I move on from the amendment tabled by the noble Baroness, Lady Wheatcroft, to Amendment 10, which raises some very difficult issues. Given the new, complex set of conflicting goals that the governor will necessarily need to navigate, the idea that his or her removal from office should be subject to some form of special scrutiny is entirely appropriate. I am not sure whether this is the right form of special scrutiny, but I am certainly going to take this away and think about it and may return to it on Report.

To sum up, Amendment 5 goes a little too far. Consultation is the key in the appointment process. The noble Baroness, Lady Wheatcroft, has identified something very valuable indeed, and we should be grateful to her, as should the Government, who should say so and accept her amendment. A number of very difficult issues have been raised with respect to Amendment 10, which I need to take away and think about at greater length before we come to Report.

Lord Sassoon: My Lords, first, of course the Government place great importance on the suitability and independence of the Governor of the Bank of England. We are all clear that the governor’s role is already a challenging one and that future holders of this post will need to possess an even broader range of skills, experience and expertise. We do not in any way seek to deny that. However, although I fully recognise the great importance of this appointment, I am very confident that there are already robust arrangements in place, which I will go through in a minute.

It is good that we are now focusing in this debate for the first time very directly on the amendments that we are discussing, which makes for a much more productive 35 minutes than we have had on this. In the debate, which has been instructive and interesting, I have heard some voices speaking up for some form of parliamentary veto, some arguing for consultation, some arguing that it should be the Treasury Committee in another place and some suggesting that it should be that committee and/or—I am not quite sure which—the Economic Affairs Committee of this House. Although it is not the subject of an amendment, I heard at least one suggestion that if we were going to change anything, we should go rather more radical and make it subject to a vote of the whole House in another place. That is a rather broad menu. There are many ways to skin this particular cat but I suggest that there are already robust arrangements in place

The governor and the deputy governors of the Bank are appointed by Her Majesty the Queen on the recommendation of the Chancellor and the Prime Minister. Since 2009, this Government and the previous Government have agreed that in principle these appointments will be subject to open public competition. That is what happened with the most recent example of Paul Tucker, who was appointment deputy governor in 2009, and that practice will continue. The Treasury Committee already holds pre-commencement hearings

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with those who have been selected to become governors and deputy governors. Therefore, I do not believe that Amendment 5 is necessary.

To be absolutely clear regarding something that I think I heard the noble Lord, Lord McFall, say, I certainly agree that Amendment 10 is connected with Amendment 5 but, to be technically right, I would not accept that Amendment 10 is consequential on it. I just wish to be clear on that technical point.

Having been appointed, the governor certainly cannot be removed on a whim. Indeed, the Government have no powers to remove a Governor of the Bank of England. Rather, the Treasury must give its consent if the Bank decides that the governor has met the criteria for removal. However, it is the Bank’s decision to make. The legislation is clear that the governor, a deputy governor or a director of the Bank can be removed only with cause—that is, if the Bank is satisfied that he or she has been absent from meetings of the court for more than three months without the consent of the court, that he or she has become bankrupt, or that he or she is unable or unfit to discharge their functions as a member. That is very clear.

Some commentators have suggested that the fact that the appointments of the chair and independent members of the Office for Budget Responsibility are subject to a Treasury Select Committee veto sets a precedent and that governor appointments should also be subject to a parliamentary veto. However, I agree with the noble Lord, Lord Turnbull, who suggested that these cases are rather different. The role of the governor and the members of the OBR are both characterised by the need for especially talented and independent candidates, but that is where the similarities end. The OBR performs an important function in providing an independent and unbiased forecast on which government policy can be based, whereas the governor carries out executive functions on behalf of the state.

More than that, and more broadly relevant to the amendments, this policy-making role makes the appointment of a prospective governor extremely market-sensitive in a way that appointments to the OBR and many other appointments simply are not. The uncertainty created by a public pre-appointment approval process could, depending on the market conditions at the time, be significantly damaging. The noble Lord, Lord Eatwell, may not like this analysis but I suggest that the person performing the role of governor attracts significant market interest. A huge amount of time and effort is spent examining every scrap of information relating to members of the Bank’s policy committees in order to gain insight into their thinking and determine likely future policy responses, and that will very much be the case with candidates for the post of governor.

Once the candidate is announced, his or her particular leanings can be factored into asset prices. The Treasury Select Committee will then be able to conduct pre-commencement hearings, providing a useful insight into the professional competence and personal independence of the appointee. However, I suggest that pre-appointment hearings of the sort suggested and necessitated by the amendments in this group would exacerbate the uncertainty of markets about who will be appointed, and that would be inappropriate.

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I am also sure, and I do not need to point out, that I could apply similar arguments regarding the dismissal of a governor. The uncertainty around any such dismissal would be just as damaging. In addition, I cannot see how the position of a governor whom the Bank had sought to remove for reasons of unfitness for the post could be anything other than untenable if the Treasury Committee reversed the decision, so I simply do not understand how that would work in practice.

I believe that the current arrangement of pre-commencement, rather than pre-appointment, hearings provides the right balance. It gives Parliament an opportunity to question the new appointee on their views and qualifications without bringing into question, or placing doubts over, the appointment itself. A parliamentary veto on appointments and dismissals would introduce uncertainty into these processes, and that would apply whether the veto was given to the Treasury Committee in the other place or to your Lordships own Economic Affairs Committee. For these reasons, I believe it is inappropriate for the Bill to provide that a parliamentary committee must approve governor appointments or dismissals.

Lord Peston: Before the noble Lord moves on to his next point, can he, for my education, explain one aspect of the drafting of the Bill? With regard to what we are discussing, can he tell me whether there is any significance in lines 8, 9, 10 and 11 on page 1, which refer to “a Governor” and “a Deputy Governor”, and line 15, et cetera, where the references are to “the Governor” and “the Deputy Governor”? Is this a fundamental matter of parliamentary draftsmanship, which is beyond me, or is it simply a grammatical error?

Lord Sassoon: My Lords, it relates to the former. I do not think it is fundamental; it just fits in with the construct of the legislation that we are talking about. There is no mystery behind it; it is purely a case of the grammar that the draftsmen have thought appropriate to use in the different lines.

Baroness Kramer: My Lords, the Minister has just put forward an argument for retaining the current process, which excludes the Treasury Select Committee from participating in the appointment of the governor. However, has he ever looked at the idea of allowing the Treasury Select Committee to question pre-appointment, even if there is no veto? I think we can all see a potential scenario—one that we hope never to have—where an appointee who is already in position, although they may not have commenced the role, comes before the Treasury Select Committee and does not win the confidence of the committee or the confidence of Parliament. That would leave us in a particularly dire situation and it is one that I think most of us would wish to avoid.

Lord Sassoon: I attempted to address the pre-appointment versus pre-commencement issue and I shall not repeat my remarks, other than to say that I believe that, for the market reasons I have given, among other reasons, it would be damaging if there were significant doubt over the clarity of the appointment of a particular individual as governor. One can very

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easily see how such a situation would be damaging and dangerous in present market conditions. Therefore, I repeat that I believe there is a distinction—

Lord Eatwell: My Lords—

Lord Sassoon: Perhaps I may complete the answer to my noble friend Lady Kramer, then I will give way. As I pointed out, I believe that there is a great distinction between pre-appointment and pre-commencement, that we have the balance right, and that with any appointment put forward to the Queen on the recommendation of the Chancellor and the Prime Minister there will be a very high degree of likelihood, approaching certainty, that the figure appointed will have the confidence of the Treasury Committee.

6 pm

Lord Eatwell: My Lords, following on from the point made by the noble Baroness, Lady Kramer, while I agree with the noble Lord that a veto by the Treasury Committee is not a good idea, I really do not understand his arguments about pre-appointment consultation, whereby a prospective candidate appears before the Treasury Select Committee prior to his or her appointment being confirmed.

The argument about market sensitivity entirely contradicts what the noble Lord told us about the collective decision-making process in the Bank. If there are all these collective procedures in which the governor is challenged and supported by deputy governors, technical staff, and so on, the idea that a new governor arriving would dramatically change the nature of monetary or stability policy seems to be ridiculous. There may be a change of tone or style, but the idea that the governor will somehow be the sole factor who can move markets by the very nature of his character would seem to reinforce all the fears of those who believe that we are appointing a sun king. The noble Lord argued persuasively that there existed a degree of collegiality in the Bank, which some of us were quite surprised to hear, but none the less we understand what he says. However, he cannot argue that and at the same time deny the possibility of pre-appointment consultation because it is market sensitive.

Lord Sassoon: My Lords, the noble Lord, Lord Eatwell, always applies impeccable logic but the way in which the markets look at these things is rather different and not necessarily logical. While I entirely accept at one level the logic of the noble Lord’s argument, it is not the way in which the markets seek to interpret what they can read into every tea leaf, let alone something as important as the appointment and the person of a new governor. I certainly do not accept that my two arguments are in any way at odds with one another.

Lord Eatwell: My Lords, if the markets are so irrational, as the noble Lord says, why will we have our appointment process distorted by these irrational forces? Surely, if they are so irrational we should simply leave them to their own devices and develop a sensible, coherent appointment process that fits the needs for the appointment of this very important figure.

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Lord Sassoon: My Lords, I was not going to bring this up, but I am not sure about the logic of the position of the noble Lord, Lord Eatwell. I understand that he was arguing for consultation but not a veto by the Treasury Committee. I am not at all clear why, if he is asking for consultation but not a veto, he is so hung up on whether it be pre-appointment or pre-commencement. Pre-appointment seems to imply some form of effective veto that goes with it. I am genuinely rather confused.

Lord Eatwell: I thought that I had made that clear in my opening remarks on the amendments. An individual who is being proposed by the Government to Her Majesty for appointment may be found by the Treasury Select Committee to be unsatisfactory in various aspects of his skill set or whatever, but while the Government may ignore that, they would at least have to take it into account and justify the appointment. Indeed, in doing so, that would perhaps strengthen the position of the governor thereafter.

Lord Sassoon: My Lords, I have dealt as fully as I can with the arguments. All I would suggest is that it further points out that this is not an easy area. As the noble Lord, Lord Turnbull, said, there are lots of possible solutions. If he were to change it at all, he would go to a solution that is not one of the number on the table at the moment. The Government’s position remains that we have an appropriate balance in all of this.

In answer more specifically to the noble Lord, Lord Peston, since I had the time during that little exchange to do a bit more research into “a”s and “the”s, the point is simple. The first reference is to the creation of “a Governor” and the subsequent reference is to “the Governor” who is at that point in the flow of the legislation being created. I hope that that helps to explain what is going on.

Lord Peston: No, it does not.

Lord Sassoon: It does not. Oh well.

Lord Peston: My concern was with the correct use of English. It does not help but I cannot believe that it matters at all.

Lord Sassoon: Even if it does not matter, I try. I do my best to answer these points, even if it causes more confusion. Sometimes the “a”s and the “the”s could be very important.

I move on to Amendment 6 tabled by my noble friend Lady Wheatcroft, on which, no surprise, I will not be much more accommodating, but it is an important point that should be discussed. As I said, it is vital that the post be filled by the best possible candidate and taken from candidates who have expertise and skills to fulfil the role effectively. The legislation as it stands does not prohibit the Chancellor consulting widely before recommending that a candidate be appointed as governor. In practice, the Treasury and the Bank work together closely to recruit for key Bank of England

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posts. I am sure that my right honourable friend the Chancellor of the Exchequer will engage with key individuals as appropriate during the process to identify the next Governor of the Bank of England. Indeed, well ahead of the formal process kicking off, the chairman of court, Sir David Lees, and the Chancellor are already in touch on this matter.

However, I suggest that we should keep in mind that the appointment is ultimately for the Queen to make on the advice of the Prime Minister and Chancellor. Many people may be consulted as part of the process to appoint a new governor, but it would be impractical to attempt to define them prescriptively in the Bill. By leaving the legislation broad in this way, the Chancellor will be able to consult whoever he or she feels will add value to the advice. The people consulted may well change depending on the circumstances of the appointment. I suggest that that is how to leave the legislation but I hope that I have given the Committee some perspective on how these things will be handled. I hope that the noble Lord will feel able to withdraw the amendment.

Lord McFall of Alcluith: My Lords, the aim of the exercise is contained in the Treasury Committee report, which said that an amendment was tabled on Report in the other place but that because of “insufficient time” the Minister did not give an answer. This amendment is to elicit an answer. I suggest that the Minister should think again on this issue.

The noble Baroness, Lady Kramer, said that there is a role for Parliament. If Parliament feels excluded, that does not augur well for the stability of the system. I understand that giving a veto to a parliamentary committee is a bold measure, so I understand the concerns being expressed. The noble Lord, Lord Turnbull, made the point that the Treasury Committee could make a recommendation and the House could look at it. There has to be either a formal or an informal way of including Parliament in this. My noble friend Lord Peston said that if the Governor of the Bank of England left, he would leave the country.

Lord Peston: I meant fired.

Lord McFall of Alcluith: If he was fired, that would happen. I bring not an exact parallel to the Committee’s attention. A number of months ago, comments were made by members of the present Treasury Committee about the chief executive of the Financial Services Authority. They felt that he was responsible for the demise of the Royal Bank of Scotland. A few weeks later the chief executive, Hector Sands, left. I do not know whether there was a causal relationship. I pointed out to Members of the Committee that if the environment in the other place is charged, it can have unforeseen consequences. Parliament therefore has to be considered.

