Dame Harriett Baldwin
MP for West Worcestershire · Conservative · United Kingdom
“I welcome the Chancellor to his new role. I paid close attention yesterday to the long speech he made to reset the narrative and drive growth Britain. In paying tribute to his predecessor, will he recognise that she left the highest tax burden on record? Instead of postponing the words he could utter to my hon.”
“I welcome the new Prime Minister to the Dispatch Box. I note that in his statement he referred to the biggest issues facing the country as being “the economy and the cost of living crisis”. Will he accept that one of the things that has damaged our economy and caused prices to be higher is the tax-and-spend Budget in November 2024?”
“Could the Leader of the House make a commitment that the new Chancellor of the Exchequer will come to the House on the first day we are back from recess?”
“With a stroke of his Whitehall pen, the Secretary of State has just abolished Malvern Hills district council, Worcester city council, wonderful Wychavon district council and Worcestershire county council. He said in his statement that this is about making “real improvements to people’s lives and…communities”.”
“In recent weeks in West Worcestershire, I have met local police and the police and crime commissioner; the police and crime commissioner is being abolished, and the police are being reorganised. I have met the local health commissioners; they are being reorganised, and Healthwatch is being abolished.”
“Will the Leader of the House confirm that, given that the other place is sitting next week, there is nothing to stop him tabling a business statement to enable this House to sit next week? Given the enormity of the events happening in the Government next week, does he not think that would be a good idea?”
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“When Governor Warsh looked at releasing transcripts of the day one deliberations, which he described as “safe space” deliberations, he found that “Should the transcripts of the Day 1 deliberations be made public, the quality of the deliberative process would risk being materially impaired, to the detriment of sound policymaking.” He went on to make a clear recommendation that “the Day 1 policy discussions should no longer be recorded nor should they be transcribed.” Publication of transcripts of meetings of the court would have a “chilling effect” on discussion and the quality of debate and harm decision making. I therefore hope that the hon. Member for Leeds East will not press his new clause.”
“As a distinguished academic himself, the hon. Gentleman will know that academics often differ in their points of view. It is clear that in this case the distinguished Governor Warsh has come down in one way, and here in our deliberations we have come down in favour of producing a transcript, and Hansard performs that incredibly valuable role for us. I will make some further points, which I hope will convince him of the wisdom of the position that the Government are taking on transcripts.”
“The hon. Gentleman makes an important point. The court oversees the MPC, the FPC, and the PRC under the proposals in the Bill. We have not discussed yet—I will be happy to do so—the fact that on the prudential side of discussions, the people on that committee will looking at material that constitutes, by any judgment, non-public information on the soundness of important financial institutions in this country. I am sure that, as a member of the Treasury Committee, the hon. Gentleman will agree that such material ought to be treated as extremely market-sensitive in any circumstances.”
“I would have thought that it spoke for itself. The fact that the court is overseeing all these different committees, some of which will be considering material that is non-public information—”
“If the hon. Gentleman will allow me, I will give way to him when I have replied to his previous point. We are proposing the publication of a record of the court’s meeting, and I agree with him that it is important for that record to be in the public domain. There is a clear difference between that record and a transcript.”
“In responding to the hon. Gentleman’s intervention I will be a little bit cheeky, if I may, and highlight the fact that even that august body, the Treasury Committee of this House, sometimes meets in private. There is a need for a safe space for discussions at certain points. We agree with the hon. Gentleman that it is important to have a degree of transparency in terms of the court. We think that the record provided is adequate. I hope that the hon. Gentleman will not press the amendment.”
“The Financial Conduct Authority’s consumer panel has a statutory right to make representations to the PRA, and the FCA chief executive sits on the Financial Policy Committee and the PRA board, and will sit on the new Prudential Regulation Committee. Through this Bill we are going further in ensuring that the regulators take into account the diversity of business models operating in the financial sector. Specifically, we are making it clear that both the PRA and the FCA must take account of the differences between different types of firm, including mutuals, whenever they are discharging their general objectives. We argue that these amendments are unnecessary and, indeed, unhelpful. They would cloud the appointments process.”
