Banking Bill

HL Deb 16 March 1987 vol 485 cc1213-70

The Secretary of State for Employment (Lord Young of Graffham)

My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

Moved, That the House do now resolve itself into Committee.—(Lord Young of Granham.)

On Question, Motion agreed to.

House in Committee accordingly.

[The BARONESS SEROTA in the Chair.]

Clause 1[Functions and duties of the Bank of England]:

Lord Bruce of Donington: moved Amendment No.1: Page 1, line 17, leave out ("such manner as it thinks appropriate") and insert ("a manner the Treasury shall indicate").

The noble Lord said: In the course of our debates on the Second Reading of the Bill, on behalf of my colleagues I gave an indication that in general we welcome this Bill and that we would endeavour to make a series of constructive suggestions in the course of the Committee stage. This amendment, as with other later amendments, seeks to establish rather more firmly than is apparent from the text of the Bill the authority of Parliament through the government of the day to make the strategic decisions that are required in connection with the total management of the nation's financial affairs.

The Bank of England is, under the Bank of England Act 1946, wholly owned by the state through the agency of the Treasury. It is right that the Bill at all critical stages—and some perhaps not so critical—should reflect the ultimate responsibility of Parliament, and indeed the full control, where necessary, of the Government themselves. The amendment is a question of emphasis and authority. Clause 1(3) now reads: The Bank shall, as soon as practicable after the end of each of its financial years, make to the Chancellor of the Exchequer and publish in such manner as it thinks appropriate a report on its activities under this Act in that year; and the Chancellor of the Exchequer shall lay copies of every such report". The amendment seeks to delete, such manner as it thinks appropriate and to substitute, a manner the Treasury shall indicate". In other words, the responsibility for the contents, the methods of publication and the extent of publication shall not be a matter for the Bank itself, but shall be a matter for the Treasury.

I do not know to what extent the Treasury apparatus is capable in itself either of monitoring the Bank of England's activities in accordance with the original provisions of the 1946 Act (which gives the Treasury power to give such general directions as it thinks fit to the Bank) or to what extent the Treasury is equipped to do that; or, for that matter, to exercise the amount of supervision it must exercise if the provisions of this Bill are to have any bite. There is a division of the Treasury called the financial institutions division which, according to the published directory, has an overall responsibility for the Bank of England. One does not know how many personnel that department has. One does not know the nature and extent of liaison between that department and the Bank of England. In short, this is a matter about which the outside world knows very little.

Let us make no mistake. The fundamental reason for this Bill lies in the Johnson Matthey affair. I do not wish to rake over any old embers that relate to that. However, a re-reading of the Bank's report on the Johnson Matthey affair gives some indication as to the defects within the Bank's own system that existed at that time, most of which I am quite sure have since been remedied. Nevertheless, it gave an indication that, just as government departments are frail in parts, banks also are not exempt from the ordinary human frailties and can themselves, after prolonged habit and routine and by taking matters, possibly quite legitimately, on trust, become a little careless, with the results that we have already seen.

I am well aware, as I am quite sure are your Lordships, that the Bank of England even without this Bill has enormous powers at its disposal, particularly in the terms which it fixes itself with the joint stock banks, the merchant banks and the leading institutions. In general terms, its will throughout the City is, quite properly, absolute. The questions are: how can the will be enforced and how can it become all pervasive? I therefore suggest to your Lordships that the whole question as to the nature, extent and publication of the report made by the Bank to the Chancellor of the Exchequer should not be determined by the Bank itself. It ought to be determined where power ultimately lies, and power ought to lie, and ought to be seen to lie, with the Government themselves. I cannot possibly get into the mind of the financial institutions division of the Treasury and I very much hesitate to project myself into the mind of the Chancellor of the Exchequer, particularly at this time, the day before the Budget. However, I should have thought that the Chancellor himself and his permanent staff have a very good idea as to the kinds of responses and the kinds of reports they want from the Bank. They therefore should be the ones who should set the standard and whose will should prevail.

This amendment has been put down in entirely non-partisan terms. It ought not to be, within a Parliamentary democracy, a party matter because in these Houses of Parliament we are all dedicated, I should hope and believe, to the supremacy of Parliament; but it must be seen. This is a very small amendment and there are others which also seek to place Parliament and the Government in a similar position. To those we shall turn in due course; but it is with that objective and with no other that this change of emphasis, in our view, is necessary. It should not be for the Bank to determine what is appropriate. The Bank in the past has operated very much in its own way. Your Lordships will recall that it rescued Johnson Matthey by the injection of £100 million without telling the Chancellor of the Exchequer, but it told him the next day.

I am quite sure that things have improved since then and I am quite sure that the Bank is sensible, as it ought to be, of its own position. I just want to make quite sure that the supremacy of Parliament, through the Government, is quite unmistakably seen and, where appropriate in this Bill, is quite unmistakably indicated. I beg to move.

Lord O'Brien of Lothbury

After nearly half a century of service in the Bank of England, nobody would expect me to take a totally unbiased view on this question. Nevertheless, I strongly resist the amendment which the noble Lord, Lord Bruce of Donington, has put forward. The Bank of England has been in existence now for nearly 300 years and for most of that time—250 years—it was in private hands. At no time in its history has it questioned the supremacy of Parliament or that of the Treasury, with the Chancellor at its head, as the primary department with responsibility for economic and financial policy. As the noble Lord, Lord Bruce, has said, the Bank has great power and influence in its own area in the City. I think that for the good of us all it is to be hoped that that power and influence will continue.

