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Public Bill Committee Debates

Draft Cash Ratio Deposits (Value Bands and Ratios) Order 2008

The Committee consisted of the following Members:

Chairman: Mr. Peter Atkinson
Blizzard, Mr. Bob (Waveney) (Lab)
Browne, Mr. Jeremy (Taunton) (LD)
Butterfill, Sir John (Bournemouth, West) (Con)
Donohoe, Mr. Brian H. (Central Ayrshire) (Lab)
Ellman, Mrs. Louise (Liverpool, Riverside) (Lab/Co-op)
Gray, Mr. James (North Wiltshire) (Con)
Gummer, Mr. John (Suffolk, Coastal) (Con)
Hoban, Mr. Mark (Fareham) (Con)
Mitchell, Mr. Austin (Great Grimsby) (Lab)
Mole, Chris (Ipswich) (Lab)
Newmark, Mr. Brooks (Braintree) (Con)
Pugh, Dr. John (Southport) (LD)
Smith, Ms Angela C. (Sheffield, Hillsborough) (Lab)
Soulsby, Sir Peter (Leicester, South) (Lab)
Truswell, Mr. Paul (Pudsey) (Lab)
Ussher, Kitty (Economic Secretary to the Treasury)
Wright, Mr. Anthony (Great Yarmouth) (Lab)
Keith Neary, Committee Clerk
† attended the Committee

Fourth Delegated Legislation Committee

Wednesday 14 May 2008

[Mr. Peter Atkinson in the Chair]

Draft Cash Ratio Deposits (Value Bands and Ratios) Order 2008

2.30 pm
Mr. Mark Hoban (Fareham) (Con): On a point of order, Mr. Atkinson. I wonder whether you can help the Committee. Today’s Order Paper indicates that this statutory instrument will be dealt with in the House after 7 pm—after the moment of interruption—but we have not yet debated it this afternoon. We could, for example, decide to reject the SI. On what basis are SIs put down on the Order Paper when they are being debated in Committee on the same day?
The Chairman: Obviously, the question of when something appears on the Order Paper is a matter not for me, but for the Government. There is some precedent for this, and one of the problems is that the deliberations of the Committee need to be made available to Members who will consider the motion later. I understand that arrangements have been made for a Hansard transcript to be available in the Vote Office by the time that the order is considered by the House.
Mr. Hoban: Further to that point of order, Mr. Atkinson. Surely there are other opportunities—perhaps tomorrow, or next Monday, Tuesday, or Wednesday—to have this SI put down on the Order Paper. I do not understand the urgency for putting it on today’s Order Paper.
Mr. James Gray (North Wiltshire) (Con): Further to that point of order, Mr. Atkinson. Your point about the Hansard report being available in the Vote Office prior to this evening’s consideration in the Chamber was extremely helpful. I take it that if, through any mishap, the report were not available in the Vote Office in good time for it to be read prior to the order being considered in the Chamber, that business would fall and be deferred to a later date.
The Chairman: May I deal with both of those points of order? On the first point, I understand that Hansard is able to do that. Clearly, that is not up to me; it is up to Hansard whether it is able to get the material ready in time. As for the reason why the motion is on the Order Paper, that is not a question for the Chair, but a matter for the Government. If the Minister wishes to explain, I am sure that she will do so.
2.32 pm
The Economic Secretary to the Treasury (Kitty Ussher): I beg to move,
That the Committee has considered the draft Cash Ratio Deposits (Value Bands and Ratios) Order 2008.
It is a pleasure to be considering the order under your chairmanship, Mr. Atkinson.
Perhaps I should take up the point that has just been raised. I understand that there is some precedent for this, and I will ensure that the transcript is available in the Vote Office as soon as is logistically possible. I hope that that satisfies hon. Members.
Mr. Hoban: I am grateful to the Minister for giving way so early in her remarks. For the benefit of the Committee, will she illuminate us as to why the order has been put down on the Order Paper for consideration in the House later today?
