1.On the basis of a report by the Comptroller and Auditor General, the Committee took evidence from the Bank of England (the Bank) about the actions it is taking to reduce the costs of its central services and modernise the Bank.
2.The Bank is responsible for monetary and financial stability in the U.K. In practice it has a wide range of differing roles including: producing and issuing bank notes; setting monetary policy; setting policy for the financial stability of the UK; supporting financial markets and the settlement of transactions; and regulating other banks. In 2014 the Bank incorporated the Prudential Regulation Authority which supervises financial institutions, such as banks, insurers and major investment firms to ensure that they hold sufficient capital and have adequate risk controls in place. This resulted in a significant increase in staff numbers, with the amount more than doubling from 1,796 full-time equivalent staff in 2011–12. The Bank had 4,202 staff in 2017–18 and cost £647 million to run, including the cost of bank note production and pensions. The Bank has set itself a spending cap of £476 million, excluding the cost of banknote production (£89.5 million) and pensions (£82.9 million), and a headcount cap of 4,281 full-time equivalent staff.
3.The Bank has committed to improving its effectiveness by 2020, focusing on the way it works and how it communicates. The Bank’s central services have an important role in facilitating its aims to improve its effectiveness and control its costs. Central services are responsible for the Bank’s Human Resources (HR), technology, property, procurement, security and financial management. The Bank told us that central services also support the IT needed to operate the UK’s financial transactions settlement system and regulate the financial system.
4.The Bank told us that the main challenge for its central services was to deliver an efficient and cost-effective service and to reduce costs, and that it had two major projects underway to achieve this. The Bank introduced a central services transformation programme to simplify the service across procurement, HR and finance. It told us that it expected the project to reduce running costs by at least £3.5 million a year. The project requires a significant investment but the Bank expects the project will break even within 3 years. The Bank has also introduced a data centre migration programme to consolidate IT systems and move data centres. The Bank told us that this is a large project and is likely to take 15 years before this investment pays off. The Bank expected its projects to save a total of £9 million by 2021 and £15 million a year from 2021–22.
5.We asked the Bank about its plans for its central services over the next three years. The Bank told us that in the next year it expected to implement its new procurement approach and to have developed the next stage of its property strategy. It also told us that it expected to develop its new target operating model and would develop more clarity around the scope of the central services transformation programme. In three years’ time, the Bank expected central services to be smaller. The Bank told us that it would have delivered the central services transformation programme and it would begin to see savings from that as well as the data centre migration programme.
6.The Bank conceded that it did not yet have an overarching strategy with metrics set for each year so it can see where central services will be in three years or five years. The Bank does not yet have a target operating model in place and it is still working to define the roles it will need in the future and to develop its longer-term property strategy. It told us that it expected to have its vision for central services in place by April 2019, with a target operating model developed and an early indication of metrics for discussion by the Bank’s Court of Directors. It similarly told us that it expected to start measuring and monitoring initial metrics from April, though it admitted that these would probably not be a complete set.
7.The Bank told us it would design a new HR system around the organisational structure, rather than individuals. It expected to develop a roles-based framework so it can map roles onto the organisation, rather than the other way around. The Bank could not tell us how many roles it would need in the future. It told us that as part of the Bank’s target operating model work it will look at what roles the Bank needs and what central services are needed to support that.
8.The Bank has an extensive property portfolio. Some of its sites, such as its Threadneedle Street headquarters and the Bank of England Sports Centre, it has held for more than a hundred years, Others, such as leased property at Moorgate Place, it has taken on with new responsibilities such as prudential regulation. We were concerned that there were 800 unoccupied desks in the Bank’s offices at Threadneedle Street in London and that it had bought 260 additional desks in 2017–18 for the same property. The Bank accepted that it could use the desks at Threadneedle Street more efficiently. It told us it was committed to increasing the use of flexible working at the Bank and reducing the ratio of desks to people to 0.85 by February 2020. It also told us it was developing a long-term property strategy, and that the first phase of the strategy was to refurbish the Bank for agile working. It explained that as part of this, the additional desks bought for Threadneedle Street were to replace equipment coming to the end of its life and to allow for more agile working by introducing adjustable desks.
9.We pressed the Bank about why it had taken so long to adopt agile desks when flexible working was common practice in major banks 20 years ago. The Bank asserted that the technology to allow flexible working was not available 20 years ago and there had not been the demand from employees to work from home. The Bank told us that it had adopted flexible working 10 years ago, but that it had not moved to desk sharing at that time. It further explained that when the Bank took on the Prudential Regulation Authority (PRA) in 2014, the priority was to move those people into the building. The Bank told us that it now had a desk sharing ratio of 0.9 desks per full-time equivalent in its Moorgate building, where PRA staff are based. The Bank committed to considering increasing occupancy levels in its Threadneedle Street headquarters after February 2020.
