Mike Freer: That is one argument, but the contrary argument is that if the chosen candidate fails to carry the support of a substantial number of Members—there could be a majority of just one—there would be a credibility gap and the candidate would be damaged. What if the Chancellor were forced to withdraw a candidate or if the candidate chose to withdraw and we ended up with a second candidate or a third, eventually getting to the least worst candidate? That is not good

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governance; it is certainly not good for the credibility of the institution and cannot be good for the policy of the Bank of England.

People say, “Well, if there is a delay, it does not matter too much; it is more important to get the right person for the job.” Members will recall that when the former chairman—if that is the correct term—of the International Monetary Fund, Mr Strauss-Kahn, was forced to resign, the gap between his departure and the appointment of Mrs Lagarde caused a huge sense of drift in the international markets. That should cause the House to think twice about creating a scenario that could cause the same sense of drift here.

I have another objection to the Bill. We have already agreed to a fixed eight-year term for the Governor’s appointment. That is a difficulty in itself, because the eight-year period will not be coterminous with the fixed parliamentary terms, but if we continue to delay an appointment, a huge problem may be caused. Governors could be appointed mid-Parliament, which could lead to a politicisation of the appointment.

Kwasi Kwarteng: Does my hon. Friend not agree that the plan for an eight-year fixed term is a much better safeguard for independence, and for the ability of the Governor to do his or her will and act according to his or her abilities, than the Bill’s proposal to make the appointment contingent on the will of the Treasury Committee?

Mike Freer: I certainly agree that the fixed-term appointment is a huge step towards independent stability. As I was trying to explain, what concerns me is that if the vacancy arose after a change of Government, the new governing party could seek to ensure that the new Governor was much more in tune with its own political views. I fear that both the appointment and the removal are much more likely to be politicised if the Select Committee gets its way.

Mark Durkan: The hon. Gentleman has suggested that the Government might have a partisan agenda in appointing the Governor. Surely the best way of protecting the appointment from the allegation that the Chancellor’s motivation was purely partisan is to give the Select Committee a role, whether the appointment is made at the start of a Parliament or, even more interestingly, at the end.

Mike Freer: The hon. Gentleman is absolutely right. I do not think that any appointment is without politics, but I fear that a Select Committee is much more likely to adopt a political method. We have recently seen Select Committee investigations involving minority reports, and the pursuing of party political agendas in the interrogation of witnesses.

Mark Durkan: Did the hon. Gentleman vote for a parliamentary inquiry yesterday? Did he support all the arguments that were advanced in its favour? He seems to be contradicting those arguments now.

Mike Freer: I did vote for a parliamentary inquiry, and I do not disagree with some of the points that the hon. Gentleman has made. However, I believe that a Select Committee’s role is to investigate. There is a huge

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difference between investigating issues and appointing executives with Executive powers who can intervene daily in monetary policy, and there is a significant difference between making such appointments and the interviewing of bank chief executives for wrongdoing.

I have not set myself against reforms. I have no doubt that the appointment of Governors and other senior public officials requires greater transparency than we have seen hitherto. What worries me is that, while pre-commencement hearings are a good thing, involving the Select Committee in the right of veto will not help and, indeed, could hinder the appointment of Governors. I believe that the Treasury Committee should have a voice but should not have a veto, and I therefore cannot support the Bill.

12.23 pm

Joseph Johnson (Orpington) (Con): I congratulate the hon. Member for Hayes and Harlington (John McDonnell) on his extraordinary luck in topping the private Members’ ballot not once but twice, and on choosing this important subject from among the many that must have competed for his attention.

The Bill, which requires the Treasury Committee to consent to the appointment or dismissal of the Governor of the Bank of England, goes to the heart of a very important constitutional question about the precise nature of the responsibility of, respectively, the Executive and the legislature in relation to public appointments. As we suffer the after-effects of a profound financial crisis, none of us needs to be reminded that this is a matter of interest not just to constitutional experts. The quality of regulation and supervision can have dramatic effects on rates of economic growth and on the wealth of nations.

Furthermore, as the hon. Member for Hayes and Harlington said, at a time of great change in the regulatory framework, which deliberately places the Bank of England at the very heart of our financial system, it is entirely right to double-check that we do, indeed, have in place appropriate scrutiny mechanisms for the Governor. The Financial Services Bill, which is now in the other place, gives the Bank considerable new powers in macro-prudential and micro-prudential regulation, and in the assessment and management of financial crises. Its governance should, indeed, be appropriate to these new powers, as the Treasury Committee has argued in its review of the Bank’s accountability to Parliament.

While I agree with the hon. Gentleman that the Bank must be accountable for its actions, I am reluctant to go as far as him, in calling for the radical step of providing the Treasury Committee with co-decision rights, in the form of a veto over appointment and dismissal. I will try not to linger over arguments that have already been very well made by many colleagues on the Government Benches, but let me reiterate that there has been an increase in accountability since the Bank acquired operational control over the setting of interest rates in 1997. While Bagehot’s dictum,

“We must not let daylight in upon magic”,

applied initially to the monarchy, it could have been said to have applied just as well to the Bank of England prior to 1997, but that is clearly not the case today.

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Since 1997, the Treasury Committee has held regular pre-commencement hearings with the Governor, deputy governor and Monetary Policy Committee members, providing Parliament with a valuable opportunity to challenge key appointees before they begin work. Since 2009, these appointments have also been subject to open public competition. That was precisely what happened in 2009, when Paul Tucker became deputy governor, and this Government, like the previous Government, have agreed that that eminently sensible practice will continue.

The process of increasing accountability has carried on under this Government. Provisions in the Financial Services Bill for a non-renewable eight-year term, rather than the current system of a renewable five-year term, combined with internal reform of the Banks’ board arrangements, will further reinforce the Governor’s independence from the Government and the quality of oversight undertaken by the court of the Bank of England. The accountability deficit, which definitely existed, has therefore narrowed considerably over the past 15 years, and it will close still further if the Bill is enacted. Providing for a parliamentary veto over the appointment and dismissal of the Governor is not an ideal solution for closing what might remain of any accountability shortfall. I do not want to repeat what has already been said, in particular by my hon. Friends the Members for Wimbledon (Stephen Hammond) and for Great Yarmouth (Brandon Lewis) in their excellent speeches, but I worry that giving the Treasury Committee strong powers—in effect, powers of co-decision—in the appointment of the Governor might negatively impact on the Committee’s ability to scrutinise the Bank and hold the Governor to account for his performance. Put simply, Committee members will be unwilling to criticise the work of the Governor if they were complicit in his appointment in the first place. Having invested their own reputational capital in the appointment of the Governor, they will inevitably to some extent pull their punches in questioning him later. That is just human nature, and that is why we have a separation of powers in the Committee system.

Jeremy Corbyn: The hon. Gentleman is obviously experienced in these matters, but what about the parallel case of local government-appointed chief executives? Also, the fact that there is a joint appointment of the Metropolitan Police Commissioner by the London assembly, the Mayor and the Home Secretary does not fetter their ability to ask tough and robust questions, as they are required to do—and as we are required to do. I do not see why somebody who was involved in deciding who to appoint to a post will later not properly question what that appointee does. We are here because people have sent us here to ask tough questions.

Joseph Johnson: I thank the hon. Gentleman for his excellent intervention, but I would make an important distinction between being consulted and having the right of decision. That is a fundamental distinction and, on balance, arrangements that tilt towards giving the Select Committee system powers of decision over public appointments are going too far. The role of Select Committees might be better restricted to consultation than decision.

Brandon Lewis: Does my hon. Friend agree that there is another distinction, particularly for the example of local authorities? I was a local authority leader when we

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appointed a chief executive, and there are two implications. First, although the chief executive is approved by the council, they are always clearly the choice of the leader and, more to the point, they are the chief executive of the body appointing them. They do not become the governor of a body that is, in theory, completely independent, as would be the case with the Select Committee.

Joseph Johnson: I thank my hon. Friend for that point. I remind the House of what I was permitted to relay about the private views of the Chairman of the Treasury Committee. His private view—he was not speaking in his capacity as Chairman of the Committee—

Madam Deputy Speaker (Dawn Primarolo): Order. With respect, shall we leave the Chair of the Treasury Committee to express his own views and stop talking about his private views?

Joseph Johnson: Thank you, Madam Deputy Speaker. I will follow that guidance.

I am equally concerned that giving the Treasury Committee a veto over the dismissal of a Governor could, in certain circumstances, create an unacceptable situation in which the Governor has lost the confidence of the Government but hangs on as a lame duck. That would clearly be unacceptable given the Executive powers he would be discharging on behalf of the state. That is exactly why the Government have historically attempted to address those issues by limiting the Treasury Committee’s role to non-statutory pre-commencement hearings with members of the Bank’s policy committees, which of course already include the Governor and deputy governors.

Let us not forget that the Treasury Committee already has a huge impact through its oversight, as Lord Burns noted in another place,

“simply by the way it brings people in, talks to them, summarises its opinions and then leaves it in the hands of Ministers to decide how far they wish to take account of those views”.—[Official Report, House of Lords, 26 June 2012; Vol. 738, c. 163.]

Kwasi Kwarteng: Does my hon. Friend think that the Bill would give the Select Committee enormous powers that are totally incommensurate with its constitutional functions in this House?

Joseph Johnson: Yes, I could not agree more with my hon. Friend. Like other Members who I will not mention again, I think that it would be far preferable for the Treasury Committee, if it is to have a formal role in any appointment of the Governor of the Bank of England, to be a statutory consultee. I do not believe that it would be remotely appropriate, however, for it to be given powers of decision over any such appointments.

In my view, moving towards the system of making the Select Committee a consultee, perhaps through a tweak to the Financial Services Bill as it goes through the other place, would be a more sensible system that would not cloud lines of accountability and would, in my view, avoid putting the Treasury Committee in the position in effect of having to mark its own homework. That would inevitably be the case if it were given veto rights over a candidate that it had itself jointly chosen in a binding pre-appointment hearing. From Parliament’s perspective, I believe that it would be better and preferable

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to stick with the status quo, whereby the appointment of the Governor is a matter for the Crown on the advice of the Chancellor and the Prime Minister. That enables the Treasury Committee to do its job of holding the Bank to account regularly and effectively in hearings with policy committee members.

In support of calls for a parliamentary veto of the appointment of the next Governor of the Bank of England, much has been made of the supposed precedents set by the Treasury Committee’s veto in the appointment of the head of the Office for Budget Responsibility. Reference has also been made to the rather more long-standing role of the Chairman of the Public Accounts Committee in the appointment of the Comptroller and Auditor General. The CAG is an officer of Parliament but until 1983 was appointed by the Executive. Since the passage of the National Audit Act 1983, the CAG has been appointed following a vote in the Commons on a motion proposed by the Prime Minister with the agreement of the Chair of the PAC. The selection process preceding that is run by an unusual partnership between Parliament and the Government, with the Chair of the PAC sitting on the selection panel with representatives of the Executive.

I happen to think that the comparisons are rather misleading and unhelpful. The role and responsibilities of the Governor in economic and financial policy making are completely different from the role of the Chair and members of the OBR, who are responsible collectively for producing forecasts and other analyses twice a year. In the case of the OBR, a parliamentary veto of the appointment can make sense in terms of providing assurance about the independence of the role of the OBR. The role and responsibility of the Governor are completely different. Whereas the OBR performs an important function in providing an independent and unbiased forecast on which Government policy can be based, the Governor carries out Executive functions on behalf of the state and has responsibilities delegated to him for key areas of economic policy.

A further important difference already touched on by my hon. Friend the Member for Great Yarmouth is that the appointment of a prospective Governor is clearly market-sensitive in a way that appointments to the OBR or National Audit Office in the case of the Comptroller and Auditor General clearly are not. Once an appointment is announced, his or her perceived policy leanings—whether or not, for example, the next Governor is perceived to be a hawk or a dove—can be duly factored into asset prices in an orderly way. Pre-appointment hearings of a sort that give MPs on the Treasury Committee a potential veto could quite easily cause anxiety and costly volatility in financial markets, for little obvious benefit—a point also made by my hon. Friend the Member for Spelthorne (Kwasi Kwarteng).