Kitty Ussher: I do not know. I did not know about this issue until the hon. Gentleman mentioned it. If I become illuminated about that shortly, I will let him know.
Mr. Gray: I am grateful to the Minister for agreeing to have the transcript available in the Vote Office. Will she therefore, on behalf of Her Majesty’s Government, undertake that if through any mishap—I do not know what that mishap might be—the transcript is not available in the Vote Office 30 minutes, let us say, before the moment at which the vote will be taken, the business will be dropped? May I have the Minister’s assurance on that matter? If she is not totally certain that the papers will be in the Vote Office, perhaps we should think about whether we should be considering the order today.
Kitty Ussher: I always abide your advice, Mr. Atkinson, and I think that you made it clear earlier that such matters are for the Chair.
Mr. Gray: On a point of order, Mr. Atkinson. My understanding of your ruling is that these are matters not for you, but for the Government, and that I am therefore perfectly right to ask the Minister for her assurance that if the papers are not available in the Vote Office, this evening’s business will not progress.
The Chairman: That, of course, would be a matter on which the Chair in the Chamber would rule. Whoever was in the Chair at that time could rule on that.
Kitty Ussher: I trust that the matter is now resolved, Mr. Atkinson. I simply note in passing that having failed to engage on the substance of debate in recent days, Her Majesty’s Opposition are having huge pleasure in debating the process instead. Perhaps I can now proceed.
We are discussing the draft Cash Ratio Deposits (Value Bands and Ratios) Order 2008. It was laid on 7 April with the intention, subject to parliamentary approval, that it should come into force on 2 June 2008. I hope to explain clearly and in some detail what is happening, in the perhaps optimistic hope that I can pre-empt any questions. Time will tell whether I succeed or not.
The order will make a change to the ratio applied within the cash ratio deposits scheme, which is defined in the Bank of England Act 1998. Specifically, the order reduces the ratio applied to eligible liabilities above the £500 million minimum threshold from 0.15 per cent. to 0.11 per cent., which will benefit all institutions that make such deposits with the Bank of England. It might help the Committee if I briefly outline what the cash ratio deposits scheme is and the background to the order.
Before 1998, banks maintained cash ratio deposits on a voluntary basis. As part of the 1998 reform of the Bank of England, the Government confirmed that we believed that it was right that those benefiting from the relevant operations of the Bank should make a financial contribution to the costs. We therefore placed the cash ratio deposits scheme on a statutory footing. Under schedule 2 to the 1998 Act, eligible institutions—broadly, banks and building societies—may be required to place non-interest bearing deposits, known as cash ratio deposits, with the Bank of England. The Bank of England then invests those deposits, and the income earned is used to fund its monetary policy and financial stability functions. Under paragraph 4 of schedule 2, the amount that an eligible institution must deposit with the Bank is calculated by multiplying so much of its average liability base as falls into each of the different value bands of the scheme by the ratio applicable to that band, and then taking the sum of those amounts.
We reviewed the scheme in 2003 and concluded that it remained a suitable method of funding the relevant operations of the Bank. We also concluded that the minimum threshold of the scheme should be increased from the 1998 figure of £400 million to £500 million. That change was effected through the Cash Ratio Deposits (Value Bands and Ratios) Order 2004.
As part of the 2003 review, we committed to conducting a further review by 2008 at the latest. A review of the cash ratio deposits scheme was thus conducted in summer 2007 in a Bank of England consultation. As part of the review, the Treasury sought the views of all institutions currently eligible for the scheme and received 66 responses. In summary, the review reached a number of conclusions: the cash ratio deposits scheme continues to be a suitable method of funding the Bank of England’s monetary policy and financial stability operations; and, secondly, the ratio applied to those eligible liabilities above the £500 million threshold should be changed, as we seek to do today, from 0.15 per cent. to 0.11 per cent., but that all other variables should stay the same. It is estimated that the change to the ratio will reduce the level of cash ratio deposits that institutions must hold with the Bank of England. It is estimated that the one-off reduction will be around £700 million.
