and deliberations will be highly technical and will need documents such as that. Others are big picture, and can be communicated through speeches by the Governor and through other FPC and Bank of England publications. Indeed, that is demonstrated by the difference between MPC minutes and the Governor’s press conferences in communications relating to monetary policy.

Mark Hoban (Conservative, Fareham)

My hon. Friend makes an important point. The FPC can communicate to the wider public in a range of ways—through its financial stability reports, through documents such as the December document, and through speeches made by the Governor or other FPC members. The challenge is to ensure not only that there is sufficient technical information for people such as economists, bankers and people in business to understand, but that a wider communication strategy is in place. The FPC must think about that, because it has an important public role in sending signals and messages.

Jesse Norman (Conservative, Hereford and South Herefordshire)

On micro-legislation, I cannot speak for the Treasury Committee, members of which are on both sides of Committee, but it should be able to call anyone to appear before of it whenever it chooses, and people may or may not come. However, it should not seek to have its powers defined in legislation any more than they are now. Such definition might restrict the Treasury Committee.

Mark Hoban (Conservative, Fareham)

My hon. Friend raises an important point, which relates to the third amendment in the group, amendment 36. Let me wrap up on the first two. The intention is to consult with the public and support the FPC to think about how it communicates with the public in its prescriptions and the issues that it raises. The Government will consult before the introduction of secondary legislation, so we too will be able to consider how we engage with the public on such matters.

My hon. Friend is absolutely right about amendment 36: it is not necessary for primary legislation to dictate to the Treasury Committee what it should do. During the nearly two years in which the system has been up and running, I have noticed that the Chairman and members of the Treasury Committee are sufficiently robust and independent to decide their scope and remit, and rightly so.

Chris Leslie (Labour, Nottingham East)

I am sad that the hon. Member for Hereford and South Herefordshire has chosen to interpret amendment 36 as putting a burden on the Treasury Committee. I could have improved the drafting of that amendment, but the requirement that I am seeking to place would be on the Treasury to ensure that it gave the Treasury Committee the opportunity, ex post, properly to consider anything taking place under the emergency arrangements. I do not want to micro-manage how the Treasury Committee does that; I want to ensure that Her Majesty’s Treasury shows the courtesy and respect necessary to enable the Treasury Committee to do it.

Jesse Norman (Conservative, Hereford and South Herefordshire)

Of course, the issue is not about burdening the Treasury Committee. It is simply that, as the Minister said, once we start to define a Committee’s responsibilities in legislation, we would irresistibly be drawn down the path of defining what it can and cannot do, but the Committee must reserve to itself a degree of autonomy.

Chris Leslie (Labour, Nottingham East)

That is true to some extent, but requirements for pre-appointment and pre-commencement hearings have been written into legislation and so on. In some circumstances, we should ensure that the Executive has, by law, a certain set of consultation arrangements with Parliament. I was simply trying to expand on such arrangements, but I understand the hon. Gentleman’s point.

On amendments 34 and 35, I welcome the Minister’s commitment that, as a matter of course, the orders will be subject to consultation and to the Cabinet Office code of practice. The purpose of tabling the amendments was to get the Minister’s commitment on the record. I do not see what harm would be done by writing into law a requirement for public consultation. That would be a harmless addition to the Bill, but the Minister’s commitment is very helpful.

The Minister talked about our not being too prescriptive in how we ask the Bank of England or others to describe their macro-prudential measures. There was an unfortunate tone of aloofness in the Minister’s comments, implying that we should all understand City-speak and not worry about any difficulty. I do not want to be prescriptive; I just want plain English. From time to time, Ministers should be guardians, on behalf of the general public, of the need to make those academics in their towers in Threadneedle street talk in an accessible way.

That point is important because, historically, a whole series of risks were masked—even from bank executives—by collateralised debt obligations squared and other opaque descriptors of financial products. Similarly, we want to ensure that regulatory changes are also debunked of the verbiage that unnecessarily accumulates around such provisions. I completely agree with the points made by the hon. Member for St Austell and Newquay, and we definitely need to guard against such risks. The Minister has given a commitment to the Committee, and therefore I beg to ask leave to withdraw the amendment.

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 16, in clause 3, page 8, line 22, at end insert

‘on the Bank of England website.’.

Edward Leigh (Conservative, Gainsborough)

With this it will be convenient to discuss the following:

Amendment 18, in clause 3, page 11, line 12, at end insert

‘but always on the Bank of England website.’.

Amendment 21, in clause 3, page 12, line 23, at end insert

‘but always on the Bank of England website.’.

Amendment 22, in clause 3, page 12, line 35, at end insert

‘but always on the HM Treasury website.’.

Amendment 69, in schedule 3, page 176, line 6, at end insert—

Chris Leslie (Labour, Nottingham East)

It is a minor point, but amendment 69 has been grouped with this set of amendments. Amendments 16, 18, 21, 22 and 30 would clarify the language used in the Bill and how transparent it intends to be on the reporting of various matters. For example, amendment 18 would insert at the end of the provision

“Publication under this section or section 9S is to be in such manner as the Bank thinks fit”.

the words

“but always on the Bank of England website”.

It is pretty harmless to insert a de minimis requirement, as the publication of such documents on the Bank of England website seems fundamental. Such a proposal is not objectionable to me; it is an important point. It would not be particularly onerous.

Whatever manner in which the Bank decides to publish, it is surely appropriate for such information to be made readily available and be easily accessible. I accept that we have had a laugh and a giggle about Twitter, but the interweb or the internet, as some people might call it, is now a commonly used device for gaining information. It is not even beyond the wit of the Committee to use the wi-fi facilities at the House of Commons to access available information about certain public documents. Indeed, these days it is in order for Members to read their speeches from tablet computers—generally the Apple iPad. I am not sure about that level of modernisation, but many hon. Members are keen on it and dedicated to it. The amendment would modernise the Bill and ensure that, rather than acting as the Bank sees fit—such as using a quill pen, who knows?—we, as a modernising Parliament, require publication of information on a website.

I do not know whether “website” has been used in previous legislation or whether we would become involved in legal definition problems, but people would understand the meaning of the word. Will the Minister outline the circumstances in which the Bank publishes in the manner it sees fit that would not be appropriate for publication on the Bank’s website? If the hon. Gentleman resists the amendment, he would be saying that, in certain circumstances, the website is not the appropriate vehicle to use. I want to know when such circumstances might occur. Transparency, which we have discussed, is important, but so is the accessibility of information. It must also be obtainable at all times. One of the wonders of the interweb is that it does not operate in business hours. We can turn it on, boot up and access such information at all times of the day or night, as I have found out in advance of our sitting. It is important to ensure that the Bill is fit for the 21st century.

The amendment would cover meetings of the Financial Policy Committee and deferred publications under proposed new section 9S. Amendment 21 would cover financial stability reports. Amendment 22 deals with records of meetings between the Governor and the Chancellor, which would be interesting. Amendment 30 is slightly different from the others, as it deals with a requirement in respect of the Financial Conduct Authority’s annual meetings, in which case it would not be appropriate to publish such information on the Bank of England’s website. Clearly, as the Minister has explained, the authority is a wholly independent body so it would be necessary for such matters to be published on the FCA website.

Amendment 69 would insert a new paragraph in schedule 3 on the records that must be kept. The FCA also requires a degree of transparency, and we think that the publication of minutes is perfectly justifiable. It is an important principle that we have transparency on the discussions that occur at the highest level of the regulator. Which?, the consumer association which campaigns for a fairer deal for all consumers, argues:

“Failing to legislate for the publication of board minutes and agendas of FCA board meetings stands in stark contrast to the Government’s publicised intention to create a transparent regulator. If the Government truly intended to create an open watchdog then they would legislate accordingly. The Government needs to learn the lessons of the report into the failure of RBS and ensure that the new regulator never gets into this type of situation again”.

Hon. Members will recall that we have recently had a discussion about the extent to which regulators share their information, albeit in a sometimes circumscribed manner, with the wider public. We wanted to test the principle of publishing minutes and I cannot understand why it is not in the Bill.

That view is echoed by Lord Turner, the current Financial Services Authority chairman. In evidence to the Treasury Committee last November, he said that he is “quite favourable” to making public board meeting minutes around policies such as the retail distribution review and the mortgage market review. He also suggested that non-executive board members should give evidence to the Treasury Committee to increase the accountability of decision making. Perhaps most significantly of all, the hon. Member for Wyre Forest, who will know that I listen to his every word on many of these issues, has said—in terms, because it was not about this specific amendment and I do not want to misquote him—publicly:

“It is important that we have publication of minutes to improve and enhance the effectiveness of how we can scrutinise and hold to account those financial regulators.”

I understand that, in Money Marketing magazine—I have a copy here if the hon. Gentleman wants a spare copy— he recently said:

“Getting in at least the non-executive board members would help us understand how decisions are made rather than simply what they are.”

That was in respect of the Treasury Committee. He then said:

“With the minutes from board meetings public, we could say to them ‘well, you said this, it is in the minutes, can you explain what you meant’ rather than it all happening behind closed doors.”

Indeed, as he said, helping us understand how decisions are made, rather than simply what they are, is an important principle. The hon. Gentleman makes a compelling argument. It is a principled stance and his leadership within the Treasury Committee also resulted in that recommendation coming forward in its 26th report, which was clear, unambiguous and strikingly simply. The report stated:

“The current legislative proposals do not provide adequate accountability, nor the framework for sufficient scrutiny of, and explanation by, the regulator. We therefore recommend:

That the board of the FCA publish full minutes of each meeting.”

Government Members will know that I am intending to be helpful to them. I have tabled amendment 69 in the spirit of cross-party consensus and I hope that they will join me in recognising its virtues.

David Rutley (Conservative, Macclesfield)

Will the hon. Gentleman clarify to members of the Committee what time frame he has in mind for publishing these minutes? Will it be to publish immediately after the meetings or at a certain time afterwards? Can he also remind members of the Committee whether that was conducted by preceding bodies?

Chris Leslie (Labour, Nottingham East)

No. Hon. Members will remember that we had a big debate on this issue in the House, and the Minister replied in respect of the retail distribution review. About 80 colleagues of the hon. Member for Bury St Edmunds, including Labour Members, were most exercised about the lack of transparency regarding decisions on that review. Given that that is also a problem with current Financial Services Authority arrangements, we felt it important to take the opportunity to move forward and require publication of the minutes.

I did not feel it necessary to put the time scale for publication of the minutes in the Bill. General practice would perhaps accept that the time frame used by the Monetary Policy Committee, which publishes minutes a certain number of weeks after its meetings, would be an appropriate equivalent on which to draw. I envisage publication taking place an appropriate period after the decision has been taken, giving time for people to draft the minutes and have them approved and so on. Those are the reasons for tabling amendment 69. There are two issues: one is about the terms of publication on the website, and the other—more important in many ways—is about the publication of the minutes and agendas.

Mark Hoban (Conservative, Fareham)

I feel that the hon. Member for Nottingham East is a bit old school when it comes to the publication of information. He has locked himself into websites—the interweb as he described it—but the communication of tomorrow may be different. It may be that the FPC tweets its recommendations, or that we are all friends of the Bank of England on Facebook and get information that way. The hon. Gentleman is in danger of locking himself into old technology. When the day comes on which the interweb is finally disposed of in the dustbin of technology, we will have to come back in primary legislation and remove references to websites in every piece of legislation that the hon. Gentleman has sought to amend. His point, however, is valid: we must ensure that information is communicated in ways that are accessible to people, not only in the language used, but in the location. He may be interested to know that Treasury policy is to post documents on its website and fewer hard copies of documents are published. Time is moving on, and I would not want to be locked into old technology such as websites.

Sheila Gilmore (Labour, Edinburgh East)

If the amendment is accepted, publication on the website would simply be an additional means of publication. Would we really need primary legislation to deal with that?

Mark Hoban (Conservative, Fareham)

It is not so much that. Amendment 18 would insert,

“but always on the Bank of England website.”,

so the whole interweb would have to be kept going just to publish that information until the legislation could be amended. Let me draw a different analogy. Members of the Committee may remember, as I do, the days when teletext and ceefax were cutting edge. The equivalent of the hon. Member for Nottingham East would have tabled amendments to suggest that information should always appear on teletext. We should be wary of locking ourselves into old-style technology.

Chris Leslie rose—

Mark Hoban (Conservative, Fareham)

I will give way once more, then I will move on to amendment 69, which the hon. Gentleman recognised as the substantial amendment in the group.

Chris Leslie (Labour, Nottingham East)

The Minister makes an important point. I do not, in any way, want to lock in the Treasury to the day when the internet suddenly collapses and Tim Berners-Lee’s invention becomes a redundant feature. It does not seem to be meaningful on those grounds. Perhaps I have missed some techno-news into which the Minister has some insight. If the Minister will address this particular point, I will be happy to withdraw my amendments. Can he envisage any circumstances in which the FSA or others would not always publish on the website?

Mark Hoban (Conservative, Fareham)

I still cannot, but that is not really the point. People publish stuff on the internet as a matter of course. Any organisation that is communicating with the public will publish stuff on the internet; that is what people do in this early part of the 21st century when Tim Berners-Lee’s invention is still at the forefront of our minds.

Let me turn to amendment 69. The hon. Gentleman is right that this flows from not just the wise and sagacious remarks of my hon. Friend the Member for Wyre Forest but the evidence that Lord Turner gave to the Treasury Committee. One of the clear principles that underpins the approach to regulation that is set out in the Bill is transparency. It underpins a lot of the work of the FPC. Before we finish consideration of this Bill, we may come on to other ways in which we can use transparency to improve outcomes for consumers. Transparency is there. None the less, it is a matter for the FCA board to decide what it publishes. I have no objection in principle to saying that it should publish these documents, but I will come on to some areas where such publication may not be so helpful.

There is a slightly broader point to bear in mind. The FCA, or the FSA as it is currently, is quite a transparent body when it comes to policy making. We already have consultation papers and discussion papers. The hon. Gentleman touched on the fact that the Retail Distribution Review had gone through a very public process of consultation and discussion for about three years. There is no shortage of information out there, but where the gap perhaps is, and the publication of board minutes would help to close that gap, is the thought process that goes beyond, “This is what people have said” to “This is why we have done it”. In part, it is addressed in the responses to consultation papers that the FCA publishes, but it does not do any harm for those discussions in boards to be minuted and for those minutes to be publicised. It just completes the loop. I do not have any objection to it; it is a good thing to do and clearly Lord Turner thinks that it is a good thing to do.

None the less, the broad scope of the hon. Gentleman’s amendment would catch a range of committees that have a public policy function. I just wonder whether we would be going beyond what we are always trying to do, which is to get some transparency around decision-making on regulatory policy. It might include committees dealing with remuneration, audit and the financial management of the FCA. Would it cover discussions of the regulatory decisions on individual firms? Those are quite sensitive matters. My instinctive principle is to ensure that information is made public, but the Committee should be wary about being over-prescriptive. It is clear from Lord Turner that they want to publish as much as they can—I think that they should—but we should be very careful about extending the scope without fully thinking through the consequences.

Chris Leslie (Labour, Nottingham East)

This is a substantive amendment and an important principle. It is very helpful that the Minister sees no harm in the publication of the FCA minutes and agendas, I want to hear why there would be harm in placing this requirement in legislation. The Minister has a particular quibble with the drafting of my amendment. If he gives a commitment to come back on Report with some equivalent that would be more properly framed in the way he would prefer, I would be more than happy to withdraw this amendment. It is an important principle. It should not just be left to the current incumbents in those regulators to say, “Well, that is what we are going to do.” We know of situations in the past in which there has not been the necessary transparency of minutes and proceedings at board levels. Will the Minister at least commit to coming back and considering a way of including the requirement in the Bill?

Mark Hoban (Conservative, Fareham)

I will certainly think about it, but I am wary of going down the route of being prescriptive about how a board will function. That is one of the reasons why we have set out clear regulatory principles in the Bill, such as the principle of transparency. However, I will consider whether there is a way of including the measure without setting a precedent on the degree of intervention in how boards function, which would be unhelpful.

Chris Leslie (Labour, Nottingham East)

I was hoping the hon. Member for Wyre Forest might have something to say on this. I was inspired by him, as I often am, to take up the pearls of wisdom that drop as crumbs from the Treasury Committee’s table. He is not keen to speak, however. It is difficult to read particular motives or views into someone’s silence, so I shall try not to do so. The Minister has said that he will think about it, which is helpful—for this Minister, that goes quite a long way. Does my hon. Friend agree?

Mark Durkan (Social Democratic and Labour Party, Foyle)

Yes. The FCA will set up various practitioner and consumer panels and consult them. Does my hon. Friend agree that those panels would find it useful to be able to refer to the minutes and agendas, which would be available through routine publication?

Chris Leslie (Labour, Nottingham East)

Indeed, and that was the question that the Minister prompted when he mentioned the audit committee or the remuneration committee. As a matter of principle, in this day and age, regulatory matters must be more transparent. We framed the amendment so that anything inappropriate for publication could be excluded or redacted from minutes in the usual way. I do not see how consumer panels and others could properly reflect on the rationales behind decisions made by the FCA or others if they did not have some insight into the minutes. This is an important question, and the proposal is not a particularly prescriptive way of proceeding in legislation.

Mark Garnier (Conservative, Wyre Forest)

I am grateful for the hon. Gentleman’s extraordinarily kind words about my participation in the Treasury Committee. I have taken a bit of time in finding the exact quote in the Treasury Committee’s 26th report of the 2010-12 session. In my question 116 to Hector Sants and Lord Turner, we discuss the very point about the Monetary Policy Committee’s minutes. The MPC keeps detailed minutes of exactly what each member refers to, so its accountability is much clearer. Lord Turner discussed how that situation might be applicable to the FCA and would make it more accountable, too. He says that each executive director of the FCA could be called before the Treasury Committee to give an account of their contribution, which would make accountability more clear.

Edward Leigh (Conservative, Gainsborough)

Order. Mr Garnier had an opportunity to give a speech earlier. Interventions must be made through brief questions. If he wishes to give a speech later, I am perfectly relaxed about that.

Chris Leslie (Labour, Nottingham East)

Perhaps the intervention requires a small speech. I shall finish my remarks shortly, because the hon. Gentleman was coming to the nub of the quote. I shall give way to him one more time if he wants to squeeze in that quote in an intervention. Would that be suitable?

Mark Garnier (Conservative, Wyre Forest)

I apologise for taking too much time, but I shall quickly quote Lord Turner:

“So even within what I do think is the better model, which is not Parliament”—

not Parliament—

“individually writing all of these rules”.

Chris Leslie (Labour, Nottingham East)

The existing regulators that have not so far published their minutes might not wish to change their ways, but that is entirely different from saying whether the new regulators, particularly the FCA, ought to take a different course. I am not averse to quoting and praying in aid Lord Turner on other occasions, but I disagree with him, because the amendment should be written into the Bill.

The hon. Gentleman will remember our discussions about the retail distribution review and how massively frustrating it was for many people. It was wise of the usual channels to try to have some cross-fertilisation between this Committee and the Treasury Committee, although they did not succeed in relation to the pre-legislative scrutiny Committee. At least the hon. Gentleman is serving on this Committee. I know he is in an invidious position, because he is part of a team that has a duty to get the Bill through in a particular form, but I hope that he might—[Interruption.] I am afraid I will put amendment 69 to a vote, because I need to ratchet up more pressure on Government Members, and the hon. Gentleman will understand that. I also hope that, being in a rather awkward position, he might put pressure on the Minister to consider returning with a more appropriate amendment on Report. The Minister has already said that he will “think about it”. If we do not bring that pressure to bear, there is not much point in going through this rigmarole.