To reiterate the central point, rather than giving the Treasury Committee a veto, a better option would be to upgrade and modernise consultation arrangements, potentially to include not just the Chair of the Treasury Committee—a point that I made earlier—but the chairman of the court of the Bank of England. It is important that we upgrade and modernise the court of the Bank of England so that it can perform its oversight function more effectively than it traditionally has done and so that it feels properly empowered to use the rights that it already has under the Bank of England Act 1998,

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which are to manage the Bank’s affairs, other than the formulation of monetary policy. That means much more than simply addressing what many have described as an excessively deferential culture at the “court of King Mervyn”, as the

Financial Times

cheekily described it some time ago. It means more than changing the court’s somewhat archaic name, or removing a little of the flummery—the men in pink coats deferentially bearing silver platters around the Bank, and so on.

Jacob Rees-Mogg: It would be a tragedy to change some of the historic appurtenances of the Bank of England that remind us of the great rich tapestry of our history.

Joseph Johnson: My hon. Friend is right. It is important to focus on the substance of what needs to change at the court, rather than on the men in pink coats and the silver platters. That means ensuring that members of the court, or the supervisory board, as the Treasury Committee would prefer it to be called, have the ability and willingness to take a tough and challenging line, with a chairman who is prepared to take on a rather more effective and higher profile role than has, perhaps, been the case in the past.

Logically, if anyone should be given a right to consent to the appointment or removal of the Governor of the Bank of England, it should be the chairman of the court of the Bank of England, rather than the Treasury Committee as a whole. That avoids many of the constitutional difficulties to which many of my hon. Friends have referred.

Mr Hoban: To help my hon. Friend, the Governor can be removed only at the request of the court of the Bank of England.

Joseph Johnson: I thank the Minister for that intervention. The Governor can be removed only with the assent of the court of the Bank of England, but the chairman of the court is not at present a statutory consultee in the appointment of the Governor. One of the means of strengthening the court as an oversight mechanism might be to consider whether the court, through the chairman of the court, could be made a statutory consultee in any appointment process. If the chairman and the court are to be taken seriously by the Governor, and given that it would be unacceptable if a Governor were appointed in whom the chairman of the court did not have confidence, it is essential that he should be seen to be somebody who has played a significant role in the appointment of the Governor. I am therefore sympathetic to the idea—originally floated, I acknowledge, by Baroness Wheatcroft in the other place—that the chairman of the court of the Bank of England should be consulted by the Chancellor, and I hope that the Government might consider tweaking the Financial Services Bill to that effect on Report in the other House.

The legislation as it stands does not prohibit the Chancellor from consulting widely before recommending that a candidate be appointed as Governor, and in practice the Bank of England and the Treasury work closely together to recruit key Bank of England posts. The Financial Services Bill would strengthen the governance

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of the Bank of England if it specifically mentioned the chairman of the court as a statutory consultee, and thereby indirectly achieved the principal objective of the Bill before us without introducing all of the constitutional risks that come with giving the Treasury Committee a veto.

As I said earlier, there is an important distinction between binding pre-appointment hearings and advisory confirmation or pre-commencement hearings. We more or less have the balance right today between those two forms of parliamentary scrutiny, and I strongly urge the House not to veer wildly to an extreme that it may later come to regret.

I have made clear my concern that the Treasury Committee’s ability to scrutinise the Bank of England effectively would be impaired if we were to make it complicit in the appointment of the Governor. I have also argued that the supposed precedents set by the role of Parliament in the appointment of the head of the OBR and the Comptroller and Auditor General are misleading. With an enhanced role for the chairman of the court of the Bank of England, potentially with a consultee role for the Treasury Committee; with an enhanced and streamlined court of the Bank of England, whose members are empowered to create a real atmosphere of challenge; with the introduction of a single eight-year term for the Governor rather than renewable five-year terms; and with regular scrutiny of the Governor, his deputies and policy committee members by an impartial Treasury Committee, we are putting in place a stable and strong governance structure for the 21st-century Bank of England that will equip it to play a central role in this country’s economic and financial system.

12.42 pm

Matthew Hancock (West Suffolk) (Con): I rise to speak in this important debate to challenge some of the views that have been put forward, but also to set out the deep constitutional changes that are built into the Bill. It is appropriate that the Bill is given full scrutiny in the House, and those who have said otherwise are, with the greatest respect, slightly missing the point about the Bill’s centrality to our constitutional settlement. That is quite a strong thing to say, but I will go into it, and also discuss some of the international and historical examples that the Bill brings to light.

Dr Johnson, in his celebrated dictionary of the English language—a man almost as wise as my hon. Friend the Member for Orpington (Joseph Johnson)—defines a Tory as one who adheres to the ancient constitution of the state. While the Tory party is putting that to the test more broadly, I stand as a proud defender of our ancient constitution, even while it needs upgrading from time to time. It is in that role that I speak against the Bill today.

The proponents of the Bill, in particular the hon. Member for Hayes and Harlington (John McDonnell), underestimate its profound implications and how it would alter the foundations on which the Westminster system is built. For it is the job of the Executive to provide strong and decisive government, and it is the task of the legislature to hold that Executive to account. We have heard many speeches that make that distinction. It is a distinction that has survived revolution, war and financial crises, and it even broadly survived 13 years of

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new Labour Government. It has been adopted and revered by some of the greatest and most successful democracies in the world, such as Australia, New Zealand and Canada, all countries with records of strong central bank performance and all countries in which the governor of the central bank is appointed by the Executive without the legislature having a veto.

Brandon Lewis: Does my hon. Friend agree that the structural relationship between our Executive and legislature, the line we have talked about quite a bit today, and the way the Bank of England works and its autonomy are exactly why countries around the world have mirrored our structure so that they can deliver for their residents?

Matthew Hancock: Indeed. The English-speaking world and countries more widely have been wise to mirror that structure because it leads to strong Executive Governments who can deliver for the people in good times and bad. The Bill would have us rend asunder the gossamer fabric of the British constitution. I note that the hon. Member for Foyle (Mark Durkan), who is no longer in his place, supported the Bill, but described it as a significant constitutional departure. However, he also said that it was not a major constitutional departure. I will not go into an analysis of the difference between a significant departure and a major one, but I think that the Bill would wrest a key instrument of Executive power—the power of appointment—away from Her Majesty’s Government and confer it instead on a single Committee of this House.

Kwasi Kwarteng: Other Members have made the point that if we are to go down this route, we should perhaps seek to extend the powers of this House and its Select Committees, whereas the Bill relates to only one appointment. We should really be looking either at the mass or not considering the Bill at all.

Matthew Hancock: Like my hon. Friend, I find it odd that some Members have concentrated on the implications of the Bill, rather than on the Bill itself, and others have made the point he raises clearly. Because that discussion has already been aired quite a lot and I want to keep my comments relatively concise, I will leave it where it is, other than to say that I agree with the broad thrust of his point.

Another implication was raised by my hon. Friend the Member for South Derbyshire (Heather Wheeler) in her short speech. She pointed out that the decisions of the Treasury Committee, and indeed those of all Select Committees, are technically referred to the Floor of the House for what is in almost all circumstances a rubber-stamping exercise. I am a member of the Standards and Privileges Committee, which does in fact have some executive powers, but they are over the running of this House, not the Executive functions of the UK Government under the Crown. That distinction is as vital as the distinction between oversight and scrutiny on the one hand and Executive power and veto on the other—voice not veto, as it has been eloquently put. The constitutional implications are not inconsiderable. Given that the Government have already proposed to spend 10 days in Committee of the whole House discussing a constitutional change of a broadly similar size, the idea that we should pass this Bill—

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Jacob Rees-Mogg: Does my hon. Friend agree with me that 10 days is a negligible amount of time to debate so important a constitutional change and that for a constitutional change of that magnitude, we would need the whole Session?

Matthew Hancock: I agree with my hon. Friend in one respect, which is that changing the separation between the Executive and the legislature that scrutinises them would have great constitutional implications. I ask Members to draw their own conclusions on the contrast between that and merely changing the form of appointment to one of the two Houses of the legislature. That is a matter simply within the legislature, rather than to do with the role of the Crown in Parliament, which is the basis of our constitutional monarchy.

Let me bring the debate down to more practical considerations. If the Treasury Committee were to reject the Government’s preferred choice of Governor, a small number of MPs would effectively have vetoed a Crown appointment. The whole House would not have made that rejection; a small number of MPs would have done so. I do not think that there is any precedent for such a challenge, whereby a small number of MPs who are not Ministers challenge, through the power vested in them, the authority of our Executive—at least not since the days of Charles I, and we all know how that turned out.

Where would the Bill leave the royal prerogative? That question needs to be addressed. What would it mean for the role of the Crown in Parliament? In this jubilee year, as we celebrate 60 glorious years of Her Majesty, these are questions to which we need answers. It is perhaps no coincidence that the original proponent of this broad constitutional change was himself an avowed republican, with a history of great hostility to the Crown’s role in government: Tony Benn. Indeed, I understand the heartfelt and strongly held republican position of the hon. Member for Hayes and Harlington. He does not contradict me, so I presume that is his position. The Bill directly challenges that question of parliamentary accountability.

The Governor of the Bank is already accountable to the Treasury Committee for his or her decisions on monetary policy and financial stability, but I turn to the question of the increasing role of the Bank, because there is no doubt that under the Financial Services Bill it will have a bigger role than hitherto. The separation of bank regulation from monetary policy is a flaw and a mistake that has had grievous consequences, not least because the banking system is the conduit for monetary policy’s impact on the real economy.

I therefore strongly and passionately support the relevant change in the Financial Services Bill, but it does not follow directly that, under it, the position of the Governor is stronger than hitherto, because up until and including today in matters of financial stability the Governor has been imperial within the Bank of England. Executive powers over the areas of financial stability for which the Bank is responsible are the sole responsibility of the Governor in person, accountable to the court of the Bank and to the Treasury Committee.

Under the new proposals, the Governor will chair the Financial Policy Committee, and it is in that committee, rather than in the individual, that powers over financial stability will be vested. So on matters of financial stability not only will there be accountability externally,

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but decision making will be conferred on a committee that the Governor chairs, rather than on the person of the Governor himself.

Mr Hoban: Does my hon. Friend, who served with me on the Financial Services Bill Committee, not share my view that we risk over-personalising the debate by suggesting that the Governor exercises all judicial power? My hon. Friend is right to highlight the fact that the Governor will be chairman of the Financial Policy Committee, is chairman of the Monetary Policy Committee and will have three deputy governors to work with. These powers are and will be vested in the institution, not in the person of the Governor.

Matthew Hancock: I am grateful to the Financial Secretary to the Treasury for making that clear, and I agree wholeheartedly. In the debate about accountability under the Financial Services Bill, one fact often overlooked is that, whereas previously a power vested in the Bank of England involved a decision by the Governor alone, for which the Bank’s deputy governors would take collective responsibility, it will now formally involve a decision by a committee, of which the Governor will be chair. That is an important distinction. Despite concerns about increased power going to one individual, in fact the increased power goes to an institution, but the internal arrangements at the institution are being changed in order to reflect that increased power. That is why I strongly support the Financial Services Bill not only in principle but in the design of the system that we are discussing.

To whom would the Treasury Committee be accountable if it had this Executive power? In the words of Juvenal, “Who watches the watchmen?” Under this proposed amendment to the Bank of England Act 1998, the Treasury Committee could stall or reject the appointment of a perfectly qualified candidate for whatever reason it chose— perhaps, heaven forfend, even in order to raise the personal profile of a member of the Committee. Given the powerful investigations by Select Committees over recent months—for instance, into phone hacking—I am sure that we would all be sceptical about the idea that any member of a Select Committee could possibly try to change the way in which an inquiry went forward in order to raise their own personal profile. I am absolutely certain that that does not happen.

Jacob Rees-Mogg: In those circumstances, a Government who commanded a majority in the House of Commons would be able to overturn the Select Committee’s decision or replace its members so as to arrive at a different decision. If the Select Committee were wholly irrational, it could be fired by the rest of the House.

Matthew Hancock: I have a great deal of respect for the intellectual integrity of the supporters of the Bill, but they cannot have it both ways. They cannot argue both that the Bill would have no impact because a Government with a majority could force their decision through the House of Commons and that it would be very important in changing how things operate. If the Treasury Committee vetoed a proposed Governor and that decision was then overturned by a Government vote on the Floor of the House, in practice the direct consequence would be that the position of that proposed Governor would be completely undermined.