“Members an idea of how extensive they are: in 2014-15 the agents visited some 5,200 companies drawn from firms in all sectors and in all corners of the country; also, panel discussions were held with 3,700 businesses. Undoubtedly, the Bank goes to great lengths to ensure that it develops a detailed understanding of the conditions for businesses in all sectors across the whole United Kingdom. In addition, the Prudential Regulation Authority’s practitioner panel ensures that the interests of those who must put the PRA’s rules into practice are communicated to the regulator. The panel includes representatives of banks, insurers, building societies and credit unions.”
“The Bank has representatives around the country; those agents work from 12 agencies, in Scotland, Wales, Northern Ireland and the regions of England, to gather information from businesses operating across many different sectors, including financial and non-financial firms. The regional agents, often joined by the Bank’s governors and members of the policy committees, regularly meet and hold panel discussions with companies of a range of sizes across the UK to gauge economic conditions and inform the Bank’s monetary policy and financial stability work. I trust that all members of the Committee have had an opportunity to observe that activity in their constituencies. If they have not, I strongly recommend that they do so, because those Bank activities are extensive. To give hon.”
“Amendment 9 would require representation on the court of particular sectors, and require the Chancellor to have regard for balanced regional and national representation on the court. Obviously, the Bank of England plays a central role in the UK economy, and its policy decisions are vital to everyone in the United Kingdom. I therefore entirely agree with hon. Members about the importance of the Bank of England giving careful consideration to how its policy decisions affect people throughout the country. This is at the heart of the Bank’s mission of promoting the good of the people of the United Kingdom by maintaining monetary and financial stability—indeed, that is precisely what the Bank does. I will give a few examples.”
“With great respect to the hon. Gentleman, I do understand that. Perhaps he would like some further examples. The court plays an important role in relation to emergency liquidity assistance at the time of a financial crisis. We have to agree as a Committee that there will be times when the court is discussing something that we do not want to have transcribed and put into the public domain. Personally, I thought that Governor Warsh was very convincing in comparing what happens on day one of the Monetary Policy Committee and what can happen at other times—not necessarily all the time—and how a record will be published. The hon. Gentleman will vote one way and I will vote another. I do not agree with the amendment.”
“Before the financial crisis, when the court had non-executives specifically to represent different interests—why stop at the four listed in the amendment?—the court had an incredible 16 non-executives, rendering it far too large to operate effectively and unable to hold the executive properly to account.”
“There is, but the purpose of the deliberative body, as we have heard, is effectively to act as the board of the Bank of England, supervising the different committees. Prior to the financial crisis, members of the court were often selected specifically to represent a range of sectoral interests, including many of those proposed in the amendments. The first problem with the amendments is that requiring representatives of different sectors and regard to regional representation will entail a much larger and therefore oversized and dysfunctional court.”
“The amendment calls for several practitioner representatives on the court. We have tried that in the past, too. During the crisis, the conflicts of interest meant that some of those on the court who could have been of most assistance to the Bank had to leave the room for the most important decisions, such as on liquidity provision to the markets and on individual firms. That hampered the court’s ability to respond effectively.”
“The hon. Gentleman is right to highlight that difference. Of course, what the Chancellor of the Exchequer would have regard to is the quality and ability of those individuals to perform the function they are asked to perform. The Banking Act 2009 sensibly limited the court to nine non-executives, and in practice we have now reduced the number of non-executives to seven while keeping that non-executive majority, which means that the court is now sufficiently small to form an effective body that can challenge the executive. The amendments before the Committee would inevitably mean a return to a large, inefficient and ineffective court. A second problem with amendment 9, which would require sectoral representation on the court, is that it would give rise to conflicts of interest.”