That conclusion was reached by modelling the estimated cost of the Bank’s monetary and financial stability functions from 2008 to 2013, and forecasting the investment yield of the Bank of England’s existing holdings and the future growth of eligible liabilities. The court of directors of the Bank of England, which is responsible for setting the Bank’s objectives for financial management and ensuring the most efficient use of its resources, endorsed as working assumption for the 2008 cash ratio deposits review an estimate of the cost of the Bank’s policy functions of £563 million over the five-year period, which was based on 2 per cent. annual spending growth. The investment yield has been forecast to average 5 per cent. over that time frame, and the future growth of eligible liabilities has been assumed to be 4.5 per cent. Under those assumptions, changing the ratio to 0.11 per cent., while maintaining the minimum threshold at £500 million, would result in forecast income from the scheme of £575 million, which is close to the £563 million required.
Mr. Gray: I am following the Minister’s speech with great care. Will she clarify two points for me? First, why did the scheme generate significantly more than the £575 million that was intended? Secondly, why did the Bank spend rather less than the £575 million it originally budgeted to spend? The gap between the figures was about £100 million, which represents a fairly significant error in prediction or calculation. Why did that occur?
Kitty Ussher: I am grateful to the hon. Gentleman for that prescient question. My understanding is that more institutions found themselves above the £500 million threshold, or further above it, than was forecast. That was an unintended consequence of the success of the financial services sector.
Mr. Gray: The second half of my question was about why the Bank spent significantly less than it predicted when the scheme was set up.
Kitty Ussher: I will correct myself if this is not the case, but I am not sure that it spent less than the budget it was hoping to spend.
Mr. Gray: The explanatory memorandum makes it plain that although the Bank had predicted that it would spend £575 million, the figure was actually £531 million. The Bank spent £44 million less than it had predicted, and that was why there was a big difference between income and expenditure. The Minister’s first answer was perfectly sensible: the banks actually accrued more for the scheme because of their success. However, why did the Bank of England spend so much less than it had anticipated?
Kitty Ussher: I take the hon. Gentleman’s point. All that I can say at this stage is that the Bank made a forecast of what it would spend, rather than having a definite budget for what it was going to spend. Since the Bank of England is independent, and we are merely enabling a change through legislation, the best thing would be for me to ask the Governor of the Bank of England to write to the hon. Gentleman on that point.
In reaching the conclusion that I was outlining, it was recognised that some of the assumptions behind the figures that I have set out were subject to uncertainty. That is why we have stated our intention to keep the parameters of the scheme under review, and we are committed to a further formal review in a further five years, at the latest.
The Treasury published its conclusions in a consultation document in August 2007. It received four responses, two of which were from the British Bankers Association and the Building Societies Association, which obviously speak for their members. In the published response to the consultation, we stated our intention to lay secondary legislation to enact the reduction to the ratio from 0.15 per cent. to 0.11 per cent. on eligible liabilities above the £500 million threshold and said that we were aiming for it to come into force on 2 June 2008.
Meeting that date is important for the Bank of England operationally, because the proposed change to the scheme must start at one of the two times of the year that all eligible institutions submit information on their eligible liabilities. Not meeting the 2 June date would mean delaying the implementation of the change until the start of December. The order will mean that we avoid that delay, and I hope that it will command the support of both sides of the Committee.
2.42 pm
Mr. Hoban: It is a pleasure to serve under your chairmanship, Mr. Atkinson, and also to welcome the Minister back—this is the first time that I have had the opportunity to do so in Committee. Her Treasury colleagues are relieved that she has returned to front-line duty as they had to shoulder the burden of some of the statutory instruments that we have debated in recent months, including one on which exactly the same procedural point arose because it was timetabled for consideration on the Floor of the House on the same day that it was considered in Committee. That was a much more controversial statutory instrument than this order as it was on the Northern Rock compensation scheme.
