Work of the Committee 2008-09 - Treasury Contents


1  Introduction


1. The Treasury Committee scrutinises Her Majesty's Treasury, its departments and associated public bodies including the Financial Services Authority (FSA) and the Bank of England. Within its terms of reference, the Committee chooses its own subjects of inquiry. Depending on the subject, external deadlines, and the amount of oral evidence the Committee decides to take, an inquiry may last for several months and give rise to a report to the House; other inquiries may simply consist of a single day's oral evidence which the Committee may publish without making a report. In common with other select committees, the Treasury Committee does not have the power to legislate; rather it seeks to influence the Government through effective examination of government expenditure, administration and policy. The Committee reports its conclusions and recommendations to the House; although the Government (and other relevant bodies) must respond to each recommendation they are not bound to act upon them.

2. Session 2008-09 has been a very busy year. This Report provides an account of our activity and achievements during this period.[1] It also reviews the work of the Committee in relation to the objectives and core tasks of select committees established by the Liaison Committee.[2]

Overview of Work

3. The turbulence in the financial sector that began in the UK with the collapse of Northern Rock in September 2007, and in the US with the bankruptcy of Lehman Brothers a year later, continued to send shock waves through the UK economy deep into 2009. At the beginning of Session 2008-09 the Government (having already taken a majority stake in the Royal Bank of Scotland) waived competition rules to allow the merger of Lloyds TSB and Halifax Bank of Scotland. In March 2009 the Bank of England began a programme of asset purchases for monetary policy purposes—a measure known as quantitative easing. To date this has seen £200 billion injected into the economy. March 2009 also saw the publication of The Turner Review: a regulatory response to the global banking crisis. In the Review Lord Turner, Chairman of the FSA, noted that:

Over the last 18 months, and with increasing intensity over the last six, the world's financial system has gone through its greatest crisis for a least a century, indeed arguably the greatest crisis in the history of finance capitalism. [3]

Unsurprisingly, the Committee's workload during Session 2008-09 was dominated by the banking crisis and the actions taken by the Government, Financial Services Authority and Bank of England (the tripartite authorities) to deal with its consequences.

4. The Committee's major piece of work was an inquiry into the Banking Crisis, which accounted for 18 out of our 38 evidence sessions and 5 of our 16 reports. We did not, however, neglect our regular activities such as the scrutiny of the Budget and Pre-Budget reports, and continued to monitor the work of the Bank of England in meeting the inflation target. We held pre-appointment hearings with those appointed to important public office such as the Monetary Policy Committee, and we examined the expenditure and administration of HM Treasury and HM Revenue and Customs. Details of the programmes of the Committee and its Sub-Committee can be found in the sessional returns annexed to this report.

Highlights of the Committee's work in Session 2008-09

  • Pensions: The Government's pledge that there should be no reward for failure was scrutinised in depth by the Committee and details of Sir Fred Goodwin's pension were first made public at a meeting of the Committee.

  • Consumer detriment: We followed our banking crisis inquiry by looking at how consumers were affected. We raised awareness of the increasing numbers of people affected by increased mortgage arrears charges, the threat of repossession, and the actions of miscreant mortgage lenders.

  • Web-based evidence gathering: We teamed up with moneysavingexpert.com to capture individuals' experiences and difficulties in searching for credit.

  • Visits: We held public meetings in Belfast, Edinburgh, Halifax and Leeds in order to learn first hand how the banking crisis was affecting individuals and small businesses.

  • Ports: Our Sub-Committee reported on the back-dated charges that are causing severe financial distress to many port occupiers. We urged the Government to reconsider its decision to back-date the charges to 2005.

Working practices

MEMBERSHIP

5. Our membership reflects political representation in the House. Eight of our Members—including the Chairman—are drawn from the Government benches, four are from the Opposition and two are from the Liberal Democrat party. Such cross-party representation lends itself to effective scrutiny of the Government. Our findings are generally unanimous and therefore cannot simply be dismissed by the Government as overtly political or partisan.

THE TREASURY COMMITTEE SUB-COMMITTEE

6. On 14 July 2005, the Committee agreed to establish a Sub-Committee to examine the work of the minor departments accountable to the Treasury and other matters referred to it by the main Committee. The minor departments accountable to the Treasury are:

The Sub-Committee scrutinises their performance and accounts on an annual basis and also conducts one major inquiry a year on behalf of the Committee—during 2008-09 it looked at the Government's efficiency programme. The composition of the Sub-Committee is identical to the main Treasury Committee, but is chaired by Mr Michael Fallon MP.