“Let me be clear: obviously, there are highly competent and highly qualified individuals who work in the sectors proposed and from all the regions across the UK. The amendments would constrain the appointments process utterly unnecessarily, potentially preventing us from forming the highest-quality, most experienced board for one of the most important institutions in the country.”
“That ensures that the wide-ranging expertise—we all agree that that is necessary—appointed to the court can be deployed without obstacles, and leaves the court better equipped to respond to a crisis. The amendment would unravel those arrangements, and I argue that we should oppose it; we should not allow it to take us backwards. The third and most important concern about the amendments is that they would impose unnecessary and undesirable constraints on appointments to the court. In the past three years, the court has been transformed. The Chancellor has appointed the highest-quality team, with significant experience of running large organisations and deep expertise in matters relevant to the Bank. The Government look far and wide for the best candidates, with roles advertised in the international press.”
“I do not think anyone disagrees with the idea that we would want to have a range of different abilities and skills on the court of directors. What we are fighting against in opposing the amendments is the propensity of such amendments to lead to a larger and larger group of individuals on the court. Importantly, in relation to highlighting the potential for conflicts of interest, the conflicts policy now makes it clear that, among other restrictions, members of the court should not accept or retain any interest that is in conflict with membership and should not normally be associated with a PRA or Bank-regulated firm, whether as a director, employee or adviser.”
“Not off the top of my head. I cannot specifically think of anything, other than to highlight the fact, in relation to the previous life of the court, when we were dealing with a much larger organisation, that all the reviews since the financial crash have highlighted the unwieldiness of that organisation and the lack of clarity in terms of conflicts of interest as being among the underlying imperfections in the financial regulation that we inherited in 2010.”
“It is also important that the court is able, when necessary, to commission the kind of review about which the hon. Gentleman speaks. There has been the Plenderleith review to increase emergency liquidity assistance capabilities and the Stockton review, which made recommendations on how the Bank communicates its forecasts. We have even spoken this morning about the Warsh review, which has made the very recommendations that we are considering, regarding MPC procedures and the governance of the Bank of England. The current court contains a remarkable collection of experience and talent. Among the directors are the chief executive of a major telecoms provider.”
“As the hon. Gentleman will be aware, a number of different independent reviews have been commissioned by the oversight committee during the past few years. I completely dispute his point about the sale of RBS shares. Given how much lower they are today, I would have thought he would welcome the fact that the Government were able to sell the first £2 billion-worth in the market last August. He and I will clearly vote along different lines on this matter. The Government feel that the amendment would constrain the appointment process, to the detriment of effective decision making in the court and in effect, therefore, to the detriment of the Bank’s overall effectiveness. Undoubtedly the court should have a breadth of experience and knowledge, and we certainly want different perspectives to be brought to bear.”
“I do not know where the hon. Gentleman would get that impression from. It is important that we have a chief executive of a major telecoms provider, a chief executive of a major power utility, a private equity specialist, a leader of a global information services group and a leader of a major public sector trade union. The chair, Mr Anthony Habgood, is one of the most experienced and respected company chairmen in the country.”
“I hope that members of the Committee agree that we should not allow the amendment to take us back there.”
“Nothing in my remarks this morning has suggested any change whatsoever in that policy, but it is important that the best people are selected for the roles and we do not accept the Opposition amendments, which would further constrain the selection process. I hope we can all agree that every member of the court, wherever they are from, should consider in their decision making the Bank’s impact on everyone in the UK, across the UK, not just in one region or one individual sector. The amendments call for a different kind of court, made up of representatives from UK regions and representatives of narrow interests, and that would result in a court riven by conflicts of interest. We have tried that kind of court before and we know how the story ends.”
“First, the ability to extend the terms of appointments by a few months enables the end dates of non-executives to be staggered, which supports smooth transitions in membership, preventing a significant change in personnel at any one time. Secondly, should a member of the court resign or retire unexpectedly, extending the term of one or more non-executive directors can provide resilience during a potentially turbulent time. Finally, enabling this extension will bring the court in line with the FPC and the MPC, whose members can already have their term extended by up to six months.”