The Minister clearly identified that there had been widespread consultation on the draft order and the basis on which cash ratio deposits were going to be determined over the next five years. I expect that the requirement to ensure that the order comes into force by 2 June accounts for the need to consider it on the Floor of the House later today.
The cash ratio deposit scheme is the way in which the Bank of England funds the operations within it that support the financial markets. It is right to ensure that those that benefit the most from that pay for such activities. Clearly, the scheme works reasonably well. I have looked at the summary of responses to the consultation, and there was not much demand for significant change to the structure of the scheme, which is another reason for commending the order to the Committee.
I would like to pick up on a few points, starting with the one made by my hon. Friend the Member for North Wiltshire about the mismatch in the previous period between the actual costs of the Bank’s policy functions and the budgeted cost. Clearly, the Bank’s actual costs came in below budget by £44 million, which reduced the need for so much money to be contributed to those functions.
One concern is that the order contains no mechanism to regulate the ratio to take account of actual experience. Not only were the costs lower in the last period, but income was higher. The consultation document indicates that the annualised rate of growth of cash ratio deposits was 12 per cent. a year over the past five years. The income had been based on a 4.5 per cent. increase in those deposits. For the period between 2008 and 2013, the forecast is again for an increase of 4.5 per cent. a year in the relevant deposits. If the growth continues at a faster rate that reflects the actual results over the past five years, rather than the lower estimate, more income will again accrue to the Bank of England than would appear to be necessary on the basis of the documents before us.
Have the Government considered a mechanism outside the quinquennial review to try to regulate the level of deposits? The surplus that accrues to the Bank goes into its general reserves and is paid as a dividend to the Treasury. I know that Government revenues are tight at the moment and that every bit of money coming in will be gratefully received by the Chancellor, but the proposal before us does not appear to be the most appropriate way to raise tax revenue. Have the Government considered some form of mechanism to regulate cash deposits in the five-year period to prevent surplus income from arising? Alternatively, I suppose that the other way of looking at it, given the economic uncertainty in the financial markets, is that the rate of growth of cash deposits might be lower than 4.5 per cent. a year. That would require a change in the ratio, which the order sets at 0.11 per cent.
Mr. Gray: My hon. Friend makes an extremely interesting point. Up until now there has been a surplus, which is fine because it will be paid back by means of this statutory instrument. However, if, in the next five-year period, there were to be a deficit—in other words, if the amount raised from the banks was less than the Bank of England was spending—presumably the Bank would have to change its activities or structure to take account of the lower income. I entirely agree with my hon. Friend that some kind of structure allowing the ratios to be changed during the five-year period would make an enormous amount of sense from the point of view of safeguarding the Bank’s activities.
Mr. Hoban: I am grateful to my hon. Friend for raising that point. We would want the Bank of England to fulfil its responsibilities properly. I do not think that anyone on either side of the Committee would want the Bank’s activities to be curtailed as a consequence of a shortfall in the revenue generated by the scheme.
There is a related issue about what happens if there is a significant change to the Bank’s responsibilities. For example, the Treasury Committee report “The run on the Rock” proposed that the Bank be given greater powers to intervene in a bank crisis—my party has espoused that policy—which I suspect would lead to the Bank needing more resources and an adjustment to the mechanism. I suspect that, in either case, the answer for the moment would be that the Treasury and the Bank would conduct a review of those activities and the funding and then lay another order before the House, subject to the affirmative procedure, for a change to cash ratio deposits.
It is important to have some clarity from the Minister. What would the triggers be for an earlier review of the ratio of 0.11 per cent.? She referred to the next review being in no more than five years, but it might be helpful to the Committee to have some indication of what triggers might be required to bring about an earlier review.
