Grand Committee Report of 4 March 1998

Official Report of the Grand Committee on the Bank of England Bill
Wednesday, 4th March 1998.
The Committee met at half-past three of the clock.
[The Principal Deputy Chairman of Committees (Lord Tordoff) in the Chair.]
Clause 12 [Specification of matters relevant to objectives]:
Lord Peston Lord Peston moved Amendment No. 20:
Page 5, line 30, leave out ("the House of Commons") and insert ("Parliament").
The noble Lord said: Amendment No. 20 is grouped with Amendment No. 21, but I shall speak only to the amendment in my name and that of my noble friend. I hope there is nothing controversial about this, and I am not accused of being very prickly. However when I read "the House of Commons" in the Bill I assumed this was simply an oversight rather than a deliberate attempt on the part of the draftsman to insult your Lordships. It seems to me that the Government must have meant "Parliament", and therefore I put down this amendment in order to make the Bill say what the Government must have meant. I beg to move.
Lord Mackay of Ardbrecknish: I support the amendment in the name of the noble Lord, Lord Peston, and the noble Lord, Lord Barnett. Indeed, if I had noticed it I would have added my name to that amendment.
My amendment, Amendment No. 21, which is grouped with Amendment No. 20, is simply an attempt to draw out from the Minister the timing involved. One could imagine laying a copy of this letter before the House of Commons or Parliament some considerable time after it had been written, so I have put in,
"as soon as practicable after the notice has been issued to the Bank".
That is very broad. I accept that it may not be practical to do that the next day or the next week, and there may be compelling reasons for not doing so, but I would like some indication from the Government, even an assurance on the record, that the Government would lay the letter before Parliament as quickly as possible.
Lord McIntosh of Haringey: Let us start today's proceedings in a good spirit. We accept my noble friend's amendment. Whoever it was—and I do not know—who put "the House of Commons" will be taken out to the courtyard in the centre of the Treasury building and publicly flogged, and your Lordships will be invited. However, I emphasise that we have not yet found out who it is, and probably will not.
The amendment of the noble Lord, Lord Mackay, deals with the same subject. It would not otherwise have been grouped with Amendment No. 20. However, it is unnecessary. Typically, we stated that we would be
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announcing changes of this sort, as has been the practice, in the Budget and, as the noble Lord knows, the Budget is accompanied by full documentation—excessively full documentation—which is made available as soon as the Chancellor sits down. We do that in the context of strenuous efforts by the Government to improve the transparency of policy-making. We have introduced the Pre-Budget Report in which many of the issues which will arise in the Budget are discussed. In particular, in the Pre-Budget Report we have announced our intention to publish a code for fiscal stability, which will enshrine in legislation rules for reporting on the public finances. It will also include a statement of how the Government intend to operate fiscal policy, both in the short term and in the long term. I believe the Committee would agree that we are not being negligent on the issue of transparency.
With the assurance that we will always do this as soon as practicable, and when, as is normal, it is done in the Budget it will be done immediately. I hope that the noble Lord will feel able to withdraw his amendment.
On Question, amendment agreed to.
[Amendment No. 21 not moved.]
Clause 12, as amended, agreed to.
Clause 13 [Monetary Policy Committee]:
Lord Mackay of Ardbrecknish Lord Mackay of Ardbrecknish moved Amendment No. 22:
Page 5, line 37, leave out from ("Bank") to (", and") in line 38.
The noble Lord said: We now move to Clause 13, where the Bill outlines details of those who will be the members of the Monetary Policy Committee. This is one of three amendments which are linked, which are all concerned with the method of appointment of the members of the committee. As I pointed out on Second Reading, the appointment of all the members of the committee seem to involve the Chancellor's hand, either directly or indirectly. I have tabled a number of amendments which I hope might achieve a slightly more independent look to the Bank—that is, independent of the Chancellor.
Amendment No. 22 is the first of those amendments. It deals with the two members who are to be appointed by the Governor of the Bank after consultation with the Chancellor of the Exchequer. Those two members are described in Clause 13(3) which states:

"(a) one shall be a person who has executive responsibility within the Bank for monetary policy analysis, and

(b) the other shall be a person who has executive responsibility within the Bank for monetary policy operations".

I am puzzled as to what point in time the Chancellor will have a hand in the appointment. Will he have a hand in the appointment of the executive whose responsibility within the Bank is for monetary policy analysis, or will he have a hand in the appointment of taking that executive, or perhaps another, and putting him on the MPC, or will it he done simultaneously? It seems to me that if the Bank is appointing somebody who will have these executive functions, appointments

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will be made from a fairly narrow field of experts, and I do not think we need the words,
"after consultation with the Chancellor of the Exchequer".
After all, if the Chancellor of the Exchequer has appointed the Governor and the deputy governors, he has decided that they are sufficiently reliable men and women to be able to appoint these two executives to these two senior positions and the Monetary Policy Committee, without the Chancellor having a further role in their appointments. It is not much of a change, but it would go some way towards taking out the hand of the Chancellor as regards those appointments. I can see no harm in this, given that the kind of people who will fill these two posts will clearly be defined by their need to be experts in monetary policy analysis and monetary policy operation. I would like to think that the Government might be able to make some sympathetic noises to that amendment.
The next amendment, Amendment No. 23, deals with Clause 13(2)(c). I shall call these the away members of the team as opposed to the home members—the Governor, the deputy governor and the two employees. I have no problem with the four current away members, aside from a problem which I shall draw to your Lordships' attention later, in that they are drawn from a fairly narrow band of people. They all share some common factors, and I shall address that later with the noble Lord, Lord Montague of Oxford. However, here I am concerned with how they are appointed.
As the noble Lord, Lord Eatwell, is here today, I shall not quote him on the different kinds of monetary theorists and how they have changed our mind over time so that yesterday's received wisdom is today's heresy and vice versa. However, the way in which the appointments are made is important. They could indeed come from the same stable of economic thought—perish the thought—which has the Chancellor's ear, or worse, they could come from the stable of the members' supporters or donors of the Labour Party.
The last government decided, with the total support of the Opposition—and indeed, some may say under pressure from the Opposition—to change the whole way in which people are appointed to quangos. The report of the noble and learned Lord, Lord Nolan, certainly brought that about: adverts are placed, interviews are conducted, and names are suggested to Ministers. It is a simple fact that Ministers can no longer appoint people to quangos in the way they once did: namely, from a list of the great and the good. They have to go through a selection process. The same should be done here.
There is not a more important quango in the land than the Monetary Policy Committee. It has been given a very special and important role by the Government, and we ought to look at the possibility of the appointments being made along the lines suggested by the noble and learned Lord, Lord Nolan. Indeed, in Committee in the other place, Mr. Geoffrey Robinson, after congratulating my honourable friend Tim Boswell, who introduced a similar amendment there, on the manner and tone in which he had moved his serious amendment, indicated that the Government would like to consider
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the matter and if my honourable friend would not press it to a vote they would consider what had been said, without commitment, and I appreciate that he said "without commitment". I should be interested to hear what the Government now think about the way in which we should appoint the four away-team members of the Monetary Policy Committee, and whether we should be using a more Nolan-like procedure with adverts and appointments. The adverts, of course, would clearly state the skills and expertise that would be required of anybody who applied.
The last point returns to a matter I talked about yesterday regarding the court, but here it is more important and more serious than the court; that is, whether or not members of the away team—if I may continue to call them that—should be appointed for only three years, or if they should have appointments lasting five years, as do the members of the home team—the Governor, the deputy governor and the two deputy governors who are appointed for five years. I am putting this down because, again, it reinforces the independence of the four outside members. As noble Lords know, the Fed, for example, is a 14-year appointment—and I should not dream of suggesting anything as long as that—the Bundesbank is eight and the Bank of France is nine. Therefore, I am being quite modest in my suggestion of five years. I know we discussed yesterday that perhaps in five years the person appointed might get out of date, or might leave the employment or the field of expertise that led to the Chancellor appointing him. However, that is very unlikely and. if we are not appointing those people along the lines of the Nolan Committee, I hope that the suggestion will not be prayed in aid that other committees of non-executive directors last for only three years before they are re-elected, or, in this case, reappointed.
The Minister told us about the staggering of appointments yesterday and I presume the four appointments will be made in exactly the same way in order to have some kind of rolling programme. Perhaps he might say something about that because there are only four members here, unlike the courts where there are 16 members, and it is easier to have a rolling programme with 16 members than it is with only four.
It would certainly look better and more independent if, first, the Governor could be relied on to appoint the two employees of the Bank appointed for their expertise; secondly, if the Government would consider using the Nolan procedures for the appointment of these important people; and, thirdly, if they would consider a five-year term rather than a three-year term, which, as I said yesterday, would take people beyond the length of the lifetime of one Parliament, or indeed one Chancellor. It would also mean that it would not be so easy for a Chancellor to clear out the whole lot if he did not particularly like what they were doing, and put in his own men over the space of only three years. I beg to move.
Lord Peston: Much of what the noble Lord, Lord Mackay of Ardbrecknish, has said strikes a chord with me as being something one would not obviously wish to oppose. If he is mistaken, I certainly would like to hear from my noble friend why he is mistaken.

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As regards five years, it seems to me quite reasonable that five years rather than three years is the sort of period for which people should be appointed to the Monetary Policy Committee. My general view is that people serve on committees for far too long. The last time, many years ago, that I had an influence on these matters, I learnt that people could serve on committees for 20 or more years and it was still felt that it was premature to suggest that someone should replace them. Therefore, I am not one who believes in indefinite membership of committees. As noble Lords will know, in connection with at least one of the things I have done in your Lordships' House, I am a great believer in resigning before people ask, "Why is he still doing this job?". I would, therefore, prefer five years rather than three years. I am not going for an indefinite period and I certainly do not believe that there should be any presumption, having appointed someone to this committee, that he should be reappointed.
With regard to Amendment No. 23, I have taken it for granted that from now on all future appointments will be precisely along these lines. It is sad that our society is such that we need all these Nolan guidelines, but I have certainly taken it for granted that that would happen generally across the public sector and so on. Even if it has not happened in this specific case, bearing in mind the informality (because the Bill is not yet law), I had assumed that in future—we are talking a little way ahead now—these posts would be advertised. Again, I shall be interested to hear what my noble friend says about likely future arrangements.
Let me emphasise that the reason for this is not that I distrust the Chancellor, nor for one moment that I would have thought he would be choosing people who had the same view of the way the economy works as he has—assuming that he has such a view to start with—but simply that nowadays we have to behave in that way. I am not suggesting for one moment that the people currently appointed are not properly appointed and would not meet the Nolan guidelines, but I should like to think that in future we would do it anyway.
If those views are mistaken, I should like to hear from my noble friend why they are mistaken, but they do strike a chord.
3.45 p.m.
Lord Cobbold: I should like to support the amendment. I believe very strongly that the wording of subsection (2)(b) suggesting that the appointment of the two members by the Governor should be after consultation with the Chancellor of the Exchequer compromises the desire for independence of the Bank. It implies that the Chancellor has the ability to interfere with executive appointments within the Bank. That. I believe, must be wrong, and it would be detrimental in any large organisation. It is certainly important that the Bank should be seen to be generally independent and that the Governor should have full rights to appoint, together with the court, the executive directors.
Lord Eatwell: Could I urge my noble friends to reject Amendment No. 22 in the name of the noble Lord. Lord Mackay of Ardbrecknish? One of the
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characteristics of the Monetary Policy Committee is that the payroll vote, so to speak, of the Bank of England has a majority on the committee. That is what I consider one of the more unfortunate aspects of the committee in the sense that it diminishes the impact of independent members. To accept Amendment No. 22 will simply reinforce the position of the Bank of England in the control of the payroll vote and diminish the committee's perceived independence.
Lord Montague of Oxford: I remind the Committee that yesterday I mentioned that I had been present at the Treasury Select Committee when it cross-examined the members of the Monetary Policy Committee. The Governor, when asked whether it was likely that members from the Bank would always vote as a block, said that was absolutely inconceivable: there were bound to be occasions when they would differ.
That is very healthy. I suggest that we might mute that if we were to accept the noble Lord's amendment. The fact that those people are secure in the knowledge that they have been appointed by the Chancellor and are not beholden to the Governor will ensure that there is a degree of independence on their part and they will be far less likely to vote as a block.
Lord McIntosh of Haringey: I shall preface my remarks on these three amendments by saying that this is not a Bill to provide for the privatisation of the Bank of England. If it were, we could in theory have repealed the 1946 Act. That might have done the trick and we would not be spending time here. What we are doing here is introducing a rather more complex procedure for establishing a degree of independence where it is important to maintain the ultimate responsibility that the Chancellor has to have on behalf of the people of this country for monetary as well as fiscal matters.
The Bank has a statutory responsibility to conduct monetary policy to meet the Chancellor's targets. The Bank is accountable to the Chancellor and, through him, to Parliament, so it is appropriate that the Chancellor should be involved.
I recognise, in response to Amendment No. 22, that it is a fine line. What we are saying is that the ultimate decision on the two home-team, inside members is that of the Governor. We are providing only that there should be consultation with the Chancellor, rather than that he should make the decision.
Incidentally, in case of any confusion over this, it is not necessarily that one or both of these should be directors of the Bank of England. The Bill states only that they should have executive responsibility. They are at the moment the executive directors but they could, in fact, be any one of a number of Bank employees. I say that to the noble Lord, Lord Cobbold, who made a related point. It is up to the Governor to decide who to appoint to the Monetary Policy Committee. The purpose of the requirement to consult is to ensure that the Chancellor can express a view about which of the officials the Governor wishes to appoint. It is. therefore, a fine line hut we have arrived at the right side of it, rather than the wrong one.

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As far as Amendment No. 23 is concerned, the noble Lord is, in general, pushing at an open door. He is well aware that we have objected for many years to the practice which did exist of Ministers saying, "Well, we've got a vacancy here": preferably a nicely paid vacancy, "and we will go to the Whips' Office", by which I mean the Government Whips' Office, "and see who is available to fill this vacancy". We are determined that that should not be the case. The Cabinet Office did publish a paper opening up quangos, which I recommend to your Lordships, proposing the extension of the remit of the Commissioner for Public Appointments to nationalised industries and public corporations. At the moment, he oversees appointments for executive, non-departmental public bodies and for executive National Health Service agencies. This is out for consultation. We are expecting to respond to the consultation document in the course of the next few months.
The important point is that any proposal which extends the remit of the commissioners and, therefore, might affect the issue of the Monetary Policy Committee, does not and would not need primary legislation. It could and would be dealt with by an Order in Council. Indeed, it would be thoroughly undesirable to deal with it in primary legislation, because no doubt literally hundreds of Acts of Parliament would have to be amended in the way that is proposed now. Given our firm intention to open up public appointments generally, we think it inappropriate to put on to the face of this Bill a particular requirement for this particular committee at this particular time.
The argument for Amendment No. 29 was covered when we considered the earlier amendment relating to the court. My arguments will be similar to those I put forward then. Again, it is a matter of judgment. There are those—including some of my noble friends—who are sceptical about the Hampel Committee and the Cadbury Committee and whether they have performed any useful function. In so far as there has been consideration of this issue of corporate governance, the conclusion has been that three years is a suitable term. I recall that the noble Lord, Lord Mackay, tabled an amendment which would provide for the Chancellor to cut the salaries of members of the Monetary Policy Committee if they misbehaved. I prefer a shorter term of appointment and the possibility of not being reappointed, to the more violent means apparently preferred by the noble Lord. I am, though, generally opposed to unnecessary conflict if I can possibly avoid it!
I can confirm that, as with the court of directors. there will be staggered timing of appointments and there is the possibility—hut no presumption—of reappointments. Thereby, members could remain on the Monetary Policy Committee for three, six and—dare I say to my noble friend Lord Peston—nine years or more. I am quite sure that he would think that thoroughly undesirable.
In striking the balance between a term long enough for members to gain experience and learn the job and ensuring that members who do not pull their weight do
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not serve excessive terms, we have come down to three years and, on balance, we feel that that is the right judgment. I would urge the noble Lord, Lord Mackay, to withdraw all the amendments.
Lord Stewartby: May I ask the noble Lord, Lord McIntosh of Haringey, a couple of questions? Regarding subsection (2)(b) he referred to the non-executive directors and their being appointed. Are they directors of the Bank? The second question is that if they are internal experts within the Bank of England and are appointed, and their responsibilities within the Bank change, is there a mechanism for them leaving the Monetary Policy Committee, perhaps to be replaced by the individual who took up their previous job which was specifically connected with monetary policy?
Lord McIntosh of Haringey: The answer to the noble Lord's first question is that the requirement in the Bill is that they should be persons who have executive responsibility. They could—but need not—be directors of the Bank.
The answer to the second question is a matter for the Governor. If he takes the view that somebody is appointed to the Monetary Policy Committee in virtue of his particular appointment and that appointment changes, he could no doubt prevail on that person to resign his appointment and hand it over to his successor. That is not laid down, and I am not sure it ought to be laid down, as a matter of internal management on which the Chancellor would be consulted—provided that Amendment No. 22 is not carried.
The executive directors the noble Lord refers to are on the court at the present time, but they will not be on the court when the Act comes into force.
Lord Mackay of Ardbrecknish: If I may deal with the three amendments, taking the second one first, on the Nolan Committee, I am grateful to the noble Lord, Lord McIntosh, for his explanation of where the Government are, and I appreciate that they are waiting for responses to a consultation. It sounds rather like another review, but one must not complain about that—
Lord McIntosh of Haringey: I should hope not.
Lord Mackay of Ardbrecknish: I am not sure. I think I heard the first review of a review this afternoon at Question Time, but I will leave that to one side. I appreciate what the noble Lord. Lord McIntosh of Haringey, has said and I hope that if the commissioner decides in the consultation to point in the direction of using the Nolan principles for major appointments like this, the Government will accept that when it comes to the Monetary Policy Committee.
Regarding the length of time members serve, I would be attracted to five years with no possible reappointment. I was worried when the Minister said that the appointment should be for three years and they could be appointed for another three and yet a further three, making it nine years. We are getting towards the Bank of France, the Bundesbank and even after another three years it is the Fed. I would be concerned about that. I indicated in my introduction that I did not feel