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Stephen Hammond: I am interested to follow this line of reasoning. My hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) said that a vote on the Floor of the House of Commons, or perhaps the Government, could overturn a Treasury Committee decision and, if necessary, get rid of the Committee. However, the problem is that Committee members are no longer appointed by Whips but elected, and there is no guarantee that a newly elected Committee would not also choose to be in conflict with the Government.

Matthew Hancock: Of course. The Government must command support for their programme from a majority of the House of Commons, but the Treasury Committee is voted for by Back Benchers, and as the two electorates are different we would not necessarily get the same result from both. The argument put forward by my hon. Friend the Member for North East Somerset—most of Somerset—(Jacob Rees-Mogg) is an argument for deadlock because it could lead to the Treasury Committee pushing one point of view and—because it is elected by a different electorate from those who support a Government—ending up with a contravening view being expressed on the Floor of the House. That is because the Bill would apply to the Treasury Select Committee or its successor body should its name be changed or its powers be passed to somebody else.

Jacob Rees-Mogg: If a Government command a majority in this House, they are in control of the Standing Orders, and therefore if a Select Committee made a wholly irrational decision, it would be completely open to them to find a way to change that Committee. It must always be true that the Floor of the House—the whole House—has command of any and every Committee of the House, but it would be an extreme circumstance for a Government to try to push through such a scheme.


Matthew Hancock: The argument appears to be that we should give the Treasury Committee a power of veto, unless the whole House disagrees with that veto. However, the majority in the House support the Government and it is the Government who initially propose who should be Governor, so the Government could never be overruled in extremis. To support a Bill in which the ultimate safeguard is the abolition of the Select Committee system is a little extreme.

Kwasi Kwarteng: Does my hon. Friend not think that this knotted discussion about the relative powers of the Select Committee and the Government demonstrates the quagmire of indecision and delay that the route proposed by the Bill would lead us into?

Matthew Hancock: I do not think that the principles in the Bill have been well thought through. That is why I started by arguing that the constitutional implications of the Bill are profound and underestimated by its proponents. Many of the questions that are being raised in interventions on me are ones that I had not even thought of while I was wondering what view to take on the Bill.

Brandon Lewis: To add to the point made by my hon. Friend the Member for Spelthorne (Kwasi Kwarteng), does my hon. Friend the Member for West Suffolk

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(Matthew Hancock) agree with the point that I made in my speech, which was that the complication and complexity in this debate highlight the turmoil that this process would create for the markets, even if it lasted for only 24 hours? The damage to the markets could be enormous. My hon. Friend has great experience of this world. What does he estimate would be the cost to our economy of even a 24-hour delay, let alone a delay of several weeks, because of this kind of back-and-forth?

Matthew Hancock: If there was parliamentary deadlock and votes were needed to change the Standing Orders of the House in order to get a Governor of the Bank of England, the cost would depend on the economic circumstances. In good and calm economic circumstances, there would undoubtedly be a cost because of the increased uncertainty in the markets. For example, one might expect the yield on Government bonds to rise and for uncertainty over the future of the banking system to grow, which might have an impact on the LIBOR market. I do not want to touch too much on the LIBOR market. In times of financial stress, such as those that we have been living with for five years with few signs of abatement, the impact of the uncertainty could be very serious indeed.

Brandon Lewis: Does my hon. Friend think that an unintended consequence of the proposal might be that the belief that such complications could happen would put off some of the best potential candidates for Governor of the Bank of England from putting themselves into the process in the first place?

Matthew Hancock: I have no doubt that the appointment of a Governor of the Bank of England should be above politics. We should appoint somebody for their economic, financial and policy-making experience. They should be somebody of weight from that world. The position has rarely been filled by somebody from the world of politics, and for good reason. As well as having to engage in the political world of the country, the Governor has great duties in putting the economic and financial interests of the nation to the fore. I would therefore be concerned if a potential Governor chose not to put their name forward because they did want to get involved in the quagmire of party politics during their appointment. The point that my hon. Friend the Member for Great Yarmouth (Brandon Lewis) makes is an important one, and it anticipates a point that I have on page 36 of my speech. Since I am only on page 4, perhaps I should make some progress.

I will not dwell on the argument that the constitutional precedent would be much wider than simply the implications for the Treasury Committee. My hon. Friend the Member for Great Yarmouth made the point that the Chief of the Defence Staff might have to be confirmed by the Defence Committee, so I shall cross that line out of my speech. A potential head of MI6 might have to be scrutinised by and avoid a potential veto from the Intelligence and Security Committee before being given the job. There are more extreme and absurd examples showing that we should not take this lightly and push a new principle through the House on a Friday afternoon.

My point about Parliament and our system of government is only one consideration, but it is the reason why the principle of the Bill deserves serious and

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profound reflection. Its ramifications could outlive the Government of the day and last many Sessions of Parliament, because once such changes are made they tend to take hold. The appointment of the judiciary is a long-standing and slowly evolving matter, and very few Members would support the idea that the Justice Committee should have a veto over the appointment of High Court judges, but that is analogous to the proposition in the Bill.

I will go through some of the lessons from history and some of the international lessons that are pertinent to the Bill. Central banks are unique financial institutions and have a delicate balancing act to perform. As has been pointed out, the Bank of England was set up in 1694 to finance the nine years war against France. We won that war largely because Britain had the ability to finance a standing Army effectively, through the Bank of England. Instead of borrowing directly from the market, Britain established the Bank of England to issue debt on behalf of the Government. From then on, the strength of the institution was watched and repeated in countries around the world. In 1844, the United Kingdom broke new ground by issuing to the Bank of England a monopoly on the supply of money, so that competing banks could no longer issue banknotes of their own.

Kwasi Kwarteng: Was not one of the principal features of the Bank until its nationalisation that it was entirely independent of the Government? Does my hon. Friend think that was important in any way?

Matthew Hancock: It was, but I would not wish to return to private subscription for the ownership and governance of the Bank of England, because of its role in our political economy. My hon. Friend the Member for North East Somerset might wish to push for that, but I believe that the settlement reached after nationalisation in 1946, whereby the Bank of England has its own capital base but is effectively part of the national political economy and one of the national institutions of economic governance, is the right one, rather than having private shareholders.

Since the Bank Charter Act 1844, other banks have been able to issue notes in sterling, and I believe that nine other banks do so in Scotland and Northern Ireland, but they have to be 100% backed by Bank of England banknotes held in the vaults of either the Bank of England or the issuing bank. That ensures that control of the money supply is within the grasp of the Bank of England rather than any other bank. I know that there are some Members who would prefer to return to the system from before 1844, not least my hon. Friend the Member for Wycombe (Steve Baker), with whom I regularly debate the point. I did so yesterday. However, the broad and settled view of the House is that we should retain the current situation.

Because the central bank is the monopoly provider of money and the lender of last resort, it must share a common strategy with the Government even though it is vital that its operational decisions on interest rates and financial stability are independent. The current appointment process fulfils well the twin objectives of operational independence and broad agreement on strategy. It also means that the Government can appoint a Governor who broadly shares their philosophy of

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economic management, even if the Governor is kept at arm’s length from party political machinations, the 24-hour news cycle, headline grabbing, tweeting and retweeting, and the Westminster bubble culture, which is the special discourse of the modern political set-up.

Economic history shows us the importance of the broad strategic agreement between the Governor and the Government of the day.

Mr Hoban: The Treasury and the Bank currently work together on the funding for lending scheme. Is my hon. Friend aware of any instances in which the sense of co-operation between the Government and the Governor was not quite as strong?

Matthew Hancock: Absolutely, and the Minister will be delighted to hear that he has anticipated the next section of my speech.

The nine years war, which the Bank of England was set up to finance, was the first example of successful co-operation on a strategy between the Governor and the Government of the day. The first Governor was a man called Sir John Houblon—his face appears on a modern £50 bank note, so hon. Members will know him well. Like many of his successors, Sir John dealt with the City but was not part of it. He was a grocer by trade and rose through the East India company—he was a business man who came to the City to oversee the Bank. At that time, the Governor, deputy governors and directors of the Bank were voted for by private shareholders, who had to have a £500 shareholding—a huge amount in those days. The Governor had to have a £4,000 shareholding.

We can only speculate who would get the job now if the late 17th century equivalent of the Treasury Committee had a veto over candidates. The House of Commons was, back in the day, notoriously corrupt and vice-ridden, unlike today. By way of illustration, the prospective parliamentary candidate for a by-election in Bath laid on a meal before polling day. There were 32 voters, but the meal consisted of two boiled haunches, two chines of mutton, four geese, four pigs, 12 turkeys, plain chickens, rabbits, an abundance of claret and sherry, and—my favourite—two venison pasties. A ball to persuade the voters’ wives followed. Glasses were broken and windows shattered at the end of it.

The modern system of corporate governance is similar to chief executive officers having skin in the game in financial organisations. As my hon. Friend the Member for Spelthorne (Kwasi Kwarteng) pointed out, when the Bank was given operational independence in 1997, it was returning to the independence it had enjoyed for 200-odd years until it was nationalised in 1946.

There are examples of when the Bank and the Government have agreed broadly on strategy and prosecuted it effectively, but there are also historical examples of how things can go wrong. The Bank was founded before the first Governor took office by an initial loan made by a Scottish banker called William Paterson. Founding the Bank was not Paterson’s only contribution to economic history; he was also the main instigator of the infamous Darien scheme, which involved a Scottish colony in Panama that was supposed to replicate the success of the English colonies in north America. With a monopoly company facilitating trade

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between the new and old worlds, the Scottish public went wild for the scheme and invested a quarter of the country’s gross domestic product in the embryonic New Caledonia. Of course, the reason the Panama canal is not called the firth of the Pacific is that the colony was a disaster—thanks to poor leadership, endemic diseases and weak demand for Panamanian goods—bankrupted Scotland and led, indirectly, to the Act of Union in 1707. Although William Paterson was not the last Scot to drive a country to the brink of financial ruin, he might have been the first.

I shall cite another example of the Bank and the Government having separate strategies that shows why the Bill would be a mistake. In 1716, a man named John Law, another Scottish gambler-turned-economist, managed to persuade the Government of France that, having defaulted on their debts four times between 1648 and 1715, they could create a scheme to end the national debt by enabling them to take control of the money supply and replace gold and silver, whose price was ruled by the markets, with something that he said would be more stable. He suggested creating a central bank in France along the lines of the Bank of England. In return for the deposits on gold and silver, there would be paper money deposited in a state-owned scheme that would turn it into something more valuable. This proved irresistible to the French people.

Stephen Hammond: On the subject of gold and silver and the gold standard, there is a much more modern example of where the Governor and the Government split over policy—post-first world war and into the 1930s, when Montagu Norman disagreed with the Labour Government about returning to the gold standard. We know the catastrophe that followed then.

Matthew Hancock: In that example, there was one person who understood the implications of returning to the gold standard and whose views were more consistent with the Labour Government’s. John Maynard Keynes argued vociferously for the strategy that many in the Government wanted to pursue but which he could not persuade the rest of the Bank to pursue, which was that they had to stimulate the economy in times of economic weakness and that there would not be an automatic return to growth. That is an argument with which I strongly agree. It is important to ensure an effective stimulus when the economy is weak. The most effective such stimulus today is monetary policy.

That brings us directly to the strategy now. The Bank and the Government broadly agree on the economic strategy of tight and responsible fiscal policy and loose monetary policy in order to deliver economic growth that is sustainable and not based simply on building up more debt. However, immediately before the 2010 general election, when I entered the House, it appeared that the Bank did not agree with the then Government’s strategy. This was destabilising. I used the example from 1716 to show that there is a long history of problems when there is disagreement on strategy, but it is by no means a problem that went away after 1716—it was with us right up until 2010, although fortunately it is not the case right now.

Brandon Lewis: My hon. Friend might have heard an Opposition Member say earlier that this kind of thing will not happen because it has not happened before. Does he agree that the examples he has just given prove

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that just because something has not gone wrong for a long time, it does not mean that it will not cause a problem in the future?

Matthew Hancock: I agree strongly. We need to be vigilant and—dare I say it—humble about how little we know about the future, instead of making grand assertions that because something has not been a problem in the past, it will not be a problem in the future.