In this particular amendment—and, as the noble Lord, Lord Bruce, has said, others are to follow and no doubt they will be of a similar character—it is merely a question of reporting. But reporting on what?—reporting on the discharge by the Bank, as agent of Her Majesty's Government, as laid down by Act of Parliament, on the reponsibilities it has exercised during the course of the previous year.

It seems to me, having regard to the stature of the Bank and its long history, only reasonable that it should be allowed to report in the manner which it thinks fit. Of course, given its very close association both with the Treasury and with the Chancellor, any views which may be expressed informally by either of those parties about matters of this sort will, I am sure, be taken into account by the Bank. But I see absolutely no reason for a direction, and I hope that the Government will resist the amendment.

Lord Beaverbrook

I am most grateful to the noble Lord, Lord Bruce of Donington, for setting out clearly the reasons for this amendment. I am also grateful to the noble Lord, Lord O'Brien, for giving your Lordships his opinion.

This amendment would take away from the Bank of England its discretion to decide the manner in which it publishes the annual report which it is obliged to make under the Bill. It would make the Treasury responsible for deciding the manner of publication.

The manner of publication of the annual report is not a matter of controversy. Indeed, the Bill's provisions in this respect are the same as those of the 1979 Act, and they have worked satisfactorily since then. After careful consideration, the Government see no good reason to change them. Since the 1979 Act was brought into force the Bank of England has regularly published its report under that Act. It is available both separately and bound with its annual report and accounts. Both are made available free of charge. Also of course the report is laid before this Chamber and in another place. I am not aware of any complaints about the manner of publication and I would ask the noble Lords opposite to agree that the Bank of England can continue to be trusted to determine the precise manner of publication. On that basis, I would have to resist this amendment.

Lord Bruce of Donington

I am sorry the noble Lord feels bound to resist the amendment and I must say I was not very much disarmed by the noble Lord, Lord O'Brien, who said that of course in all these matters the Bank would consult with the Government. A responsibility has to be somewhere, and one of the difficulties we have had over the past few years is that it is sometimes very difficult to realise where the powers of the Bank of England end and the powers of the Government begin.

The Bank of England has been no more free of error over the past seven or eight years than the Government themselves. Your Lordships will have seen in today's Financial Tunes the report of the letter concerning questions of economic and other policies which have been raised by four former very distinguished civil servants of the Treasury. It is quite clear that the Bank has almost universally endorsed the errors that were committed by the Government in 1979–80. The relationship in that sense is cosy, and I can quite understand why.

Although I do not want to intrude party politics into this matter, it is quite clear that the policies of the present government and the policies of the Bank of England are, in political terms, almost identical anyway. But, of course, governments change, and for the sake of future governments as well as this one I should like to see authority lie where it ought to lie, and in this case it ought to lie with the Treasury. If there is any question of what is appropriate, then the Treasury itself should decide. I am sorry that the noble Lord has seen fit to reject the amendment, but this is a question of principle on which I think it will be necessary to test the opinion of the Committee.

Lord Thorneycroft

May I just say a word on this subject to the noble Lord, Lord Bruce of Donington? I have no interest to declare in this matter. Indeed, if anything, I was on the other side, so to speak. I was brought up not in the Bank but in the Treasury. But I hope very much that he will not press this amendment to a Division.

This is a Bill which gives powers and responsibilities to the Bank. In a way, many of them are powers and responsibilities which the Bank has always had, but anyway they are with it now. I must say that if you have a great institution—and wherever we sit I think we would regard the Bank of England as a very great institution—discharging powers and responsibilities of that kind, it would be very helpful if it did the reporting, rather than have someone else trying to do the reporting for it as to how something went. In that way you get a much better report. To provide for a report from an outside body is an unhappy way of approaching these matters.

The relationship between the Bank and the Treasury—and it is a subtle one—exists not just when a Conservative Government are in power; it exists also when other governments are in power, and it is in the interests of everybody, wherever he sits in the House of Lords, to try to preserve that to the maximum effect. I appreciate the point that the noble Lord has made. I see the logic of it, and so on. But, as one who has spent quite a lot of time in that sort of area, I think that if he could possibly see his way not to press this amendment it would be wise.

Lord Taylor of Gryfe

On these Benches we had no view on this amendment and we were content to listen to the arguments. As the noble Lord, Lord Bruce of Donington, has said, this Bill is about banking supervision arising from the weaknesses that were revealed in the Johnson Matthey affair. This amendment of the noble Lord, Lord Bruce, raises another equally important question on the relationship between the Treasury and the Bank. This is not an easy relationship. It happens in many countries that there is difficulty in the relationships, particularly between a new government and its central bank. I have found in my own experience that many countries have looked to the Bank of England and to the relationship which exists in this country, based on habit, tradition and good sense, and have accepted the kind of relationship which exists. From these benches we should not feel justified in changing that relationship. I am much persuaded by the noble Lord, Lord Thorneycroft, who said: let the body which is reporting be responsible for its own report. It occurs to me therefore that the pressing of this amendment would hardly be justified and I could not recommend that my colleagues should support it.

Lord Beaverbrook

I should like to pick up a topic to which the noble Lord, Lord Bruce, referred. He mentioned the Treasury's broad power to give direction to the Bank of England which is contained in the Bank of England Act 1946. Although it has never been used, it is there. But I should say that my right honourable friend the Chancellor has no wish to be specifically responsible for the manner of publication of the report, and I should emphasis again that there have been no complaints of which we are aware about the Bank's normal method of publication.