Mark Durkan (Social Democratic and Labour Party, Foyle)

Does my hon. Friend agree that amendment 69 would create a fairly basic provision? It would not amount to Parliament writing all the rules, because Parliament would not decide when publication is deemed inappropriate, and it would not prescribe that we have to know who said what and how they voted. The amendment would amount to the fairly basic stuff about the considerations for and against certain matters, not the detailed rules.

Chris Leslie (Labour, Nottingham East)

Exactly, and, for those reasons, I do not think it is so unreasonable to agree to the amendment. It would alter schedule 3 in relation to the detailed arrangements for record keeping, which is the appropriate place. I therefore wish to press it to a Division.

Edward Leigh (Conservative, Gainsborough)

If the hon. Gentleman wishes to put amendment 69 to the vote, we will have to take it later.

Chris Leslie (Labour, Nottingham East)

Okay. I beg to ask leave to withdraw the amendment.

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 15, in clause 3, page 8, line 32, at end insert—

‘(1A) (a) if the Treasury considers it appropriate to proceed with the making of an order under section 9K, the Treasury may lay before Parliament—

(i) a draft order, and

(ii) an explanatory document,

(b) the explanatory document must—

(i) introduce and give reasons for the order,

(ii) explain why the Treasury considers that the order serves the purpose in section 9K, and

(iii) be accompanied by a copy of any representations received from the FPC or the Governor,

(c) the Treasury may not act under subsection (1A)(a) before the end of the period of 12 weeks beginning with the day on which the consultation began, unless the order is made in accordance with subsection (2),

(d) subject as follows, if after the expiry of the 40-day period the draft order laid under subsection (1A)(a) is approved by a resolution of each House of Parliament, the Minister may make an order in the terms of the draft order,

(e) the procedure in subsections (1A)(f) to (1A)(i) shall apply to the draft order instead of the procedure in subsection (1A)(d) if—

(i) either House of Parliament so resolves within the 30-day period, or

(ii) a committee of either House charged with reporting on the draft order so recommends within the 30-day period and the House to which the recommendation is made does not by resolution reject the recommendation within that period,

(f) the Minister must have regard to—

(i) any representations,

(ii) any resolutions of either House of Parliament, and

(iii) any recommendations of a committee of either House of Parliament charged with reporting on the draft order, made during the 60-day period with regard to the draft order,

(g) if after the expiry of the 60-day period the draft order is approved by a resolution of each House of Parliament, the Minister may make an order in the terms of the draft order,

(h) if after the expiry of the 60-day period the Minister wishes to proceed with the draft order but with material changes, the Minister may lay before Parliament—

(i) a revised draft order, and

(ii) a statement giving a summary of the changes proposed,

(i) if the revised draft order is approved by a resolution of each House of Parliament, the Minister may make an order in the terms of the revised draft order,

(j) for the purposes of this section an order is made in the terms of a draft order or revised draft order if it contains no material changes to its provisions,

(k) in this section, references to the “30-day”, “40-day” and “60-day” periods in relation to any draft order are to the periods of 30, 40 and 60 days beginning with the day on which the draft order was laid before Parliament,

(l) for the purposes of subsection (1A)(k) no account is to be taken of any time during with Parliament is dissolved or prorogued or during which either House is adjourned for more than four days.’.

The more I think about it, not to have had a Division just now was the best outcome, given that it provides the hon. Member for Wyre Forest with the opportunity to talk to his Front-Bench colleagues. Let us hope that that window of opportunity proves useful.

Amendment 15 concerns a fundamental part of clause 3 that needs proper consideration. The amendment would insert a considerable new subsection about the parliamentary scrutiny of orders made by the Treasury to implement the macro-prudential measures required by the Financial Policy Committee. The reforms of the Bank will give it new powers, especially in relation to prudential policy, that are of the utmost importance, so we clearly need enhanced accountability arrangements for the introduction of those powers.

I should say that I do not want to alter the provisions about emergency orders. I accept that if the FPC decides that macro-prudential measures are necessary and the Treasury has to implement those measures, there may be certain circumstances in which a long and detailed parliamentary process is not appropriate. We are not addressing such circumstances; we are asking how there can be proper scrutiny, particularly in the House of Commons, of macro-prudential orders tabled by the Treasury at normal times.

During the pre-legislative scrutiny process and consideration by the Treasury Committee, there was considerable discussion of the need to enhance parliamentary scrutiny and accountability. In paragraph 309 of its report, the pre-legislative scrutiny Committee stated:

“The reforms in the draft Bill give the Bank significant new powers in macro- and micro- prudential policy. These powers must be paired with reforms to ensure that clear accountability processes are in place.”

Given that the Government sometimes argue against amendments because of technicalities, or because of the way in which they have been framed by the Opposition, it is appropriate to look at the most recent example of the Government’s approach to parliamentary scrutiny. Hon. Members will recall the Public Bodies Act 2011, which contains the provisions in the amendment. If a quango or a particular public body was being abolished, rather than just laying the order and having a rather unsatisfactory one-and-a-half hour statutory instrument Committee randomly comprised of hon. Members who had other things going on, the provisions would instead allow a proper period of time for Parliament and the relevant Select and Public Bill Committees to thoroughly consider the implications of the orders. In fact, they would be draft orders at first. Hon. Members can see how this process would work.

It is difficult to prescribe in an amendment and in the Bill a particular type of Committee to do a particular type of consideration, because legislation, as we know, cannot bind parliamentary sovereignty or successor Parliaments. All we can do is find a way of framing an amendment that would give time, and the House of Commons could then decide its own internal scrutiny and consultation arrangements. The amendment states that if the Treasury considers it appropriate to make an order, it must lay the draft order and an explanatory document before Parliament. The document must give reasons for the order, explain why the Treasury considers that it serves the purpose in proposed new section 9K, and it must be accompanied by

“any representations received from the FPC or the Governor”.

Crucially, the Treasury may not enact the order

“before the end of the period of 12 weeks beginning with the day on which the consultation began”.

If, after a 40-day period,

“the draft order laid…is approved by a resolution of each House of Parliament, the Minister may make an order in the terms of the draft order”.

If

“either House…resolves within the 30-day period, or…a committee of either House charged with reporting on the draft order so recommends”

that the resolution be rejected

“the Minister must have regard to…any representations… any resolutions of either House of Parliament, and…any recommendations of a committee of either House of Parliament”

and make the report accordingly. There is a similar provision for the revision of orders if the Committee makes a recommendation not to simply reject, but to revise or amend the order.

This is an incredibly important part of the balance of powers and the constitutional changes that the Bill seeks to put in place. It gives phenomenally significant new powers to the Bank of England, the FPC and the new regulators. In the previous group of amendments we discussed the retail distribution review, the mortgage market review and other large changes to regulations. There was incredible frustration in Parliament that there had not been ample time to debate, discuss or properly scrutinise the arrangements. Hon. Members may well say that we have the Treasury Committee, but quite frankly, that Committee is one of the busiest—if not already the busiest—Select Committees in Parliament. It has something like 12 members and an incredible amount of business, and it is inadequate to place the whole burden of scrutinising macro-prudential policy making on the Treasury Committee.

Mark Garnier (Conservative, Wyre Forest)

The hon. Gentleman will be well aware that the regional distribution started in 2006, and for four years his Government failed to scrutinise it. It was not until the new Parliament that new Members started looking into the issue in any meaningful way.

Chris Leslie (Labour, Nottingham East)

I accept that we have to learn lessons where there has not been sufficient scrutiny; I have no problem with saying that, as I said in a debate on the RDR. There could be danger if we do not design a safety valve in the Bill to allow steam to be let off and the proper thread of accountability to be pursued. It is difficult, because we have to talk about hypothetical situations from time to time. If the Bank decides to take on radical new powers, and the Treasury enacts those, albeit by affirmative resolution—I am grateful to the Minister for conceding at least that point—there will be a highly charged, binary yes-or-no debate and vote on the Floor of the House. In theory, it is perfectly possible for the House to vote the resolution down, and I accept that that is an important concession from the Government. However, if there are more examples in future of regulators making changing via the Treasury, and Parliament does not feel that its voice has been heard, or if the views of business representatives or consumers have not been included in discussions, a future Parliament will come along and bodge in a safety valve retrospectively to the legislation, which might not be appropriate or fit. It is therefore important to include a proper time for consultation in the arrangements, which is why we have tabled the amendment. I was inspired by the Government themselves; the device is a Government one. The Minister for the Cabinet Office and Paymaster General talked favourably in the Second Reading of the Public Bodies Bill about that particular process, and I hope the Minister will consider that it is appropriate.

As I said, the Treasury Committee is full to bursting with issues to consider. Just as we have a European Scrutiny Committee in the House of Commons, chaired by the hon. Member for Stone (Mr Cash), which looks at quasi-legislative regulatory suggestions from an external source, it would be appropriate for the House to consider establishing a financial services scrutiny Committee, also to look at quasi-legislative regulatory changes from an external source—in this case the Bank of England, the Monetary Policy Committee and so forth. A standing group of Members with particular interests, and led by a dedicated Chair, would able to look at the conveyor belt of regulations as they come through, pick out the most important and pertinent aspects, delve into them, raise questions and hold discussions with the Minister and properly consider them. That would be a useful supplement to the work of the Treasury Committee. I am not fixed on that; if the Government have a different view, we would be more than happy to discuss it through the usual channels. A Sub-Committee of the Treasury Committee would be a better way of approaching the matter. I genuinely think—this is not a partisan point—that all of us, as parliamentarians, have a duty to figure out how best we can improve scrutiny of what could be a considerable number of changes to regulations.

Fabian Hamilton (Labour, Leeds North East)

I am interested in my hon. Friend’s idea of establishing a kind of Select Committee scrutiny procedure for financial services. Does he not agree that now is the time to do that, to reassure the public that Parliament is taking seriously not only through legislation, but through a scrutiny Committee in the form of a Select Committee, the careful regulation of financial services?

Chris Leslie (Labour, Nottingham East)

Absolutely. I commend the work that the Treasury Committee does; it does a phenomenal job. However, there is enough going on in day-to-day policy making without the detailed scrutiny of some of these orders. Another parliamentary device to fulfil that scrutiny would be useful. That relates to the second part of the amendment that we have tabled. We have not been able to specify that in the amendment, but it would enable Parliament properly to consider the impact of those things.

Our amendment was very much inspired by the Public Bodies Act 2011, so it is consistent with existing legislation. That overcomes the usual rebuttal that it has been drafted in a technically inefficient way. The Treasury Committee has recommended that prior scrutiny would be beneficial:

“The macro-prudential measures set out in secondary legislation will be of great importance and potential scope, and will give the FPC great powers. Parliamentary control and scrutiny of these measures are vital before such powers are granted. As the legislation stands, their approval by the House of Commons requires only a 90 minute debate in a General Committee and a decision without debate in the House. We recommend that the Government amend the draft legislation to require that debates on orders prescribing macro-prudential measures be held on the floor of the House and not be subject to the 90 minute restriction. Furthermore, the House would benefit from prior scrutiny of such orders by this Committee. We recommend that the Government provide us with the proposed text of the draft orders at least two months before they are laid before the House in order to allow us to report to the House on their merits.”

Our amendment would not prevent that from happening. I personally think that we need a dedicated financial services scrutiny Committee, but I would be content if the Treasury Committee had its way, as it has requested.

The pre-legislative scrutiny Committee, too, made the recommendation that Parliament should have scrutiny powers in non-urgent cases and that the procedure for affirmative resolution should be based on section 11 of the Public Bodies Act. That was something the PLS Committee pointed out. It states in paragraph 315 of its report:

“The macro-prudential tools to be used by the FPC are of considerable importance. Some of the tools being considered will have a direct effect on the economic circumstances of constituents. Parliament must have an opportunity properly to scrutinise these powers. On the other hand there must be”—

Stephen Gilbert (Liberal Democrat, St Austell and Newquay)

Will the hon. Gentleman explain why, when we are talking about macro-prudential powers that could affect every constituency and perhaps every constituent, he wants to shunt scrutiny to a Sub-Committee or a different committee as yet undecided? Why not do it on the Floor of the House?

Chris Leslie (Labour, Nottingham East)

We currently have a vote on the Floor of the House, but no debate. Given that there is nothing else going on of great importance in legislative terms in the House of Commons, I would be happy to say that scrutiny could easily be done on the Floor of the House. However, normally, we tend to have specialist Select Committees or Standing Committees scrutinise such arrangements. They can make recommendations that could in themselves be a distillation of the most important regulatory points and debated accordingly on the Floor of the House. For example, the European Scrutiny Committee can make a recommendation that can either be debated in Committee or on the Floor of the House, depending on the usual channels allowing parliamentary time for that.

I am talking about that sort of arrangement, but the amendment is not prescriptive about how that should proceed; it is very broad-ranging in allowing time. After all, that is the approach taken in the Public Bodies Act, and that was the approach suggested by the pre-legislative scrutiny Committee, which went on to say:

“In non-urgent cases we recommend that the tools be subject to an enhanced affirmative procedure similar to that set out in Section 11 of the Public Bodies Act 2011. This would provide for consideration by the relevant select committees in both Houses and where appropriate would place a duty on the Treasury to consider those committees’ recommendations before laying the final instrument.”

The Government have already responded to that recommendation. I am trying to pre-empt what the Minister will say, because we do not have long to debate the principle. The Government’s response in paragraph A.64 was that agreed proper parliamentary scrutiny was important and that

“The Bill already provides for macro-prudential tools to be subject to the affirmative procedure… the Government will consult publicly on its proposals for the FPC’s initial set of policy tools. The Government believes that the enhanced affirmative procedure would not be appropriate for the FPC’s toolkit, as even in non-urgent cases, enhanced affirmative procedure could cause excessive delay in updating and amending the FPC’s powers.”

The Government’s objection seems to be the point about delay, but I genuinely think that in non-urgent times, delay need not be an encumbrance to getting the order through. These are rule-making powers; quasi-legislative arrangements. That is not the same as the Monetary Policy Committee determining the operation of interest rate policy; it is about changing the rules in which businesses operate and under which our constituents have to live.

Sheila Gilmore (Labour, Edinburgh East)

Would it be possible to provide examples of how such a measure would strengthen the underlying purpose of the Bill, which is the regulatory regime?

Chris Leslie (Labour, Nottingham East)

It is important that we accept the need for enhancement in the prudential-regulatory arrangements and that we need better systemic oversight. As a consequence, we agree that from time to time macro-prudential rules need to be made and we have no problem with that.

Matthew Hancock (Conservative, West Suffolk)

If the hon. Gentleman thinks that macro-prudential tools should be used, does he think that they should be decided independently of political judgment?

Chris Leslie (Labour, Nottingham East)

I think that Parliament is sovereign and that ultimately we are accountable to our constituents. The Bill goes so far in allowing Members of Parliament to vote on macro-prudential measures through the affirmative resolution procedure, but it does not allow us to properly scrutinise or revise those tools. That is the recommendation made by the pre-legislative scrutiny Committee, and to a certain extent the Treasury Committee.

Matthew Hancock (Conservative, West Suffolk)

But does the hon. Gentleman think that such decisions should be made independently? He said that this issue is different from monetary policy, but in substance it is not. When the Monetary Policy Committee changes interest rates, that has an impact on savers and borrowers across the country, just as using macro-prudential tools would have an impact.

Chris Leslie (Labour, Nottingham East)

I am surprised by the hon. Gentleman’s intervention. We are talking about policy making and quasi-legislative arrangements. This is not an operational enactment—

Matthew Hancock (Conservative, West Suffolk)

Monetary policy.

Chris Leslie (Labour, Nottingham East)

No, this is very different from monetary policy. [ Interruption. ] I will give way in a moment but I want to pin down this point. The Bill gives powers to Parliament, but those powers are insufficient to allow a vote on macro-prudential policies through an affirmative resolution procedure. The hon. Gentleman says that by extension that compromises the independence of macro-prudential policy making, but I disagree fundamentally and support the Minister in that at the very least we need an affirmative resolution procedure. If we are to have such a measure, it should be an enhanced affirmative procedure so that we can properly scrutinise the legislation.

Stephen Gilbert (Liberal Democrat, St Austell and Newquay)

Is not the point about monetary policy that Parliament has not passed it lock, stock and two smoking barrels to the Bank of England? Parliament sets the target that the MPC works towards. If I am right, that is exactly the kind of oversight that the hon. Gentleman proposes with the macro-prudential powers.

Chris Leslie (Labour, Nottingham East)

To an extent the hon. Gentleman is right. The Chancellor of the Exchequer set the benchmark target for inflation at 2%, and the MPC uses that in its day-to-day decisions. There is a connection between policy making and operation. Similarly, it is important to recognise that this is not a partisan point but is about the right of Parliament not to take whatever is said by the Bank of England and the Crown as gospel. Parliament is sovereign under our constitution, and we have a duty to do our best to scrutinise the rules by which our constituents are obliged to live. That point should be shared across the Committee.

Matthew Hancock (Conservative, West Suffolk)

I strongly agree that we should scrutinise the rules by which our constituents live, and that is precisely what we are doing. We are setting exactly that framework and target—to provide a parallel with monetary policy—in the legislation that we are scrutinising. On the parallel with monetary policy, does the hon. Gentleman argue that setting interest rates is not a policy decision?

Chris Leslie (Labour, Nottingham East)

The setting of interest rates is an operational decision by the Bank of England, which makes that decision independently, but we are talking about the macro-prudential measures, which are clearly policy issues that would affect our constituents. If they were not policy the Government would not already wisely have conceded that they should dealt with by affirmative resolution in Parliament.

To row back even from that would be to go back to the dark ages, and say that we should all take the missives of the Crown as Gospel, and, as parliamentarians, just doff our cap. Hon. Members may from time to time get excited about their role within the Executive, and the power that can flow from that, but our primary duty is as legislators, properly scrutinising the proposals made by the Crown. We are dealing with pretty fundamental and important constitutional issues.

Plenty of other outside bodies say that we need to take great care in the scrutiny arrangements: the Institute of Chartered Accountants in England and Wales, among others, says similar things. It is important that the Minister properly address the question of why the Public Bodies Act arrangements would not be appropriate in the case we are considering. We have taken the lead offered by the pre-legislative scrutiny Committee. The point is not a partisan one; it is about Parliament asserting its right to have the correct balance. I seriously and strongly urge hon. Members to think carefully about whether the Government should concede the point.

Sheila Gilmore (Labour, Edinburgh East)

There is a weakness in the House’s processes regarding some of the regulation-making procedures. The huge use of regulations, not just in the present context but in all spheres, and the all-or-nothing approach of voting for or against, together with the lack of real debate and scrutiny, limit Parliament’s ability properly to scrutinise and influence legislation. As we know, all too often, the devil with legislation is in the detail of the regulations. After such a process as we are engaged in, many things are left undecided; proper debate is not necessarily allowed for.

With that in mind I think it would be appropriate to extend and expand Parliament’s ability to become involved in the matter. If Parliament were not meant to be involved at all, as is perhaps suggested by the independence of the Financial Policy Committee, there would be no provision for the matters in question to come back; but of course there is such provision. The amendment relates to a provision under which the matter would come back to Parliament, and it is obviously considered appropriate that that should happen.

From there, the further point to consider is whether the process set out in the Bill allows sufficient scrutiny and sufficient ability to revise, reconsider and take into account various other points during the process. If that approach is in the Public Bodies Act 2011, that seems to allow for a similar process in the present case. I hope that the Minister is willing to consider the proposals.

