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Lord Mackay of Ardbrecknish: I am grateful to the Minister for not making too much of the fact that I slightly misread this. I was a bit surprised myself when I read it and wondered why I had done it. I assume it is the new role in which I find myself as part of the Opposition. I need to make up amendments to Bills. I hope I do not get too used to it.

I wanted to explore the two-way relationship. I thought that the noble Lord, Lord Montague of Oxford, made some telling points about the relationship

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flowing in the other direction from the court, widely drawn, to the Monetary Policy Committee. We will have an interesting debate when we come later to the composition of the Monetary Policy Committee and whether it is entirely right that its members should all be drawn from the narrow circle of Oxford, Cambridge and London. That debate is still to come.

This debate has been useful. If I understand the Minister correctly, and I am sure I do, my amendment is not necessary because Clause 3 is governed by Clause 2, which makes it perfectly clear that the court,

    "shall manage the Bank's affairs, other than the formulation of monetary policy".

My slight concern is that when I went on to read Clause 3(2)(a), it looked as if it perhaps had a wider role. I will read with some interest what the noble Lord, Lord Montague of Oxford, said. I may return to it because I may decide that a belt and braces exercise is needed. However, I understand the point that the noble Lord made. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Mackay of Ardbrecknish moved Amendment No. 5:

Page 2, line 25, leave out ("Chancellor of the Exchequer") and insert ("Governor").

The noble Lord said: Amendment No. 5 refers to Clause 3 and to the subsection which tells me that,

    "The Chancellor of the Exchequer may designate one of the directors to chair the sub-committee".

The question which I put down in the margin when I looked at the Bill initially was, "Why him?". One theme that has already run through the Committee is just how independent the Bank is; how independent the Monetary Policy Committee will be, and just how much control the Chancellor will really have.

I notice that this particular wording uses the word "may" and that, by implication, I take to mean that he may not. If he decides not to, how is the director who chairs the sub-committee to be chosen? I notice the use of the word "chair" but I shall use "chairman", as chair is what we are all sitting on, and I do not suppose this director will be sat upon by anybody--at least I hope he will not. If the Chancellor of the Exchequer decides not to designate, will the Governor then have to do it, or will the chair, so to speak, be left empty?

I am not sure why the Government used the word "may" and not "shall" here. If they really mean "may", why cannot they accept that the Governor will appoint the chairman or--even better--the court will appoint the chairman? The Governor may perhaps suggest to the court who might chair this sub-committee, but surely the Governor and the court can be trusted to pick one of the directors of the Bank to do that job. After all, they are all perfectly satisfactory people, otherwise one would hope that they would not have been appointed. The Minister keeps telling me that the Chancellor and everybody else will be careful about appointing people to these positions and that they will all be perfectly sensible. Therefore, why cannot he take his hands off this appointment and allow the Governor to appoint? In any case--do I read this correctly?--is it possible that

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the Chancellor may not appoint and that therefore the Governor will have to? I would be grateful for some clarification from the Minister. I beg to move.

Lord Peston: Before my noble friend replies, perhaps I can say that I wrote a question mark beside this when I first read the Bill because I was completely mystified by this sentence. I tried to reflect on anything I knew about management theory that would tell me that this sentence had any use whatsoever. I came to the conclusion that, if the sentence were not there at all, it would make no difference to the way this sub-committee would operate. I would take it for granted that if a sub-committee was set up, it would appoint its chairman. Then I thought, "We are New Labour; we are very clever; we must have some brilliant idea about the management of sub-committees". However, I could not come up with any idea myself at all. Therefore, I say to the Minister that I am looking forward to his answer as to why we have any need to tell a sub-committee who ought to appoint its chairman. That is my helpful information.

Lord McIntosh of Haringey: First, I have to be clear what I am answering. The noble Lord, Lord Mackay, put in another bravura performance in which he moved one amendment and spoke to two other amendments which he had not tabled. He moved an amendment which provides for the Governor to appoint the chair of the sub-committee of directors. He then spoke to an amendment which would have provided that the Governor, or the Chancellor, "shall" designate one of the directors--an amendment which he had not tabled--and then he spoke to a third amendment which is his idea that the court should appoint its own chairman. He must make up his mind which of the three alternatives to the Bill he wants to promote. I am restricted to the amendment he tabled.

Lord Mackay of Ardbrecknish: The Minister is giving me a "teach-in". It seems to me that all he is doing is suggesting ways in which I might have elongated the Committee proceedings by putting down three amendments. Indeed, I tabled the one about the Chancellor, and felt that I should throw in the "may" and "shall", I am sure the Minister can answer me. However, I will take his "teach-in" to heart.

Lord McIntosh of Haringey: Perhaps I may respond to that point. The noble Lord, Lord Mackay, as a Minister, used to do this all the time. It used to infuriate me when government Ministers would generally tell me that "may" really meant "shall", and I could never accept that from the Opposition Benches. Now the noble Lord, Lord Mackay, will have to accept it from the Opposition Benches.

However, the possibility of the Chancellor not designating a member has been raised and the question has to be answered. And the answer is that if he does not designate somebody as chairman, then the sub-committee of the court itself will have to make that designation, because Clause 3(7) says that the sub-committee shall be responsible for its own procedures. I hope this answers that question.

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5.15 p.m.

Lord Boardman: Would the noble Lord answer the point of the noble Lord, Lord Peston, a point with which I am equally intrigued, as to why a sub-committee needs to have an outsider to appoint its chairman?

Lord McIntosh of Haringey: That is a more substantial point and I certainly will answer, as I intended. This comes back to the issue of corporate governance with which we were concerned on an earlier amendment. The noble Lord, Lord Mackay, and I both quoted the Hampel Report, and I would like to do so again, and also to quote the Cadbury Report. The Hampel Report said,

    "we see a need for vigorously independent non-executive directors. These should be led by a director other than the chairman and the leader publicly identified in the annual report".

The Cadbury Code of Conduct says:

    "The majority"--

that is of non-executive directors--

    "should be independent of management and free from any business or relationship which could materially interfere with the exercise of their independent judgment".

The point here is that you cannot pursue the analogy with private business too far because there are no shareholders other than the Chancellor. The Chancellor is, on behalf of the people in this country, the shareholder in the Bank of England, and that is why it is appropriate that he should appoint the chairman of this non-executive committee.

Lord Boardman: The report does not say that the Chancellor, or anyone else, shall appoint the chairman. The implication is that the committee would, as indeed any committee, public or private, would appoint their own chairman in a circumstance such as this.

Lord McIntosh of Haringey: That is one possibility, but this brings me back to a point to which I failed to respond when the noble Lord, Lord Boardman, spoke on an earlier amendment. He was suggesting that somebody other than the Chancellor should appoint the members of the Monetary Policy Committee at that time. I wondered when he said it who else he thought should. If it is not the Chancellor acting on behalf of an elected government, who else should it be? The only realistic alternative is a self-perpetuating oligarchy of members of the Monetary Policy Committee, and I am glad to have the opportunity of getting in that dig which I failed to make on the earlier amendment.

The answer here is that it is perfectly possible for the non-executive directors, who are a sub-committee of the court, to appoint their own chairman if the Chancellor decided not to designate a chairman. I do not feel very strongly about the matter. The word "may" is there and allows for that possibility, but it also provides for the Chancellor to make a designation.

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