3.15 p.m.

On Question, Whether the said amendment (No.1) shall be agreed to?

Their Lordships divided: Contents, 49; Not-Contents, 117.

DIVISION NO.1
CONTENTS
Beswick, L.	Mishcon, L.
Birk, B.	Molloy, L.
Bottomley, L.	Mulley, L.
Briginshaw, L.	Northfield, L.
Broekway, L.	Oram, L.
Bruce of Donington, L.	Phillips, B.
Campbell of Eskan, L.	Pitt of Hampstead, L.
Carmichael of Kelvingrove, L.	Ponsonby of Shulbrede, L [Teller.]
Cledwyn of Penrhos, L.
David, B.[Teller.]	Ross of Marnock, L.
Davies of Penrhys, L.	Russell, E.
Dean of Beswick, L.	Serota, B.
Elwyn-Jones, L.	Shackleton, L.
Ennals, L.	Silkin of Dulwich, L.
Ewart-Biggs, B.	Stallard, L.
Falkender, B.	Stewart of Fulham, L.
Fisher of Rednal, B.	Strabolgi, L.
Gallacher, L.	Taylor of Blackburn, L.
Graham of Edmonton, L.	Taylor of Mansfield, L.
Gregson, L.	Turner of Camden, B.
Heycock, L.	Underhill, L.
Jeger, B.	Wallace of Coslany, L.
Jenkins of Putney, L.	Williams of Elvel, L.
John-Mackie, L.	Wilson of Rievaulx, L.
Llewelyn-Davies of Hastoe, B.	Ypres, E.
NOT-CONTENTS
Alexander of Tunis, E.	Ellenborough, L.
Allerton, L.	Elliot of Harwood, B.
Amherst. E.	Elton, L.
Annan, L.	Ely, M.
Atholl, D.	Fraser of Kilmorack, L.
Aylestone, L.	Gainford, L.
Beaverbrook, L.	Gladwyn, L.
Belhaven and Stenton, L.	Gormanston, V.
Bellwin, L.	Grey, E.
Belstead, L.	Gridley, L.
Bessborough, E.	Grimond, L.
Blyth, L.	Haig, E.
Bonham-Carter, L.	Hailsham of Saint
Boyd-Carpenter, L.	Marylebone, L.
Brabazon of Tara, L.	Hampton, L.
Brougham and Vaux, L.	Harvington, L.
Bruce-Gardyne, L.	Hesketh, L.
Butterworth, L.	Home of the Hirsel, L.
Byron, L.	Hood, V.
Caithness, E.	Hooper, B.
Campbell of Alloway, L.	Hooson, L.
Campbell of Croy, L.	Hunt, L.
Carnock, L.	Hylton-Foster, B.
Constantine of Stanmore, L.	Kaberry of Adel, L.
Cowley, E.	Killearn, L.
Davidson, V.[Teller.]	Kinloss, Ly.
De Freyne, L.	Kitchener, E.
Denham, L.[Teller.]	Lane-Fox, B.
Denning, L.	Layton, L.
Diamond, L.	Limerick, E.
Donaldson of Kingsbridge, L.	Long, V.
Donegall, M.	Lovat, L.
Drumalbyn, L.	Luke, L.
Dudley, B.	McNair, L.
Dundee, E.	Mais, L.
Ebbisham, L.	Manchester, D.
Edmund-Davies, L.	Marley, L.
Effingham, E.	Mayhew, L

Merrivale, L.	Shannon, E.
Morris, L.	Shrewsbury, E.
Mowbray and Stourton, L.	Simon of Glaisdale, L.
Munster, E.	Skelmersdale, L.
O'Brien of Lothbury, L.	Slim, V.
Pender, L.	Somers, L.
Perth, E.	Stedman, B.
Peyton of Yeovil, L.	Strange, B.
Porritt, L.	Strathcarron, L.
Portland, D.	Strathspey, L.
Rankeillour, L.	Taylor of Gryfe, L.
Reay, L.	Terrington, L.
Reilly, L.	Thorneycroft, L.
Ritchie of Dundee, L.	TordorF, L.
Rochdale, V.	Torrington, V.
Romney, E.	Trumpington, B.
Sainsbury, L.	Vaux of Harrowden, L
Saltoun of Abemethy, Ly.	WardofWitley, V.
Sanderson of Bowden, L.	Whitelaw, V.
Seear, B.	Wigoder, L.
Selborne, E.	Young of Graffham, L.

Resolved in the negative, and amendment disagreed to accordingly.

3.23 p.m.

Lord Beaverbrook moved Amendment No.2:

Page 2, line 2, after first ("or") insert ("who is, or is acting as,")

The noble Lord said: This is a technical amendment to establish beyond doubt that the immunity of Clause 1(4) extends to those members of the Bank staff who are seconded to the Bank rather than being its permanent employees. Although directly employed by the Bank, they act essentially as employees. I beg to move.

Lord Williams of Elvel

I am grateful to the noble Lord for explaining exactly what the amendment means. I had taken the amendment to be similar to our Amendment No.3. However, from what the noble Lord has said, it applies only to those people who are seconded to the Bank and who are therefore part of the Bank staff at the particular moment when the Bank is performing its functions under the Act. As such, it is a welcome clarification. I was intending to include in the discussion our Amendment No.3. However, in the light of what the noble Lord has said, we shall move Amendment No.3 separately.

On Question, amendment agreed to.