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that 14 years was sensible. We may have to explore this further. Even if one went along with the three years, I would be unhappy if somebody sat on the Monetary Policy Committee for more than six years considering there are only four members from outside.
Turning to the first amendment, I am not sure whether I should not rename this the "Chancellor's Bank". It is certainly not the people's bank. The defence of the way it was worded by the noble Lord, Lord Eatwell, was interesting. They did not want it to look like the Governor's Bank, yet we have just learnt that the Governor will appointment the pool from which the Chancellor will select, with the Governor's approval, the member of the Monetary Policy Committee. That is what I understood from the answer of one of the people who has executive responsibility in the Bank for monetary policy analysis—that there are a number of people in the Bank responsible for monetary policy analysis and they will have been appointed by the Governor and the court over time. The Governor will decide, "We shall have one of those on the Monetary Policy Committee", and the Chancellor will say "Yes, I am quite happy with that". That I believe is what the noble Lord said, which was in response to my question about whether the Chancellor would have a say in the original appointment to the job in the Bank, not the Monetary Policy Committee. I hope I am making myself clear about that, but I believe I understood what the noble Lord, Lord McIntosh, said.
I am a little disappointed that we did not make a little progress on even one of those amendments. All of them are designed to do the same thing, and even the Government's acceptance of one of them would help: but with the small crumb of comfort that perhaps the Nolan Committee's rules might apply to the four members of the away team, I shall rest my case.
4 p.m.
Lord McIntosh of Haringey: Before the noble Lord withdraws the amendment. I am sure it is benign, but he was putting words into my mouth which I did not say. I did not say that the Chancellor can say yes or no. The Chancellor can express an opinion but ultimately it is the Governor who decides.
It seems to be a feature of this Committee that a number of noble Lords, particularly those on my side, attempt when they are summing up the amendment to put words into my mouth or to encourage me to re-phrase what I have already said. It reminds me of this. Anybody who has ever been interviewed by "World in Action" knows the trick is to ask you the same question 10 times and then use the most damaging answer. I will try to refrain from saying things more than once.
Lord Mackay of Ardbrecknish: I am grateful to the noble Lord for that clarification. I look forward to the day when we have a leak where the Governor has told the Chancellor to go and jump in the Thames but is carrying on with his suggested appointment despite the Chancellor's objection. Having expressed a certain
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amount of cynicism about the noble Lord's last reply to me, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 23 and 24 not moved.]
Lord Peston Lord Peston moved Amendment No. 25:
Page 6, line 8, at end insert (", especially in connection with the likely impact of monetary policy on the regions of the United Kingdom").
The noble Lord said: In speaking to Amendment No. 25 in my name and that of my noble friend Lord Barnett, I note that it is also grouped with Amendments Nos. 26, 27, 31 and 32. I say to my noble friend the Minister that I am a firm believer that if something is worth saying, it is worth saying at least 10 times during the course of your Lordships' Sitting as a Committee, but I always say it in exactly the same way.
With respect specifically to Amendment No. 25, I was aiming to hit two targets at the same time. I originally thought that something of this sort should go into Clause 11(b) where the words,
"including its objectives for growth and employment",
appear. I was trying to find wording that would refer to growth and employment in the economy as a whole and in the regions of the United Kingdom. However, listening particularly to our Second Reading debate, I reflected that many of us had views on the composition of the Monetary Policy Committee, so it seemed to me that if I put this amendment in where it is, I could both emphasise the importance of the regions of the United Kingdom and the importance of members of the Monetary Policy Committee having that kind of experience.
On the straightforward economic policy, what we have here is that if monetary policy is working, as it seems technically to do, in this country via, say, raising interest rates, that has at least some effect via the exchange rate, which in turn has some effect—adversely, of course—on manufacturing industry, which in turn then has differential effects on different parts of the country. Therefore anybody formulating monetary policy and trying to take account of Clause 11(b) must have a view of the differential effects on the regions and the importance of those regions. As I emphasised yesterday, because the word "including" is there, this seemed a fair point to make under that rubric.
It also struck me, as it may have struck other noble Lords, such as the noble Lord, Lord Mackay of Ardbrecknish, and my noble friend Lord Montague, that at the present time the four that have been chosen look both narrowly chosen in geographical terms and also in experience terms. By geographical terms, I do not mean their country of origin or their place of birth, because I do not know either of those, but where they have lived and worked.
If I had ever been an inhabitant of some of the outer regions of this country, which I define as anywhere on the other side of the M.25, I would be somewhat resentful, not only here but in many other areas, about the sorts of people who are chosen in terms of their location.
Equally, I am sympathetic to both Amendments Nos. 26 and 27, even though it might mean less employment for academic economists and more employment for other people. One of my main criteria in deciding anything is whether this is good for academic economists, particularly those whose view of the economy is the same as mine. If we were to proceed along these lines, it might not be good for academic economists and it might not be good for old-fashioned Keynesians in particular. Occasionally, in the national interest, some of us have to rise above these things, so that I have at least some sympathy with Amendments Nos. 26 and 27. The crux of my contribution, however, is Amendment No. 25. I beg to move.
Lord Montague of Oxford: I ask the Committee to be patient with me as I rehearse. yet again, some of the points that I have made earlier in support of the belief that the Monetary Policy Committee would be best served if there were a requirement on the part of the Chancellor to appoint two people who have practical experience of business and industry. Indeed, I am slightly more in favour of that view after what my noble friend Lord Peston has said. I thought he was going to say that there are plenty of economists who have practical experience in business and industry. But he did come forward to say that he is sympathetic to the view that perhaps some practical experience would be helpful.
I would just remind noble Lords of two incidents in relation to the existing Monetary Policy Committee which have worried me. The first is in respect of its view regarding increases in interest rates and the effect on wage inflation. I should point out to the Committee that, running factories as I have done up and down the country, my experience of increased interest rates is that the moment they arise, particularly when there is a subsequent increase in mortgage rates, the unions are in with a case for an immediate increase in wages. I did not like to read what I read in the last published minutes of the Monetary Policy Committee.
Because I was disturbed by that, I attended the penultimate meeting of the Treasury Select Committee when it was examining the Monetary Policy Committee. Once more, based on my practical experience, it left me confused because it was being said that one of the reasons for the possibility of an increase in interest rates at the present time is the effect on asset values. I sat there thinking that that must mean housing. The members of the Treasury Select Committee were as bewildered as I was, and, when they asked for clarification, they were told that what this particular economist had in mind was the then rising price of shares. The implication was that one of the things that would help curb inflation would be a dramatic reduction in the price of shares, which I again found a little mystifying.
The Bill does not say that the Chancellor should only appoint economists. However, it might be argued that he is likely to do that anyway and, if so, it would be just as well if he were obliged to do it and then there could be no misunderstanding.
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We have heard reference to the Fed. One-third of the Fed's existing membership are not economists. They come from all different strands of business and commercial life. The equivalent committee in the Fed works very well. Those are the reasons behind what I hope will have the support of your Lordships and the Government.
Lord Mackay of Ardbrecknish: In speaking to Amendment No. 27, I shall reinforce the points already made by the noble Lord. Lord Peston, and the noble Lord, Lord Montague of Oxford. There is no doubt that the Monetary Policy Committee will be important and that it will have an important impact on manufacturing industry, on business and on all parts of our country. As I said in the last debate and at Second Reading, it seemed that the furthest northerly member of the current Monetary Policy Committee came from whichever was further north. Oxford or Cambridge—in my view, neither is very far north, and certainly neither goes into the industrial areas of England, the Midlands or into Scotland or indeed Wales. We should address this problem, as the Government should address it.
The noble Lord, Lord Montague of Oxford, homed in on the question of manufacturing industry and business. Two letters which appeared side by side in The Times on 18th February caught my eye. One was from Professor Sidney Pollard, who is not in the magic circle, living as he does in Sheffield. I will read the first and last paragraphs:
"Once again the productive sectors of the economy are waiting to see whether a small committee meeting at the Bank of England will inflict further damage on them by another rise in the interest rate … The object behind it being to hold down inflation".
He concludes:
"Altogether, the picture of a small group of people sitting around a table and raising interest rates by a minute amount, and then looking in the following weeks to see whether that has lowered inflation by a similar minute amount, must seem among the most bizarre spectacles visible in London these days".
I am not sure how many other spectacles might fall into that category.
The other letter was from a noble Lord opposite—not opposite me today in the Committee—the noble Lord, Lord Thomas of Macclesfield. On 18th February he wrote that the Monetary Policy Committee:
"appears to be gearing itself up for a further interest rate increase of a quarter per cent to 7½ per cent on the basis of guessing rather than hard evidence".
He went on to talk about the question of wages, and what impact a stronger pound would have on the rate of inflation and on more and higher wage claims—exactly the point that the noble Lord, Lord Montague, has made.
There is a reasonable case for the Government to address on the question of somebody on the Monetary Policy Committee having some knowledge and experience of the business sector and manufacturing industry. But more than that, as I have said, there is much more to the United Kingdom than the triangle of Oxford, Cambridge and London, especially when we are moving towards a new geography in the United Kingdom of having a government in Wales and a

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government in Scotland. It is certainly true that the government in Scotland will have much more power and responsibility than the government in Wales.
The problem over many years has been that Scotland, Wales and the north of England have certainly suffered in times past when decisions have been made on matters such as interest rates entirely because of the position in the south-east of England. It was said in Scotland that when the south-east of England sneezes, Scotland catches a cold. It was certainly true for a number of decades after the war that the Scottish and Welsh economies would be at different stages of their economic cycle than the south-east of England. The economies of Scotland and Wales would be attempting to recover, but if the dampers were put on in the south-east of England the net result was that the recovery in Scotland and Wales would be stopped dead in its tracks.
I am happy to say that in the last five years the Scottish economy has done rather better than that and the evidence in this decade and towards the end of the last would suggest that the Scottish economy had broken free. However, I am not sure that that evidence is continuing. As I said yesterday, unemployment in Scotland on the last monthly figures had begun to increase, after having decreased month after month and year after year. So there is a problem there.
I have a similar problem with the single currency and a single interest rate over the whole of Europe. I know from my personal experience and interest in politics in Scotland over many years that a single interest rate for the United Kingdom has sometimes been of considerable disadvantage to Scotland. I have put down a marker about Scotland and Wales because much of what I have said for Scotland can certainly also be said for Wales.
I accept that monetary policy may be a bit of an academic expertise. If that is the Minister's answer, I must tell him that the universities of Scotland certainly have more than their fair share of high-powered economic dons. I am pretty certain that the Chancellor could pick from one of the Scottish universities an academic expert in those matters who would be equally able to take a place on the Monetary Policy Committee. Coming, as he would, from a Scottish university, he would have knowledge and experience of what was happening in the Scottish economy at first hand.
I hope that the Minister will not try to say that the only decent academic monetary economists are to be found in Oxford, Cambridge or London. I am sure a few are, but I am sure that other universities have the same.
I have to find the appropriate page in order to introduce my other two amendments. According to Schedule 3, a person is disqualified,
"if he is a Minister of the Crown. or a person serving in a government department in employment in respect of which remuneration is payable out of the money provided by Parliament".
I have suggested in Amendment No. 31 that it should not only say "is" but also "has been". That clearly indicates that I do not consider myself as a candidate for the Monetary Policy Committee, no matter the
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number of hours I have spent listening to the noble Lord, Lord Eatwell, telling me about the economy and how the last government were getting it wrong.
The second amendment, No. 32, is more important—if,
"he is a member of the court of directors of the Bank or has been".
My worry stems from this. I am sure the current members of the Monetary Policy Committee are all excellent people and I have no problem about that. However, when one looks through them, apart from the geography of where they live, there are some interesting common factors. Professor Goodhart, for example, is now the Norman Sosnow Professor of Banking and Finance at the London School of Economics, but he worked in the Bank of England for 17 years as a monetary adviser and became the chief adviser in 1980. He is hardly one of the away players, having been that closely involved.
Dr. DeAnne Julius does not have any kind of baggage of that nature. However, Sir Alan Budd has been the Chief Economic Adviser at the Treasury since 1991. That is quite interesting and on anybody's guess he is not an away player. Professor Willem Buiter I think I can excuse as well because I do not believe he has any experience. However, there are two out of the four: one who has been closely involved with the Treasury and the other closely involved with the Bank of England. Those are the four members of the away team to balance the five in-house people.
Without reflecting in any way on those gentlemen—the lady does not actually come into it—I believe I have made my point about the closeness of the team of people who are the nine members of the Monetary Policy Committee. I started off just being concerned about Scotland's manufacturing industry, but when I read the press release from the Treasury telling me who the four members were, I became even more concerned about the independence—if I can call it that—in more general terms of the away members of the team.
I hope that the Minister can give me some comfort on all of those issues. They are important, and if the Monetary Policy Committee has to make difficult decisions—which indeed it will have to do, otherwise the Chancellor would not have passed the buck to it; if the decision about interest rates was easy he would have kept it for himself—these important decisions have to be made, in my view, by people who are seen by the whole of the United Kingdom to be knowledgeable and broadly based.
4.15 p.m.
Lord Newby: I should like to express support for Amendment No. 25 in relation to broadening out the experience on the Monetary Policy Committee. There is absolutely no doubt that one's view of the economy, if one has based one's entire existence in the south-east of England, is very different from if one is based in the north, in the Midlands and certainly in Scotland and Wales. There is always a temptation in this kind of appointment, it seems to me, that people appoint people that they know, who tend to be people with whom they come into contact, who tend to be geographically

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concentrated in the same region. Therefore, I support that amendment. Incidentally, it is common practice with other central banks that equivalent committees often have a formal requirement of a regional base—far more of a formal requirement than proposed in this amendment.
I do not, however, go as far as the noble Lord, Lord Mackay of Ardbrecknish, in suggesting that there should be a Scot and somebody with an understanding of Wales within this group. We have here four appointments. If two are taken up by Scotland and Wales (says he, speaking as a Yorkshireman!) I suspect there will be virtually nobody appointed from the English regions, or indeed from Northern Ireland. That seems to me an unnecessary constraint. Equally, while I support the idea of having a representative from business and industry on the committee, again if that is two out of four, somewhat tight constraints begin to arise. Were I to pick out part of the amendment of the noble Lord, Lord Mackay, it would be that one person with that specific knowledge would be sufficient.
The final point I make on Amendment No. 31, which I do not support, is that it seems that whereas there is a danger in relation to home players, as has been suggested, equally there is a danger of ruling out people who may have spent some time (in their youth, as it were) as a member of a government department. Although I do not aspire to be a member of the Monetary Policy Committee, the fact that I worked for HM Customs and Excise for a few years immediately after leaving university does not seem of itself to be an adequate bar, 20 or 30 years later, to being appointed to this kind of committee. As a general principle, we should be encouraging more people to spend time working both inside and outside government, rather than pigeonholing them into one or the other. Again, this amendment has an unnecessarily constraining effect.
Lord Sefton of Garston: The noble Lord, Lord Peston, made a statement when opening the debate on Amendment No. 25. He referred to people from outside the area of the M.25. At one time, in the north of this country, we used to say, "Those people down there don't know what is happening north of Watford". There used to be a row about which Watford they were referring to. I always subscribed to the viewpoint that it was Watford Gap—just below the Midlands—but I am glad to hear it confirmed now that it is considered to be within the M.25. For many years we forecast that if the question of monetary policy and so on was not looked at in a national sense, that is what would happen. The concentration that was beginning to occur from the north to the south would become so bad that—as I said in my first speech in the House of Lords—the south-east would become a stranglehold and a barrier to the rest of the country taking part in Europe.
The implication of these three amendments is that not enough attention is being given to the outside regions, or to sectors which will have problems arising from a decision by the Monetary Policy Committee on the Bank of England. Before we had the proposals for the independent Bank of England, the Government made the
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decisions as regards interest rates, among other things. Therefore, the Government and the machinery whereby the decision on interest rates were made were the same. But now they are going to be different. The Bank of England will be deciding interest rates. What concerns me is the effect on the regions, as the noble Lord opposite said. My experience in this springs from 43 years in which, first, I was an active member and once leader of a major city which has suffered severely from the change in industrial transport. Secondly, I was the Chairman of the North-West Planning Council. I was a regional officer in another movement dealing with regional matters. On every occasion—we have watched it happen—we have seen a change in monetary policy. Perhaps the worst was when Liverpool was beginning to recover from the depression caused by the change in transportation. We at last convinced central government that we needed some large-scale investment in a field that was not affected by transport, and the government kindly agreed that they would send in 5,000 civil servants. One can imagine the effect that that had on the city centre of Liverpool, spreading out across that particular region. Then there was a change of mind. Everyone decided that the economy was over-heating and they had to go back. The consequence was that we lost all that investment.
I am not asking, and certainly would not suggest, that we should have a committee comprised of the people mentioned in the three amendments. That would he a very big committee indeed. I do not disagree with the proposals for the Monetary Policy Committee. It would be wrong of me and would not have the slightest effect. When the Minister finally decides to reply to the amendments, which he will ask Members of the Committee to withdraw, perhaps he would consider asking whoever takes on the position of monetary policy or any other kind of fiscal policy to report to the Government any possible adverse effects their decisions might have either on sectors such as manufacturing or on regions such as Liverpool. I would then be satisfied that the matter was being looked at.
Over 45 years I have known people responsible for that policy admitting the deleterious effect their decisions have had upon the regions I have spoken about, but they have never offered any solution. They forgot all about it and waited until the next time, when they decided on their future policies, instead of looking at the adverse effects of their decisions and doing something, or telling the Government to do something to rectify the situation.
I hope I have made myself clear. I do not usually participate in these high-sounding ideas; I leave it to the experts down here. But the country should not have had the economic problems that it has experienced so often from decisions taken in the south-east of England. Would the Minister give consideration to imposing upon the Bank of England or the Monetary Policy Committee a duty to inform the Government of any possible adverse circumstances that may arise in certain sectors or regions from the decisions they recommended?
Baroness Carnegy of Lour: Perhaps I might just take one moment of the Committee's time. I should like