My next point follows up a response to the consultation document. At present, as I understand it, the money that is raised from the banks through the cash ratio deposits scheme is invested in gilts, and the income from those gilts is used to fund things such as the monetary stability function. One of the responses in the report suggested that rather than investing in gilts, which some argue have a relatively low yield, the money should be invested in higher yielding bank deposits.
Given the events of last summer involving Northern Rock, we are familiar with some of the issues around investing money in bank deposits, and clearly the risk attached to investing significant sums in such deposits would need to be managed. Did the Treasury give any thought to switching investment from gilts to higher yielding bank deposits as a way of trying to reduce the overall cost to the banking sector?
In conclusion, the order is uncontroversial and we would not wish to press the matter to a Division. However, it would be helpful for us to understand what the triggers might be for an earlier review of the funding ratio, whether the Government gave any thought to incorporating a regulating mechanism in the order in case income or expenditure varied significantly from the forecasts, and whether thought has been given to alternative ways in which to invest the proceeds from the scheme to try to reduce the overall costs to the banking sector. At such a time, if we can help by reducing costs, it would be to the overall benefit of the economy as a whole.
2.52 pm
Mr. Austin Mitchell (Great Grimsby) (Lab): I was not going to speak but, seeing my hon. Friend the Minister back on the Front Bench after her maternity leave, I wanted to welcome her back and say that I hope she observes what a mess we have got into while she has been away. I refer not only to the 10p tax rate question but to the mess the Bank of England has been making by its failure to intervene effectively to ease the credit crunch by pumping more liquidity into the system. We have a much tighter situation than is appropriate at this stage of the economy.
Mr. Brooks Newmark (Braintree) (Con): I was interested that the hon. Gentleman made the point to the Minister about the Bank of England but, as I understand it, the Bank of England is independent from the Government so I am curious as to what the hon. Gentleman thinks the Minister can do about the mess that he perceives the Bank of England to be in.
Mr. Mitchell: Given that the Bank operated the Ken and Eddie show when the Conservative Government were in power, the hon. Gentleman is presumably as keen as I am to return a vestige, or a large element, of Government influence over the Bank. If that what he is arguing for, I will join him. The first act of the Labour Government in 1945 was to nationalise the Bank of England, so it was a sad moment when our first act in 1997 was to denationalise the Bank and make it independent—a retrograde step, as it turns out. I will come to that in a minute.
The Chairman: Order. Before the hon. Gentleman comes to that point, may I remind him that this is actually a very narrow order? I do not think he should stray too much into the history of nationalisation and denationalisation of the Bank of England.
Mr. Mitchell: I accept your advice, Mr. Atkinson, but, of course, this is one of the rare opportunities to discuss the Bank of England to whom this money is going because it is effectively supporting its operations in monetary policy and inflation policy. It is legitimate to ask questions about the policies that this money is supporting.
What we have seen so far from the Opposition is a series of quibbles rather than any serious argument. The Conservative party always likes to pretend it knows about money because it spends so much time worshipping it. It has offered a series of quibbles about the system rather than any critical or information-seeking objections.
I note that the review on which this change in credit allocations was based was carried out in 2007 at a time when the problems that we are now facing in the banking system—and we have a major sub-prime problem and credit crunch on our hands, because of the inadequacy of the banks themselves, which have been over-lending even though they were presumably regulated partly by the Bank of England—were not apparent. I wonder whether we would be so keen to make the adjustment if those problems had been apparent at the time when the agreement was reached.
Having made the point that I am not widely enthusiastic about the independence of the Bank of England, I wonder whether this method of financing its operations—removing it from any Government control, with an automatic system such as this is—is actually a sensible way of doing things. I hope that my hon. Friend the Minister—reinvigorated by her leave—will tell us whether it might not be better to keep the Bank on a short leash by allowing it to operate on a direct Government grant rather than providing it with an automatic payment of this nature. If we are not happy—and I am certainly not happy with the Bank of England—is it wise to give it this automatic income, which is not subject, apart from intermittent reviews such as this, to effective Government control?