“I am glad that you are finding it as confusing as I am, Mr Wilson, that there is a group 2 and a clause 2 and what have you. Clause 2 enables the Government to extend the appointment of a non-executive director. The standard length of appointment for a non-executive director is currently four years, and this will be maintained following the passage of the Bill. However, if necessary, the Government will have the power to extend the appointment by up to six months. If the individual is subsequently reappointed to the court, the length of their new tenure will be reduced by the length of the extension. The ability to extend a non-executive director’s appointment provides a number of key benefits.”
“Excuse me if I faint from astonishment, Mr Wilson. I do not think that that has ever happened to me before with the hon. Member for Bassetlaw. Question put and agreed to. Clause 2 accordingly ordered to stand part of the Bill. Clause 3 Abolition of Oversight Committee”
“We all agree that the important power in the Bill for the non-executives to act independently to initiate reviews of the banks should not be constrained in this way, and I hope that after due consideration, and after the extremely valuable debate in both Houses, he will withdraw his amendment.”
“For the discretion of those high-quality non-executives to determine what reviews should be carried out and who should carry them out, it would substitute a conveyor belt of external reviews. Those commissioning a review, whether the court as a whole or the non-executive directors, are best placed to decide whether an internal or external review is most appropriate. The Bill rightly allows that discretion for the whole court and for the non-executives. The amendment would take away that choice, which we think would be bad news for effective oversight. I hope the hon. Member for Leeds East has listened to the arguments.”
“A few months ago, it published a review into the Bank’s use of forecasting—a clear example of where an internal review is appropriate. In our opinion, Lord Grabiner’s inquiry into Bank officials’ awareness of market manipulation in the foreign exchange market was an example of where an external review was appropriate. The Bank’s non-executive directors, as we have heard in a previous debate, are selected for their ability to bring new perspectives and experience and to challenge and scrutinise the Bank’s executive. It is right to give them the powers to ensure they are able to fulfil this role. The amendment would send a message that we do not trust the non-executive directors to do their job.”
“This part of the Bill ensures that a majority of non-executives can always initiate performance reviews without needing to secure the agreement of a majority of the whole court. If just four non-executive directors want a review, they will be able to initiate it. Under our proposal to give more powers to the non-executive directors to do their job effectively, the initiators of a review would determine who should carry it out. This could be someone external or someone internal, including the Bank’s relatively new Independent Evaluation Office. The amendment would take away their discretion and make the new Independent Evaluation Office irrelevant. The Bank’s Independent Evaluation Office reports directly to the non-executive chair of court.”
“That replaces the current arrangement in which there is effectively an oversight committee overseeing the work of an oversight board. That is neither efficient, nor best practice. In fact, on Second Reading my right hon. Friend the Member for Chichester (Mr Tyrie), Chair of the Treasury Committee, put it well when he said: “The oversight of the executive will be the responsibility of the court itself, rather than a sub-committee. Even though it was not called a sub-committee, it was, in fact, a sub-committee, and a weaker committee than the court.” —[ Official Report , 1 February 2016; Vol. 605, c. 668.] During the Bill’s passage through the House of Lords, we introduced the power, which has been welcomed by members of that House, that this amendment seeks to alter.”
“The Bill brings the court closer to the model envisaged by the Treasury Committee, which called for a board with powers to conduct ex-post reviews of the performance of the Bank; for board members to be authorised to see all the papers submitted to the Monetary Policy Committee and the Financial Policy Committee; and for the board to be responsible for reviewing the processes of the Bank’s policy committees. Making the oversight functions the responsibility of the whole court makes it clear that every member of the court, executive and non-executive, can be held to account for the use of these functions. No member of court can claim that the oversight functions were not their job, since they will now rightly be the responsibility of all.”
