Work of the Committee, 2007-08 - Treasury Contents


1  Introduction and overview of work


The themes of our work

1.   This Report provides an account of the work of the Treasury Committee in the 2007-08 session, highlighting the main themes of that work and demonstrating how we have carried out the core tasks of select committees.[1] A full list of subjects into which we inquired is set out below:

Table 1: Subjects covered in oral evidence by the Treasury Committee and its Sub-Committee in 2008
SubjectEvidence sessions in 2008 Main committee or Sub-Committee Outcome and month of publication
Run on the Rock

Financial Stability and Transparency

8
Main CommitteeReport, January 2008
Report, March 2008
Bank of England February 2008 Inflation Report
1
Main CommitteeEvidence, April 2008
Financial Reporting and the National Accounts
1
Main CommitteeEvidence, April 2008
Re-appointment of Dr Andrew Sentance to the Monetary Policy Committee
1
Main CommitteeReport, April 2008
The 2008 Budget
3
Main CommitteeReport, April 2008
Counting the population
4
Sub-CommitteeReport, May 2008
Administration and expenditure of the Chancellor's departments, 2006-07
3
Sub-CommitteeReport, May 2008
Re-appointment of Mervyn King as Governor of the Bank of England
1
Main CommitteeReport, May 2008
Budget Measures and Low Income Households
2
Main CommitteeReport, June 2008
Inherited Estates
2
Main CommitteeReport, June 2008
Private Equity
1
Main CommitteeEvidence, July 2008
Appointment of Lord Turner of Ecchinswell as Chairman of the Financial Services Authority
1
Main CommitteeReport, July 2008
Appointment of Charlie Bean as Deputy Governor of the Bank of England
1
Main CommitteeReport, July 2008
Appointment of Spencer Dale to the Monetary Policy Committee of the Bank of England
1
Main CommitteeReport, July 2008
Child Trust Funds: follow-up
1
Sub-CommitteeEvidence, August 2008
Bank of England May 2008 Inflation Report
1
Main CommitteeEvidence, August 2008
Estate Management in the Chancellor's Departments
1
Sub-CommitteeEvidence, August 2008
Banking Reform
2
Main CommitteeReport, September 2008
Bank of England November 2008 Inflation Report
1
Main CommitteeEvidence, November 2008
Regulation of Oil Markets
1
Main CommitteeEvidence, October 2008
Bank of England August 2008 Inflation Report
1
Main CommitteeEvidence, November 2008
Economics of the Housing Market
1
Main CommitteeEvidence, November 2008
The work of the Financial Services Authority
1
Main CommitteeEvidence, forthcoming
Banking Crisis
4
Main CommitteeReport, forthcoming
Offshore Financial Centres
1
Main CommitteeReport, forthcoming
Administration and expenditure of the Chancellor's departments, 2007-08
4
Sub-CommitteeReport, January 2009

Overview of work

2.  In an interview given to The Guardian last August, the Chancellor suggested that Britain was facing "arguably the worst economic downturn in 60 years",[2] one which he predicted would be "more profound and long-lasting" than people had hitherto expected. Few people could have confidently predicted the scale of change that has overcome the economic landscape of the world in general, and the UK in particular, over the last year. The UK taxpayer now owns Northern Rock and Bradford and Bingley; has a majority stake in Royal Bank of Scotland; and is set to be a major shareholder in Lloyds TSB following its proposed merger with HBOS. The Government waived competition rules and sanctioned the takeover by Lloyds TSB of HBOS. The instability of the UK's financial markets was mirrored across the globe, most notably in the United States.

3.  In March 2008, Bear Stearns, the renowned Wall Street investment bank, was bought by JP Morgan Chase for ten dollars per share, a price far below the 52-week high of $133.20 per share, traded before the crisis.[3] Bear Stearns had taken a major role in packaging and selling mortgage-backed securities, and their hedge funds were heavily exposed to the sub-prime mortgage crisis. The Federal National Mortgage Association, commonly known as Fannie Mae, and the Federal Home Loan Mortgage Corporation (Freddie Mac) owned or guaranteed about half of the US's $12 trillion mortgage market. On 7 September, the U.S. Government established the Federal Housing Finance Agency (FHFA), to act as "conservators" of Fannie Mae and Freddie Mac. Its director, James Lockhart described the move as "one of the most sweeping government interventions in private financial markets in decades".[4] On 15 September, Lehman Brothers, one of the giants of international finance, filed for Chapter 11 bankruptcy protection; that filing marked the largest bankruptcy in U.S. history.[5]