Jacob Rees-Mogg: I agree with my hon. Friend that there have been many occasions in history—a few of which I may quote later—when Governors have shown themselves to be hostile to Government policy, but I wonder whether that is an argument against independence of central banks, rather than against the ratification of the appointment of central bankers.

Matthew Hancock: My argument is in favour of the operational independence of central banks—“freedom in a framework”, if I may put it that way, or “constrained discretion”, as economists inelegantly call it. The argument is that the broad strategy should be agreed on and put in place. Within that strategy and agreed framework, independence allows the Bank of England—or the institution making operational decisions—to look past shorter-term considerations and the impact of their decisions on Twitter and the next day’s headlines, and thereby take the political cycle out of the political economy of a decision affecting the country over a long period.

My analysis of the past tells us something important about central banks now. The point is that they should never be forced to do the Government’s bidding in the areas delegated to them. As we saw in Weimar Germany and Zimbabwe, removing operational independence has significant risks. Although I respect the view of my hon. Friend the Member for North East Somerset that the so-called Ken and Eddie show resulted in a more effective monetary policy than that which was pursued after operational independence was granted in 1997, I do not agree that the previous structure was better, because the ability to look past the political cycle is of value.

Jacob Rees-Mogg: I wonder whether we sometimes try to perfect structures as against what actually works. The period of monetary policy from 1998 through, really, to 2010 was disastrous, and was responsible for some of the problems from which we are still suffering.

Matthew Hancock: I agree with my hon. Friend that money was too loose. In fact, the growth of bank balance sheets—and, therefore, the money supply—was running at up to 25% a year for several of the years leading up to the crisis. The problem of over-leverage and too rapid growth in broad money is one of the things we are now dealing with as banks try to deleverage. Mistakes were made, but I would not put that down to the independence of the Bank, not least because, in whatever structure, the appointment of the right person and a system to appoint them is crucial, and this debate is directly relevant to the Bill.

Jacob Rees-Mogg: I wonder whether one can draw any conclusions from appointments during this period, because Sir Alan Greenspan—with his honorary

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knighthood—in the United States, whose appointment was ratified by the Senate again and again, was probably one of the worst central bankers in history, and I need not tell my hon. Friend how central bankers were appointed in the United Kingdom.

Matthew Hancock: My hon. Friend anticipates a couple of the points I shall go into in more detail later.

Mr Nuttall: At the start of my hon. Friend’s reply to the last-but-one intervention from our hon. Friend the Member for North East Somerset (Jacob Rees-Mogg), he said that the money supply was too loose after 1997. What does he think about the Bank of England’s decision yesterday to print another £50 billion?

Matthew Hancock: I supported yesterday’s decision, because one thing we are dealing with now is the consequence of money being too loose, which is the deleveraging in the banking system, which is causing a huge drag on the economy. Therefore, the mitigation of that deleveraging, through loose monetary policy—low interest rates and in a quantitative sense—is something that I support. However, more strongly than I support the Bank’s decision, I support its ability to make it in a way that is unconstrained by political considerations.

Mr Deputy Speaker (Mr Nigel Evans): Order. Any chance of mentioning the Bill from time to time?

Matthew Hancock: Absolutely; this argument is vital to the Bill. It is a question of whether the Governor’s appointment should be in the gift of the Government or should be capable of being vetoed by people who are not necessarily the Government’s appointees. I apologise if I did not make it clear why this is precisely and closely related to the Bill.

In considering the Bill’s impact, it is important to remember that the Governor is only one member of the Monetary Policy Committee and of the Financial Policy Committee. As we saw last month, the Governor voted in favour of quantitative easing a month before the Committee had a majority for it. In that light, it is slightly odd that the Bill considers only the Governor when the body that determines our monetary policy is the whole membership of the Monetary Policy Committee. There are nine members, five of whom are executives of the Bank of England and four are so-called external members. While the Treasury Committee has oversight of, and the ability to scrutinise, all the others, there is no proposal for the other eight Committee members or the other members of the Financial Policy Committee to be subject to a veto by the Treasury Committee. In that sense, those who support the arguments in this Bill—I do not—should support a veto over the appointment of the other members of the Committee.

The Bill makes it clear from line 20 onwards that the deputy governors are not subject to the oversight of the Treasury Committee. Given that the deputy governors have one vote each and the Governor has only one vote, too, although he does by convention vote last, the argument does not change with respect to the deputy governors and the Governor. There is thus a confusion at the heart of the Bill.

The proposed appointment process by the Treasury Committee ignores the measures in the Financial Services Bill, which I think removes the motivation for bringing this Bill forward now. The structure of the Bank of

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England will change from having an imperial Governor to having one who is the head of a committee—the Financial Policy Committee—on the financial stability side of the Bank.

The need for a common strategy between the Bank and the Government is more important now than it has been for a long time. The financial crisis laid bare the importance of co-ordinating monetary and fiscal policy. For a while, it was wrongly believed in this country that those two policies could be separate. Indeed, financial policy was separated again, so we had a tripartite system, with financial policy vested in the Financial Services Authority, monetary policy in the Bank of England and fiscal policy in the Treasury. It is not the case that they were separable. It is clear from how the world is having to manage the current difficult situation that these are not discrete entities, but aspects of one another.

The banks themselves are part of the transmission mechanism, too. I like to say that they stand in relation to the Monetary Policy Committee as the Higgs boson particle stands to matter: they give substance to the Committee’s decisions because they transmit interest rates and monetary policy into the real economy. Similarly, the level of debt in the economy is symbiotically connected to banking regulation because regulation of the leverage of banks has a direct impact on the amount of debt, and the removal of the regulation over leverage and the amount of debt in the economy was one of the main drivers of the over-leverage and vast expansion of the money supply that led to the grave difficulties we face in managing the current economy. That explains why it is so important for the broad strategy of the Government of the day to be supported by the Governor of the Bank of England.

What we do not want to see are more asset bubbles, and we might see those if we had a Governor who did not agree with the strategy of the day. Fiscal policy could work against monetary policy, rather than the two broadly working together both to deal with an over-indebted economy and to enable the decisive action that is necessary to stimulate the economy and prevent a banking crisis from turning into a slump. This is not, as some of my hon. Friends have suggested, a matter that has no impact on our postbags. Although few people write to me about the appointment process of the Bank of England, an error in that process could have a profound impact on our economy, and would doubtless hit our postbags very hard.

Heather Wheeler: I understand the point that my hon. Friend is making, and he is, of course, absolutely right. That is the beauty of being able to make a speech lasting for three quarters of an hour that takes us from A to Z. It is very impressive. Members who prefer to make short speeches tend to allow the floor to others so that they can express all these other views at greater length.

Matthew Hancock: I am grateful to my hon. Friend, although I am slightly embarrassed by her eloquence. As she said in her speech, it matters to people that we get the management of the economy right. When it goes wrong, as it has in the past, that has a massive impact on our postbags. It is therefore right and proper for us who debate these issues in the House to devote a great deal of scrutiny to them.

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The funding for lending scheme, which was announced last month, is a good example of how this works in practice. When interest rates are near zero, the connection between monetary and fiscal policy becomes even tighter. The ability to get low interest rates out into the real economy can depend on the use of the Government’s own balance sheet. The funding for lending scheme and the liquidity scheme, which I think is one of the most vital elements of our economic recovery, are a joint matter involving use of the Treasury’s balance sheet and the indemnity for the Bank of England, and Bank of England action in the markets, both between banks and in the context of the wider availability of debt. That is a clear indication of the requirement for not just operational independence, but a common strategy between the Governor of the Bank and the Government of the day.

Allowing banks to borrow from the Bank of England in order to lend directly into the real economy means having to ensure that the high rates paid by one bank to another because of the insecurity of, ultimately, their creditworthiness and the difficulty of accessing liquidity are not passed on to people who pay for mortgages or businesses that need to borrow to finance investment. Many businesses that have taken advantage of opportunities, and many mortgagees who have bought houses, are capable of repaying a loan directly at a decent interest rate that is worth while to them, but a margin is added because the banks cannot lend to each other at decent rates that are almost free of risk.

The involvement of the Government in liquidity is nothing new. It has not happened for about 15 years, but for several centuries before that, the Bank of England intervened in the provision of liquidity in the City through the discounted bill market. Liquidity was available to ordinary businesses, and indeed to people wanting to buy their homes, when it was supported by the Bank of England, normally as the “third name” on a bill, in order precisely to ensure that the monetary policy of the central Bank—whether independent or not—got into the real economy and did not end up stuck in the banking system, as happens too often today.

As the current Governor of the Bank of England said in his Mansion House speech,

“the long term nature of the lending and its pricing mean that the Bank could conduct such an operation only with the approval of the Government, as offered by the Chancellor…such a scheme would be a joint effort between Bank and Treasury.”

If, as set out in the Bill, the Treasury Committee could veto somebody who had a strategic agreement with the Government, and in their place ensure that only somebody who agreed with its strategy, and not the Government’s, went into the job, that would undermine this potential for joint working.

Jacob Rees-Mogg: I am very sympathetic to what my hon. Friend is saying, but if there were a recalcitrant, stubborn Governor who was not approved by a Select Committee, but was appointed directly by the Executive, and he dragged his heels and was very reluctant to allow an easing of monetary policy, how would a Government deal with that?

Matthew Hancock: That would be an example of where monetary policy and the wider economic policies of the Government were not working in tandem. The Minister explained the procedures for the removal of a

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Governor, and they require the proposal of the court—I think the strengthening of the court is important. There are procedures in place, therefore. It might be thought that a wider discussion of this point would not be in order, but the Bill is about getting rid of the Governor as well as the appointment of the Governor. My hon. Friend might therefore want to touch on that point in more detail later. I had not considered it, but it is important and it should be scrutinised properly and at length by somebody who has considered it more closely than I have.

As for the counter-factual, or what happens when the views of the central bank are at variance with those of the Government, the problem in the years running up to the crisis was not that the leadership of the Bank was too close to the Government, but that the voice of the Bank was being ignored by the Government for political reasons, hence the fact that the growth of the money supply was too fast and the subsequent difficulties in handling the crisis. This was pointed out by the Bank, and Sir Andrew Large made a speech making clear the problems of over-rapid growth of the money supply in 2004. He pointed to the dangers of supposedly benevolent innovations such as the rise of securitisation, and he asked whether that was causing problems that our Government should be addressing. There was no response from the Government of the day.

In May 2006, the current Governor warned that

“a potentially large social problem, with many households getting into difficulty with their debts, is materialising.”

He was in a position to know, because he had received in the post a piece of junk mail—a credit card application from a bank—and the literature said:

“We have the solution, Mervyn, for your bankruptcy.”

The bank in question did not realise that Sir Mervyn King was not bankrupt—and I certainly hope he would never be bankrupt. Indeed, there was a worse problem: one bank—RBS—sent a credit card to a—

Mr Deputy Speaker (Mr Nigel Evans): Order. What has this got to do with the Bill?

Matthew Hancock: It is important that the Governor of the day has the same broad strategy as the Government—but I will move on, Mr Deputy Speaker.

We have one further, and chilling, example.

Mr Nuttall: Just to be clear, will my hon. Friend confirm that the Bill is about the appointment and the dismissal of the Governor and has nothing to do with broad policy?

Matthew Hancock: It is to do with the appointment and dismissal of the Governor, and my argument is that the broad strategy of the Governor must be aligned with the broad economic strategy of the Government, and that this Bill could rend the two asunder.

What is currently happening in the eurozone serves as a definitive example of the problems that can arise when the views of Governments and of the leadership of a central bank diverge, and it shows what could happen if this Bill were to be enacted. The history is familiar to us all, so I will not go through it again in detail. Since the start of the sovereign debt crisis, the European Central Bank has injected euros and liquidity

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into the system, yet monetary policy in much of the eurozone remains very tight. That clearly harms some of the countries in the eurozone. There are tensions as a result of the relatively tight monetary policy and the need for some countries to tighten fiscal policy—there are no fiscal transfers between the members of that currency. That, compounded by weak banks, means that the monetary policy on the ground is even tighter. The lack of co-ordination between the ECB and the countries and Governments in the eurozone is highlighted on our television screens many nights of the week. Greek bond deals leapt more than 10 points to more than 100% when it was announced by the Government in November that there was to be a referendum on the bail-out package supported by the president of the ECB.