What is the money actually used for? The Bank of England’s inflation policy is run by the Monetary Policy Committee, which is presumably financed by this grant, and it has been singly inept and is becoming more inept at the moment. Interest rates are far too high—indeed they are the highest in the advanced world—at a time when the pound needs to come down. We face a doomsday mechanism under which the Bank of England, terrified of inflation—of course the MPC is manned by inflation hawks, led by the Governor himself—is anxious to maintain high interest rates, rather than bring them down as the economy needs.
We face a problem, and it is fair ask at this juncture whether this money is going to be used to finance that such activity on the part of the MPC. Would it not be better if it operated like the Fed, which has a double rubric? It has to maximise growth as well as control inflation, whereas a single-minded obsession with inflation on our part, much as Labour Members have praised it, is now going to be a trigger for a different phase.
So how exactly is the money spent; what exactly does it support? Does it pay the members of the MPC? Heaven knows how its recruits and where it hunts down this body of anti-inflation hawks. The only sane member seems to be Professor Blanchflower, who has to be flown in across the Atlantic from the United States every time there is a meeting. Are his air fares paid out of this money? Given that he is the only one on the MPC offering sage advice and sensible opinions, it would perhaps make sense to pay him even more to stay in this country. If the money could be channelled into that, I would be extremely happy.
This system has kept interest rates too high and pushed the pound to uncompetitive levels. I therefore think we should ask questions before automatic payments to the Bank are made on this basis and through this framework. Does the money go toward publishing the inflation review as well as supporting the MPC? Is it used to give cheap mortgages to Bank of England staff? Where exactly is this money going?
We need to know because we are authorising a change now. It is a reduction, but it is probably the prelude to another review in the next decade. It is useful for the Committee to know what it is doing, who the money is going to and how the Bank of England accounts for it. It gets this money automatically, paid in by the banks but does it use it to access the credit creation by the banks? How is the payment assessed and how does the Bank of England account for the money it is getting? These are all interesting questions, which I am dying to hear answered.
Mr. Gray: The thrust of the hon. Gentleman’s thesis is that he would prefer the Bank of England not to have been privatised and therefore this order would not have been necessary. Presumably that would have meant that either the taxpayer funded this £500 million worth of expenditure or, if a similar mechanism were still to be employed by the then Government, it would have been the Treasury, which would by then have owned the Bank of England. Does he believe that the Treasury officials would scrutinise it better than it is currently being scrutinised by Bank of England officials?
Mr. Mitchell: The Opposition, not having a policy of their own, are fond of asking hypothetical questions of those us who have the weighty responsibility of Government on our shoulders. I cannot answer the hon. Gentleman. I should like the status quo ante, before the 1997 effective privatisation, to be restored. I should like more direct Government financing in the sense that that gives the Government more control and a better ability to issue instructions to a wayward Bank of England, which has never served the purposes of this country. It has always served the purposes of money and the banks and not those of the people and manufacturing. It needs to be controlled as it was by the Conservative Government in the Ken and Eddie show, which I thought was a very successful operation. I congratulate them on that.
I leave that question unanswered to drive to my powerful conclusion as I see, Mr. Atkinson, that you are anxious that I should do so as quickly possible. Essentially, this is an automatic way of financing some of the operations of the Bank of England. What exactly has it done? What influence does it give Government over those operations? To what degree and how is the Bank of England accountable for the money it is getting?
3.3 pm
Dr. John Pugh (Southport) (LD): It is an unalloyed pleasure to serve under your chairmanship, Mr. Atkinson and I am delighted to see the Minister back in her place. Returning to the statutory instrument, on a rather dull and pedantic note, I shall check at the end of the day to see whether Conservative Members rush to the Vote Office to get the documents. I hope that they will show the same interest at the end of the day as they do now.
I have no strong opinions, ideological or otherwise—
Mr. Mitchell: Typical Liberal.