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to make a comment on my own experience as a member of the Scottish Economic Council over a number of years, where I represented the interests of education and training, and where I watched the procedures of that council and its study of Scottish Office figures of how the economy was moving in Scotland in relation to the economy of the United Kingdom.
I do not know whether Members of the Committee realise the extent to which separate economic analysis of the Scottish economy has been done, and the resulting effects of the particular arrangements for bringing into Scotland industry inward investment and the somewhat separate arrangements for education and training. During that time, it interested me how frequently the economy of Scotland diverged and differed from the economy of the United Kingdom as a whole. Indeed, there were frequent comparisons, for example, with the south-east where competition between Scotland and the south-east interested industrialists very much. There are enormous differences which are partly cultural. For example, for a long time it was explained that people in Scotland saved more. I am not sure they still do, but at that particular time they were saving more, which affected the economy of Scotland. Expert members of the committee will understand various differences.
It seems to me that with the advent of the Scottish parliament, it is likely that there may be increasing divergence as regards legislation and arrangements, funding and costs for local government. I can understand what the noble Lord, Lord Newby, was saying—and I am sure the noble Lord, Lord McIntosh, was thinking it. But it is very welcome to hear it said that we do not want too many people on the body from specific areas of interest. One wants flexibility to achieve a balanced body. At the moment Amendment No. 27 is saying to the committee that these interests must be there. I am sure if there is nobody on that committee who knows what is happening in Scotland—one-ninth of the economy of the country, which may be doing something a bit different—it may be neglected. It might be that one of the industrialists or one of the academics is a Scotsman, as long as somebody is there to do that. It seems to me important, and I cannot imagine such a body working without it. It is a very amateur contribution, but I hope it is of interest.
4.30 p.m.
Lord McIntosh of Haringey: Before I start on the meat of the amendments, may I take advantage of the almost chance remarks of my noble friend Lord Peston, who said that he had considered tabling his amendment to Clause 12 because he thought it was as much about the objectives of the Bank as about the membership. If I look at the debate on Clause 12, I see that I am recorded as saying,
"We are setting the approximate target and we are providing the Bank of England Monetary Policy Committee with the means—the control—of short-term interest rates in order to achieve that target".—[Official Report, 3/3/98: col. CWH 61.]
I meant to say "We are setting the proximate target" and not "the approximate target". Indeed I believe I did say that but it was recorded wrongly, and I am glad to have an opportunity to put that right.
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I have a great deal of sympathy with the objectives of the first three amendments, which seek to provide for special expertise, knowledge and experience on the Monetary Policy Committee, and rather less with Amendments No. 31 and 32 which seek to deny the Monetary Policy Committee particular forms of knowledge and experience. I perfectly well understand why there should be concern that the interests of Scotland and Wales, and of the English regions, of business in general and most particularly of manufacturing business, should weigh heavily with the Monetary Policy Committee in making its decisions. However I am not convinced that in a body of this size, with four outside members, this should be expressed in the membership of the committee itself.
The noble Lord, Lord Newby, exposed the contradictions and constraints which are involved in a number of these amendments. If one were to have somebody with particular knowledge of Scotland and another with particular knowledge of Wales, one would only have two for England. If one were to have two with experience of business and industry, one would only have two others. The amendment of my noble friend Lord Peston is less prescriptive but leads very much in the same direction, as we all recognise. It is much more important that, rather than restricting the membership of the Monetary Policy Committee, we should be sure that this committee has the interests of the regions and of the home countries and of business and industry in its sight when it is making decisions. That is why, in Clause 16(2) of the Bill, it is provided that the court shall have the responsibility for,
"determining whether the Committee has collected the regional, sectoral and other information necessary for the purposes of formulating monetary policy".
In other words, it is part of their concern for the procedures of the Monetary Policy Committee that they should have the interests of the regions and of the sectors—which means business and industry—at heart. That is the way in which we prefer to secure that the interests of business and of the regions and of the home countries are protected in the deliberations of the Monetary Policy Committee.
Noble Lords may feel that that is an indirect approach. I know that it will not satisfy my noble friend Lord Sefton, though I am relieved to find that he concentrates not so much on the membership of the committee, but on the way in which the committee reaches its decisions. I hope that that reassures him to some extent.
The fundamental view that we take about these amendments is that we want the best people, and the more restraints we put on where the members should come from, the more chance we have of sub-optimising and having people on the committee who are not the best people.
I have another concern which relates to the way in which our society operates. Of course I see the point that we do not want to have a charmed circle of London, Oxford and Cambridge, still less within the M.25. However, people in this country have a wide range of different experiences and have lived in different places. Would the noble Lord, Lord Newby, be qualified under

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the regional criterion because he comes from Yorkshire, or disqualified because he works in London? Would Professor Patrick Minford be qualified because he used to be a professor at Liverpool, or disqualified because he now works in London, or because he has never been, so far as I know, in manufacturing business? We are not like that these days. We live in different places; we work in different places.
The professor from Sheffield who wrote to The Times on 18th February—I do not know him; he may have been in Sheffield only for this academic year—but he might come to work in London in the next academic year, in which case he would lose his qualification. The point is that people move around; they change their jobs and their knowledge and experience change throughout their lives. We have already had a debate on the membership of the court, and it was widely recognised that the court, the larger body, contains much better representation of business and manufacturing industry and of parts of the United Kingdom outside London. We should be satisfied with that and with the provisions in Clause 16(2) that the court shall ensure that the Monetary Policy Committee has the information about the needs of the regions and the needs of manufacturing industry at its disposal when it makes the decisions it has to make. However, the membership of the Monetary Policy Committee should consist of the best people in accordance with the criteria laid down in the Bill.
Lord Peston: I thank my noble friend for his answer, though I have to tell him, for once, that I am not entirely satisfied. He referred to the "best people", but the range of best people is quite large. I must be careful not to put words into the mouth of my noble friend, but I somewhat interpreted what he was saying about how we make appointments in future in a general way. If those posts were advertised, we might well gain access to a much larger group of people, which is worth reflecting on. Professor Minford, as far as I know, is in Cardiff and not London nowadays, having left Liverpool, so that even though his views on the economy and my own are slightly different, he would meet some of the relevant criteria.
I shall make two more remarks and the noble Lord, Lord Mackay, also wishes to make a remark. There was a third target for me—and one reason for my putting this down was slightly mischievous—that as the noble Lord, Lord Mackay of Ardbrecknish, pointed out, what we observe here will be observed on a much larger scale when we have the single currency and the Central European Bank. Not least for our country, the regional impact will be vital in the monetary policy that they conduct there. I support a move in that direction, but underlying my view is the fact that we will need very powerful regional intervention if it is to be made to work. So I did have a third string to my bow there.
My last point, and I would like my noble friend to reflect on this, is that a relevant word here is "credibility". Anyone who reads the press locally, and indeed the national press in the form of the Financial Times, cannot but doubt that the people out there—I do not apologise to my noble friend Lord Sefton in so
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calling them—do not believe that their interests are taken care of by this committee. Indirectly, I am trying to advise my right honourable friend the Chancellor that when making these appointments in future he should bear in mind the words "what is credible" in terms of regional interests and business interests. Credibility is extremely important here.
I will not quite withdraw the amendment until the noble Lord, Lord Mackay of Ardbrecknish, has spoken.
Lord Mackay of Ardbrecknish: Perhaps I can start on a note of agreement with the Minister. Yes, I am indeed pleased to see that the new members of the court have been widely drawn. That is very welcome. As I indicated yesterday, however, there is a difference between the court and Monetary Policy Committee. We teased out the relationship, and it did not seem to me as though the court would have any influence over the decisions of the Monetary Policy Committee. I am therefore left with the feeling that, although the court may correctly represent the wide interests in the United Kingdom, that still leaves me with a problem in the Monetary Policy Committee.
I accept the criticism that the noble Lord, Lord Newby, made of my Amendments Nos. 31 and 32 that for somebody who might have been in the Bank or in the Treasury for a year or two in their early careers, it would not be very fair to knock them out if in their subsequent career they had become quite serious players outside either the Bank or the Treasury. The trouble with the noble Lord's argument is that the two people I have prayed in aid on the Monetary Policy Committee were not just casual employees of either the Treasury or the Bank of England. Professor Charles Goodhart was the Chief Adviser to the Bank and Sir Alan Budd was the Chief Economic Adviser to the Treasury since 1991. If I may say so, they were not just middle rank people gaining some experience on their way through.
While I agree with the point the noble Lord made in criticising my amendment, I was more aiming at people who were senior or serious players in either the Bank or the Treasury then finding themselves translated—in one case an immediate translation—to be considered one of the away team. My concern still remains, although I accept that perhaps my amendment is too widely drawn.
On the question of manufacturing industry and the various parts of the economy, I would he just a little more reassured by the explanation by the Minister if the Chancellor had made one of the four appointments from outwith the particularly tight circle from which these people are drawn. Anybody reading their CV will see that they have not done much moving around. I have read their careers and, apart from time abroad—which may be important, and the noble Lord, Lord Rees, was about to correct me—because two were born abroad and two have worked in very serious positions abroad, I am actually talking about the United Kingdom. There did not seem to be much moving about in the United Kingdom by any of them in the small CV put out in the Treasury biography. They do move abroad somewhat to take great tasks, but they return to the "magic triangle" in order to undertake their tasks in Britain.

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If the Chancellor appointed somebody from Sheffield University—I know nothing about the professor who wrote to The Times, and I may thoroughly disagree with his economic position—or somebody from Newcastle (the noble Lord, Lord Eatwell, has indicated that I probably would) or somebody from Wales, I would be rather happier. Perhaps even the noble Lords, Lord Sefton and Lord Montague, would be happier if someone from Scotland were included. If there was just one person from outside this magic circle or magic triangle, I would he encouraged, but I am discouraged by the fact that there is nobody.
My noble friend Lady Carnegy is quite right about the position of the Scottish economy, and I suspect that the noble Lord will withdraw the amendments. However, I say this simply to the noble Lord, Lord McIntosh. He can take it to his right honourable friend the Chancellor, and it will nor surprise the Chancellor. Once the government of Scotland is up and running, the Westminster Government will not get away with a Monetary Policy Committee without somebody from Scotland. I give him that warning. When that day happens I shall look out for the noble Lord in the corridors and he can buy me a very large wine of my country.
4.45 p.m.
Lord McIntosh of Haringey: Before my noble friend winds up the debate, I recognise that I did not respond to Amendments Nos. 31 and 32 which were grouped with the main amendment. I should have done so because they show such a nobility of spirit on the part of the noble Lord, Lord Mackay of Ardbrecknish, that the matter should not pass. What he is doing in Amendment No. 31 is to exclude himself, as he recognises, from consideration, and so reluctantly I withdraw the nomination which I had had in mind of putting forward.
More seriously, he talked about people who have extensive responsibilities in a senior position. He has had extensive experience in a senior position and it would be paradoxical if we were to make the kind of exclusion that he is proposing. We should also have excluded John Maynard Keynes from consideration as a member of the Monetary Policy Committee as a former employee of the government.
I do not in any way want to underestimate the importance of the thrust of the amendments. It is absolutely fundamental that we should show solidarity between regions and countries of the United Kingdom and that our monetary and economic policies generally should be concerned with the support of those regions and not concentrated on the south-east and on the financial sector. That is fundamental.
It also follows from what I have just said that we must be concerned with business generally and with manufacturing industry in particular. The only query that we have with that thrust, with which we agree, is that we do not believe that it can or should be carried through into the membership of this very small Monetary Policy Committee.
Lord Peston: I thought I had summed up. I shall not say anything further other than that I look forward to what the noble Lord, Lord Mackay of Ardbrecknish, has said about the likely behaviour of the Scottish parliament and the resulting drinking to which we may all be looking forward. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 26 to 28 not moved.]
Clause 13 agreed to.
Schedule 3 [Monetary Policy Committee]:
[Amendment No. 29 not moved.]
Lord Mackay of Ardbrecknish Lord Mackay of Ardbrecknish moved Amendment No. 30:
Page 22, line 43, at end insert (", except that, in any case where the inflation performance of the economy falls outside the targets specified under section 12 for a specified period, the Chancellor of the Exchequer may make such modifications as he thinks fit to the remuneration of members of the Committee.").
The noble Lord said: I felt I might withdraw the amendment. On the other hand, it is the only amendment that will give the Minister the opportunity to explain to us what will happen if the Monetary Policy Committee fails to meet the Chancellor's target of 2.5 per cent., plus/minus 1 per cent.
I have suggested in the amendment that if it fails to meet the target we might have some negative performance-related pay with regard to the members of the Monetary Policy Committee: they should have some of their pay docked. It is a slightly serious point because it would concentrate their minds. More importantly, it seems to me that it would be interesting to hear from the Minister exactly what will happen.
As far as I understand, the Monetary Policy Committee will send a letter to the Chancellor and say, "Whoops, sorry, Chancellor, we've got it wrong and this is what we are going to try to do about it". It does not seem to me that much will happen to the members of the committee. Will they be told to write out 100 times, "I must not go beyond 3.5 per cent."? What is going to happen? I read a book recently about the family who built Richmond Terrace where, in the now becoming dim and distant days of ministerial life, I had my office. One of the daughters married Charles James Fox and what I found interesting was the way government Ministers, or people who appointed the government Ministers, had a measure of performance-related pay. They were allowed to keep a small portion of what they collected or distributed or, while they had the money in. they invested it and were allowed to keep the interest. They built some very grand houses and ran some very grand estates on that. Unfortunately, I understand that that was all stopped early in the last century and I doubt if it would be acceptable today.
Performance-related pay is not unknown and this is a suggestion that, if the committee fails to meet its targets, it receives a little more than just a letter; a little more than just an explanation, and some reduction in members' pay might be considered by the Chancellor.
I doubt if the Minister will accept this amendment but perhaps, in turning down my amendment, he will explain to us exactly what is going to happen if the Monetary Policy Committee fails to meet its target. I beg to move.
Lord McIntosh of Haringey: The first and most obvious answer to the noble Lord is that to do that would be the most gross political interference and I cannot imagine that the Opposition would let such an occasion go by without severe censure.
The second answer is that the noble Lord is proposing a very curious management style. In my experience, having spent 30 years in business and therefore being thoroughly qualified as a potential member of the Monetary Policy Committee, if somebody is not performing adequately, we do not tell them to take a cut in pay: we get rid of them. Otherwise we are building up resentment and keeping that resentment in the team, which seems to me to be an undesirable way to approach the matter.
I am not taking the amendment of the noble Lord at face value. But I am taking his speech seriously and I am taking seriously the point that he makes about the open letter and the way in which the Chancellor would react to a letter which indicated that the Monetary Policy Committee had failed to meet its broader targets.
Monetary policy is not the same as selling cars. In particular, getting the specification of a performance-related element right would be tricky. Would it apply immediately the Bank had gone outside its limits and had to write the open letter? Given the time lags involved in setting monetary policy, it might take a year or more for the effects of the Monetary Policy Committee's decisions to be felt, though the letter has to be sent straight away. The current inflation target, through the open letter system, explicitly recognises that, in some circumstances, it may he acceptable to deviate from the target but that the Monetary Policy Committee must be explicit about how it plans to deal with such shocks.
In answer to the noble Lord, that is exactly what the open letter is designed to do. Those circumstances would necessarily be unpredictable and it would be difficult to get right the contract that the noble Lord wishes us to draw up with the members of the Monetary Policy Committee, to make sure that we did not introduce undesirable incentives for monetary policy. We might land up saying, "You will be preserved from having your salary cut provided you get back within three months". It might be that economic conditions in Europe or inflationary conditions in other countries of the world did not make that possible.
I am convinced that the open letter system, with its requirements that the Bank and the Monetary Policy Committee should emphasise not so much what went wrong, but what they are going to do to put it right, is a more effective method than that which is proposed in Amendment No. 13.
Lord Taverne: I hesitate to speak when I have been unavoidably absent from the deliberations of the
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Committee. I should just like to say that my fear is that there is too much rigidity in the interpretation of the targets. This amendment underlines that tendency and it would be better to retain some flexibility, as indeed the noble Lord indicated.
Lord Mackay of Ardbrecknish: I am grateful to the Minister for his explanation of the letter, of what he envisaged would be in it and the kind of assurances the Monetary Policy Committee might give. I am sure that the Monetary Policy Committee will be relieved at his vigorous defence of the salaries and positions of its members and equally relieved that I am not going to push it to any kind of Division either here—which I cannot do—or elsewhere when the opportunity arises. I am not sure that losing part of members' salaries would do anything to reinforce what will be a banker's caution, to ensure that they meet this target.
My concern is the one that I expressed at Second Reading: that they will attempt to make it so certain that they meet their target, that they will probably tend on the robust side when it comes to interest rates. The consequences of that for our economy may well be damaging, but that is another issue. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 31 and 32 not moved.]
Schedule 3 agreed to.
Clause 14 [Publication of statements about decisions]:
Lord Mackay of Ardbrecknish Lord Mackay of Ardbrecknish moved Amendment No. 33:
Page 6, line 33, at end insert—
("() Statements published under this section shall record, in relation to any decision of the Committee, the voting preference of the members who took part in the vote on the decision.").
The noble Lord said: I beg to move Amendment No. 33 and with it I shall speak also to Amendment No. 34. Clause 14 is about the immediate publication of the decisions of the Monetary Policy Committee. The public have a right to know and it is right that there should be public accountability on the part of the Monetary Policy Committee. This particular clause is not about the minutes of the meeting, to which I will come in a second. That involves Clause 15, to which Amendment No. 34 relates.
Clause 14 concerns decisions that are made in the committee and have to be announced either on the same day—meaning the day after tomorrow, because the Monetary Policy Committee meets this week—or early next week. It refers to the announcements it has to make then, in contrast to the minutes some six weeks hence. The minutes six weeks hence, we know, show the voting preference of the members who take part in any vote on any decision. We saw that in the January meeting, when we saw which five people had voted to keep interest rates the same and which three had voted to raise them.
I may now be running out of time from my months, but I think it is right that in last month's meeting, whose minutes we still do not have—I do not know how it got out—there was an indication which I read about in the papers, that there had been a five-three division as well.

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What we do not know is whether it was the same five-three or whether there had been some movement around. I do not suppose that the Minister will confirm or deny whether it was five-three, but I certainly saw that speculation in the newspapers. I do not know the grounds for the speculation, but that was the case.
My first amendment would have the effect that, when the Monetary Policy Committee announced in February that interest rates were to remain the same, it should then have stated the voting preference for anybody who took part in the vote. The second amendment relates to the wait of six weeks. Why do we wait, in fact, for a week or two after the next meeting before we read the minutes? I am sure that they are written fairly soon after the first meeting. I hope the noble Lord is not going to say that the Committee, at its subsequent meeting, have to agree to the minutes before they are published? If that is the case, they could he published rather more quickly than in six weeks. Depending on the length of the month, they could he published in five or four weeks—rather more immediately.
I am teasing out from the Minister why it is six weeks. I know he will tell me that that is the way Kenneth Clarke decided it should be. But Kenneth Clarke was dealing with a different kind of meeting. He was dealing with a meeting between himself and the Bank, where he took a full part in the decision-making process on whether or not to increase interest rates and the minutes were then published. That was the first time the minutes of those meetings had been published. When creating a Monetary Policy Committee which is independent, on which the Chancellor does not sit, where the decisions are not made by the Chancellor any more and he is not involved in the making of the decisions, it is worth considering why we should not do the same as that which we did with the "Ken and Eddie Show", as it was called, and wait six weeks.
My two points are these: first of all, in the immediate decision announcement should we not know what the vote was and who did the voting; and, secondly, do we really need to wait six weeks, until after the next meeting, before we read the minutes of the last one? I beg to move.
5 p.m.
Lord McIntosh of Haringey: The noble Lord is quite right in saying that I intended to refer back to the "Ken and Eddie Show", not quite in the same terms in which he did but because I must confess that when the "Ken and Eddie Show" had its premier, I was puzzled by this six-week delay. As a complete outsider, and somebody who is used to having the minutes of meetings available immediately afterwards as a normal business procedure, I could not understand why this should be so. I have to say that the argument which I assume Kenneth Clarke and the Governor used at that time still applies today. The meeting is not that different. The reason is that these meetings take place on a monthly basis—they do not need to take place on a monthly basis but they do—and any further information, particularly information about the nature of the votes,
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could well be destabilising and could limit the options open to the next meeting if they became available before the next meeting.
We agree with the process started by Mr. Kenneth Clarke when he made these meetings more open and transparent, and we have extended the openness and transparency by proposing that the voting record should be published, and this, as the noble Lord recognises, has now happened. But the publication of the voting record immediately when the decision was taken might he destabilising, particularly if there is a split decision as there was in January 1998. It might well be that the publication of the voting record in January, taken before the February meeting, might have forced the members of the Monetary Policy Committee into a false sense that they had to be consistent with their previous view, even when their economic and policy judgments could have been otherwise.
The noble Lord has been reading speculation about decisions in February. They are pure speculation and to the best of my knowledge no statement has been made with any authority which breaks the six-week rule which has been set up.
The arguments are the same as they were when this first arose under Kenneth Clarke's Chancellorship. The important point is to ensure that the minutes do not come out before the meeting, or "not more than six weeks after the meeting" is the phrase. This is designed to cope with the vagaries in the calendar, but above all it is designed to make sure that the subsequent meeting of the Monetary Policy Committee takes place without any external or internally-imposed constraints on reaching the right decision. I fear that the noble Lord's amendments would damage that.
Lord Peston: Before the noble Lord replies, may I ask my noble friend a question which has only just occurred to me, for which I apologise? Clause 15(4) refers to the voting preferences of the members. I do not recall seeing anywhere else in the Bill anything else about voting, or about the internal procedure of the Monetary Policy Committee. It may be somewhere else and I have just missed it, but two questions occur to me. First, is there any obligation for this committee to take decisions by majority voting? Could they not, for example, have a rule that it has to be complete anonymity as to their voting preference? Is there somewhere in the Bill that tells us it must be majority voting? That is my first question. My second depends on the first.
Lord McIntosh of Haringey: Schedule 3, paragraph 11(4) states,
"Decisions shall be taken by a vote of all those members present at the meeting".
Lord Peston: But it does not say that it should be majority voting.
Lord McIntosh of Haringey: Sub-paragraph (5) states,
"In the event of a tie, the chairman shall have a second casting vote".
That implies majority voting.
Lord Peston: I am not sure about that and will reflect on it. I raise this for another purpose and it is one that