4.  The UK property market, having enjoyed many years of continuously rising prices, has suffered a sharp correction and seems set to fall further. Unemployment is now rising and businesses face serious pressures. In the Pre-Budget Report statement on 24 November 2008, the Chancellor stated that his "central objective is to respond to the consequences of this global recession on our country".[6] The PBR sought to provide an emergency fiscal stimulus to redress the critical situation, one which envisaged public sector net borrowing rising to 8% of gross domestic product by 2008-09 before declining to 2.9% by 2013-14.[7]

5.  Such a sombre backcloth has presented numerous challenges for HM Treasury and the Chancellor's departments, requiring their activities more than ever to be subject to the most stringent scrutiny. It is appropriate that the Treasury Committee should be a key player in this scrutiny. Its remit is to "examine the expenditure, administration and policy" of HM Treasury and HM Revenue & Customs and associated public bodies.[8] It has a responsibility to review, and where appropriate challenge Government policy, a responsibility particularly acute given the burden the taxpayer is being asked to bear, the threat to businesses and individuals livelihoods, and the grave downside risks if measures to ensure recovery should fail.

6.  So our work this year has been dominated by an analysis of some of the causes, consequences and implications of the instability in the financial sector. We have looked specifically at the crisis in the banking sector and more generally at the need for transparency and stability in financial markets. We have not, however, neglected our more regular activity such as our monitoring of the Bank of England's work in meeting the inflation target, pre-appointment hearings for nominees to the Monetary Policy Committee and other important posts and the Sub-Committee's scrutiny of the work of the Chancellor's departments. We have also looked at the issue of climate change, a matter of intense public debate, in the context of our assessment of the implications of the Stern Report. The Sub-Committee undertook a very technical but extremely necessary inquiry into the work of the Statistics Authority in its counting of the population, an exercise of more than academic interest given that population estimates underpin public spending in many areas.

This Report

7.  In recent years, we, along with other select committees, have published reports summarising the work we have undertaken in the calendar year. This Report and future reports on the Work of the Committee will review our work on a sessional basis following the decision of the Liaison Committee. This will ensure that our work can be published alongside sessional activity information published in Sessional Return.

Structure and support

8.  The Committee usually meets twice a week when the House is sitting, in addition to its other commitments such as Committee visits and conferences. In 2007-08 we took oral evidence at 47 of our 58 formal meetings.

9.  We received over 374 pieces of formal written evidence during the year and are grateful to the many individuals and organisations who responded to our requests. These submissions form the basis of our evidence sessions and subsequently the reports that we produce. All correspondence received is carefully assessed and, although we are not able to intervene on behalf of the individual cases put to us, we have been able to identify emerging and consistent themes within the correspondence and raise these with our witnesses during the course of our inquiries.

10.  We have continued to receive helpful insight and contributions from our team of Specialist Advisers. Their expertise is invaluable when examining the complexity of subjects within our remit and we would therefore like to thank Roger Bootle, Professor Sheila Dow, Professor David Heald, Professor David Miles, Professor Anton Muscatelli, Professor Danny Quah, Bridget Rosewell, Professor Andrew Scott, Professor Colin Talbot and Professor Geoffrey Wood. We are grateful to all those who have advised us in our work in this way.

11.   We have also welcomed the continuing advice and briefing papers prepared by the Committee Office Scrutiny Unit and the National Audit Office. We greatly appreciate this valuable input.

Visits

12.  Evidence taken at Westminster is usefully complemented by information gathered in the course of visits, which play a crucial role in the Committee's consideration of policy options. In 2007-08 we undertook eight visits (three were undertaken in a representative capacity)[9] listed in Table 2 opposite.

