Previous Section Back to Table of Contents Lords Hansard Home Page

The Bill has already received serious scrutiny in another place, and will no doubt benefit from the scrutiny and improvement that the House will provide.

10 Mar 2010 : Column 256

It is surely our duty to continue to provide that important function to the legislative programme until an election is called. In response to the noble Lord, Lord Forsyth of Drumlean, about resources being deployed in anticipation of the Bill being successful, that is not the case. I do not believe that the Bank of England, the FSA or the Treasury are making significant resource commitments ahead of the Bill being passed. I am happy to give the noble Lord that assurance.

Lord Forsyth of Drumlean: I was responding to a point made by the noble Lord, Lord Newby, who said that not only were resources being committed but people were being told that their positions would change, and so on. Is that not correct?

Lord Myners: As the noble Lord, Lord Forsyth, knows, much as the noble Lord, Lord Newby, would make an excellent Minister in a Liberal Administration, I fear there is very little prospect of that happening and he does not speak for the Government in that respect. I suspect that the noble Lord, Lord Newby, will speak for himself on this, but there is also an extent to which there is a significant disruption to morale and the establishment of the FSA as a result of the uncertainty raised about its future by Mr Osborne's proposals. That is probably having a more deleterious and expensive impact on the FSA than anything envisaged in this Bill.

Lord Peston: My Lords, perhaps I may interrupt for a moment. The only way I can make sense of the Minister's reply to my noble friend Lord Barnett is that he is saying that the Government intend to get this Bill on the statute book before the election. Is he saying that we will go through Committee stage, that a Report stage will be scheduled-I cannot see in my diary where he will find the room-and that the Bill will then proceed to Third Reading? The point made by my noble friend is not against the Bill or a suggestion that this Bill is not important and that we would not want to see it on the statute book, but that it will not go on the statute book until we have had an election. That is what has troubled my noble friend and it is what, to put it mildly, puzzles me. Where is the time to do the job?

Lord Newby: I apologise for making another interruption, but I should like to clarify what I said about staff currently employed by the FSA who will be transferred to a new body. I know as a matter of fact that they have been told that on 1 April they will be TUPE-ed across into a new body, which assumes that the Government have in their mind that this Bill will reach Royal Assent by 1 April. I believe that that is what the FSA has been told. I think that some expenditure has been incurred-not a huge amount-because it has advertised for someone to head up this body. Although I may be mistaken, I think that interviews have taken place. It seems rather strange that all this is happening at this point. I cannot see for the life of me why there is a rush. I can assure the House that this is happening.

Lord Higgins: Before the noble Lord sits down, will he say to which body-

10 Mar 2010 : Column 257

Lord Tunnicliffe: My Lords, perhaps I may remind noble Lords what the Companion says about interruption to speeches. It states:

"A member of the House who is speaking may be interrupted with a brief question for clarification".

They are not to seek new information or to make new speeches. With some trepidation I remind the House that this is Committee, Members may speak as often as they want and, when the Minister has finished, we can have this debate all over again within the rules.

Lord Higgins: It did not seem to me that I was in any way out of order. I merely wanted to ask the noble Lord, Lord Newby, whether he knows to what institution these members of staff are to be transferred.

Lord Newby: My Lords, I believe that they are to be transferred to the consumer financial education body.

Lord Myners: My Lords, I am not aware that that is the case. I certainly do not think that there is any basis on which anyone could have been told correctly that they would be TUPE-ed on 1 April unless that was conditional on the Bill receiving parliamentary approval. I can envisage a situation where that information could have been conveyed and shared with people, which would have been perfectly fair and reasonable in terms of giving them a good understanding and in addressing uncertainty. But I do not think that any clear indication could have been given that people will be TUPE-ed. If during Committee stage I am advised by officials that that is not the case, I will obviously immediately advise the House.

Perhaps I may now turn to the noble Baroness's amendments. As the noble Lord, Lord Newby, said-

Lord Forsyth of Drumlean: I apologise for interrupting the Minister, but in all the hubbub he may have forgotten that he has not answered his noble friend's point on whether he expects the Bill to receive Royal Assent by 1 April.

4.30 pm

Lord Myners: I was going to answer my noble friend's point at an appropriate stage. Perish the thought that I would seek to avoid doing that. I am not sure where the date of 1 April comes from, other than it being both April Fools' Day and my birthday. I have lived with that all my life and I am fairly impervious now to the jibes. We will make as much progress as Parliament permits. I am encouraged by the speed with which we are progressing on this first group of amendments and by the clear message that I am getting from the other side of a real determination to get on with this and to see Parliament make appropriate progress.