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troubles me wearing my academic hat. There are three possibilities at any meeting: raise interest rates, leave them the same or lower them. It is a well known proposition in voting theory that where there are three possibilities you can have cyclical preferences so that any proposition can have a majority against anything else. Therefore, the person who controls the agenda—the most well known of all the propositions—controls the outcome. The question of voting is not as trivial as I thought it was. I ask my noble friend to reflect on that.
To take the obvious point, if the voting of some people is that they most want down and they most dislike up, and there is another group who most want up and dislike down, they may both for protective purposes vote for the status quo even though that is not their first preference and is not, in their judgment, the best thing for the economy. I ought to come back to this when we meet on Report. I realise that technically this is not a trivial matter.
I thank my noble friend for drawing my attention to the part of the Bill which covers this point and ask him to get his expert advisers to brief him, and therefore in due course to brief me and other noble Lords, on whether there could be problems of serious errors in policy arising from a voting system.
Lord McIntosh of Haringey: I suspect that my advisers, with all their admirable qualities, are not academically qualified in the theory of games. I shall reflect on the point that my noble friend Lord Peston has made.
Lord Mackay of Ardbrecknish: The noble Lord, Lord Peston, makes a good point. I can see that the voting might be awkward for the Governor to conduct if there are members looking at all three options. It is probably straightforward if nobody is in favour of one of the options, but if some are in favour of all three, then it could be a difficult decision and you could achieve a muddled compromise which did not satisfy anybody. That is another matter. I would be interested to hear what the Minister has to say once the Treasury has reflected on it, as no doubt it will do.
Lord McIntosh of Haringey: There are not just three options. There is an infinite variety of options. Rates can be raised by different amounts. I know how I would handle it as the chairman of a meeting which is to attempt to secure agreement on the least objectionable alternative, but that does not give a great deal of power to the chairman of the meeting. My noble friend recognises this; let us talk about it again.
Lord Mackay of Ardbrecknish: We had better because it is beginning to sound like the lowest common denominator, which might not be the best way. I am pleased I pursued this because it has raised an interesting issue. I have listened with interest to what the noble Lord, Lord McIntosh, has said. I am not entirely sure that having a six-week gap will remove the pressures from the members two meetings ahead when it comes to looking at what they have done two meetings behind. We know who voted in the January meeting. I
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am not entirely sure we would know how they voted when it comes to the March meeting if there were no pressures on them, whereas if we knew how they voted in the February meeting, there would be undue pressures on them. I am not entirely sure that I was convinced by the argument of the noble Lord. Lord McIntosh, when it came to that part.
I see the problems. It is a matter of balance between being open and allowing everybody to see what happened, and the problems which could occur in the money market and the economy if in fact people realised too soon what was happening. They might then take steps to guard themselves against what looked like an adverse decision as far as they were concerned at the next meeting. We may well return to this in some form or another. Someone will have to devise a suitable amendment. For the moment, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 14 agreed to.
Clause 15 [Publication of minutes of meetings]:
[Amendment No. 34 not moved.]
Clause 15 agreed to.
Clause 16 [Functions of court of directors]:
[Amendment No. 35 not moved.]
On Question, Whether Clause 16 shall stand part of the Bill?
Lord Fraser of Carmyllie: Before we move to Clause 16 stand part, perhaps I may say to the noble Lord that I certainly felt there was some attraction in the argument that he advanced in response to the group of amendments beginning with Amendment No. 25. He implied that if one was looking to the way that the committee conducted itself and one wished to ensure that it did not have regard only to opinions in London, instead of prescribing residence or domicile in other parts of the United Kingdom a more appropriate approach might be to give some direction or impose some requirement on the committee that it has regard to other parts of the Kingdom.
The noble Lord made particular play with what is found in Clause 16(2), namely, that,
"the court's function under subsection (1) shall include determining whether the Committee has collected the regional, sectoral and other information".
One thing, it seems to me, that this committee will not lack is bumf. It is unlikely to have too little information before it, and it would seem to me, accordingly, that the court of directors of the Bank would have an extremely light duty to discharge if it only had to look to see how much information was made available to the committee in coming to its view. It seems to me that we should at some point look to some strengthening of that provision along those lines that the court of directors might have some duty to ensure that "it shall have regard to" that information on regional, sectoral and other matters.
I hope that the noble Lord might reflect on that and not simply restrict it to ensuring that the information is collected.

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The other point I want to make on this clause is this. Is Scotland a region? I would advise the noble Lord to think long and hard before he answers that question. The Institute of Chartered Accountants of Scotland regards England as a region for the purposes of its activities there. I am not aware of England being described as a region in any condescending fashion other than in that context.
This is a general point but, I believe, an extremely important one. This is the first time, so far as I am aware, since the Scotland Bill got under way that we have had a chance to consider the use of the word "region" in relation to legislation. The draftsman would seem to be well advised to change this drafting to acknowledge what has been put forward by the Government in their White Paper Scotland's Parliament, which led to the referendum and has now led to the Bill. It is simply incorrect in future to describe Scotland as a region.
I shall not be very helpful in offering any alternative word other than to say that Scotland and Wales have to be included. In my time in government the vogue was to describe Ministers from Wales, Northern Ireland or Scotland as "territorial" Ministers; and a description of Scotland, Wales or Northern Ireland as a "territory" probably would provoke quite as much irritation as the description of those parts of the United Kingdom as "regions". I do not invite the noble Lord to give me an answer now. I am just putting him on notice that there is a very real issue, not only in this legislation hut more generally.
The Minister will be well aware that his right honourable friend Mr. Donald Dewar found himself in considerable difficulty recently about an alleged withdrawal of a knighthood for Sean Connery. Those issues are extremely raw in Scotland at the present time and it seems to me incumbent upon this House, in looking to the drafting of legislation, particularly United Kingdom legislation, to ensure that no unnecessary affront is caused to Scotland.
Lord McIntosh of Haringey: I do not know whether the noble and learned Lord, Lord Fraser, was here half an hour or so ago when we were discussing Amendments Nos. 22, 23 and 27. If he was, he would have observed that I very carefully used the phrase "home countries". This is a new phrase to me but it is what is used in Whitehall, and possibly even in Holyrood or St. Andrews House, to distinguish Scotland and Wales—the Kingdom of Scotland and the Principality of Wales—from the English regions. If there is a problem, as there may be, with the use of the word "regions", then we must look at this again. I shall write to the noble and learned Lord, but I must warn him that I have just written a very dense five-page letter to him about the Scottish dimension of the National Lottery Bill, and I do not think he will want another like that in short order.
The noble and learned Lord's worries about the duties of the court, and not having anything to do if that is all it does, are readily dispelled. The court has many more
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duties. It is fundamentally responsible for the management of the Bank of England, other than monetary policy.
5.15 p.m.
Lord Fraser of Carmyllie: Either I have expressed myself poorly, or the noble Lord has misunderstood me. He made great play of the fact that, if my noble friend and others were concerned that the committee would not have proper regard to regional sectoral interests, our fears ought to be allayed because there was the duty to ensure that it collected information. My point is that I have no doubt that it will have more than sufficient information about the regions, about Scotland. about England and about sectors, but it seems that that is not sufficient. If it were to look, for example, at the piles of papers to be provided to members of the Monetary Policy Committee, I am sure it would very quickly discover that there was more than sufficient information. That is not quite the answer. We are trying to ensure that there is a duty upon the committee to address the issue of the potential differences within the United Kingdom economy as a whole as it affects Scotland, Wales and the regions of England.
I am sure that my noble friend Lord Mackay of Ardbrecknish is correct in saying that we should look specifically at Scotland, because one necessary consequence of the establishment of a parliament in Scotland is that there will certainly be some features where there will be homogeneity in the economy. We want to ensure that the committee has regard to that development.
Lord McIntosh of Haringey: I was going to come to the third point made by the noble and learned Lord. I was only dealing with his concern that the court and the committee would have nothing to do if it was only a question of ensuring that information was available.
His more fundamental point, which I recognise, goes to the heart of the relationship between the Monetary Policy Committee and the court—the distinction we have made—and the responsibility for monetary policy, which lies with the Monetary Policy Committee. If he cares to read the record of the debate yesterday, he will see that, although noble Lords disagreed with me, I was very insistent that there should be no greater complication in the statement of objectives of the Bank other than that it should primarily be price stability and, subject to that, the economic policies of the Government. I resisted all attempts to extend that definition, and I would have resisted any attempt to add to it so that it should have regard to any other particular factors, on the grounds that I stated then, that you must have one proximate target rather than having a whole range of targets with the potential for conflict between them.
On the question of devolution, which both the noble Lord, Lord Mackay of Ardbrecknish, and the noble and learned Lord mentioned, political consideration will have to be given to this, as to all other matters, when the Scottish parliament is formed. I shall be interested to see how concerned the noble Lord and his party are about the effective pursuit of devolution.
Clause 16 agreed to.
Clause 17 [Power to obtain information]:
The Earl of Home The Earl of Home moved Amendment No. 36:
Page 7, line 25, alter ("undertaking") insert (", such information being solely that").
The noble Earl said: In moving Amendment No. 36, I shall speak also to Amendment No. 37. These amendments largely concern costs and I make no apology for continuing to emphasise the need that we all look for, which is that costs are kept to a minimum. There is in this clause a danger that the institutions will incur extra costs over and above what might be necessary.
Both the Bank and the authority will naturally want to have their own ideas about the form and the manner in which they collect the information anticipated in subsection (2)(a). In addition, it is quite possible that either of them might want the same information but in a rather different form. The Bank has, for a considerable length of time, been receiving information and it is only human nature that they have developed a good system which works for them and with which they are comfortable, and they will not necessarily want to change it. The requirements of the authority may need the information to be in a different form.
I entirely accept that the Bank and the authority will do their best not to duplicate, and indeed their intention not to do so is enshrined in paragraphs 5 and 6 of the MOU between the Treasury, the Bank and the authority. Those paragraphs refer to the desire to minimise the burden on companies. Amendment No. 36, however, seeks to concentrate the minds of those in the Bank to ask only for information which they really need. Ideally, I should like the words "or expedient" to be deleted from that paragraph, and indeed my colleagues in another place asked for that, but their request was rejected by the Economic Secretary. My thesaurus gives "helpful" as a synonym for "expedient-, and on that basis one can think of much information which the Bank might find helpful to have but which is not strictly necessary.
Amendment No. 37 covers the eventuality whereby the Bank asks for information which may be expensive for an institution to provide without apparent good reason. The Bank must be seen to have a good reason for requesting information but it should tell the institution why it wants it. In addition, the Bank should have some idea about what the costs are of producing that information.
Institutions take any request from the Bank very seriously indeed, and I know from my own experience that, if anything, banks go overboard and provide more information than the Bank in the past technically needed. Although the Bank might imply in a notice that it only wants a back-of-an-envelope calculation, unless told otherwise institutions will provide a lot of information and at considerable expense. This amendment would ensure that there are fewer misunderstandings on that topic.
It is everybody's intention that the City of London and other financial centres in the UK must be kept as competitive as possible and minimise costs. I fear that
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over-enthusiasm in fact-gathering, while understandable and indeed laudable, could impose extra costs on institutions and reduce our competitiveness overall. I beg to move.
Lord McIntosh of Haringey: My answer to Amendment No. 36 is very simple. My answer to Amendment No. 37, however, is rather more complicated, so the Committee will have to forgive me. Amendment No. 36 is strictly unnecessary. The effect of Clause 17 is that the Bank can only request the relevant financial information which it considers necessary or expedient for the purposes of its monetary policy functions and the amendment adds nothing to that.
The noble Earl referred to his disquiet about the word "expedient", and he talked as if "helpful" was a thesaurus synonym. I do not believe a thesaurus has synonyms; it has related words, and if we started to use a thesaurus to interpret the wording in legislation we would rapidly find ourselves in considerable difficulty. I hope the noble Earl is persuaded that Amendment No. 36 would not help his cause.
Amendment No. 37 is more complicated because it refers both to reasons for the need for such information and to an estimation of costs, and these arguments are very different. First, let me make it clear that there is no change here proposed in existing legislation. The review of statistics which was carried out in 1997, and I believe was instigated under the previous government, came to the conclusion that no change was necessary and no change is therefore proposed. Indeed. Clause 17(6) provides that if any change were proposed in the future there would be consultation on such a change before it was imposed, so I can give the noble Lord that assurance.
As to giving reasons why the information is needed, it will be clear why the Bank will need the information, because the Bank will make it clear on the statistical form which is used under which power it is seeking the information. That will give the supplier of information the undertaking, the reasons which are necessary and which are called for in the amendment.
The issue of estimating the cost is much more difficult. Frankly, the amendment is unworkable. It is unreasonable to expect the Bank to estimate for every individual institution—which is what is called for—the costs of providing additional information. How do we know what are the costs of an individual institution, as the amendment would require us to provide?
Behind these amendments, however, is the fundamental concern which the noble Earl has expressed throughout this Committee stage that somehow the costs will increase. We are fully aware of the need to keep the cost of supplying information to the minimum consistent with meeting the information needs of the Bank. The Bank's code of practice for statistics commits the Bank

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to place the minimum load on data suppliers and to keep data suppliers' costs to a minimum. I hope that gives the noble Earl the reassurance that he seeks.
Lord Stewartby: May I just ask the noble Lord one question? Will the Bank be in a position to require this information before the Treasury has made the order referred to in subsection (4)?
Lord McIntosh of Haringey: We have to make the order first, before the Bank can require the information.
The Earl of Home: I thank the noble Lord for his reply to my two amendments. I accept the rather sloppy use of the word "synonym". Even so I retain some residual concerns that overenthusiasm in asking for information could be difficult. In accepting that the Bank will make clear on its statistical form why it is needed without seeing exactly what is the shape of these statistical forms, it is a bit difficult to be able to tell exactly what that is.
Lord McIntosh of Haringey: I can answer that readily. I have already said that there was a review of statistics. No material change was recommended and no change is taking place. The statistical forms will be as they are now.
The Earl of Home: I thank the Minister for that indication. Moving on, I accept the fact that the Bank cannot know what the entire costs of each individual institution producing information such as it might ask for. However, there is a difference between the Bank saying, "Please give us some information but don't take long doing it: it really can be on the back of an envelope", and saying, "We really need a full-blown, totally documented answer to this request". I would hope that the Bank at any stage would have some idea of the importance, and therefore the amount of time and therefore cost, that the institution might be expected to spend on producing any particular piece of information for it. However, on the assurances given on that by the noble Lord, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 37 not moved.]
Clause 17 agreed to.
Clause 18 [Reports]:
5.30 p.m.
Lord Mackay of Ardbrecknish Lord Mackay of Ardbrecknish moved Amendment No. 38:
Page 9, line 5, at end insert—
("() A report under this section shall include references to any constraints experienced by the Monetary Policy Committee in discharging its responsibility under section 13(1) which inhere in other Government economic policies, including the effect of any open market operations undertaken in conjunction with the Government's exchange rate objectives.").
The noble Lord said: When I read the amendment this morning, it suddenly occurred to me that something had gone wrong with somebody's computer as I am not sure that I understand the word "inhere". It may be a good Scots word that my computer has put in for me.
The basis of the amendment is a request or suggestion that when the Monetary Policy Committee reports it should report on any constraints under which it feels it has laboured because of other parts of the Government's economic policy. Professors of economics would probably call that an interaction between fiscal and monetary policy. It seems to me that it might be useful for the Government to know, and for the rest of us to know, whether the Monetary Policy Committee found it difficult to operate within its constraints resulting from other parts of the Government's policy.
I am not sure whether there will be secret communications between the Monetary Policy Committee and the Government or the Treasury. I had the impression that there might be such secret interchanges of view when I listened to the President of the Board of Trade, who was being interviewed this morning. Unfortunately, I did not find a paper and pen quickly enough to take down her words in detail, but I rather felt that she said we would have ways of telling the Monetary Policy Committee what is happening in manufacturing industry.
The whole piece revolved round interviews with people in manufacturing industry who were concerned about the rise in interest rates and its effect on the exchange rate. It is interesting that the person was asked whether he blamed the Bank of England and he said, "No, I don't blame the Bank of England. It has only been given one tool with which to do the job". It will be interesting to see how long that lasts. Even somebody as obviously knowledgeable as that gentleman may some day start to blame the Bank of England and forget that the Chancellor and his fiscal policy played a part in the whole process.
My point is that I had the impression from Mrs. Beckett—though I may have picked it up wrongly and I stand to be corrected—that there will be ways by which the Government can send messages to the Monetary Policy Committee. I am more concerned about whether the Monetary Policy Committee can send messages to the Government. Also, I shall be interested to know whether it does it in secret or whether it does it openly in the report. I should like to think it can he done openly in the report so that Parliament can judge, when it looks at the report, what happened and hold the Government to account for any rises in interest rates that occurred because of problems caused by other parts of the Government's policy. I beg to move.
Lord Peston: Before speaking to Amendment No. 39 in my name and in the name of my noble friend Lord Barnett, let me say that after reading Amendment No. 38 from the noble Lord, Lord Mackay of Ardbrecknish, I had assumed—and I may have misinterpreted the Bill—that what he had in mind was covered by Clause 8(2)(c) which says that the report shall contain,
"an indication of the expected approach to meeting the Bank's objectives under section 11".
Following our debate yesterday on Clause I 1, though subsection (a) seeks "to maintain price stability", there is still the "subject to" hit of subsection (1-) to consider. I do not see how they can wriggle out of not covering that. It means what the noble Lord said it means and I look forward to hearing my noble friend's response.