Mark Hoban (Conservative, Fareham)

I shall explain in detail why I do not think the amendment is appropriate. We need to recognise that it is important to get the right balance between scrutiny and giving the FPC the tools it needs to take prompt action. The problem with the super-affirmative procedure set out in the amendment is that it creates the potential for unacceptable delays, even in non-critical circumstances.

The minimum time needed for a draft order to be approved under this process would be 124 days. However, the maximum time would be much longer. If either House was adjourned for more than four days, that period would not count towards the scrutiny period for the order. This year, the summer recess starts in the Commons on 17 July, and the House of Lords returns on 8 October. That is 83 days that could be added to the scrutiny of the tools during which nothing is being done. This year, it could take more than 220 days to approve a draft order using this procedure. Most reasonable hon. Members would suggest that that was simply too long. By the time that a draft order was approved, the risk that it was needed to address could already have become a major threat to stability.

Orders made under proposed new section 9K will not always be major legislation. It could be that minor technical amendments need to be made to the tools over time or that tools will be removed. In such circumstances, requiring the super-affirmative procedure would be a disproportionate use of parliamentary resources. Perhaps the hon. Lady would welcome that.

Sheila Gilmore (Labour, Edinburgh East)

Is the Minister disposed to agree with the reported comments of Mr Speaker that perhaps Parliament should sit for more of the year and that political parties should perhaps sacrifice some time from their conferences? That might answer some of the Minister’s concerns about the long summer recess.

Mark Hoban (Conservative, Fareham)

The hon. Lady might not wish to attend her party conference, but I rather enjoy attending mine. It is important that we ensure that we are accountable to the members of our parties and that we engage in massive public debate with them. She may think that the proposal is a good method to wheedle her way out of attending whichever seaside resort the Labour party is going to this year, but I do not think that that is a good enough reason. [Hon. Members: “Manchester.”] There we go—Manchester. The ship canal, of course, links Manchester to the sea, but I am not sure that that is good enough to say that it is a seaside resort.

The super-affirmative procedure is time-consuming. There is a need for proper parliamentary scrutiny and public consultation. We have been very clear about that in previous debates. However, the time that use of the super-affirmative procedure could add up to would get in the way of the FPC getting on with its job.

Chris Leslie (Labour, Nottingham East)

Why, then, is the super-affirmative process applicable in the Public Bodies Act 2011? Is the Minister saying that it is all right if Parliament takes that length of time in relation to public bodies?

Mark Hoban (Conservative, Fareham)

I intended to come on to this issue. It is the second strand of my argument. The super-affirmative procedure can act as a barrier to timely action. There is also a difference between the Public Bodies Act and this measure. That is another reason why the super-affirmative procedure is not appropriate in this case. The Public Bodies Act confers very wide powers to abolish, reform or modify a wide range of public bodies. In contrast, the powers that we are currently discussing are specific to the tools of the FPC. The Public Bodies Act also confers a range of ancillary powers, such as the power to amend primary legislation. This measure does not do that. One must ensure that the degree of scrutiny is proportionate to the powers that are being engaged in. That is why it would be absolutely wrong, for example, for the negative procedure to be used in this area. However, the super-affirmative procedure is a step too far.

The Joint Committee on Statutory Instruments—the Committee that scrutinises whether the appropriate parliamentary scrutiny is put in place for these bodies—looked at proposed new section 9K and did not recommend that the super-affirmative power be used. The Joint Committee, which includes Members of both Houses and from both major parties, looked at the matter carefully and did not conclude that the super-affirmative procedure should be used. They spend all their time considering these matters, so they are acknowledged experts on what the right degree of scrutiny is.

The proposal suggested by the hon. Member for Nottingham East is not necessary. It certainly was not necessary in the view of the Joint Committee on Statutory Instruments. It is not proportionate to the powers, in contrast with the Public Bodies Act 2011, and the super-affirmative procedure would get in the way of ensuring that the FPC has the tools that it needs to carry out its role. I urge him to withdraw the amendment.

My hon. Friend the Member for St Austell and Newquay suggested that the rules could be debated on the Floor of the House. Our right hon. Friend the Chancellor of the Exchequer indicated on Second Reading that that could happen, subject to the usual channels.

Chris Leslie (Labour, Nottingham East)

I am afraid that the Minister has given the importance of parliamentary scrutiny cursory attention in his remarks. I was expecting a series of arguments slightly stronger than “The Joint Committee on Statutory Instruments didn’t recommend this particular route,” although I would be grateful if he would set out where the Joint Committee considered the option. It would be interesting to see its proceedings. Perhaps he could write to the Committee with a reference to where that consideration took place.

I worry greatly about the Minister’s framing of his arguments against the arrangements. He says that we must strike a balance between proper scrutiny and the FPC’s ability to exert its powers. The idea that parliamentary processes in non-urgent cases are too difficult to hold a proper debate on rules that will affect the lives of our constituents and businesses is a most unfortunate understanding of the role of Parliament in scrutinising those rules. His argument is that if we add recess and all the other arrangements into the circumstances, it could take 200 days at the outside, implying that that would be the case in all circumstances. It is absolutely not the case that a draft order need take all that time. If it is referred to a relevant Committee that decides it is unobjectionable or requires only minor revisions, it can move through rapidly. That is the whole point.

By extension, the Minister is saying that the European Scrutiny Committee arrangements are too burdensome for considering European legislation, whereas I would say that most hon. Members think that we do not scrutinise European regulations and legislation enough. I am surprised by his argument.

Fabian Hamilton (Labour, Leeds North East)

On the narrow point about recesses, scrutiny Committees in the House can meet during recesses, so that is a bit of a red herring, is it not?

Chris Leslie (Labour, Nottingham East)

That had not occurred to me. It has been so long since I served on a Select Committee—more than a decade—that I did not realise. In my time, that was not the case, but modernisation has hit Parliament, as I am glad to see.

Hon. Members must recognise that this is an important point of principle. It is about constitutional powers that need to be balanced correctly. I seriously hope that hon. Members will consider the proposals carefully and support them. The Minister has not given convincing arguments. He says that the Public Bodies Act 2011 is different because it affects primary legislation, but in many ways, macro-prudential rules are new forms of serious and significant legislation that verge on being the equivalent of primary legislation, and therefore merit proper scrutiny. I am afraid that I will not withdraw amendment 15. The principle is important, and I urge hon. Members to vote for it.

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 17, in clause 3, page 9, line 13, leave out lines 13 to 17.

Clause 3 has a provision that prevents certain activities by the Financial Policy Committee in respect of the making of recommendations within the Bank of England. In certain circumstances, the FPC can make recommendations relating to

“the provision by the Bank of financial assistance to financial institutions”

or

“the exercise by the Bank of its functions in relation to payment systems, settlement systems and clearing houses.”

The FPC may not make recommendations about

“the provision by the Bank of financial assistance in relation to a particular financial institution”—

which is interesting in relation to subsection (2)—

“or the exercise by the Bank of its powers under Parts 1 to 3 of the Banking Act 2009 in relation to a particular institution.”

I will come back to subsection (3)(a) in a minute because I want to see how it is compatible with subsection (2)(a). Under the amendment, we would leave out those elements about which the Committee may not make recommendations.

This is a probing amendment to test the rationale of the Government. Perhaps it was the Bank of England’s idea to circumscribe the discussions and the recommendations by the FPC and prevent it from discussing specific assistance to particular banks or the exercise by the Bank of powers under the 2009 Act.

Let me refresh the memories of members of the Committee because they may not remember the corresponding topics to the parts of the 2009 Act. It might be useful for the Committee to see what we are talking about here. Part 1 of the Act refers to special resolution regimes. Part 2 refers to bank insolvency arrangements and part 3 talks about bank administration.

As I read the clause, the FPC may not make recommendations about the exercise by the Bank of its powers on special resolution regimes, bank insolvency and bank administration as they relate to a particular institution. I am surprised that the Government have fettered the scope of the FPC’s activities in such a way. They unnecessarily inhibit the FPC from making recommendations within the Bank. It is not necessary to gag the FPC in this way, especially when it comes to making recommendations about particular institutions, because there could be some valid and important circumstances when it would want to make such recommendations. For example, under section 152 of the Banking Act 2009, there is mention of transfers to public ownership of companies under administration. Under the provisions in the Bill, the FPC would not be allowed to make such recommendations. That is circumscribing the role of the FPC quite considerably, especially given that there might be stability implications from such a circumstance.

Section 118 of the Banking Act 2009 talks about insolvency provisions—the impact of a bank’s winding up on consumer confidence. Part of the Financial Policy Committee’s role is to keep an eye on credit cycles. Consumers have an important role to play in the behavioural nature of credit cycles. If consumer confidence is affected, the FPC may have an opinion on that and might want to make recommendations to other parts of the Bank, but might be prevented from making recommendations accordingly under this provision.

Bridge banking arrangements or the scope of private purchase arrangements in the wider market are also mentioned under the special resolution regime in Part 1 of the 2009 Act. Again, a proper appreciation of the wider market and the role that the FPC has in understanding it is relevant to the Bank’s decisions, so I do not understand why the Minister seeks to fetter an internal challenge that the FPC might usefully be able to add in discussions that take place. That echoes some rather peculiar decisions by the Government in framing this legislation, putting walls around some of the Bank’s various interstices. Just as they did not wish to go the full way in creating a court of the Bank of England with proper supervisory powers, they do not want to give the FPC flexibility in this regard. I might have misread the provision. I should like the Minister to explain what is achieved by such an artificial restriction being placed on the FPC.

Will the Minister square for me the provisions in proposed new section 9N2(a) and 3(a), although I might have misread it?

“The Financial Policy Committee may make recommendations”

relating to

“the provision by the Bank of financial assistance to financial institutions”

but

“may not make recommendations about…the provision by the Bank of financial assistance in relation to a particular financial institution”.

I see now that it is to do with the particularity of that circumstance. However, that is why we wanted to remove lines 13 to 17. I should be grateful if the Minister explained the provision.

Mark Hoban (Conservative, Fareham)

I am pleased that the hon. Gentleman has resolved for himself the problem with paragraphs 2(a) and 3(a). The use of “particular” is particularly important in this regard and reflects the fact that the Financial Policy Committee is there to consider systemic financial stability issues, rather than the nature of individual firms.

The hon. Gentleman is heading in a certain direction, not for the first time: he may want to term it the Nottingham East principle. Where we seek clarity through the Bill, with clear lines of responsibility, he wishes to create uncertainty and a lack of clarity about who is in charge. That is fundamentally the answer that we seek in the Bill. Giving the FPC powers in respect of individual financial institutions and in respect of the 2009 Act again blurs that clarity. He is asking the FPC to have a view, whereas responsibility rests more appropriately with the Prudential Regulation Authority and other stability functions within the Bank of England.

Although it is legitimate for the FPC to talk about the provision of liquidity assistance to a group of banks, it is not appropriate for it to make recommendations about the provision of liquidity to a particular institution. Different divisions of the Bank have specific expertise in that area and it is not the FPC’s role to undertake such duties.

The hon. Gentleman would give the FPC a role in crisis management. It is important that the Treasury has a clear responsibility in respect of crisis management. The scope of its new crisis management power of direction covers those two areas specifically. The Government are clear that the FPC has no role in crisis management. A policy committee such as the FPC, with a generalised remit, multiple members and detailed procedural requirements, is not the right type of body to deal with a crisis. In a potentially fast-moving situation when agility and flexibility are vital, a body such as the FPC would simply be too cumbersome to respond effectively.

Recognising the practical limitations of what is by nature a policy-making body rather than an executive agency, the FPC is responsible only for identifying potential risks to financial stability and addressing them before they become a threat. Once a risk has crystallised, it is the Bank—or, if public funds are at risk, the Treasury—which is responsible for managing that risk, in line with the provisions in part 4 of the Bill and in the crisis management memorandum of understanding.

We are therefore trying to be very clear about the appropriate roles of individual actors in the regulatory structure. The hon. Member for Nottingham East hankers for the days when it was not clear who was in charge––when multiple voices were engaged in these issues and debates to the point that no one knew who was in charge. His amendment goes back to the bad old days when no one could answer the question, “Who is in charge?”

Chris Leslie (Labour, Nottingham East)

I thought we were having a serious and nuanced debate. Instead, the Minister is getting into the old cycle of nonsense. We are simply considering whether the FPC should have the power to make recommendations on issues that might be relevant to its work—resolution arrangements, public confidence and so on. He talks about a lack of clarity. I am talking about common sense flexibility, instead of gagging people who may well have something crucial to bring to the party.

Mark Hoban (Conservative, Fareham)

The reality is that the FPC is not set up or resourced to become a micro-prudential regulator able to engage in those debates. That confuses the role of the FPC with the team within the bank responsible for the use of the special resolution regime, and that is part of the problem. The hon. Gentleman talks about common sense, but he is creating chaos. Different organisations are responsible for those aspects of activity, and the FPC is not set up to second-guess which resolution tools should be made, or whether emergency liquidity assistance should be given to a particular institution. That is not its role, and that is not the role it is given under the Bill.

The hon. Gentleman needs to reflect on some of the causes of confusion during the crisis. The Treasury Committee in the previous Parliament, under the chairmanship of Lord McFall, highlighted the issue: no one had a clear responsibility, no one was in charge. The hon. Gentleman is seeking to replicate those arrangements through the amendment. The lesson of the crisis is that we need to know who is in charge. Giving additional powers to such bodies as the FPC ignores what we have learned since the financial crisis. It ignores the recommendations of the Treasury Committee and the fact that where there are no clear lines of responsibility, people tend to shirk responsibility and do not step up to the plate. We want people to know who is responsible, and the Bill is designed to achieve that.

Mark Durkan (Social Democratic and Labour Party, Foyle)

Will the Minister explain how the provisions might relate to circumstances such as those that existed around Northern Rock? The Governor of the Bank of England believed that that was a particular problem that was not symptomatic of wider issues. Equally, Conservative Members alleged that the then Government were engaged in a measure that was electorally motivated because of the geopolitical significance of that particular institution. Would the FPC have nothing to say about any of those raging issues that might exist around a particular institution, but might be of more generic significance?

Mark Hoban (Conservative, Fareham)

The FPC is there to identify the emerging threats to financial stability, but once a risk is crystallised it is down to others to act. I would not expect the FPC to have a view on whether the resolution on Northern Rock should have been through a bridge bank or temporary public ownership. The FPC is not equipped to undertake that role. The team that is equipped to do that is the special resolution unit in the Bank of England. It understands how the tools work and has a detailed knowledge, alongside the PRA, of the composition of firms under threat. It has a more detailed and better grasp of the challenges of resolution in a particular institution. The FPC will not have the knowledge and experience to engage in such matters of fine detail.

On that basis, the amendment is not particularly helpful. It would create confusion where there is clarity. It would take away the clear delineation of responsibilities between the different actors involved. If it were allowed to stand, it would undo the work we are trying to do to introduce some clarity. I therefore encourage my hon. Friends to vote against it if the hon. Member for Nottingham East pushes it to a vote.

Chris Leslie (Labour, Nottingham East)

I am very surprised. We have had the doctrine of compartmentalisation to the nth degree. The Minister says the FPC is not resourced to comment on some of the most important factors in our economy that might have wider strategic significance. The notion seems to be that the FPC needs to be up in the clouds and to be a theoretical and academic institution. How dare it even think about making recommendations that might affect a particular organisation, such as one of the big five banks! In accepting the notion that we should be firm and gag the FPC so that it cannot even discuss, or make recommendations about, something that could have a read-across to a wider systemic situation, the Minister is taking a profoundly dangerous stance. He is not framing the Bill in such a way that it could deal with a wide variety of hypothetical scenarios.

It would not be dangerous to allow the FPC to discuss such issues or to make recommendations. Expressing an opinion is not a dangerous thing in these circumstances; indeed, it might be beneficial to have a fresh perspective. Ministers do not give the impression that they listen to views from beyond the four walls of Her Majesty’s Treasury, but sometimes other people can be right, and the Government can be wrong. Similarly, it might be important to hear the FPC’s voice. We cannot discount the idea that the real economy could be affected by the transfer of a bank to public ownership, by the impact on consumer confidence of winding up a bank or by bridge banking arrangements and the scope for purchases in the wider market. All of those issues could be relevant to the FPC’s role, so it might be relevant to hear the committee’s voice.

It is tempting to push the amendment to a vote, but I will withdraw it with the proviso that the Minister thinks more deeply about the connections that should be put in place between the FPC and the wider economy. The FPC should not be a theoretical organisation; it needs to have its feet on the ground and to understand that some of the measures it introduces have practical consequences for real firms. I am conscious of the time, however, and I do not wish to detain the Committee with a Division, so I beg to ask leave to withdraw the amendment.

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 14, in clause 3, page 9, line 31, at end insert—

‘(2A) The FPC must carry out and complete a review of the definition of regulated persons and the scope of exemptions permitted under FSMA 2000 to consider whether the scope of exemptions is appropriate.

(2B) The FPC must make recommendations under section (2A)—

(a) before the end of the period of 30 days beginning with the day on which this section comes into force, and

(b) at least once in every calendar year following that in which the first recommendations are made.’.

The definition of “regulated persons” does not catch all financial intermediaries; it really depends on how wide the exemptions are under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. Financial intermediaries or indeed anyone else can become a regulated person if they are carrying on the activity by way of business, which is often the case; if they are engaging in an activity that is specified as a regulated activity in schedule 2 of FSMA and if there are no exemptions under the RAO available for that activity; or if their activities relate to an investment that is a specified investment listed under schedule 2 to FSMA, which gives the Treasury powers to adopt orders to specify exemptions, either through the RAO or through other statutory instruments, and which gives the FSA the power to make rules.

I appreciate that there is a debate to be had about the extent to which reviewing regulated persons is a role for the FPC or other regulators to undertake, but it is an important debate to have because ultimately the trickle-down effect of people being affected by the FPC’s decisions as they flow through the PRA and the FCA is incredibly important.

We know that there has been a long-standing debate about the problem of the so-called shadow banking system, which is notoriously difficult to define, and therefore it is difficult to categorise as regulated persons people who have a habit of falling in and out of those particular categories. I want to press the Minister to find out whether he feels the scope of regulated persons at the moment is broad enough, or whether it should include a collection of financial entities, infrastructures or practices that support financial transactions that occur beyond the reach of the existing FSA monitoring and regulation arrangements, for example hedge funds, other money market funds, structured investment vehicles and so forth.

The Bill itself seeks to expand the list of investments that are regulated, to include loans and other forms of credit; at the moment, only loans secured by land are included. So that provision might catch some of the people whose activities are in question, but it will not necessarily catch all of them.

On the margins of society in certain very large and seriously important—even systemically important—financial transactions, there are question marks about whether regulated persons are properly captured within the definitions in the Bill. In certain ways, we can see that legislation has to play catch-up from time to time, as innovations come along and people undertake new businesses, having designed them in such a way as to evade or avoid—“avoid” is potentially a better word than “evade”—the definitions of regulated persons.

At a micro level, the definition of regulated persons really matters. Let us take, for example, the Farepak saga of Christmas clubs and savings arrangements that still do not fall properly under the definition of “regulated persons”, when it comes to the way that our regulators and the FCA might want to capture some of those arrangements. People lost considerable sums of money because of Farepak and they had no recourse, either to compensation of any significance or to the regulator to explore and inquire into what went wrong, and to ensure that lessons were learned in those circumstances.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

My hon. Friend mentioned the ongoing saga of Farepak. Does he agree that members of the public who lost money because of Farepak will find it very difficult to understand if a Financial Services Bill goes through this Parliament that does not give increased protection to people in those circumstances?

