Examination of witnesses (Questions 20
- 39)
TUESDAY 12 DECEMBER 2000
BARONESS NOAKES,
MS B BLOW,
SIR IAN
GIBSON, CBE, MRS
F HEATON, and MS
S MCKECHNIE,
OBE
20. So you are saying the number specifically
of monetary analysts has been met and the issue is now retention.
(Baroness Noakes) Fundamentally that is the case.
21. May we move on to retention of staff and
read the Financial Times at the end of November? We understand
that the Court has hired International Survey Research specifically
to look at staff morale. That is clearly a concern. When did you
decide to employ that particular outfit and how long had you been
concerned about staff morale before you actually engaged International
Survey Research?
(Baroness Noakes) The decision was actually a recommendation
made to Court by the executive of the Bank to carry out a survey.
It was not something Court thought up all by itself; it was the
executive members of the Bank who had been concerned about the
morale in the Bank for some time. We have had a number of discussions
in Court about staff matters generally. You will be aware that
a new benefit system has been introduced over the last year. There
have been a lot of changes in the Bank over the last two or three
years, starting with when the FSA took chunks of the Bank away
and there were a lot of consequential changes within the Bank.
I know the executive of the Bank have been conscious that morale
has been an issue that has been troubling them and in the light
of that they brought in a recommendation that that should be carried
out. That is a broad concern about bank employees having gone
through a huge period of change. You started the question in the
context of Monetary Analysis and a much newer and younger staff
who will not necessarily—I do not know—have the same
concerns as some of the members of staff who have been there a
long time, which is where many of the concerns were initially
coming from. They will not be excluded from looking at what the
morale of staff is. We hope the current exercise will try to identify
what the problem areas really are so that the Bank executive can
then devise strategies to overcome the particular areas. I suspect
there will be different problems in different parts of the Bank;
that is what you normally find.
22. You must have some idea which clearly this
piece of work is going to quantify as to what some of the broad
issues are in terms of impacting on staff retention. Would any
of you like to comment on some of those areas which you might
see as issues, for example the attitude of senior management?
Is that an issue?
(Ms McKechnie) I would comment as a manager here.
The Bank has been through an enormous process of looking at its
contracts of employment and bringing them up to modern standards
and that is a process which as anyone who has ever done it knows,
will cause problems because people get very attached to certain
kinds of benefits. The Bank traditionally has tended to "grandfather"
things but had got to the point where it just could not move forward
without actually having a fundamental review. What has happened,
as always will happen, is that some of the staff whose conditions
have been changed are very unhappy about it and six of them ultimately—six
out of over 2000—said they did not want to accept the new
contracts. To then conclude from that that there is some fundamental
problem would be a mistake. The problems in monetary analysis
certainly in the article you refer to in the FT got very confused
because actually the issue of the contract was much more in the
other areas of the Bank than in Monetary Analysis. Monetary Analysis
was to do with recruitment and retention of sufficiently qualified
economists in a very tough marketplace where the Bank clearly
is having difficulty in competing with the rewards which are offered
in other areas. It is a fairly common problem with any Government
institution operating in a very competitive employment market.
23. If we just stick with general morale for
the moment and this piece of work, how long is this work going
to go before there are some results? Is it over six months, a
year or is it something you want some information on fairly rapidly
and then we shall be acting on that?
(Baroness Noakes) To be honest, I am not really aware
of what the timetable is. I should be surprised if it were longer
than six months before a report came back to Court; I should be
very surprised if it were longer than that. I know the executive
management are very interested in trying to bottom out what the
nature of staff's concerns is, what the depth of the concerns
is, all those things. We shall be guided by them. This is something
that they want to do because it is part of good management.
24. Will you let this Committee know how long
this piece of work is intending to last and when you expect the
report back? That would be quite helpful.
(Baroness Noakes) Certainly.
25. I take the point that you have now separated
out the concerns surrounding monetary analysts and the general
problem of a lack of morale. Going back to retention of monetary
analysts and competing in a fairly tough marketplace, what kind
of approach and policies will you be implementing to ensure as
much as possible that you do actually retain these highly prized
professionals in the marketplace?
(Baroness Noakes) You are trying to prejudge the outcome
of the work which is going to go on to identify what concerns
staff. I do not know what concerns them. I could speculate but
we are not in there working so we do not know. I do not think
it is really sensible to try to speculate what we think might
be the outcome and then devise strategies to meet that. We must
wait until we get the feedback from people who are trained to
elicit the feedback from staff and then look for what the executives'
suggested response to that is. Unfortunately we are talking about
waiting a few months.