We have heard anecdotal evidence so far about the impact of a governor on financial markets and uncertainty. Adam Posen, who serves on the MPC, and Kenneth Kuttner wrote a paper in 2007 which found substantial academic evidence that the appointment of a central bank governor can have a direct impact on the markets, which my hon. Friend the Member for Spelthorne was speaking about. They concluded that

“financial markets tend to react to the appointment of a new central bank governor with larger-than-normal price changes, especially when a distinction is made between ‘newsworthy’ announcements…and those merely confirming an anticipated appointment.”

That is the problem that Members were talking about: uncertainty in the financial markets as a result of bank appointments becoming unclear and uncertain.

I want to take up the question of whether the Treasury Committee should have a veto. I said earlier that I am a member of the Standards and Privileges Committee, and I am also privileged to be on the Public Accounts Committee. That Committee’s power over the appointment of the Comptroller and Auditor General is, I think, similar to the power of veto that the Treasury Committee has over the OBR. The National Audit Office is obviously not Executive but merely a provider of sophisticated information about the Government and the wider world. That distinction between providing information in an independent way, separate from Government, and taking Executive action in the broad strategy set out by the Government is crucial.

As I come to a conclusion, I want briefly to consider the international evidence.

Nick Smith (Blaenau Gwent) (Lab): I thank the hon. Gentleman for giving way. I know that he has been on his feet for close to an hour now, so he will not be aware that a Member from his own side, the hon. Member for Clacton (Mr Carswell), is saying on the Twittersphere that what is going on here is a Government ploy to talk out an attempt to make the Bank of England more democratically accountable. What does the hon. Member for West Suffolk (Matthew Hancock) say to that member of his own party?

Jacob Rees-Mogg: On a point of order, Mr Deputy Speaker. Is it really a proper proceeding if hon. Gentlemen do not come to the House to make their points but make them via Twitter? My hon. Friend the Member for Clacton (Mr Carswell) can come to this House and speak, rather than electronically communicating with us.

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Mr Deputy Speaker (Mr Nigel Evans): I think that it is up to any hon. Member to use whatever communicating devices are at their disposal, quite frankly. The House is clearly here for the hon. Member for Clacton (Mr Carswell) to come to and speak, if he so wishes; if he does not wish to do so, it is up to him.

Matthew Hancock: Hear, hear, I say. I think that all sorts of communication are very useful in this modern age. I respect my hon. Friend the Member for Clacton (Mr Carswell) a great deal—and the hon. Member for Blaenau Gwent (Nick Smith)—but I have a very simple response. As I said at the start of my speech, I think that this proposal would mark a significant constitutional departure. It is about the distinction between the legislature and the Executive and about blurring that distinction. The idea that we should pass the Bill after only five hours of debate on a Friday lunchtime, compared with the 10 days of debate in Committee of the whole House proposed by the Government on House of Lords reform, which merely changes the architecture within that legislative branch, is absurd. If we want to make a change of such importance, we should be able to debate it fully and frankly. Going through some of the historical and international comparisons is vital to a significant change.

Brandon Lewis: Is it not important to consider not only whether we should allow a Select Committee to have the power of appointment or dismissal of the Governor, but the impact that that has on all Select Committees, and the difference between their scrutiny role and their Executive role, which is a big constitutional change in the way that the House works?

Matthew Hancock: My hon. Friend makes the point well so I will not dwell on it. No doubt all Members who have a serious interest in the impact of the Bill are in the House. Those who do not want to come to the House to discuss it are perfectly at liberty not to do so; that demonstrates the amount of interest they have in the consideration of the matters before the House.

Given the scale of the change proposed in the Bill, it is vital that we look at what has happened in the rest of the world. I hope hon. Members will indulge me a moment as I do that. About one tenth of major countries involve their legislatures in the appointment of central bank governors. The United States has been mentioned. Japan, Croatia, Latvia, Armenia, Belarus, Georgia, Macedonia, Lithuania and the Ukraine are also examples of countries where the decision and the veto power are vested in the legislature. Nine out of 10 countries have broadly the set-up that we have. Of that list of countries, only two have financial systems of the same size and sophistication as the UK. They are the USA and Japan. The US system, which is comparable to the proposition in the Bill, has already been discussed.

When I looked a little more closely at the US system, I was surprised to find that in the entire history of the Federal Reserve since it was founded in 1913, not a single presidential nominee for the chairman of the board of the Federal Reserve has ever been rejected by the Senate. We heard the argument earlier from the hon. Member for Edmonton (Mr Love), a member of the Treasury Committee, that we should not worry, as the veto will never be used. It that is an argument for a change of constitutional significance, I do not know of

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a weaker one. The argument that we should change something of great importance because it is never used would not find much support.

The US Senate’s record in vetting all presidential nominations shows little evidence that elected representatives are any better than the Executive at rooting out views on economic policy. One of the people who was most frequently re-vetted and given a warm send-off by the Senate was Alan Greenspan, who served as chairman of the Fed from 1987 to 2006. He was reconfirmed five times, yet his final tenure at the Fed resulted in some of the most disastrous economic policy decisions in central banking history. He got it wrong on derivatives when he argued in 2005 that

“sophisticated approaches to measuring and managing risk are key factors underpinning the greater resilience of our largest financial institutions”.

He was wrong in thinking that the price that investors are prepared to pay is the only valid valuation of an asset. He was dogmatically opposed to action against financial bubbles, saying:

“Bubbles generally are perceptible only after the fact.”

He went on to admit that he got these things wrong when he told a congressional hearing in 2008, after the bubble had burst,

“I made a mistake in presuming that the self-interests of organizations, specifically banks . . . were such that they were . . . capable of protecting their own shareholders and their equity in the firms . . . I have found a flaw. . . I have been very distressed by that fact”.

The Senate failed in its job of vetoing people who would make great and grave economic policy mistakes. That stands as a great question that the Bill’s proponents need to answer. Why would the Treasury Committee be better than the Senate at rooting out people whose economic policy propositions are mistaken? I also use the other counter-factual, which is that the Senate has vetoed people who have a wide reputation for being excellent in their field. For instance, last year the Senate vetoed Patrick Diamond—who I am assured is no relation—a Nobel prize winner in economics. He was vetoed by the Republican Senators in retaliation for the Democrats refusing to reappoint a Bush nominee in 2008. Such political tit for tat, which led to a Nobel prize-winning economist not being allowed on to the Federal Reserve board, is a strong argument for rejecting the Bill.

Jacob Rees-Mogg: Is my hon. Friend saying that all Nobel prize-winning economists should be revered? Do not some of them disagree with the policy of Her Majesty’s Government?

Matthew Hancock: I am merely saying that Mr Patrick Diamond was a good candidate for that role. I am particularly concerned about the tit for tat political retaliation, which we do not want to bring into this system.

In Japan, in March 2008, the opposition party had a majority of seats in the upper house—this ties closely with the debate that we will be having in this very Chamber on Monday and Tuesday next week—and it rejected proposals by the Government to appoint a former Finance Minister as the Bank of Japan governor. That led to a 20-day period, at the height of the financial crisis, when Japan had no Governor of the central

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bank. It subsequently took two years to fill all the vacancies on the Bank of Japan policy board. That is evidence of what happens when there is a parliamentary veto. The argument that that would lead to more effective policy making has been roundly dismissed, but the argument that it would bring risks into policy making, and the risk of having no Governor at all, is strengthened by evidence in the US and Japan, the two biggest economies that have a similar process.

Stephen Hammond: There is one final risk, which is that after the veto, the candidate who is then in place is seen as the second choice by the markets, and that is a great risk to the economic future of the country.

Matthew Hancock: I certainly agree. The private consultation, for instance, would be a far better process to ensure that there is consensus and the strength of a broad agreement behind the incumbent, who has to rise above party politics once appointed.

There have been some great central banking success stories over even the last decade. The Reserve Bank of Australia has an appointments process similar to that of the UK, yet no Australian bank needed a bail-out—so far—or suffered a downgrade, and Australia avoided recession. The Governor of the Bank of Canada is nominated by independent directors of the bank and confirmed by the Government. During the global recession, Canada’s GDP declined by 3.4%, compared with 4% in the US and more here. Not a single Canadian bank failed or required an emergency capital injection from the Government. Today, employment and economic activity in Canada are back at their pre-crisis levels, whereas here they languish below those levels because of the depth of difficulties that we got into when a Government did not listen to the Governor of the Bank of England. In addition the Bank of Canada had regulatory control over their banks, as proposed in the new Financial Services Bill.

This Bill is no magic bullet. It brings in risks without rewards, it is of a deeply constitutional nature, it deserves all the scrutiny that it is getting, and I oppose it.

John McDonnell: On a point of order, Mr Deputy Speaker. Whatever Members might think of the Bill, I think that it is worth putting on the record the abundant criticism on Twitter and elsewhere about what is happening in the House today. In normal circumstances there would be an opportunity to claim to move that the question be now put—a closure motion—but that is not possible today because many Members have returned to their constituencies because of the flooding. It is completely understandable that they should do so to look after their constituents’ interests, but it is worth putting it on the record that that is one of the procedural issues we have had to face today.

Mr Deputy Speaker (Mr Nigel Evans): I do not think I really need to comment on the hon. Gentleman’s statement.

Jacob Rees-Mogg: Further to that point of order, Mr Deputy Speaker. This is completely proper parliamentary procedure. Otherwise, you and your

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predecessors in the Chair would have ruled it out of order. It is absolutely proper that things are debated and it is up to Members to decide whether to be here or in their constituencies on any day of the week. It is quite wrong to criticise Members for debating things fully; that is what we are here for.

Mr Deputy Speaker: I am extremely grateful to you, Mr Rees-Mogg, for doing my job and responding to the point of order that I had decided not to respond to.

1.55 pm

Kwasi Kwarteng (Spelthorne) (Con): I was particularly interested to hear the contribution of my hon. Friend the Member for West Suffolk (Matthew Hancock), who added an international and historical dimension to the debate, which I think should be broadly appreciated. I congratulate the hon. Member for Hayes and Harlington (John McDonnell), my near neighbour, on bringing the debate to the House. I think that his measure would contribute in some way to scrutiny, but I am afraid that the Bill raises important constitutional considerations and, on those grounds, I am reluctant to support its Second Reading.

Another feature of the debate has been the frequent comments, often from a sedentary position, about the length of the speeches. I have been a Member for two years and know that the constant refrain is that proceedings are guillotined, debates are not fully developed, ideas are not fully expressed and that there is far too little consideration or earnest debate on important matters on the Floor of the House. Today, by contrast, we have had a very full debate, yet some Members are complaining about that. They cannot have it both ways. They cannot complain about the truncated nature of many of our debates and then complain about the full and thoughtful speeches that have been made today. Those are inconsistent principles.

Brandon Lewis: Does my hon. Friend agree that it seems particularly odd to hear those comments from some Members, as we have had to sit in the Chamber at 1 o’clock, 2 o’clock and even 3 o’clock in the morning listening to long speeches from Opposition Members?

Kwasi Kwarteng: Absolutely—

Mr Deputy Speaker: Order. Let us not have a debate about the debate. Let us please just move on to the Bill.

Kwasi Kwarteng: I want to make a remark about the Bill, and not of a partisan nature. I am very grateful to be able to speak fully, and I will not be intimidated or bullied into truncating my remarks to make them shorter than I had anticipated—

Mr Deputy Speaker: Order. May I now gently bully the hon. Gentleman into moving on to the Bill?

Kwasi Kwarteng: Thank you, Mr Deputy Speaker. I am suitably bullied and shall proceed as I intended.

The Bill raises important constitutional issues. We have a Parliament, we have the honour of sitting in the House of Commons, and we all know the struggles the House had in order to assert its primary function and its principal character as the legislature and main

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law-making organ of government. I am afraid that the Bill represents a further encroachment of the powers of the House of Commons. I am a Conservative. I happen to think that there should be a balance and distinction between the Executive and the legislature. As someone who has read a little of the history of this place, I also recognise that the position of the House of Commons in the constitution should be guarded, but this new development—this assertion that the Treasury Committee should have a power of veto or even a power of appointment over the Governor of the Bank of England— represents an unprecedented extension of the powers of this House.