Lord Peston: My Lords, perhaps I may interrupt as I misunderstood. In my judgment as an economist, the chairman of the Monetary Policy Committee is quite capable of doing some things via that committee that could destroy the whole economy of this country. However, as far as I can see, the rules are that he cannot be fired for that. He can be fired for going

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bankrupt and one or two other things, but there is no way he can be fired for making a mess of economic policy. I am pretty sure the Bank of England Act does not allow him to be fired for the reasons that my noble friend is raising. If we were asked if we could get him fired for a wrong policy, fine, but it is my understanding that the rules for firing a governor do not include a wrong policy. You may say that is a bit irrational but I am pretty sure that I am right.

Lord McFall of Alcluith: The rules do not include wrong policy and I never suggested that they did, but what I am saying is if there is a charged atmosphere in Parliament and there could be a scapegoat, perhaps the governor or a future governor would leave as a result of that. We must be mindful of that situation and I gave a parallel, if not an exact one, of what happened a few weeks ago on that particular issue. We also have the governor now being appointed for eight years. That was adopted after being suggested by the Treasury Committee and no one has commented on it in this Chamber. I think it is something which needs much more reflection from the Government.

The noble Lord, Lord Burns, spoke about the chairmanship of the court. I would suggest to the noble Baroness, Lady Wheatcroft, that this is a big challenge to the Bank of England, which at the moment is not perceived to have that challenge. That aspect of challenge is really important. I could give noble Lords an example from my time on the Treasury Committee. No names, but I was approached by the representatives of a number of non-executives during the financial crisis and asked if I would see them. They wanted to tell me about the situation on the board of their company and explain why no change was affected by them; my answer was, “Absolutely not. You’re on your own. If you’re a non-executive and you cannot challenge, you should not be on the board. You should leave the board as a result of that”. The aspect of challenge still resonates and we need that. It is the issue that the noble Baroness, Lady Kramer, was pointing to and the Minister needs to reflect on it.

The noble Lord, Lord Flight—if I can wake him up, no, I do not think I can—made the point about Mervyn King and economics teaching. He made the distinction that it was the economics teaching that was bad and not the present governor’s teaching—

Lord Flight: The former—

Lord McFall of Alcluith: Yes, the former, exactly. Economics has lost its way on this issue. I would point the noble Lords to a good letter in the Financial Times yesterday that said economists are there for the well-being of society and that they forgot that. There needs to be a fundamental rethink of the economics curriculum. When Alan Greenspan appeared before the Senate, he said the intellectual edifice that was built up has now crumbled as a result of that.

Other noble Lords have made the point that Amendment 5 is going too far, but we need reflection on it and I can understand where people are coming from. The noble Baroness, Lady Kramer, raised the issue of Parliament’s involvement and pre-appointment

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consultation. I think the Government can do something in terms of pre-appointment consultation, whether it is overt or covert. I would suggest that if they do not want any further annoyance at the other end of this building, they should reflect on that issue and come back with something in terms of pre-appointment. It can be done, it is feasible.

6.15 pm

Lord Sassoon: My Lords, just before the noble Lord, Lord McFall, sits down it may be worth being clear for the record that when I said the governor can be fired if he or she proves to be unfit to perform the role, that was completely right. In answer to the question from the noble Lord, Lord Peston, about whether the governor can be fired for wrecking the economy, I would suggest that at that point the Bank would probably decide that the governor was unfit. Without getting into a long debate about where unfitness comes into it, it is worth saying that at that point, unlikely though the scenario might be, wrecking the economy might lead the Bank to decide that the fitness test would apply.

Baroness Wheatcroft: I thank my noble friend the Minister for his reply; I confess I found it disappointing and I thank those noble Lords who spoke in support of my amendment. I was trying to find a simple means of showing that the court was held in some esteem and had powers to exercise. I do not doubt that informal conversations go on but I am slightly reluctant to rely on informal arrangements when we are trying to strengthen the corporate governance of the Bank. Not just to strengthen the corporate governance but to strengthen the perception of that corporate governance. I would ask my noble friend to think about this matter and maybe other ways in which he might strengthen perceptions of the corporate governance of the Bank. However, I shall not move my amendment.

Lord McFall of Alcluith: With a request to think again, I beg leave to withdraw the amendment.

The Deputy Chairman of Committees (Lord Brougham and Vaux): Is it your Lordships’ pleasure that the amendment be withdrawn?

Lord Trefgarne: No.

The Deputy Chairman of Committees: The question is that Amendment 5 be agreed to?

Amendment 5 disagreed.

Amendment 6 not moved.

Amendment 7

Moved by Lord Eatwell

7: Clause 1, page 1, line 12, at end insert—

“(2A) The Chancellor of Exchequer shall only appoint a person under subsection (2)(e) if he is satisfied that the person has knowledge or experience which is likely to be relevant to the Court’s functions and would enhance the diversity of the composition of the Court.”

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Lord Eatwell: My Lords, I beg to move Amendment 7, which as noble Lords will see from the Marshalled List refers to the experience and knowledge of individuals appointed to the court; that the Chancellor should be satisfied that they have appropriate experience and knowledge; and that their presence would enhance the diversity of the composition of the court.

The immediate reaction to this amendment might be yes, of course, it is unnecessary; anyone who makes sensible appointments would do that sort of thing. However, if it is accepted, a statutory responsibility to ensure that the supervisory board or the court, whichever we have, has a diverse range of appropriate talents will be a crucial guideline that Chancellors must follow and when necessary justify.

The importance of this amendment lies in its combination of expertise and diversity. The crisis should have taught us all of the dangers of conventional wisdom. Conventional wisdom underpinned the decision-making in central banks and treasury departments throughout the world and Mr Greenspan’s confession of the way in which his decisions were distorted by a conventional view of risk analysis has already been cited by my noble friend Lord McFall. In building a successful court or supervisory board, we need the contrary, the awkward and the different to be part of the debate. This will not guarantee that we get it right but at least we will be more likely to than if we appoint a committee of well intentioned sound thinkers who all think the same way.

Diversity here is a reference to diversity of view of analysis and of opinion. There is no doubt that often diversity of view is correlated with other aspects of diversity, maybe of gender or of ethnicity. This is not what I am trying to get at here, it is diversity of view that I would like to suggest. It would be pointless, for example, to appoint a racially diverse, gender-diverse board, all of whose members happened to share the same analysis and views. The degree to which diversities are correlated will perhaps provide some guidance and inspiration for a Chancellor. This amendment is designed to be a permanent challenge to the Chancellor in the very important task that he or she has of deciding on the composition of the court and particularly the non-executive members of the court.

Baroness Liddell of Coatdyke: My Lords, I support Amendment 7. Looking at this amendment the casual observer might wonder why it is necessary. It makes perfect sense that you would not leave governance of the Bank of England—and therefore governance of the economy and our financial institutions—to a bunch of interested amateurs. Frankly, however, we have occasionally seen that happen with some of our financial institutions—we need only look at the trails of chaos over the years from banks such as Barings and onwards to the catastrophe of Lehman Brothers. If noble Lords wish to read a horror story they should read Michael Lewis’s The Big Short. I confess that I did not understand some of the complex derivatives being talked about until I read The Big Short, and I have spent most of my life in and around the world of economics.

It is critically important that there is a balance of knowledge, experience and expertise on the supervisory board, or whatever we choose to call it. It will need

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people with a wide range of competence, with experience ranging from macroeconomics to prudential regulation. It is a wide mix to put together.

The other side of the coin—a matter to which my noble friend referred—is diversity of opinion. In this case, as he pointed out, we are not talking about gender or ethnic diversity, although that would be very good to have. We heard an exchange within the past hour between two distinguished economists—my noble friends Lord Peston and Lord Eatwell—and there will undoubtedly be differences of view among any number of economists. I would love to throw behaviouralists into the mix of any supervisory board of the Bank of England. Quite apart from behavioural economics, it is how people react that can bring economic chaos.

The amendment may seem unnecessary because it is a no-brainer that you would seek to do this anyway. We have learnt along the way, however, that it is better to get such things written down. Then you will have a wee bit more of a chance of achieving them. I therefore support Amendment 7.

Lord Phillips of Sudbury: My Lords, I am afraid to say that I agree with the final remarks of the noble Baroness—it is a no-brainer.

I speak as a weary lawyer who is tired unto death of our legislation getting more and more prescriptive and complex as well as longer. If we cannot trust the Chancellor of the Exchequer to exercise sensible judgment in a matter of this kind then, frankly, he or she should not be Chancellor of the Exchequer. If, as it says in the amendment, the member has to add to diversity, what about integrity and independence? You could go on and on adding to and subtracting from the characteristics. I know that that is reflected in other parts of the 1998 Act but the amendment, for all its good intentions, is unnecessary and potentially disruptive.

If you want to play legalistics with this, you might ask what will happen if you have a full diversity of opinion on your board or court. Do you still have to add further diversity when you have got a full hand of diversity? As the provision is drafted here, you would. It is unpoliceable. For all those reasons, and despite its excellent intentions, I am against the amendment.

Lord Turnbull: My Lords, I direct this question to the noble Lord, Lord Eatwell. Does he regard Amendments 122 and 123—which were tabled by the noble Lord, Lord McFall, and refer to persons representing the constituent parts of the United Kingdom —as helpful or unhelpful to his cause? Are they helpful because they may add to diversity, or unhelpful because you would be choosing people on the basis of their geographical representation rather than their professional expertise?

Lord Sassoon: I hesitate in replying because the noble Lord, Lord Eatwell, might want to answer that excellent question. However, it is up to the noble Lord.

Lord Eatwell: If it is of convenience to the Committee I am quite happy to do that. The noble Lord—indeed, my old pal—Lord Andrew Turnbull, has put me on

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the spot here by placing me in opposition to some propositions put forward by my noble friend. I was very clear that I was seeking diversity of view. Where someone lives does not seem a basis for that.

Lord Sassoon: My Lords, that illustrates one thing about the amendment—that the ways in which people interpret its words are rather different, which in itself is not ideal.

The noble Baroness, Lady Liddell of Coatdyke, got it right when she said that it is a no-brainer, and we do not believe that it is necessary to make legislative provision for it. My noble friend Lord Phillips of Sudbury said so in vigorous and direct terms which I can only echo. On one level, I feel that I should say no more and sit down. Nevertheless, I should explain to the Committee exactly what is going on.

As the Committee may be aware, the Treasury’s Select Committee report into the accountability of the Bank of England concluded:

“The new responsibilities of the Bank will require its governing body to have an enhanced mix of skills”.—[Official Report, Commons, Financial Services Bill Committee, 21/2/12; col. 21.]

The Government agree with this conclusion and in their response to the Treasury Committee they committed to take it into consideration in relation to future appointments. We understand the concern underlying the amendment and have already taken it into consideration, including in the latest appointments to the court. For example, both Tim Frost and Bradley Fried bring extensive experience of financial services as practitioners to the court. However, I do not believe that it is necessary to make legislative provision for this.

I can assure the Committee that the appointments of non-executive directors to the court are fully regulated by the Office of the Commissioner for Public Appointments, OCPA, which ensures a fair, transparent and competitive process. The practical elements of the appointments process are run by the Treasury, with the most recent interview panel consisting of senior Treasury officials, the chair of court and an independent assessor. The Treasury seeks to find the best candidates for these roles. This means people with a deep and diverse range of experience in relevant sectors. This can be, will be and is achieved without a prescriptive legislative obligation.

Court appointments are advertised openly. Applications are sought from candidates with diverse experience and from a variety of backgrounds. For example, the role profile for the last NED vacancy sought people with substantial experience as board members or heads of functions in a major financial services organisation; and/or someone who had built up a successful enterprise of a significant size; and/or someone who had played a prominent role in a relevant area of public policy, the voluntary sector or a trade union.

I can assure the Committee that the decision is taken with full consideration of the impact on the broader composition of the court and the fit of each candidate within the make-up of the court as a whole. I hope the noble Lord feels that he can withdraw his amendment.

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Lord Eatwell: My Lords, I am grateful to all noble Lords—except the noble Lord, Lord Turnbull, who ambushed me—who have commented on the amendment.

As to the other issues raised by the noble Lord, Lord Phillips, most issues of integrity and so on are covered by the committee on appointments in public life, to which the noble Lord, Lord Sassoon, referred. All those elements have to be taken into account. However, the issue that does not necessarily have to be taken into account is diversity of view, which I am particularly emphasising at this point. The noble Lord may feel it inappropriate to consider all these matters but, other than diversity of view, they already have to be considered under legislative structures.

6.30 pm

It was kind of the noble Lord, Lord Sassoon, to say that he fully understood—indeed, supported—the thinking behind the amendment, which is very encouraging. It would be more encouraging, however, if he accepted the amendment. I was trying in this amendment to create a permanent challenge to the Chancellor so that he or she always had it in mind that diversity of opinion is important. It is very difficult in institutions such as the Bank of England to avoid the power of groupthink. Having worked as an economist for 40 years, I know well how dominant views tend to become respectable and how difficult it is to put forward an unrespectable view and take a contrary position because of the weight of opinion. Conventional wisdom is very powerful in economics and economic policy-making, the constraints of which we need to be able to overcome. That was the purpose of the amendment.