(Sir Ian Gibson) If we are talking specifically about
the MA people, the economists, then also we have to wait to see
the beneficial effects of some actions which have been taken by
the executive. Several steps have been taken, one in terms of
changing the employment package, including salary levels, but
also in terms of this benefits package change. Two, a new position
was invented, a new level of position, which was more senior,
which both enabled some more recruitment but secondly and perhaps
more importantly for the younger, less experienced people, said
that in the not too distant future there was some degree of career
progression for them within the Bank because they could see a
senior job within MA. There is also a degree of counselling and
followup being implemented by the executive, talking with those
people about their continuing aspirations as well as their higher
aspirations. The economist strength in Monetary Analysis was recognised
by the Bank as a key concern and took a number of actions both
line and HR management which has enabled better recruitment, which
should bring better retention and we have to see the effects of
that and we have to review it. It is significant that it is one
of the ten major objectives of the Bank to fill all the positions
in MA and improve retention. That is something which in a review
of the Bank's annual objectives the management brings before Court
for their review. We would expect to look at that quite separately
from, although perhaps with some feedback from some common information,
a general exercise in establishing morale.
Mr Davey
26. One of your tasks is to keep under review
the procedures followed by the MPC. However, the last bit of your
report in the Bank's annual report, where you sign it off, says,
"Although non-executive Directors did not attend meetings
of the Monetary Policy Committee itself NedCo has no reason to
believe that had they done so it would have altered its opinion".
Are you entitled to go to the meeting of the MPC?
(Baroness Noakes) There is nothing in the law which
says members of NedCo can attend the MPC. The MPC is a completely
separate committee of the Bank, set up by statute, and the attendees
of those are the members of the MPC and a very small number of
Bank staff and the Treasury representative. It has been the view
of the MPC that those are meetings which are intimate to them,
should be focused on their processes, that others should not attend
and no others attend other than those I have described: the members
of the MPC, the Treasury representative and a small supporting
staff. We needed to decide whether or not we wanted to insist
on attending, given that it was very strongly represented that
these meetings are meant to be interchanges amongst the MPC and
only that, not fulfilling any other purpose. We took a view that
by discussing with every member of the MPC how those meetings
worked in practice and discussing also with the Treasury's representative
how those meetings worked, and of course by looking at the minutes
of the meeting, we could gather sufficient evidence about how
those meetings actually worked in practice so that we did not
have to say we had to come in and break into this meeting where
they are trying to do this monetary policy purpose alone. We did
not feel we had to force ourselves into that because we felt we
could handle it another way.
27. Some people might find it rather odd that
your job is to review the way this particular committee is working,
its procedures, but you are not going to attend that committee.
(Baroness Noakes) The final meeting where they come
together is only one small part of the MPC's procedures.
28. The most important part.
(Baroness Noakes) We attend pre-MPC. It is the meeting
where they formulate monetary policy and that is the meeting where
they are not surrounded by banks of staff or anything like that.
These are meetings which are very closely held meetings. We had
to decide whether or not we should go into that or whether we
could obtain other evidence. Just because you are looking at the
procedures does not mean you have to obtain evidence in only one
way. We felt we could obtain evidence of how they worked by asking
all those who did attend, individually, not collectively, about
how those meetings worked in practice. We are only trying to ascertain
whether or not in the conduct of those meetings the matters were
being discussed in a way which was likely to reach the right decision,
that is that there was not perhaps a ballot going on on what the
interest rate should be, to take a frivolous example, that there
was actually a genuine discussion process. By the methods I have
described, we felt able to make the statement we have made there.
We have not hidden that we have not attended those meetings but
we believe we obtained alternative evidence. Indeed no concerns
have been raised to us to say we really should watch that for
ourselves.
29. It is partly the job of this Committee to
raise those concerns and it is one of the reasons why I am asking
you the question. It does seem prima facie rather odd that
given that Parliament has given the Court this job, to oversee
the procedures, you have decided yourselves not to take the opportunity
which is only available to you. We as the Treasury Committee could
not demand to sit in on those meetings, you are the only people
who can do that, and you have chosen not to do that. I have understood
your explanation of that but I must admit when I read the report
by Donald Kohn, which you obviously commissioned, he says on page
2 that his report "... does not include a discussion of the
decision-making procedures" and there is a footnote which
says, "In my conversations with people who do attend, these
meetings were reported to work quite well". So not only did
you not attend, but the central banker you commissioned to write
a report about the procedures of the Monetary Policy Committee
was not allowed to attend those meetings. So no-one who has been
scrutinising the procedures of the Monetary Policy Committee has
actually attended any meetings of that committee. Do you not find
that rather odd?
(Baroness Noakes) I understand that point you are
making and it is something we have discussed many times amongst
the non-executives about whether we can be satisfied with that
position given the very strongly held view of the MPC that these
are meetings which would have their purpose impaired by the presence
of external members. We regard the fundamental purpose of the
1998 Act to create the Monetary Policy Committee setting monetary
policy in an effective way rather than allowing the non-executives
to go wherever they happen to choose on a day. We see the prime
purpose of trying to make monetary policy work well and we have
concluded at the moment that no concerns have been expressed to
us about the way in which the meetings are conducted. There is
considerable transparency about how those meetings are conducted.
I know there is a detailed description in the annual report, there
have been several descriptions in evidence to this Committee and
to the House of Lords Committee about how those meetings work
and no concern has come to us which says we need to change what
we do.