Table 2: Visits by the Treasury Committee and its Sub-Committee in 2007-08
LocationMain Committee or Sub-Committee Members of the Committee who attended the visit DatesPurpose of visit
Stockholm, SwedenMain Committee & Sub-Committee McFall, Ainger, Brady, Fallon, Todd 26-28 November 2007 Financial stability and transparency and Counting the population inquiries
Washington DC, USA Main Committee A McFall, Fallon 11-13 December 2007 Financial stability and transparency inquiry
European Central Bank, Frankfurt, Germany and European Parliament Brussels Main CommitteeMcFall, Ainger, Brady, Fallon, Love, Mudie, Thurso, Todd, Viggers 7-8 January 2008Financial stability and transparency inquiry
European Parliament, Brussels Main Committee A McFall 22-23 January 2008 Inter-Parliamentary Union meeting on economic policy and financial stability
Paris, FranceMain Committee A Fallon 21-22 February 2008 OECD high-level Parliamentary seminar on recent financial market trends and issues
Bank of England, London Main CommitteeMcFall, Breed, Dunne, Fallon, Keeble, Love, Thurso, Viggers 15 May 2008Financial stability and transparency inquiry
Jersey and the Isle of Man Main CommitteeMcFall, Ainger, Brady, Love, Todd, Viggers 7-9 July 2008Offshore financial centres inquiry
Singapore and Tokyo, Japan Main CommitteeMcFall, Ainger, Brady, Breed, Dunne, Fallon, Love 1 October 2008 Financial stability and transparency inquiry

A Travel in a representative capacity

13.  Our visit to Sweden in November 2007 enabled us to talk to senior officials in the Riksbank, the Swedish central bank, and in the Ministry of Finance, whose direct experience of handling a major banking crisis provided insights which have influenced our subsequent work on Financial Stability and Transparency and Banking Reform. We also held discussions with the Finance Committee of the Swedish Parliament about the oversight of monetary policy and learnt more about the Swedish approach to estimating its population during a meeting with Statistics Sweden, in advance of the Sub-Committee's inquiry into Counting the population.

14.  Our visit to Washington DC was also undertaken as part of our inquiry into Financial Stability and Transparency. The information that we gathered on that visit allowed us to assess the strengths and weaknesses of the US special resolution regime for banks and depositor protection system. This analysis underpinned some of our key recommendations in our Report on Northern Rock (Run on the Rock).[10]

15.  Our inquiry into Offshore Financial Centres was greatly enhanced by a visit to the Isle of Man and Jersey in the early stages of the inquiry. We explored how transparent the Offshore Financial Centres were in their dealings and discussed how their taxation policies have affected both overall financial stability, and the UK's taxation and revenue policies. The visit allowed us to engage in a dialogue that, given the inherent opacity and complexity of some of the business activity within these centres, was unlikely to have been possible in the more formal setting of Westminster. The visit also provided a timely insight into the uses of offshore accounts by British citizens which has enabled us to raise specific concerns with the Chancellor, about the collapse of the Icelandic bank, Kaupthing Singer Friedlander (KSF), and the consequential failure of KSF's and Landsbanki's operation in Guernsey and the Isle of Man.

16.  Our visit to Japan and Singapore made an important contribution as part of our current major inquiry into the Banking Crisis, and proved invaluable to informing our analysis of the unfolding financial situation. The visit to Japan focused on the work undertaken by the Japanese Financial Services Agency and the Bank of Japan to modify their regulatory systems following the 1990 banking crisis which led to the so called "lost decade" in the Japanese economy. We also had the opportunity to discuss the Japanese system of deposit protection, which fully protected non-interest bearing accounts and served to inform our subsequent analysis of the problems with UK depositor protection. The visit also provided an opportunity to discuss with a major financial centre the ongoing problems in the world financial markets and potential solutions.

17.  We are most grateful to all those who hosted us during our visits and in particular we thank the Foreign and Commonwealth Office and the staff of all the institutions we visited for their excellent assistance and support.


1   For Report on our activities in 2007 and references to earlier Reports of the Treasury Committee, see: Treasury Committee Third Report of Session 2007-08, Work of the Committee in 2007, HC 230. Back

2   The Guardian, 30 August 2008 Back

3   The New York Times, JP Morgan Pays $2 a Share for Bear Stearns, 17 March 2008 Back

4   Federal Housing Finance Agency, Statement of FHFA Director James B. Lockhart, 7 September 2008 Back

5   Lehman folds with record $613 billion debt". Marketwatch. 15 September 2008 Back

6   Pre-Budget Report statement to the House of Commons, delivered by the Rt Hon Alistair Darling MP, Chancellor of the Exchequer, 24 November 2008  Back

7   HM Treasury, Pre-Budget Report 2008: Facing Global Challenges: supporting people through difficult times, Cm 7484 Back

8   Standing Order 152 Back

9   The Committee may formally authorise one of its Members or a number of its Members less than its quorum to undertake a visit on its behalf. Such visits are classified as travel in a representative capacity. Back

10   Treasury Committee, Fifth Report of Session 2007-08, The run on the Rock, HC 56-I Back


 
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Prepared 29 January 2009