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Turning to my own amendment, this is one which I take extremely seriously. It is not that I have not taken all the other amendments seriously, but this is at the top of my priorities. The Governor himself, who has recently been reappointed, emphasised transparency in his recent Mais lecture. He said:
"Transparency … can only encourage a better informed public debate and a more sophisticated public understanding of the issues. That in turn can only help to strengthen confidence in the process".
The Governor clearly favours transparency. The former Chief Economist, Mervyn King, who I think is or will be a deputy governor, said only a couple of years ago:
"Central banks can try to accelerate the learning process by teaching by doing, in other words, making clear their own preferences and explaining their own view of how the economy behaves … and the product of this learning should be communicated to the public at large".
Excellent economic work is done in the Bank. The Bank of England's quarterly bulletin contains some astonishingly good articles of the very highest quality. Equally, the inflation report is a document of outstanding merit. I assume that when the Bill becomes law, it will still produce documents of this kind.
My problems start from the inflation report itself. Every time it appears, the inflation report contains the Bank's inflation forecast—in an extremely sophisticated way. I might say, without remotely criticising the Treasury where I used to work as a very young man. The inflation report forecasts are much more sophisticated in form than anything the Treasury produces by way of documentation or forecast. I am not criticising the Bank, but the problem with the inflation report is that it is the only forecast it publishes, unless I have misread parts of it. Any sensible person, on looking at those forecasts, says, "What else is it forecasting? What is it not telling us'?". If you wish to take an intelligent view of what is being said—and that is vital to the whole operation of monetary policy—it is impossible to make sense of that unless you know what else it has in mind.
Let us compare this with what happens in the Fed. Let me remind my noble friend of the Fed's mandate—the so-called Humphrey-Hawkins Act, which I intended to read out yesterday, but forgot. This is an interesting contrast with Clause 11. The Humphrey-Hawkins Act provides that the Fed must,
"maintain long-run growth of the monetary and credit aggregates commensurate with the economy's long-run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates".
Notice, there is no "subject that". They are all on a par. Therefore the Fed, which many would regard as the most successful of the central banks, has a mandate not only to achieve inflation but also to stabilise economic activity.
I read that into the record but the main reason I do so is that, in connection with the Humphrey-Hawkins Act, there is an annual occasion of testimony by Mr. Greenspan to both Houses of Congress on the meeting of these matters. Again, this is not unrelated to certain remarks made yesterday about parliamentary scrutiny of all these matters.
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I now come to my final point, which is the essence of this amendment. The Fed publishes its economic forecast twice a year, precisely to meet the requirements of testimony in connection with the Humphrey-Hawkins Act. In other words, the Americans, with their great emphasis on an open society, just take it for granted that the Fed, doing forecasting, will publish those forecasts. It is a source of sadness to me that somehow we do not take this for granted, but we have to argue for it. Normally, our wish is not granted when we ask for forecasts to be published.
There is an economic theory that says that the only way governments manage economies is by misleading markets—essentially by surprising them, tricking them, and so on. I hope that is not the view of the present Government. My own view is that, although there are models that achieve that end, they are overwhelmingly erroneous. I take the view that, for all sorts of reasons, not least those concerned with credibility, we want to be able to believe that what the Bank is doing is the best for the economy. By "we" I do not just mean a few academic economists, but the public at large.
I am convinced that the Bank should publish its forecasts, but not immediately. I would not die in the last ditch for six weeks; I chose six weeks because it is the standard period which appears in the Bill. I commend the amendment very strongly to the Committee, and I hope I have convinced the Minister that as a minimum he ought to say that this is important and that he will not resist the amendment, even if he cannot yet accept it.
Lord McIntosh of Haringey: I will deal with each of the amendments in turn.
The noble Lord, Lord Mackay of Ardbrecknish, seemed to open the argument for his amendment with a conspiracy theory. He thinks that there may be secret contacts between the Bank and the Treasury. I am not sure whether he approves of that or not. Let me assure him that contacts are not secret. A Treasury representative attends all the Monetary Policy Committee meetings, and that is provided for in Schedule 3, paragraph 13, of the Bill. In any case, I am sure he will acknowledge that the Chancellor has been very transparent about all aspects of government policy, particularly fiscal policy. The introduction of the pre-budget report is evidence of that.
Lord Mackay of Ardbrecknish: I fully appreciate that an official from the Treasury attends. I just wonder what his views are and whether what he has expressed to the Monetary Policy Committee will be contained in one of the paragraphs of the minutes.
Lord McIntosh of Haringey: I think the minutes are the minutes of the Monetary Policy Committee, which he attends as an observer and not as a member. It has to be the minutes of the members of the committee. If I am wrong, I will write to the noble Lord, Lord Mackay.
When I read the amendment of the noble Lord, Lord Mackay of Ardbrecknish, quite apart from the admirable

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word "inhere", I am puzzled by whether he is saying in the amendment what he really thinks. He talks about
"constraints experienced by the Monetary Policy Committee".
I think he is really seeking to get the Monetary Policy Committee to say that it wanted to do the right thing but was stopped from doing so by "this wicked Government who set us these terrible economic policy objectives so we could not do what we intended. It is not our fault; it is Daddy's fault". I am not at all convinced by that.
Even taking the amendment literally, it is not necessary. The inflation report will cover the impact of government policy on developments in inflation and how this affects the Monetary Policy Committee's expected approach to meeting its objectives. This is laid out, as my noble friend Lord Peston pointed out, in Clause 18(2).
The whole point of the framework is to give the Monetary Policy Committee operational autonomy to achieve the target, to enhance credibility and give a long-term commitment to price stability. The Government set both the monetary policy objective and their other economic policy objectives. They certainly have no intention of making them inconsistent.
I turn to Amendment No. 39. I am afraid that my noble friend Lord Peston is not up to date. He is quite right in saying that the Bank of England has for a long time published inflation forecasts, but since November of last year it has also published forecasts of growth. The growth forecasts have probability distributions around them. In other words, they are fan charts, in the same way that inflation forecasts are presented as fan charts. That is a considerable advance on the situation that we had before and I hope goes some way to meeting my noble friend's objectives. Let me, however, recount to him the exchange of views between the Treasury Select Committee and the Bank of England, in the hope that it may reassure him.
The Treasury Select Committee, in its report, asked the Bank to clarify,
"the key assumptions which the MPC makes on foreign interest rates, the exchange rate, and domestic and international growth rates and the Bank's assessment of the likely impact (bearing in mind liming and lags) of interest rate decisions on the real economy".
This was point vi of its conclusions in its report of 23rd October. The Bank replied, and I am sorry to read this out in full but it is appropriate to this amendment:
"For the Inflation Report forecast, the Bank takes its forecast assumptions on overseas interest rates from forward market rates—ie, the market expectations of future rates (see charts 2.9 and 2.10 on page 13 of the November Report). The exchange rate profile, too, is described in the Report (see page 46 of the November Report). We are now publishing the domestic growth rate projection in the report (see page 48 of the November Report). The forecast of international growth is based on IMF and OECD forecasts, although we modify this to reflect information published after those forecasts were prepared. Our assessment of the likely impact of interest rate decisions on the real economy is reflected in the domestic growth projection mentioned above and the surrounding commentary in the Report".
That may not be a full set of economic forecasts. I have no doubt that my noble friend could find more information that he would like to have, but it does at least show that the Bank is responding positively to pressure to make public the basis of its forecasts. I am
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sure that if there is continuing expert pressure, such as that which my noble friend is well capable of exerting, it could respond further. I am not answering for the Bank but I think one can see the direction in which it is working.
5.45 p.m.
Lord Peston: This is a rather more technical point, which I should like to raise. I have the February 1998 Inflation Report in front of me, which contains fan charts of the inflation projection and the GDP projection, as well as a couple of similar charts based on market interest rate expectations. What is there, therefore, is not uninteresting but is not what anyone would call a full set of forecasts.
I want to know what underlies all that. My point is that I cannot see why I should not be able to. There is no serious reason why the Bank. anxious to establish its credibility, would be doing two things where it used to do one. I assume that is what my noble friend means by my being up to date. I have noticed chart 6.1 as one of the other charts I had, but it is not the full set of forecasts. I do not see why it should be up to the Bank whether or not to do it.
To refer back to the Fed, it should be up to Parliament—in this case, particularly as this is the only Bill we have before us—to legislate and to say to the Bank that it ought to do this. We are not requesting this in a threatening way. We are asking for it in the national interest because such transparency, which, as I quoted, is favoured by the Governor, is enormously helpful to the conduct of macro-economic policy.
Having said that, I hope my noble friend will reflect on it. I have not said at any earlier point in these proceedings that this is something I shall raise at Report stage of your Lordships' deliberation, but in this case, it is certainly something I feel noble Lords may wish to look at in more detail. I do not suggest that my noble friend has not been helpful, but I would like to return to the matter and go into it further.
Lord McIntosh of Haringey: I always reflect on things, but perhaps my noble friend would also reflect on what statutory definition he could give to the phrase "a full set" and whether he means the forecasts or the forecasts and the assumptions behind them. As he says, these are technical matters which require thought.
Lord Mackay of Ardbrecknish: I am grateful to the noble Lord for the points he made in response to my amendment. I was trying to tease out a two-way relationship, largely thanks to the interview I heard this morning from Mrs. Beckett. I appreciate that the Treasury official will be at the Monetary Policy Committee and that he will, therefore, tell it what, if any, messages he has to bring from the Government. However, the rest of us are not to know what those messages may be. Usually, all the matters that take place in the committee go into the minutes, including the views of anybody who is attending as an observer. However, perhaps that is the kind of organisation to which I have always belonged. I suppose we may be able to tease out from the rest of the minute what the Treasury official may or may not have said.

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We are clearly not going to be told in the report what we are talking about under Clause 18. However, I am interested and reassured that, in the Minister's view, any problems which the Monetary Policy Committee was having with the rest of the Government's policy and any difficulties these were causing it in keeping to its monetary policy and targets would be covered by subsection (2)(b) which refers to,
"an assessment of the developments in inflation in the economy of the United Kingdom in the period to which the report relates".
With that slight assurance, I will withdraw my amendment.
Amendment, by leave, withdrawn.
[Amendment No. 39 not moved.]
Clause 18 agreed to.
Clause 19 [Reserve powers]:
The Earl of Home The Earl of Home moved Amendment No. 40:
Page 9, line 10, after ("economic") insert ("or financial").
The noble Earl said: This amendment relates to the concerns which other noble Lords and I expressed on Second Reading as regards the words "extreme economic circumstances". We speculated at that time on a variety of possible scenarios which might he covered by this phrase. I simply want to introduce this part of our discussion by referring to one event in the past.
During the Committee stage in another place, the Economic Secretary said that,
"all Honourable Members would hope that the powers in the clause could be used rarely, if at all".
She said further on that occasion:
"We are talking about extreme economic circumstances—a major catastrophe, for example, that affected the nation".
However, when she was asked whether the calling in of the IMF by the previous Labour Government, which immediately sought to influence the course of government policy, would constitute extreme economic circumstance, she replied:
"That is an interesting point".
Surely having to call in the IMF is an extreme economic circumstance, if ever there was one. Short of war, I can hardly think of a worse situation. I would ask the Minister not to sit on the fence like his colleague. I ask him to tell us whether that event, for instance, would have qualified as an extreme economic circumstance. At least then we should have some yardstick by which to judge that phrase.
I have added in the words "or financial" for a good reason. It is not just an excuse for a probing amendment. I returned on Sunday from South-East Asia, where some countries are suffering very badly from a knock-on effect of being grouped with Thailand. While it is true that the economies of some of these countries were over-heating, they were not in severe economic circumstances. However, they were plunged into a considerable financial crisis—much more a financial crisis than an economic one. Indeed, at least one of them is still in great financial difficulties.
A similar circumstance could happen here. Both major parties have worries that the single European currency might not work. If it does not work, it could blow up into a mammoth financial crisis, and it could blow up very quickly if there were to be a flight from the euro by central banks and investors worldwide.
There need be nothing wrong with our economy or indeed necessarily with the economies of most of the other members of the European union, or even all of them. However, such an event would have a dramatic effect on sterling. Surely that would be an extreme circumstance, albeit financial and not economic, and the Government might well have to act with great speed. In proposing this amendment, I am giving the Government greater latitude in how they might respond in these circumstances. I beg to move.
Lord Peston: Before speaking to Amendment No. 41, which is grouped with Amendment No. 40, may I make a comment on Amendment No. 40? I hope the noble Earl will not accuse me of arrogance, but I had assumed the word "economic" includes "financial", and therefore the amendment is not necessary. I was not listening as closely as I should have been when he mentioned the 1976 IMF crisis—I believe I am right in thinking he was referring to that—but it is an interesting question whether, under this heading, that would count as "extreme economic circumstances". I also cannot remember whether the noble Lord, Lord Taverne, was Financial Secretary at the time.
Lord Taverne: It was 1968, when we thought Armageddon was upon us because the Germans would not revalue.
Lord Peston: What I remember most clearly, as an adviser to Ministers in 1976, is that there was no panic at that time. It compared favourably with Black Wednesday and the débâcle of the noble Earl's right honourable friend Mr. Lamont. Although we did not like it at the time, the situation was completely under control, if I remember rightly, even though there were certain bitter pills to be swallowed. But that is just en passant. My noble friend will say whether he agrees with me that "economic" includes "financial", but that is certainly my view.
On my amendment, I do not believe that I am engaged in mischief-making. I have been sitting here wondering whether I am just making a bit of mischief. I have been trying to think to myself what circumstances we could have in mind that would be regarded as "extreme economic circumstances". The ones that would most bother me, but curiously would not be ones on which I would expect the Bank to be overruled, would be if we suddenly plunged into a major depression of the kind that Keynesian economics was invented to remove. However, given more recent developments, the world is quite capable of plunging back into those depressions, but I cannot believe that the Monetary Policy Committee in those circumstances would have to be overruled in order to engage in intelligent monetary policy. My judgment is that it would probably do that without being overruled.

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If I were asked to reply to the question, "What do you mean by extreme economic circumstances?", I am not at all sure what I could answer that would satisfy me. I thought therefore, "My noble friend is on the payroll. It is not my job to answer these questions; he is paid to answer them, and he has a lot of very sophisticated advisers. They would not have allowed the Bill to be drafted unless they knew the answer to the question". Therefore, although I am still a little worried that I am making mischief—which I would never do given my great loyalty to the present Government—I thought I would plod on a little hit just in case my noble friend can enlighten me. I assure him that neither now nor subsequently would I dream of dividing on an issue of this kind.
Lord Taverne: I am a little puzzled by this clause. First, I suspect it will not be a clause that will last very long, because it will probably have to be removed if we join European monetary union. I hope there will not be any dramatic crisis of this kind before then, and therefore I suspect this is rather an academic clause. However, what puzzles me is the fact that it has a reference to the order taking the form of a statutory instrument. Legislation, even in the form of a statutory instrument, is a most inappropriate way of dealing with monetary management by the Treasury. Although this goes rather against the grain of trying to seek greater parliamentary accountability for the Treasury, I would have thought the last thing one wants to do is to have these kinds of directions enshrined in statutory form of one kind or another, which makes the whole process much more rigid. I would much rather see this take the form of a public statement by the Treasury which could be debated, rather than a statutory instrument, which will create all sorts of difficulties.
6 p.m.
Lord McIntosh of Haringey: Let me deal first with Amendment No. 40, and reassure the noble Earl that my noble friend Lord Peston is entirely right. I am advised, at least as far as the Treasury is concerned, that "extreme economic circumstances" in this sense would incorporate extreme financial circumstances. In the example that he gave of the collapse of Asian economies, if that were to cause the collapse of the financial services industry in this country that could be an extreme economic circumstance.
I should be careful about saying that sort of thing, because the nature of extreme economic circumstances is that we cannot predict them and we cannot define them. That is why the Economic Secretary to the Treasury replied, in response to the question about the intervention of the IMF, "That is an interesting question". I suppose I should have said that it is an interesting question. However, there is no doubt that the collapse of the financial services industry in this country would have an economic effect which could produce extreme economic circumstances and could, under certain circumstances, trigger this clause. The noble Lord need have no fear that financial economic circumstances would be ignored for the purposes of Clause 19.
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My noble friend Lord Peston is not making mischief with his amendment. He is technically wrong in the sense that the order that is called for is a legal instrument and is therefore not the right place to set out the factual circumstances which, in the Treasury's view, would justify the making of the order. However, I cannot conceive of any circumstances in which the Government would wish to be, or get away with being, silent about the nature of the extreme circumstances and why it would be in the public interest to give directions.
Turning to the point made by the noble Lord, Lord Taverne, the Government might well do so by introducing the order. The order itself will be very simple. It is not complicated or technical. It seeks parliamentary approval for what is a very important step. Parliament has justifiably been very twitchy recently about making sure that parliamentary approval is sought for major policy changes. I myself have been under a misguided attack for seeming to breach that principle.
I can give my noble friend the assurance that the Government would be keen to make such a statement in the unfortunate event that the use of this power was ever contemplated. I can give the noble Lord, Lord Taverne, the assurance that the way in which that would be done would be by the statement which would accompany the order that is provided for in Clause 19. The two go together.
Lord Peston: Before the noble Earl, Lord Home, says what he is going to do, may I follow on from what the noble Lord, Lord Taverne, said? It was in my notes to raise a similar point and I am glad that he has raised it instead.
Anything like this clause disappears when we go into European monetary union. Again, as somebody who favours that move, my concern is that the Maastricht Treaty contains nothing corresponding to such a clause. However, if economic policy is to evolve in Europe after Maastricht and we are to be part of that—and I put that conditionally despite my own views on what we ought to do—someone, somewhere, will have to have the equivalent of that clause because we cannot believe that Europe will never be hit by an economic and/or financial crisis that would not require an ability to intervene beyond what a central bank might be willing to do.
I want to thank the noble Lord for reminding us that it has to go. I also want to add the point, with which I hope he will agree, that in due course we have to evolve something of that kind in Europe.
The Earl of Home: I think I shall have to look through my old university notes, going back longer than I care to remember. I seem to remember being lectured by Sir Roy Harrod to the effect that the economy and finance were different. If I find that my notes were accurate we can return to the matter on Report.