Although I am grateful for the Minister’s warm words, I am afraid that I cannot be entirely confident, as he is, that these matters are considered in any event. For the moment, however, I beg leave to withdraw the amendment.

Amendment 7 withdrawn.

Amendment 8

Moved by Lord Eatwell

8: Clause 1, page 1, line 12, at end insert—

“( ) In section 2 of the Bank of England Act 1998 (functions of the court of directors) for subsections (1) and (2) substitute—

“(1) The Supervisory Board will be responsible for overseeing the development and execution of the objectives and strategic policies of the Bank of England, including monetary policy and stability policy, subject to instructions from the Treasury.

(2) There will be a Supervisory Board Secretariat, charged with providing economic, legal and monetary advice and research support to the Supervisory Board.””

Lord Eatwell: My Lords, the amendment stands in my name and that of my noble friend Lady Hayter of Kentish Town. It takes us back, because of the way in which the Bill is constructed, to the court or supervisory board of the Bank of England. The amendment lays out the roles of the court to specify more clearly than current legislation does the role of the supervisory board or court—let us leave that argument aside and concentrate on the body—which the amendment states,

“will be responsible for overseeing the development and execution of the objectives and strategic policies of the Bank”.

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It relates, therefore, to the development of strategic policies, as is laid down with respect to the Financial Policy Committee, as well as to the objectives and strategic policies. They are subject always to instructions from the Treasury, which are defined in statute, as are particular responsibilities of the Monetary Policy Committee. The idea is to ensure that the board has the status that I think everyone who has spoken today feels that it should have. That is the first part of Amendment 8; the supervisory board or court would have that appropriate status.

The second part of the amendment—which proposes that the supervisory board should have its own secretariat,

“charged with providing economic, legal and monetary advice and research support to the Supervisory Board”—

arises because, I regret to say, the Bank of England has form in this area. In the early days of the Monetary Policy Committee, its independent members were denied access to satisfactory technical support. The Governor of the Bank of England at the time declared that if they should have suitable support, it would undermine the status of the Bank. It was only after a public outcry once the governor’s position was made clear that suitable economic and secretarial support was given to the independent members of the Monetary Policy Committee to enable them to do their job. The governor had prevented them having that support until there was a public outcry.

Members of your Lordships' House who have been non-executive directors of boards will know how important it is for the non-executive directors to be able to access independent advice at times in order for them to fulfil their proper fiduciary role. Having access to advice—whether it be legal or, in the case of the court of the Bank, economic and monetary—is a crucial part of the independent directors being able to do their job.

If the Bank had not behaved in this way in the past, I would not feel that the amendment was necessary, because one would say, “Well, of course, they should have appropriate support”. Unfortunately, however, important independent members operating within the structure of the Bank have not in the past been given the support that they needed to do their job. It is therefore important that independent members of the court should have access to the advice and research support that can make them effective non-executive directors. I beg to move.

Lord Tugendhat: My Lords, I support the amendment of the noble Lord, Lord Eatwell. He draws the lesson from what happened to the outside directors of the Monetary Policy Committee. It might be said that the Bank has learnt its lesson on that and that the situation will not arise in the future, but as I pointed out at Second Reading, the Bank has behaved unacceptably in relation to having an inquiry into its performance during the financial crisis. Whereas the FSA had an inquiry and the results were published, the Bank of England rather stuck to Montagu Norman’s axiom, “Never explain, never excuse”. The Bank of England is a fine and venerable institution, but it finds it difficult to change. Unless there is some provision of the sort that the noble Lord, Lord Eatwell, suggests, one cannot be sure that the supervisory board—or

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whatever it is going to be called—will necessarily have the economic, legal and monetary advice and so forth that is required. The role that it is taking on is complex. It will deal with highly competent officials in the Bank. It is essential that the non-executives on the supervisory board have absolute certainty that they have all the back-up they require.

When one looks at the demands being placed on non-executive directors of more normal financial institutions, it is clear that, if they are going to fulfil their functions, they will need much more back-up than non-executive directors were accustomed to in the past. Their responsibilities and accountabilities are greater and they will need absolute certainty and right of access. That applies to the Bank of England and I hope that the Government will take into account that, if we are to have proper governance, it requires proper support.

Lord Sassoon: My Lords, we debated earlier amendments tabled by the noble Lord, Lord Eatwell, which sought to convert the Court of Directors into a supervisory board. Following on from those amendments, Amendment 8 sets out some of the functions of that board. There is little between the noble Lord and the Government on the substance of the amendment, but my key argument is that the amendment is not needed because its most important parts are addressed by government Amendment 13.

Government Amendment 13, which I will talk to at much greater length when we get to it, will give the new oversight committee responsibility for overseeing the Bank’s performance against its objectives and strategy—precisely what the first part of Amendment 8 seeks to achieve. As for the second part of Amendment 8, I appreciate that in the past the Bank was slow to realise that the MPC members needed their own dedicated support. That lesson was learnt a considerable number of years ago, and both MPC and FPC external members now have access to appropriate resources. The point about the FPC is important and relevant because that has been created in shadow form only very recently.

We can see the considerable output that the FPC is already producing, which it could not possibly do without that support. I am wholly confident that the oversight committee will have sufficient support once it comes into being, and I do not believe that it is necessary to put it into the Bill. I ask the noble Lord to consider withdrawing his amendment.

Lord Eatwell: I apologise that I was temporarily distracted by other channels. I am heartened to hear that the Government feel that the Bank has learnt its lesson on the provision of resources. I still feel that it would be appropriate to provide that insurance, particularly legal advice, for independent members. Legal advice is crucial for non-executive or independent directors in any environment because they can so easily be outgunned by the executive in a way that ultimately is not beneficial for the institution as a whole.

By the way, I am heartened by what the Minister had to say about the definitions of the supervisory board’s roles, but we will come on to that issue in our detailed consideration of his Amendment 13.

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I am sorry to be so roundabout in this respect, but going back to the issue of resources, I will consider what the Minister has said and decide what I will do on Report. In the meantime, I beg leave to withdraw.

Amendment 8 withdrawn.

Amendments 8A and 9 not moved.

Clause 1 agreed.

Amendment 10 not moved.

Amendment 11

Moved by Lord McFall of Alcluith

11: After Clause 1, insert the following new Clause—

“Retrospective reviews of Bank performance by the court of directors

(1) Section 2 of the Bank of England Act 1998 (functions of court of directors) is amended as follows.

(2) After subsection (5) insert—

“(6) The court shall conduct retrospective reviews of the performance of the Bank with respect to its functions and objectives.

(7) The court shall determine the particular matters to be reviewed under subsection (6).

(8) The court must publish a report on each review carried out under subsections (6) and (7) unless the court decides that all or part of such a report should not be published for reasons of confidentiality or because it would endanger financial stability.

(9) When all or part of a report of a review is not published under the provisions of subsection (8), the court must—

(a) publish as much as possible of the report,

(b) send a copy of the full report to the Chairman of the Treasury Committee of the House of Commons or, in exceptional circumstances, inform the Chairman of the Treasury Committee of the reasons for not sending it, and

(c) publish the report or part of the report as soon as possible after the court decides that the considerations in subsection (8) no longer apply.””

Lord McFall of Alcluith: This amendment is about corporate governance and the best practices in corporate governance. The Treasury Committee has concluded that the corporate governance in the Bank of England is well short of that in the best public and private institutions. Given the concentration of the regulatory responsibility in the Bank of England, there need to be checks and balances.

The Treasury Committee has recommended a supervisory board, using the term “supervisory” rather than the term “court”. We had a debate about this earlier so I do not want to go over old ground, but this is not really about nomenclature but about powers and responsibilities. Frustration has been expressed over many years, by both parliamentarians and by people who have sat in the court, that the court is toothless. We need to make this an efficient body, so whether we call it an oversight committee or a supervisory committee is immaterial. It is about powers, accountability, best practice and corporate governance. That is the essence of the view in this amendment.

The supervisory court, as the Treasury Committee has recommended, should take an explicit view on the Bank of England’s budget, both in the level of changes

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to the allocation of resources and in prudential and monetary areas. The inclusion of experts on prudential policy, particularly for the chair of the board, is essential. The board currently comprises 12 members. It is a good suggestion to reduce that number to eight, because the best boards have smaller numbers, and 12 is rather unwieldy.

6.45 pm

There is also a debate about the board’s minutes, and it is suggested that the supervisory board minutes should be published to a timetable similar to that of the Monetary Policy Committee. Again, as has been mentioned, the staff support for a supervisory board has to be upgraded quite a lot to achieve best corporate governance. The ability to conduct ex-post reviews of the Bank’s performance, both in prudential and in monetary policy, would help to ensure that lessons are learnt for the future and would be consistent with avoiding second-guessing at a time of policy decision.

The Joint Committee on the draft Financial Services Bill, which I served on, supported that point and concluded that the Treasury Committee was right to say that the governance structures within the Bank needed strengthening. After the reports from the Joint Committee and the Treasury Committee, the Bank of England changed its mind by moving from a supervisory committee to the oversight committee. Again, however, the Treasury Committee feels that that has been a bit more of a paper exercise that has not ultimately changed much, and it is very important for the Government to reflect on that. The Treasury Committee was clear that it should not plug that gap because the role would be so heavily circumscribed that it could not be relied upon to provide adequate scrutiny.

The Government believe that the governance of the Bank of England should be primarily a matter for the Bank itself. I think that most parliamentarians disagree with that on the basis that the Government, who are accountable to Parliament, are the only shareholder in the Bank of England, and many of the Bank’s responsibilities and functions are defined in legislation. Therefore the Government are responsible for the structure of the governance of banks, the crucial aspects of which should not be delegated. Once again, a new clause was tabled on Report in the other place, but there was insufficient time for that to be fully looked at. The Minister gave it some reflection but said that he would reflect on the matter when the Bill goes to the other place: hence the purpose of this amendment.

Lord Sassoon: My Lords, it may be helpful if I speak early in this group because there are substantial government amendments here. The Treasury Committee’s report last November concluded that the increased responsibilities given by this Bill to the Bank of England warranted another look at the Bank’s governance arrangements. The Bank’s Court of Directors has been statutorily responsible for managing the Bank’s affairs since nationalisation in 1946, albeit with some modernising changes brought in by the Bank of England Act 1998 and the Banking Act 2009. I expect the court, as it has done over the decades, to adapt and

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evolve to the Bank’s changing role, which was brought in by this Bill to enable it to continue to operate as an effective governing body.

However, we should not—and I am already clear from our Second Reading debate that we do not as a House—underestimate the court’s task. It must effectively oversee the transition to the new arrangements, ensure that the Bank is adequately resourced to meet its new responsibilities, and at the same time provide a vital link of accountability to Parliament.

Recognising this challenge, in January the court published its response to the Treasury Committee’s recommendations, proposing the creation of a new oversight committee made up of the court’s non-executive directors. The court accepted the Treasury Committee’s recommendation for retrospective reviews of policy, proposing that the oversight committee commission these reviews from expert external bodies. The court also accepted that an ex-post review or reviews be published, subject to the need to maintain appropriate confidentiality. In line with the Treasury Committee’s proposals, the court proposed to give the oversight committee the papers from the meetings of the MPC and FPC.

Some hours ago, the noble Lord, Lord Eatwell, somewhat mischaracterised the Government’s approach to governance. The Government’s position has been that governance is in the first instance for the Bank itself, but we have not sought to distance ourselves. We listened to the Treasury Committee’s and then to the Bank’s response and have come forward, in the light of those responses and the Second Reading debate, with these amendments.

Subsequent to both the Treasury Committee’s and the court’s response, the Chancellor agreed with the governor and the chairman of court that the oversight committee’s remit would be extended to encompass the commissioning of internal reviews of the Bank’s policy performance. Finally, as part of our response to the Treasury Committee and the Joint Committee that scrutinised the Bill in draft, the Government committed to considering further whether the proposed reforms ought to placed on a statutory basis.

My honourable friend the Financial Secretary to the Treasury restated this position in another place. As I said during Second Reading, the Government have now determined that that should be done, and we are tabling these amendments.

Amendment 13 writes the new oversight committee into the Bill, simplifying the governance structure of the Bank by subsuming the role and responsibilities of the existing committee of non-executive directors—the so-called NedCo—into the new oversight committee.

Subsection (2)(a) of new Section 3A provides that the oversight committee will be responsible for keeping under review the Bank’s performance in relation to its objectives and strategy. This includes both monetary policy and financial stability, including the responsibilities of the MPC and the FPC.

Subsections (2)(b) and (c) give the oversight committee responsibility for overseeing the Bank’s financial management and internal financial controls, and subsection (4) lists a number of additional responsibilities

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in relation to the procedures of the MPC and the FPC and the terms and conditions and remuneration of key posts within the Bank. I hope that when we hear from the noble Lord, Lord Eatwell, he will accept that that provision fulfils the purpose behind his Amendment 29, which would make the non-executive committee of court responsible for overseeing the activities as well as the procedures of the FPC.