“That is a very good example of the oversight functions. In practice, the executive needed to join the oversight committee discussions for the oversight functions to work and be effective, both as the investigation progressed and once attention turned to delivering the recommendations. It would be better practice to make the oversight functions the responsibility of the whole court. That is the purpose of the clause. I welcome the opportunity to speak to the amendments and to explain the improvement in the oversight arrangements at the Bank of England and the power we have ensured for the court’s non-executive majority.”
“The line-by-line consideration of this provision in the other place and here this morning has been extremely helpful. Before I speak to the amendments, let me give the Committee an example of the problems in the oversight committee’s current arrangements which I think will inform our debate. The hon. Member for Bassetlaw mentioned the 2013-14 foreign exchange market investigation, which sought to establish whether any Bank officials were involved in or aware of the FX market manipulation. In October 2013, the Bank’s governors initiated an extensive internal review, and they regularly briefed the court at its meetings from November 2013 onwards. In March 2014, it became clear that an independent investigation would be appropriate. The oversight committee took over the investigation and appointed Lord Grabiner QC.”
“It should be someone external or internal, including the Bank’s new Independent Evaluation Office. The clause safeguards the non-executives’ oversight of the Bank and provides additional protection against the emergence of groupthink. I commend the clause to the Committee. Question put and agreed to. Clause 3 accordingly ordered to stand part of the Bill. Clause 4 Functions of non-executive directors Question proposed, That the clause stand part of the Bill.”
“By abolishing the oversight committee, we bring the court closer to the model envisaged by the Treasury Committee, which called for: a board with powers to conduct ex-post reviews of the Bank’s performance; board members to be authorised to see all the papers submitted to the MPC and the FPC; and the board to be responsible for reviewing the processes of the Bank’s policy committees. It is important to emphasise that the Bill protects the ability of those non-executive directors to initiate performance reviews. We do not need them to secure the agreement of a majority of the whole court. Should a majority of non-executives wish to initiate a review, the rest of the court will not be able to block it. The initiators of such a review would determine who should carry it out.”
“The commission denounced the committee and despaired that “It, rather than the Court as a whole, will be responsible for monitoring the Bank’s response to, and implementation of, the recommendations of any review it commissions.” It is therefore important to stress that, through the Bill, the court as a whole will be made responsible for ensuring oversight of the Bank. We have also talked about how the clause will enable full and frank discussion involving both the executive and the non-executive majority on how best to exercise the court’s oversight functions. The non-executives bring challenge, scrutiny and outside experience while the executive minority provides the in-depth knowledge of the Bank’s operations.”
“Friend the Member for Chichester on Second Reading, but it is worth harking back to what the Parliamentary Commission on Banking Standards recommended when it set up the oversight committee. In its report, the commission endorsed the Treasury Committee’s recommendation that the Bank’s board should be responsible for conducting the ex-post reviews of the Bank’s performance and we believe that that is precisely what the Bill will achieve. The commission went further—I am sure that hon. Members will have read its report before arriving this morning. On page 482, the commission rejected the oversight committee created in the 2012 Act.”
“The clause gives the oversight functions previously delegated to the oversight committee, which has been a sub-committee of the court, to the full court. What do we gain by making the oversight functions the responsibility of the whole court? We want to keep those functions, which we all agree are important, and now every member of the court, executive and non-executive, can be held to account for the use of those functions. Should something go wrong, no member of court could ever claim that the oversight functions were not part of their job. They will now rightly be everyone’s responsibility. We have heard how that arrangement was endorsed by my right hon.”
“I can canter right through the clause, which requires the court to establish a sub-committee of at least three non-executives to determine the remuneration of the Governor and deputy governors. Clearly, we would not want the executive to set its own pay, so to require that that power be delegated to at least three non-executives brings the legislative requirements for the Bank’s remuneration committee in line with UK corporate governance code. The current remuneration committee has four members.”
“I hope that the Committee agrees that the clause will afford the Bank the necessary flexibility when producing the strategy while ensuring that the court will be held to account for its contents. I commend the clause to the Committee.”
