Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 1-19)


26 JANUARY 2006  

  Q1 Chairman: Good morning, Sir John, and welcome to this confirmation hearing. Congratulations on your appointment to the Bank. First of all, can I ask how were you appointed to the role of Deputy Governor of the Bank of England? For example, when did the appointment process begin and what did it entail?

  Sir John Gieve: I only saw my bit of it so I cannot give you the full account of what the entire process was.

  Q2 Chairman: We are only asking you. No clairvoyance here; if you just answer the question.

  Sir John Gieve: I had a discussion with Gordon Brown and then with Mervyn King in July. At that point, as I understand it, they thought it was possible that Andrew Large would be retiring in the autumn. There was absolutely no commitment to that, they just wanted to know whether I would be interested if a vacancy arose, and they obviously wanted to talk to me; and Mervyn in particular, I guess, wanted to talk to me to see whether he thought I would be able to do the job. There was then a pause, and the next flurry of activity was once Andrew put in his resignation, I think at the beginning of October, and the week following that I talked to the Chancellor's office over the phone and I also went to see the Governor again and accepted the job. I understand that there were other discussions and other candidates were discussed, but obviously I do not know about that.

  Q3 Chairman: That is no business of ours, but the process started in July for you?

  Sir John Gieve: Yes.

  Q4 Chairman: That was an improvement in Sir Andrew's case because he was given a matter of hours to decide on that. In fact when Sir Andrew filled in his questionnaire to us[1] he stated at the time that he intended to serve out a full term. We would consider, or I would consider that that was a little white lie, that Sir Andrew did not answer the question as openly and as honestly as he could. Given that you have indicated in your questionnaire[2] that you intend to serve the full time, being five years from 16 January 2006, do you intend to serve out that full term?

  Sir John Gieve: Yes, that is my current plan; I have no other plans. I think Andrew in his retirement letter said that he had indicated at the start that five years was too long.

  Q5 Chairman: We need not go into Sir Andrew's stuff; we went over that with him. In the course of the appointment process did you indicate any thoughts on your term to the Governor or the Chancellor?

  Sir John Gieve: No, I just asked them what it was.

  Q6 Chairman: On joining the Bank of England Sir Andrew Large told us that he had a lot of homework to do. What work will you be doing over the coming weeks to familiarise yourself with the role? I know you have a past history of this in working at very senior levels with the Treasury, but is there any homework that you will undertake?

  Sir John Gieve: I am on an intensive induction programme really in three areas. Firstly, as a member of the Monetary Policy Committee bringing myself up to date with the forecasts, the Bank's forecasts, other forecasts and so on. A lot of that in the next couple of weeks is going to take place in the run-up to the decision in February, and I have just had one meeting, which was the initial presentation by the Bank's forecasters of its forecast and there are probably another 10 or 12 hours of meetings running up to the MPC. So that will be a key part of my induction there. In addition to that I have been getting briefings from the forecasters on different aspects of the way that they look at the economy. Secondly, on the FSA, I go to my first meeting at the FSA Board later today. I have asked them to arrange an induction programme which I will be discussing with the Secretary this afternoon, which will involve talking to some of the key players, but also doing some reading about the development of markets, particularly in the last five years. Thirdly, I am going to try and get out and about and meet people. Obviously compared to Andrew I have much less experience of the City and have a smaller network—I know a fair number of people but I do not know his network and I need to get out and meet them, and I have a programme of introductory meetings with my counterparts abroad and also in the financial industry and in the regions, starting next week.

  Q7 Chairman: You mentioned the FSA there, the Tripartite Committee of the Bank, FSA, the Treasury. That is an issue to which we may be returning so it is worthwhile keeping that in mind in your role with the FSA.

  Sir John Gieve: Yes, absolutely. I went to my first meeting of that—or at least my first meeting in my new role—yesterday.

  Q8 Chairman: You are very clear in your questionnaire[3] that you have worked with the Treasury and you have worked in very senior roles in the Treasury. How would you describe your relationship with the current Chancellor?

  Sir John Gieve: I worked for him until about five years ago in the Treasury; I was one of his most senior officials, first of all in public spending and then on financial institutions and regulation. I got on well with him as I have, I think, with Ministers of all parties. You have to accept, as a civil servant, that there are some decisions you take for yourself independently—they are left to you—and there are others, especially on policy and presentation, where you are working for a political Minister, and that was the assumption I worked on and we got on fine. I have not actually seen a huge amount of Gordon since I moved to the Home Office; the main meetings I have had with him have been about the Home Office budget so it has been a slightly different relationship.

  Q9 Chairman: You talk about budgets. Did you work closely with him in the 1998 and 2000 Comprehensive Spending Reviews?

  Sir John Gieve: Yes.

  Q10 Chairman: Can you give us any views on working in that relationship?

  Sir John Gieve: I thought that was a big step forward actually in the way that spending planning was done, and although in the first spending review we introduced the ideas of PSAs and explicit success criteria for main departments I think it was in 2000 that we really took that seriously and embedded that fully in the process. I think holding Spending Reviews every two years was a big move for the better. The two reviews I did under Gordon were very different because the first one was very constrained, where we were holding to the previous government's plans, whereas 2000 was the beginning of the years of expansion. So, the first one was in some ways a good deal more difficult than the second. You may have other questions on that.

  Q11 Chairman: That is fine; maybe Michael will. The Bank of England now has two former civil servants as its Deputy Governors. Will the markets and the public perceive that the Treasury is now increasing its influence over the Monetary Policy Committee and, if that is so, how do you suggest that the MPC and yourselves dispel any misconceptions?