The oversight committee will be made up of all the non-executive directors of court, but in some cases it may be inappropriate for particular directors to have an active role in certain of the oversight committee’s functions. For example, a director of court who is also an external member of the FPC—as is the case with Michael Cohrs at present—should not have a role in directly overseeing the FPC’s performance. Subsection (4) of new Section 3B therefore allows the oversight committee to delegate any of its functions to two or more of its members.

New Sections 3C and 3D give the oversight committee an express power to commission and publish external and internal performance reviews. I hope that that satisfies the noble Lord, Lord McFall of Alcluith, whose Amendment 11 is also intended to implement the Treasury Committee’s recommendation for retrospective reviews of the Bank. In fact, in a number of respects, government Amendment 13 in the names of the noble Lord and my noble friend Lady Noakes goes further than that. Amendment 11 relates only to reviews carried out by the court itself; whereas Amendment 13 provides for reviews to be commissioned from an external person, such as an academic or independent expert, or from an officer or employee of the Bank itself.

I also note that Amendment 11 is limited to reviews of past conduct; whereas government Amendment 13 allows reviews of current practice to be carried out that may be appropriate to the functions of the oversight committee in the financial management and internal financial controls of the Bank.

Consistent with the Treasury Committee’s recommendations, subsection (5) requires the oversight committee to ensure that sufficient time has elapsed before commissioning any review, to allow it to be effective and to avoid impeding the ability of the Bank to continue to operate effectively while the review takes place.

In line with the Treasury Committee’s recommendation and the amendment tabled by the noble Lord, Lord McFall of Alcluith, new Section 3D would require the oversight committee to publish its reviews, unless publication would be against the public interest. Published reviews will also be laid before Parliament. Where publication of all or part of a review is delayed, the oversight committee must keep that decision under review and publish that material as soon as the sensitivity has reduced.

New Section 3E requires the oversight committee to monitor the Bank’s response to the report and ensure that it fully implements recommendations that it accepts. That gives the oversight committee an explicit role in ensuring that reviews translate into real action, and that the Bank fully takes on board the lessons learnt.

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The Treasury Committee recommended that non-executives have access to all papers considered by the MPC and the FPC. New Section 3F implements that recommendation and goes even further by allowing members of the oversight committee to attend all MPC and FPC meetings in order to observe their discussions.

The remainder of the new clause and government Amendments 28, 30, 33, 91 to 96, 98, 99 to 101 and 145 to 147 make consequential amendments to implement the new oversight committee, and I do not intend to take up the Committee’s time by making any further reference to them.

In conclusion, the Government fully recognise the importance of strong lines of accountability for the Bank, given its expanded responsibility and powers. The amendments represent the most significant legislative reform of the governance arrangements of the Bank of England since nationalisation, and on that basis I hope that the Committee will support them.

Lord Phillips of Sudbury: My Lords, in the provisions setting up the oversight committee, which obviously has a hugely important and wide-ranging job to do, my noble friend mentioned the right of delegation in new Section 3B, but that is limited to two or more of its members. He mentioned under new Section 3C the right of delegation of a review to a person whom the committee can appoint. May there be wisdom in having a slightly wider power of delegation, so that one could under new Section 3B have an outside person or persons as part of that sub-committee and, in new Section 3C, more than one delegated reviewer? There may be occasions when that would be helpful.

Lord Sassoon: My Lords, I think I have covered the point but perhaps I can reflect on that and respond to it, because I suspect that the Committee might want me to respond to other points after we have heard the debate.

7 pm

Lord Flight: My Lords, I welcome both the amendment tabled by the noble Lord, Lord Sassoon, on behalf of the Government and Amendment 11, in providing for reviews of the conduct of the Bank of England. A review covering mid-2007 to date is well overdue. However, I note, quite correctly, that the amendments come with the caveat that anything that would be against the national interest if it were published may not be made generally available. The one issue that I do not really understand is the need for yet another committee. Why cannot the board of the Bank of England discharge the roles of the oversight committee? The board of a regulator would normally do that, in my experience, so adding yet another body seems slightly unnecessary. I noted the point that there may be some people on the court of the Bank who cannot review themselves, but I do not really see that as a problem. If somebody on the court was, for various reasons, prejudiced against doing some review or other, that is fine and they would not participate. I am nervous about proliferating committees, and I would welcome the Minister’s explanation as to why this cannot be a duty of the court.

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Lord Hodgson of Astley Abbotts: My Lords, I found this amendment attractive because it seemed to be very direct and to provide a very important check. Having served on the boards of companies, it is extraordinary how often you find in the post-investment assessment report, which is what we are talking about here, that you have not quite landed up where you thought you were going when you set the policy and made the decision in the first place. That is a very important issue. As my noble friend Lord Flight has just said, the court is the body responsible, and it is perfectly possible when dealing with a matter that may be sensitive, such as individual directors’ conduct, for appropriate arrangements to be made to avoid that. I am not entirely convinced of the need for an oversight committee, and I am not sure that it cannot be carried out within the arrangements of the court as it stands.

I am very grateful to my noble friend for the extensive answer that he gave. Perhaps I might raise one point about proposed new Section 3D, on publication. Subsection (1) of the proposed new section says:

“The Bank must give the Treasury a copy”.

I do not want to sound cynical, but one wants to be able to ensure that this can come out unimpeded. One does not want to find that the hidden hand will be able to say, “Actually, it’s most inconvenient if you say this. We’d like this to be doctored, monitored, removed or dealt with in one way or the other”. The “public interest” referred to in proposed new Section 3D(3) is always a useful cosh to avoid things that are not necessarily against the public interest but may be simply embarrassing at the time. When he comes to speak further, can my noble friend give an assurance that my cynicism is unfounded and can he address the point made by my noble friend Lord Flight about the proliferation of committees?

Baroness Kramer: My Lords, I join with the comments made by the noble Lord, Lord McFall, and I have a couple of quick comments to make on this very substantial proposed new section. I have two queries on it, which I wonder whether the Minister can clarify. The oversight committee, as he conceives it, is to be chaired by the chair of the court. Am I correct in understanding that he expects this to be a non-executive chair? Although there is currently a non-executive chair of the court, the Minister will know that I have concerns about the Banking Act 2009. In Part 7 of that Act, Section 241 seems to be quite ambiguous about whether that is a requirement or merely in the gift of the Chancellor. If I am right, I hope that that can be corrected at some later stage of the Committee.

My second set of comments concern proposed new Section 3C(5), on performance reviews. When the cynics among us—I am afraid that I confess to being one—read a phrase that says:

“In the case of a performance review, the Committee must have regard to the desirability of ensuring that sufficient time has elapsed … for the review to be effective”,

the Minister will understand that there is an element of thought that that could mean the long grass, if we are not careful. Paragraph (b) of that proposed new subsection,

“to avoid the review having a material adverse effect on the exercise by the Bank of its functions”,

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could be read as “no serious criticism required”. I would like some assurances from the Minister that that is not a possible reading.

The Minister will understand that some of those concerns are reinforced by widespread criticism of the delay, under the current banking structure, of the three reviews that were started in May this year. Seeing those reviews now in place, it seems an awfully long time since the financial crisis. There are also real questions about the scope of the reviews, particularly the review looking at the provision of emergency liquidity assistance in 2008-09. Many of us would have asked, “Why did this not start in 2007?”. Notwithstanding the fact that the Treasury Select Committee has looked at that, it is surely not a substitute for the Bank of England or the court doing the work itself. There are concerns in that area, and I look for reassurances from the Minister.

Baroness Drake: My Lords, perhaps I might ask the Minister a very brief question. Proposed new Section 3E(2) says:

“The Oversight Committee must … if or to the extent that the Bank accepts the recommendations, monitor the implementation of the recommendations”.

My question is very simple. If the Bank does not accept the recommendations, what then happens?

Lord Burns: My Lords, I, too, support the burden of this amendment. It is a subject that a lot of us spoke about during Second Reading, and this is an important part of strengthening the governance of the Bank of England, which we have been speaking about for much of the afternoon. The things set out here have the ability, over time, to change quite substantially the relationship between the non-executives and the executives at the Bank. I think we all agree that that will provide a better balance, given the wide-ranging powers that the Bank of England will have. The proposed new section sets out some of the important issues about making reviews of policy performance, which lie at the heart of this, and the engagement of the non-executive directors in what has been happening from a policy perspective within the Bank. The suggestions about publication and handling recommendations would also be extremely helpful.

The very same question raised by the noble Lords, Lord Flight and Lord Hodgson, also came to my mind. Why does one need a separate oversight committee for this, rather than handling it within the board itself? I have sat on a lot of boards by now and I have never found a problem with engaging with this kind of activity. Within a unitary board, people know the occasions when they must remain silent or absent themselves and who is in a position to do that. It is very much about commissioning reviews, as set out here. It is not as if one is suggesting that the directors themselves would be conducting the reviews, but they are going to be commissioning them, either from inside or outside the Bank.

It seems to me that the only argument arises from the scepticism that we have heard from many noble Lords about the entrenched position of the executives relative to the non-executives of today. Therefore I understand why the Government might think that this

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is a way of bringing confidence to this process. However, over the long term, I hope that it could be done within the remit of the board as a whole, because that gives confidence within a unitary board; confidence between the executives and non-executives that, together, they can review what has happened in the past and can learn the lessons of the past so that an attitude of confrontation does not develop between one set of people reviewing the performance of another set. However, I understand why it might be right at this point.

Lord Phillips of Sudbury: Is the noble Lord not assuaged in his point about the unitary board by the fact that it explicitly says here that the oversight committee is a sub-committee of the court?

Lord Burns: The committee consists only of the non-executive directors; the executive directors will be there, in a sense, only in attendance. It can work. Normally within a board, if it was doing this kind of review, it would be the non-executive directors who were in the lead and making the running. I have found from experience that one should do everything one can to keep the executive and non-executive directors together when one is handling these kinds of issues and trying to learn lessons from the past. We do not want a situation where one part of the board feels that it is being picked on by another. However, given the level of distrust that we have heard this afternoon from many noble Lords about this, I can understand the concerns that, if the Government had brought forward the proposal in the sense that a number of us suggested, they would have come up against the pressure of saying, “Well, it will simply be controlled by the executive directors, in the end, if it is done that way”. Over time, however, a well functioning board should be able to handle these kinds of policy reviews within the whole of the board. That is the best way of learning longer term lessons from these experiences.

Lord Tugendhat: My Lords, I agree with what the noble Lord, Lord Burns, has just said. This is an admirable amendment, and I agree with almost all of it. There is one point I am going to raise in a moment, but I do not see why it cannot be done by the court. The fact that the Government have gone to all this trouble to set up a committee instead of leaving it in the court means that one wonders what lies behind it. It seems to be diminishing the authority of the court in some peculiar way. I do not understand the purpose; if the court consists of the directors of the Bank, it seems very odd. That is one point. Otherwise, however, I agree with the thrust of this amendment.

I would like to point out to the Minister an inconsistency in his approach. In a couple of the previous amendments that we have discussed, he told us that what is being suggested is unnecessary, because, of course, the Government would behave in a proper fashion. They would consult everybody, including the chairman. There is no need to be specific in saying that the chairman should be consulted on the appointment of the governor. There was another occasion when the Minister said that there was no need to be specific. Yet here the Government say,

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“If the person to be appointed to conduct a performance review is an officer or employee of the Bank, the appointment requires the consent of the Governor of the Bank”.

7.15 pm

The Government are being very specific indeed here—very belt and braces. Of course, on a reasonably conducted board, one would expect that the chief executive—in this case, the governor—would be consulted. It would be strange if somebody was appointed against the will of the chief executive or the governor. However, it seems very strange that where the governor’s position is in question, the Government go for absolute explicitness and give the governor a complete blocking position, whereas in the other amendments we have been discussing, the Minister says that we should trust people to behave in a proper and sensible fashion. There is a certain element of one sauce for the goose and another for the gander here.

Lord Turnbull: My Lords, we have a great deal of common interest here that would advance the position of the court. We have two rival schemes, one in Amendment 11 in this group, the other tabled by the Government. We can mix and match here. The sense is that we prefer the Amendment 11 reference to the court, but we prefer the amendments in the government group, particularly about whether these amendments are made using internal or external resources, or whatever. If we put these two things together, we have a rather good scheme.

Lord Phillips of Sudbury: My Lords, I want to enlarge on the question I asked my noble friend just before he sat down. The point has been made from different quarters of the House about the desirability or otherwise of having yet another committee. However, whichever way that argument goes—and I note the rather odd situation that this oversight committee is to be a sub-committee of the court, and the composition of the court and the composition of the oversight committee are precisely the same—

A noble Lord: No.

Lord Phillips of Sudbury: I see:

“There is to be a sub-committee of the court of directors … consisting of the directors of the Bank”.

It is not all the directors, some of the directors. I have got you.

Lord Sassoon: I have been restraining myself from clarifying a number of other points, but I think that there is perhaps a point that will help the Committee. A director, as defined, is a non-executive director, so the executive members—the governor and the deputy governors—do not, under the definitions here, count as directors. It is only the non-executive directors, which may help my noble friend.