Chris Leslie (Labour, Nottingham East)

That is entirely correct. My hon. Friend talks about those things that people would expect to be in the 300-odd pages of the Bill. Our amendment simply seeks to ensure that the Bank of England—perhaps we should have added the Financial Conduct Authority or others—ought to review, on a fairly regular basis, who falls into the category of “regulated persons”.

Fabian Hamilton (Labour, Leeds North East)

As well as firms such as Farepak, will my hon. Friend include those funeral directors who collect money over a period of years and then go out of business before the person is deceased, so that all the money that was saved is lost?

Chris Leslie (Labour, Nottingham East)

Absolutely. There are some pretty macabre circumstances in which companies can disappear at a moment’s notice and leave people in the lurch. There are a number of small-scale micro-business activities in which people can invest a great deal of their life savings. People have different priorities, and they may want to insure against certain things or put money aside for certain scenarios. My hon. Friend’s point about undertakers is important. There are other high-cost credit providers in the grey area between the regulated and unregulated loan shark categorisations that some people have described. Again, we need seriously to explore whether such providers are defined as regulated persons.

Lorely Burt (Liberal Democrat, Solihull)

On a point of clarification, speaking as the chairman of the all-party group on funerals and bereavement, it is not necessarily funeral directors who are selling such plans. They are special dedicated funeral plans, so I would not wish the Committee to be misled or for funeral directors as such to be maligned. Companies attached to funeral directors may be a conduit, but in many cases they operate on their own, although that does not detract from the hon. Gentleman’s central point.

Chris Leslie (Labour, Nottingham East)

I am grateful for the hon. Lady’s expertise. Who knew she had a role as august as chairman of the all-party funerals and bereavement group? Who even knew that there was an all-party funerals and bereavement group? I am sure the meetings are lively and interesting. Perhaps the hon. Lady would like to invite members of the Committee to a future meeting of that all-party group. Between sittings of this Committee, it might be appropriate for us to host a meeting of that all-party group. I know that hon. Members might appreciate that.

Edward Leigh (Conservative, Gainsborough)

Nothing could be more exciting than this Committee.

Chris Leslie (Labour, Nottingham East)

My sentiments exactly.

The scope of the permitted exemptions is important, and it is appropriate to find somewhere in the Bill to insert a provision that the definitions of regulated persons under the Financial Services and Markets Act 2000 are kept under review at least annually to ensure that they are justified. I know it is a difficult task, but a commitment to reviewing the definition of regulated persons would reassure the victims of Farepak and other scenarios where people have been ripped off and found themselves seriously out of pocket, expecting a regulator to be able to help and finding that it cannot. We have to close such loopholes.

Mark Garnier (Conservative, Wyre Forest)

I do not disagree with the hon. Gentleman’s sentiment on checking out who is regulated and who is not, but why does it need to be the FPC? Surely the PRA and the FCA are set up and organised to do exactly that job. The FPC has a specific job with the financial stability of the system.

Chris Leslie (Labour, Nottingham East)

That is a fair point, and it might be more appropriate if we amended the Bill at a different stage. Having read through the Bill and considered the impact that regulated persons might have on the directions the FPC may give to the FCA or the PRA, I felt that, on balance, the amendment might fit in this clause. It is a probing amendment, and I want to get a sense of how the Government envisage the regulators keeping up to date with regulated persons.

Yvonne Fovargue (Labour, Makerfield)

I take on board the point raised by the hon. Member for Wyre Forest, but we need to consider the groups of people who are regulated. If we had been here, say, 10 years ago, would we have been talking about the high-cost credit industry and payday lenders? The groups of people and the products that they offer are changing almost daily. As my hon. Friend the Member for Nottingham East says, they adapt to suit the circumstances.

Companies such as BrightHouse, for example, do not offer goods at a massive rate of credit, but they offer them at extremely high prices. Extremely costly insurance policies are not covered at the moment, and there are fee-charging debt management companies, too. I will explore that further in clause 6. At the moment, however, if the Bill goes through, they seem to have a perverse incentive not to offer a monthly fee, but to charge up-front fees—a high up-front fee is one of the problems with the whole industry—which provides a perverse incentive for people not to complete the plan and carry on paying their debts.

My hon. Friend mentioned Farepak. People who saved with Farepak thought that they were taking part in a savings scheme; they never believed it was a prepayment scheme. The same goes for the funeral plans that were mentioned: people believe that they are savings schemes. The difference between deposits and prepayments is not clear to a number of people.

With new products arising all the time, therefore, an overview is so important. They have to be reviewed regularly.

Mark Hoban (Conservative, Fareham)

I do not disagree with any of that, and a fundamental part of the role of the FPC is to think about the perimeter of regulation—not only what is regulated, but what should be regulated by the FCA and what by the PRA. It is absolutely right to point out that, in a fast-moving world, the regulatory perimeters do not necessarily keep up with change, and it is vital for a body to be responsible for reviewing them. That is why we have given the FPC the powers under proposed new section 9O to enable it to look at the perimeter.

The PRA and the FCA will regulate what is inside the perimeter, but the role of the FPC is to look at the next threat and the next crisis that could engulf the financial system, so it needs to think whether businesses outside the perimeter are properly regulated, whether we should be expanding the perimeter to include them and whether the nature of the activities of businesses within the perimeter is such that they should be regulated by the PRA rather than the FCA, for example. Again, we are looking at the changing nature of scope. This is not the subject of an annual review but a constant part of the FCP’s activity. It should always be looking at threats to financial stability, to identify the right response, and if that includes changing the perimeter, it should not be required to wait until the annual review, nor should it review simply annually; review should be part of the regular work programme of the committee.

I do not disagree with the thrust of the comments, therefore. In fact, the Bill reflects them, but it does not set up a frequency of reporting or a requirement to report within 30 days. A report within 30 days is not realistic, but the committee should keep the matter under review, and I know that it does that and thinks about it carefully. The process should be related not only to prudential issues but to conduct issues, some of which the hon. Member for Makerfield raised.

To clarify, the hon. Member for Nottingham East said that only credit secured by land is covered in this way. That is true, because at the moment other forms of credit are dealt with by the Office of Fair Trading. If we ever get around to clause 6, however, we can talk in more depth about the powers to transfer the regulation of consumer credit from the OFT to the FCA. On Farepak and funeral plans, the hon. Member for Makerfield was right to point out that Farepak was an advance payment scheme, and, because of that, it is not regulated by FSMA—in the same way, paying for a package holiday is not. The previous Government chose not to extend the regulatory perimeter to Farepak and other advance purchase schemes. To reassure my hon. Friend the Member for Solihull, funeral plans are within the scope of FSMA regulations, so she may share that good news with the members of her all-party group. The whole purpose of proposed new section 9O, therefore, is to keep that perimeter under review, to identify the threats and to enable the FPC to make recommendations to the Treasury not only about the perimeter itself but about where it is set between the FCA and the PRA.

Mark Durkan (Social Democratic and Labour Party, Foyle)

Will the Minister clarify whether that ongoing review will consider EEA market operators, given the precarious position of a number of banks in the EEA and the status of some of those countries within their currency union?

Mark Hoban (Conservative, Fareham)

The regulation of banks operating within the EEA is determined by European regulation. As the hon. Gentleman and other Members would expect, the operations of the FPC and the other regulators are consistent with European Union law. On that basis, I encourage the hon. Member for Nottingham East to withdraw the amendment.

Chris Leslie (Labour, Nottingham East)

I read between the lines that the Minister was entreating me to do so. The amendment was a probing one, and it was helpful that he confirmed that the review will take place quite frequently and that it is the FPC’s job to consider the regulatory perimeter. It is important to try to keep track of who does what in the acronym city that we are creating. I agree with the Minister that the regulatory perimeter is part and parcel of the FPC’s job if it is supposed to judge where the next unforeseen systemic risk may come from. Credit bubbles may not occur every decade in housing, as people tend to assume; they could happen in any number of different ways, and the regulatory perimeter is incredibly important.

It is a flaw in the amendment to have asked the FPC to make a recommendation before the end of the 30-day period. The Bill introduces a whole series of measures, and a shadow FCA and PRA have been created anyway, so tabling an amendment at this stage would give the FSA ample heads-up to get on with the job. I accept that there is an argument that the situation should reviewed all the time rather than every calendar year. With the hope that the Minister will press for attention to be given to Farepak and the other areas on the margins that merit proper attention, I beg to ask leave to withdraw the amendment.

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 33, in clause 3, page 11, line 35, leave out ‘two’ and insert ‘four’.

Edward Leigh (Conservative, Gainsborough)

With this it will be convenient to discuss the following: amendment 32, in clause 3, page 11, line 37, after ‘system’, insert

‘including both the most likely outcome and a range of reasonably possible scenarios.’.

Amendment 19, in clause 3, page 12, line 2, at end insert—

‘(f) an assessment of the impact of each macro-prudential measure on employment and economic growth.’.

Amendment 20, in clause 3, page 12, line 9, at end insert—

‘(c) an assessment of the state of financial stability against early warning indicators and report against the effectiveness of the macro-prudential measures deployed.’.

Amendment 31, in clause 3, page 12, line 9, at end insert—

‘(c) an assessment of the impact of the Committee’s measures on the functioning of financial markets and the wider economy.’.

Chris Leslie (Labour, Nottingham East)

This is a significant group of amendments on a basket of issues. Amendment 33 relates to the frequency of the FPC’s financial stability reports, and amendment 32 to their contents. We have tabled amendment 19 because we think that an important component of such reports should be an assessment of the impact of macro-prudential measures on jobs and growth. Amendment 20 specifies that a financial stability report would also have to include an assessment of financial stability indicators: what is the dashboard that the FPC is looking at? What are the indicators, especially in trying to achieve earlier warning of potentially difficult circumstances, and to what extent are appropriate macro-prudential tools being deployed? Amendment 31 would add to financial stability reports an assessment of the impact of the committee’s measures on the functioning of financial markets and the wider economy. The amendments cover a wide range, and there are number of reasons behind them.

I turn first to amendment 33. Clause 3 states that there should be two financial stability reports a year. We are suggesting that there should be four, and I will explain why. The FPC will meet quarterly, and we believe that two reports a year will not shed sufficient light on its work. Greater frequency would allow greater public accountability of its work. If it meets quarterly, it would be odd if there were not quarterly financial stability reports at around the time of each meeting. The Bank has published a financial stability report twice a year so far, and they are available on its website, stretching back to 1996. Given the new powers that the FPC will accrue under the Bill, it seems appropriate to increase the frequency of those reports, especially in view of the lessons that we are learning about the need to keep an eye on stability in the system.

The MPC produces a quarterly bulletin, which provides regular commentary on market developments and UK monetary policy operations. It also contains research, analysis and reports on a wide range of topical economic and financial issues, both domestic and international. It is a very useful document, and I commend it to the Committee. It carries a broad range of material, particularly in relation to the formulation and conduct of monetary policy. It is an important tool in the accountability of the MPC.

Matthew Hancock (Conservative, West Suffolk)

I am probably the only member of the Committee whose has contributed to the Bank of England’s quarterly bulletin, or indeed the financial stability report. The quarterly bulletin deals not just with monetary policy, but with economic policy broadly, and no doubt could deal with financial stability matters, and has in the past, as the hon. Gentleman will know from his close reading of it, which I am sure is as close as mine.

Chris Leslie (Labour, Nottingham East)

It is such a shame that the hon. Gentleman was not credited in the acknowledgements of the MPC’s quarterly bulletins. It could have quoted his work in other proceedings in Parliament. I must look at the precise dates when he worked at the Bank of England to see whether he left any fingerprints on other aspects of public policy. I agree that the quarterly bulletins are fine documents, in general terms.

Matthew Hancock (Conservative, West Suffolk)

My point was not that they are fine documents, although they are, but that they cover financial stability as well as monetary policy, and that invalidates the hon. Gentleman’s argument.

Chris Leslie (Labour, Nottingham East)

It does not—quite the contrary. If we listen to the words of the Minister who says that we must make sure that any confusion or lack of clarity is swept away, and that that was the problem before, delineating proper reports relating to monetary policy and financial policy are surely a corollary of that argument. To expect financial stability matters to be dealt with in a quarterly report of the MPC starts to blur the lines between the work of those committees. I am simply arguing that the FPC is as important in many ways as the MPC, so it merits its own report-writing and publishing capability. In my humble opinion, it is difficult to argue against that.

We do not want to force an unnecessarily burdensome or costly requirement on the FPC to publish reports, but we think they should be published in a proportionate, timely and effective way. I wanted to test the Minister’s view. If he believes that quarterly reporting is inappropriate for the FPC, why does he think it appropriate for the MPC to follow that path? The Bill specifies two financial stability reports a year, so provisions already exist, and the matter is for primary legislation.

The Institute of Chartered Accountants supports the amendment. It states:

“We think more regular reporting would make the FPC’s work on financial stability more transparent, and make the FPC itself more accountable”.

That is our rationale for amendment 33.

Edward Leigh (Conservative, Gainsborough)

This session has been most interesting, not least the Minister’s admission that he enjoys attending his own party conference, but all good things come to end, and we will now adjourn.

Financial stability strategy and Financial Policy Committee

George Howarth (Labour, Knowsley)

With this we are discussing the following: amendment 32, in clause 3, page 11, line 37, after ‘system’, insert

‘including both the most likely outcome and a range of reasonably possible scenarios.’.

Amendment 19, in clause 3, page 12, line 2, at end insert—

‘(f) an assessment of the impact of each macro-prudential measure on employment and economic growth.’.

Amendment 20, in clause 3, page 12, line 9, at end insert—

‘(c) an assessment of the state of financial stability against early warning indicators and report against the effectiveness of the macro-prudential measures deployed.’.

Amendment 31, in clause 3, page 12, line 9, at end insert—

‘(c) an assessment of the impact of the Committee’s measures on the functioning of financial markets and the wider economy.’.

Chris Leslie (Labour, Nottingham East)

The Committee will recall that I was moving amendment 33, which is grouped with amendments 32, 19, 20 and 31. Amendment 33 is about the Financial Policy Committee’s financial stability reports. It seeks to increase the reports’ frequency from twice a year to four times a year to align it with the Monetary Policy Committee’s quarterly bulletin.

Amendment 32 states:

“after ‘system’, insert ‘including both the most likely outcome and a range of…possible scenarios.’”

It concerns the details of what the financial stability reports must cover, particularly the requirement for the Committee to give a

“view of the stability of the UK financial system at the time when the report is prepared”.

Clearly, the recommendations of the FPC can have a wide-ranging impact, so we need to ensure that the financial stability reports and the measures that the FPC advocates impact the wider economy with as few adverse or unintended consequences as possible, especially when it comes to the prospects for economic growth. Members of the Committee will recall my anxieties that the Bill as it stands already has a blind spot for economic growth. They will know how concerned we are that so little thought has been given to the impact on growth under this system, and we have already discussed how the FPC would be improved if it had an employment and growth objective.

A submission from the Institute of Chartered Accountants in England and Wales made the compelling argument:

“Given the uncertain nature of projections about the financial system, a discussion of a range of possible scenarios in an outlook should also be introduced in the reports, to ensure the committee’s considerations are transparent.”

Our amendment therefore highlights the need for a range of reasonable possible scenarios rather than simply one narrow projection.

Members of the committee will be familiar with the fan chart process with which the MPC’s quarterly bulletin makes predictions about likely scenarios. Although I accept where we are today in terms of our economic and econometric forecasting—it is difficult to turn what many will feel is a qualitative set of analyses into a quantitative set of analyses when it comes to stability projections and such concepts—we are not in quite the same ballpark as perhaps with monetary policy. This opens up the box in terms of what sort of metrics the Monetary Policy Committee will be using. What are the tells and what are the indicators across economic activity that might suggest credit bubbles are beginning to expand?

It is all very well in hindsight saying, “Gosh, that was a big credit bubble in the housing market” or whatever it may be. Hindsight is a wonderful thing, but it does not help in terms of projecting the next scenario. We want the FPC to somehow develop a set of indicators that might act as markers or posters that say, “This set of circumstances might be an indicator that something difficult is potentially looming or around the corner.” I am not after a target-driven set of scenarios, but looking for an analysis that properly appreciates the various scenarios that might come in the medium to long term. That is the purpose of amendment 32.

Amendment 19 would make an important change to clause 3 on line 2 of page 12, at the end of the proposed new paragraph requiring the financial stability report to include various aspects. We are seeking to introduce paragraph (f), so that the report must also include

“an assessment of the impact of each macro-prudential measure on employment and economic growth.”

My hon. Friends will know about the importance of ensuring better attention to those facets of policy about which our constituents and businesses care most of all.

Mark Garnier (Conservative, Wyre Forest)

The hon. Gentleman makes laudable points, but are they not more appropriate for the Office for Budget Responsibility than the FPC, in terms of economic forecasting?

Chris Leslie (Labour, Nottingham East)

No, because the Office for Budget Responsibility looks at fiscal policy, and we are talking here about stability. Stability may well fall under the ambit of the OBR at some point, and I would be interested to hear its thoughts about it, but given that we are talking about the contents of the financial stability report, it is important to understand what the report will include.

I am not the one being over-prescriptive here: there is a list in the Bill that sets out that a stability report must include a, b, c, d and e. I am simply talking about the components that it ought to include. The job of the interim FPC has so far been to publish financial stability reports. They have been interesting, but there are ways in which we can improve the FPC’s analysis and ensure that it covers issues that policy makers more broadly might want to touch on. Amendment 19 would build in a better sense of specific analysis of the impact of each macro-prudential measure that the FPC feels needs to be taken.

For the sake of argument, let us say that the FPC wants to change the minimum repayments our constituents make on their credit cards from roughly 2% on a monthly basis currently to 5%, for whatever reason. That is an example of a macro-prudential tool. To what extent will the FPC properly appreciate the impact on the economy that such a change would have––not just the change itself, but the timing of the change? If many of my constituents were forced to repay their credit cards more rapidly than they would otherwise do, it might take significant sums of money out of the economy and have a significant macro-economic impact.

I want to ensure that the FPC has a proper understanding of the downstream consequences of its measures. That is why we wanted, in an earlier section of the Bill, the FPC to have regard to the Government’s employment and growth objectives, but we were defeated, at least in Committee, on that amendment. It is more appropriate to ask the Minister to think again about the impact of such elements in the FPC’s bi-annual, but hopefully quarterly, reports.

There should be transparency about the impact of jobs and growth of each macro-prudential tool. We need to have some means of holding the FPC accountable for its decisions, albeit with the Treasury’s support in enacting them. Given that there are other requirements on a financial stability report in proposed new section 9T, a specific requirement about the impact on jobs and growth is exceptionally important.

We recognise that there are difficulties in fully analysing what the impact on the economy could be from a particular measure, but it is not impossible to make an estimate. Perhaps in working with the OBR and others in the forecasting business, the FPC and the Bank of England could learn a thing or two about how to make such predictions. That is why we think the report process needs enhancing in this way.

Amendment 20 would ensure that the FPC makes

“an assessment of the state of financial stability indicators against early warning indicators and report against the effectiveness of the macro-prudential measures deployed.”

We want to insert that provision into proposed new section 9T(4), on page 12, which talks about other aspects the financial stability reports must include. Again, the amendment would aid transparency regarding the strategy and indicators used by the FPC. It would allow others to make a judgment about the effectiveness of the measures concerned.

The Treasury Committee thought that that was necessary. Paragraph 14 of its 21st report recommended that Her Majesty’s Treasury

“give guidance under Clause 3 of the draft Bill to the Bank of England to adopt indicators for gauging financial stability. The selected range of indicators must be flexible and under constant challenge and review, not only by Parliament, Government and the Bank of England, but also by others such as financial industry practitioners, the media, academia and the public. The indicators should be published so that the performance in maintaining financial stability may be monitored and so that it can be held accountable for that performance. The FPC should report against these criteria at regular intervals.”

