Mr. Hoban: If the hon. Lady will bear with me, I will come to that. I have tabled amendments that redraw the scope of proposed new section 2B(2), to try to distinguish between the executive and non-executive functions that the two formulations could set out.
As I was saying, the Government are clearly of the view that the financial stability committee should have executive decision-making powers, and that the chairman should chair it in the same way as he chairs the MPC. That would not be an unreasonable view to take if the committee were to be an executive body. There has been some comment on this matter by the industry. In its response to the January consultation, the Association of British Insurers said that its preferred option would be a separate expert committee, along the lines of the MPC, with responsibility for financial stability. That would allow the court to deal with its more administrative role. However, if the committee is to be an executive body and carry that authority, I am not sure that it can be a sub-committee of the court. That is why we would reconstitute the committee, under amendments Nos. 56 and 58 to 62, to consist of the Governor, the deputy governor, two members appointed by the Governor and four members appointed by the Chancellor. It would then broadly mirror the composition of the MPC.
The Treasury Committee has suggested that the committees functions should include liquidity operations outside the ordinary course of business, such as schemes comparable to the special liquidity scheme; the functionality of payment systems; formulating policy positions with respect to prudential regulation; directing the Banks analytical work on financial stability, including horizon-scanning for potential risks; and decision making in relation to the special resolution regime. That is a reasonable set of functions for an executive body to have.
Amendment No. 62 would tweak proposed new section 2B(2) to make it clear that the financial stability committee would decide upon the Banks financial stability report, and that it is there to make not recommendations but decisions. Amendment No. 60 would require the committee to decide whether the Bank should exercise its stability powers rather than simply give advice. Amendment No. 63 would carve out from the courts remit responsibility for the financial stability objective in the same way that the MPCs objective is carved out of the remit of the court in the 1998 Act.
My amendments set out how the committee could be given a purely executive function, and would ensure that the composition of the committee reflected its executive role, putting it on a par with the MPC in
Moving to the second batch of amendments, the Governor might decide, in relation to the tripartite authorities, that we do not want an executive body to make decisions, and that we want them to be made as they have been made in the past few years. What we actually want from the financial stability committee is not a hybrid of executive and non-executive roles, but someone who will hold the executive within the Bank to account. I have sought under amendments Nos. 68 to 71 to bring that about.
Significant arguments can be made for a non-executive body, and I am agnostic about which route we take. There are merits on both sides. I am not intending to press the amendments to a Division, but this is an opportunity to gain clarity from the Government about their thinking.
Angela Eagle: Will the hon. Gentleman explain why he thinks that the interest rate decision made by the Monetary Policy Committee is akin or similar to decisions that would have to be made in respect of contributing to financial stability? One is a lever to be pulled, and is connected to something; it is about the price of money. The other is much more diffuse and cannot be dealt with in the same way as the Monetary Policy Committee deals with interest rate decisions. Will he share with the Committee his thoughts on why the institutional arrangements for making the Monetary Policy Committee decision are akin to those that he thinks the financial stability committee should be making if it is doing its job?
Mr. Hoban: We need a clear structure for the decision-making process. There are two models that we could follow: one is to vest the power to make the decisions with the executives of the Bank of England, as happens at the moment, and the other is to give it to a separate committee, the financial stability committee, which could make the executive decisions on behalf of the Bank.
The Minister is right to point out that the MPC meets only two days a month to make the decisionsI accept that I am grossly over-simplifying its role. The committee members undertake a lot of analytical work between meetings. I am not sure to what extent they see their role on the MPC as being full-time; I suspect that many external appointees do see it as pretty much a full-time role.
Mr. Todd: An important function of the MPC that could be paralleled in such a way is communication and debate about the credible subject with which it is engaged. Typically, the MPC members visit a substantial number
Mr. Hoban: Indeed. The hon. Gentleman makes a powerful argument for the financial stability committee to be constituted in the same way as the MPC. I shall come back to that point in a minute.
The strength of the MPC in decision making is that the breadth of its appointments provokes and simulates a debate, the point made by the hon. Member for South Derbyshire and, as David Blanchflower demonstrated by his remarks today, there is every breadth of view about some of the decisions. There is positive strength from engaging the wider financial community in a debate about how to gain financial stability. To go back to the Ministers point, the executive committee can meet on a more regular basis than two days a month to make such decisions. If my recollection is rightI think that it isthe court of the Bank of England was convened in the evening after support was given to Northern Rock to advise on the committee. It is not impossible to get a committee together to make decisions so that a continual debate is in progress rather than one that would be seen as discrete and held only on a monthly basis.
Ms Keeble: What the hon. Gentleman has not mentioned, which I asked him about, is the fact that the MPC has a clear target on the inflation figures and, in interest rates, it has a clear lever, which is very focused. It debates wider matters, but its purpose and function is crystal clear and tightly defined in a policy framework set by Government, and it has mechanisms to deal with that. That is different from what he is saying about the FSC, which is an executive committee. He needs to talk about the purpose, functions and mechanisms at its disposal.