Dr. Pugh: I did not say that I had no opinions but that I had no strong opinions on the bank deposit scheme. It is consensual; it comes from a review. There has been formal and informal consultation. It is fiscally neutral. It puts some money back into the pockets of some of the smaller banks, which may yet find something useful to do with it, and it is to be reviewed subsequently. I cannot see anything particularly wrong with this statutory instrument.
3.4 pm
Mr. Gray: The brevity of the contribution from the Liberal Democrat spokesman prompts me to think that we have quite a long time left for debate, so it is very nice to be able to do so under your chairmanship, Mr. Atkinson. The hon. Member for Southport has just said, with great conviction, that he is neither in favour of, nor against, the order. We are rather in favour of it because it reduces the burden on banks and the City of London. It is a rather good thing, because it reduces the amount of money taken from the private sector that is used for a bureaucratic purpose, whether by the Bank of England or the Treasury.
It was interesting to hear the contribution from the hon. Member for Great Grimsby, who made a powerful argument. He was wrong in thinking that we should return to where we were with the Ken and Eddie show. I, for one, and my party are very glad that his Government—is it his Government?—at any rate the Labour Government chose to privatise or give independence to the Bank of England when they first came to power. I cannot imagine why we did not do it. We should have done it when we were in power and we did not, but there it is. The important question is whether this important mechanism is the right way to fund it.
Kitty Ussher: I cannot resist asking whether the hon. Gentleman voted for or against the Bill that gave independence to the Bank of England.
Mr. Gray: I am grateful to the Minister for asking that question. I had just arrived in the House in 1997, and I do not have the faintest idea. I hope that I voted in favour of it. If I did not, there are many things that one does and many things that one votes for in the House that one regrets later. Just yesterday, we had the amazing spectacle of the Prime Minister saying that he very much regretted bringing in something.
The Chairman: Order. I remind the hon. Gentleman, just as I reminded the hon. Member for Great Grimsby, that we are talking about a very narrow order.
Mr. Gray: You are, of course, right, Mr. Atkinson. I admit that I strayed a little. The Minister led me down an attractive and interesting path, but one that was not central to the statutory instrument.
Central to the statutory instrument is the point that my hon. Friend the Member for Fareham made a moment ago. This mechanism sets up a way in which the banks in the City of London finance the monetary policy and other matters for which the Bank of England is responsible. That is eminently sensible, but we need to know various things. First, I slightly disagree with my hon. Friend the Member for Fareham about what the respondents to the consultation said. Having stated that the respondents were broadly happy with the consultation, a most interesting section of the explanatory memorandum in paragraph 7.5 states:
“However, all respondents also advocated either changes that could be made to other parameters of the scheme or the replacement of the scheme with alternative arrangements.”
The notes quickly skate over an important point. Every single respondent to the consultation paper said that the parameters should be different or that the whole system should be different. In her response, will the Minister lay out what the four respondents said about the scheme? They said that they did not like it, so I would like to know what they said about it.
Secondly, my hon. Friend made a point that is very important if the scheme is to work. Over the past five years, £613 million has been raised; some £38 million more than was intended. The Bank of England spent £531 million; some £44 million less than it intended. It raised £82 million more than was needed to carry out its functions. It could be argued that that is all well and good. However, I worry quite considerably, given what is happening in the banking system with the credit crunch and other matters, about what would happen if, rather than a surplus, there was a significant shortfall? Let us imagine that the scheme had a shortfall of £100 million or £200 million. Would the Government have to come scuttling back to Parliament and ask for an affirmative resolution, as my hon. Friend suggested? What would they do to raise the money that the Bank of England needs to carry out its proper functions? The statutory instrument does not address that point.