The pre-legislative scrutiny Committee picked up on that proposal, and its comments chime in perfect pitch with the amendment. Paragraph 319 of its report said:

“The bi-annual Financial Stability Reports should assess the state of financial stability against the early warning indicators which we endorsed…and report the effectiveness of macro-prudential tools deployed.”

Surprise, surprise, the Government, in their response to the Treasury Committee and the pre-legislative scrutiny Committee, were of a different opinion, but it is interesting to see how they framed it. They said:

“The Government believes that openness and transparency are important to secure public understanding of macro-prudential policy. The Bank has made clear in its response to the TSC’s report into Bank accountability that the FPC will regularly publish, and report against, indicators of financial stability.”

If the Treasury is in agreement, I do not see what harm can come from writing such a requirement into the Bill.

Ultimately, we have a right as parliamentarians to say which aspects of a report and which indicators we would find particularly informative. It would also help to have a degree of specificity in this part of the Bill. The amendment would not prevent the FPC from publishing in other ways to supplement the financial stability reports. However, it would ensure, at a minimum, that the FPC reports against indicators of financial stability.

David Rutley (Conservative, Macclesfield)

The hon. Gentleman makes a strong case, but it fails the “Just a Minute” test, because amendment 20 repeats what is in proposed new section 9T. That provision says the financial stability report must include a summary, and proposed new subsection (4)(b) goes on to say that it should include an assessment of the extent to which the exercise by the Committee means it has carried out its functions. The amendment is very worthy, but it is surely repetition.

Chris Leslie (Labour, Nottingham East)

If it was repetition, I am sure you would rule it out of order, Mr Howarth, as indeed happens on “Just a Minute”. Let us not change the rules as we go along. I do not think it is repetition, because there is no provision in the Bill asking for an assessment of the state of financial stability against early-warning indicators, and it would be useful to have such a provision. Simply judging whether the FPC’s exercise of its functions has succeeded during the reporting period in meeting its objectives is not as forward-looking a requirement as I would like. If the reports are to be useful, they need to focus on horizon scanning and what is coming in future. That is a crucial component of the FPC’s work.

Amendment 31 would introduce a requirement that the financial stability reports make

“an assessment of the impact of the Committee’s measures on the functioning of financial markets and the wider economy.”

The amendment is framed so that we can get a sense of the read-across from the work of the Financial Conduct Authority, which currently, as framed in the Bill, has a strategic objective to ensure that relevant markets function well.

It is appropriate to ensure that the FPC also keeps an eye on the smooth functioning of financial markets. There are important interconnections within the financial system and the knock-on consequences of macro-prudential measures, given the interrelated nature of the different financial services sectors, could be important. Therefore it is necessary, for completeness’ sake, to ensure that the FPC also has regard to some of those market-functioning tests. We are talking about the impact of the measures on the real economy and how they will affect the operation of day-to-day markets. The amendment would add some colour to the report.

It is difficult to debate the relative merits of each amendment in such a considerable group of amendments, but it is important that financial stability reports are rigorous, sufficiently frequent, forward looking and judged against indicators that give some intelligence about what is coming on the horizon and, in particular— I hope that my hon. Friends agree—assess the impact of the measures on the real economy and what will happen to economic growth and job creation. For those reasons, I commend the amendments to the Committee.

Lorely Burt (Liberal Democrat, Solihull)

I want to speak briefly on amendment 32. It is important that we can forecast clouds on the horizon. Looking back to the beginning of some of our financial difficulties, all the signs were there, but we did not necessarily understand how to interpret them. I am sure that we never imagined that things would turn out as badly as they eventually did, because of the range of factors available to any Government or the FPC at any time.

Although it is not necessary to include it in the Bill, will the Minister comment on scenario planning to ensure that we map out eventualities and consequences that may not immediately be apparent? That is important, because we do not have a crystal ball or, indeed, many crystal balls. The Minister’s reassurance that, in the normal course of things, he would expect an element of scenario planning to facilitate the work of the committees would be welcome.

Mark Hoban (Conservative, Fareham)

It is a pleasure to welcome you to the Chair for this afternoon’s proceedings, Mr Howarth. As an experienced Chairman, you will know that Ministers occasionally seek enlightenment and clarification during the lunch break, and that has been the case today.

During a previous debate, the hon. Member for Nottingham East asked me to write to him about the Joint Committee on Statutory Instruments. I can inform him that it was not that Committee, but the equally well respected and experienced Delegated Powers and Regulatory Reform Committee of the House of Lords that made a representation to the pre-legislative scrutiny Committee. I know that he will have read its recommendations as part of his assiduous preparation. In paragraph 9, on page 127 of the pre-legislative scrutiny Committee’s report, the Delegated Powers and Regulatory Reform Committee stated that the reason for the power to make macro-prudential tools was explained in the Treasury’s delegated powers memorandum and that

“We do not consider it inappropriate; and the importance of the power is recognised by the application of the draft affirmative procedure or, in urgent cases, the 28-day ‘made affirmative’ procedure”.

That Committee has therefore adopted the same view as the Treasury, which is that the affirmative, rather than the super-affirmative procedure, is needed. I thought it would be useful to clarify that, although we identified the wrong Committee, we certainly arrived at the right answer.

Amendment 33 would require four financial stability reports to be published every year, which draws a parallel with the inflation reports that were so notably contributed to by my hon. Friend the Member for West Suffolk in his time at the Bank of England. There are key differences between monetary policy and macro-prudential policy. Macro-prudential policy action may take time—perhaps running into months—to be implemented properly, and its full effects may not be felt for a long time. That different pace of macro-prudential policy is reflected in the fact that the FPC will meet quarterly, while the MPC holds monthly meetings. The six-monthly financial stability report also reflects the longer time frame over which macro-prudential actions must be considered. As my hon. Friend made clear this morning, that report is not the only communication tool; it will be supplemented in other ways. The six-monthly cycle will sit neatly with the quarterly pattern of meetings, bearing it in mind that the MPC meets monthly and the inflation report is quarterly. On that basis, there is no requirement to have the same frequency of reports.

My hon. Friend the Member for Macclesfield, who is clearly a devotee of the panel game “Just a Minute”, rightly pointed out the repetition not so much in the speech made by the hon. Member for Nottingham East, but in his amendments. Amendment 32 would insert the phrase,

“including both the most likely outcome and a range of reasonably possible scenarios.”

However, subsection (3)(e) refers to

“the Committee’s view of the outlook for the stability of the UK financial system.”

A forward-looking sense is therefore already enshrined in the Bill.

On amendments 19 and 31, as I made clear last week, one of the interim FPC’s recommendations on macro-prudential tools is the need to think through the likely macro-economic impact of those tools on the wider economy, which is a key part of putting the powers in place. As the hon. Member for Islwyn pointed out in the debate about indicators, the FPC’s December report stated that it should look at a range of them. That report—it has already been much quoted in Committee—also stated, in section four, on “Selection criteria” for tools, that

“The second criterion is the efficiency with which a tool successfully achieves a reduction in systemic risk”.

The points are well made by the hon. Member for Nottingham East, but they are already reflected in the Bill or by the way in which the Financial Policy Committee will act in practice. On that basis, I do not believe that the amendments are necessary.

Chris Leslie (Labour, Nottingham East)

I am grateful to the Minister for his explanation. I hope that we do not get into the practice of finishing discussions on groups of amendments that took place previously. The Minister mentioned the Delegated Powers and Regulatory Reform Committee in respect of the super-affirmative procedure, which we talked about this morning. I would have been quite happy for the Minister to write to us with his apology for getting the wrong Committee.

George Howarth (Labour, Knowsley)

Order. I took it that the Minister was trying to be helpful and therefore was not being too prescriptive about how I dealt with it.

Chris Leslie (Labour, Nottingham East)

I was just about to say that it is important to have some flexibility in the proceedings to allow Ministers to be helpful whenever that is necessary.

The Minister’s justification for not wanting four reports from the Financial Policy Committee was a little tenuous. The pace of macro-prudential policy is sufficiently longer than it is for monetary policy or other macro-economic policy arrangements. With the greatest of respect to the Minister, that has yet to be proven. There are many ways in which the pace could be quicker or slower, but I do not think that he can say at this stage that he knows what the pace of macro-prudential policymaking is likely to be. There are many other non-macro-prudential policy measures that can take an inordinately long time to enact, so the argument is a little spurious. None the less, I accept his point about the fact that the MPC meets on a monthly basis and then has a quarterly report. That is a stronger point. Reports do not necessarily have to align with each particular meeting. If we are creating a certain degree of constitutional symmetry within the Bank and we are having a Financial Policy Committee and an MPC as well, it would make sense to mirror the four reports a year. We may want to return to this matter when we are in Government, but at this point in time, the Minister makes his arguments well, so I will not press that issue.

The Minister thinks that amendment 32 is already sufficiently covered by subsection (3)(e). Again, that is a moot point. It would have been preferable to have been more specific about the sort of forward looking early-warning indicators or the range of scenarios that might be there. The hon. Member for Solihull made an important point on this; Ministers do not want to write any more on that in the Bill. It is a shame, but we have heard the Government’s point.

I am afraid that I do not agree with the Minister when it comes to amendment 19. It is important that at the very least the financial stability report should have an assessment of the impact on the real economy of each one of the macro-prudential tools that are being put in place. It is a bit like the regulatory impact assessment that we sometimes have accompanying legislation or other statutory instruments. At the very least, it is the sort of impact assessment that most of us should be concerned about in the Committee. It is not in any way a light matter. I am happy to withdraw amendment 33 and not to press amendments 32, 20 and 31, but I will press amendment 19 to a Division, because it is an important point of principle. I beg to ask leave to withdraw the amendment.

Chris Leslie (Labour, Nottingham East)

We have come to a point where we have exhausted clause 3, although I say that with a degree of regret because it is probably one of the most important clauses in the Bill. There are so many difficulties with the legislation that it has taken a bit of time to debate and try to amend, although the Government have not conceded a thing.

Greg Hands (Conservative, Chelsea and Fulham)

We have not been persuaded.

Chris Leslie (Labour, Nottingham East)

The Government Whip says that I have not persuaded the Minister, and I bear that failing entirely on my shoulders. Perhaps I will try harder in future clauses when it will be important to make my arguments in a more forceful but not necessarily more voluminous way, although I could be tempted.

Clause 3 has some merit in that it establishes the Financial Policy Committee and sets out the concept of macro-prudential policy making. The Opposition recognise that and support the work of the interim Financial Policy Committee. If the Bill is enacted, we want to see a Financial Policy Committee that works effectively. The problem is that clause 3 also contains many gaping holes, and the Minister has not assured me that the legislation is adequate as it stands.

For example, the status of the FPC as a sub-committee rather than a committee was raised by the Treasury Committee and the pre-legislative scrutiny Committee. We sought clarity during earlier debates about the internal wiring between the FPC and the regulators, and the FPC and the rest of the Bank of England, but rather than shedding light on the matter, the Minister has confused and obfuscated the situation.

On committee membership we had a small discussion about whether there will be a fair balance of external representatives from the wider economy, or whether the committee will be a creature of the Governor. Seven executives will be appointed, four externally. The Minister made a point about the chief executive of the Financial Conduct Authority, but even if that is factored into the figures, the majority of appointees will still be made by the Governor and that will create quite an imperial system within the Bank. I do not think that the right balance has been struck between non-executives and Bank executives, which is a pity.

One of the biggest blind spots in the clause is the lack of attention paid to the impact that macro-prudential policy making could have on jobs and growth. I know that we divided the Committee specifically, just now, on the macro-prudential measures, but also on the strategic objectives of the Bank, and it is troubling that the Government have not accepted that somehow macro-prudential policy making could have an impact on growth.

The Minister could have said, “Yes, I think that some of the stuff that the FPC will be doing might cause difficulties—it could lead to higher or lower unemployment; there could be downstream consequences for the real economy”; but, no, his view was that there was a wall to be built around the work of the FPC, that it had nothing to do with jobs and growth, and that, in fact, if we were to give it an obligation to have regard to those things, somehow that would breach the fundamental principle of separation of powers, which was something to be resisted at all costs.

It was partly for those reasons that we felt, “Well, hang on a minute, we need proper parliamentary scrutiny of the macro-prudential measures, when they come, so at least we can pause and properly check whether adequate account has been taken of issues to do with the real economy”; but those concerns were rebuffed again by the Minister.

As to problems with parliamentary scrutiny and accountability, the Minister has cited one House of Commons Committee that perhaps had not picked up on the importance of the super-affirmative process, but others who have perhaps considered the matter in greater detail made the recommendations. Sometimes I think that because I am the one advocating the conclusions of the pre-legislative scrutiny Committee or the Treasury Committee, I am colouring them from my perspective; but I am trying to bring the issues to the fore in Committee.

The Government are right to want financial stability, but they must be careful about lack of accountability and about having insufficient regard for the effect on the wider economy. The clause has serious deficiencies, which could have significant consequences. Unless we get the fundamentals of the regulators right, we risk creating regulation that is out of touch and that pays inadequate attention to the important tasks of creating jobs and growth in the UK economy.

That leaves us in a dilemma. The Minister has rigidly refused to accept any changes to the clause, and, as we near the end of consideration of part 1, it is exactly as it was when we began our proceedings. Report stage is still to come, and although some of the bigger points of principle that I have been arguing will not be accepted, there are some smaller ones about which Treasury Committee members have concerns, and they may try to influence Ministers behind the scenes.

I hope that the Minister will table amendments to clause 3 on Report, and we would welcome those, particularly if they were in the spirit of some of our suggestions. As things stand it would be irresponsible merely to allow clause 3 to be passed without voicing our concerns. We are in favour of a financial stability strategy and a strong and functioning Financial Policy Committee, but clause 3 would not achieve those ends, so, with the greatest regret, we must vote against it.

Stephen Gilbert (Liberal Democrat, St Austell and Newquay)

It is a pleasure to reconvene under your chairmanship again, this afternoon, Mr Howarth. I do not want to detain the Committee long, but, as the hon. Member for Nottingham East said, clause 3 is perhaps the most significant provision in the Bill, and the clause stand part debate is a significant milestone.

The clause is important because of the macro-prudential regulatory regime that it introduces, and the possible overall consequences for many different sectors of the economy. There has been talk about the ability to regulate mortgage lending and credit cards—and perhaps the leverage and debt exposure of small and medium-sized enterprises. Potentially all parts of the economy could be touched by the powers that we have debated in the past three sittings. That is why the clause represents such a significant step and such a change in the way we manage the UK economy. It is clearly the right change. The hon. Member for Nottingham East suggested that in his comments, although he cannot quite bring himself to support the clause overall. We clearly need to avoid the type of asset class bubbles seen in recent years, which have distorted parts of the economy and caused so much damage.

I do have a concern, however, about parliamentary oversight. I was reassured on Second Reading, when I intervened on my right hon. Friend the Chancellor, who made it clear that he is relaxed about debates on the Floor of the House on proposed macro-prudential measures. I see my hon. Friend the Minister nodding, so perhaps we will look again at whether that can be made more explicit in the Bill, while still resisting the further proposals of the hon. Member for Nottingham East.

In particular, if we look at proposed new section 9J(2) and (3), the FPC, when issuing a macro-prudential measure,

“must give the Treasury a copy of any direction under section 9G”,

but the Treasury then

“may, if they think fit, lay”

a copy of that order before Parliament. I find that provision wholly unacceptable, and I hope that the Government will take that on board and review it on Report. Clearly, given the level of the powers that Parliament is handing to the Bank of England, Parliament must maintain authority. We must be accountable for the powers being handed over, and there must be some form of redress. Therefore, that provision as it stands is not satisfactory, although I look to the Minister to enlighten me in case I am misreading it. If a copy of an order is laid before the Treasury, it is perfectly proper and easy for it also to be put in the House of Commons Library.

I also wonder whether the new body that we are creating is the opposite of a rolling stone gathering no moss. We may well be creating a rolling stone gathering all sorts of moss, with all sorts of additional powers accreting to it as the years go on. Can the Minister, therefore, enlighten us as to whether consideration was given to the insertion of sunset clauses on the macro-prudential measures? It strikes me that everyone in the House wants to maintain responsibility for the powers that we are handing over, and one of the easiest ways to do that might be to ensure that they are in some way self-limiting.

Overall, we clearly have the right direction of travel. The lesson of the previous years is that we have not properly managed full oversight of the UK’s economy so, with those two caveats, I am happy to support the clause.

Fabian Hamilton (Labour, Leeds North East)

I was intrigued to hear the remarks of the hon. Member for St Austell and Newquay on oversight. For a minute, I thought he was going to agree with us, and he seemed to be havering between what the Government are saying about the lack of necessity for a Select Committee to scrutinise financial services and his own concerns that there should be proper parliamentary oversight and sufficient debate on the Floor of the House. I await with great interest the response of the Minister or, perhaps, an amended clause 3 on Report.

We have had an interesting debate on the clause which, in many ways, is the nub of the Bill. It is a good attempt to ensure that the stable door is closed after the horse has bolted. I give it six or perhaps seven out of 10, but it is not perfect. We can never be perfect, of course, but what my hon. Friend the Member for Nottingham East has tried to do is to improve it and to be helpful to the Government in this joint venture, because the wish throughout the House is to produce a Bill that not only will prevent some of the catastrophes that we have seen from happening again, but will work to ensure provision for jobs and growth in the economy. Regrettably, the Minister was unable to give an assurance that he would consider my hon. Friend’s proposals, even if the amendment was unacceptable to the Government. I had hoped that he might say more about jobs and growth, and whether the FPC could balance its remit for ensuring stability and—dare I use the word?—prudence in that side of the economy, which is so important in ensuring that the deficit is repaid.

I support my hon. Friend in urging the Opposition to vote against clause 3, simply because of the number of amendments that he has helpfully proposed to the Government that have been completely rejected. In light of that, I hope the Minister will reconsider some of the points that were made even though the amendments were rejected. During this Parliament, the Minister and I debated the then Equitable Life (Payments) Bill. Do he and the Government believe that clause 3, as it stands, would prevent another Equitable scandal? That is what my constituents and those of every Member in Committee want to know. Will it prevent, or would it have prevented had it been in place, the scandal of Equitable occurring in the first place?

My final point is one to which I alluded last week. Small and medium-sized enterprises, to which the hon. Member for St Austell and Newquay and many other hon. Members have referred, are the cornerstone of creating jobs, growth and wealth in this country. Many of my hon. Friend’s share my view that we must ensure that whatever legislation we enact through the Committee process will help such enterprises, in any way possible, to carry out their businesses and expand, grow and become larger. In doing so, we will create the jobs, growth and wealth that this country so badly needs.

Sheila Gilmore (Labour, Edinburgh East)

A Bill of this kind, as written, may seem extremely abstract and far removed from the everyday considerations of many of our constituents. However, the clause goes to the heart of what people want from the measure. We can trade allegations about who was asleep on the job and who did and did not want regulation in the past, and we have done so on the Floor of the House at various times. Clearly, the public expect us to introduce a system that will work and be in place for a considerable time to come. They want a system that not only prevents situations such as that of Equitable and others, which many of us are still dealing with, but that relates to the bigger picture, too, in which organisations such as the Royal Bank of Scotland overreached itself.

