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Baroness Hollis of Heigham: From the way that this discussion is going, I do not know whether praying in aid Higgs would help or hinder me. The noble Lord, Lord Lucas, said that this is not what Higgs says. My noble friend Lord Borrie said that this is not what Higgs says. And quite right, too, because that is not what Higgs refers to. I shall try another approach, which is to say that it is partly Higgs and it is a jolly
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good idea. Not for the first time, I think that I shall lose friends from all around the Committee. Perhaps I may set out our thinking.

First, we believe that it is a unitary board. I completely defer to the experience of the noble Baroness, Lady Noakes, at the Bank of England. Needless to say, I have not shared that experience. I have no reason to think that she is not entirely accurate in her descriptions of some of the contrivances to avoid a structure that she believes is burdensome and an impediment to appropriate decision making.

The intent is that we are dealing with a unitary board where there is a strategic role that is properly exercised by the non-executive directors, not quite in a Chagall-like way floating above the top of the board, but which would none the less be able to sit as a non-executive committee to discuss the strategic development of the PPF. But the non-executives also have a separate role. That was a feature of the Higgs review, which stated that non-executives should meet separately and have a clear role in contributing to strategy and to monitoring performance.

Again, I cannot challenge the expertise of the noble Baroness, because it is not my expertise at all, but I am advised that ordinary companies are increasingly introducing opportunities for non-executive members of their boards to meet separately and to have a clearer, more independent role—although this may not be formally recognised in the same way as in the PPF.

We can argue about blue-sky stuff such as whether it is more like Europe, more like Britain, whether there should be unitary boards and so on, but ultimately I do not know how the PPF's ability to function appropriately is compromised by these proposals. I can think of many ways in which the role of the PPF will be strengthened by them. Would noble Lords opposite kindly say why in practice this would hamper the good governance of the PPF? I have not heard a single reason. I have heard blue-skies theory on structures and all the rest—that is a changing field, but it is not mine. I have not heard any practical reason why this structure would hinder in any way.

There are many reasons why it would help, particularly given the political sensitivity of such a fund, where one is asking the non-executive members to have a non-commercial role—I am using small letters in that sense; I am not implying any criticism. There is a degree of sensitivity and therefore a degree of background that we would be seeking from the non-executive directors, which would be much greater in its headspace above the ranks of executive directors than is often the case.

In that sense, this separation of the non-executive directors into a non-executive committee, where appropriate, must surely be advisable. I have heard no reasons to persuade me that that is not the case, other than, "it isn't best practice".

Baroness Noakes: I do not wish to delay the Committee too much, as I am sure that we shall return to this matter again at Report. The problem is that the
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list of non-executive functions starts with strategy. That is quintessentially a function of the whole unitary board. Nothing in Higgs or the combined code says that non-executives go away separately to talk about strategy. They go away separately to talk about the way in which the chairman works—that is specified in the combined code—and, usually with the chairman, to talk about the performance of the chief executive. No one needs to set up in statute or write in the combined code that they should do those things, and no one says that they should have a separate committee for it.

If the intention is, as we understand it, to have a unitary board, why do we have this artificial structure involving the non-executive committee? I tried to explain to the Minister that in the only example with which I have been familiar there has been a series of legal devices to operate as a unitary board but stay within the letter of the Bank of England Act. So if she says, "Is there any harm", I shall say, "No, the PPF will get around it", because it will organise the way that it carries on business as if this is not driving the way they have carried out their day-to-day business. I have not heard from the Minister why this structure helps the governance or the unitary structure to work. All that I can see is that it potentially harms the unitary structure unless the members of the PPF or the board work their way around it. That is not a sound basis for legislation.

Lord Higgins: The Minister said that there will be a remuneration committee and an audit committee, in which case I am not clear whether, if we are specifying a non-executive committee, we are not also specifying them. Provided that there is a proper remuneration committee and a proper audit committee, I wonder increasingly whether we need Clause 106 at all. For the reasons given by my noble friend, it is arguable that we do not.

Baroness Hollis of Heigham: I do not think that I can help very much more. We think that such a committee will ensure a degree of independence and oversee the governance and strategy of the organisation, providing an independent review of the executive function of the board. As a result, we will get a wide of range skills and experience brought to the organisation.

There is probably a degree of a difference of philosophy here. I am not sure that I shall be able to say very much that will change the minds of Members of the Committee. Obviously, as always, I shall read Hansard, but I have not heard anything gritty that I can get into: it has all been at a blue-sky level. I do not mean to be critical because my language, too, has been at a blue-sky level. Apart from the fact that at the Bank of England there was a need to get around it in some way, I have not heard anything to suggest that this provision is a bad thing. I have been given quite a lot of advice to suggest that there are many positive advantages.
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If noble Lords wish to write to me with further details about why this provision might be an impediment to the effective and appropriate running of this organisation, I am very happy to take that on board. But I have not had that grittiness today.

Baroness Noakes: Perhaps the noble Baroness can tell us the positive advantages. We did not hear those.

Lord Oakeshott of Seagrove Bay: On listening to the debate, I do not think that it is right for the Minister to invite Peers who are probing to write to her. It is for the Minister to explain—this is blue-sky either way—to explain grittily why the provision is a good thing. The more I listen, the more I think that there is not much point for it.

Baroness Hollis of Heigham: I have tried to set out that what we seek to do is to establish a non-executive committee within, if one likes, the unitary structure to overview the strategic functioning and working of the board. Given the nature of its sensitivities and so forth, there is an additional dimension that one might not normally expect of many commercial companies. It would be sensible and is congruent with the advice coming from Higgs et al. I am assured that this is increasingly the way in which many companies are going, and it seems a good way to proceed. But if it is not, it is for Members of the Committee who are saying that we should do something different to explain to me, if they would be so kind, why doing it differently would be better.

Lord Lea of Crondall: This is an unnecessary philosophical discussion that has arisen—as if this must, on a priori grounds, be exactly like a Companies Act company. That is the sort of picture that is coming out. This is sui generis. All the reasons for this provision being set out as it is are based on the particular factors that have led to the whole board structure being created in the first place. The critics have not really taken the point that this is a rather special animal that must have rather special features. I think that time will demonstrate that is the case.

Baroness Noakes: Perhaps I may say to the noble Lord that this is a fairly ordinary NDPB. There is nothing very special about it in public sector organisational terms.

Lord Lucas: Can the noble Baroness ask her officials to talk to their colleagues associated with the Bank of England board to find out their experience of this particular structure? It is an unusual structure in NDPBs. Perhaps we could have some feedback on whether they feel that the structure has been good.

The crucial element is subsection (4), which one could not have in a public company and is not present in most NDPBs. One can have everything else, but subsection (4) kills it. What advantages or disadvantages does the Bank of England see to having that part of the structure? The rest seems to me to say, "Well, if they want to do it that way or not, fine". We take the view of the noble Lord, Lord Borrie, that this is a public board and it can
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do things its own way. But we are introducing a set of tensions into this board through subsection (4). I do not see how those tensions are constructive.

There is an example in the Bank of England where those tensions exist, at least in potential. Can we have some feedback as to why they are a good idea?

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