Lord Williams of Elvel moved Amendment No.3:

Page 2, line 2, after ("servant") insert ("or agent")

The noble Lord said: This amendment raises a point which the House studied in relation to the Financial Services Act. It was also studied, although not at great length, in our consideration of the Building Societies Act. The question is whether or not there should be an extension of the immunity from damages of the supervisory body to agents who are required and requested by the supervisory body to act on its behalf.

A simple illustration will suffice to demonstrate what I mean. If the Bank conducts an investigation under this Act and if it employs a firm of accountants to conduct that investigation on its behalf, as I understand it, the accountants may, as the Bill is presently drafted, be liable in damages for anything they do during that investigation, whereas the Bank itself and its officers and servants will not be liable in damages unless it can be shown that an act or omission was in bad faith. This seems to us to be inequitable. Why should a firm of accountants, acting upon the specific instructions of the Bank, be liable in damages when the Bank enjoys immunity? I recognise that it is a difficult point and one which has been discussed elsewhere. However, I would argue that the immunity expressed in Clause 1(4) should at least extend to those who are acting for the Bank, on the instructions of the Bank, and pursuing its functions under the Act. I beg to move.

Lord Beaverbrook

We have carefully considered the amendment. We have come to the conclusion that it is not necessary to cover such groups of people, particularly reporting accountants or other investigators, because we feel that it would be anomalous to grant them immunity when inspectors appointed by the Secretary of State and by the Building Societies Commission do not enjoy similar protection.

An immunity such as this is to be granted only on a strictly limited basis; in this case, under Clause 1(4), to the supervisory body with statutory functions and to its personnel. That is necessary in order to ensure that the supervisors can act positively in the interests of depositors without being unduly constrained by threat of legal action. On balance, we feel that it would be dangerous to extend immunity further than that. For that reason, I cannot go along with the amendment.

Lord Williams of Elvel

I am grateful to the noble Lord for his response. In my introduction, I think I recognised that I was raising problems that had been discussed in the context of the Building Societies Act and the Financial Services Act. I realise that if a precedent were to be set here, it would have to be followed by amendments to those Acts. Nevertheless, I find it hard to accept the arguments of the noble Lord—just as hard to accept them today as when we were discussing the Building Societies Bill and the Financial Services Bill.

I understand that the Government are extremely reluctant to extend immunities further than is strictly necessary. However, it seems to me that if the Bank is to get good accountants and investigators acting as its agents, it will have to do something about giving them some form of immunity, if only in the form of a contractual indemnity against damages which the Bank would be entitled to do. I should prefer that to be on the face of the Bill, but I shall not push this matter to a Division. I hope that the noble Lord will think again, and we may come back to it on Report if we feel that to be necessary.

Amendment, by leave, withdrawn.

3.30 p.m.

Lord Williams of Elvel moved Amendment No.4:

Page 2, line 5, at end insert ("or contrary to law.").

The noble Lord said: I beg to move Amendment No.4 standing in the names of my noble friends Lord Bruce and Lord Morton of Shuna and myself. It may be for the convenience of the Committee if I speak also to Amendment No.18.

These two amendments are in the nature of probing amendments. By moving them I am trying to discover exactly where the boundaries lie of the Bank's operations under the Bill as it is before this Committee. The Bill as drafted says that the Bank shall not be liable in damages unless it is shown that an act of the Bank or an omission of the Bank was in bad faith. I ask the following question by means of these amendments. What happens if the Bank does something which is contrary to law, contrary either to this Act or any other Act? What happens if a servant of the Bank purports that the action he has taken is in the discharge of the functions of the Bank—here I am referring to Amendment No.18—when it is not in proper discharge of his functions under the Act? In other words, what is the scope of Clause 1(4)?

I should be most grateful to hear some comment from the noble Lord the Minister on that scope so that we may be quite clear where we stand. I beg to move.

Lord Denning

Perhaps I may say a word against this amendment. The Bank or its servants are in a position which is analogous to that of a judge or an arbitrator. They must he able to do their work honestly and fairly without fear of any action against them for negligence or for damages. Just as there is an appeal from judges to a higher court, so there are appeals set out in Clauses 27 and 28 of this Bill. That is the proper procedure when the Bank or its servants go wrong on points of law. An appeal is provided for. But in order to secure the independence of those who are acting, and to ensure that they are not deterred from doing right by fear of actions for negligence, it seems to me to be right to make them exempt from liability unless they are acting in bad faith.

The additional words "or contrary to the law" are really not necessary at all. They might be a deterrent to people in a responsible position in the undertaking of their duties. Therefore I am against the amendment.

Lord Bruce of Donington

With the permission of the Committee, I intervene to venture to ask the noble and learned Lord, whose views carry great weight, justifiably, not only in the judicial community but also in the country at large, whether I am correct in assuming from what he has said that if the Bank wishes it can act contrary to the law.

Lord Denning

That is putting it a little too high. It does not act contrary if it wishes, but it may by an honest mistake act contrary to the law. Let there then be an appeal to a higher authority, but do not make it liable in damages any more than a judge is liable in damages if he makes a mistake in law.

Lord Beaverbrook

For the convenience of your Lordships' Committee, I too will speak to this amendment and to Amendment No.18.

I understand the concern of noble Lords opposite, but I can assure them that the effect of subsection (4) is not to give the Bank or its servants any immunity from the ordinary process of the criminal law. All that the subsection does is to grant an immunity from damages for things done in the discharge of the Bank's function under the Bill. It is right that the Bank should feel able to operate confidently in its supervisory role and take prompt and robust action to protect depositors without contantly looking over its shoulder for fear of legal action.

