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Liz Blackman: Why does the hon. Gentleman persist in minimising the considerable expertise and distinction of the board members, executive and non-executive? His line of argument seems to suggest that the board is a mere puppet. That is not and will not be the case. Does he accept that argument?
Mr. Tyrie: I have not yet mentioned the board, but I promise to do so before I sit down. If I may, I shall deal with that point when I come on to our other amendments that would strengthen the hands of the non-executive directors.
The second argument made by Howard Davies and others is that to make the memorandum of understanding between the Treasury, the FSA and the Bank of England work, we must have one clearly identifiable person in charge to deal with problems if they turn swiftly into crises. It is argued that we must not have responsibility so split that nobody knows who is responsible for what. I have read the memorandum and that argument does not remotely wash.
There is indeed a division of responsibility, but the main problem with the memorandum is not a putative division of responsibility within the FSA, but the division of responsibility between three groups. It will often be the FSA's job to spot early when trouble may arise in a particular firm which may generate a serious prudential or systemic problem. It is the Bank of England's responsibility to suggest and put in place a support operation and to take any action that may be required to deal with systemic risk, which may include the adjustment of interest rates in conjunction with the Monetary Policy Committee. The Chancellor is responsible for all of that to Parliament.
Furthermore, in a provision tucked in the middle of paragraph 13 of the memorandum, which has not been given remotely enough attention, we discover that the Chancellor has the option of refusing to support a given action. In other words, he has the power of veto over the other two bodies. We have, then, real scope for confusion built into the memorandum. As yet it is wholly untested. If it is tested, I worry that it might be found wanting. That is the real division of responsibility that could create problems, not any putative division of responsibility between a chairman and a chief executive of the FSA.
The third and often heard argument is a general point about accountability--that nobody would be sure to whom they should go. That is highly implausible. It does not seem to obstruct the workings of all the institutions listed by my hon. Friend the Member for East Worthing and Shoreham. They seem to be able to cope well. Indeed, so far as I know, none of them has made representations to the effect that they want to do away with the chief executive- chairman split because it makes their work difficult. Nor, indeed, did Howard Davies seem to find it difficult with such a split when he was at the Audit Commission. When he was Controller of Audit of that powerful institution, he had a chairman above him who was looking over his shoulder and to whom ultimately he
was answerable. It is a well-established, intelligent and effective structure, not only for all businesses and many public sector bodies, but for the nearest we have to a powerful institution which has been headed up by Howard Davies.
Mr. Beard:
Having had the responsibility in the Treasury under the previous Government that he mentioned, can the hon. Gentleman say why it was appropriate to have regulators for all the public utilities--single people regulating in similar circumstances to the head of the FSA--with no equivalent chairman, whereas when it comes to a general responsibility for the City there is suddenly perceived to be a need for a chairman to provide safeguards? Why is there that distinction?
Mr. Tyrie:
There is a massive difference between a water regulator and a regulator of the financial services industry. For those who are interested, a large part of that debate took place in Committee, where the hon. Gentleman made exactly the same point. Rather than go through all the arguments now--
Mr. Beard:
Will the hon. Gentleman give way?
Mr. Tyrie:
If the hon. Gentleman will forgive me, I will not give way a second time. I should like to get on.
The Joint Committee report is unequivocal in its recommendation that for the longer term we must have a split. I do not know whether anyone has read out the exact words--
Mr. Tyrie:
My hon. Friend says that he did. The recommendation is clear. However, we should not take that as gospel or writ. It is an indication--a group of people thought carefully about the subject and came to that conclusion. We should be able to judge for ourselves. We need to ask ourselves a few simple questions. Do we really think that the head of the FSA will be hamstrung if he has a chairman above him? Do we think that foreign regulators will look down on him because he has a split role--because there is a chairman and a chief executive? Will it demean in any way our system of financial regulation? Do we think that having a split will increase problems in a financial or systemic crisis, given the huge lacuna in the memorandum of understanding which would cause that confusion and which is of far greater proportions than any conceivable consequence of the chairman-chief executive split?
The arguments are all the weaker given the drafting of schedule 2(4), which sets out the functions of the non-executive directors. I will not linger on this point for long because I want to be brief, but it is clear from the drafting that it is intended to exclude the non-executive directors from fundamental scrutiny and monitoring of the overall workings of the authority. The amendment would put that back. We are trying to act on both issues with our amendments. That must be the way forward, and I commend the amendments to the House.
The Economic Secretary to the Treasury (Miss Melanie Johnson):
As hon. Members have persisted in their remarks about amendments and the degree of change
Mr. Tyrie:
We were not here on Friday. More fundamentally, will the Minister explain why it was not possible to table the amendments a little earlier, or have the debate a week later, to give us a fortnight to consider what are serious matters, particularly as we have tried, as much as possible, to move forward on the basis of all-party agreement? Discussion of the Bill has not been highly adversarial.
Mr. Deputy Speaker (Sir Alan Haselhurst):
Order. If those matters were to be raised at all, they should have been raised under an earlier item on today's Order Paper. That debate has taken place. Perhaps the Minister might return to the substance of the amendments.
Miss Melanie Johnson:
I am forced to take that advice, Mr. Deputy Speaker, but we co-operated with the Conservative Front-Bench team. As Front Benchers know full well, there has been considerable co-operation on all these matters. I see the right hon. Member for Wells (Mr. Heathcoat-Amory) nodding.
On the issues of substance, first, there is accountability. It is important that there is a single public face of the FSA, a single chief point of contact who is accountable to the Treasury and can be called before parliamentary Committees--a single person with whom the buck stops.
Conservative Members have argued that accountability is important. I agree, but my experience is that, where roles are confused and more than one person could be said to be responsible for something--as might happen with the proposed split between a chairman and a chief executive--it can easily confuse the clear chain of accountability, blur the lines as to who is responsible for what, and create doubt as to the authority of any one person to represent the FSA and, ultimately, to carry the can, including being accountable to the Treasury and hon. Members.
Secondly, we need to ensure that there is a person with the wherewithal and authority to lead the FSA both in its daily business and in the international arena. The FSA is a major player on the international regulatory stage. We want it to stay there. That is an important aspect of its current role.
Virtually all other major international financial regulators--Conservative Members skated over the point hurriedly--are represented by full-time executive board chairmen. Those are the arrangements. They are public representatives of those organisations. It is important that the FSA is represented by a person of appropriate and equivalent stature in those arenas.
Some have suggested that the roles of chairman and chief executive could be split to reflect current thinking on corporate governance. Several Conservative Members dealt with that question, but parallels with ordinary
companies are far from exact. The combined code is designed for companies with shareholders who do not benefit from the various accountability checks and balances provided for by the Bill.
2.30 pm
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