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I accept that this is a temporary clause and that it is hoped that the economy will not be influenced by some dire disasters from over the water. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 41 not moved.]
The Earl of Home The Earl of Home moved Amendment No. 42:
Page 9, line 17, leave out ("28") and insert ("14").
The noble Earl said: We have talked about "extreme economic circumstances", though I am not quite sure what they are. In moving Amendment No. 42, I shall speak also to Amendments Nos. 43 and 44, which cover the eventuality of a crisis blowing up when Parliament is in recess. As drafted, the government of the day could perfectly properly act rapidly by issuing an order under Clause 19(1). It is anticipated that that order would lapse after 28 days unless Parliament is recalled and approves the order.
We have been told that the circumstances would have to be extreme and the country potentially in dire economic straits. I know and accept that it is difficult to recall Parliament in a great hurry, but as we are here talking about a major emergency and given the gravity of the situation, it must be right that, as soon as it is physically possible to recall Parliament, the Government should explain the reasons for overriding the Monetary Policy Committee's decisions.
As drafted, there is nothing to stop a government issuing a further order followed by yet further orders until such time as Parliament might resume naturally anyway. As drafted, we could have three months' worth of continuing orders between the end of July and the beginning of November. While the amendments do not necessarily stop the issuance of further orders, albeit on a fortnightly basis, they do at least indicate to any government that Parliament really should be recalled if a crisis turns out to be ongoing. It must be right therefore that Parliament should have a chance to debate and consider an order and to make a positive approval of it at the earliest possible opportunity. I beg to move.
Lord McIntosh of Haringey: The first point I should like to make may appear semantic. The Select Committee on Delegated Powers and Deregulation noted that the procedure contained in the Bill was the common emergency procedure, which seems appropriate here. The period within which the order must be approved is also in line with Cabinet Office guidelines as set out in the statutory instrument practice. They say that the period within which such an order must be approved is usually 28 days, though sometimes it is a month or 40 days, and therefore allowing only 14 days is very unusual.
Clause 19(5)says:
"In reckoning the period of 28 days for the purposes of subsection (4), no account shall be taken of any time during which Parliament is dissolved or prorogued or during which either House is adjourned for more than 4 days".
So there need be no fear of anything being different when either House is not sitting.
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The fundamental point is that the order takes immediate effect. It has to be approved within a specific period, but there is no delay in it taking effect, otherwise we could not have such an order. We would have to say, "We are not going to have any extreme economic circumstances during August and September". Bearing in mind that the whole definition of "extreme economic circumstances" is that they are not predictable, that would be tempting fate. So the noble Earl's fears are really unjustified.
The Earl of Home: On the basis of those assurances I accept what the Minister has said: namely, that we shall be informed of these things very rapidly. On the question of period, it is no bad thing every now and then to question what seems to have been set in tablets of stone. I accept, nevertheless, that we have had assurances from the Minister that these points will be taken seriously, and he will no doubt want to bring them before Parliament. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 43 and 44 not moved.].
On Question, Whether Clause 19 shall stand part of the Bill?
Lord Taverne: I do not know whether this is an appropriate time to mention this, but one of my concerns about the Bill is that there is an important role which still has to be played by the Treasury in the control of inflation. One of the problems which faces the Monetary Policy Committee is that it does not have in any way within its brief—and it is quite understandable why not—any question related to the exchange rate. The problem of the exchange rate might conceivably be a cause of great embarrassment to our economic circumstances. For that reason, it is very important that the reserve powers should be maintained because they give the Treasury overriding powers in certain circumstances.
I agree with what the noble Lord, Lord Peston, said earlier. It is a worrying aspect that again there is no brief for the European Central Bank to have any regard to exchange rates in the future. There may have to be some similar plan, although I accept that exchange rates will be much less important to the European monetary union as a whole than it is to individual countries within the monetary union now.
I want to put down a marker here. It is a grave omission from the five economic tests that the Chancellor laid down when he considered the future of economic decisions on whether or not we should join EMU, that he made no reference to the exchange rate. It is the most difficult of all the problems we face because he may well find that we have a high exchange rate at the time when we enter the two-year period of stability relating to the euro if we want to join EMU. Exchange rate policy will be a very important part indeed of the overall management of the economy over the next few years, something to which very little public attention has been paid.
Lord McIntosh of Haringey: I should love to debate these matters with the noble Lord, Lord Taverne.

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Perhaps we can do so when amendments are tabled to the European Communities (Amendment) Bill, the Amsterdam Bill, which starts its Committee stage next week. However, I am restricted from doing that in consideration of this Bill. All I can do is to refer the noble Lord to the debate that we had yesterday about the possibility of adding stable exchange rates to the objectives to the Bank of England in its monetary policy.
Clause 19 agreed to.
Clause 20 agreed to.
Clause 21 [Transfer]:
6.15 p.m.
The Earl of Home The Earl of Home moved Amendment No. 45:
Page 9, line 35, leave out from beginning to ("transferred") and insert ("As soon as the condition mentioned in subsection (2) below is satisfied, the following functions of the Bank shall be").
The noble Earl said: In speaking to Amendment No. 45, I shall speak also to Amendments Nos. 46, 47 and 48.
These amendments are unashamedly probing. In this and future clauses we shall be discussing the Government's intentions as regards the transfer of banking supervision to the proposed Financial Services Authority and the assumption of some other responsibilities by the Bank. I say first that nothing I say in relation to this amendment or any future amendments hereafter should in any way be construed as criticism of the existing management or staff, either of the Bank or the new authority. We are now looking to the future.
The first amendment is designed to ask the Government to define more clearly what happens in the event of the failure of a major British financial institution. My noble friend Lord Stewartby and I raised this point on Second Reading but have not yet received an answer on this point.
The Economic Secretary said in Committee in another place that,
"it is for the Bank to take the lead with respect to developments in its field of responsibility, which includes not just the stability of the monetary system but payment systems and the financial infrastructure".
Please note the words "the financial infrastructure". The collapse of a major British bank would undoubtedly affect the financial infrastructure, and from what she has said, one can only assume that in that circumstance, the Bank would lead any rescue or lifeboat operation.
Further, Mrs. Liddell went on to say:
"That means that the other role for the Financial Services Authority is to take the lead where problems in an institution may pose a wider threat".
These two statements seem to be contradictory, and frankly I do not see that at the moment we know who does what in such a crisis.
These amendments also contain something of an exhortation, for in this Bill we are considering only the transfer of one of the nine disciplines for which the authority will be responsible in due course. I am not so concerned that there will not be a carefully prepared critical path analysis of the steps that have to be taken to
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transfer the Bank's supervisory powers to the authority, although obviously to get that right is vital. However, noble Lords will remember the case in the United States when the transfer of the Thrift Institutions Advisory Council from Arkansas to Dallas led to serious problems and confusion. That problem was probably intensified by geography, as a lot of new staff had to be trained from scratch, which one hopes would not happen in this case. However, I am concerned that this transfer must be seen to be done 110 per cent. correctly, otherwise the unscrupulous may well believe that they can take advantage of any slipshod transfers of other regulatory bodies in future.
I am here obviously talking about the increased potential for fraud. Sadly, deliberate attempts to buck the system, however good one might hope that system might be, sometimes succeed. I do not see any particular point here in debating the rights and wrongs of any incident which has happened in the past. But incidents such as the Barings case do flag up the point that even when a system is working, there are ways and means of bucking it. How much more opportunity will there be if the transfer of the supervisory functions of all the regulatory bodies is not done with the minimum disruption.
There is one further point which concerns me about the transfer. One of the great attractions of the City of London—and as a Scot I must mention Edinburgh as well as there seem to be a lot of Scottish Members on this side of the Committee today—is that the Bank has in the past supervised institutions with a much lighter touch than the authorities in other major European cities which would like to compete with us for financial predominance. The UK has several advantages: geography, language and costs to name but three. However, the way that the Bank has regulated institutions in an almost paternal way has been a great advantage.
Traditionally institutions have come very rapidly to heel following a nod and a wink from the Bank, an action which is sometimes referred to as "the Governor's eyebrows". Such action does immediately stop a bank in its tracks, and potential problems have been nipped in the bud. I am not quite sure from the way this is set out, or indeed from the Memorandum of Understanding, who will be responsible for this type of action. Will the authority be the new institution which gives advance warning, in which case it must grow some eyebrows rather rapidly? The danger is that the authority will act more like auditors, with its powers set in tablets of stone, and some of the attractiveness of the UK will be lost.
In the past the UK has benefited from over-stringent regulation elsewhere, and it is vital to achieve a balance between tight supervision to protect the depositor and no supervision such as we see in tax havens. Assurances from the Minister on these topics would be most welcome, and I beg to move.
Lord McIntosh of Haringey: The noble Earl made an interesting speech about a whole range of issues concerning transfer. He has hardly spoken at all about the amendments and I am somewhat at a loss to know

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how to respond. I shall start by saying something about the transfer of supervisory functions, why we think it is necessary and what stage we reach with this Bill.
We believe that there is a general need to modernise the regulatory structure for financial services. Since the Financial Services Act 1986 was passed, huge changes have taken place. Some of those were anticipated and provided for by the 1986 Act and some occurred since then and led, among other things, to a considerable increase in complexity of the boundaries between different financial institutions. We need, therefore, to bring regulation of banking securities and insurance under one roof in order to secure more effective and efficient regulation.
What we are proposing reflects the way the sector itself is developing, with the traditional boundaries becoming increasingly blurred. The existing system is too complex and too fragmented. There is too much scope for gaps and costly duplication. We are, therefore, proposing reforms aimed at bolstering public and international confidence in the British regulatory system and hence the British financial sector.
I acknowledge that this Bill is only the first legislative step. We are taking the opportunity of this Bill to transfer banking supervision to a new single regulator—the Financial Services Authority. It makes sense to transfer banking supervision as other changes are taking place within the Bank. It will allow the Bank to concentrate on its new range of functions. At the same time, we recognise that this is only the first step in the process. There will be wider regulatory reform to follow in the second Bill, which is now being prepared and which will be published in draft before it is included in any Queen's Speech. The extra time we have in preparing that second Bill gives us more opportunity to consult and to achieve lasting reform. We will be consulting on a draft of this Bill in the course of this summer.
I cannot go any further in responding to the more general points made by the noble Earl. I do, however, have to respond to his amendments, because Amendments Nos. 45 and 48 in particular call for an estimate of the cost to businesses of complying with the regulatory requirements of the authority transferred under this section. We have made such an estimate and have included it in the Financial Memorandum, which is found with the Explanatory and Financial Memorandum of the Bill, and I read that in full:
"The Government's expectation is that the overall cost to business under the new arrangements in respect of the transferred functions and cash ratio deposits will be no greater than under the current arrangements".
I hope, therefore, that I can persuade the noble Lord that Amendments Nos. 45 and 48 are unnecessary.
Amendments Nos. 46 and 47 are also unnecessary. in that it is perfectly obvious, from everything that has gone before in this discussion of the Bill and indeed from its drafting, that the Bank will retain its responsibilities under Parts I and II. All references to transfer in Part III are to that part alone. It is also
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obvious that the authority will assume those powers immediately on transfer. There can be no other interpretation of the Bill as drafted.
Amendment No. 49 asks for no change of substance to the memorandum of understanding unless notice of such change has been given to both Houses of Parliament.
The Earl of Home: I have not yet moved Amendment No. 49.
Lord McIntosh of Haringey: I beg the noble Earl's pardon. I hope I have reassured the noble Earl that his Amendments Nos. 45 to 48 are unnecessary.
Lord Stewartby: There is one point that I wish to raise with the noble Lord for clarification. Although I take comfort from the penultimate paragraph of the Explanatory and Financial Memorandum to which he has referred, that appears to me to refer to the direct costs to business of the expense charged by the authority and the implications of cash ratio deposits.
As I understand Amendment No. 48, my noble friend is talking about the costs of complying with the regulatory requirements, which are generally regarded as being a substantially higher figure. It would be nice to have a reassurance that the pattern of supervision is not to be altered in such a way as to impose even greater costs of compliance on the institutions concerned. For example, Section 39 reports under the existing Banking Act involve an enormous amount of work by the institutions concerned. They have to pay auditors to produce them. I should like an assurance, if the noble Lord can give it to me, that the sentence in this memorandum covers, so far as a reasonable assessment can be made, the actual costs which the institutions themselves incur in complying with their responsibilities.
Lord McIntosh of Haringey: The Financial Memorandum means what it states:
"The Government's expectation is that the overall cost to business under the new arrangements in respect of the transferred functions and cash ratio deposits will he no greater than under the current arrangements".
I can give the assurance that the noble Lord seeks in the sense that the Bank does not create any new regulatory requirements. It merely transfers the existing supervisory function to the Financial Services Authority. Of course we cannot anticipate how efficient and cost-effective individual institutions are in the way in which they comply with regulations. What they need is the assurance I have just given that there are no regulatory requirements.
I can also give the noble Lord the assurance that the Bill places on the FSA a legal requirement to consult on its fees, as on any other rules that it makes for the financial services industry, on the basis of an analysis of costs and benefits.
The Earl of Home: I thank the noble Lord for kindly saying that I made an interesting speech which had nothing to do with the regulations. I was advised that that was the best way of bringing the points I was

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making into the debate, although I repeat what I said at the beginning that it was an unashamedly probing set of amendments.
I accept what the Minister has said about the costs being referred to in the Financial Memorandum. We are getting very close to the time when, in terms of pounds and pence, we ought to have some idea of what the costs at least of this transfer should be. However, for the time being we will leave it at that. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 46 to 48 not moved.]
The Earl of Home The Earl of Home moved Amendment No. 49:
Page 10, line 7, at end insert—
("() The Treasury shall ensure that no change of substance is made to the Memorandum of Understanding of June 1997 between the Treasury, the Bank and the Authority, unless notice of such change has been laid before both Houses of Parliament.").
The noble Earl said: The Bill sets out the objectives of the authority in broad outline, and the memorandum of understanding between the Treasury and the Bank and the authority puts flesh on to that skeleton. There are parts of the MOU that I should very much like to see incorporated on the face of the Bill. Viewed in isolation, the Bill certainly does not meet the Government's own objectives, one of which is transparency. That word occurs, quite rightly, very early on in the MOU.
The MOU is a very well thought out document and I congratulate those involved in its drafting. It sets out in detail more of the objectives behind the Government's thinking, which is also welcome. A great deal of what we have been talking about and shall be discussing is in the MOU, not on the face of the Bill, and it seems desirable that there should be some mechanism whereby the MOU should be tied into the Bill in one form or another.
Any government can change direction quite radically in their thinking and the application of their stance towards financial institutions. They can do so simply by instructing the three signatories to re-write the MOU. It has, after all, total control over all these three bodies. Surely it is right that Parliament should be made aware of any significant changes anticipated to the MOU. By including the words "of substance" in my amendment, I acknowledge that from time to time it may be desirable to make some changes to it. I am even giving the Government the right to decide what is, or is not, of substance. The MOU is, however, such a fundamental part of this Bill that the formal link between the two should be worked out in one form or another. I am not sure that my wording is necessarily the most appropriate way of doing this, but I am concerned more with the principle. I beg to move.
6.30 p.m.
Lord McIntosh of Haringey: We do not need to be too concerned with the detailed wording. The noble Earl has made a very helpful speech and he is quite right to say that the memorandum of understanding is important to the understanding of this part of the Bill. In his
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position, in Opposition, I would have done very much the same. I used to do much worse things—I would have included it as a schedule on the face of the Bill and then amended it in order to have it discussed. The noble Earl is more gentlemanly than I was.
The memorandum of understanding is a flexible working document rather than a legal instrument. Although we do not envisage changing it, if it were necessary to change it, and the Treasury, the Bank of England and the FSA needed to change the way in which they work, it is important that they should be able to agree to do so and to put the new arrangements into immediate effect.
The noble Earl has recognised that point by including the phrase "of substance" in his amendment. Certainly, if the arrangements have to change, and in particular, if substantial changes have to be made, the Government would publish the revised memorandum of understanding. I am quite sure that the Opposition would seek an opportunity to have the matter debated in Parliament if it were of sufficient importance. Of course, I cannot promise that because it would be a matter for the usual channels, but it would seem an entirely proper request.
The Earl of Home: The noble Lord says that if there were any changes the amended document would be published. That goes a long way to meeting my point. I am grateful to him for that assurance and beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 21 agreed to.
Clause 22 agreed to.
Lord Eatwell Lord Eatwell moved Amendment No. 50:
After Clause 22, insert the following new clause—
LISTED MONEY MARKET INSTITUTIONS: INCLUSION ON THE LIST
(" . In section 43 of the Financial Services Act 1986, after subsection (1 there is inserted—
"(1) The Authority shall have rules and practices to secure that person included on the list referred to in this section is fit and proper to be included on that list.".").
The noble Lord said: Before moving this amendment, and also speaking to Amendment No. 52 which is closely associated with it and Amendment No. 51, I would like to apologise for not having had the opportunity to attend the Second Reading of the Bill due to teaching obligations in Cambridge on that day, and also for not having been able to attend yesterday's proceedings for the same reason. I have, however, studied noble Lords' speeches in Hansard and will refer to them in my remarks.
Let me say at the outset that I totally support the Government's objectives of placing more financial regulation, including the regulation of institutions previously supervised by the Bank of England, under the control of the new Financial Services Authority. This is the right policy and it is not before time.
The amendments I have proposed to the Bill before us will assist the Government in ensuring that this policy is not just a success in the end but that it is a success in the difficult transition period to which the noble Lord, Lord McIntosh, referred a few moments ago.
As the Committee may be aware, I am an independent member of the board of the Securities and Futures Authority and, while much of what I have to say this afternoon is motivated by my experiences in that position, my remarks are made and my amendments put down in a purely personal capacity.
Before outlining the argument for these particular amendments, I wish to comment on the underlying rationale for moving both Amendments Nos. 50 and 52, and Amendment No. 51, with which I will deal afterwards. All three amendments refer to Section 43 of the Financial Services Act. It is that section of the Act which resulted in the listing of firms which, being so listed, have up to now been regulated by the Bank of England. Listed firms have been regulated by the Bank both as regards their banking business and, in almost all cases, as regards their investment business as well.
As the Committee will be further aware, the Bill in Clause 21 transfers all supervisory activities, including the listing of firms, from the Bank of England to the Financial Services Authority.
My amendments are an attempt to enhance regulatory coherence among listed and unlisted firms with respect to all investment business (I am not concerned with banking business at all) during the period commonly known as N1 to N2; that is, from the enactment of this Bill in early summer of this year to the enactment of the more general financial services reform Bill, to which my noble friend referred, in about two years' time.
These amendments will ensure that the listing of all institutions under Section 43 follows criteria which are more nearly in line with the registration procedures used to regulate firms conducting identical investment business which are currently regulated by the SFA. Accordingly, the investment business conducted by listed firms will be regulated in a manner more nearly akin to the manner of regulation of investment business by unlisted firms.
The criteria I propose will replace the essentially informal procedures used up to now by the Bank of England in listing, and which are indeed preserved, regrettably, in the Bill. Those informal procedures may have been appropriate for a regulatory authority which is also responsible for the conduct of monetary policy and the maintenance of liquidity; they are totally inappropriate to the new FSA.
It might be suggested that all this is unnecessary. After all, in a few months' time a new Bill to reform the regulation of the financial services industry will be introduced, and when that Bill becomes law, the whole process of listing firms under Section 43 will disappear and be replaced by new listing criteria which are the same for all investment business. That is, of course, quite true.
However, Part III of the Bill already provides for important interim measures to cover the period between 'the transfer of the Bank of England's regulatory powers to the FSA and the transfer of the powers of the other SROs, including the SFA, to the FSA—I am sorry about the alphabet soup which I am afraid bedevils discussion of these financial regulations.
Everyone acknowledges that this interim period is a dangerous period, and that it is vital that during it the regulatory structure should be as competent, as thorough and as coherent as it is possible to make it. My amendments, deriving as they do from my experience on the board of a financial services regulator, are designed to achieve those goals of competence, thorough regulation and coherence.
I should be grateful if the Committee would consider the impact of three facts: first, the transfer of the responsibility for Bank of England regulated institutions to the FSA will mean that the investment business of the Section 43 listed firms will be the responsibility of the FSA. By the Bill, FSA staff will regulate listed firms according to Bank of England rules and procedures.
Secondly, according to the working agreement between the Securities and Futures Authority and the FSA, virtually all the staff of the SFA will be transferred to the FSA in June at the same time as Bank of England staff are transferred. Their services will then be contracted back to the SFA in order for it to maintain its statutory duties under the Financial Services Act—up to such time as the new financial services reform Bill is enacted and becomes operative in a couple of years time. By this Bill, FSA staff will regulate SFA firms according to SFA rules and procedures.
Thirdly, the FSA is organised along functional lines—supervision, enforcement, authorisation and so on—and not along old type of business lines. It is after all the recognition of Her Majesty's Government that the boundaries between types of financial business are becoming blurred to the point of irrelevance that is the rationale of the creation of the FSA in the first place.
Let us take those three facts together: first, under this Bill SFA staff will regulate listed firms according to Bank of England rules; secondly, FSA staff will regulate SFA firms according to SFA rules and procedures; and the third point concerns the functional organisation of the FSA. What do these three things amount to? They mean that the same staff will be responsible for the authorisation, enforcement and supervision of the same sort of investment activities by listed firms and by non-listed firms. And yet the listing criteria, and hence the regulatory procedures, currently employed by the Bank of England are quite different from those applied by the SFA—but not always.
In the interim period, the same people will be regulating the same sort of business but in quite different ways. The difference is due entirely to the accident of history as to whether firms were regulated by the Bank of England or were regulated by the Securities and Futures Authority.
This is, I believe, not only incoherent but confusing and even dangerous. It is exactly the sort of regulatory incoherence which can be exploited by wrong-doers. It is exactly the sort of regulatory incoherence that is the great danger facing the UK system of financial supervision in the interim between N1 and N2.
Of course, there is no way in which the three amendments can result in a complete harmonisation of regulatory rules and procedures for all investment