There is a parallel provision in the Financial Services Act, at Section 187, to protect supervisors under that Act. The provision here does not remove the Bank from the discipline of the law; it does no more than provide immunity from damages. It does not put the Bank outside the authority of the courts or above the law in any way. I remind the Committee that it covers actions done in good faith. In the highly unlikely situation of the Bank or its servants acting maliciously the immunity would not apply.

I go on to speak to Amendment No.18. I am sure the Committee would agree that the Board of Banking Supervision should also feel able to do its work without being intimidated by threat of legal action. That is what subsection (7) provides. It would be wrong for members of the board acting in good faith to lose their immunity from damages if they reasonably but erroneously believe they are acting properly in the discharge of the functions Parliament has given them. I appreciate the Committee's concern that the board should not be given cart blanche to act improperly, but it must be remembered that the members would lose their immunity if it were shown that they had acted in bad faith.

I hope that with that reassurance the noble Lords will feel able to withdraw these amendments.

Lord Williams of Elvel

I am most grateful to the noble Lord. As I mentioned when I was moving both these amendments, they were in the nature of probing amendments to see what the scope and intention of Clause 1(4) was. There is no intention at all from these Benches to try to diminish in any way the role of the Bank in this respect. Clearly the supervisory authority must have immunity from damages when it is acting in a proper legal and sensible manner in accordance with the legislation which we are now discussing.

Nevertheless, I wonder whether the noble Lord can help me. He referred to the Financial Services Act and said a similar provision was there for the Securities and Investments Board. Is there a similar provision in the Building Societies Act for the Building Societies Commission? In other words, do all three pieces of legislation run in tandem or is the Building Societies Commission open to rather more exposure in this respect than the Bank or the Securities and Investments Board under the Financial Services Act? If that is the case, it seems that the Government need to look at this subsection again to line it up with the Building Societies Act. I say that particularly in the light of Amendment No.18 because if the Building Societies Commission does not have the same protection in the purported discharge of its functions the Government have some rather fast thinking to do. But perhaps the thinking is too fast, and I ask the Minister to respond on this point.

Lord Beaverbrook

The noble Lord asked about the Building Societies Act and the Building Societies Commission. It would probably be best for me to consider what the noble Lord has said and then write to him on the subject. It is a complicated matter and I should like to look at it further and study carefully what he has said.

Lord Williams of Elvel

I am most grateful to the noble Lord. I look forward to receiving his letter, and when we have it we shall decide what if anything we need to do at another stage. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Bruce of Donington moved Amendment No.5:

Page 2, line 5, at end insert— ("(4A) The Chancellor of the Exchequer may at any time request an interim report from the Bank on the specific exercise of its powers under this Act.").

The noble Lord said: In moving this amendment I should like to speak also to Amendment No.16, which is consequential on it. In this instance I hope that I am knocking at an open door with the Committee. The Bank is required by the Bill to give its normal annual report to the Chancellor. All this amendment seeks to do is to empower the Chancellor of the Exchequer to, request an interim report from the Bank on the specific exercise of its powers under this Act". This would be a rare event, but as we have found out in connection with other legislation, and not particularly legislation affecting the banks or the institutions that are covered in this Bill, occasionally things go wrong.

The overall powers of the Bank of England are not, I am perfectly willing to accept, capriciously applied—and after this Bill becomes law and after the reorganisation that will take place with it they will probably be very diligently applied. But the days when the unspoken word of the Bank of England was law within the City, the times when as a matter of honour City institutions automatically did the right thing on pain almost of being sent to Coventry and put at disadvantage if they went wrong, are unhappily gone. We have only to look at the experience of recent months—I agree in another field but still within the City—to realise that occasionally things go very wrong indeed.

I am hopeful that if the Bill is rigorously enforced—and we shall deal with enforcement at a later stage of the Bill, under Clause 94—one of these financial scandals will not break out in connection with, or arising from, any of the institutions or authorities that are to be governed by the Bill. But it might happen. If it does happen, it will be of significance.

Despite the extra supervisory powers and despite the satisfactory reorganisation that has taken place at the Bank of England, nobody can guarantee that something major will not emerge. In that event—and I am willing to acknowledge that the possibility has receded very considerably following the Johnson Matthey affair—there may come a time when, in the light of revelations that come out in the press or elsewhere, the Government feel constrained in the public interest to call for a special report from the Bank. They should be entitled by law to do so.

The inclusion of this subsection in the Bill would act as an additional deterrent. The responsibility to provide an interim report to the government of the day or to the Chancellor of the Exchequer should not be laid on the Bank itself, but whenever the Chancellor of the Exchequer thinks fit, whenever he thinks circumstances arise which necessitate in the public interest the rendering of a report by the Bank, he should be entitled to call for one.

3.45 p.m.

Lord Bruce-Gardyne

I apologise for interrupting the noble Lord. I think it might be helpful to the Committee if the noble Lord could explain what inhibits the Chancellor at present from demanding in his discretion such a report from the Bank of England at any moment.

