Examination of Witnesses (Questions 340-346)|
POTTER CBE AND
8 MAY 2007
Q340 Peter Viggers: I did say "disappointment".
The Court is specifically tasked with determining whether "the
Committee has collected the regional, sectoral and other information
necessary for the purposes of formulating monetary policy".
How do you carry out this duty?
Dr Potter: Firstly, I would comment
that the Bank has a set of agencies across the country in the
different regions and countries of the United Kingdom that reports
back, by having monthly interviews in their regions or countries,
the results of the activities in their region or country to the
Bank of England in Threadneedle Street. That agency is very substantial
and important. To give you some idea, we compared the Bank of
England with the Bank of Canada and the Reserve Bank of Australia.
In the Bank of England, some 25% of our resources are supporting
monetary policy are devoted to collecting regional economic intelligence.
In the Bank of Canada, the equivalent figure is 7% and in the
Reserve Bank of Australia, the equivalent figure is 12%. The Bank
of England spends two to three times as much relatively as these
other equivalent reserve banks in doing that. Members of the Monetary
Policy Committee and members of the Court travel across the country;
many of them give lectures and have meetings with business people
in those different regions. We also, as members of the Court,
attend pre-MPC meetings where we see the agencies delivering their
reports. Usually one of the agencies will deliver the report to
the MPC. In a whole variety of ways, we check that this process
is carried out extensively. I believe it is.
Ms Fawcett: I would add that this
is a critical part of the questionnaire process that I was mentioning
earlier. Each year we will ask every MPC member what their view
is on the agencies, on the regional information, country information,
including how well the agents are working and this will be discussed
with MPC members.
Q341 Peter Viggers: The MPC is of
course not completely transparent; it is not intended to be. Mechanisms
are built in terms of delay and in terms of anonymity to a certain
extent. How do you monitor the transparency of the MPC and make
sure that it is as transparent as it should be?
Dr Potter: Every month we have
a report on the previous weeks activities of the MPC. We get the
minutes. We attend pre-MPC meetings and we have quarterly discussions
from the Chief Economist of the Bank, Charlie Bean, on the MPC
process and how it is going. Therefore, we are in a position to
study how matters are articulated publicly and the balance of
that and those members on the MPC who are members also of Court
discuss that at Court. There are discussions about the transparency
but in general the Bank tries to be as transparent as it possibly
can. I think this has been discussed by the Governor and the issue
arises as to whether you get into sign language which can be unfortunate.
In general, the Bank tries to be transparent. I am satisfied that
Q342 Peter Viggers: Yes, it tries
to be as transparent as it wishes to be. The Court has been praised
by former external members of the Monetary Policy Committee for
the work that it undertook to ensure that members of the Monetary
Policy Committee had sufficient resources available to it. Would
you say a word or two about that and about the manner in which
that operated and the manner in which you ensure that sufficient
resources are made available?
Dr Potter: Ms Fawcett has said
that every year we carry out a survey with an extensive questionnaire,
which is filled in and on scores in the range of one to five last
year that figure of satisfaction by MPC members was round about
four out of five, so pretty satisfied overall. In addition to
that of course they are questioned formally by the Chairman of
the Non-executives, Sir John Parker. In addition to that, we have
a variety of opportunities throughout the year to meet with MPC
members. This can be informally over lunches or it can be formally
in Court when about every three months MPC members will come along
and be quizzed and there will be discussion as to how satisfied
they are. Through these various procedures and processes that
occur regularly annually throughout each year, we do get comprehensive
feedback. I believe that overall at the present time our data
says that things are pretty satisfactory. There are some evolutionary
changes. If you go back five or seven years ago, there were many
more substantial changes than there are currently because the
system appears to be working pretty satisfactorily as far as they
Q343 Peter Viggers: One witness,
Dr Wadhwani, taking to us in March of this year has said, and
I quote: "There have been rumours around that there may be
an attempt to take these resources back from external MPC members
which I believe would be a retrograde step." Are those rumours
that you have heard?