  Sir John Gieve: The point has been made in some of the Press but I do not think it has run very strongly and I do not think it should. Rachel has been there now for several years and I do not think there is any suggestion that she is less independent of the Treasury than any other member; I think she is patently making a big contribution both to the management of the Bank and the MPC and I hope to do the same. People will have to watch the record. Actually the structure of the MPC and the fact that people have to account individually—and I will have to account individually for my votes and my opinions—is actually a tremendous constraint on any undue influence. I think the fear of that is completely unreal; I am not entering a world in which I expect to get calls saying, "Please do X" or "Please do Y" from the Treasury, I just do not think that is the way this operates. But in any event my reputation is on the line personally about whether I make the right judgments, and I understand that.

  Chairman: As far as Rachel Lomax is concerned we have seen her giving her robust views here and welcomed them and she has done it with an admirable clarity, so we do not have any problems in that Committee, but it is a question worth asking.

  Q12 Mr Fallon: Nonetheless, Sir John, you are the second very senior Treasury civil servant and ex Permanent Secretary to be appointed as a Deputy Governor. When you were there in 1997-98, was it ever envisaged at the time of the legislation in setting up an independent Monetary Policy Committee that the Committee would become a kind of retirement home for Treasury mandarins?

  Sir John Gieve: First of all, I do not think of it as a retirement home; I think of it as a very important job, picking up on the last point. I do not know what was envisaged in terms of Deputy Governors, I do not think there were any preconceptions; they wanted people there who could make a contribution to running the Bank and make a contribution to monetary policy and in my case, particularly, to financial regulation on that side of the Bank. I think the assumption was to get the best person for the job.

  Q13 Mr Fallon: But is it not unfortunate that the Chancellor appoints four external members of the Monetary Committee and then appoints two Treasury officials as the two Deputy Governors? How does that enhance the perception of the Committee as a completely independent institution?

  Sir John Gieve: All I can say is that the fact that the Chancellor appoints the external members and the Deputy Governors does not seem to have harmed the MPC's reputation hitherto. In fact you can look in the graphs, you can see the confidence effect when this regime was announced. Obviously if there was any suggestion that he was appointing placemen and the Treasury was directing policy, as it has done in the past, that could have a very damaging effect, of course it could, but I do not think that is the reality and it certainly is not the reality with me.

  Q14 Mr Fallon: Do you have a personal view on the method of appointment? Senior judges are now appointed through open competition, through an independent commission, the Bank's own non-executive directors are appointed through open advertisement. Do you not think now that it is time to open up appointments of Deputy Governor through advertisement and open competition?

  Sir John Gieve: I am in my first full week in the Bank, I have just been appointed, and I really do not think it is for me to start criticising the way I was appointed. Of course there are other ways of doing it and I think that is a question for you to take up with the Chancellor.

  Q15 Mr Fallon: But you do not have a view yet as to whether Deputy Governors should be appointed through open advertisement and competition?

  Sir John Gieve: As I say, I do not think having just been appointed under one process I should start criticising the process. Of course there are other ways of doing it and I know there have been suggestions that this Committee should play a more formal part. These are obviously key political judgments and I know you do discuss them with the Chancellor, but, actually, it is up to you; I have to work with the regime we have.

  Q16 Mr Fallon: Okay. We would like to hear your views on something. Why do you not tell us which was the last interest rate decision of the MPC with which you disagreed?

  Sir John Gieve: I do not have an answer to that. I have not followed each individual one over its life. Generally it has been remarkably successful. I come in with the inflation rate plumb on target so I think they have a fantastic track record, and I am not going to pick out one.

  Q17 Mr Fallon: Do you think there is any advantage from increasing the transparency of the Monetary Policy Committee in attaching members' names to some of the arguments that are summarised in the minutes?

  Sir John Gieve: Firstly, I do think that transparency is important and there should be a bias in favour of transparency. In fact, because the individual members give their own speeches and their own accounts and come along and talk to this Committee there is a fair degree of transparency, and in principle I would be quite interested in putting names to views. The risk is that that makes the agreement of the minutes a hugely long-winded process and leads to massive duplication and everyone puts in their page and you get nine pages repeating again and again bits of analysis, so there may be practical reasons against; but I am prepared to look at that.

  Q18 Angela Eagle: Looking at your answers to questions in the questionnaire[4] it is quite refreshing when you say that you need to do more thinking about such things as the monetary aggregates and the output gap as a measure of measuring inflation. When do you think you will be in a situation to have completed your thinking on that?

  Sir John Gieve: I do not think I will complete my thinking on it. If you ask the Governor, who has been doing this for decades, he would still be saying that he was thinking about the output gap and whether it made sense or not. In fact I think one of the last times he came here he had some new thoughts on how migration affected it. So this is not a case of doing your homework and it is done. Obviously I am just starting this job and I have not been in this field for the best part of five years and I have some catching up to do, and I would hope to do that very rapidly over the next few months.

  Q19 Angela Eagle: Is that in terms of theory or applied judgment?

  Sir John Gieve: Both actually. In the financial markets there has been a huge development of the derivative markets, for example, over the last five years and I need to better understand how that works. On the theory side the Bank has just revised its forecast model—it is state of the art, I think, very much at the moment—and I need to get a better understanding of how that works. I think it is substantially different from the model I used to know quite a lot about in the Treasury.

1   HC (2001-02) 1187 Ev 1 Back

2   Ev 9-11 Back

3   Ev 9 Back

4   Ev 11 Back

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