Lord Bruce of Donington

I am not in the mind of the Chancellor and I do not know what powers the Chancellor may think he has other than the powers of general direction that are given to him under the Bank of England Act 1946. My own view is that the Government ought to find this helpful as a reserve power. After all, and within noble Lords' memory, though it may be convenient to forget it, the Bank of England has been known to do a number of important things without consulting the Government at all. Therefore the Government have a right (and it is part of the general stance which I adopted earlier on this afternoon) on occasions to assert their authority in order to be seen to do it, and it ought therefore to be incorporated in the Bill itself. If the noble Lord is content to leave the position as it is, if the noble Lord says, "Well, it will not be necessary; the Bank will probably report of its own volition in the interim if it thinks it is necessary to do so", that is the noble Lord's view. I am only trying to help him.

Lord O'Brien of Lothbury

I do not know whether I can say something to help the noble Lord, Lord Bruce, in reference to the intervention by the noble Lord, Lord Bruce-Gardyne. If an untoward incident arose in the City which gave cause for concern to the Chancellor of the Exchequer and he were to ask for a report from the Bank of England, he would get it. That would require no legislation. It would be the normal course of events. It certainly would have happened in days which I remember, and I believe it would happen now.

Lord Boyd-Carpenter

I wonder why the noble Lord, Lord Bruce of Donington, thinks this is necessary. Unlike my noble friend Lord Thorneycroft, or for that matter myself—I served there for two terms—I do not think that the noble Lord has ever served in the Treasury. Surely those who have know what the noble Lord, Lord O'Brien of Lothbury, has just said is true. The relations between the Treasury and the Bank are close and in many ways are best kept informal. If you start building up legal rights to demand a formal report, you are at risk of formalising a relationship which perhaps is better as it is in its flexible form. If you legislate to give a power to demand information in one particular circumstance, you are at least creating the possibility that the other party may say, "This other situation is not covered by the legislation and therefore there is no right to demand this".

I suggest to the noble Lord that there is absolutely no reason to believe that if the Chancellor of the Exchequer of the day were to ask for information from the Bank he would not get it. It would be contrary to what has been the working system for a great many years. Unless the noble Lord has some particular reason for believing it is likely to happen now, it seems to me to be a great mistake to tie up in strict legal formulae a relationship which works perfectly well at present. I think the noble Lord, Lord O'Brien, will agree that when a difficult situation arises the governor and his colleagues in the Bank are generally only too anxious to consult the Treasury and to have its assistance and guidance. To put a legal liability on them to make a formal report seems to me to be a retrograde step.

Lord Taylor of Gryfe

Like other noble Lords who have spoken, we, too, are rather puzzled by the amendment which suggests that there is some limitation on the Chancellor of the Exchequer requesting a report from the Bank of England. In my knowledge and experience, I should say that this is quite unlikely. Indeed, as has been said before, the Bill is before us today because of the weaknesses of the Johnson Matthey case. As I recall, the Chancellor and Parliament requested a report from the Bank of England on Johnson Matthey, received it and debated it publicly.

Like others, I am rather surprised. I should have thought that if the Chancellor of the Exchequer was seeking an interim report, apart from the annual report, on something that was vitally important to the financial structure of the country and the City it would be a constitutional outrage if that were refused. Therefore, I do not see the necessity for incorporating this in statute.

Lord Beaverbrook

I, too, do not believe that there is any practical problem that these amendments are needed to solve. Clearly, the Chancellor of the Exchequer may well on occasion request from the Bank of England papers on particular issues under the Bill. If appropriate, these could be published. And the Bank of England can, and frequently does, publish reports on specific aspects of supervision as the need arises. I am not aware of any dissatisfaction as to the quality or quantity of such reports made under the 1979 Banking Act. That Act contains no provisions such as those proposed. I believe that the provisions would be entirely redundant—my right honourable friend the Chancellor requires no additional authority in this respect—and would serve to imply that the Bank of England's record in such matters is inadequate. I do not believe that to be the case, and on that basis I should have to resist this amendment if it were pressed.

Lord Bruce of Donington

This has been a very interesting debate. From it I gather that the Alliance, the Independents and the Conservative Party spokesman in the person of the noble Lord, Lord Boyd-Carpenter, think that all is sweetness and light between the government of the day—

Lord Boyd-Carpenter

Will the noble Lord allow me to intervene?

Lord Bruce of Donington

I have only just started. I shall give way in a minute. They think that all is sweetness and light between Her Majesty's Government and the Bank of England; that, consequently, these relationships are best kept on an informal level, to use the noble Lord's words, and that the two of them together can be relied upon to produce a result which is, generally speaking, in the public interest.

Lord Boyd-Carpenter

I wish to correct the noble Lord on one point. I was in no respect whatever speaking as a Conservative Party spokesman. I was simply contributing as a Member of your Lordships' House who had the experience of serving some six years in the Treasury.

Lord Bruce of Donington

I am most grateful to the noble Lord, for whom I have a profound respect as a former high officer of state and whose contributions on this subject are, I can assure him, most deeply valued by myself. I should not wish to have misrepresented his position here this afternoon in any way. He has been known, from time to time, to express a startling independence of view, often when least expected. Therefore, I cast no reflection at all upon the noble Lord.

The argument that the relationship between the Bank and government can best be left on an informal and friendly basis is not, of course, a new one. When the need for the Financial Services Act was first mooted a considerable volume of opinion said, "These things are best solved informally. The City ultimately can regulate itself. The club will keep its club membership as clean as it possibly can: why is it necessary to have these various Acts of Parliament?" However, as time passed, the necessity for the Financial Services Act became more obvious. And, after Johnson Matthey, the necessity for this Bill became obvious.