Mr. Hoban: The hon. Lady makes an important point. In the second half of my remarks, I will expand on the financial stability objective. Clearly, the FSC is there to contribute to achieving that objective. She is right that it is difficult to measure whether that objective is achieved. One knows when one does not have financial stability, but it is not easy to say when there is financial stability. In his remarks to the Treasury Committee, the Governor said that during the period of tranquillity the seeds of the current crisis were being sown. That suggests that it is difficult to determine when there is financial stability. Whether the committee is executive or non-executive, there is a problem of how to measure and monitor its performance.
We could talk about more qualitative measurein evidence to the Treasury Committee, Sir John Parker spoke about a qualitative financial stability objective. That suggests that when there is such a degree of subjectivity, having more voices involved in the debate may be better than having fewer, because that makes it harder to be as precise about whether an objective has been achieved. On more subjective areas of debate, more voices are needed to give different perspectives, rather than there being a house view on how financial stability should be achieved.
I will return to the amendments, because we will discuss the other points in a few minutes. One criticism of having an executive committee centres on whether it can make decisions quickly and whether the decision-making process is sufficiently streamlined. That relates to the point underlying the Ministers intervention. I think that that criticism is legitimate. As I said earlier, I am agnostic on which model should be used, but I do think that there must be clarity, whichever is chosen. As its remit is constituted, the FSC might not be able to make the quick decisions that the Government and others will expect it to make in the context of securing financial stability.
On that basis, perhaps the right model is one of scrutiny, whereby the committee will examine decisions once they have been made rather than have an undefined role in making the decisions. That would send the financial stability function of that committee down a sub-committee of the court route rather than a hybrid route. It would clearly be there to deal with issues of financial stability; it is a sub-committee of the court. The financial stability board already exists within a court structure. The deputy governor for financial stability is the chairman of that board. Non-executive directors attend and attendance is open to all members of the court. The Governor also sits on that committee. It is not clear how the FSC as constituted in the Bill differs from the financial stability board. That is the board that will hold the Government to account.
If the FSC is to be a purely non-executive body, it must have a non-executive majority. It should not be party to executive decision making; its role should be confined to a forum for taking soundings prior to decisions being taken elsewhere by executives. It should be chaired by a non-executive in the same way that audit committees or remuneration committees are chaired in listed companies.
It is always important that we listen to the views of the non-executive directors of the court, who, in their memo to the Treasury Committee in June, outlined their strategic lead role, saying that they could, through the regular reviews that they conduct,
endorse the Banks strategic objectives and work programme in relation to financial stability; to review the linkages between the Bank, FSA and HMT, as well as the Banks own capabilities, to ensure that the Bank is equipped to discharge its financial stability responsibilities; and to review the effectiveness of the Banks work on financial stability issues, including the internal organisation of that work.
That is a good remit for a non-executive committee. It is not clear whether those processes that they already undertake would be incorporated within the FSC. If those are to be incorporated, that does not sit well with having an executive chairman.
Mr. Todd: Does the hon. Gentleman agree that there is another area of inconsistency in the Bill? Care is taken to define voting rights and others matters of that sort that might be related more clearly to an executive function, but is there an area of discrepancy in respect of the non-executive roles that he has highlighted? I am not sure that the hon. Gentlemans amendments change all those; as with my amendments, I do not think that he went through with a fine-toothed comb to produce entirely consistent positions. Is there a discrepancy in
Mr. Hoban: The hon. Gentleman makes a good point about voting rights. If the body is expected to be a decision-making body, there must be absolute clarity about who votes and where that power rests. With a non-executive body, the process does not need to be as precise. I freely admit that if I were a parliamentary draftsman, I would produce a better, more coherent set of amendments to create the distinction between the two, but these are a peg for debate. The questions about the hybridity of the committee have not been properly addressed. This is our opportunity to do so and the Minister, too, will have the chance to do so in her reply.
Angela Eagle: The hon. Gentleman is right: it is a recognisable option to table two incompatible groups of amendments for debate. However, which amendments does he favour? He has not told us yet.
Mr. Hoban: The Minister must have been preparing her speech for later on and not listening to my remarks. I have said on two occasions that I am agnostic about this matter because I can see merits in both outcomes. I am not comfortable with the hybrid nature of the measure in the Bill. These are probing amendments, not ones that I would press to a vote, but I am keen to use them to get the Government to express why they believe that a hybrid model is preferable to either a purely executive or a purely non-executive model. That is the purpose of this debate. I freely admit to having a strong belief in some areas and being agnostic in others. There are not many things in life that I am agnostic on, but this happens to be one of them. I will return to the areas where I am less agnostic in later debates.
The amendments offer two choices. One is to make the financial stability committee a proper executive body, reflecting the strengths of the MPC in terms of its composition and remit and using that as the model of how an executive committee can function. The type of decisions that a financial committee will make must be thought about carefully. There are two choices: are those decisions best made by an executive body constituted in line with the MPC, or are they are better made within the Banks existing decision-making processes, but with stronger scrutiny by the court of directors?
The hybrid model confuses membership, accountability and responsibility. Given the importance of the financial stability objective, it is not helpful for that to be the case. There are other issues connected with the financial stability objective which also make it harder to hold the Bank, whichever model is used, to account.
The hon. Member for Northampton, North looks as though she wants to intervene
Mr. Hoban: In the expectation that I have finished, perhaps. I am afraid that that is not the case. It is quite a challengeto my vocal cords as well as my powers of recollectionto have a stand part debate after such a complex set of amendments. I will plough on.
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