Jeremy Corbyn: The hon. Gentleman makes an interesting point, but will he not care to look at the matter slightly differently? Yes, the Bill extends greater powers to the House of Commons, but in reality these are currently powers of patronage over which the House has no control. The Bill represents a very small encroachment on those powers of patronage, which are the Achilles heel and bedevilment of the British parliamentary system.

Kwasi Kwarteng: The hon. Gentleman makes a very good point, and he talks about patronage, which is a feature of our system, but if we are to talk about patronage, we should do what other Members in the debate have suggested and talk generally about the powers of the Select Committee system. It seems rather bizarre that in the Bill we should debate the appointment of a single public official, because we should debate—if that is what we want to do—the powers of Select Committees over other appointments.

Jeremy Corbyn: I agree that we should debate and, indeed, extend the powers of Select Committees, because I do not see any reason why, if a Select Committee is so minded, it should not be allowed to introduce legislation as well as to supervise appropriate appointments within its purview. That after all is one reason why we are elected to Parliament—in order to have some democratic influence over what in our society are largely undemocratic institutions.

Kwasi Kwarteng: I appreciate the hon. Gentleman’s remarks, but Mr Deputy Speaker, with your forbearance, I suggest that this debate is about the appointment of the Governor of the Bank of England. We can have more extensive and general debates about the appointment of other officials, but I think that our current system works well. I would not want to see, for example, the Archbishop of Canterbury hauled up in front of a religious affairs Committee for “ratification”.

Jeremy Corbyn: We can leave that very difficult problem of the Archbishop of Canterbury to one side by simply disestablishing the Church of England.

Kwasi Kwarteng: The hon. Gentleman leads me down a dangerous path.

Brandon Lewis: The points that Opposition Members have made go to the heart of the problem with this Bill, because it would be stage one of—to quote what an

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hon. Member said earlier—a drip-feed effect that changed the very way in which Select Committees worked by changing their power from one of scrutiny to one that is linked to the Executive.

Kwasi Kwarteng: Absolutely. If the hon. Member for Islington North (Jeremy Corbyn) wants to debate that point, he should include it in his own private Member’s Bill, if he is fortunate enough to introduce one. He should introduce a Bill, and then we might have a lengthy debate.

The specific proposal before us is not appropriate, however, and I shall say why. The historical examples, which have been too little regarded, are very important. We have to look at the development of Parliament, to understand its powers and to understand the evolution of the Bank of England and its unique role in the historical and current governance of political economy. We have to understand a range of things.

As my hon. Friend the Member for West Suffolk said, we have to look also at international examples from recent history and throughout the world, and it is quite wrong for Opposition Members to try to curtail or to truncate debate. As I said at the beginning of my speech, I do not think it wrong for the House of Commons to debate things fully, and, on that basis, I turn to what Parliament does and what we are trying to do.

We scrutinise the Executive. Our job is not to make Executive appointments, to opine upon or to veto people appointed by the Crown; it is simply to scrutinise the Executive. The appointment of a Bank of England Governor is a matter for the Executive, and has been ever since the Bank’s nationalisation in 1946. One of the more interesting speeches today related to the origins of the Bank, because we have to understand where it has come from, and I repudiate any attempt to curtail Members’ right of speech when they are describing the history of the Bank. Everything is contingent: one has to understand the history of institutions to understand better how we can develop them.

The Bank of England was for almost 270 years an independent institution. It was a private bank, and its governor would spend two years in the role on a rotating basis. That broke down after the first world war, in 1920, when Montagu Norman was appointed Governor of the Bank of England. The hon. Member for Hayes and Harlington suggested that the new Governor—this superman or superwoman—would have such enormous powers and influence that no Governor has ever equalled them. That is completely unhistorical and false. Montagu Norman was Governor of the Bank from 1920 to 1944. He was Governor in 1925 when we went back on the gold standard and in 1931 when we came off the gold standard. He was Governor in 1939, just before the second world war, when exchange controls were imposed. He only left, dragged kicking and screaming from his post, after 24 years. He was a man of enormous power and influence, and it is very unlikely that any subsequent Governor will exercise the same kind of power. The simple reason is that under the current proposals we suggest that a Governor should have a single term of eight years, so there is no question of a man or woman being Governor for the same length of time as Montagu Norman or, similarly, Kim Cobbold, who was Governor for 12 years.

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Members who are trying to make the case for supervision are utterly exaggerating the nature of this man or woman’s power once he or she is appointed to this important role. That is obviously due to their desire to exaggerate the power of the Governor to try to justify the appropriation of power on the part of the Treasury Committee. Under the Bill, that Committee, which is made up of 13 Members of this House, would have inordinate powers unequalled by that of any other Select Committee. That would distort the relationship of the Treasury Committee to this House and give it a preponderant influence in relation not only to scrutiny but to the Executive branch through its power of veto.

The proposal imports an alien structure from the United States, and that frustrates and disappoints me. The American constitution is a very different beast with a very different history from ours. As my hon. Friend the Member for East Surrey (Mr Gyimah), who is no longer in his place, pointed out, it has a strict division of powers. In America, no members of the Executive sit in the legislature. It is therefore right and proper that the legislature, as embodied in Congress, should have the power of scrutiny over an Executive who have no role in the legislature.

Heather Wheeler: We are getting to the heart of the issue. Surely this debate is about the fact that Governments govern and Select Committees scrutinise—full stop.

Kwasi Kwarteng: Absolutely. In her very direct way, my hon. Friend hits the nail on the head.

Stephen Pound (Ealing North) (Lab): As it is fairly obvious that we are running into the sands of procrastination and filibustering—

Mr Deputy Speaker (Mr Nigel Evans): Order. Mr Pound, resume your seat. If I heard a filibuster taking place, clearly I would have ruled it out of order. Mr Kwarteng, after his initial little problem, has been in order.

Stephen Pound: I profoundly apologise, Mr Deputy Speaker; I abase myself before you.

I put it to the hon. Gentleman that he might just as logically say that dictators dictate. Surely there can be no greater or more magnificent ornament of the constitution than the Chair of the Home Affairs Committee, to whom I listened last week as he interviewed a preferred nominee for the post of Her Majesty’s chief inspector of constabulary. A little bit of democracy is not that painful; it is rather a healthy thing.

Kwasi Kwarteng: The right of veto proposed in the Bill, which apes the structures in the United States of America, is totally inappropriate and would take the constitution down a road that we have not travelled down before. My hon. Friend the Member for West Suffolk talked at length—but to the point, I must say—about the structures in the United States. It is important that we understand what goes on in the United States in order to understand what might happen here if the Bill becomes law.

We well understand the recent financial history of the world. I was working in the City in 2000—[Interruption.] I am not ashamed that I had a job outside this House. I do not think that it is something I should apologise for.

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I worked on a dealing room floor in 2000 at the time of the election in the United States. The financial uncertainty that prevailed in the markets as a consequence of the indecisive nature of that election, with the fight between Bush and Gore being taken up to the Supreme Court, was debilitating. I have first-hand experience of that.

I would not want to see a situation in this country in which a candidate to be the Governor of the Bank of England was scrutinised by the Treasury Committee and an impasse reached, resulting in days or even weeks without an appointment being secured. I know from first-hand experience that that is the worst message that could be sent to the financial markets in what are perilous and uncertain times. It would be irresponsible of us to delay or complicate the process in that way.

Jeremy Corbyn: Does the hon. Gentleman not feel that in his opposition to the Bill, he is in danger of treading down the rather dodgy road of saying that he supports some kind of technocratic Government, with democratically elected politicians becoming observers, rather than the participants and the controllers? Surely the whole point of the US constitution was that democratically elected politicians were trying to assert their power over the structures of society. I realise that there is much corruption in the US financial system, but surely the principles of the US constitution are not entirely wrong.

Kwasi Kwarteng: I agree with the hon. Gentleman. All I am suggesting is that the balance of powers is about right. We know that the House of Commons had a long struggle against King Charles I and the Executive. However, I think that the current constitutional balance is about right.

I do not think, as I suggested earlier, that the Archbishop of Canterbury, the Chief of the Defence Staff or the chairman of the BBC should be scrutinised by Select Committees, but that is a debate for another time. I cannot support this Bill because it would add an element of uncertainty to the financial markets, which is the last thing that we need at this time. I thank Members of the House for indulging me in my brief remarks.


2.13 pm

The Financial Secretary to the Treasury (Mr Mark Hoban): This has been a thoughtful debate and some interesting issues have been raised by Members on both sides of the House. I commend the hon. Member for Hayes and Harlington (John McDonnell) on his success in getting the first Bill in the ballot for two years running. The odds on his being first again next year are about 14 million to one—roughly the same as winning the national lottery. If he tells us his numbers, we will all enter it, although I fear that it would make only a minor dent in the deficit that we inherited from the previous Government.

The hon. Gentleman made his arguments in a calm and considered way, but I felt that he did not do justice to some of the more complex issues that have been explored over the last few hours. I am grateful to my hon. Friends for their support in teasing out the issues that underpin the Bill. My hon. Friend the Member for Wimbledon (Stephen Hammond)—the Cliff Richard of Parliament, as he was described earlier—talked about

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the substantial constitutional change that the Bill would make. The hon. Member for Nottingham East (Chris Leslie), who is no longer in his place, made one of his shorter speeches at eight minutes. Those of us who served on the Financial Services Bill Committee would have welcomed more speeches of that brevity and concision.

My hon. Friend the Member for Great Yarmouth (Brandon Lewis) made a powerful and measured speech, using his experience from the Work and Pensions Committee and highlighting some of the challenges that exist. The hon. Member for Foyle (Mark Durkan), who is no longer in his place, made the second of only two Back-Bench speeches in support of the Bill. He got himself into a bit of a hole trying to justify why he voted against a parliamentary inquiry last night but was in favour of the Bill today.

My hon. Friend the Member for Watford (Richard Harrington) highlighted the importance of transparency and openness in appointments, which I hope to come on to in a moment. My hon. Friend the Member for South Derbyshire (Heather Wheeler), in her typically pithy way, made some important and powerful points about the changes that the Bill would introduce.

My hon. Friend the Member for Finchley and Golders Green (Mike Freer) came with a list of original shareholders of the Bank of England and tried to identify whether any of their successors were in the House of Commons. I have with me a list of Governors of the Bank of England. [Interruption.] No, just be patient. I wondered whether Humphry Morice, the Governor between 1727 and 1729, was related to the hon. Members for Easington (Grahame M. Morris) and for Livingston (Graeme Morrice), but unlike them he was not called Graeme or Grahame. My hon. Friend the Member for Orpington (Joseph Johnson) will be interested to know that Reginald Eden Johnston was the Governor between 1909 and 1911. My hon. Friend quoted Bagehot, and I have my own Bagehot quote to trade with him. I think it rather neatly encapsulates some of the problems with the Bill. He said:

“No result could be worse than that the conduct of the Bank and the management should be made a matter of party politics, and men of all parties would agree in this, even if they agreed in almost nothing else.”

That highlights the problem at the heart of the Bill. The power in it could be used to politicise the appointment of the Governor in a way that would be to the detriment of how the Bank functions.

My hon. Friend the Member for West Suffolk (Matthew Hancock) made an impressive speech—

Mr Love: Impressive in its length.

Mr Hoban: In its quality, too. The hon. Gentleman should acknowledge that.

Among the many facts that my hon. Friend gave, I have to correct one or two. He said that only nine banks could still issue notes in Scotland and Northern Ireland, but in fact it is only seven. The Bank Charter Act 1844 was the beginning of the move towards the Bank of England’s note issue monopoly, after which no new banks were permitted to issue notes and the stock of notes could not be increased. I am sorry that my hon.

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Friend the Member for North East Somerset (Jacob Rees-Mogg) is no longer in his place, because the last bank to issue notes was one called Fox, Fowler and Company, which was based in Somerset. Sticking to tradition is a feature of what my hon. Friend does, so perhaps that is not a surprise to him.

Mr Nuttall: We have heard from several Back Benchers, but is the Financial Secretary as disappointed as I am that we have not heard the views of any of our coalition colleagues the Liberal Democrats?