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businesses. There is no way we can achieve total coherence. That will require the next highly complex Bill, the draft of which we will see this summer.
But the two areas I shall be covering this evening, the criteria by which firms and individuals are deemed fit and proper to conduct investment business and the enforcement of conduct of business rules, go to the heart of the matter. Incorporating these amendments will remove a large proportion of the ambiguity and incoherence which. I am afraid, is the inevitable product of the gap between N1 and N2 if these amendments are not accepted by the Government.
I make one final point before I proceed. My amendments embody some of the practical rules which have been developed since 1986 as an expression of the so-called SIB principles. I have presumed—and I should be grateful if the noble Lord, Lord McIntosh of Haringey, would confirm that this is the case—that since the FSA is just the SIB in modern guise, the SIB principles still hold and will apply to institutions previously regulated by the Bank of England once this Bill is enacted.
I now turn to the specific character of the amendments. First, Amendments Nos. 50 and 52 deal with the definition of firms and individuals who will be fit and proper. These amendments are offered in support of my noble friend Lord McIntosh, who on Second Reading said:
"The key to the SFA's regulatory role will be the authorisation of those carrying on business in the relevant areas. It is consistent with having a single regulator that there should be a single authorisation requirement and a single process for considering applications".—[Official Report, 13/2/98: col. 1387.]
The Bill before us does not achieve my noble friend's objectives; my amendments do.
These amendments require that clear rules be formulated for establishing that institutions and the individuals comprising those institutions should be fit and proper to conduct investment business. They achieve coherence in the characterisation of what is fit and proper by requiring that rules which stem from the SIB principles should be applied to all investment businesses regulated by the FSA employees between N1 and N2. It is interesting that under Section 43 of the Financial Services Act there are at present no specific criteria for how firms are listed; that is, there are no specific criteria as to how the Bank of England should allow firms to join the list of firms which it supervises. It is essentially an informal procedure.
Amendment No. 50 replaces that informality by requiring that all institutions conducting investment business should, to be listed, be deemed fit and proper to conduct an investment business, according to the rules and practices of the Financial Services Authority; that is, according to the specific criteria which would and should be expected of a modern regulator. The listing procedure will no longer be informal. Amendment No. 50 will require that the procedure is clearly specified in rules and practices and is common for all institutions conducting investment business.
Amendment No. 52 requires that in order to be included on the list each institution must satisfy itself that its employees are fit and proper persons to carry out
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their designated functions, and that, for such positions as the authority designates, persons appointed must be approved by the authority. Once again the procedures in place in the Bank of England are essentially informal. The Bank certainly requires that all senior management of listed firms should be fit and proper, but exactly how fitness and propriety are defined is not embodied in any set of formal rules. Amendment No. 52 ensures that the same rules will apply to all investment business.
I should make clear to the committee that Amendment No. 52 amounts to requiring the registration of individuals as fit and proper, something which the Bank of England has consistently opposed.
It does not, however, amount to "kite-marking" of individuals. Section 43(2C)(a) of the Financial Services Act makes it clear that it is the responsibility of firms to satisfy themselves that individuals are fit and proper, and Section 43(2C)(b) makes it clear that an individual's registration is related to his or her post within a specific institution. In other words, the registration cannot be transferred from one firm to another; it is not a registration of an individual but registration of an individual within a specific post.
I should also make clear that by these amendments the burden of proof will be on the individual and on the firm which employs that individual. That is the case for investment businesses which are presently regulated by the SFA, and I believe that is entirely appropriate.
Amendments Nos. 50 and 52 replace the informality of Bank of England procedures with the more formal rules required of a modern regulator. They will ensure that coherent rules and practices will define which firms and which individuals are fit and proper for all investment business, not just some investment business. If these amendments are accepted, the same FSA staff will be regulating the same sort of business in the same way.
I turn now to Amendment No. 51, which applies to another dimension of the SIB principles, as developed in SFA rules, extending that to all investment business including that of firms listed under Section 43. In this case what is required is that the authority should ensure that listed firms obey conduct of business rules appropriate to the kind of investor it is dealing with and appropriate to the costs involved.
Once again I believe it is vital, especially in the period between N1 and N2, that Bank of England informality be replaced with modern rules. As regards the conduct of business, the Bank of England seeks to regulate conduct of business by means of its code of conduct set out in the so-called grey book; but the terms of the code are not rules. The code defines best practice, whereas rules demand a minimum satisfactory performance. Breaking a code does not automatically trigger disciplinary procedures. Breaking a rule does automatically trigger disciplinary procedures.
Conduct of business regulation is the fundamental protection which the supervisory system offers to individuals. It ensures that in what may be very complex areas, firms have the responsibility to provide

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appropriate information to ensure best execution and in all ways to deal with investment business in an appropriate manner.
In a modern regulatory system, it is surely imperative that what is appropriate should be embodied in clear rules, and of course that those rules are attuned to the characteristics of the counterparty, as set out in my amendment.
It would surely be a nonsense if investment business conducted by listed firms—that is, those previously supervised by the Bank of England—was subject only to a best practice code, while identical investment business conducted by unlisted firms was subject to clearly defined conduct of business rules. Amendment No. 51 ensures that conduct of business regulation will be formal, clear and coherent rather than informal, unclear and incoherent.
These three amendments provide a framework of coherence between N1 and N2 which will ensure that the dangers, of which I spoke earlier and to which the Minister referred in introducing this section of the Bill, will be at least mitigated and substantially diminished. I beg to move.
Lord McIntosh of Haringey: My noble friend raised very serious matters and he raised them as appropriate in a serious way which reflects his expertise in the field and his wish to enhance the regulatory system. I am grateful to him for all of that. I thought at one stage that I would simply be able to answer by saying that he is trying to hurry us on and to implement more of the second Bill in the Bill than we had intended. Having listened intently to what he said, however, I rather think he is going further than that and is saying that there are new contradictions which will be introduced by the transfer which is proposed at this time. I shall, therefore, have to reflect that in my response.
Let me make it clear, first, that his amendments, which are in Section 43 of the 1986 Act, refer to wholesale money market institutions. He is quite right in saying that it has been the principle on which that Act operated that there should be a somewhat looser system when we are dealing with wholesale money market institutions whose clients are themselves in the financial services industry rather than members of the general public. He reflected that on a number of occasions in what he said. He is quite right in saying that the Bill simply transfers the existing regime—that is the somewhat looser regime for supervising money market institutions—from the Bank to the financial services industry, and that more general reform of the regulatory system will follow in the second Bill.
Let me deal with the content of his amendments and then think aloud about how we are going to tackle the more complex points which he made in his speech. First, in relation to Amendment No. 50, under the general reform that will be the subject of our second Bill, money market institutions will be subject to a general fit and proper requirement as will all other authorised persons. It will he an explicit authorisation criterion applicable
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to money market institutions as well as to retail banks, securities houses, insurance companies and investment advisers.
In the meantime, the money market institutions must meet certain conditions for admission to the list under Section 43. Those conditions are: that its financial position is sound; that its controllers, directors, managers and, where relevant. its partners are suitable and do not prejudice the sound management of the institution; that its ownership structure does not give rise to unacceptable conflicts or is otherwise a source of potential weakness; and that its systems, controls and record-keeping are adequate.
Those conditions are clearly central to the general fit and proper concept as applied elsewhere in the financial services sector. The listed institutions are required to abide by the standards and principles set out in the London Code of Conduct. The conditions are set by the Bank and will in future be set by the FSA and approved by the Treasury. If there were any deficiencies in them—and my noble friend clearly indicated that he believes there are—they could be rectified without the need. for any amendment to the Bill. If my noble friend has any concerns about the listing criteria and he has raised those concerns in his speech, I shall be happy to discuss them with him before Report.
I should note that most of the Section 43 firms are banks or members of the Financial Services Authority in respect of other business they carry on and so will be subject to the fit and proper test as applied by the FSA or the SFA.
I will take the amendments in the order in which my noble friend dealt with them. Turning to Amendment No. 52, in keeping with our broad objective of ensuring that the FSA has the powers it needs, we are considering what powers are needed to ensure that individuals employed in the financial services industry meet high standards of competence and integrity.
Until we have resolved the general approach, though—this is why I know that my noble friend is trying to hurry us up—we are reluctant to go down the route in the Bill for wholesale market institutions such as those listed under Section 43. These are firms which are granted the privilege of a lighter touch regime on the basis that they are dealing only with other expert players in the wholesale markets, not with retail customers. It would be odd to have a statutory power in that area alone.
The approach that we adopt will need to take into account the full range of authorised persons for which the FSA will be responsible. It may be that some statutory power along the lines suggested by my noble friend is the right approach, but that needs to be considered as part of the wider system.
I turn to Amendment No. 51. Again, we are entirely in sympathy with my noble friend's intention. The FSA will have rule-making powers. In exercising those powers the FSA will in all cases be informed by its overall statutory objectives, including the protection of consumers and the duty to ensure the costs imposed by regulation are proportionate to its benefits. However, both the listing conditions and the London code of

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conduct under which these money market institutions are required to operate have been drawn up with professionalism and integrity at their heart. The aim is to ensure that wholesale markets deliver the confidence that is needed for the benefit of investors and consumers more widely.
I am conscious that I have not answered the point that my noble friend made, which was to some extent central to his argument that the very fact of transfer brings the possibility of conflict and the possibility of the same people operating under different rules or under the same rules for different people. Rather than attempt to answer off the cuff two points which were not self-evident in the way the amendments were drafted, although they are clear in the way that he has spoken to them, much the best thing is for me to seek an opportunity to talk to him in detail before the next stage of the Bill and to undertake to take very seriously the matters that he has raised.
I do not think it would be possible for me to have anticipated the full rigour of the arguments that my noble friend has made. I apologise to him for that. However, I assure him that we shall seek every opportunity to ensure that the issues that he has raised are addressed.
Lord Eatwell: I am enormously grateful to my noble friend for his reply. I apologise if I placed him in a difficult position by the form of arguments that I put forward. I believe that we are facing a very serious problem of regulatory incoherence when we have the same sort of business being regulated by the same people but according to different rules.
I would say, however, that much of his answer hung on the argument that what we were dealing with was purely wholesale money market institutions. He may at this point have been misadvised or be labouring under a misconception. Under Part II of Schedule 5 to the Financial Services Act, it is clear that where the monetary limits on transactions are defined, which come under the terms of actions by investment business by listed firms, those monetary limits can be as low as £100,000 and are typically £500,000. Given the forms of gearing typically associated with transactions in money markets these days, those could easily be transactions made by individuals. There is no reason to suppose that they are just transactions made by large financial institutions. They could be individuals acting as a one-person firm. These are therefore not surely wholesale business transactions defined with respect to large banks or institutions dealing with each other but transactions which could involve individuals.
I hope I made the argument clear with respect to the definition of fit and proper. It is very important that, in particular, the notion of the registration of individuals as fit and proper should be introduced as soon as possible and should not wait until N2. It is an absolutely vital component of the supervisory apparatus in modern financial services and we need it as soon as possible to be applied throughout investment business in the British financial services sector.
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However, I take into account the very kind offers which my noble friend has made to discuss these propositions and I very much look forward to discussing them with him. On that basis, I give notice that I am likely to return to these issues at Report. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 51 and 52 not moved.]
Schedule 4 agreed to.
Clause 23 agreed to.
Schedule 5 [Transfer of functions: consequential amendments]:
7 p.m.
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendments Nos. 53 to 56:
Page 29, line 22, leave out ("paragraphs 31 and") and insert ("paragraph".).
Page 30, line 9, leave out ("48(4)(a) and 52(6) (in both places)") and insert ("and 48(4)(a)").
Page 30, line 10, at end insert—
("(2A) In section 52(6)—

(a) in paragraph (a), the words "by the Bank of England" are omitted, and

(b) for "with the Bank of England" there is substituted "with the Financial Services Authority".").

Page 30, line 15, at end insert—
("Building Societies Act 1997 (c. 32)
.—(1) Section 32 of the Building Societies Act 1997 is amended as follows.
(2) In subsection (1), for "Bank" there is substituted "Authority".
(3) In subsection (3)(a), for "Governor of the Bank" there is substituted "Chairman of the Authority".
(4) In subsection (7), for the definition of "the Bank" there is substituted—
""the Authority" means the Financial Services Authority."").
The noble Lord said: In moving Amendment No. 53 I would like to move also Amendments Nos. 54, 55, 56 and speak to Amendment No. 73, although not necessarily in that order.
Amendment No. 53 is a technical amendment to tidy up some of the consequential amendments and repeals contained in Schedules 5 and 9 to the Bill. As currently drafted, the Bill both substitutes a reference to the Bank and revokes that reference. This is clearly inconsistent, and the amendment I have tabled removes this inconsistency.
Amendments Nos. 54, 55 and 73 are technical amendments. Paragraph 41 of Schedule 5 makes consequential amendments to the Court and Legal Services Act 1990. Subparagraph (2) deletes the reference to the Bank of England in various sections of that Act and in Section 52(6) of the 1990 Act two references to the Bank of England are deleted. These three amendments ensure that the consequential changes to the Courts and Legal Services Act are accurate.
Finally, Amendment No. 56 is a technical amendment required to make a consequential amendment to the Building Societies Act 1997. It arises because of the transfer of banking supervision to the FSA. The Building Societies Act in Section 32 makes provision

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for a future amalgamation of the Building Societies Investor Protection Board with the Deposit Protection Board. Provision is made for consulting the Building Societies Commission and the Bank before making any order affecting this amalgamation and for the Governor of the Bank to appoint ordinary members of the new board. Following the transfer of supervision, the comparable supervisory body for banks will be the FSA, so it will no longer be appropriate for the Bank to be consulted.
The amendments make the necessary change to allow the authority to be consulted for the Bank, rather than the Bank, and for the chairman of the FSA to appoint ordinary members of the new board. I beg to move.
On Question, amendments agreed to.
Schedule 5, as amended, agreed to.
Clause 24 agreed to.
Clause 25 [Liability]:
The Earl of Home The Earl of Home moved Amendment No. 57:
Page 10, line 37, at end insert ("or negligent"").
The noble Earl said: Clause 25 refers to the immunities to be enjoyed by the authority. Those previously working on supervision within the Bank enjoyed Crown status, which was understandable particularly at the more senior levels in the Bank. Some people were above the Chinese wall, in that they were involved not just in supervision but also, in those days, in advice on monetary policy. That status will, as I understand it, be removed for those being transferred and indeed for new recruits to the authority. Those types of people will now have their immunities enshrined in statute. By and large, in the interests of transparency, I support this change.
The members of the authority are now a combination of policemen, auditors and agony aunts. As far as I know, those three categories of professionals are not immune from action for negligence. The Government have repeatedly stressed that they are looking for maximum co-operation in all parties affected by this legislation. Institutions and individuals would be more willing to volunteer information if they knew that there was some redress if information leaked because a member of the authority negligently left a document in a train or other public place. Other aspects of disclosure of information will be discussed later. I am talking here about negligent disclosure of information. There is no reason why members of the authority should not be subject to the same disciplines as the rest of us in this instance. I beg to move.
Lord McIntosh of Haringey: I am glad to hear that the noble Earl supports the change in general. It is a helpful context in which to consider this amendment. We take the view that it is essential, if the regulator is to be able to operate effectively, that he is not constantly constrained by the fear of speculative or constructive litigation. It is right for people to be able to seek damages if it can be shown that the regulator acted in good faith. But we want a regulator who is free to act as necessary. It is important that the FSA is not too timorous to be effective. Narrowing immunity, which
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would be the effect of the amendment, would result in the FSA being unduly constrained by the fear of speculative or obstructive litigation.
Alternatively, the FSA might be encouraged to collect more information than it would otherwise need, or to set tougher minimum standards, or to take longer over decisions than otherwise. That would drive up the costs for the businesses being regulated. The existing regulation provides immunities for the FSA and the Bank so long as they act in good faith.
The clause simply extends the same immunity to the FSA's new functions in relation to money market institutions. The wording follows exactly that of Section 1(4) of the Banking Act, which will apply to the Financial Services Authority.
There is no change imposed here. The noble Earl is in fact proposing more intrusive regulation for wholesale market institutions, which have hitherto benefited from a separate, lighter touch regime. With due respect to my noble friend Lord Eatwell, who is clearly concerned about this lighter touch regime, it is out of character for the Opposition to be seeking to make the regime more intrusive than proposed here. On that basis, I hope that the noble Earl will withdraw his amendment.
The Earl of Home: I am not trying to restrict any information; I am trying to stop negligence and encourage what is called in the City, a "clean desk" policy, which means that they are negligent in letting bits of paper fly around the place and ought to be accountable for gross acts of negligence such as leaving a bit of paper on a train. Not being a lawyer. I may have come up with the wrong wording to achieve the objective which I required. It was not my intention to put the fear of God into the regulators in thinking that they would sued. The objective was to stop ordinary negligence. We had better return to this on Report when I have taken more legal advice.
Lord McIntosh of Haringey: Before the noble Earl withdraws the amendment, I should like to say that, in the light of the debate we have had on my noble friend's amendment, I would like to reflect on his amendment as well.
The Earl of Home: I am most grateful to the Minister for saying that he will reflect on it. If he can let me know before Report stage it may save a lot of time if we can solve this problem along the lines on which I would like it to be solved. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 25 agreed to.
Clause 26 [Power to charge fees]:
The Earl of Home The Earl of Home moved Amendment No. 58:
Page 11, line 16, leave out ("an") and insert ("a proportionate").
The noble Earl said: In speaking to this amendment I shall also speak to Amendments No. 59 to 62. The FSA consultative document, to which I have referred many times, states,
"the charge should be proportionate to some measure of the size of the hank and the nature and extent of its business".