As the noble Lord, Lord Newby, said-he put it better than I possibly could-the noble Baroness's amendments misunderstand the concept of the Council for Financial Stability. It is a consultative and co-operative body, not an executive body. I shall answer the questions a number of noble Lords asked about who is in charge, and I shall address the points raised by the noble Lord, Lord Higgins, about the resourcing for the Council for Financial Stability.

10 Mar 2010 : Column 258

Amendment 1 would provide for the council to be able to direct each member of the tripartite authorities. This together with Amendment 20, which provides the Chancellor with the ultimate power to direct the council, represents a different model to that which is proposed in Clauses 1 to 4. To set the context of the debate, I remind the House of what we are proposing and why. In reforming financial markets, the Government took a considered analysis of the financial crisis and identified reforms that were needed to strengthen the financial system for the future. In evaluating the existing standing committee and the wider tripartite arrangements it was clear that, while many different institutional frameworks exist in different countries across the world, no one model of financial regulation was successful in fully insulating a country from the crisis.

The Government's position is that what the regulators do-their behaviours and the judgments they exercise-matters much more than the institutional framework within which they operate. However, we need an institutional framework which makes sense and has clarity. I fully agree with what the noble Lord, Lord Howard of Rising, said about the need for clarity and structures and I shall address that point in a moment. Change to the institutional system-moving specific responsibilities from one body to another-will not by itself make any difference, other than to cause a significant disruption at a time when attention should surely be focused on practicable, workable improvements to regulatory performance and decision-making.

The same institutional functions-central banks, financial regulators, finance and economic ministries-are central to the maintenance of financial stability in every major economy. The UK is no different in this respect. The Bank and the FSA, alongside the Treasury, have key but distinct roles in protecting the financial stability of this country, each within its own individual remit. The Government have concluded that the existing tripartite framework is the right model and remain committed to the approach of having a single independent financial services regulator in the form of the FSA. We should always remember the confusion that existed before the creation of the FSA, with multiple regulators and inconsistent rules and principles. The concept of a single regulator has proved to be absolutely critical to efficient regulation; we should not dispense with it lightly.

"Who is in charge?", was the question put by the Treasury Select Committee to the Governor of the Bank of England. In his precise way, he quite correctly said, "What do you mean by who is in charge?". He meant, "In charge of what?". His answer was clear that there was an understanding of who was in charge of each approach. This issue was raised by the noble Lord, Lord Northbrook, by the noble Baroness in her speech in support of the amendments and, in particular, by the noble Lord, Lord Howard of Rising, who questioned whether one would ever support one organisation with three CEOs. I agree that that would be a highly unusual structure; it is not one that I have ever attempted to date in my business career. However, this is not a single organisation: it is a co-ordinating body for three separate organisations, each of which has a clear role and each of which has a CEO or someone in charge.

10 Mar 2010 : Column 259

Let me recap. The FSA as an independent financial regulator is responsible for authorising and supervising financial firms and markets. It triggers the special resolution regime. The Bank of England, of which I and the noble Baroness have served as members of court, is an independent central bank and is responsible for providing liquidity assistance to the banking system. It has oversight of the interbank payment system and it is the resolution authority under the special resolution regime. The Treasury, as the UK's finance and economics ministry, is responsible for the overall institutional structure of financial regulation and the legislation that governs it. It is ultimately accountable to Parliament and responsible for decisions that have an impact on public finances, which I think answers the question that my noble friend Lord Stoddart of Swindon raised. The Bank of England and the Financial Services Authority are also accountable to Parliament and can be, and are, called to give evidence in this respect to the Treasury Select Committee. Their annual reports are also subject to parliamentary and other scrutiny.

The key point is that these three entities, each of which has clear responsibility, are appropriately aligned and co-ordinated through the co-operative process proposed by the Council for Financial Stability. The council will be chaired by the Chancellor, who is ultimately accountable to Parliament and the taxpayer, but the council is not an executive body, as the noble Lord, Lord Newby, observed. There will be no votes. The council will have secretarial support, which will be provided by the Treasury. Over time, it might be concluded that it requires its own secretariat, but we have had two meetings of the council in shadow form to date which have worked rather well in accordance with the terms of reference and with secretarial support provided by the Treasury in the preparation of the minutes. The papers presented to the council come from the Bank of England, the FSA and the Treasury, depending on the specific subject being addressed.