Mr Hoban: I hate to say it, but I thought my hon. Friend was uncharacteristically uncharitable about our hon. Friends the Liberal Democrats. Perhaps they did not get the three e-mails that I got from the hon. Member for Hayes and Harlington imploring me to be here today. I answered that call, and I am sorry that more Members on his side of the argument did not do so.

John McDonnell: Will the Financial Secretary give way?

Mr Hoban: No, I think I ought to have the opportunity to summarise the Government’s position on the Bill.

We are committed to maintaining the appointments process for the Governor, which is proportionate, attracts candidates of the highest quality and represents value for money for the taxpayer. It is important to ensure the credibility of the candidate, and to safeguard his or her independence and prevent them from becoming a political pawn.

The Financial Services Bill, which is currently in the other place, already contains provisions to strengthen the Bank’s governance arrangements, including moving the Governor to a single eight-year term. Much has been made of the enhanced powers that the Financial Services Bill bestows on the Governor, but it is important to remember that the Bill does not create new responsibilities for the Bank. Rather, it is returning the Bank to a role more akin to the one it played prior to the creation of the Financial Services Authority, when it was responsible for financial stability and prudential supervision of banks. In a way, we are going back to the situation prior to the Labour Government.

The Governor is already accountable to the court and to Parliament, and the Treasury Committee holds pre-commencement hearings for the Governor and deputy governors. That is the right balance. Of course, the Governor—rightly—is regularly called before the Treasury Committee. The market-sensitive nature of the Governor’s role makes it unsuitable to be subject to the approval of the Treasury Committee. Such a step risks uncertainty, delay and disruption to financial markets. That is also true in respect of the proposal to make the dismissal of the Governor subject to the approval of the Treasury Committee. I therefore cannot offer the Government’s support for the Bill.

Mr Love: The Minister will be pleased to note that his speech does not come as a surprise, because the Government have laid out their position, not least in the Financial Services Bill. However, the relationship between the Executive and the legislature is evolving. Ad hoc relations, such as those with the Comptroller and Auditor General

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and the Electoral Commission, have been mentioned. Will the Minister give serious consideration to taking into account the views of both the Treasury Committee and Parliament? Can he envisage a role for them in the process?

Mr Hoban: The Treasury Committee already has a role—it conducts, for example, pre-commencement hearings for members of the Monetary Policy Committee. Paul Tucker and Charlie Bean, the two deputy governors, have been through that process, which we envisage will continue.

Even the Labour Front-Bench spokesman in the House of Lords was wary of the proposed increase of authority for the Treasury Committee. Although there has been a broader debate on the role of the House in appointments and whether there should be pre-appointment hearings, this is not the time to make those broader points. If there is to be such evolution, we need a much broader debate. Alighting on the appointment of the Government as a peg for that debate is not the right way to go about things. If I make more progress, I shall highlight the Government’s response to the Liaison Committee, which has discussed increasing the role of Select Committees.

Matthew Hancock: Will my hon. Friend take into account the views of Back Benchers who are not on the Treasury Committee, and note that a majority of hon. Members who have spoken today spoke against Second Reading?

Mr Hoban: That is a fair point. The weight of opinion has been to oppose the Bill. I gave a list of hon. Members who have spoken—I forgot to add my hon. Friend the Member for Spelthorne (Kwasi Kwarteng), who was the last Back-Bench speaker—but the balance of views has been against the proposal. There has been some discussion of the fact that the debate has continued until almost 2.30 pm, but the hon. Member for Hayes and Harlington, despite his three e-mails, could not get the 100 hon. Members required for the closure. The House has expressed its view today.

The appointment veto was proposed by the Treasury Committee. There was a consultation on, and pre-legislative scrutiny of, the Financial Services Bill prior to its Second Reading but, except for the Treasury Committee, no one called for the appointment of the Governor to be subject to its approval.

We need to recognise the changes being made to the accountability and governance of the Bank. It is facing pretty significant organisational change, and it is right that the arrangements for its governance and accountability be thoroughly debated as part of that process. In November, the Committee published its report on the accountability of the Bank and in it made several recommendations on governance. As a consequence, we have tabled amendments in the other place to strengthen and modernise the Bank’s governance arrangements.

Those amendments will replace the current committee of non-executive directors of the Bank with a non-executive oversight committee that will have a broad remit to oversee the Bank’s performance against its objectives and strategy, and provide for explicit powers to commission and publish internal and external reviews of the Bank’s policy-making process. In the Bank’s annual report and

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accounts, published on Monday, the Governor said in the foreword that the Bank must carry out its new responsibilities with

“openness and transparency, and be held accountable for them to Parliament and the public, just as”—

it is “for monetary policy”—an important signal from the Bank about its role.

Since the Bank’s nationalisation in 1946, appointments have been made by Her Majesty the Queen on the recommendation of the Chancellor and the Prime Minister. The Bill would require that the appointment be made by Her Majesty with the consent of the Treasury Committee as well. The current legislation states that the Bank may, with the Chancellor’s consent, remove the Governor from office in certain circumstances, but again the Bill would require that the Treasury Committee consent to that removal. We have made our position clear: we do not believe that giving the Treasury Committee a statutory power over appointments or dismissals is either necessary or appropriate.

Mr Love: The Minister indicated that we were returning to the Bank powers over financial stability and oversight of the banking industry, but he forgot to mention that it already had powers over monetary policy, which it never had in the past. In effect, the Bank and the Governor have unprecedented powers. I accept that parliamentary oversight has been strengthened—sometimes at the behest of the Treasury Committee—but, given these unprecedented powers, will the Government consider going further and putting in place appropriate parliamentary scrutiny to ensure that the powers are being used effectively?

Mr Hoban: We are improving the parliamentary scrutiny of the Bank. As a result of the Financial Services Bill, we will see more regular reports on regulatory failure, and I expect the Governor to appear before the Treasury Committee. On financial stability decisions, we are trying to ensure that the Bank’s six-monthly financial stability reports are transparent and open, and that they explain the risks facing the economy, what the FPC will do about them and what the consequences might be. There is, then, a great deal of transparency in the work of the Bank. That is a significant leap forward, and I pay tribute to the work of the Treasury Committee in encouraging that increase in transparency. We listen to the Committee and respond to its conclusions.

The Government believe, as did the previous one, that the existing appointment process is robust, appropriate and ensures the independence and accountability of the Governor. We are introducing a single eight-year term for the Governor, which will preserve his independence. That was a proposal from the Treasury Committee but also one that we made when in opposition. It will help to strengthen that independence. There are risks, however, in giving the Treasury Committee a veto over appointments. There could be an impact on market stability, with a risk of undermining market confidence. There is also a risk of creating a party political or politicised process—the very danger that Bagehot warned us against.

It would be wrong for the Bill to receive a Second Reading, although there is much more that I would like to say about the matter. I do not think that we have properly explored the issues, but I am grateful to hon.

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Members on both sides of the debate for their contributions. These are weighty matters that deserve proper parliamentary attention and—

2.30 pm

The debate stood adjourned (Standing Order No. 11(2)).

Ordered, That the debate be resumed on Friday 13 July.

Business without Debate

Prisons (Interference with Wireless Telegraphy) Bill

Bill read a Second time; to stand committed to a Public Bill Committee (Standing Order No. 63).

Disabled Persons’ Parking Badges Bill

Bill read a Second time; to stand committed to a Public Bill Committee (Standing Order No. 63).

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Childminders

Motion made, and Question proposed, That this House do now adjourn.—(Greg Hands.)

2.31 pm

Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op): It is with pleasure that I speak for thousands of parents and young children who benefit from the work of childminders up and down the country. I must first declare an interest: my husband is a non-executive director of an organisation that carries out Ofsted inspections for under-fives providers, including childminders.

There has been a great deal of activity over the last decade or so to improve the quality of child care provision. Childminders have been enthusiastic in embracing that change, and childminding has become far more professional overall. It is mostly women who are childminders, and they have revelled in the fact that they have increased their skills and been recognised as more professional for doing so. I recently met 40 childminders in Hackney who were enthusiastic about the work they do. They stressed that the changes made over the last 10 to 15 years have weeded out bad childminders. They are proud of the progress made in the sector.

Jayne Nulty, who was accredited as one of the best childminders in Hackney a couple of years ago, has talked of her concerns about some of the things that I want to raise, but she also talks about

“the bad old days when the childcarer put kids in front of the television all day and little check was made on the situation.”

She believes that the professionalism of the sector has stopped those sorts of people working in it. A parent has said:

“As a single, working parent I have had a great need of childminders; three in all through my son’s younger years. I have a huge respect for them—it’s an incredibly important job; to care for, socialise and teach young children.”

I am sure that the Minister would agree.

I will not go into great detail about the history of improvements in child care—I am sure the Minister needs no telling: she is master of her brief—but the last Labour Government did a great deal to ensure that child care in all settings was improved, including by introducing a regulation and inspection regime for childminders that is run by Ofsted. This Government have also taken quite an interest in child care, and recently received the review of education and child care qualifications by Professor Cathy Nutbrown. Among her recommendations is that childminders should have a full and relevant qualification up to level 3 by 2022. Her aim is for all under-fives to receive the same quality of child care and education whichever provider parents choose to use. I have no disagreement with the desire to improve and enhance further the professional role of childminders as essential early educators.

A recent study by the National Audit Office looked at the impact of better qualified carers for under-fives on the skills of children attending primary school. Although it is early days—these longitudinal studies need to take their course—there is clear evidence that a highly qualified early years educator can improve the education that children receive and, crucially, help other, less well qualified carers in the same setting to deliver better educational results too. The Government have already

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changed the early years foundation stage to reduce what they considered to be the regulatory burden. However, it is interesting that we are seeing yet another review of child care. It is important that we understand the scope. Too much change too quickly creates its own burdens and, given the Government’s desire to reduce regulatory burdens, I hope that they are considering thoroughly the impact of any changes that may be coming down the line. In a letter to me of 19 June, the Secretary of State for Education did not give any detail about the scope of this latest review, so I wonder whether the Minister could provide any more information. When will she report to the Prime Minister? Will she take submissions from organisations and individuals? What is the time scale for any changes the Government might introduce?

This debate has been prompted by concerns about the focus of the Government’s review of the affordability and availability of child care, particularly as it relates to childminders. This concern stems in part from fears that the review could pick up on ideas espoused by the hon. Member for South West Norfolk (Elizabeth Truss) in a recent pamphlet. On the first day of the Budget debate, I was standing in almost exactly this place when she raised concerns about the cost of child care. On this, I can only agree that this is a real issue for parents up and down the country, particularly in London.

Let us look at some of the figures. These are supplied by the Library but came from the Daycare Trust, based on a survey it conducted this year. It found that 25 hours of childminding care for a child under two costs, as the British average, £92, but nearly £130 in London. The differential is quite stark, and that is just one example. As a mother of three children, I am well aware of the costs, particularly given the long hours of work in this place. This is a cost that parents have to live with; it is a real issue. It is right for any Government to look at the affordability of child care, especially in difficult economic times.

I am concerned about a number of points. First, changes to regulation could impact negatively on cost. At the moment, families can receive tax credits or, if they are higher earners, tax vouchers to help towards the costs of regulated child care. If we remove regulation, it is far from clear how a publicly funded subsidy for child care could be justified. I seek some reassurance from the Minister that she will be mindful of these issues; it is not just at the margins, as this can make a big difference to mainstream family incomes.

In the Netherlands, which the hon. Member for South West Norfolk looked at closely for her pamphlet, there was evidence that when changes were introduced, family members benefited from the public subsidy. The costs to the Dutch Government increased, but the number of places did not and there was a decrease in quality. In seeking to address the issue of affordability, we should never seek to water down quality. I hope that the Minister will agree emphatically with me on that point. Any parent who places their child’s care in the hands of a professional stranger should be able to reassure themselves that that professional is safe, competent and will make a positive input to the child’s education.

Two of the key proposals in the paper produced by the hon. Member for South West Norfolk are to increase the ratio of childminders to children and to introduce an agency as the local regulator and inspector of child

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care. She also highlights the fact that since Ofsted inspections were introduced, the UK has seen a drop in the number of registered childminders. This is a myth that needs to be nailed early on. Before Ofsted, the local council provided a list of childminders, but there was no way of knowing what quality of care was provided. The numbers went down because those not willing to meet the new quality standards drifted away. I mentioned Jayne Nulty, who had talked about children simply being put in front of a television; we do not want to go back to that sort of thing. I would not be happy about allowing someone who does not provide the right quality of care to look after my child. I represent a constituency with many young parents, and I know that they share my concerns about that.