My hon. Friend is quite right that there should be some kind of mechanism in the statutory instrument that sets out what the Government would do if the system does not work as planned to ensure that they raise sufficient funds for the Bank of England to carry out the functions that we all want it to carry out. We know that it has not worked out as planned over the past five years because far too much money was raised. There is rather a big gap in the middle of the statutory instrument that raises two questions. First, the Minister must tell us why the respondents did not like it, what parameters they did not like and what she intends to do about that. Secondly, she must say what she would do if the amount raised by the mechanism did not raise sufficient money to run the Bank of England in the way that we want it to be run.
3.8 pm
Kitty Ussher: I am disappointed, because the hon. Member for North Wiltshire indicated earlier that he was going to speak for an entire hour. I was looking forward to that.
Mr. Hoban: He can always intervene.
Kitty Ussher: I look forward to that. I will respond briefly to the points that have been raised. Before doing so, I thank the hon. Members for Fareham and for Southport, and my hon. Friend the Member for Great Grimsby, for their kind personal remarks. It is great to be back. My hon. Friend the Member for Great Grimsby implied that I should be refreshed after a four-month period of maternity leave. I am refreshed to be working compared with how I felt previously.
The general question raised by Opposition Members is what will happen if the order proves insufficiently flexible if budgetary requirements alter in the future. We have considered that point seriously and we have committed to keeping it under active review, rather than parking it and looking at it again in five years’ time. There will be an annual exchange of letters between the Governor of the Bank of England and the Chief Secretary, to see whether the order that we hopefully agree today proves sufficient. It is relatively easy for the Government to produce a further statutory instrument should it be necessary, certainly easier than changing the whole system through primary legislation.
We have consulted the Bank of England, which has produced a forecast that has been approved by the court. The Bank is an independent body. That is the best mechanism—I will return to the points mentioned by my hon. Friend the Member for Great Grimsby—for financing the relevant operations of the Bank, and doing it that way preserves the Bank’s independence. We are making the necessary changes to return cash to the financial services sector, and it welcomes that. Our best guess is that the amounts remaining with the Bank of England will be adequate, and it agrees. If that proves not to be the case, it will be considered by consensus and I will come back to this or a similar Committee. That is the best way to proceed, rather than having an automatic trigger mechanism that leads to greater uncertainty. All the players want certainty, so I hope that we will not have to revisit the mechanism.
Mr. Hoban: The Minister sets out a sensible and pragmatic solution to the issues that have been raised. She referred to an exchange of letters between the Bank and the Chief Secretary. Is the expectation that the Bank will look not just at what has happened over the previous period, but will seek to re-estimate the future costs of functions supported in that way?
Kitty Ussher: The letter of exchange will confirm the suitability of the ratio, so should the estimates of revenue and expenditure suddenly look very much out of line, we would reconsider the ratio. That is all that we are doing today.
I think that my hon. Friend the Member for Great Grimsby and I will disagree—much as I have huge respect for him—on the desirability of giving the Bank of England independence. The Ken and Eddie show was good fun to watch on television, but it led to some profoundly disturbing decisions about how the macro-economy was run under the previous Government. It is right—my hon. Friend would expect me to say so—that the Bank of England is independent. The financing decisions follow from that. It is right that the people who pay for the monetary and financial stability work are the ones who benefit from it directly—the financial services sector and, through it, the wider economy. Exactly how that money is spent, is a matter for the Bank of England. Its governance arrangements are for the court. The Governor of the Bank of England is appointed by the Chancellor. There is accountability through the Treasury Committee and, through it, to Parliament. It has improved—we welcome that improvement—the detail of how the money is spent. I would not want to get into precise details because the Bank is independent, but I understand that it covers the costs of the members of the Monetary Policy Committee, which relates to the question that my hon. Friend asked. I am sure that his views on those members’ decisions will be transmitted to the members concerned, as a result of his raising that question.
Question put and agreed to.
That the Committee has considered the draft Cash Ratio Deposits (Value Bands and Ratios) Order 2008.
Committee rose at fourteen minutes past Three o’cl o ck.

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