In due course, if I may predict to the noble Lord, Lord Young of Graffham, I am afraid that Lloyd's will soon be on his plate again. There is already a volume of opinion in the City advocating that Lloyd's, rather than being self-regulatory, should be brought within a more comprehensive regulatory scheme.

I am not surprised that the Alliance Benches on this occasion should also be in favour of a very cosy relationship and should regard the amendment that I have put down, or rather the consequences of its application, as a constitutional outrage. These arguments do not surprise me. Indeed, they help to lay down the lines of demarcation between the Alliance, on the one hand, and those for whom I have the honour to speak on these Benches.

I repeat that we are trying to help the Government. We shall not seek to press the amendment. The opinions expressed have been most revealing, and I hope that they will be taken note of very widely. In the meantime, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 1, as amended, agreed to.

4 p.m.

Clause 2[The Board of Banking Supervision]:

Lord Bruce of Donington moved Amendment No.6:

Page 2, line 16, leave out ("jointly")

The noble Lord said: Clause 2(2)(b) which deals with the appointment of six independent members to the new Board of Banking Supervision reads: six independent members, that is to say, members appointed jointly by the Chancellor of the Exchequer and the Governor, being persons having no executive responsibility in the Bank".

The purpose of appointing the Board of Banking Supervision with a majority of six independent members is that those members shall act independently. In the course of the Second Reading debate, when the argument was advanced, the noble Lord, Lord Young of Graffham, said that all that was being done in this particular Bill was to follow the precedent set in the Financial Services Act. Indeed, Schedule 7 of that Act, where the qualifications of designated agency are set out, says at paragraph 1(2): The chairman and other members of the governing body must be persons appointed and liable to removal from office by the Secretary of State and the Governor of the Bank of England acting jointly". That section was quoted by the noble Lord in support of his disagreement with the deletion of the word "jointly" in this subsection. The position is entirely different. In the Financial Services Act we were dealing with a designated agency of which the Bank of England was not a member. One was dealing in effect with a body from whom the governor of the Bank of England and the Secretary of State were completely aloof.

However, in the Banking Bill, the board itself consists and is stated at Clause 2(2) to consist of: three ex officio members, namely, the Governor of the Bank for the time being, who shall be the chairman of the Board, the Deputy Governor of the Bank for the time being and the executive director of the Bank for the time being responsible for the supervision of institutions authorised under this Act; So this board already has three officials of the Bank of England upon it. That means that if the word "jointly" is left in, the Bank which already has three ex officio members on the board of banking supervision, can exercise a veto over the Chancellor of the Exchequer's appointment of independent members. This does not appear to me nor I hope to others to be the correct state of affairs.

In human life, particularly in organisations of human individuals, there is very often a desire to produce a sense of conformity in the composition of boards of directors. As I see it, the function of the independent members is to advise the ex officio members. Indeed, that is in the Bill itself. Is it really right that those who are being advised should have a veto—because this is what "jointly" means—over names that are put forward by the Chancellor of the Exchequer? Is it right that the views of the Chancellor of the Exchequer as to who should be an independent member of this supervisory board should be subject to the agreement of those by whom the independent members are going to be advised? I think this is highly dangerous. Surely the function of the independent members is to be independent.

Those of us in commerce, industry—and indeed in government for that matter—know the dangers of having people around us who cocoon us with their agreement. They are very acceptable to us because they are known to agree with us. There must always be a temptation when there are selections for a board for those who are already on it, while of course not neglecting the ordinary professional human character qualifications, to prefer people, generally speaking (to use the loose term), with whom one gets on pretty well. I think there is a danger here. The function of the independent members, functioning independently, when the occasion arises is to be hair shirts; to be, if necessary, firm; if necessary, abrasive. These are not always characteristics which are admired by people who are accustomed to getting their own way, who are already in positions of great power and influence, as the three ex-officio members of the board of supervision will be.

I hope Committee will concur in the view that it is far better that the independent members should be appointed by the Chancellor of the Exchequer after consultation with the Government. The words "after consultation" mean in law what they say: that there is a responsibility on the Chancellor of the Exchequer to consult. But with an important function of this kind I would have thought it right, bearing in mind the ultimate power of Parliament, that although the governor of the Bank of England should be consulted, and if possible agreement should be arrived at with him, the veto should not lie with the Bank. The Chancellor of the Exchequer, being responsible to Parliament, ought after consultation to be required to make the appointment. I beg to move.

Lord O'Brien of Lothbury

Since I seem to be getting on my feet rather often, perhaps I ought to say at this point that although I am still associated with three banks in the City of London—and as everyone knows I was in the Bank of England for many years—I have consulted no one about this Bill. I have not the least idea whether the present governor of the bank of England would agree with anything I say in the House of Lords on it. I feel free to say what I think in view of my past experience, and I hope that what I say will be congenial to the present governor—but we shall have to see.

As to the amendment proposed by the noble Lord, Lord Bruce of Donington, and the amendments which follow it, as I read them, these amendments display a continuing distrust of the Bank of England. I cannot say I am surprised at that because members of the party on the Opposition Benches have traditionally had a distrust of the Bank of England, as indeed they would have of all central bankers, since central bankers in general are wedded to financial rectitude, probity and good sense. All too often, I am afraid, Left-wing governments lose their sense of direction, to say the least.

It may seem to be a very small point whether the Chancellor of the Exchequer appoints members of this board after consultation with the Bank rather than appointing them jointly with the governor. Nevertheless, I think the difference is important. I would not in any way want to undermine the strength and influence of the Bank in this area—not for the sake of the Bank but for the sake of the country at large. The Bank is a national asset and one which we should use to the best advantage. We certainly do not do that by undermining such authority as it has, without presuming to give it authority which it should never have.