When it comes to clarity of how the model will work and who is in charge, we have clear answers; I do not believe that the Opposition have clear answers. They need to explain who in their model will be in charge. Will it be the Governor of the Bank of England? Will it be the Chancellor of the Exchequer? Simply proposing to move around the deckchairs by getting rid of the FSA and transferring its powers to the Bank of England, a step which fundamentally misunderstands the competency, structure and culture of the Bank of England, achieves no good purpose and certainly does not answer the question of who is in charge. If one achieves this move, I do not think that anyone believes for one moment that the current or any future Governor of the Bank of England would perform the role currently carried out by the chief executive of the Financial Services Authority. That role would still need to be performed. There is clarity under the current model as to who is in charge and what they are in charge of. If noble Lords reflect on what I say, I hope that they conclude that I have answered some of the doubts that they may have in this respect.

The Government believe that the co-operative framework can be enhanced, however, through a more formal structure, with regular meetings, greater transparency over proceedings and clear lines of

10 Mar 2010 : Column 260

accountability to Parliament. This, I would say to the noble Lord, Lord Stewartby, is where the Council for Financial Stability represents a further step forward in the tripartite process. There will be more formality around the agenda for the quarterly meetings; there will be publication of minutes, which will provide additional transparency; and those minutes will allow for accountable and attributable comments to be reported, so that if there is a disagreement of emphasis it will be faithfully reported in the minutes. The Council for Financial Stability will also receive, after their publication-I emphasise that; I shall explain why in a moment-the reports which the Bank of England and the FSA publish on financial stability and financial risk assessment. We will debate those reports and will note any actions or views that they have in terms of mitigation required in response to an emerging risk.

I emphasise that it is after the publication of the report because by ensuring that process is followed we do not fetter the independence of the Bank of England or the FSA to publish their own assessments of risk in the system and potential risks to stability in the future. Likewise, the Treasury will produce an annual report on the Council for Financial Stability which will review the operations of the council. I say to the noble Lord, Lord Stewartby, that this is a significant step forward in terms of transparency. It will ensure that if there are ever differences of opinion-and let us be frank, there will be circumstances in which the central bank might reach a different assessment of risk from the regulator or from the Treasury-they become public knowledge and become available for public discussion. I think that represents quite a material step forward.

I refer here to the quarterly meetings. There will be other meetings in between which deal with specific issues relating to individual corporations or sectors. These will not be subject to normal public minuting because of the confidentiality involved. The noble Baroness will be tabling amendments in due course relating to some of those provisions. However, the annual report will, to the extent that it is possible, ensure that we also have public insight into the matters that are discussed in the non-standard meetings. For the time being we are having meetings on a monthly basis and we have had two already in shadow form, one of which was a quarterly strategic meeting, if you like, and the other was a more regular monthly meeting. We have published the minutes. They did not receive a great deal of attention, but they actually were quite thorough and quite detailed and gave a very clear indication of what was discussed at the council.

The council will comprise the Chancellor as chair, the Governor of the Bank of England and the chairman of the FSA. As necessary it will be able to draw on external expertise. There is a facility where experts can be invited to come and present or give advice to the council and if the governor and the chairman of the FSA or the Chancellor are not available they can nominate deputies to attend. By ensuring that the date of meetings, particularly of the critical quarterly meetings, are set well in advance one would reasonably expect to have very high and consistent attendance.

The council will be responsible for considering emerging risks to the financial stability of the UK and global financial system and co-ordinating an appropriate

10 Mar 2010 : Column 261

response by the UK authorities. It will deal with both immediate and operational issues and longer-term strategic issues. It is essentially a forum to bring together leaders of authorities responsible for financial stability and enable them to monitor emerging risks, analyse assessments of those risks and co-ordinate appropriate responses without encroaching on independence. The council will do this in partnership. The Bank of England is the independent central bank. The FSA is the independent regulator. The proposals are not about the council or the Chancellor having direct authority over other members. They are about a mature partnership. I am therefore unable to accept the noble Baroness's amendment because it essentially addresses a very different model from the one which we have in mind.

Amendment 20 ploughs a similar furrow to Amendment 1. This time the amendment aims to make clear that where the council cannot reach agreement, the Chancellor is "in charge". This allied with Amendment 1 will provide the Chancellor with ultimate executive authority for financial stability and authority over the Bank and the Financial Services Authority. This is a very major step, and I really wonder whether the Conservative Party is minded to seek to exercise such authority over the Governor of the Bank of England. When I read comments from Mr Osborne about interest rates, I think that the Conservative Party is straying dangerously towards saying that it intends to take power away from the Bank of England or begin to direct it in respect of interest rates. I see shaking of heads from the opposition Front Bench; I am delighted to see that that is the case, as it would be a very dangerous move for the Conservative Party to contemplate. Certainly, it would not be consistent with the model that we propose for the Council for Financial Stability for the Chancellor to have the power to take ultimate executive decisions in respect of the FSA and the Bank of England.

