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Lord Elton: My Lords, I rise briefly to speak to the principle of the amendments. First, I welcome the introduction of a mandatory, rather than a permissive, duty to report. Secondly, I should like to make a brief comment on the role of the Comptroller and Auditor General. I am not entirely certain that he is the right authority. It is right that there should be a powerful and independent authority to look into this matter, and I hope that in the interval between this stage and the next my noble friend will take the opportunity to consider whether the Comptroller and Auditor General is the right person to do it. But it is right that noble Lords should note that the proliferation of the devolution of government and funds to agencies has effectively shut out the Comptroller and Auditor General from the direct investigation of very large areas which used to be subject to parliamentary scrutiny. That scrutiny is rendered indirect by the arm's length arrangements. The Minister looks perplexed. If I am wrong I am very happy to be put right. But if what I say is correct I am very unhappy that matters should be left as they are.
Lord McIntosh of Haringey: My Lords, I am not perplexed; I simply disagree, which is quite different. These amendments do two things: first, they remove the Treasury's discretion to decide when reviews are
appropriate and require them to be carried out at two-yearly intervals; and, secondly, they prescribe that the independent person to be appointed by the Treasury to carry out the reviews must in all instances be the Comptroller and Auditor General.As to when and how reviews should be commissioned, in this Bill we are doing nothing different from what is laid down in Section 6 of the National Audit Act 1983, which provides that the Comptroller and Auditor General may carry out examinations into the economy, efficiency and effectiveness of departments, not that he must do so. To introduce a requirement that these reviews should take place at two-yearly intervals, and presumably only then, is based on a profound misconception of the present situation.
Lord Elton: My Lords, surely the requirement to which the noble Lord refers is placed upon the Comptroller and Auditor General, but under the Bill the requirement is placed upon the Government in the form of the Treasury. There is a difference.
Lord McIntosh of Haringey: My Lords, perhaps I may shoot down the noble Lord's arguments one at a time rather than together with the same shot. They are both capable of being shot down in one way or another. The Opposition are quite right to draw attention to the fact that the clause gives the Treasury a good deal of discretion. It does so for a very good reason. First, it is the Treasury which is accountable to Parliament, and it is important that that should be done with accountability to Parliament rather than being within the purview of the Financial Services Authority.
Secondly, the whole point of the clause is that it is forward looking. The question of whether a review is appropriate at a particular point in the future, what kind of review it should be, and who should carry it out are decisions that can only be taken at that time. The Treasury needs the discretion and flexibility to be able to take those decisions as they arise. I confirmed in Committee that we shall commission reviews when necessary but there is nothing to be gained from holding a review for its own sake.
Amendments Nos. 41 and 43 would not only have the effect of requiring a review every two years but also of making it impossible for the Treasury to commission a review at any other time. Two years may be too long a time, but it may be too short a time. It all depends on circumstances, which we cannot foresee.
Amendment No. 44 presents a similar problem. It deletes subsection (2). It removes the power to impose restrictions on areas of the FSA's work the reviewer could examine. Subsection (2) reflects the fact that the Treasury may think it necessary to commission a review for a particular reason and not necessarily a general review of all the FSA's activities. If a review were triggered by events in the building society sector, for example, the Treasury might wish to direct the reviewer to consider the FSA's work in regulating banks as opposed to, let us say, insurance regulation.
The amendment also removes subsection (3) which is somewhat different. The National Audit Office Act 1983 gives the Comptroller and Auditor General responsibility to carry out reviews but it specifically prohibits the Comptroller from examining the merits of policy objective underlying the spending. That is not because those policies should be beyond question but because it would compromise the Comptroller's independence for him to become involved in questioning government policy. Subsection (3) does the same in respect of this Bill. The amendment would remove that subsection.
Amendments Nos. 42 and 44 would require the Treasury to appoint the Comptroller to carry out all reviews. It is the second point of the noble Lord, Lord Elton. Again, the problem is one of flexibility. Reviews are about getting the right things at the right time from the right person. In some instances, the right person might well be the Comptroller and Auditor General. There is nothing which would prevent the Treasury from asking him to carry out that task. But sometimes it may be more appropriate to appoint a different reviewer. For example, it may be helpful to appoint a body which is more familiar with how the financial markets work and thus the constraints within which the FSA operates.
Perhaps I may add something from my personal experience. It may well be that a review should be carried out by using survey research techniques, making inquiries by sample surveys of the views and experiences of those operating in financial markets. That is not a skill of the National Audit Office although it can subcontract that kind of skill. That possibility of going outside is not unprecedented. The value for money review of the SIB in 1996 was carried out by a private sector organisation.
This is not just the Government's view. It was the view of the Joint Committee chaired by the noble Lord, Lord Burns. It agreed that the National Audit Office should not be given the right of access to the FSA, but it noted that it was open to the Treasury to appoint the NAO to undertake an independent report into the efficiency and economy of the FSA's operations. I can confirm that the Treasury will do so where it thinks appropriate.
Finally, Amendment No. 46 would delete subsection (7). We need subsection (7) because it may not always be self-evident that a proposed reviewer is in fact independent of the FSA. So someone needs to look into the matter and take a view. Since the Treasury is making the appointment, it is the Treasury that will be best placed to do that.
For those reasons relating to the various amendments in the group--we appreciate the sincerity of noble Lords in moving the amendment; we all want to have effective review--I hope to persuade noble Lords that the way the provision is set out in the Bill is preferable to the rather more rigid alternatives proposed in the amendments.
Lord Saatchi: My Lords, I have fully understood what has been said. We heard earlier that the
Government want the FSA to be immune from criticism from below; and we have now heard that they want the FSA to be immune from criticism from above. I am sure we shall return to the matter at Third Reading. In the meantime, I beg leave to withdraw the amendment.Amendment, by leave, withdrawn.
[Amendments Nos. 42 to 46 not moved.]
Lord Kingsland moved Amendment No. 47:
- After Clause 10, insert the following new clause--
(" .--(1) The Competition Commission must immediately after the second anniversary of the day on which section 1 comes into force carry out a review of the impact of the regulatory regime created under this Act on competition in the financial system.
(2) On completion of the review, the Competition Commission must make a written report to the Treasury--
(a) setting out the result of the review; and
(b) making such recommendations (if any) as the Commission considers appropriate.
(3) A copy of the report must be--
(a) laid before each House of Parliament; and
(b) published in such manner as the Treasury consider appropriate.
(4) "The financial system" has the same meaning as in section 3(2).
(5) "Regulatory regime" includes the regulating provisions and practices of the Authority within the meaning of section 155.").
The noble Lord said: My Lords, Amendment No. 47 inserts a new clause. It is prompted by a recommendation in Mr Cruickshank's report in March of this year on competition in United Kingdom banking.
As well as recommending the separation of the roles of chairman and chief executive, Mr Cruickshank recommended that the Government should monitor the impact of the financial services and markets legislation on competition and financial services markets, and conduct a formal review two years after the commencement of the legislation. I am sure the Government would like to include provisions in the Bill giving effect to that recommendation; and, no doubt, it is only unavoidable commitments on the time of the parliamentary draftsman which have prevented the Government from doing so.
However, we strongly support the recommendation and have given the necessary priority to preparing an amendment. Under the new clause the Competition Commission would carry out the review after two years and make a written report to the Treasury. A copy of the report would be laid before each House of Parliament and published as the Treasury considers appropriate. I beg to move.
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