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I do not dissent from that. It is helpful in that it recognises the principles. The Economic Secretary said,
"The FSA will have a statutory duty … to be efficient and economic to ensure that costs … and restrictions on firms are proportional to the benefits of supervision".
The first four amendments simply ask the Government to confirm the principle of proportionality on the face of the Bill. They have been consistent in saying that they want this anyway, and so I hope it should not create any particular problem.
Amendment No. 62 simply asks the Government to confirm their intentions following on from the consultation paper. Given that these proposals are of an interim nature and will last only a couple of years, I believe that the financial sector will go along with them, whilst no doubt making strong representations on the future structure during the consultation process on Stage 2.
I would here beg the Minister to ensure that this consultation process is done thoroughly but also speedily. We know that at any one time there are probably dozens of foreign banks and institutions wondering whether to locate here or whether to go elsewhere. Overhead costs are a vital element in deciding where to locate, and the supervisory costs within those overheads, being a significant proportion, could influence their thinking.
Also, several institutions are currently regulated by more than one body. As far as possible, institutions need to know the totality of costs, and particularly those considering coming here rather than those already here would be more than interested to know the Government's thinking on this. Again, to the degree that they can let us know what those costs would be, institutions would be grateful.
I make no apology for saying yet again that we are under the threat of competition from Frankfurt, Paris and other European centres, and in particular institutions which would now only be regulated by one or two bodies are concerned that the infrastructural costs of the authority might place undue strain on them.
Finally, I should be grateful if the noble Lord could also enlighten me on one further point. The consultation paper says the transition costs will be recovered over "a few years related to the annual fee". We all know that it is expensive to set up a new big group and the FSA will need departments such as human resources and internal audit, which individual groups to date have not needed. Can the Government yet tell us over what period the start-up and transition costs will be recovered? I beg to move.
7.15 p.m.
Lord McIntosh of Haringey: These amendments cover ground that was available for discussion when we were considering Clause 21. Because I was being economical in my speeches, I possibly did not make some of the points that I could have made then. I want to reassure the noble Earl by saying, first of all, that the FSA is currently consulting on banking supervision fees for next year. I take his point that the consultation should be as quick as possible in order to reassure banks
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and, particularly foreign banks. Also, the FSA has published a plan and a budget for 1998–99 which shows a reduction in budgeted costs for banking supervision of £6 million, from £73 million to £67 million. That will influence the charges that are made by the FSA to the banks being supervised.
Strictly speaking, the amendments are not entirely clear. The noble Earl says that he wants the proportionality to be the size of the institutions. There are various ways of measuring the size of institutions. One could also argue that proportionality should be to the benefit of regulation. The FSA is clear about the need to ensure that the costs that it imposes, through its rules as well as directly through its fees, are proportionate to the benefits of regulations. Proportionality of the regulatory burden is the principle which underlies the wholesale market regimes to which Clause 26 refers.
The FSA will be subject to statutory objectives, including one to be efficient and economic, and to impose only those costs on the industry as are proportionate to the benefits of regulation.
The second Bill, a draft of which will be published this summer, will provide that when the FSA consult on fees, it will have to publish details of its proposed budget as part of the same exercise. This will give the industry a much better opportunity to participate in the setting of the FSA's priorities.
I well appreciate the concerns which underlie the noble Earl's amendment. I hope that what I have said to him about what will happen next year and what is proposed for the second Bill will alleviate at least some of his concerns.
The Earl of Home: I thank the Minister for that and I am grateful to him for confirming that the consultation process will be as speedy as it reasonably can be. Again, we are talking about an interim phase. The noble Lord has confirmed that the Government are promoting the concept of proportionality. Obviously, one can make proportionality subject to a great many things, I accept that. We have to be very careful that a smaller institution, which might be regulated by only one or two people, does not carry the same burden as the enormous institution. We shall be watching how those costs turn out over the period between now and the next Bill.
I thank the noble Lord for his assurances and beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 59 to 61 not moved.]
Clause 26 agreed to.
Schedule 6 [Banking supervision fees]:
[Amendment No. 62 not moved.]
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 63:
Page 40, leave out lines 2 to 4.
The noble Lord said: Schedule 6 (Banking supervision fees) defines "overseas institution" and "representative office". However, these terms have no

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operative effect and consequently there is no need to define them. The amendment removes their definitions from the Bill. I beg to move.
On Question, amendment agreed to.
Schedule 6, as amended, agreed to.
Clause 27 agreed to.
Clause 28 [Board of Banking Supervision]:
Lord Eatwell Lord Eatwell moved Amendment No. 64:
Page 12, line 9, leave out (", who shall chair the Board.").
The noble Lord said: I beg to move Amendment No. 64, and I will speak to Amendment No. 65.
The amendments ensure that one of the bitter lessons learned during the Barings affair is not forgotten: namely, that supervisory authorities should themselves be subject to assessment and examination by an authority which is not only independent but is seen to be independent.
Noble Lords will remember that the investigation into the conduct of the supervisory authorities at the Bank of England with respect to the Barings affair was conducted by the Board of Banking Supervision (the board referred to in Clause 28). They will remember also that the Board of Banking Supervision has the statutory duty under the Banking Act 1987 to advise the Governor of the Bank on the exercise of his supervisory functions.
Under the Banking Act, the board consists of three ex officio members, the Governor, the deputy governor and the executive director responsible for regulation, plus six independent members appointed jointly by the Governor of the Bank and the Chancellor of the Exchequer. Crucially, the board is chaired by the Governor.
Noble Lords will recognise that essentially the same structure is contained in Clause 28, including the provision that the executive head of the institution responsible for supervision should chair the committee responsible for investigating whether that supervision is conducted in a satisfactory manner. It is this provision for chairing the board that amendments seek to change.
Noble Lords will certainly remember that at the time of the public of the report of the Board of Banking Supervision into the Barings affair the value of that report was called into question both in your Lordships' House and in another place and in the financial press, when it was revealed that the conclusions had been drafted at meetings of the board chaired by the Governor and Mr. Quinn, who was at the time the executive director responsible for supervision.
The noble Lord, Lord Ezra, noted on 18th July 1995 that the conclusions of the report did not seem to follow from the analysis which had been prepared by the independent members alone. He wondered whether the difference was attributable to the person who chaired the meetings at which the conclusions were drafted. My noble friends Lord Hollick and Lord Desai, speaking on 21st July 1995, when we managed to keep the noble Lord, Lord Mackay, from his holiday for some hours, both argued that it was unfortunate that the Governor
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should be the chairman of the committee examining activities for which he was himself responsible. They called for a new independent inquiry. For the sake of completeness, I should point out that the principal Treasury spokesman for the Opposition also expressed these fears, although perhaps that citation is somewhat diminished by the fact that that person was myself.
Similarly at the proceedings of the Treasury and Civil Service Committee of another place, held on Wednesday 19th July 1995, members of the committee expressed disquiet over the Governor's role as chairman of the Board of Banking Supervision, and suggested that it was hardly surprising that the Bank had accepted with alacrity the conclusions in the drafting of the final version of which the Governor and Mr. Quinn had themselves participated.
Let me be absolutely clear. No one has suggested—and I am certainly not suggesting—any impropriety in the operation of the Board of Banking Supervision or on the part of the Governor and Mr. Quinn. What was suggested, and I believe was correctly suggested at the time, was that the report should not only be independent, but it should be seen to be independent by virtue of having an independent chairman to prepare it.
I am sure that the Government are totally in agreement with this sentiment. Indeed, my noble friend speaking on Second Reading of this Bill argued that,
"The objective of the reform is again to enhance transparency and improve accountability".—[Official Report, 13/2/98: co1.1385.]
My amendments seek to achieve this with respect to the Board of Banking Supervision. In the new era of regulatory openness and institutional transparency, it is totally unacceptable for an individual with the authority of a chief executive to chair the body designed to monitor the institution for which he is responsible. Amendment No. 64 removes that embarrassment.
Amendment No. 65 requires that the chairman of the Board of Banking Supervision be elected from among independent members of the board, so that the chairman would be an independent member and not the chief executive of the FSA—or, as in the past, the chief executive of the Bank of England.
I am quite sure that the drafting of Clause 28 was a slip on the Government's part. These simple amendments prevent the new FSA inheriting unfortunate and embarrassing practices from the Bank of England. They seek to ensure that just and effective monitoring of some of the supervisory activities of the FSA will not just be done effectively, but will be seen to be done effectively. I beg to move.
Lord McIntosh of Haringey: I am grateful to my noble friend for the way in which he has introduced these two amendments. I appreciate that they are intended to further reinforce the independence of the Board of Banking Supervision by appointing as a chair one of the non-executive members.
In general it has not been our aim in this Bill to change the banking supervision regime in the course of transferring it to the FSA. This, again, is a matter which we will have to discuss with my noble friend between now and Report. However, in transferring the Board of

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Banking Supervision across to the FSA, we have already sought to increase its independence by reducing the number of executive members from three to two. I should point out that the Board of Banking Supervision is primarily an advisory body for the FSA and not an investigative body. When it investigated the Bank's performance, the investigative members—including the chairman—withdrew.
In the longer term we do not propose to retain the board in its current form. This would not be in keeping with the wider regulatory responsibilities of the FSA. The current provisions are only temporary until the second Bill can introduce a thorough-going reform of the system. The FSA has been consulting on the form of practitioner input for the longer term.
So we are not opposed to the spirit of these amendments, which would appoint a non-executive chair until a longer-term solution is legislated for. However, we need to consider the issue further in the context of the longer-term plans for practitioner input and to take account of the views of the Board of Banking Supervision members. On that basis, I hope my noble friend will see fit to withdraw his amendments.
Lord Eatwell: I must say that I find that reply rather disappointing. First, the Minister referred to the reduction in the number of executive members from three to two. He may have noticed that, in the investigation of the Barings affair, there were only two executive members involved because Mr. Rupert Pennant-Rea, who was deputy governor, resigned prior to the beginning of the inquiry and no new member was appointed. So the numbers of executive members in the Barings investigation, and those contained in the Bill before us, are exactly the same.
My noble friend also seems to have overlooked the point I made about the drawing up of the conclusions of the Board of Banking Supervision in the Barings investigation. He is quite right that the investigation was conducted by the non-executive members, but the peculiarity, as was pointed out by the noble Lord, Lord Ezra, at the time, was that the conclusions were drawn up at a committee chaired either by the Governor or by Mr. Quinn: that is, the executive members were actually involved in drawing up the conclusions.
As the noble Lord was speaking, I also found myself worrying about the insistence that these procedures were purely temporary. This brings to mind the number of temporary portacabins outside schools which are still there 20 years after they were erected, or indeed some of the prefabricated housing erected at the end of the Second World War, which I happened to pass in Swindon when I was there the other day. I find this word "temporary" very disturbing.
In light of what my noble friend said, I hope he will look very seriously at what is a very simple change which would significantly enhance the reputation of the Board of Banking Supervision, albeit in the period between N1 and N2. Moreover, it would be a powerful signal of the commitment of the Government to a new regulatory era of openness and transparency.
Lord McIntosh of Haringey: Before my noble friend concludes, this is a relatively simple issue, as he
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says. Let us discuss it at the same time as we have the more wide-ranging discussion on his earlier amendments before Report stage.
Lord Eatwell: I am looking forward to these extended discussions with my noble friend. I thank him for his comments and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 65 not moved.]
Clause 28 agreed to.
Clauses 29 to 32 agreed to.
Clause 33 [Closure of National Savings Stock Register to gilts]:
7.30 p.m.
The Earl of Home The Earl of Home moved Amendment No. 66:
Page 13, line 35, at end insert—
("() In making an order under subsection (1)(b) above, the Treasury shall ensure that no extra costs arising from such transfer shall be imposed on existing holders of stock on the National Savings Stock Register and that the overall level of charges is subject to controls similar to those in other parts of this Act.").
The noble Earl said: In moving Amendment No. 66, I shall also speak to Amendment No. 67. These are two very quick points but important ones for the small investor. They refer to the transfer to the Bank of the gilt business of the National Savings Stock Register and the future provision of brokerage services in connection with gilt registration.
The purpose of these amendments is to ensure that no extra financial strain is placed on the small investors. Institutions or high-net worth individuals have a whole range of stockbrokers and financial advisers to help them negotiate commissions, but the small man with a little spare cash to invest does not have that type of protection. Yet he is the sort of person whom we want to encourage to invest.
As far as that type of person is concerned. I do not believe that he ought to stand the cost of these transfers through increased charges. I may have missed it, but I do not believe we have yet been told what the cost of this transfer is, and I would ask the Minister to let us know if he has a figure at this stage. However, on the assumption that it does not run into many millions, I would hope that the Government would agree that the transfer could be sourced either out of the Bank's profits or at least from a source that did not impact on the small investor.
Amendment No. 67 simply recognises the fact that the Bank is in a near monopolistic position in this instance and, again, the small investor should be protected. I am not asking that this service should be offered at a loss but rather charged out at a rate which is consistent with market practice elsewhere for a similar service. I beg to move.
Lord McIntosh of Haringey: I am slightly puzzled by this proposal. The FSA is already, or will be, subject to the restrictions under Part V of the Banking Act in relation to all of the confidential information which it obtains in the discharge of its functions. So imposing

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these requirements, which are only drawn up in relation to the information needed for compiling monetary statistics and assessing liability for CRDs—I beg your Lordships' pardon, I have renumbered my amendments and I went on to the wrong one. This is the amendment on the National Savings Stock Register.
The main purpose of this measure is to reduce costs by merging the two similar services, although, in response to the request of the noble Earl, it is not possible yet to put a precise figure on the costs of the transfer. However, it is not appropriate to specify in legislation that the charge for providing a service cannot be increased since future increases in running costs may require an increase in charges to avoid making losses. However, we do expect existing holders of stock on the NSSR to benefit from the transfer. National Savings has been running the NSSR at a loss because the commission charged on the service does not cover the costs. Without a merger, there would have been pressure on National Savings to raise charges. However, once the transfer has been implemented, the economies of scale that the Bank can bring to bear mean that charges to customers using the official brokerage service can be contained.
The Earl of Home: I thank the noble Lord for that answer. When we have the precise figure, we may wish to readdress this question. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 33 agreed to.
Clause 34 [Provision of brokerage service in connection with gilt registration]:
[Amendment No. 67 not moved.]
Clause 34 agreed to.
Clauses 35 to 37 agreed to.
Schedule 7 [Restriction on disclosure of information]:
The Earl of Home The Earl of Home moved Amendment No. 68:
Page 41, line 2, at end insert—
("General
. In this Schedule, "the Bank" includes the Financial Services Authority, where that Authority is exercising functions transferred to it under section 21 or Schedule 4.").
The noble Earl said: We have already discussed the removal of Crown status from members of the authority and the effect of that change. This amendment picks up the important point of disclosure of information by members of the authority. It is a point which my noble friend Lord Boardman and I raised during Second Reading and the Minister was kind enough to acknowledge it at that stage and said he would be addressing it.
As I have said before, it is important that the authority and the institutions develop the same mutual trust which currently exists between the Bank and the financial practitioners. Banks want to be open with the authority, but they will not be open unless they feel there are adequate safeguards protecting them from action by third parties because they have been required to disclose
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privileged information. At least under this amendment they would have the same redress against the authority as they would have against the Bank.
The MOU, to which we have referred in the past, in paragraphs 5 and 6 specifically addresses the collection of information point. Paragraph 6 says:
"Where both need access to the same information, they will reach agreement as to who should collect it and how it should be transmitted to the other".
If either the Bank or the authority can collect the information and then use it, it seems strange that the Bank is subject to restriction on disclosure but the authority is not. Surely both institutions should be subject to the same discipline. I beg to move.
Lord McIntosh of Haringey: With renewed apology, I will now respond to the amendment which is before us. The FSA is subject to the restrictions under Part V of the Banking Act in relation to all the confidential information it obtains in discharge of its functions. This amendment refers only to the information needed for compiling monetary statistics and assessing liability for cash ratio deposits. What would happen is that we would have a second regulatory regime for those statistics. We would have regulatory information subject to two different sets of confidentiality requirements.
The question is, what does the FSA do when the requirements differ? What if information could be disclosed to another regulatory body or a public authority under Part V of the Banking Act but could not be disclosed under Schedule 7? Presumably the FSA would not be able to make a disclosure that Parliament and indeed the noble Earl thought was necessary for the purposes of sound regulation when the Banking Act was passed. The confusion is relatively simple and I hope that the noble Earl will feel able to withdraw the amendment.
The Earl of Home: I thank the noble Lord for that reply. I do not in fact have Part V of the Banking Act in front of me, but I shall study his comments in Hansard in great depth and we may have to return to this topic at Report stage. Meantime, I beg leave to withdraw.
Amendment, by leave, withdrawn.
Schedule 7 agreed to
Clauses 38 and 39 agreed to.
Clause 40 [Orders]:
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 69:
Page 16, line 12, at end insert ("or
paragraph 3(2) of Schedule 7,").
The noble Lord said: In moving Amendment No. 69 I would like to speak also to my Amendment No. 72 and to Amendments Nos. 70 and 71 in the name of the noble Lord, Lord Mackay of Ardbrecknish. My amendments give direct effect to the opinions of the Delegated Powers and Deregulation Committee. Paragraph 3(2) of Schedule 7 empowers the Treasury to amend the table specifying authorities to whom the board may disclose information obtained under

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Clause 17(1) on monetary policy. The Delegated Powers and Deregulation Committee in its report of 4th February recommended that the parliamentary procedures to implement the power under paragraph 3(2) should be the affirmative procedure rather than the negative. The Government accept the committee's recommendations, and my amendments give effect to that.
The amendments of the noble Lord, Lord Mackay, would extend the affirmative procedure to paragraph 3(3), which empowers the Treasury to impose restrictions on conditions on such disclosures. Although I am perfectly happy to talk to him about it, I do not see why he has brought them forward when the Delegated Powers and Deregulation Committee did not seem to think that they were necessary.
Lord Mackay of Ardbrecknish: I am deeply grateful to the noble Lord, Lord McIntosh. He rightly pointed out that I became a little more enthusiastic in my amendment than was properly justified by the Delegated Powers and Deregulation Committee. I am not in the least surprised that he brought forward this amendment. I would have been deeply disappointed if he had not, but knowing his track record on these matters he did not let me down. I just hope that his good example is followed by the rest of the Government.
On Question, amendment agreed to.
[Amendments Nos. 70 and 71 not moved.]
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 72:
Page 16, line 19, leave out ("3(2) or (3)") and insert ("3(3)").
The noble Lord said: I beg to move.
On Question, amendment agreed to.
Clause 40, as amended, agreed to.
Clauses 41 and 42 agreed to.
Schedule 8 agreed to.
Clause 43 agreed to.
Schedule 9 [Repeals and revocations]:
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 73:
Page 44, line 35, column 3, leave out ("(in both places)").
The noble Lord said: I spoke to this amendment with Amendment No. 53. I beg to move.
On Question, amendment agreed to.
Schedule 9, as amended, agreed to.
Clauses 44 and 45 agreed to.
Clause 46 [Short title]:
[Amendment No. 74 not moved.]
Clause 46 agreed to.
In the Title:
[Amendment No. 75 not moved.]
Title agreed to.
Bill reported with amendments.
The Deputy Chairman of Committees (Lord Strabolgi): That concludes the Committee's proceedings on the Bill.
The Committee adjourned at sixteen minutes before eight o'clock.