Dr Potter: Absolutely not; I have
no knowledge either of the rumour or the fact. There is no such
intention of which I am aware.
Q344 Peter Viggers: You are satisfied
that MPC members have access to you and could communicate if they
were concerned about resources?
Dr Potter: Absolutely.
Q345 Peter Viggers: Does the Court
hold any other concerns as to resources allocated to monetary
policy by the Bank, whether in terms of staffing or financial
Dr Potter: Let me comment and
then ask Ms Fawcett to comment as well. Annually, we receive a
report on that issue from the Chief Economist to the Court and
we discuss it in Court extensively. We also discuss the budgets
very comprehensively of the Bank of England every year, so you
have the strategy and the three-year plan below that and then
you have budgets as well. The Court is tasked with ensuring value
for money and the efficient use of resources of the Bank. The
issue arises as to how many economists do you need and how much
resource do you need in order to produce policy? You can argue
that one economist and a computer would do the job but do you
need 500 economists, as you have in the Federal Reserve or in
the ECB, or some 180, as you have in the Bank of England? There
are about 106 economists in monetary analysis and they are of
high calibre. What has been changing is that the number is being
reduced somewhat but the experience and expertise, the level of
those, is being increased, so there is that change going on. The
level of funding assigned to monetary analysis was £64 million
during the last financial year. On all the reports that we have
had, both by external assessors like Kohn and Pagan, or by external
people who attend the pre-MPC meetings and see the process, it
is considered that the provision of analysis and data is of the
highest calibre and quality.
Q346 Peter Viggers: Then the Court
straddles the two worlds of the official government structure,
the Bank of England, and the financial world outside. From that
privileged position, are you satisfied that the Bank of England
is able to recruit people and box its weight because the distorting
effect of some City salaries now is having a very significant
Dr Potter: I think that is an
important and key question. The answer historically is "yes".
To spread the question, it is an issue for the future and it is
a matter that I have raised and indeed the Court is concerned
about and we have discussed considerably. I do think that the
fact that one has a very wide range of economists who will play
many different roles in our society means that we tend to attract
obviously the most eminent graduates coming in, the highest calibre
graduates coming in We take them through their 20s and 30s but
do we lose them in their 30s? The issue is our ability to retain
those people and groom them for the highest levels in the Bank,
and also the ability to attract people in their 30s when they
are at the peak of their careers, if you like, as economists.
I think the threat of City salaries is a major issue. The reputation
of the Bank of England is very substantial. The nature of the
work and the fact that you are influencing policy and you are
concerned with public policy is a magnet, and all this helps currently
to allow us to attract and retain staff, but it is an issue in
the long run, which we need to be concerned about.
Ms Fawcett: I would add further
to what Dr Potter has said. Quarterly we do get a very extensive
performance report across all the various strategic and business
objectives and financial objectives of the Bank. What comes out
of that as well are some detailed statistics on recruiting and
retention by area. I would add that this is an issue not just
for monetary policy or monetary analysis but also for financial
stability. In Court we take a great deal of time to go through
that information and discuss with the Bank what their procedures
are. We have pressed very hard for a specific strategy on how
to retain the very best people that they can. Originally I am
from the City. I would be the first person to tell you that there
is a rather large disparity between City salaries and those of
the Bank. In the past this may not have been such an acute issue,
for the reasons that Dr Potter mentioned, and I have seen it from
my own institution. The Bank of England is an institution of the
highest reputation and people are pleased to work there. Going
forward, given the nature of the body, you are never going to
be able to rectify the financial imbalance but there is something
about whether we are properly structured and prepared for slightly
more turnover and how we deal with a workforce that may come in
and go out with a little more regularity.
Chairman: Can I thank you for your evidence.
We wish Sir John Parker a quick recovery. If there is anything
we have missed this morning, we are happy to receive further written
submissions from you.