Lord Phillips of Sudbury: I am grateful for that, and I apologise for the error. However, I want to reinforce the importance of extending the power of delegation under new Section 3B. That could be very important

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to the work of the committee and strengthen it because it would bring in outside voices and give strength to its deliberations. I hope, therefore, that the Government may review this and decide to extend the power of delegation, not just to members but to outsiders as well. Subsection (3) already provides that outsiders can attend and speak at meetings of the committee, but to be members of a delegated body is crucial, as, indeed, in the review structure under new Section 3C, it would be helpful on occasions to have more than a single person appointed to conduct a review. If it is a complex review, there could be a lot of point in having a small team of three. At the moment that is not permitted by the wording of new Section 3C.

Lord Eatwell: My Lords, I welcome Amendment 11, which is the Treasury Select Committee amendment, put down by my noble friend Lord McFall and the noble Baroness, Lady Noakes. I also welcome the government amendment, which is taking us forward on this vexed issue of the governance of the Bank of England. I regard that as a general welcome, notwithstanding any criticisms or questions I may later have about some particulars of the amendment.

However, before getting into the discussion of Amendments 11 and 13, I reiterate the question raised by the noble Baroness, Lady Kramer, with respect to Section 241 of the Banking Act 2009, where it appears that the chair of the court is in the gift of the Chancellor of the Exchequer. There is nothing in that clause to suggest that the chair must be one of the non-executive members.

Baroness Kramer: I have tabled Amendment 98A, which I think fixes the problem, although it may be fixed by the Government before we get to that point.

Lord Eatwell: Let us hope that it is fixed by the Government, to general approbation.

I turn to Amendments 11 and 13. The noble Lord, Lord Turnbull, perhaps hit the right note when he said that there are elements of each of the two amendments that, if combined, could be turned into a truly satisfactory structure for this activity. As far as I can see, there are three crucial differences between the amendment proposed by my noble friend Lord McFall and that put forward by the Government. The first, as several noble Lords have pointed out, is that my noble friend’s amendment refers to the Court as a whole. Secondly, the Government’s approach would not allow the proposed oversight committee to consider the merits of the policy pursued by the Bank, a point that could be considered under Amendment 11. Furthermore, there is a third point: the Government’s approach does not commit anyone other than those internal to the Bank to know if a report is lying somewhere gathering dust, unpublished because of some concern about the public interest. Surely this is not the best way to grow confidence in the procedure, and the suggestions made in Amendment 11 would give some confidence that if reports were not published, at least there was some outside overview of the report and the reasons why it would not be published.

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Given the detailed scope of the Government’s amendment, I am going to concentrate on its provisions. This represents a major concession, finally forced out of the Bank through gritted teeth by the criticisms of the Treasury Committee and the Joint Committee, to some sort of oversight of its actions. As the Committee will be well aware, the Bank has severely damaged its own reputation, as several noble Lords have said, by its persistent refusal to conduct a proper, wide-ranging review of its conduct in the run-up to the financial crisis. There was the downsizing of the financial stability department, for example; its obsession with moral hazard during the crisis when what was urgently needed was a recapitalisation of the banks; and indeed since the crisis the governor and others have persistently suggested that they knew what was going on but either did not have the tools to respond or were not loud enough in their protestations. I must say that that seems to be a derogation of duty.

So the Bank has form that has been damaging both to itself and to the effective development of stability policy and the British economy. It would greatly help the Committee if the Minister would specify precisely in what ways the proposal for an oversight committee now before us differs from the proposals first advanced by the Bank in January. Has the Treasury added to or subtracted from the bank’s suggestions, and what are the implications of the Treasury’s modifications? Can we now have confidence that the Bank will not only learn from its mistakes but have sufficiently critical procedures in place that it learns before making them?

I am afraid that my confidence in these proposals was severely undermined by the Bank’s own commentary on the proposed oversight committee:

“It is vital that the Oversight Committee does not seek to second guess the decisions of policymakers themselves. The passing of such judgements could threaten the relationship of trust that is necessary between policymakers and the Oversight Committee. Were the Oversight Committee to be seen to ‘take sides’ in the policy debate, those policymakers from whom it differed would be less likely to trust as independent its judgement of whether proper processes were followed”.

I think that that is nonsense. I really had no idea that policymakers in the Bank were such delicate flowers that they could not withstand a little robust assessment of their decisions.

On several occasions today, Members including myself have quoted from the evidence of Mr Greenspan before the US House of Representatives, when he said:

“This modern risk management paradigm held sway for decades. The whole intellectual edifice, however, collapsed in the summer of last year”.

At least Mr Greenspan had the guts to stand up and admit what was true for every central banker: that this was an intellectual failing, and analysis and judgments were wrong. That is why it is imperative that the oversight committee has the powers to penetrate groupthink at the Bank, to assess and evaluate analysis and judgments and to create a framework in which the institution can learn and adapt in the rapidly changing environment of financial markets. As the Treasury Committee itself said:

“It is unrealistic to suppose that an oversight body could plausibly be expected to commission an external review of a policy decision without assessing the substance”,

26 Jun 2012 : Column 191

of that decision.

What is the full significance of the phrase,

“keeping under review the Bank’s performance”,

in new Section 3A(2)? Will it enable the oversight committee to review the judgments of the Financial Policy Committee as defined in proposed new Section 9C and the Monetary Policy Committee as defined elsewhere? For example, does the expression “duty of the FPC” include the tasks set out in new Section 9C(2)? Does the review of strategy include the right to criticise the intellectual framework used by the Bank in pursuit of its responsibilities under new Section 9C and the proposal of alternative frameworks? In other words, can the oversight committee do exactly what the Bank said it did not want the committee to do when it reviewed the proposal?

Then there are the phrases that the noble Lord, Lord Tugendhat, has referred to in respect of an office or employee of the Bank who could conduct the review but who has to be approved by the governor. I find that rather disturbing; surely if there is an employee who is truly competent and is chosen by the court and/or the oversight committee, and that employee may end up criticising some judgments of the governor, it is not appropriate that the governor should be able to approve that person.

As my noble friend Lady Drake pointed out, under new Section 3E(2) the oversight committee must monitor the Bank’s response and, to the extent that the Bank accepts the recommendations, monitor their implementation. As she pointed out, it is not at all clear what is going to happen if the Bank rejects the committee’s report. What is the committee supposed to do, slink away with its tail between its legs? What is supposed to happen in this case? What of the oxygen of publicity? As I have already commented, new Section 3D makes clear that the Bank may choose not to publish a report. That is entirely understandable in particular circumstances, but surely an outside eye needs to be cast over that decision, as my noble friend Lord McFall and the noble Baroness, Lady Noakes, have suggested.

I shall briefly address Amendment 29 in this group, which is in my name and that of my noble friend. Given what I have said already, the point of the amendment should be clear. As the Bill is presently drafted, the oversight committee would be able to keep only the procedures of the Financial Policy Committee under review. If that clause is inappropriate, as the Minister suggested in his introductory remarks, surely it should not be there or it should be appropriately amended. Proper oversight should be able to keep all the activities of the Financial Policy Committee under review. Once again, the Treasury seems to be unreasonably constraining the scope of oversight. The Minister shakes his head; I am delighted, but then why is the clause not amended?

I should refer to Amendment 31, which was put down in my name and that of my noble friend, and I was delighted to see that the noble Lord, Lord Sassoon, added his name to it. I regret that I have had to express such caveats regarding the Bank’s and indeed the Treasury’s motives in the design of the oversight committee but, as I said earlier, this is really because the Bank has let itself down and done itself significant reputational

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damage in failing to be open about its own failings in the crisis. A way of repairing that damage would be to develop an effective supervisory board, the court, with a proper strategic role including the oversight function, which I commend the Government for proposing.

I have raised these issues for clarification. I want to be clear that we have not been stuck with the proposals that the Bank itself put forward in January, and that the issue of oversight really would be as comprehensive as the noble Lord suggested. I hope that the Government consider the proposition put forward by the noble Lord, Lord Turnbull, and see that there are merits in both these amendments, and that by combining them later on in the development of the Bill a truly satisfactory structure could be attained.

7.30 pm

Lord Sassoon: My Lords, in most senses I am very grateful for the number of questions. I am also grateful for the general welcome that there has been for the Government bringing forward this very important series of amendments to the way that the oversight and governance of the Bank operate. We are coming to one of the key parts of this Bill. I am grateful, therefore, for the general support from around the Committee for what we are trying to achieve here. Let me reassure noble Lords that a lot of their concerns have been thought about and are adequately dealt with, although there are one or two things on which we have consciously taken a particular course, which not all members of the Committee would agree with.

Let me start by reassuring my noble friends Lord Flight, Lord Hodgson and Lord Tugendhat, and others, that we are certainly not creating any new body here. The committee of non-executive directors of the court, the so-called NedCo, already exists; we are folding that committee’s responsibilities into the new oversight committee, so we are not proliferating committees.

I have considerable sympathy with the position of the noble Lord, Lord Burns. To summarise his position, it is that in fact a mature board can do all of this without effectively throwing the executives out of the room. There is, however, a long tradition within the governance of the Bank of this critical role of NedCo, which has been accepted and not seriously challenged over the years, combined with calls from all sorts of quarters, including the Treasury Committee, to do it in the way that we are doing it. We have had calls for a supervisory board from the noble Lord, Lord Eatwell, and others, which have a similar end. Many, therefore, both in this House and in another place, have been calling for this separation.

Yes, I understand that in the best of all worlds it should not be necessary, but the Government have responded to the calls for this separation between the executives and the non-executives to carry out the oversight role. We believe that we have done it in the most efficient and effective way here by not creating new committees and additional complexity. Neither have we chosen to do it in what I would suggest would be another inappropriate way—namely, to have a supervisory board, which is itself composed only of non-executives. All these considerations, therefore, have been factored into the basic construction here.

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In terms of the basic construct, my noble friend Lady Kramer asked whether the Chair of Court would be executive or non-executive. It will be non-executive. I am aware that my noble friend has identified a possible lack of clarity by reviewing the existing legislation, and I know that she has tabled an amendment on this that we will debate later. However, the intention is very clearly that the chair will be non-executive.

I will take some of the other key points. My noble friend Lady Kramer asked whether new Section 3C(5) would mean that the committee should avoid criticising the Bank. That is absolutely not the case. The section only relates to the timing of reviews, and it is sensible to provide that, in deciding when to carry out a review, the committee should consider whether having a review at that time would disrupt the ability of the Bank to do its job properly. My noble friend also went back to questions about why the Bank had been so tardy, and about the scope of the reviews it recently commissioned. I would suggest that that illustrates why this amendment is appropriate and will make the whole position much clearer and different with this remit on the oversight committee. Without debating the rights and wrongs of the timing and the scope of reviews that have recently been commissioned, this amendment very much deals with that concern.

The noble Lord, Lord Eatwell, raised a concern about the scope of the work here, and what is kept under review. As he helpfully clarified, Amendment 29 seeks to require the non-executive committee to oversee the activities of the FPC. That is precisely what the Government believe Amendment 13 achieves as it makes the oversight committee responsible for overseeing the Bank’s performance against its objectives, including the FPC’s pursuit of its objectives. I believe, therefore, that in drafting its scope, that concern is taken fully on board.

My noble friend Lord Phillips of Sudbury asked questions on the ability of the committee to delegate, and on the interaction of new Sections 3B and 3C. These are different points, and therefore the construction here works as it was intended. New Section 3B allows the committee to delegate its own functions to two or more members of the committee. That is a different point from that in new Section 3C, which allows the committee to appoint, not to delegate, others—either an individual or a group—to undertake reviews of Bank performance. Therefore, the drafting works on that point and deals appropriately with the concerns that my noble friend expressed.

As regards the concerns around these processes, a number of points have been raised about possible redaction or disagreement with recommendations and so forth. The noble Baroness, Lady Drake, asked what would happen if the Bank did not accept recommendations that had been made. If that were the case, it would certainly be made public that the Bank had rejected a recommendation. I would expect that any such decision would therefore be subject to very close scrutiny, including appropriate parliamentary scrutiny. That would work in a very similar way to the scrutiny that surrounds government responses to independent and other reviews. There is no way that the Bank could walk away from proper challenge in such circumstances.

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Baroness Drake: On that point, I am sure that it would leak or become obvious but what is laid before Parliament is not the report that the Treasury receives but the report that the Bank publishes. This provision allows for the Bank not to publish on the grounds of its view of a public interest issue.

Lord Sassoon: My Lords, it is generally accepted that carve-outs are needed, particularly in relation to the time-sensitivity of reports. As I have explained, this is very tightly circumscribed and the question of when it is appropriate to publish must be kept under review. The publication of the report, or any delay to that publication, can be achieved by the Bank only in those very circumscribed circumstances. They must keep publication under review. Therefore, there will be publication and appropriate challenge at the earliest appropriate time. It is difficult to see what the circumstances might be in which the Bank’s not agreeing with a recommendation would justify non-publication. There is proper but not excessive protection of the position here.

There was also a question from my noble friend Lord Hodgson about the Treasury’s possible ability to step in and in some way redact or hold back reports. The Treasury has no powers here. It merely receives a report. It is up to the Bank, again on public interest grounds, to hold back parts or the whole of a report. I should not say that I quite understand my noble friend’s cynicism about references to the Treasury because I certainly do not. However, I understand why he has properly raised the question.