That is why some of the provisions in the clause, on which we have tabled amendments, are especially important. We must get right the balance on financial stability and strategy, which we debated at length. It is not good enough simply to say that financial stability in itself is the be-all and end-all of what we are trying to achieve in financial policy. That can be overdone, and it is perhaps the habit of politics to run from one extreme to the other end of the spectrum. We are already seeing the effects of the banks becoming ultra-cautious, certainly compared with how they were previously. That has implications for the economy, and our constituents in their day-to-day life. The economy is affected because businesses need to borrow to expand and grow, but there is also a huge effect on the housing market. Decisions are being taking about deposits for house purchase, and the ratio of income to loans. That affects not just individual households, but house builders, and in turn employment and jobs in our local economies.

The lack of jobs has a knock-on effect on other aspects of our local economies. It also has a marked effect on housing tenure, not because of planned decisions about what sort of housing tenure we want, but by default. The private rented sector, which virtually disappeared some 20 years ago, is growing, and that is having an effect on household budgets because of the rise in rents as people are pushed more and more into the private rented sector, creating huge demand there, which in turn again, affects the Government’s budgets.

We have had huge debates in recent months about, for example, housing benefit, and the size of the housing benefit bill. Unless there is some control over rents, or the huge overwhelming demand for such accommodation ceases, much of what the Government are trying to do will come to grief. I have seen that in my constituency where the amount of money that people can claim if they require housing benefit assistance to rent in the private sector has been reduced. The amount that they can claim for a one-bedroom house was £115 a week last year.

George Howarth (Labour, Knowsley)

Order. May I gently remind the hon. Lady that we are discussing clause 3?

Sheila Gilmore (Labour, Edinburgh East)

I accept that, Mr Howarth, and I will not pursue the matter further.

George Howarth (Labour, Knowsley)

I am glad that the hon. Lady accepts it.

Sheila Gilmore (Labour, Edinburgh East)

I was simply trying to illustrate the importance of these debates to our constituents.

As well as the wider issue of the financial stability part of the clause, it is important to our constituents that we consider aspects such as public consultation and, as we discussed earlier today, proper parliamentary scrutiny of the procedures that will be put in place, because they are crucial, and if we get this wrong and the provision does not work as it should, the country as a whole and many of our constituents will suffer. On that basis, I support my hon. Friend the Member for Nottingham East in not wanting clause 3 to stand part of the Bill in its current form.

Chris Evans (Labour, Islwyn)

It is a pleasure, Mr Howarth, to serve under your chairmanship again. I will try to be brief. I want to press the Minister on a point I raised earlier. I am still not clear about what financial stability looks like. How does one do the touch, taste, feel test? He has still not come up with a simple definition of financial stability. History is littered with all sorts of examples of economies believing that they were financially secure and stable. I do not want to give a history lesson, but we all know about the tulip boom in the Netherlands in the 17th century, the Wall street crash in 1929 and Black Wednesday in 1989. At every stage, every Government thought that everything was tickety-boo.

Now we find ourselves in the situation of the FPC working towards financial stability, but the Government cannot provide an indicator. I am talking about a simple indicator so that when I walk down the street in Blackwood in my constituency, and someone asks me whether we have financial stability, I can say yes or no, because of x, y or z. That brings me back to the thought that probably the best way—it is not perfect—of measuring financial stability in layman’s terms for someone on the bus in Blackwood on a Saturday morning is by saying whether the economy is growing and creating jobs. That is the simplest way of talking about financial stability.

Mark Hoban (Conservative, Fareham)

Will the hon. Gentleman reflect for a moment on the fact that, just before the financial crisis hit, the economy was growing and was creating jobs, yet that growth was fuelled by the instability that led to a massive contraction in both?

Chris Evans (Labour, Islwyn)

I think the Minister saw my argument about the tulip boom and things like that. Perhaps he can enlighten me, but I cannot think of something simple to say in terms of what financial stability looks like because of how the markets work.

I shall make a general point before I finish. It seems that sometimes we have applied economic theory to people’s behaviours. We do not know what the behaviours are of people in the market. So when we talk about financial stability, we do not know how people have behaved to create financial stability. Also, people tend to take risks, which at such a time will destabilise their business and society. All I am looking for from the Minister is for him to answer this simple question in a few sentences: what does financial stability look like? I hope that he can enlighten me on that.

Matthew Hancock (Conservative, West Suffolk)

I will speak briefly to argue that the financial policy committee that clause 3 sets up is the meat of the Bill. It is one of the most important innovations in the measure and probably across the whole banking reform programme that the Government are introducing. It removes the tripartite committee that failed so catastrophically. Therefore, if someone votes against the clause, they are, in effect, voting against the Bill as a whole and against reforming the banks. It would be a vote in favour of the status quo.

In response to the question about what financial stability means, I am sure that we will get an eloquent description from the Minister. However we certainly know what financial instability looks like: everything that happened in the past few years thanks to a system that did not work and that the clause is at the heart of replacing.

Jesse Norman (Conservative, Hereford and South Herefordshire)

May I briefly add to and second what my hon. Friend has said? We have heard a lot of deviation and a fair amount of repetition from the Opposition Benches. May I encourage some hesitation before they consider voting against this very important clause?

Mark Hoban (Conservative, Fareham)

I will not give the hon. Member for Islwyn a glib statement about what financial stability is because, as he demonstrated when I intervened on him, it is rather difficult to characterise. That is part of the challenge. There is no simple definition. If there were, we would know what it is and how to get there.

The threats to financial stability are manifold and will come from different areas. Different people will have their own views about what those threats are. The challenge is not, as the hon. Member for Leeds North East said, to close a stable door after the horse has bolted, but to try to stop the next horse bolting. We are looking for a forward-looking committee that will survey the horizon. Again, that is one of the things that the committee will have to report on in its six-monthly review: it will have to consider the outlook for financial stability.

As we discussed last Thursday, credit and the ratio of credit to GDP will be an indicator of that, but there are other things as well. Sometimes structural matters will undermine the stability of the country’s financial system or it may be the growth of a new product. Anyone who has read Gillian Tett’s book, “Fool’s Gold,” will understand about the growth of credit-derivative obligations. The growth of that product was a threat to financial stability. It is very hard to measure the complexity of product. We need a committee that has the experience and the expertise to be able to look ahead to those future threats. It will need the expertise of the officials of the Bank of England, but it will also need a broad representation. We discussed those points earlier in Committee. It is important to have that balance of internal and external members to ensure that there is not a risk of group-think.

Chris Evans (Labour, Islwyn)

The Minister might think I am being a bit mischievous, but is he saying that the committee will be more focused on financial instability rather than stability because that is an easier mark to measure?

Mark Hoban (Conservative, Fareham)

It is easier to identify instability than stability. I said that the seeds of the financial instability during the banking crisis were sown during a period of what people might have described as stability. It is difficult, but we need the committee to understand whether instability relates to new products, changing market structures or growth of credit and to consider areas that could trigger instability, such as a new financial instrument in the market, and think through the impact on financial stability of the growth of shadow banking—the role of money market funds.

The FPC has a key role to play in looking ahead and taking action to tackle problems that it sees. Going back to what the committee should do and how we ensure that it is targeting the right things and appropriately taking into account the impact of its actions, I think that all Committee members recognise that financial instability has its cost, as we have seen in recent years, but too much financial stability is the stability of the graveyard and it, too, has its costs. We need to take into account the impact of the committee’s actions. We need to assess whether the FPC is doing a good job, taking the right decisions and making the right judgments on how to use the powers available to it.

The answer to these questions relies on three key elements: getting the objective right; making decision making as transparent as possible and providing for adequate retrospective scrutiny; and the challenge of decisions. It is right to focus on getting the objective right and ensuring that the committee can be held to account for its performance.

The hon. Member for Nottingham East and others asked whether the balance is there in the objective. One overriding Government objective throughout the reform is to create specialised bodies with specific, focused objectives. That approach, which has been widely supported, allows each body to concentrate on one, or a small number of, areas in which it has the greatest expertise, instead of asking them to do a lot of different things, perhaps leading to their achieving none. We have seen what happens when we give bodies too much responsibility, or responsibilities that are too wide-ranging without setting any sense of prioritisation, such as in respect of the FSA. I am wary of diluting the FPC’s focus and role by asking it to promote, in some other way, other public policy goals at the same time as pursuing financial stability. That is why the Government believe that the FPC should be asked to focus on a single primary objective of financial stability.

We agree that the FPC’s pursuit of stability should not be completely unfettered. As the Chancellor said, we do not seek the stability of the graveyard. In other words, the FPC should not be able to pursue stability to the point where the financial sector can no longer support the wider economy. It is a question of balance. On one side, costs imposed by intrusive regulation may restrict the ability of the financial sector as a whole to support economic growth and, on the other, an under-regulated, unstable financial sector can have, as we have seen, devastating effects on the economy by fuelling unsustainable bubbles and causing disorderly firm failure.

Clearly, over the long term, financial stability and sustainable economic growth are complementary, not contradictory. Financial stability is an essential precondition of sustainable economic growth.

My position, like that of the Government, is clear: the FPC should not be able to use its powers to take action where the costs that that action would impose are disproportionate to the benefits.

Chris Evans (Labour, Islwyn)

I understand that the driver for the FPC is financial stability, but how does the Minister ensure that that does not stifle innovation in financial services? I hope that he can clear that matter up.

Mark Hoban (Conservative, Fareham)

The hon. Gentleman makes an important point. That is why there is no blanket ban on the creation of new products or services, for example, and why financial services firms will be encouraged to identify new opportunities in the markets. New products that are available would benefit businesses. For example, at the moment we are considering, through the business finance partnership, using the resources of financial management companies or insurers to lend to businesses. That innovative approach could support economic growth and should be encouraged. However, the challenge is whether it could move to a point where it creates instability. The Committee needs the judgment and the understanding to recognise what is genuine innovation, what can help support the wider economy and what developments pose a risk to the economy. This is about creating a stable platform where people are encouraged to be innovative and to adapt to compete and provide new ways of meeting the needs of our constituents rather than simply closing down any of the opportunities to do so.

As well as ensuring that the cost is not disproportionate to the benefits, it is important that the FPC should not be able to take action that would seriously damage the ability of the financial sector to contribute to growth in the medium to long term. The Bill, as drafted in new section 9E, subsection (4), and in new section 9C, prevents the FPC from acting where it will have a significant adverse impact on the capacity of the financial sector to contribute to the growth of the economy in the longer term. It is not a “have regard to” but a clear requirement that it should not do anything that will have a significant adverse effect on the Government’s wider macro-economic policy. It is a much tougher bind than the “have regard to” that was proposed at an earlier stage.

The hon. Member for Leeds North East talked about Equitable Life. The challenge of what to do with Equitable Life is not a role for the Financial Policy Committee looking at system–wide financial stability. However, when we discuss the PRA, which has a particular responsibility around the solvency of insurance companies and towards with-profits policyholders, we will see an increased focus on meeting the needs of policyholders and their reasonable expectations—a phrase that was used quite a lot in the court case. I am sure that we will come on to that at a later point.

My hon. Friend the Member for St Austell and Newquay talked about sunset clauses. He will be relieved to know that new section 9K allows orders to be published with a sunset clause, and that may be a tool that the FPC may wish to consider. He also raised the issue of “may”, which is in new section 9J. This raises an important point in relation to the exercise of the FPC’s powers. The question is whether it will be appropriate in all cases for the FPC to publish the orders that it is given to deliver financial stability. The assumption would be that the FPC will publish that information, but there may be times where it may not be in the public interest to publish those orders. While it is right to issue that order and to give direction about what should happen, there may be times when the matter is of such sensitivity to the wider economy that to make it known would be detrimental to financial stability. Although a degree of caution needs to be exercised, I believe that we should err on the side of openness and not on the side of keeping things quiet.

Lorely Burt (Liberal Democrat, Solihull)

I entirely agree with the Minister’s analysis. There will be times when providing a running commentary on the state of the economy and the potential difficulties that we may be facing could be counter-productive. However, I totally agree that, wherever we can, we must err on the side of transparency.

Mark Hoban (Conservative, Fareham)

I am grateful to my hon. Friend for her comments. One of the things that I am keen to pursue in financial regulation is a greater use of transparency as a tool for delivering better outcomes. My hon. Friend the Member for St Austell and Newquay returned to the point about debates on macro-prudential tools taking place on the Floor of the House. I have no aversion to that. The more opportunities there are for people with an interest to take part, the better. However, as in all such cases, it is a matter for the usual channels. The strong support for such debates, particularly from my right hon. Friend the Chancellor, sends a clear signal about how we want these tools to be debated. It is important. As we have said time and again in our last few sittings, consultation, engagement and transparency are absolutely vital. They are vital not only in terms of accountability. It is important to recognise that the FPC’s role in financial stability is not simply through the application of tools, but via the messages that it sends. That is important.

In conclusion, the clause is an important part of the Bill. The FPC will play a huge role in trying to tackle the causes of financial instability and trying to bring about the stability that is absolutely vital if we are to have a stable economy.

I will counsel the hon. Member for Nottingham East on how he votes. He has had sufficient experience in this House to make his own judgment, but by voting against the clause he sends a signal that the Labour party has not learnt any lessons from the tripartite system. It has not recognised the threats to financial stability and the way in which financial stability needs to be tackled in the new regulatory architecture. He would be setting his and his party’s face against significant reforms to the stability of the financial system. He has made his point eloquently in the debates on various amendments. We know exactly where he stands. He wants to see both more spaghetti and less spaghetti around the wiring. He wants more clarity and less clarity around the roles of these bodies. The clause is a fundamental piece of reform. To oppose it would send a signal that the Labour party has set its face against reform, which I do not think is where he or his right hon. Friend the shadow Chancellor are really at.

Chris Leslie (Labour, Nottingham East)

I do not wish to be misrepresented in any way. As I said in my speech on clause 3 stand part, I think there is a virtue in the financial stability objective and the Financial Policy Committee, but we in opposition need to put pressure on Ministers in Committee to listen to the detailed points of improvement that we want to see. Other than that, we can urge Ministers on Report, which is the last opportunity to vote on individual clauses. I have great expectations for this Minister on Report. I know that he is a considerate and thoughtful fellow. I hope that he will, on reflection, recognise the importance of some, if not all, of the amendments that we have tabled. I hope that he will introduce changes on Report and then we can hopefully all skip off into the sunset supporting one another on clause 3. However, as it stands, it would be invidious for us to abstain on the matter.

Mark Hoban (Conservative, Fareham)

I am not asking the hon. Gentleman to abstain.

Chris Leslie (Labour, Nottingham East)

Come on.

Mark Hoban (Conservative, Fareham)

I want him to join us wholeheartedly and support the clause. That is not unusual. I remember times in opposition when I supported the previous Government on clauses in Bills when I thought it was the right thing to do. The reforms are important. We know exactly what the hon. Gentleman’s points of concern are, but I hope that they do not detract from the fact that this is a significant piece of reform that recognises and learns lessons from the financial crisis. To oppose it would send the wrong signal about the Labour party’s ability and willingness to embrace change.

Schedule 1 - Bank of England Financial Policy Committee

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 24, in schedule 1, page 168, line 11, at end insert

‘but shall not exceed the terms and conditions and remuneration arrangements available to external members of the Monetary Policy Committee.’.

George Howarth (Labour, Knowsley)

With this it will be convenient to discuss the following:

Amendment 28, in schedule 2, page 173, line 17, at end add—

Chris Leslie (Labour, Nottingham East)

So bon voyage to clause 3, and we hope that it will be improved by the time we reach Report. We now welcome schedule 1 and page 167 of the Bill, although we will be returning to single-figure page numbers.

The three amendments have been very sensibly grouped together by the Chair, as they relate to the terms and conditions of membership of the Financial Policy Committee. Essentially, the schedule is a sort of standing orders, for want of a better term, of the FPC. It makes provision for the terms of office of appointed members, qualifications, removals, appointment and so on.

Amendment 24 would insert an additional phrase to the provision on terms and conditions. Currently, the terms and conditions under which a person holds office as a member of the FPC will be

“such as the Bank may determine.”

The argument could be made that the Bank is independent in that respect and that it should be able to make such determinations. To my mind, it is important that those terms do not exceed the terms and conditions and remuneration arrangements available to external members of the Monetary Policy Committee. The terms and conditions for holding office in the FPC should be no more generous than those for holding office in the MPC, because of a risk that could arise in the discrepancy of payments, which might give the impression that one committee is more important than the other. Clearly, that should not be the case. Unfortunately, the Government will not concede that both the FPC and the MPC should be committees of the Bank: the MPC is, but the FPC will be a sub-committee. Their importance, given that monetary and financial services are in many ways inextricably linked––as is the economy––should be reflected in some of the terms and conditions arrangements.

According to the Bank of England annual report, on page 40, it is for court to determine

“the remuneration of the Bank’s most senior executives, including the Governors, Executive Directors, Advisers to the Governors and the external MPC members.”

The court is advised by the remuneration committee or RemCo—we know about NedCo and the oversight committee, but here is another—the composition of which is set out in the annual report. I assume that the Minister will clarify that RemCo will also advise on the terms and conditions, pay, rations and pension arrangements of the FPC membership. If the Minister confirms that, at least it will be one step towards clarification.

Looking into this can be interesting. We can only assume that the Bank plans to remunerate FPC members to a similar or equivalent parallel level as MPC members. According to the terms and conditions for the four external members of the MPC, who are appointed by the Chancellor, they have terms of three years, on a part-time basis that averages three days a week. External MPC members must not retain or accept other appointments or interests that would create a conflict with their MPC responsibilities during their term of office as determined by the Chancellor, on the Governor’s advice.

It is interesting that the external members of the MPC were each paid £101,362 in 2010-11. I cannot remember what ministerial salaries tot up to, but I think that that is broadly the same as those of Government Whips. Perhaps the salaries of Ministers of State are different from those of the Whips, but MPs’ salaries are about £65,500 and MPC members receive £101,000. Are hon. Members aware that MPC members are also paid a 30% supplement, on top of that £101,000, in lieu of membership of the Bank’s pension fund? They are also entitled to cover under the Bank’s group medical insurance scheme. A public body is providing private medical insurance to those members, a point which I wanted to draw to the Committee’s attention.

Deputy governors are paid considerably more. On 1 March 2010, the salary of deputy governors increased by 2.5% to £258,000, but those salaries have since been frozen. The Governor’s salary increase was due on 1 July, but he chose not to accept it, and I think it is the case that there have been no bonuses within the senior executive ranks of the Bank of England. I would be grateful if the Minister clarified his understanding of the Bank’s intentions about the remuneration and pension arrangements for FPC members.

That ties in neatly with amendment 28, which would require that

“Within a year of Royal Assent for this Act the Bank of England shall publish a review of the remuneration and pension fund arrangements for senior executives and those appointed to serve on the committees and sub-committees of the Bank.”

A 30% cash supplement in lieu of pension contributions is extremely generous—it certainly exceeds the 20% cap that was placed by the Exchequer on parliamentary pension fund contributions—and I am not sure that much light has been shone on that corner of the public sector.

I know that the Chief Secretary has to sign off salary arrangements above a certain level, particularly if they exceed those of the Prime Minister, but will the Minister say whether he is content or not content with the 30% supplement in lieu of pension schemes? That is a very precise question, which is meant to obtain his sense of whether that arrangement will continue with the FPC or whether he thinks that the Bank should rethink that plan. Those members will receive at least another £33,000 as cash in lieu of belonging to a pension scheme, and we should not forget that, as things stand, they are part-time. Will the Minister tell us whether he thinks that those members will have three day a week postings, and what time commitment we should expect from them?