SUPPORT

7. We are supported by a secretariat of eight full time and two shared staff and are grateful for their efforts over the past year. In addition to our secretariat we are also able to call upon expert advice from our team of Specialist Advisers. We would like to take this opportunity to thank Roger Bootle, Professor Sheila Dow, Professor David Heald, Professor David Miles, Karon Monaghan QC, Professor Anton Muscatelli, Professor Danny Quah, Bridget Rosewell, Professor Colin Talbot, and Professor Geoffrey Wood for their invaluable contributions during the course of our inquiries. We are also grateful to the Institute for Fiscal Studies for the support they provided during our inquiries into the Budget and Pre-Budget Reports and to the National Audit Office and House of Commons Scrutiny Unit for their assistance in scrutinising departmental reports and accounts.

PUBLIC ENGAGEMENT

8. Our inquiries are evidence-based. During Session 2008-09 we held 44 meetings and took oral evidence in public on 38 occasions. We also received 430 pieces of formal written evidence. We are grateful to the individuals and organisations who took the time to respond to our requests both for written and oral evidence. In addition to formal evidence we also received over 1,500 pieces of correspondence. In common with other select committees we do not intervene in individual cases. Nonetheless, the letters and emails we received provided useful background information to much of the work we have undertaken over the past year, and many influenced our inquiries.

9. We have also gathered evidence using a web-based forum. Our inquiry into Credit Searches focused on the role of credit reference agencies and the impact of multiple credit searches on people's ability to obtain credit. We called on Martin Lewis at Moneysavingexpert.com to ask his 3.7 million subscribers for their experiences and difficulties in searching for and obtaining credit. We received valuable evidence and the posts on the moneysavingexpert website attracted 6,500 hits. We are grateful to all those who wrote to us unprompted, and to those who responded to our request for information on the web.

Visits

10. Committee visits, whether within the United Kingdom or abroad, provide an important opportunity to engage with people unable to come to Westminster yet whose expertise and experience are valuable to a committee's inquiry. They also allow us to gather information that goes wider than formal evidence gathering, whether it is in wide ranging discussions with a few expert participants, or in public meetings where we can engage directly with people who might not otherwise respond to Committee calls for evidence.

UK VISITS

11. In March 2009 the Committee visited Belfast, Edinburgh, Halifax and Leeds to examine the impact of the credit crunch away from London and the City. Meetings were arranged with members of local communities and local businesses affected by the financial crisis as well as Members of the Scottish and Northern Ireland Parliaments. One of the messages that came out of the meetings was the widespread belief that those responsible for the banking crisis had been treated differently from everybody else. This feeling was particularly acute in Halifax where the Committee held a public meeting attended by many employees and shareholders of Halifax Bank of Scotland. We heard their resentment at the greed and short-sightedness of HBOS management and their anxiety about the possibility of future job losses. In Leeds, directors of small businesses expressed their concern about the visibility of the Government's schemes to support businesses during the financial crisis. These concerns were echoed in Northern Ireland, where members of the local business community told us that knowledge of the various support schemes put forward by the Government was 'patchy'. The meeting in Northern Ireland was also attended by members of the Presbyterian Mutual Society (PMS), and we learnt about the uncertainty and worry that savers with the Society were enduring as a result of the Society's collapse.

12. We are grateful to those who gave up their time to meet the Committee during our UK visits. We took away from the visits a clear sense of the issues and concerns facing members of the public and small businesses and conveyed many of these, such as the plight of savers with the PMS, to the Chancellor of the Exchequer at a meeting on 19 March. The information gathered during the visits also fed into our report Banking Crisis: dealing with the failure of the UK banks.[4] In the report we noted our concerns about the "availability and terms of credit to the small business sector",[5] and deplored the actions of a number of banks, "who have received so much public money and behaved in such an insensitive manner particularly to established customers".[6]

13. During the course of the year we also visited HM Treasury, UK Financial Investments Ltd and the Debt Management Office. Officials within these bodies provided an informative and useful insight into their work and how they were responding to the challenges presented by the banking crisis.

