My Lords, I support the noble Lord, Lord Sharkey, in his contention that the clause should not stand part of the Bill. This whole issue is about holding the executive to account. In these situations it is very difficult to make a speech which does not sound as though you are criticising the current executive and governor. Oversight mechanisms are in place for when things go wrong. They are largely irrelevant when things are going right but they are there in case they go wrong. I contend that the Government’s proposals significantly reduce the power of the non-executives to hold the executives to account.
Those of us who sat through those long days of Committee on the Financial Services Act 2012 will remember that the Government stated that they,
“fully recognise the importance of strong lines of accountability for the Bank, given its expanded responsibility and powers”.—[Official Report, 26/6/12; col. 184.]
I am not sure whether the Government took that view immediately in the debate, but it was the consensus in the Chamber at the time, after an enormous amount of discussion.
Anybody doing what you have to do in the modern world to see how the Bank functions and looking it up on the Bank’s website will find a very good page—except that we are about to change it all—labelled “How we are governed”, which says:
“The Oversight Committee of Court, consisting solely of non-executive directors and supported by an Independent Evaluation Office, reviews and reports on all aspects of the Bank’s performance”.
That is very convincing for anybody with a proper interest in the banking structure and all the various banking responsibilities. There is a process whereby people who know what is happening can call the executive to account.
4.45 pm
The result of the previous legislation was, very simply, that not only could a majority of non-executives call for a report on virtually anything—or, more accurately, carry out an investigation themselves—but they had the resources to do it. Indeed, the Bank has created—it is referred to on its web page—the Independent Evaluation Office in order to secure the right support for the non-executives. A majority of NEDs is all that is required to call for a report and they have the resources to do it. Let us compare that with the situation proposed by the Bill. If there were a concern among the non-executives, all of them, in a contested vote, would have to vote for a report and an investigation to go ahead. With a strong executive leader, that would be extremely difficult. It would be extremely difficult even to call for a vote in the first place. However, if real concerns were building and if the strong executive leader—the governor—almost always took his executives with him, a considerable confrontation would be needed before a report could be called for. If the Act is left unamended, it merely needs a majority vote by the non-executives to carry forward a report.
Furthermore, the very words “Independent Evaluation Office” suggest that the office has some power to conduct investigations into the Bank. Those of us who were privileged to attend the Treasury Select Committee scrutiny of the Bill heard the chairman, Andrew Tyrie, question Mr Carney on this matter. He confirmed that the IEO cannot independently decide to start an inquiry; instead, it gets its priorities from the court. This is central. In a difficult situation—which we have experienced within living memory—independence is central to the NEDs having the power to hold the executive to account. I hope that the Government can explain why they have decided to so significantly weaken the oversight role of the court’s NEDs.