The number of childminders in Hackney has hovered around the 200 mark since 2009, but there has been an increase in child care places. In 2009, 219 childminders provided 839 places; there are currently 198 registered childminders—a small drop—but they provide 847 places. The ratios go up and down, depending on the age of the children being dealt with; the figures can fluctuate a great deal.

Jane Ellison (Battersea) (Con): My constituents also include many young parents, so I agree that this is a hot issue. Is the hon. Lady going to address the central thrust of the pamphlet produced by my hon. Friend the Member for South West Norfolk (Elizabeth Truss), which was about the much lower cost of child care generally in comparable European countries that have good, safe and well-regulated child care systems? I was wondering whether the hon. Lady was going to come on to that.

Meg Hillier: I will respond to that. In the Netherlands, the Government fund about a third of child care costs. That is not comparable to what is in place under this Government. We have tax credits, so the benefits usually come through the tax system. I recognise that the Government are providing 15 hours of free care for three and four-year-olds and want to extend free care places to two-year-olds—following the trajectory of the last Government—and those are welcome steps, but there is a cost to the taxpayer, and there is a need for balance. I realise that that is not easy, but I think we should see child care as an investment in working women in particular but working parents in general, helping them to maintain their place in the working world and serve as role models for their children as they continue to work.

People need more choice. Many parents in my constituency give up work or reduce their hours because paying for child care is not an option. I hope that, if the Minister refers to the scope of the Government’s review, she will give us some indication of the extent to which they will consider the issue of affordability and the available options, particularly given the current climate.

Between March 2011 and March 2012, the number of registered child minders nationally actually rose. It is interesting that that should happen even in difficult economic times, but it is probably because a number of people, mostly women, are looking for work and want child care that will give them some flexibility. It is also the case that the numbers fluctuate because people go in and out of the profession.

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Childminders are currently regulated and inspected by Ofsted. They pay a small fee and are inspected regularly. That is important for two reasons. As well as guaranteeing a quality of care, it allows parents to use child care vouchers to pay for childminding and to receive tax credits. The salary sacrifice schemes and tax incentives that are offered by many employers and supported by the Government are invaluable to parents. They also serve as a key driver, encouraging parents to seek out the best quality care, because they do not have the option of going for something cheap and cheerful but not very good if they have to seek out regulated child care. I hope that the Government will be mindful of that in making any future plans, because the link between public subsidy and quality is important to parents and to ensuring that we educate our next generation appropriately.

As a working parent myself, I am aware at first hand of the challenges of securing good quality child care. I do not want to return to the old days when, although the council had a list of local childminders, it was just a list of names which did not tell a parent anything about quality. Now, some years on, I am again the parent of a toddler, and can make a better comparison between examples of nursery, school nursery and childminding provision on a like-for-like basis. It is important to give people information about quality-based choice.

A recent survey by the National Childminding Association revealed that 86% of childminders believe that being regulated by Ofsted helps them to reassure parents that they are professionals delivering a good quality rather than a second-rate service, and 80% feel that proposals to move to an agency model of inspection, removing Ofsted's role of individual inspection, would have a detrimental effect on their professionalism.

Concern about increasing ratios has been expressed by both childminders and parents. Dealing with five under-fives, as proposed by the hon. Member for South West Norfolk, would be very challenging. Just getting five children to the park at that age is a challenge. Parents seeking quality care tell me that they choose childminders partly because of the generally lower ratios that they offer.

I have raised the issues covered in the pamphlet not because they are Government policy, but because they have been greeted with real concern by childminders and parents who fear that this may be the Government’s direction of travel. I hope that the Minister will comment on that. It is understandable that, given the Government’s announcement of a review at the same time as the publication of the pamphlet, people will tend to link the two. I hope that the Minister can shed some light on how much influence the views of the hon. Member for South West Norfolk will have on the Government’s review.

According to the results of the NCMA survey, people who had been childminders for some time felt that their professional status had increased since they started; 42.5% said that that was mainly because they now had to deliver the early years foundation stage, while 39.5% said that it was because they were registered and inspected by Ofsted. They are proud of their professionalism, and

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that contributes greatly to the quality of child care. I think that the House should recognise what has been achieved.

The survey’s findings underline concern about any model that would water down that clear national standard. The idea that agencies would be allowed to carry out inspection and training locally fills me with dread. I do not say that lightly; I say it with feeling, because of my experience of care at the other end of the age scale. Anyone who has had to work with agencies that provide care for older people in a domiciliary setting will see the impact of this. Those agencies—just like those proposed in places such as the Netherlands—were supposed to ensure quality and carry out inspections, but in domiciliary settings meaningful inspection is rarely carried out. Carers are paid a lot less than the fees paid to the agency by the client, so a tidy percentage in profit is creamed off along the way. I am not entirely sure who would benefit from the proposed move. We would not necessarily see a decrease in child care costs—in fact, an increase would be likely—and childminders would have to pay a fee for the benefit of registering with an agency.

Childminders value the direct relationship they have with parents. They are also concerned that they would see a cut in their fees. Childminders typically make less than £10,000 a year. They can charge what they choose, but the sum is around £4 an hour per child. Even when looking after four or more children, that does not provide a large income when costs such as food, nappies and tax are deducted. There can only be two outcomes: fees go up for parents, who already struggle with the costs, or childminders’ income reduces.

The Dutch model espoused by the hon. Member for South West Norfolk has aroused much concern. Are the Government considering the Dutch model of regulating childminders, and in particular increased ratios and the use of agencies as intermediaries between parents and childminders? Will the Government be looking at the role of Ofsted in relation to childminders?

I represent a borough where about one in five residents are under the age of 16, so these issues are pertinent to more than one fifth of my constituents. That, coupled with the excellent progress made by local childminders and our 12 Sure Start children’s centres, makes Hackney an ideal place for the Minister to carry out a field visit. The Hackney childminding network would be pleased to learn more from her about Government thinking, and to contribute constructively to continuing improvement in the quality of child care and education for under fives and school-age children. I hope the Minister will visit Hackney South and Shoreditch, and I offer her as much support as I can give in ensuring we continue to improve child care, while also working hard to address the challenging affordability issues that working parents face.

2.47 pm

The Minister of State, Department for Education (Sarah Teather): I congratulate the hon. Member for Hackney South and Shoreditch (Meg Hillier) on securing this debate, and I appreciate the opportunity to put on record the Government’s admiration for the work done by childminders and their enormous professionalism and contribution to the early years sector.

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As I was listening to the hon. Lady’s speech, in my mind I was transported back to a similarly deserted Chamber on a Friday afternoon about four years ago. I do not know whether she remembers, but I was sitting on the Opposition Benches then, and she was on the Government side. She treated me with considerably more grace than I returned on that occasion. I hope that now, from the Treasury Bench, I treat her with as much respect as she always gave me in the past.

As the hon. Lady said, there is a lot of media interest in childminders at present. The National Childminding Association—the NCMA—has been running its own campaign, partly because some of that media interest has created anxiety among childminders about the future direction of Government policy. First, we must be clear about the vital role childminders play as part of the early years work force, in both early education and the child care they provide. The NCMA and many other bodies have done important work to professionalise the reputation and the practice of childminders. We fund the NCMA to carry out some of that work, and we are working closely with it on many issues.

The Government believe it is vital to maintain choice for parents in the early years. We have a very diverse early years sector, ranging from maintained nurseries through to voluntary and private sector nurseries, as well as childminders and a host of drop-in and parent and toddler groups. All of them have their role to play, both in terms of child development and in providing care and support to parents and enabling parents to get back to work and sustain a better work-life balance.

There are lots of reasons why a parent might choose a childminder over a nursery setting, including flexibility, location, security of the home-based setting and the reputation of a particular childminder. Whatever option parents choose for their child, it is critical that the Government do their bit to ensure that the setting offers the high-quality experience necessary for child development and that it is available at a convenient time for both the parent and the child at a price they can afford to pay. Indeed, those guiding factors are behind all our work on early years: quality, because the evidence shows that quality makes a difference to child development; and availability and cost, because they are what really matter to parents. All factors are very important for parents when they choose where to place their child.

The Government fund the early years foundation provision because we know that it has many benefits for society. First, improved child development offers education opportunities later but also benefits mothers, in particular, as well as fathers as regards their ability to participate in the work force with its benefits to wider society. Usually, those benefits are complementary, but sometimes they are held in tension. When they are, the Government have decided that the priority will always be child development. It is worth saying that, because it deals with some of the anxieties people have about how we might make a decision and what we would prioritise.

As the hon. Lady mentioned, we asked Professor Cathy Nutbrown to report to us on quality to inform our long-term strategy focused on qualifications and training over the next 10 to 15 years. I asked her to consider that, not only because of the evidence on quality but because we know that there is a particular issue with the esteem in which early years professionals are held in wider society and their reputation across the

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piece, whether they are working in nurseries or are childminders. She has made a lot of good recommendations and we want to take some time to consider them. We will respond to her report later in the year. I want to make it clear that Professor Nutbrown’s recommendations are for those who work in early years settings across the piece and do not just focus on childminders as our work on early years is more widely focused.

The hon. Lady also mentioned the reform of the early years foundation stage curriculum, which comes into force this year. We have tried to focus on improving quality, so that it focuses on the core areas of child development that we know are foundation building blocks for all that happens later in schools. Settings that offer the free entitlement all offer the early years foundation stage curriculum, including childminders.

On the questions of availability, access and cost we are doing a great deal to try to improve access. First, as the hon. Lady mentioned, we are increasing the number of hours available to parents through the free entitlement from 12.5 hours a week to 15 hours a week and extending that to two-year-olds, beginning with the poorest 20%, who will have a free entitlement from 2013, and working up to 40% by 2014. Yesterday, I published a consultation on the criteria that we are suggesting that we might use to prioritise those children.

We want to do a great deal more. We know that families are under extreme pressure at the moment because of the cost of living, and that is why the Government made the changes we did to the tax system to ensure that those earning the least were taken out of paying tax. We know that child care is a particular pressure on many families, including in London, as the hon. Lady suggested. That is why the Prime Minister and Deputy Prime Minister have asked me and the Minister responsible for disabled people, the Under-Secretary of State for Work and Pensions, the hon. Member for Basingstoke (Maria Miller), to work together on a review of the availability and cost of child care.

The hon. Member for Hackney South and Shoreditch asked me a number of questions about the terms of reference and detail of that review. We will shortly publish the terms of reference, so unfortunately I cannot answer all her questions today. When we publish the terms of reference, we will make it clear how people can submit their views to that review and how we will consider them. As the announcement made clear, we are looking at a number of aspects in particular—first, out of school wrap-around care.

We know that many parents have difficulty accessing child care which is appropriate and available to them at the times and places that they need it. For parents with a number of children of different ages, that can create real pressure. That is one area where a good deal more progress could be made, so that is one of the first areas that we want to look at. What can we learn from some of the best schools that have taken an innovative approach to wrap-around care? The Free school in Norwich, for example, a new school, has on-site affordable child care six days a week, 51 weeks of the year, which makes a substantial contribution to parents’ support network. Mossbourne academy provides a longer school day—again, a great support for many parents who have to juggle a working day and perhaps pick children up from child care in different places.

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It is important that we identify regulation that creates unnecessary burdens which detract from quality. Unfortunately, regulation does not always support quality. Sometimes regulation that was initially intended to raise quality becomes burdensome over time, possibly because it is gold-plated or misunderstood, or because things move on and professionals gain enough knowledge to be able to exercise their own judgment. That was our focus when we looked at the early years foundation stage. Therefore, for example, we pulled away some of the health and safety regulation that was a distraction for many in the sector. They had to do risk assessments that were out of all proportion to the task in hand when they were taking a child to a park.

Similarly, the old structure had 69 goals and was extremely prescriptive. We focused it much more on three core building blocks, which we hope will focus professionals’ minds on quality, be less distracting for them, and encourage them to use their professional judgment more. As the hon. Lady said, great progress has been made in the knowledge of early years professionals across the piece, not just childminders. We felt that now was the right time to do that. We will take a similar approach when we look at other regulation for childminders and others in early years settings.