OVERSEAS VISITS AND INWARD VISITORS

14. Overseas visits offer an international perspective to a committee's inquiry. Given the global nature of the financial system, our work would be severely limited without them. Our visit to Brussels in January 2009 enabled us to engage directly with the Commission on responses to the banking crisis by the UK and other member states. We discussed with Neelie Kroes, Commissioner for Competition, the Commission's investigation into Northern Rock's receipt of State Aid and the application of the State Aid rules in general. Commissioner Kroes warned us about the dangers of protectionism, and stressed the importance of member states working together to find a collective response to the financial crisis. Charlie McCreevy, Commissioner for Internal Market and Services, offered us an insight into the Commission's position on reform of the global financial architecture including amendments to accounting standards, securitisation, and the regulation of cross-border banks, credit ratings agencies and hedge funds. The visit to Brussels took place a week after the FSA lifted its ban on short selling and there were concerns about hedge funds shorting stocks in UK banks, which we were able to discuss with Commissioner McCreevy. This gave us valuable background information for our subsequent evidence session with hedge funds.

15. Visits to the United States have become an established and integral part of the work of the Treasury Committee over several Parliaments. They enable the Committee to learn more about the state of and prospects for the US and world economies, an understanding of which is of fundamental importance in the Committee's core work of examining the Treasury's handling of the economy. We visited New York and Washington DC in May 2009, where we met financial institutions and Government bodies, the IMF and the World Bank, whose work is essential to our oversight of the United Kingdom's role in international monetary and financial arrangements.

16. It is self-evident that the banking crisis and subsequent economic crisis, as well as any subsequent recovery, are heavily rooted in the US. Visiting the US in May was especially useful in the context of our work on the international dimensions of the banking crisis and proposed changes to the architecture of financial regulation and supervision. We were privileged to meet people with deep and personal knowledge of the US financial sector including Paul Volker, Chairman of the Economic Recovery Advisory Board, and other senior figures in the Obama administration, the House Financial Services Committee, JP Morgan, Deutsche Bank, the Federal Reserve and New York Stock Exchange amongst others. The US and the UK face many similar challenges. We held illuminating discussions on issues such as the impact of the banking crisis on levels of household debt, whether banks have become too big to fail, obstacles in the valuation of toxic assets, the likely trajectory of recovery of both the US and world economies, and the potential problems faced by both the US and UK governments in devising exit strategies for their holdings in companies.

17. On the last day of the visit we met Dominique Strauss-Kahn, Managing Director of the IMF. Mr Strauss-Kahn warned us about the potential contagion of problems in Eastern European economies spreading into Western Europe. We learned much about the role of emerging economies in any recovery. We have just returned from a visit to Frankfurt, Vienna and Budapest where we further investigated this area.

18. We are extremely grateful to all those who hosted our visits. In particular, we thank the Foreign and Commonwealth Office. The help we have received from the Ambassadors and the staff they lead has been vital to our work. Their involvement has been crucial to ensuring that our visits fulfil their purpose. We are also extremely grateful to the staff of all the institutions we visited for their excellent assistance and support.

19. Meeting members of overseas parliaments provides a useful means of sharing ideas and best practice. In Session 2008-09 we hosted delegations from the finance committees of the Parliaments of Japan, Bosnia and Herzegovina, China, Indonesia, New Zealand and the United States. Visits in a representative capacity are another useful means of interacting with colleagues from other Parliaments. These visits involve no more than one or two members of the Committee and typically involve attending conferences or seminars overseas. This year members of the Committee attended the High Level Parliamentary Seminar on the Global Financial and Economic Crisis hosted by the OECD in Paris, and the Economics of Climate Change and Sustainable Public Finance conference hosted by the Swedish Parliament as part of their chairmanship of the European Union.


1   Parliamentary session 2008-09 began with the State Opening of Parliament on 3 December 2008 and ended on 12 November 2009 Back

2   Liaison Committee, First Report of Session 2006-07, Annual Report for 2005-06, HC 406, para 7 Back

3   Financial Services Authority, The Turner Review: A regulatory response to the global banking crisis, March 2009 Back

4   Treasury Committee, Seventh Report of Session 2008-09, Banking Crisis: dealing with the failure of the UK banks, HC 416 Back

5   Treasury Committee, Seventh Report of Session 2008-09, Banking Crisis: dealing with the failure of the UK banks, HC 416, para 189 Back

6   Ibid. Back


 
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Prepared 11 December 2009