I think I have already touched on this point but the noble Lord, Lord Eatwell, specifically referred to proposed new Section 3A and whether the government amendment allows the committee to consider the merits of the Bank’s action. Proposed new Section 3A provides that the committee is to keep,

“under review the Bank’s performance in relation to … the Bank’s objectives”.

I reiterate that the main concern here has been addressed.

On the broader question of what the Government have done not only in relation to the Treasury Committee but about the recommendations that the Bank made in January, there is nothing that I can add to what I said in my opening remarks, in which I attempted to be very clear on that point.

Lord Eatwell: Perhaps I can clarify the question for the noble Lord. The question is really about whether the oversight committee could pass judgment on the decisions of policy-makers. As the Treasury Committee put it:

“It is unrealistic to suppose that an oversight body could plausibly be expected to commission an external review of a policy decision without assessing the substance”.

This is what the Bank objected to in the initial form of the oversight committee. Has the Treasury put aside the Bank’s objections, and can the oversight committee now refer to make its assessment of the substance of policy decisions?

26 Jun 2012 : Column 195

7.45 pm

Lord Sassoon: Let me address this very directly. The requirement for the oversight committee to ensure that sufficient time has passed before commissioning a review is there precisely to ensure that it does not put itself in the position of second-guessing the Bank’s decisions when those decisions are still playing out. After that point, it will be appropriate to assess the effect of those decisions, but while they are playing out it will not be possible effectively to estimate how they are playing out and it would be inappropriate to do so. The way that the amendment is drafted is precisely consistent with the Treasury Committee’s recommendation that the reviews be retrospective, rather than in any sense contemporaneous.

I hear clearly what the noble Lord says: there is a difficult balancing act here, between allowing the oversight committee the ability to question everything and not boxing it into questioning the judgments that have been made on policy decisions. Yes, it can challenge and review judgments on policy decisions but it should not be boxed into doing so while the consequences of those decisions are playing out. In substance, that is what the Treasury Committee recommended.

Lord Eatwell: Let us focus this by taking a concrete example. It is now generally accepted by everybody except the Bank that the Bank made some calamitous decisions shortly before, or in the process of, the collapse of Northern Rock. Various statements were made by the governor that accelerated the run on the bank. The continuous reference to issues of moral hazard when the bank needed recapitalising did significant damage in that case, and that damage reverberates to this very day.

Now that significant time has passed, suppose we were to commission a review of the Bank’s activities at that time. Would it be permissible for the oversight committee to say, “Look, this decision was made on the wrong analytical grounds and was a serious mistake. The Bank should readjust its perspective to think in a different way. Perhaps it should introduce some other analytical tools so that that mistake is not made again”? Would that be appropriate?

Lord Sassoon: My Lords, without wanting to endorse the conclusions of the noble Lord, Lord Eatwell, from the experience in 2007, yes, of course it would be possible and appropriate for the oversight committee to conduct or commission that kind of review. Without detaining the Committee for much longer, I will address a couple of other points.

Lord McFall of Alcluith: Could the Minister point to where his amendment says that that would be allowed? Looking at proposed new Section 3A(2), I can imagine a very sterile debate between the oversight committee and the Bank or the governor. The function of the oversight committee is to keep,

“under review the Bank’s performance in relation to … the Bank’s objectives”.

If it asked, “Did you stick by your objectives?”, the Bank answered, “Yes”, and the committee said, “We don’t think you did stick by your objectives”, where

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would it go on that issue? The committee could ask, “Did the Financial Policy Committee do its duty under Section 9C?”. The answer could be, “Yes, it has”, or, “No, it hasn’t”. The Minister needs to point to areas that would allow for the questions that my noble friend Lord Eatwell has asked.

Lord Sassoon: My Lords, I think the critical point here is that the noble Lord, Lord McFall of Alcluith, posited a situation in which this would be, in his words, a sterile debate with the governor. It goes perhaps to the heart of the question that I started with as to why the oversight committee is a committee of the non-executives. It means that it is the oversight committee without the governor or any of the executives of the Bank being members of that committee that takes the decision, under this provision in Amendment 13, to commission reports over a very wide area. So there is no question at the front end of a negotiation with the governor and the executive about whether they would commission a report in those circumstances. That is for the oversight committee to do. We have discussed the timing issue. The report is made and, subject to the issues that we have already discussed, the report is published. I can assure the noble Lord, Lord McFall, that there is no negotiation to be had at that front end. The non-executive oversight committee of the court of the Bank will have a very clear statutory function to take precisely what is proposed in new Section 3A, and it will be untrammelled by any possibility of the sort of sterile debate that the noble Lord suggests might happen. I hope that that reassures him.

I want to address a couple of other points, largely people issues of two kinds here. My noble friend Lord Tugendhat and the noble Lord, Lord Eatwell, questioned the need for the governor to consent to the appointment of an internal reviewer. This is intended to be a perfectly straightforward and practical measure. In practical terms, if the person selected is on the verge of leaving the Bank for another post, going on sabbatical or maternity leave, or whatever, the non-executive directors on the court may not necessarily be aware of this, and it is a practical way of ensuring that the appointment works. It also provides the governor, as the person ultimately responsible for the staff who work for him or her, with the opportunity to determine whether the person selected has the capacity to undertake the review in the timescale envisaged without impacting their other responsibilities. There is no more to it than that.

Lastly, I go back to a point which I believe the noble Lord, Lord McFall of Alcluith, made at the beginning about the size of the court. It is not directly the subject of this amendment, but I think that it is worth answering that point. Given that there will be four executive members—the governor and three deputy governors—if the court were reduced to eight, it would not allow for a non-executive majority because we have four insiders on the court. More generally, if there were such a small number of non-executives, it would be difficult to have sufficient diversity of experience and views, which was a point that we discussed earlier and which I completely agree with. If we had a reduction in size, it would be impossible effectively to have a non-executive majority or indeed, as I say, sufficient diversity.

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I hope that I have been able to deal with the very understandable and important questions and concerns on this issue so that the noble Lord, Lord McFall, might see his way to withdrawing his amendment and the Committee will support the Government’s amendments.

Lord Eatwell: My Lords, is the Minister accepting my Amendment 29? He seemed to say that it was referring to the right sort of thing. If he is not accepting it, why is proposed new Section 9B(4) left in the form that it is, referring only to procedures? I have another question, but would he answer that one?

Lord Tugendhat: May I add a question so that the Minister can answer both together? The Minister is dealing with these matters with such grace and elegance that I feel very bad in questioning his or the Government’s motives in any way. Nevertheless, when we were dealing with the question of whether the chairman should be consulted on the appointment of the governor, basically what the Minister said was that reasonable people will behave in a reasonable fashion and there is no need to spell all this out, because it will be done in the normal course of events. Here he is insisting on absolutely spelling it out so that in practice the governor has a block. Of course I agree that in a properly run organisation, as I am sure the Bank would be, an employee would not be appointed contrary to the wishes of the governor; the relationship between the chairman and the governor would overcome that. None the less, to give the governor an absolute block is a sort of belt and braces that is completely at odds with what the Minister said in an earlier discussion. That means that one does look with some suspicion as to why, as I said earlier, there is one sauce for the goose and another for the gander. If he wants to spell it out here, why could he not spell it out earlier?

Lord Sassoon: My Lords, in legislation we come back regularly to this question of what needs to be spelled out and what does not. Elegantly or otherwise, I am not sure what more I can say other than that we have to take each case on its merits. Sometimes there are good arguments for spelling things out and at other times there are not. I know that I will disappoint my noble friend and it is a perfectly fair question, but I am not sure that there is much more that I can usefully add.

On the question from the noble Lord, Lord Eatwell, about Amendment 29, I will be clear. I do not accept Amendment 29 because I do not believe that it is necessary. I believe that Amendment 13, which I thought was helpfully clarified during this debate, more than covers the ground. I refer the noble Lord in particular to proposed new Section 3A(2)(a), which I would suggest makes it clear right at the beginning of the Government’s amendment that the function of the oversight committee and its ability to review performance is very widely drawn in relation to the objectives of the Bank and of the FPC. I believe that new Section 3A enables the oversight committee explicitly to review the activities of the FPC, which are there right at the beginning of this amendment.

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Clearly I am having difficulty understanding the noble Lord’s concerns but I am absolutely clear that the substance as he has explained it and the specific example that he gave are completely within the ambit of what is being put in the Bill as the function of the oversight committee.

8 pm

Lord Eatwell: My Lords, if new Section 3A covers the point, and we want to avoid ambiguity, why not simply delete subsection (4) of proposed new Section 9B? What does it do?

Lord Turnberg: This amendment has been put in the wrong group. New Clause 9B(4) is about the Financial Policy Committee, not the oversight committee.

Lord Eatwell: The point is that the oversight committee is supposed to keep the activities of the Financial Policy Committee under review. There is an amendment among the amendments tabled by the noble Lord, Lord Sassoon, that changes “court of directors” in new Section 9B(4) to the “oversight committee”. So if we accepted his amendment, it would read that the oversight committee,

“must keep the procedures followed by the Committee under review”.

Why do we have that when we have new Section 3A doing all the work for us?

Lord Sassoon: I think that is wrong. It is not the Court of Directors that becomes the oversight committee; the Court of Directors remains the Court of Directors. It is effectively the committee of non-executive directors, or NEDCo, of the Bank, which becomes the oversight committee. The court remains the court. So there may be some misunderstanding of who is doing what here, but the Court of Directors must indeed keep the procedures of the FPC under review, which will be principally done through the oversight committee, which is a committee of the court.

Lord Burns: The references here to the Court of Directors of the Bank in new Section 9B(1) says:

“There is to be a sub-committee of the court of directors of the Bank”.

When it says Court of Directors in that case does it mean the whole court? Earlier we were being told that “directors” simply means the non-executive directors and that the governors are not counted as being directors of the court. That seems to be part of the problem that is causing this ambiguity.

Lord Sassoon: Let me try again. The court of the Bank, which is the executives and non-executives, must keep the procedures under review. The non-executives through the oversight committee have a remit and function that includes procedures but goes wider and is able to review the performance of the Bank and the FPC against its objectives in the full wide way that I believe the noble Lord, Lord Eatwell, is asking for it to do—and I am confirming that it does.

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Lord Burns: For clarification, when it says the Court of Directors, does that mean the whole court or does it mean only the non-executives?

Lord Sassoon: Court means the whole court, and that is in relation to the procedures. The oversight committee has the function and ability to look not only at the procedures but also at the question of whether the objectives of the Bank and the FPC are being met.

Lord Eatwell: I am afraid that this does not help, because the amendment tabled by the noble Lord, Lord Sassoon, Amendment 28, says on,

“page 3, line 28, leave out “court of directors” and insert “Oversight Committee”.

So this should actually read, “the oversight committee must keep the procedures followed by the Committee under review”. Why is that there when new Section 3A covers it, we are told? But I shall not pursue this—I shall leave it with the Minister. Either we have just got in a muddle or there is a drafting error.

Lord Sassoon: I think that it is me that has got in a muddle. It is kind to say that we have got in a muddle or that there is a drafting error. I apologise to the Committee, as I am the only person who has got into a muddle on this, as I track through amendments and consequential amendments. New Clause 9B(4) is being amended by government Amendment 28 so that it no longer says “court” but says “oversight committee”. I apologise for my confusion on this, but we may have finally got to what it is intended to say. The two things will be consistent so that the oversight committee, to the substance of the point, will be able to deal with both procedures as envisaged under new Clause 9B(4) as amended and as explained in Amendment 13. So I hope that we are getting there.

Lord Eatwell: We are getting somewhere. What we have here is redundancy. New Clause 9B(4) is redundant, given the Minister’s explanation of new Section 3A.

I apologise to the Minister for raising a quite different question, which I shall just leave on the table. In my earlier remarks, I did not refer to the schedule. In the enthusiasm to replace “court” or “Bank” with “oversight committee”, the Government have gone a bit too far. Perhaps the Minister could check on this later, because the terms and conditions of non-executive members of the Financial Policy Committee are now amended to be determined by the oversight committee. That must be a mistake—it must be the court as a whole. That is in government Amendment 91. In government Amendment 93, the oversight committee can remove appointed members of the Financial Policy Committee. Surely that must be a mistake as well—it must be the overall court. So I think that there has been a great enthusiasm for replacing “court” with “oversight committee” and somebody has got rather carried away. But I am not going to press this issue now. I shall just leave it on the table for the noble Lord and his officials to consider and bring back to us later.

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Lord Sassoon: I am grateful to the noble Lord because I think that we are getting into very detailed drafting points. I will certainly have a look at those points and write to the noble Lord and copy the letter to others who have spoken in this debate, just to check that nothing has gone astray in the drafting here. We will take that on board.

Lord Phillips of Sudbury: I hope that my noble friend agrees that the noble Lord, Lord Burns, had quite a point. It harks back to earlier discussions about the complexity of drafting. It is the fact, as I hope my noble friend will confirm, that the definition of Court of Directors in Clause 1 of the Bill includes the four executive directors and “not more than 9” non-executive directors—which makes 13. The interplay of the phrase Court of Directors and the new body that is the subject of the government amendment makes for extraordinary complexity in understanding. One thing that my noble friend might consider for the next stage is that when the Bill and his amendment refer to non-executive directors they say non-executive directors, because there are four executive directors—the governor and three deputy governors. They are directors too.