(Ms McKechnie) We start from the premise that the
Act makes it very clear that the Court has no role in interest
rate decisions. Our job is to make sure that the information and
the data which the Committee has, are appropriate, that all the
questions you have been asking about that data and the quality
of the research, all of these things work, but the actual MPC
meeting itself is focused on setting the interest rate target.
That is the fundamental reason.
30. May I stop you there and read from the 1998
Act, section 16(1) "The court of directors of the Bank shall
keep the procedures followed by the Monetary Policy Committee
under review." If you are trying to do that and you are not
going to attend the decision-making meeting of that Committee
it seems rather odd.
(Baroness Noakes) We just try to obtain alternative
evidence.
31. You do not need to find that evidence, you
can go there yourself and actually see it.
(Mrs Heaton) It is a judgement as to whether or not
we go. You have had put to you the argument that the MPC members
prefer to keep their tight cadre having a very private conversation
and interacting with one another. Another reason why it could
lead to complication if members of the Court were to start to
go to those meetings is that it is very much a market sensitive
event.
32. Presumably you have been appointed to the
Court because you can be trusted with this.
(Mrs Heaton) We are all people who are in commerce
of one sort or another, whereas the members of the MPC, if they
are appointed, have to give up any commercial position, as for
example did DeAnne Julius. There would be quite a lot of ramifications
if we were to go down that route.
33. That might suggest there might need to be
members of the Court who were empowered or were asked to give
up any outside interest to enable the Court to fulfil its statutory
function.
(Mrs Heaton) If that were felt to be worthwhile, and
losing what we bring to the Court in terms of being—
Chairman
34. The fact that you have an outside function.
(Baroness Noakes) Exactly. We are only paid £5,000
a year.
Mr Davey
35. I do think this is a serious point. There
is a job laid down by statute and the Court before us today are
telling us they are not able to do that because they have outside
interests.
(Mrs Heaton) It is a judgement.
(Baroness Noakes) The outside interest point is a
decision which might affect some individuals. I should not like
to say that every single member of the Court would have a conflict
such as would stop them being a member of the MPC. That is a broad
issue of just being careful about who would attend because there
are market sensitive judgements. Our main point is that there
is not only one way to do a job and there is not only one way
to review procedures and it does not necessarily mean you have
to sit and physically observe procedures to find out whether or
not they work well. You look at all the other evidence you have
about how those procedures work, whether gathered internally or
from any other sources you have and we have had nothing which
said to us that we should go back and change the way we do that.
If evidence came to us, for example in our conversations with
MPC members, that they were concerned about the way those meetings
work, those particular meetings, and we are only talking about
the day and a bit each month, if we ever got those concerns, we
would have to look at that again. I am telling you we have never
had that.
36. May I suggest that there is a concern which
I noticed in the report by Donald Kohn, page 14? He says, "Moreover,
a number of members perceive some game playing with regard to
choices on individual assumptions; that is, members", members
of the MPC, "argue for particular assumptions not out of
conviction on those assumptions, but rather to shape the overall
outcome in a direction they are most comfortable with". You
actually said a few minutes ago the reason you thought you might
need to attend such a committee was because you might be concerned
that there was balloting, there was some sort of process which
you would want to comment on. Although Mr Kohn did not attend
those meetings, as I made clear earlier, he has clearly talked
to members who have talked about game playing, the very issue
you raised. So I put it to you that it may be that you or members
of the Court do need to attend.
(Baroness Noakes) I think what you are referring to
are the forecast round meetings. That is what Don Kohn's report
refers to, not the policy meetings themselves. Don Kohn's report
makes no specific points in relation to the policy meetings other
than the comment you quoted that they appeared to work quite well.
What you are talking about there is a series of meetings which
take place every quarter which leads to the production of a forecast
which goes in the Inflation Report. It is those meetings he was
concentrating on. That is an area where there has been a lot of
discussion about how those meetings work and a lot of changes
have taken place since Don Kohn did the work in July. He was not
referring there to an MPC policy meeting, the Wednesday/Thursday
just before the rate decision.
37. Could you tell me whether the Court is unanimous
in its decision that it should not attend the MPC meetings? Will
the Court undertake to review that decision?
(Baroness Noakes) It is a discussion which is taking
place in NedCo, the committee of non-executive directors. From
memory I believe that the position we had was unanimous that we
did not need to attend, but that we would keep it under review,
which is what we do. We probably talk about it two or three times
a year.
Mr Plaskitt
38. You said in answer to Mr Davey that you
thought your attendance at the MPC would impair the meeting. That
was the word you actually used. Is it your view that it would
impair the meeting or is that something the MPC has said to you?
(Baroness Noakes) They have probably not used those
words but the feeling was that an external presence would make
those meetings less effective for their purposes. It is that.
My view does not really matter on that. If the MPC believe that
the external presence would make their meetings less effective
for them, then that is a matter which we must take seriously.
39. It sounds as though the MPC has said to
you that they do not want you to be present at their meetings.
Is that right?
(Baroness Noakes) The argument is that they do not
want anybody to be present at those meetings.
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