4.45 pm

Lord Forsyth of Drumlean: I shall resist the temptation to follow the Minister's political bait. He is waxing eloquently about this model and how it will work, with the three parties operating in co-operation. My noble friend Lord Higgins made the point as to how it will differ from what we have had before, and a number of other speeches have been made about that. When we had the tripartite group, if that co-operation was so important and critical, why did the principals-the governor and Chancellor-meet only on two occasions in the 10 years leading up to the crisis?

Lord Myners: I can speak to the effectiveness of the tripartite group during the middle and later stages of the financial crisis. I became a Minister in the Treasury in October 2008 and it seemed to me that the tripartite was in almost constant session for the next four months. I am not aware of the frequency of meetings before, but there is also provision for meetings of deputies, at which routine matters are conducted. I know that the Chancellor of the day and his predecessor had very regular meetings with the chairman of the Financial Services Authority, Sir Howard Davies, and with Mr Mervyn King, the Governor of the Bank of England.

10 Mar 2010 : Column 262

As I said, Amendment 20 ploughs a similar furrow to Amendment 1. It proposes an approach that the Government do not support. The model of the council is that of an effective forum for monitoring risk and co-ordinating a shared response. It is a model that has operated effectively during the crisis but the Government recognise that it can be improved upon. That is why the proposals are brought before the Committee today. I cannot support the noble Baroness in her amendment.

Amendment 21 will provide further elements for the model for the council that the noble Baroness has put before the Committee in her amendments. The clause would give teeth to the decisions of the council and provide that the authorities should comply with these decisions. This amendment, coupled with Amendments 1 and 20, would effectively constrain the discretion of the Bank and the FSA as to how they perform their functions, as conferred on them by Parliament. That is why I continue to ask whether the Conservative Party is minded-even if not in the area of monetary policy-to seek to take powers away from the FSA or the Bank of England. Perhaps the noble Baroness will answer that point in her closing speech. Such an approach would be likely to be detrimental to the performance of those functions, because the Bank and the FSA would always be at risk of being second-guessed by the council and, ultimately, the Chancellor. I do not consider either of those outcomes to be desirable or consistent with the model that I seek to articulate. As I set out previously, in discussing Amendments 1 and 20, this is not the model that the Government are proposing. Our intention is that the council monitors and co-ordinates in a spirit of partnership, and that the members of the council take action as agreed between the parties. That action would not be driven by a statutory requirement but would be done on the basis of a co-ordinated and agreed approach. I cannot support the noble Baroness in her proposed new clause.

I turn to Amendment 5. The draft of the statement provided for by Clause 1(5)-the council's terms of reference-is available on the Treasury website. It provides an overview of the authorities' financial stability responsibilities. This is intended to contextualise the detail on the council's objectives and procedures. The statement also sets out that the authorities intend to revise the Memorandum of Understanding between the authorities.

The MoU between the Bank of England, FSA and Treasury was first agreed between the authorities in 1997, and updated in 2006. It sets out the roles of each authority and how they work together to pursue financial stability. The Government made clear in another place that, as suggested in the draft terms of reference, the MoU would be updated with consolidated details of each authority's role for financial stability. The Government recognise that this approach has not swayed the views of the House and that there is still a desire for the detail on roles and responsibilities to be included in the terms of reference. On this basis the Government are willing to accept opposition Amendment 5 and include the necessary detail in the statement produced under Clause 1(5).

The noble Lord, Lord Hodgson of Astley Abbotts, referred to the fact that "the storm is still breaking". That is not how I see things. We must not be complacent

10 Mar 2010 : Column 263

but, in terms of the storm as I experienced it during the last couple of months of 2008 and the first two months of 2009, the weather conditions are much more tolerable now than they were. We have undoubtedly moved back to a position where the financial system and systemically important institutions are in a much stronger position in terms of funding, liquidity and capital than was the case. There is still scope to secure further improvement. I have answered the question of the noble Lord, Lord Stewartby, about where this council will be different from the previous arrangement. The difference will be in the transparency, the public minuting, the attribution of comments, the formal and open review of risk and the publication of an annual report.

Next Section Back to Table of Contents Lords Hansard Home Page