“This will be more of a trot— [ Interruption. ] There are no Trots opposite me today, obviously. Clause 5 will provide the court of directors with an express power to delegate the production of the financial stability strategy within the Bank. Subsection (3) makes it clear that the court retains the ultimate responsibility for any delegated duty or power, including its duties in relation to the financial stability strategy. The clause will allow the Bank to utilise its internal expertise to produce the strategy, while maintaining a clear line of accountability to the court. The drafting reflects the discussion in the other place, where it was felt that the Government’s initial proposal lacked sufficient clarity. Those concerns were addressed by the Government amendments that bring us the clause as it stands today.”
“It is important that the Governor sits on both committees and is able to see what is going on in both committees, but we think it right to strike a balance to ensure that each of the committees remains focused on its individual remit while fostering interaction between monetary and macroprudential policy. There has been a good debate in both Houses, illustrating the value of line-by-line scrutiny. I think that we have landed in the right place and I commend clause 5 to the Committee. Question put and agreed to. Clause 5 accordingly ordered to stand part of the Bill. Clause 6 Monetary Policy Committee: membership Question proposed, That the clause stand part of the Bill.”
“That is a change from the original intention after the consultation undertaken in the summer. To be clear, it will be for the court, as the governing body of the Bank, to decide who is best placed to set and review the strategy. The hon. Member for Bassetlaw asked specifically about the role of the Treasury Committee in continuing to scrutinise the role played by the Bank of England, the Governor and the court. I see nothing before us today that would change the current arrangements whereby the Committee has an important role in taking evidence. Hon. Members asked about the co-ordination between the Monetary Policy Committee and the Financial Policy Committee. They are independent committees with separate objectives.”
“Opposition Members have suggested that the Bill, in and of itself, makes a change to the power and importance of the role of the Governor of the Bank of England. I would submit that the Governor of the Bank of England is an incredibly powerful and important appointment, but I would not say that the statutory powers of the Governor are increased from their already elevated level by the Bill. Obviously, he is the one who has a role across all the different committees, but he has always had a very important role. The hon. Member for Leeds East is absolutely right to highlight the fact that in the other place there was extensive debate on the precise wording of the clause. Convincing arguments were made to change it and the Government tabled amendments to provide the court with an express power to delegate determination of the strategy.”
“It will be useful to consider the new clause, tabled by the hon. Members for Leeds East and for Wolverhampton South. Clause 6 brings the Financial Policy Committee into line with the Monetary Policy Committee and the Prudential Regulation Committee. It makes the Financial Policy Committee a policy committee of the Bank, rather than a sub-committee of court.”
“It stated, the last time that it looked through them, that given the actions that it has taken household indebtedness currently does not pose an imminent threat to financial stability, not least because underwriting standards are currently more prudent than in the past. Of course, however, the FPC must and will continue to monitor the household sector and will take further action if necessary.”
“Again, I think that it would be really valuable for the Committee to put on the record that the Government have granted the FPC powers of direction regarding residential mortgages and are also consulting—I hope that Opposition Members will support this—on extending its remit to cover powers regarding buy-to-let mortgages as well. Those are important points. The hon. Gentleman also mentioned the rise of private sector borrowing. On that point, we argue that progress has been made to improve the personal financial position of households in the UK. Household debt relative to income has fallen from 168% in 2008 to 142% at the last reading. That includes both mortgage and unsecured debt. The FPC does study these numbers very closely.”
“The aggregate capital ratio, the common equity tier 1 ratio, is currently 12% for the banking system as a whole, which is a full 3.7% higher just since the end of 2013. The major UK banks all came through their stress test with the FPC at the end of last year without being asked to raise more capital. The FPC concluded that the UK banking system would have the capacity to support lending to the real economy even in the context of a severe global economic slowdown triggered by a downturn in the emerging economies. The hon. Member for Bassetlaw also mentioned the housing market.”