Another interesting facet of the Bank of England’s pension scheme is that pension benefits for the current deputy governors are provided for through the court’s section of the pension fund. They are not externals, so they are members of that pension scheme, which allows them to obtain a maximum pension of two thirds of salary at a normal age of 60, not 65, after 20 years’ service. That is quite a generous scheme all round and I think I am right in saying—some people have said this—that the most generous scheme is the parliamentary one. The Bank of England’s scheme is right up there with such schemes, and I am not sure how far that has been reviewed. Is the Minister content with the arrangement of having, in the public sector, a maximum pension of two thirds’ salary at a normal age of 60 after 20 years of service?

Amendment 71 deals with a slightly different issue, on page 183 of the Bill, in schedule 3—[Interruption.]

George Howarth (Labour, Knowsley)

Order.

Chris Leslie (Labour, Nottingham East)

Thank you, Mr Howarth. I know that hon. Members are discussing whether to support the amendment. It is a difficult decision for them, as they serve on the Treasury Committee. It cannot be easy, given the conflict that they must be racked with when considering amendments that were in many ways created under their own authorship.

Amendment 71 deals with the terms of service of the members of the governing body of the Prudential Regulation Authority, which are set out on page 183 of the Bill. I do not think we have been told by Ministers how independent the regulators will be from the Bank. The Bill states:

“The PRA must pay to the members of its governing body such remuneration as may be determined by the Bank.”

The paymaster, set out quite clearly in the Bill, will be the Bank of England.

Our amendment suggests that the remuneration should gain the approval of Her Majesty’s Treasury. I do not think that the amendment is particularly difficult for the Minister to accept. There is an important point about accountability. Although I understand that public money might not be involved, as the money will come from a surcharge on the financial services sector, in order to ensure that there is accountability for the sums paid to the members of the PRA, the sums should be approved by Her Majesty’s Treasury. We could have tabled similar amendments to all the various committees, the FPC and to other elements, such as the FCA, but we have little time, and we thought that here would be a sufficient place to table a probing amendment about that point of principle. We are not singling out the PRA for any other reason, and we hope that the Government will table similar amendments. Treasury approval is necessary when it comes to remuneration arrangements for the PRA and other governing bodies.

Mark Hoban (Conservative, Fareham)

This is an interesting set of amendments.

I shall first deal with amendments 24 and 28. The Bank is responsible for setting its own remuneration policies. The court determines the remuneration of the Bank’s most senior executives, including the governors, executive directors, advisers to the governors and the external MPC members. The court will also set the remuneration of the external FPC members, and it will be advised in that respect by the remuneration committee. The court has mandated the committee to keep senior executives’ pay under review, and its approach is set out each year in the annual report. The court made the decision, which the Government support, that senior executives and the rest of the Bank’s employees’ pay would be frozen for two years from 1 March 2011, in line with Government policy for the public sector.

Amendment 24 seeks to place constraints on the remuneration of those serving on the FPC as external members. The court, advised by the remuneration committee, sets remuneration so as to enable the Bank to discharge its functions effectively. It is vital that we safeguard the court’s flexibility in setting the remuneration policy for those important roles. The work of the MPC and the FPC requires skilled individuals to act as external members. Such members must have the requisite skills and expertise to challenge the thinking of Bank executives. It is important, given the roles and expertise that we are looking for, that they are rewarded sufficiently.

Although the Government place equal importance on the roles of the MPC and FPC, we must recognise that external members of the committees have different roles, and it is inappropriate to constrain one group in relation to the other. In all aspects of the Bank’s remuneration policy, it is a matter for the court to ensure that its policies are adequate to be able to recruit the right people to do the jobs that we ask them to do.

On amendment 28, as required by the Bank of England Act 1998, the Bank already publishes an annual report that includes a report by NedCo, the committee mentioned earlier that comprises the non-executive members of the court who have responsibility—among other things—to decide on the pay and pensions of the executive members of the court. The remuneration committee’s approach has been to carry out a review of senior Bank remuneration against external benchmarks every five years, in order to set appropriate pay, benefits and conditions of service. The most recent review was in 2006, but it was not implemented in full because of the public sector pay freeze. The 2011 review was also postponed because of that pay freeze. The remuneration committee will continue to review regularly the remuneration of senior Bank staff and publish reports in the annual report. It is important that the court has the discretion to set the remuneration of external FPC members, and that those decisions are subject to appropriate scrutiny.

Chris Leslie (Labour, Nottingham East)

What is the Minister’s opinion on the 30% supplement in lieu of membership of the pension scheme? Is he content with that?

Mark Hoban (Conservative, Fareham)

The test is whether the overall package for members of the committee is appropriate to attract the right quality and calibre of people to serve on it. Different professions and organisations have different benefit packages, and the challenge is to ensure that the overall package is sufficiently competitive to attract the right people. We are asking people to give up other significant opportunities in order to be members of the MPC, so we must ensure that the overall package is adequate and will attract people. We do not want substandard members of the MPC. That may be the hon. Gentleman’s objective, but it is not my objective and neither is it in the interests of the country. It is important that the pay is sufficient to attract good quality applicants, although it should not be excessive. That is a challenge for the court and Bank to live up to, and they should be accountable for the process.

Mark Durkan (Social Democratic and Labour Party, Foyle)

Will the Minister say whether the Bill as currently worded would allow different pay to be awarded to different non-executive members?

Mark Hoban (Conservative, Fareham)

As I have made clear, the hon. Member for Nottingham East seeks to bind the court so that the same terms of service apply to FPC members as to MPC members—the hon. Member for Foyle may like to think about that if the matter is put to a vote. My point is that those terms should be flexible in order to attract the right people. I am looking for greater freedom and not the prescription sought by the hon. Member for Nottingham East.

Mark Durkan (Social Democratic and Labour Party, Foyle)

Does that flexibility extend to the four different people appointed possibly being paid different rates? Are we talking football-club style flexibility in terms of payment of external members?

Mark Hoban (Conservative, Fareham)

If the hon. Gentleman wishes to table an amendment to specify which members should be paid what, that is fine. The issue is one of flexibility, and we should allow the court to exercise that. Opposition Members should be careful not to get into a micro-management style of government. We set up bodies and we give them responsibility. If we want people to join those bodies and exercise responsibility, we should allow them to do so rather than seek to constrain them or second-guess their judgment, because that does nothing to attract people into public service. It is a matter for the court. I will not be prescriptive about who should be paid what; the court needs to make that decision. It may decide that FPC member A needs to be paid more than member B, but that is not my decision. The court should be deciding on the right pay packet to attract the right people for the job, and that is an interest we all share.

It was not that many minutes ago that Opposition Committee members were expressing concern about thinking through the macro-economic impacts of macro-prudential tools, economic growth and what the FPC will do. Surely, it is in all our interests to ensure that the right people do the job, which requires some flexibility regarding the right pay rather than being constrained, as the hon. Member for Nottingham East would require, to pay in accord with MPC members’ pay. That is not the right approach.

Amendment 71 raises similar concerns. The remuneration of PRA board members is determined by the Bank. The amendment states that the Treasury must approve the board members and their pay. I do not support the amendment.

Yet again, the hon. Member for Nottingham East objects to spaghetti—to interconnections at one level—but wants to introduce more interconnections, through the amendment, by blurring the lines of responsibility. It is clear that, as a subsidiary of the Bank, the PRA will be accountable to the Bank’s governing body—the court—on administrative matters. The court will approve the PRA’s budget and ensure that it is providing good value for money. Consistent with that, the court will also set the remuneration of directors. Giving the Treasury an additional role would muddy the lines of responsibility and accountability and undermine the court. It is vital that there is responsibility.

In conclusion, one issue that has—

George Howarth (Labour, Knowsley)

Order. We are just checking whether a Division is cancelled.

Mark Hoban (Conservative, Fareham)

I am sure that no hon. Member on the Floor of the House would want to interrupt the remarks of my hon. Friend the Member for Staffordshire Moorlands with a Division.

It is vital that there is proper accountability in respect of how money is spent. One thing that we are introducing in the Bill, which was not in the previous legislative regime, is a statutory role for the National Audit Office with regard to the use of its funds. That significant improvement will provide reassurance not just to Members of Parliament, but to those people who pay their fees to the regulators. That money is spent carefully and wisely.

People in the financial services sector want to know that their fees are being spent wisely, but they also want to know that good quality people who know what they are doing have been recruited. We need to give the court the power to do so.

Chris Leslie (Labour, Nottingham East)

The Minister is multi-talented: he can be in Committee while simultaneously estimates tabled in his name are being debated downstairs on the Floor of the House. What a fantastic, multi-talented Minister. He was slightly spooked by the idea that there might be a Division on his business, but juggling and keeping the balls in the air, as he does, is an impressive skill.

I am saddened by the Minister’s rather prosaic defence of the Bank’s remuneration and pension arrangements. He said that pay needs to be sufficient but not excessive. That is a classic politician’s comment, if ever I heard one. I asked whether he thought that the pension scheme—the 30% supplement—was right or wrong, but he did not exercise his opinion in that regard.

The Minister castigated us for suggesting that the Treasury should have a level of approval on some pay and remuneration arrangements in public bodies, when of course the Chief Secretary to the Treasury has been hauling in every chief executive of a public body, wanting to sign off—micro-manage, as the Minister might put it—pay and conditions above a certain threshold. We were trying to take his lead, but he rebuffed us with his argument.

I welcome NAO oversight, which is an important, worthwhile step forward in respect of the stewardship of money by the regulators. We will be talking about issues to do with that later.

I do not think that having some sign-off from Her Majesty’s Treasury on such matters would blur the lines of responsibility. These are public bodies and ultimately they should be accountable to Parliament. I am not trying to constrain the Bank in varying FPC members’ terms and conditions, but if we end up with an FPC that remunerates at a far higher and more generous level than the MPC, people might infer that one committee is more important than the other. We might even end up with a trade-off, with one committee asking for more money and vice versa. I wanted to get a sense of the Minister’s perspective, but he does not want to get too embroiled in the situation, so we will have to leave it at that for the time being. I beg to ask leave to withdraw the amendment.

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 25, in schedule 1, page 169, leave out lines 35 to 37.

Schedule 1 provides for what happens at FPC meetings. Members will recall that one of the FPC members must be a Treasury representative, but under paragraph 11(7)(a),

“At a meeting of the Committee…the Treasury’s representative may not vote”.

I suppose that is fair enough and we will go along with the provision as there is a pretence of independence for the FPC. However, under sub-paragraph (7)(b),

“anything done by the Treasury’s representative is to be disregarded in determining under sub-paragraph (4)”,

according to which, the person chairing the FPC meeting

“must seek to secure that decisions of the Committee are reached by consensus wherever possible.”

The chair must try to conduct the FPC meeting so that members reach consensus, but the Treasury representative might put a hand in the air and say, “Please may I speak?”. That representative is not allowed to vote, but might want to make an opinion known, saying, “The Chancellor thinks this, that or the other.” According to the Bill, if there is a disagreement and the Treasury representative voices a concern, it is to be disregarded and is not to be classed as part of the consensus arrangements.

We are back to the old issue: the Minister thinks in the box, and he thinks that the box must have high walls and compartments. The FPC must be rigidly separate from Her Majesty’s Treasury and there should be no read-across between the two. Even if the Treasury voices a doubt about a particular decision, there should be no attempt to reach a consensus opinion. The Treasury representative does not need to be included in characterising whether a consensus has been reached.

I find the provision strange. I understand why the Minister would not want to allow the Treasury representative a vote, but it seems perverse to write into primary legislation that there cannot be an attempt to reach a consensus with that representative. I know that Ministers have referred to the difficulties caused by blurring lines of accountability, but we need some common sense read-across between the key actors and institutions in our economy. I do not understand why the provision is necessary. It should be possible to strive for a consensus, and if one cannot be reached, the FPC has the vote. The Treasury representative may disagree, but it is strange to disregard the Treasury view.

Mark Hoban (Conservative, Fareham)

Does the hon. Gentleman think that the Treasury member should have a vote in the FPC?

Chris Leslie (Labour, Nottingham East)

No, I have said that we should keep subsection (7)(a). It is the point about disregarding the Treasury view in reaching a consensus that I find strange. I do not see the point of the Treasury being represented there at all if its view is essentially to be disregarded. It is not even allowed to exercise influence through debate or discussion. Sometimes I get the same impression about being on this Committee—but I am being facetious. Obviously, there is a purpose in Opposition Members being here.

I want to get the Minister’s view. What is the point of having a Treasury representative there if their view is to be disregarded for consensus purposes? That is the point of the amendment.

Mark Hoban (Conservative, Fareham)

The hon. Gentleman’s answer to my intervention demonstrates one of the problems with his position. It is not the case that we do not want the Treasury representative to influence or shape the committee’s decisions. We do. That is the point of having a Treasury representative there. They are not there as a passive observer but to contribute to the debate and discussion and share with the Committee their own experience and view of what is happening.

However, sharing that view and helping shape the debate is different from the FPC’s decision-making process, which is where voting comes into play. The FPC can take a decision in one of two ways: by consensus if possible, and by a vote if not. In practice, a decision taken by consensus must have the support of, or at least not be opposed by, all the voting members.

If we allowed the Treasury representative’s opinion to be taken into account when determining whether consensus has been reached, what would change? If the Treasury representative agreed with the rest of the committee, the decision would be the same, but if the Treasury representative’s view was contrary to that of all other members, the decision could not be passed by consensus. In effect, the Treasury would be vetoing any attempt by the rest of the FPC to reach a decision by consensus. It would then pass to a vote, and if all the voting members agreed, the decision would be taken.

It is about the procedural process of decision making, not the FPC’s debate. If the hon. Gentleman believes, as I do, that the Treasury representative should not have a vote, the representative’s opposition to a particular course of action should not prevent all voting members from seeking a consensus. That is what we are seeking to enable. To be clear, in the process of the committee, the Treasury representative may participate in the discussion freely and on an equal basis with other members. The provision will not prevent that from happening.

Chris Leslie (Labour, Nottingham East)

I know that Her Majesty’s Treasury and the Government have a problem with the concept of a veto, but the Minister must accept that if the Treasury representative is not allowed a vote but merely allowed to express an opinion, the representative will not be able to veto the committee’s proceedings. Therefore, I do not see his objection to allowing the Treasury’s voice to be heard in the consideration of a consensus.

Mark Hoban (Conservative, Fareham)

I do not have a problem with it. In fact, I want the Treasury’s voice to be heard in the discussion. What I am saying is that a consensus should be a consensus of all voting members, not of all voting members and one non-voting member. We want the FPC to come to a consensus as a committee. That can only be a consensus of voting members, which is why the Treasury representative will be ignored when it is asked whether all members of the FPC agree with a measure. That is not to say that he cannot participate in the debate—I suspect that he will participate fully—or help shape the committee’s views, but he will not have a vote. He will not be part of the consensus of voting members, because he does not have a vote.

The hon. Gentleman and I agree that the Treasury representative should not have a vote. When determining whether there is a consensus of voting members, what the representative says should not be taken into account as forming part of that consensus. I am trying to think of the right way to say this without sounding very critical. It is a slightly pedantic point of procedure to dwell on, but it does mean that the FPC can reach a decision by consensus of all voting members.

Mark Durkan (Social Democratic and Labour Party, Foyle)

Will the Minister give way?

Mark Hoban (Conservative, Fareham)

I will not give way because we should move on to slightly more substantive and interesting issues. It is just a way of trying to deal with the process within the FPC. It does not in any way prevent the Treasury representative from having a very strong and vigorous view in this matter.

Mark Durkan (Social Democratic and Labour Party, Foyle)

Our problem is not in relation to the Treasury representative not voting; nobody believes that they should vote. The problem is the strange wording of sub-paragraph (7)(b). It is not even anything said or any view expressed by the Treasury representative, it is

“anything done by the Treasury’s representative”—

which

“ is to be disregarded in determining under sub-paragraph (4) or (5) whether there is a consensus.”

Does that apply even if the Treasury representative is making facial expressions, such as frowns, raised eyebrows and other gestures of disapproval or dissent, so that it is not even just what is recorded? It is strange this reference to “anything done”. Will the Minister clarify this reference to

“under sub-paragraph (4) or(5).”

Is that an attempt to ensure that the Treasury representative not only does not have a vote, but does not even influence whether or not there is a vote? Whoever is chairing the meeting will hopefully decide that there is consensus, but if they decide that there may not be consensus, they can put it to a vote. Is the reference to sub-paragraph (4) or (5) an attempt to ensure that the Treasury’s representative does not even influence whether there is a vote? Is that to protect the clear and total discretion of the Chair in that regard? Is that what that strange wording is about? The reference is made specifically to the Treasury representative not being part of the decision as to whether or not there is consensus. That seems strange and peculiar, and the amendment is there to flush it out. It is very awkward wording. There could be better ways of achieving that. Sub-paragraph (b) could simply say that the views of the Treasury representative will be disregarded by the Chair in determining whether or not there is consensus before putting it to a vote. There could be a better and simpler way to deal with that. It is very awkward wording. It is bound to give rise to the question of why the board of legislators did not ask questions about such odd wording.

Chris Leslie (Labour, Nottingham East)

My hon. Friend the Member for Foyle makes an important point. Ministers may think that joined-up Government is an old-fashioned concept, but we need to recognise that the Treasury has a key role to play in the stewardship of our economy, as does the Bank of England. We have to ensure that there are the correct synaptic connections between those institutions. One such connection is the role of the Treasury representative on the Financial Policy Committee. It is not the case that a consensus is only visible if a vote is taken. A consensus may be visible before a vote is taken. Let us imagine a situation in which the Treasury may feel strongly about a particular issue, but is not able to override the FPC in that particular way. It may want to ensure that the members of the FPC have pause for thought on a particular measure in which case it may be necessary for the Treasury to prompt a vote among members of that Committee by encouraging them to take a different view or to consider a different set of opinions. The Minister has conceded that this is not a one-way street process. He says that the Treasury representative is not a passive observer, but is there to contribute to a debate. That is a positive commitment by the Minister.

Mark Hoban (Conservative, Fareham)

May I try to draw these proceedings to a conclusion by suggesting that what I might do is get the parliamentary counsel to see whether there is a better way of wording this particular aspect so that we can deal with some more substantive issues?

Chris Leslie (Labour, Nottingham East)

I would be delighted if the Minister did that. That is a phenomenal achievement. I particularly thank my hon. Friend the Member for Foyle. With that helpful suggestion I should be delighted to beg leave to withdraw the amendment.

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 26, in schedule 1, page 170, line 42, at end insert—

Sheila Gilmore (Labour, Edinburgh East)

Perhaps the Government are anticipating the outcome of a referendum in Scotland or a similar referendum in Wales, in which case they are pre-empting the will of the Scottish people.

George Howarth (Labour, Knowsley)

We do not need to debate that question too far.

Chris Leslie (Labour, Nottingham East)

It would stray beyond the remit of the amendment. It had not occurred to me that that might be the Government’s motive. We are talking about the Bank of England, which is a bit anomalous in some respects. Why on earth would the Minister not also extend that disqualification to MSPs or Members of the National Assembly for Wales or, conversely, allow Members of the Northern Ireland Assembly to become members of the FPC? That would in a sense treat the devolved Administrations equally. The amendment was designed to probe why this particular combination has been chosen. When I asked the Library to clarify this arrangement, it was similarly baffled. It could see none of the disqualifications for Scottish Parliament or the Welsh Assembly and it could not shed much light on this. I should be grateful if the Minister could explain.