Lord McFall of Alcluith: I thank noble Lords for their contributions. It has been a very interesting debate. I had more of an idea what things are about at the beginning of my speech than I did at the end and whether it is the oversight committee or the court. Perhaps the Minister could just clarify whether the chair of the court will chair the oversight committee and whether the oversight committee will be composed of non-executives, with no officer of the Bank on the oversight committee. I cannot see that detailed in the Bill.

I agree with noble Lords in asking why we need another committee. The reason why I asked the Minister questions earlier was that the Treasury Committee in another place is very firm that this proposal does not plug the gap. In the light of the debate, there needs to be a review from the Government and they need to come back to us on Report so that we can get some clarity when it goes back to the other House. The core of this is corporate governance. If we get good corporate governance on the court, there will be no need for the oversight committee at all.

The noble Lord, Lord Turnbull, had a very good suggestion. Why do we not combine my amendment with the Government’s amendment and then we can come back to this matter, look at it and, I hope, all agree? I beg leave to withdraw my amendment.

Amendment 11 withdrawn.

8.09 pm

Sitting suspended.

8.54 pm

Amendment 12

Moved by Lord McFall of Alcluith

12: After Clause 1, insert the following new Clause—

“Publication of court minutes

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(1) Section 2 of the Bank of England Act 1998 (functions of court of directors) is amended as follows.

(2) After subsection (5) insert—

“(6) After each meeting of the court, the Bank shall publish minutes of the meeting before the end of the period of two weeks beginning with the day of the meeting.

(7) Subsection (6) shall not apply to minutes of any proceedings where the court has decided that publication should be delayed for reasons of confidentiality or because publication would endanger financial stability.

(8) Where any part of the court’s minutes is not published under the provisions of subsection (7), the Chairman of the court shall inform the Chairman of the Treasury Committee of the House of Commons of the reasons.

(9) Any part of the minutes of a meeting of the court must be published as soon as the court has decided that the considerations in subsection (7) no longer apply.””

Lord McFall of Alcluith: My Lords, the MPC is obliged to publish minutes of its meetings, but the Financial Policy Committee has just been asked for a record. In the other place, Mark Hoban, the Minister, pointed out that,

“the FPC also produces what it calls a record of its meetings, which is a very full account of the debates that go on in the FPC, and we will expect a similar process to be undertaken for the court’s meetings”.

What is good for the MPC should be good for the FPC as well.

As a veteran of Labour Party constituency meetings during the 1970s and 1980s, I really know the difference between the record of a meeting and the minutes. There can be many battles behind the scenes on that. This is not as arcane debate as we think it is.

When the Minister replied in the other place during the passage of the Bill, Chris Leslie, the opposition spokesperson, said:

“I just want to be clear about what the Minister is saying. Is he saying that when the Bill comes before the other place for consideration he will accept retrospective reviews and publication of minutes or that he will simply consider it?”.

The Minister replied:

“We are clear that we want to see the court’s minutes published”.

The chairman of the Treasury Committee, Andrew Tyrie, then asked a further question:

“when he says that he is committed to the publication of the court’s minutes, does he mean the publication of the full minutes or only a summary record of them, which it appears is what was proposed before”.—[

Official Report

, Commons, 23/4/12; col. 766.]

That question has still to be answered. This amendment is put down for the sole purpose of eliciting that information.

Baroness Hayter of Kentish Town: My Lords, I will speak to the amendment standing in the name of my noble friend Lord Eatwell and myself while supporting Amendment 12, moved by the noble Lord, Lord McFall. I am sorry to do so in his absence, but I particularly welcome Amendment 144, in the name of the noble Lord, Lord Sassoon, to which I very happily added my name. The Government responded speedily to a request for the FCA’s minutes to be published, following, I am sure, my intervention at Second Reading and for no other reason. I am pleased about that because it

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was as late as February that the Government saw the publication of board minutes as a matter for the FCA board rather than for legislation. However, we believe that publication is particularly important when considering the difficulty faced by those seeking to represent the long-term interest of consumers, be they savers, borrowers or debtors, as they follow every twist and turn of a regulator’s wide remit. The minutes are invaluable to lay out the narrative of the FCA’s focus.

The regular publication of minutes is undoubtedly a matter for public policy and therefore correctly in the Bill rather than being for the board itself to decide. After all, it is its work that will be scrutinised by this openness. I know that the Government’s move will be welcomed by Which? and the Financial Services Consumer Panel, as well as by the wholesale market players, for whom the FCA is of particular importance.

However, consumers’ interests go further than the FCA, important though that is. The vital work and the decisions undertaken by the Bank, the FPC and the governor can only benefit from greater debate by, and input from, a range of commentators, be they the press, academics, market participants, representative organisations, other regulators or indeed users. Publication both improves the internal thinking through the debate that it generates and has an important role in accountability. The Government have described the FPC as,

“a powerful new authority sitting at the apex of the regulatory architecture”.

It is therefore beholden on us to ensure that the mechanisms to ensure the FPC’s democratic accountability are commensurate with the strength of its powers. This starts with transparency and the beginning of a new culture of democratic dialogue.

The Treasury Select Committee report of 19 October is already familiar to us and will become more familiar. It argued for the need for clear transparency both in the publication of the remit and in the FPC’s responses. It said:

“There should be the presumption that ex-post reviews would be published, except where confidentiality needed to be maintained”,

in which case a redacted version could be published or publication delayed. It also said that,

“the Chairman of the Treasury Committee should be shown an unredacted version of the findings with an explanation of the reasons for non-publication”.

We endorse that recommendation. The committee also stressed that,

“The date of publication should then”—

in other words, if it has been withheld—

“be reviewed periodically until such a time as full publication would not endanger confidentiality or financial stability”.

I turn to the issues mentioned by my noble friend Lord McFall. Mark Hoban in the other place agreed that there was,

“a clear need for the Bank’s accountability arrangements to be strengthened through the publication of the court’s minutes”.

He agreed that the Government would consider this further when the Bill came to this House for its scrutiny. However, he made it clear that he wanted to see the court’s minutes published, as well as retrospective reviews,

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“so that Parliament and stakeholders can hold the Bank to account for the way in which it has used its powers not just when it comes to the Financial Policy Committee”,—[

Official Report

, Commons, 23/4/12; col. 766-67.]

but more widely. We welcome those sentiments and hope that the Minister will now be able to signify his support for the amendments, which I think are in line with the recommendation of the Minister in the other House.

9 pm

Lord Northbrook: My Lords, I support the amendment of the noble Lord, Lord McFall. I noted that in the Treasury Committee’s first report on the Financial Services Bill of 23 May, Mark Hoban was quoted as having spoken in the other place as follows. I hope that the Committee does not mind me repeating it, because it is quite important:

“My hon. Friend the Member for Chichester also mentioned publication of the court’s minutes. The Bank has committed to publishing what it terms a record of future court meetings. It is worth pointing out that the FPC also produces what it calls a record of its meetings, which is a very full account of the debates that go on in the FPC, and we will expect a similar process to be undertaken for the court’s meetings. Let me be clear: I believe that there is a clear need for the Bank’s accountability arrangements to be strengthened through the publication of the court’s minutes and the enhanced scrutiny of the court’s work, although I believe that the changes announced by the Bank help address the concerns raised by my hon. Friend and the Treasury Committee. He made some powerful arguments that have been echoed by other members of the Committee, and we will consider further whether these arrangements should be put in the Bill. We will reflect on these matters and reconsider them when the Bill goes to the other place. I hope that that helps to reassure the House on how seriously we take these matters and our willingness to listen and respond to the concerns raised by Members during the debate”.—[Official Report, Commons, 23/4/12; col. 766.]

I ask the Minister to consider those comments by Mr Hoban in the other place.

Lord De Mauley: My Lords, in its report on Bank of England accountability, the Treasury Select Committee indeed recommended that the court publish minutes of its meetings. In its response to the Treasury Select Committee, the court accepted this recommendation in principle and agreed to begin to publish a record of its meetings once the new structure was in place. By putting this requirement into the Bill, as we propose to do through government Amendment 97, we ensure that this important transparency mechanism will remain in place.

As the Treasury Committee itself recognised, the court is likely to discuss extremely sensitive matters that are unsuitable for publication—for example, the provision of emergency liquidity assistance to an ailing bank. Therefore sub-paragraph (3) of new paragraph 12A establishes that the record must not contain any information whose publication would be against the public interest. I am pleased to see that Amendment 12, tabled by the noble Lord, Lord McFall, contains a similar provision. However, in a divergence of opinion, perhaps similar to that discussed by my noble friend Lord Sassoon in the previous group, the Government do not agree that the court should be required in all cases to notify the Treasury Select Committee of the reasons why information might have been withheld for public interest reasons from publication.

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When the Bank takes actions that involve risk to taxpayer money, such as liquidity operations indemnified by the Treasury, it is the responsibility of the Treasury rather than the court to ensure that the relevant parliamentary committees are informed, on a confidential basis if necessary. There are already formal and informal mechanisms in place for this to happen, including in the new crisis management MoU. When a court discusses sensitive matters that are not related to public money, I do not see the value in creating a bureaucratic requirement for the court to notify the TSC, or to keep under review material that it excludes from meeting records, with a view to publishing it at a later date. Of course, the court may publish information on discussions that were originally excluded from the record at a later date if it believes it appropriate to do so.

The same arguments apply to Amendments 72 and 86 in the name of the noble Lord, Lord Eatwell, in relation to material excluded from the records of FPC meetings and meetings between the Chancellor and the governor. There is also widespread agreement that the Financial Conduct Authority should publish a record of its board meetings. The future leadership of the FCA has agreed to this. We have therefore brought forward Amendment 144, which makes similar provision for the FCA. Indeed, the FSA will publish in early August a record of its June board meeting, consistent with the provisions proposed.

Amendments 70 and 80, tabled by the noble Baroness, Lady Hayter, attempt to include the word “minutes” in other places in Clause 3 where the word “record” is used. That goes to the point made by the noble Lord, Lord McFall. The specific word used is not important. I hope we can agree that what is vital is ensuring that the record provides a clear public account of decisions taken by the court, the FPC and the FCA, and of the rationale and arguments that were put forward by members in favour of and against each decision. Sub-paragraph (2) of proposed new paragraph 12A, which sets out what the record must contain, ensures that that will be achieved for the court. Identical new provisions cover the FCA under Amendment 144. New Section 9R(2) similarly sets out precisely what the FPC’s meeting record must contain.

I move on to Amendment 85, which was also tabled by the noble Lord, Lord Eatwell, and the noble Baroness, Lady Hayter. Subsection (5) of new Section 9U requires the Treasury to consult the Bank before publishing the record of the meeting between the governor and the Chancellor. That will ensure that the Bank’s views about whether material is suitable for publication will be taken fully into account. The noble Baroness can be assured that the Treasury would not publish any material which the Bank believed was sensitive.

Amendments 20, 59, 60, 71, 77, 78, 83, 84 and 85 are generally speaking to do with websites. Transparency and openness are a critical part of any regulatory system. Transparency of decision-making is a vital aid to the public understanding of regulatory actions. In all cases where the Bill provides for certain documents to be made public, including those affected by amendments in this group, I would of course expect the publications to be made available on the relevant website. That is because the internet is at present the primary method for the public to access this type of

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material. However, I ask noble Lords to accept that technology advances at a tremendous pace. Fifty years ago, neither the internet nor websites existed. It is impossible to foresee how far digital communication will have advanced in the next five years, let alone 50.

As well as publishing documents on their websites, the Bank, the Treasury and the FSA already make use of Twitter, Flickr, YouTube and RSS to communicate with the public. Any one of these, or some other new form of media, may become the most widespread way to communicate with the public in the future. That is why we should not make provision in the Bill for specific types of communications media that may be superseded sooner or later. That is in line with the long-standing principle of future-proofing new legislation. While I think we agree on the principle of transparency and openness, I hope that the noble Lord will be persuaded to withdraw the amendment.

Let me reassure noble Lords that this should not be taken to imply that the new authorities will not make use of the internet to promote transparency and openness. The interim Financial Policy Committee has already published two financial stability reports and a record for each of its five meetings on the Bank’s website, with the latest record to be published on 6 July. In addition, last year the Bank published on its website a public consultation on macroprudential tools. I have no doubt that this will continue, but in general I contend that it is sensible to allow the publishing authority to decide in what manner to reach interested parties most effectively, which is why I hope noble Lords will understand why I cannot support Amendment 82, which seeks specifically to remove this discretion from the Treasury. I hope that noble Lords will accept government Amendments 97 and 144 and be prepared not to press their own.

Baroness Hayter of Kentish Town: Did the Minister mean to refer only to the Treasury Select Committee? Our amendment related to the decision taken not to publish and whether only the chair of the Treasury Select Committee would be informed of the reasons. He did not actually comment on this.

Lord De Mauley: I think I have an answer. The point is that the principle is as I outlined, whether it is an individual or the committee.