10.We asked the Bank whether it could rent out parts of its Threadneedle Street headquarters if more staff were working from home. It asserted that the sub-letting of Threadneedle Street was not a practical option because the site is used to store £140 billion worth of gold. We asked the Bank whether it had considered relocating the gold to another property. The Bank told us it had not because of the extent of security arrangements required at Threadneedle Street. It acknowledged that it still had “plenty of room to go with less contentious properties”, outlining that it had sold a 125 year lease on its property at Number 1 and Number 2 Lothbury in London in the early 2000s for £28 million and that it had an income from ground rent on the building. It suggested that its next most likely option for sub-letting would be its office at Moorgate Place, where the Prudential Regulation Authority is based. The Bank assured us that it was considering how it could make more flexible use of its real estate, but it was too early to commit to specific actions. It explained that increasing the occupancy of Threadneedle Street would create practical issues such as a shortage of bathrooms and a need to deal with asbestos, which would require careful consideration given its grade 1 listed building status. We similarly asked the Bank if it needed the printing facility at Debden or whether it could completely outsource banknote printing. The Bank told us that a limited number of companies could produce banknotes, but that it had not ruled out the complete outsourcing of banknote production.
11.We asked the Bank whether it was still sensible to have its headquarters in central London. The Bank accepted that with modern technology it does not need all staff to be in central London and recognised that a number of other banks had moved out of the capital. The Bank told us that a mapping exercise of the distances staff travelled to work showed that on average its 4,000 staff spent about 8,000 hours a day commuting, and that staff came predominantly from the south-east or sometimes further afield. The Bank highlighted that it had 12 regional hubs across the country, as well as a cash centre in Leeds and its printing facilities in Debden, and that it was starting to look at whether it could recruit more staff from the rest of the U.K. This included arrangements to have more people working outside of London, possibly attached to the Bank’s regional agents or another way of working such as serviced office space. The Bank accepted that it could reduce its headcount in London and become a more regionally focused Bank, but cautioned that this would depend on the necessary technology being available and further consideration of the travel requirements being placed on the staff involved.
12.As part of its property portfolio, the Bank runs a leisure centre for staff at Roehampton, which it has owned since 1907. However, only 13% of staff are actually members and more staff use the gym at Threadneedle Street - 1,522 in total, which equates to 36% of all staff. We asked the Bank how it could justify the cost of the leisure centre given that it is outside its core business. The Bank told us that while it holds the freehold for the site, it sold a 125 year lease for a nine-acre site with tennis courts and facilities to the Lawn Tennis Association. The Bank explained that the sports facility had been part of its wellbeing package for staff and that it did not draw on the public purse because it made an operating profit of £77,000 before depreciation is accounted for. The Bank recognised that it did not need to own a sports site and that its governing body would be discussing the issue in February 2019. The Bank committed to updating the Committee on the outcome of this discussion.
13.The Bank aims to improve the diversity of the Bank and it has targets to increase the proportion of female staff to 50% by 2020 and the proportion of Black, Asian and Minority Ethnic (BAME) staff to 20% by 2020. It also has targets to increase the proportion of senior managers who are female to 35% by 2020, and to increase the proportion of BAME staff who are senior managers to 13% by 2022. The Bank has been regularly pressed to improve gender diversity by our colleagues on the Treasury Select Committee, which has said that it will continue to challenge the Treasury in its appointment of senior staff at the Bank of England. The Bank told us it had invested heavily in improving diversity and inclusion, including introducing a wellbeing strategy, work to improve inclusion, and a range of other initiatives, such as supporting its staff network. Nonetheless, the proportion of female staff at the Bank has remained between 44% and 45% since 2015. The Bank’s annual report showed that over the last year, 43% of new recruits have been women. By January 2019 32% of its senior managers were female, compared to 17% in 2013. In February 2018 18% of the Bank’s staff were BAME, the same proportion as the previous year, and just 5% of senior managers were BAME. We were concerned that 23% of staff leaving the Bank are also from this group. The Bank told us that it looked closely at the number of BAME staff in reviewing recruitment, promotions and resignations, and that the Bank would be considering the issue in February 2019.
14.We asked the Bank if it had measured the effectiveness of its interventions as it appeared to still have some way to go to reach its diversity targets. The Bank told us that its staff survey had very positive responses to questions about inclusion including respect for individuals, and whether individuals think the Bank takes diversity seriously. The Bank accepted that at 17% the proportion of female senior managers in 2013 was far too low. It explained that its target to reach 35% had been deliberately stretching, and that it wanted to go further in the future.
1 C&AG’s Report, , Session 2017–19, HC 1784, 19 December 2018
2 Qq 1–2; , paras 1, 4, 1.2, 1.8, Figure 1, Figure 3
3 Q 19; , paragraphs 4 to 5
4 Qq 15, 116–117, 123–124
5 Q 125
6 Qq 36, 88, 126–128
7 Qq 30, 32, 35–36, 5; , para 4
8 Qq 84–85, 88
9 Qq 86–88
10 Qq 97
11 Qq 88–90, 92–93, 101–102
12 Qq 93–94, 97–99
13 Qq 136–139
14 Qq 104–105
15 , 5 February 2019
16 Qq 143–148
17 , 2017–18, page 39
18 Treasury Committee report, , Session 2017–19, HC 477, June 2018, paragraph 128
19 Q 2, 17
20 Q 59; , 2017–18, pages 39–40
21 Qq 61–63; , 2017–18, pages 39–40
22 Qq 59–60
Published: 13 March 2019