Mark Hoban (Conservative, Fareham)

It is quite straightforward. The answer is in the title of both the amendments and paragraphs 4 and 5 of part 2. The disqualification for this House and the Northern Ireland Assembly is done by an Act of Parliament. Disqualification for Members of the Scottish Parliament and the National Assembly of Wales is done by order. So orders will be passed to ensure that members of the Scottish Parliament or the National Assembly for Wales are disqualified. It does not need to be done through primary legislation.

Chris Leslie (Labour, Nottingham East)

I am very surprised. Just because something does not have to be done by primary legislation, does not prevent it from being done that way. The Minister rolls his eyes as though this is such an obvious issue. He may well have a phalanx of 300 officials in his Department poring over and writing every jot and tittle of the notes that he reads out, so eloquently may I say, but for those of us who are not staffed to the same degree, it is not quite so easy to discern these things. I personally think it would have been fairer and more transparent for all of those disqualifications to have been in the Bill thereby not insulting members of the Northern Ireland Assembly for thinking they were singled out among the devolved Administrations for disqualification. I am sure that their feelings, having been hurt in that way, can be soothed. It is helpful to have that commitment from the Minister that orders will be brought so I shall expedite proceedings. I beg to ask leave to withdraw the amendment.

Chris Leslie (Labour, Nottingham East)

For the sake of making some progress in the Committee, we do not need to spend much time on schedule 1. We know that these are the standing orders of the Financial Policy Committee, terms of appointment, disqualifications and so forth. These are relatively uncontroversial, fairly administrative arrangements, so I am happy to support schedule 1 as part of the Bill.

Clause 4 - Further amendments relating to Bank of England

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 23, in clause 4, page 14, line 36, at end add—

‘Within a year of commencement of this Act the Bank of England shall publish a review of the effectiveness of coordination by the regulators of the exercise of their functions relating to membership of, and their relations with, the European Supervisory Authorities (namely, the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority), and their relations with other regulatory bodies outside the United Kingdom.’.

Clause 4, which is small and perfectly formed in many ways, seeks to enact schedule 2 of the Bill, which is slightly longer. The amendment we seek to add to the one line of clause 4 is simple and straightforward. The draft Bill, as it first appeared, was rightly changed by the Minister to require in clause 62 that an international co-ordination memorandum of understanding should establish a committee under the Treasury’s chairmanship to report to the Chancellor, with members to include the FCA, the PRA and the Bank, all with the aim of agreeing consistent objectives and effective international engagement. That was called for by the pre-legislative scrutiny Committee and is one area where the Government decided to move in response. I welcome to an extent the changes made.

There are still concerns about the Government’s understanding of the importance of integration with the regulatory structures of the EU and beyond. Again, I think this is an important part of the Bill. I suspect that the Chancellor of the Exchequer when in Opposition had a cunning plan for redrawing the regulatory systems of the UK, pouring a considerable amount of opprobrium, not just on the previous Administration but on the Financial Services Authority. He chose to divvy up the task between the PRA and the FCA in this particular way. I suspect he forgot at the time the overriding—in many cases—and senior powers of the EU in financial services regulation.

We are labouring under the pretence that the regulators that we are creating domestically are sovereign, when in fact they are subject not only to directives from the EU but can be overridden by EU regulations emanating from Commissioner Barnier or other directors general in the Commission. That is a crucial point; I know hon. Members of all parties have concerns about it. We have expressed our concerns about the Bill not properly appreciating the impact that macro-prudential measures have on growth and jobs. We have expressed our concerns about parliamentary accountability and so forth.

Another big, glaring problem with this piece of legislation is the mismatch between how these structures are being formed and the regulatory superstructure with which they will have to engage at the European level. As we can see, the European supervisory authorities have decided to split their regulatory approach in a distinct and different manner. They have gone for a thematic approach—banking, insurance, securities and markets—whereas that is not the case in the UK. We can argue about whether that is right or wrong, but the British Government are not doing a massive amount to change the European arrangements as they are set out.

We know from the pipeline of directives and regulations coming from Commissioner Barnier and others that much, if not the majority, of the regulatory agenda is being set by the European Commission. There are also significant concerns that the domestic regulators—the Bank, the PRA and FCA—can simply have their concerns washed away by the flick of a series of pens in the European Commission and have their views overridden.

It is crucial therefore that we have mechanisms in the Bill to not just adequately interface with the European arrangements, but to steer and shape those decisions. So far, I have not been convinced by anything that the Minister has said that the regulatory arrangements that we are putting in place domestically are going to be influencing or steering the decisions at European level. In fact, I am worried that they will constantly be playing catch-up and that there will be confusion and muddle about which of the domestic regulators will be attending the various councils and meetings of the European supervisory bodies. I know for a fact that Government Members will secretly share some of my concerns.

Mark Hoban (Conservative, Fareham)

May I just be clear about what the hon. Gentleman is arguing? Rather than the set of reforms that we have in front of us, is he arguing that we should introduce three regulators: one to match EIOPA, one for ESMA and one for the EBA?

Chris Leslie (Labour, Nottingham East)

No, I am arguing in favour of amendment 23, which states that there should be

“Within a year…a review of the effectiveness of coordination”

of the regulatory arrangements with the European Union. That is the argument that I am making. I thought I was making it in a pretty modest way so that I could try to entice the Minister to support our amendment. Ultimately, that is my objective. Given his willingness to consult parliamentary counsel on an earlier amendment, perhaps we are on a roll here. Perhaps the Minister will concede this particular point. I would be grateful if he did.

I am not simply voicing my concerns; others have voiced them as well. For example, in its briefing on Second Reading, the British Bankers Association stated:

“We believe that it is in the interests of the UK to act in partnership with other Member States through the European Banking Authority and the European Systemic Risk Board to make the case for flexibility in specific areas of the rule book”.

It is envisaged that the capital requirements regulations

“in relation to the risk-weightings attached to residential mortgage lending”

will need attention. In its briefing, the City of London stated:

“the PRA/FCA judgement-based approach may conflict with the move to a single rule book and supervisory convergence at the level of the European Supervisory Authorities, which the industry broadly supports.”

So the industry itself is trying to ensure that there is some harmony and consistency in the rule-making approach. The Corporation of London says that it has concerns about conflict.

The CBI stated:

“There must be a joined up approach between the new regulatory bodies (FPC, PRA and FCA) and between the UK regulators and their EU counterparts... it is also vital that the regulators are able to influence the European regulatory regime. To do this, they must actively engage with the European debate.”

Barclays bank stated:

“The PRA and FCA must be mindful of European law and must ensure the UK maintains sufficient influence with global and EU developments. Whilst we are supportive of the principle of ‘judgement based’ regulation, care must be taken to ensure that decisions do not clash or overlap international rules and that firms face consistent and predictable decisions.”

I accept that the Minister has moved to a degree by trying to clarify the spaghetti—is there now a quartet of various players?—of regulators and players that he is creating.

The multiple layers of European regulation add even more complication. Which member of which UK regulator attends which European supervisory arrangement? There was some discussion, which I think related to ESMA, of the FCA having a representative in the chair. As soon as prudential issues arise, the FCA representative has to leave the room, or at least vacate the chair, and allow a different UK representative to sit in their seat to make the case on prudential matters. What sort of signal does that send to other European partners, who are trying to forge relationships with 27 other countries, if the UK representative is not a consistent player in those circumstances?

I am pointing out only one anomaly that might exist, and the Minister should acknowledge that there are deficiencies that must be addressed. He has done so implicitly with the concession in clause 62, but it would be complacent of him to feel that there were no lessons to be learned from this new spaghetti of public bodies that he is creating. A year down the line, it might be advisable to consider whether we can improve the co-ordination of the arrangements.

This issue is particularly pertinent now because there are rumours, which the Minister may wish to confirm or deny, that the Government are going soft on the implementation of the Vickers independent banking commission recommendations, particularly with respect to the 10% core tier 1 recommendation, which the Government had, I thought, accepted. I may be wrong, but the rumours are that the harmonisation efforts led by the French, and by Commissioner Barnier in particular, to ensure that there is not regulatory arbitrage between different countries may mean that 10% is too high a capital buffer and that the arrangements need to be rounded down. It would be helpful if the Minister confirmed whether the Government still believe in the 10% threshold, and whether they still believe that that is achievable through negotiations. As it stands, the consensus of opinion across the 27 other countries and the European regulators may be against him. We need that important clarification, so I would be grateful if the Minister addressed that point, said why he does not think we should reveal the effectiveness of these arrangements within a year, and clarified which members of the PRA or the FCA will sit on each one of the European bodies. This is an important amendment and crucial to whether the Bill will succeed.

Mark Hoban (Conservative, Fareham)

I appreciate the vigour with which the hon. Gentleman wanted to attack this matter, but it is a pity that he has not read to the end of the policy paper we published in January. On page 119, it states who is in the voting chair when it comes to the EBA, ESMA and EIOPA. It is there for everyone to see. It does not require much work to get there. For example, on EBA it is PRA, on ESMA it is the FCA, and on EIOPA it is the PRA. The reality is that there is not a perfect match between European regulators, even as it is now. For example, on EIOPA, yes, the FCA is represented, but it has to talk to the pensions regulator. On ESMA, the FCA has to talk to the FRC and the takeover panel—just as it was under the previous Government. There is nothing novel about this. The reality is that different member states have different configurations. We are adopting what is casually referred to as a twin peaks approach to regulation. The same happens to be the case in the Netherlands as well, for example. People will configure their own domestic arrangements to reflect what they think are their priorities and will work on their interrelationship with other European bodies as is appropriate.

The other point I would make is this. We have listened to the pre-legislative scrutiny Committee. The international co-operation MOU is in the back of the policy paper published in January. It is important that those who have a voice in the European regulatory process are able to exercise it. That is why we will have a committee set up under the chairmanship of the Treasury and reporting to the Chancellor. It is that committee that will undertake any reviews, as it will do on an ongoing basis, rather than the Bank of England undertaking its own review. I am not quite sure what the role of the Bank of England is in what the hon. Gentleman proposes. It is best that the committee we are establishing works on the effective co-ordination.

I have no idea where the hon. Gentleman’s point about the FCA having to vacate the chair at ESMA comes from. It is not the case. I also have no idea where these rumours have come from about watering down the 10% additional capital required by John Vickers. The hon. Gentleman should perhaps be careful to whom he listens in future. I am happy to offer clarification on that matter for him today.

Co-operation is as vital now as it will be in the future. We are collectively playing a strong role in shaping European regulation. The MOU and the committee will help that. The amendment is not particularly necessary or helpful. However, I assure the Committee that one area that the new committee will keep under review is how well people work together in this area.

Chris Leslie (Labour, Nottingham East)

I am delighted that the Minister has said so categorically that the Government stick solidly behind their commitment to the implementation of the Vickers commission—the independent commission on banking. That is a very clear commitment from the Minister. I am sorry for even doubting that that might be the case, but rumours abound with such things. It is good that they have been scotched by the Minister today.

I am also grateful to the Minister for pointing out that I was wrong in my impression that there needed to be a bit of musical chairs between the PRA and the FCA when attending various European regulatory meetings. I had been under the impression that there were circumstances in which FCA representatives would need to stand up and move out of the chair they were sitting in and PRA representatives would need to come along and take their particular point of view. We now know that the FCA is able to take a lead on any prudential matters that come up at the European Securities and Markets Authority. That was a very helpful clarification from the Minister. I am sure that the chief executive of the FCA will be delighted to hear that statement.

The Minister says that it is not currently a perfect match. I can see that that is the case, but we are creating a multiplicity of regulatory bodies. We are even creating another new committee to co-ordinate those regulatory bodies. Let us consider the situation. We start at the top with the supervisory authority. There is then a banking authority, a separate securities and markets authority, and a separate insurance and pensions authority. There is then a Prudential Regulation Authority, a Financial Conduct Authority and a co-ordinating committee between all those—the FPC. And let us not forget the Treasury, the MPC and so on. The list is not exactly an inspiring, clear set of decision-making arrangements. I can see this being a recipe for chaos.

All I am saying is that we want a review. I do not necessarily think that a further committee will always help with these things. However, the Minister has made that concession in relation to clause 62. It was not asking the earth for the Government at least to have a review of whether we can improve these arrangements after a year. These are serious issues that are happening. What did we see yesterday? The insurance company Prudential voicing its worries about the solvency II arrangements. To what extent will the Minister do what is necessary to stand up for British interests in those European forums where he needs to be negotiating the conclusions of the solvency II arrangements? These are crucial issues, including the capital requirements directives and so on. These are areas of policy where European writ in many ways overrules the domestic arrangements, so it is important that we get that interface right.

Jesse Norman (Conservative, Hereford and South Herefordshire)

Since the hon. Gentleman has been relying on rumours and media tattle about Prudential for his evidence, he might consider that solvency II will apply wherever Prudential locates itself. Can we please stick to the point?

Chris Leslie (Labour, Nottingham East)

I am sorry if the hon. Gentleman finds this debate a little tiresome. If he wants to just leave his seat, nothing is stopping him from doing so. He is perfectly able to leave the Room and go wash his hair or powder his face—whatever he wishes to do. If he is here and he wants to take part in the debate, I would welcome a more substantive contribution than, “Please can you shut up.”

The warnings from Prudential are serious and need to be listened to. I hope that it does not leave the UK and relocate to Hong Kong. In many ways, however, the test will be whether the British Government and, by extension, the British regulators, succeed in getting the right balance of decisions at those European forums. If they cannot do that, we have to transpose and even implement those regulations straight away. These are not my concerns; I am simply voicing those of others: the British Bankers Association, the Corporation of London, the CBI and Barclays bank. There are concerns across the financial services sector. It would have been perfectly possibly for the Minister—even voluntarily, without writing it into the Bill—to say, “We will concede and review within a year.” The Minister, however, cannot even bring himself to do that. We will press the amendment to a vote, to put this point to the test.

Schedule 2 - Further amendments relating to Bank of England

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 27, in schedule 2, page 171, leave out lines 26 to 28.

The amendment, which is probing, proposes the omission of what is intended to replace paragraph 6(1) of schedule 1 to the Bank of England Act 1998:

“The fact that a person has held office as Governor of the Bank does not disqualify that person from appointment as Deputy Governor or director of the Bank.”

In many ways, this is the Putin clause. A Governor, having served—in this case—an eight-year term, might be slightly frustrated and might want to continue to exert power over the Bank of England, and so thinks, “Aha, here’s a cunning wheeze, I’ll serve as a deputy governor of the Bank, and perhaps swap positions with another deputy governor, and who knows what might happen in the future.” The Russian Prime Minister and President have sought to do much the same in recent years—perhaps a parallel can be seen.

When a powerful, imperial figure seeks to take a deputising role, the dynamics within an institution used to that dominant and firm stamp of authority might be difficult. Can the Minister justify opening that particular box and being so specific in allowing a person who has held office as Governor to hold office as a deputy governor? Given that we are moving towards a single term for the Governor, rather than terms of reappointment, is it not more sensible to say, “Once you have been Governor of the Bank of England and your term expires, that’s it. Thank you very much for your service, here is your carriage clock, we appreciate your many hours, days, months and years of contribution, but that is it”? But under the Bill, it is entirely possible that he or she could serve as a deputy governor.

Can the Minister explain why the provision is in the Bill? Is he aware that some cynics might worry about the continuing power dynamics? Indeed, the British Bankers Association has picked up on the measure. [Interruption.] The Minister raises an eyebrow at that suggestion, but the BBA said:

“We were surprised...to see the provision at paragraph 1(6) of Schedule 2 proposing that paragraph 6”

be substituted with that provision. It continued:

“It is not immediately obvious to us the reasons why a Governor should become a Deputy Governor after serving an eight year term as Governor or the circumstances in which this would be appropriate.”

Can the Minister address such concerns and explain why the Putin clause has been put in schedule 2?

Mark Hoban (Conservative, Fareham)

I am a little surprised by the hon. Gentleman’s concern. In a slightly modified form, we are replicating what is in paragraph 6 of schedule 1 to the Bank of England Act 1998, a piece of legislation introduced by the previous Government, although the original 1998 Act places no restrictions whatever on the number of terms that an individual may serve. Under that legislation, a person could theoretically switch between the posts of Governor and deputy governor indefinitely—a real Putin clause. Under the proposals in the Bill, that will not be the case, so the concerns of the hon. Gentleman are misplaced.

The existing paragraph 6 of schedule 1 to the 1998 Act clarifies that:

“The fact that a person has held office as Governor, Deputy Governor or director of the Bank does not disqualify him for re-appointment to that office or for appointment to any other of those offices (subject to paragraph 1(3) and (4)).”

The original wording, therefore, creates a slightly Putinesque rotation policy. Paragraph 1 of schedule 2 to the Bill, however, restricts future Governors to a single term of eight years, so the wording in the original paragraph about reappointment is clearly not appropriate, while the cross-reference to paragraph 1(3) and (4) no longer works. Paragraph 1(6) of schedule 2 will amend schedule 1 to the 1998 Act to remove cross- references to the Governor being reappointed and update the cross-references. However, that does not change the practical effect of existing legislation, which is to clarify that a person who has held office as a member of the court in one guise is not prevented from being subsequently appointed to another.

The most obvious example of that is a deputy governor being subsequently appointed as Governor, a career path that a good number of Governors, including the current one, have taken. Other permutations are possible. A former deputy governor or Governor could be reappointed to the court many years later as a non-executive director of the court, or, in the other way around, a non-executive director of the court could, later on in their career, seek appointment as a deputy governor or Governor. It is also theoretically possible for a Governor to seek appointment as deputy governor after they have served their term as Governor, but that is highly unlikely in practice, as it would effectively be a demotion.

In any case, the term limits for deputy governors and Governors are absolute. Paragraph 1(3) states that a person cannot serve more than two terms as deputy governor and one term as Governor in their lifetime, regardless of the order in which those terms take place. A Governor who has served two terms as deputy governor before being appointed a Governor cannot seek appointment for a further term as a deputy governor. Term limits cannot be reset.

Chris Leslie (Labour, Nottingham East)

Cutting and pasting provisions from the 1998 Act into the Bill will invariably mean that certain provisions read across. I was surprised that the Minister was updating the provision to allow a Governor to serve as a deputy governor. That is a specific point.

If we are now moving, as an important point of principle, to a fixed single eight-year term for the Governor, does the Minister seriously envisage circumstances in which the Governor would continue in a role such as that of deputy governor? Is now not an opportunity to remove that anomaly from the Bill?

Mark Hoban (Conservative, Fareham)

I agree with the hon. Gentleman that it is not likely at all; I would be surprised, as I said, as it would be a demotion. However, we are not ruling out that possibility, just as we are permitting a member of the court to seek appointment as a Governor. A member of the court may also decide to become one of the deputy governors. It is merely a permissive piece of legislation; we are not ruling it out, but we do not think that anyone is likely to do it.

I do not know who christened the proposal “a Putin clause”. It will be impossible under the Bill for someone to recycle endlessly between two terms of deputy governor and Governor—return to two terms of deputy governor, and then become Governor again.

Matthew Hancock (Conservative, West Suffolk)

It is probably important to note that Putin has not yet recycled into the presidency. It is only in the febrile imagination of someone trying to dream up amendments that the proposal is a Putin amendment. After all, is it not the Crown who appoints the Governor and deputy governors? Therefore, it is not in the gift of the Governor to become deputy governor, unless so appointed.

Mark Hoban (Conservative, Fareham)

My hon. Friend makes a helpful point. The deputy governors and the Governor are appointed by the Crown, so even if it were possible for a Governor to do a Putin, the Crown could block that appointment, so it will not become self-perpetuating at the whim or discretion of a Governor. It is clear that there will not be endless recycling, and I hope that that allays the concerns of the hon. Member for Nottingham East.

The rest of the debate is in Hansard.