Lord McFall of Alcluith: I apologise to the House; I am away in another world. I still believe that there is quite a difference between a minute and a record. However, given that the Government have come forward with a number of proposals, I withdraw the amendment.

Amendment 12 withdrawn.

Clause 2 agreed.

Amendment 13

Moved by Lord Sassoon

13: After Clause 2, insert the following new Clause—

“Oversight Committee

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(1) The Bank of England Act 1998 is amended as follows.

(2) For section 3 substitute—

“3A Oversight Committee

(1) There is to be a sub-committee of the court of directors of the Bank (“the Oversight Committee”) consisting of the directors of the Bank.

(2) The functions of the Oversight Committee are—

(a) keeping under review the Bank’s performance in relation to—

(i) the Bank’s objectives (that is, the objectives specified in relation to it in this Act and the other objectives for the time being determined by the court of directors of the Bank),

(ii) the duty of the Financial Policy Committee under section 9C, and

(iii) the Bank’s strategy as for the time being determined by the court of directors of the Bank (including its financial stability strategy);

(b) monitoring the extent to which the objectives set by the court of directors of the Bank in relation to the Bank’s financial management have been met;

(c) keeping under review the internal financial controls of the Bank with a view to securing the proper conduct of its financial affairs;

(d) the functions conferred on the Oversight Committee by the provisions listed in subsection (4).

(3) The Bank may arrange for specified functions of the Bank to be discharged by the Oversight Committee.

(4) The provisions referred to in subsection (2)(d) are—

(a) section 9B (review of procedures followed by Financial Policy Committee);

(b) section 16 (review of procedures followed by Monetary Policy Committee);

(c) paragraph 14 of Schedule 1 (remuneration of Governor and Deputy Governors);

(d) paragraph 5 of Schedule 2A (terms and conditions of office of members of Financial Policy Committee appointed under section 9B(1)(e));

(e) paragraph 9 of that Schedule (removal of members of Financial Policy Committee appointed under section 9B(1)(e));

(f) paragraph 4(2) of Schedule 3 (terms and conditions of office of members of Monetary Policy Committee appointed under section 13(2)(c));

(g) paragraph 9 of that Schedule (removal of members of Monetary Policy Committee appointed under section 13(2)(c));

(h) paragraph 15 of Schedule 1ZB to the Financial Services and Markets Act 2000 (terms of service and remuneration of members of the governing body of the Prudential Regulation Authority).

3B Oversight Committee: procedure

(1) The chair of the court (designated under paragraph 13 of Schedule 1) is to chair meetings of the Oversight Committee (when present).

(2) The Committee is to determine its own procedure, but this is subject to subsection (1) and subsection (5).

(3) The Committee may invite other persons to attend, or to attend and speak at, any meeting of the Committee.

(4) The Committee may delegate any of its functions to two or more of its members.

(5) If a member of the Committee (“M”) has any direct or indirect interest (including any reasonably likely future interest) in any dealing or business which falls to be considered by the Committee—

(a) M must disclose that interest to the Committee when it considers that dealing or business, and

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(b) the Committee must decide whether M is to be permitted to participate in any proceedings of the Committee relating to any question arising from its consideration of the dealing or business, and if so to what extent and subject to what conditions (if any).

3C Reviews

(1) In the discharge of any of its functions, the Oversight Committee may arrange—

(a) for a review to be conducted under this section in relation to any matter by a person appointed by the Committee, and

(b) for the person conducting the review to make one or more reports to the Committee.

(2) The persons who may be appointed to conduct a review include an officer or employee of the Bank.

(3) A review under this section is a “performance review” if it—

(a) is arranged by the Committee in the discharge of any of its functions under section 3A(2)(a) and (b), and

(b) relates to past events.

(4) If the person to be appointed to conduct a performance review is an officer or employee of the Bank, the appointment requires the consent of the Governor of the Bank.

(5) In the case of a performance review, the Committee must have regard to the desirability of ensuring that sufficient time has elapsed—

(a) for the review to be effective, and

(b) to avoid the review having a material adverse effect on the exercise by the Bank of its functions.

3D Publication of reports of performance reviews

(1) The Bank must give the Treasury a copy of any report made to the Oversight Committee by a person appointed under section 3C to conduct a performance review (as defined by subsection (3) of that section).

(2) Subject to subsection (3), the Bank must also publish the report.

(3) Subsection (2) does not require the publication of information whose publication at the time when the report is made would in the opinion of the Bank be against the public interest.

(4) Where the Bank decides under subsection (3) that publication of information at the time when the report is made would be against the public interest, it must keep under consideration the question of whether publication of the information would still be against the public interest.

(5) Where the Bank decides that publication of any information is no longer against the public interest, it must publish the information.

(6) The Treasury must lay before Parliament a copy of any report or other information published by the Bank under this section.

3E Recommendations resulting from review

(1) This section applies where a report made by a person appointed under section 3C to conduct a review makes recommendations to the Bank as to steps to be taken by it.

(2) The Oversight Committee must—

(a) monitor the Bank’s response to the report, and

(b) if or to the extent that the Bank accepts the recommendations, monitor the implementation of the recommendations.

3F Oversight Committee: further provisions

(1) The documents to which the Oversight Committee is to have access in the discharge of its functions include documents considered, or to be considered, by the Financial Policy Committee or the Monetary Policy Committee.

(2) One or two members of the Oversight Committee may attend any meeting of the Financial Policy Committee or the Monetary Policy Committee, but a person attending by virtue of this subsection may not speak unless invited to do so by the person chairing the meeting.

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(3) Subsection (2) does not affect—

(a) anything done in relation to the Financial Policy Committee by a member of that Committee who is also a member of the Oversight Committee,

(b) the powers of the Financial Policy Committee under paragraph 13 of Schedule 2A, or

(c) the powers of the Monetary Policy Committee under paragraph 13A of Schedule 3.”

(3) In section 4 (annual report by the Bank), in subsection (2), for paragraph (a) substitute—

“(a) a report by the Oversight Committee on the matters for which it is responsible, and”.

(4) In section 16 (functions of court of directors)—

(a) in subsection (1), for “court of directors of the Bank” substitute “Oversight Committee”,

(b) in subsection (2)—

(i) for “the court’s function” substitute “the function of the Oversight Committee”,

(ii) for “the Committee” substitute “the Monetary Policy Committee”,

(c) omit subsection (3), and

(d) accordingly, in the heading, for “court of directors” substitute “Oversight Committee”.”

Amendment 13 agreed.

Clause 3 : Financial stability strategy and Financial Policy Committee

Amendments 14 to 15 not moved.

Amendment 16

Moved by Lord Eatwell

16: Clause 3, page 2, line 26, at end insert “, and

( ) the public”

Lord Eatwell: My Lords, I rise to move Amendment 16. The issue here is simply that with respect to the financial stability strategy we believe that consultation should be as widespread as possible. The main reason for stressing this is that the area of financial stability is at present unformed. There is as yet no clear analytical framework to which everyone can appeal, as is the case with monetary policy, and a number of ideas and empirical observations are, if you like, the grist to the mill, but what comes out of the mill is not necessarily consistent or widely accepted. Therefore consultation and ideas from a wide range of sources, particularly within the financial services industry, are immensely valuable as the financial stability strategy is developed.

9.15 pm

For example, the Financial Policy Committee has told us that consideration of matters of leverage will form an important part of the instruments that it uses within its remit. It would be useful to consult the Financial Reporting Council, which defines the way in which balance sheets are structured and hence has insight into the relationship between variations in balance sheets and the generation of systemic risk, should leverage collars be imposed. Similarly, many financial institutions would like to react to the notion of a leverage collar and to present their views as to what the full implications might be.

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Valuable ideas could also be derived, for example, in the use of derivatives in liquidity management should the Financial Policy Committee, as it has suggested in its publications, turn to issues of managing liquidity as a direct means of reducing systemic risk.

Given the wide range of instruments that the Financial Policy Committee is considering it might use and the broad nature of the development of its strategy, the way to secure acceptance of the control of such important levers on the economy by an unelected committee is to have the widest consultation possible. We would therefore like to add consultation of the public in general to the formal internal governmental consultations included in the clause. I beg to move.

Lord Northbrook: My Lords, when I first saw the amendment and the reference to the public I thought it could mean consulting someone on the Clapham omnibus about the Bank’s financial stability strategy. However, the noble Lord said that he meant financial institutions and those with a financial interest rather than a broad definition of the public.

Lord Eatwell: Perhaps I may clarify that point. It is a term of art to say that you consult the public. When an institution such as the Bank of England or the Financial Services Authority initiates a general consultation and publishes a consultation document, they consult the public. In fact, it tends to be the financial services industry and other immediately interested parties who are consulted, not the gentleman on the Clapham omnibus.

Lord De Mauley: My Lords, as I said in the debate on the last group of amendments, the Government recognise the need for transparency and accountability in financial regulation. The Bank also places great value on transparency and openness. It uses a variety of methods to engage with the public on issues of policy, including FPC and MPC meeting records, financial stability and inflation reports, public speeches, policy papers, consultations, regional agencies and various forms of social media. The Bank and the FPC further demonstrated their commitment to transparency in their work on macroprudential tools by publishing a discussion document in December that invited public opinion.

The Bank’s court will be responsible for setting the Bank’s strategy in relation to its financial stability objective. The Bill requires that the court consults the Treasury and the Financial Policy Committee about a draft of the strategy before determining or revising it. The Bill does not prohibit the court seeking the opinions of others. For example, the court might wish to consult the European Systemic Risk Board to get is opinion on the outlook for financial stability in the European Union; it might wish to consult the International Monetary Fund or the Financial Reporting Council, as the noble Lord, Lord Eatwell, mentioned; it would almost certainly want to consult the PRA board and perhaps the FCA too. The list goes on. The Bill is drafted in a flexible way which allows the court to consult anyone on its strategy.

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As to Amendment 16 specifically, the current drafting of the Bill already allows the court to consult the public on its financial stability strategy. The Bank’s financial stability strategy is currently published annually in the Bank’s annual report and is available on the Bank’s website. It is open to any organisation or member of the public to send the Bank comments on its financial stability strategy if they wish. I would expect the Bank to take seriously any contributions from the public and, where appropriate, to take them into account when revising the strategy. Given that revisions to the financial stability strategy will be less frequent—every three years—the court may well choose to undertake a public consultation process in advance of revising its strategy, particularly if the Bank were considering making any significant changes to it.

Such a public consultation process may not be necessary or even possible on every occasion. For example, the changes being made might be minor and technical and so not warrant a public consultation. In other cases, the changes to the strategy may be urgent and so there may be inadequate time for public consultation.

While I entirely support the sentiment behind the amendment, I do not think that it would be appropriate to put in the legislation a prescriptive requirement for public consultation in all cases. On that basis, I hope that the noble Lord will feel able to withdraw his amendment.

Lord Eatwell: My Lords, I was very struck by the Minister’s speech because it was rather better than mine in support of my amendment. He said that the public would typically be consulted. The only slightly off-base comment that he made was that the financial stability strategy would be revised every three years. That is not according to the Bill, which says,

“complete a review … before the end of each relevant period”.

“Before the end” could be one month, six months, two years, 11 months or 30 days, whichever is relevant. The notion that revisions will take place irregularly—in fact, on a three-yearly basis—is not what is in the Bill.

The Minister then shot his fox by saying that urgent revisions might have to be made. In that case, given that revisions can take place at differing intervals depending on the exigencies of the time—let us remember that financial markets can change their character and behaviour quite rapidly and unexpectedly—and if this impinges on strategy, it should be appropriate that consultation takes place. My amendment provides that variations in strategy be widely consulted on, including among the public. A public consultation would take place, and the relevant authorities listed so accurately by the Minister would no doubt participate.

I do not understand the Minister’s rejection of what I would think is an extremely helpful amendment given what he had to say. However, we will come back to this matter on Report. In the mean time, I beg leave to withdraw the amendment.

Amendment 16 withdrawn.

Amendment 17

Moved by Lord Eatwell

17: Clause 3, page 2, line 27, after “Committee” insert “and the Treasury”

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Lord Eatwell: The amendment relates to what I think is a mistake in drafting because there is failure in symmetry between the two new subsections. We have just discussed new Section 9A(2), which states that the Court of Directors must consult the Financial Policy Committee and the Treasury. New Section 9A(3) states:

“The Financial Policy Committee may at any time make recommendations to the court of directors as to the provisions”.

Why is the Treasury included in subsection (2) but not in (3)? Surely, if the Court of Directors must consult the Financial Policy Committee and the Treasury about a draft of the strategy, then if, from time to time, the Financial Policy Committee or the Treasury wishes to make recommendations to the court, the Treasury should be able to do so on the same terms.

I think that there is just a mistake in drafting here. If subsections (2) and (3) are to be symmetrical, my amendment should be accepted. I beg to move.

Lord De Mauley: My Lords, there are already a number of measures in the Bill relating to the Treasury’s involvement with the setting and revision of the Bank’s financial stability strategy. The court must, for example, consult the Treasury before setting or revising the strategy. In addition there is nothing to stop the Treasury making proactive recommendations to the court on the content of the strategy on a non-statutory basis. I believe that these arrangements strike the right balance between insulating the Bank from political pressure while ensuring that the Treasury’s voice will be heard.