Cash Ratio Deposits (Value Bands and Ratios) Order 2008

I am grateful to the noble Baroness and for the benefit informally of the comments of the noble Lord, Lord Newby, on this order, which he is not able to present since he has to be elsewhere. I know that he shares some of the anxieties of the noble Baroness about it. Perhaps I may make the obvious point that of course there is more than one way of funding the Bank of England. Central banks are funded in different ways in different administrations. However, we are basically of the view that the main beneficiaries of the monetary policy and financial stability functions of the Bank should continue to contribute towards it. So we are broadly in favour of the present scheme. I marked carefully what the noble Baroness had to say. Last time round, the Bank’s actual costs were lower than predicted—the take was higher, as it were, the product was higher—after it had limited its activities more to core activities and improved efficiency. But we live in different times. As the noble Baroness rightly suggested, the Bank may have a more intensive and extensive role to play, which could involve higher costs. Any significant change to the scheme will certainly be considered within the framework of the consultation and the work being done on the banking reform Bill, which is in process, but at this stage, we have had a review of the mechanism, which clearly indicated that the Bank could be operated on a lower impost that had obtained before, which is what the order involves. Will the forecast position be better then it was last time? Forecasting in this area is always hazardous, as the noble Baroness will recognise. In any case, we have a second all-encompassing and comprehensive look at the role of the Bank and regulation of financial institutions to be contained in the Bill, so those issues will be considered within that framework. For the moment, it is clear that there is a case for adjustment, which is all that the order proposes. I hear what the noble Baroness says: that the Treasury may have an interest in the surplus, because it receives a percentage of it. The mechanism was not designed to yield surplus but to meet necessary costs. This reduction is against that background. She herself has suggested that that may be an underestimate of the amount of work that the Bank of England has to do. If it were, she would then be saying that the Treasury had made a proposal that was not directly in its interest by being overgenerous about the potential gap between the two. If the Bank of England's costs increase, there will be a reduction for the institutions paying. By definition, the surplus is likely to be more limited. This is a modest adjustment to a scheme which is viable, which works and which gets the necessary functions of the Bank of England paid for in a way that avoids exactly the issues that the noble Baroness rightly identified would come from any other funding. We propose to continue with the scheme. Of course she is right that there may be a much more extensive revision of the position of the Bank of England in the Bill, on which the Government's conclusions are not yet ready to be made public, which may change the framework of the scheme. For the time being, we must work with the certainties we have, which are that we do not need the same amount of resources from the institutions for the work of the Bank of England as we thought that we did four years ago. That is why the order is here to reduce the levy. On Question, Motion agreed to.