I would prefer to see the Chancellor of the Exchequer and the governor jointly concerned in these appointments. If they are so concerned, I do not believe the appointments would be just a cosy arrangement between friends to make sure they get people on the supervisory board who are congenial and easily manageable. No sensible Chancellor would have anything to do with that. But I think it is important that the board should be there to advise and help the Bank, not to stick an oar in unnecessarily nor to make the system more difficult to work.

I do not believe that anybody who accepted an appointment to such a board would be anybody's poodle, neither the governor's nor the chancellor's. If they were in the majority on the board, I believe they would exercise that majority function responsibly and fairly for the good of the system. Therefore, I oppose this amendment.

Lord Bruce-Gardyne

I am not sure what attitude my noble friends will take to this amendment. I hope that they will recommend that the Committee resists it, very much along the lines advanced by the noble Lord, Lord O'Brien. Like my noble friend Lord Boyd-Carpenter, I served in a much more humble capacity in the Treasury. From that experience I find that this amendment, and perhaps even more so a number of others to which we shall come shortly, are calculated to undermine the authority of the Bank of England. I share the anxieties which the noble Lord, Lord O'Brien, expressed in that capacity.

However, in respect of this amendment I should like to make just one separate point. Having served for a brief period in the Treasury and having been involved in the relationship between the Treasury and the financial system during that period, frankly I am somewhat bemused by the apparent conviction of the noble Lord, Lord Bruce, that the Treasury is better equipped to choose exclusively the members of the supervisory board than is the Bank. I have to say that I should be inclined to take precisely the opposite view.

The Treasury has many skills and qualities but its understanding of the market-place is almost by definition at one remove compared with that of the Bank. I cannot believe that a more authoritative report on the supervisory board is likely to be achieved if the choice is left to the overriding whims of the Chancellor and the Treasury. It seems to me to be essential that the Bank should have at least an equal role in the selection.

Lord Taylor of Gryfe

I agree with the general view that has been expressed by the noble Lords, Lord O'Brien and Lord Bruce-Gardyne, because, as I said during the discussion on an earlier amendment, I feel that in the relationship between the Treasury and the Bank the balance is just about right. I do not propose to rehearse that argument.

Perhaps I may say to the noble Lord, Lord Bruce of Donington—and I am anxious to be helpful to him on this matter—that recent experience would suggest that joint appointments are desirable. I refer to the case, which I raised in this Chamber, of the appointment of Mr. John Kay, the distinguished director of the Institute for Fiscal Studies, whose appointment was agreed by the Bank and the SIB as a member of that important body. I understand that it was not a joint appointment and that it was vetoed by the Treasury. I suggest that that was a case in which joint discussion and joint appointment would perhaps have avoided embarrassment.

Like the noble Lord, Lord Bruce-Gardyne, I feel that perhaps the central bank is in as good a position to consider the suitability of appointments to the supervisory board as is the Treasury, and consequently I hope that the noble Lord, Lord Bruce of Donington, will withdraw this amendment.

Lord Young of Graffham

The method of appointment and other provisions in respect of the independent members of the Board of Banking Supervision have been the subject of extensive debate in another place. The provisions of the Bill that is now before the Committee reflect that debate following changes introduced by the Government.

The provisions for the appointment of independent members strike the right balance in that they require appointments to be made by my right honourable friend the Chancellor of the Exchequer acting jointly with the governor of the Bank of England. It will be a joint exercise. Many members of the Committte must feel as I do that nothing can be gained by adopting the proposed amendment whereby appointments will be made first by the Chancellor following consultation with the Bank of England. For the convenience of the Committee perhaps I may say that I hope that we are dealing with Amendments Nos. 6, 7 and 8 in connection with this matter, since they are all grouped together.

Surely something would be lost if we removed the former concept of joint appointments, which is that embodied in the provisions of the Financial Services Act recently approved by this Chamber in relation to the appointments to the Securities and Investments Board. There is a need for balance in these matters and I believe that the Bill strikes the right balance. It guarantees an independent voice on the Board of Banking Supervision and at the same time recognises that in order to operate effectively the independent members must work closely with the Bank's supervisors, pooling their advice and experience at the highest level. That is the purpose of these provisions which I believe that the Bill properly reflects.

Lord Bruce of Donington

I am disappointed that the Minister has seen fit to reject the power that I proposed to give to the Chancellor of the Exchequer in this matter. It seemed to me to be a proper reflection of the position that ought to exist between any Chancellor of the Exchequer and any governor of the Bank of England. The amendment that I propose provides for consultation—cosy consultation or informal consultation if one likes. Nevertheless, one should bear in mind that these members are to be independent members, advising three ex officio members, and that in the final analysis it is the Government, with responsibility to Parliament, who ought to have the ultimate authority.

I was a little surprised to learn from the noble Lord, Lord Bruce-Gardyne, that he did not think much of the Treasury officials' understanding of the marketplace compared with that of officials in the Bank of England. I have the utmost admiration not only for the officials in the Bank of England but also for those in the Treasury, who, after all, are responsible to the Chancellor of the Exchequer. From what the noble Lord, Lord Bruce-Gardyne, has said, I gather that the present Chancellor of the Exchequer, who has the responsibility for the Treasury, does not understand the working of the market-place either.

4.15 p.m.

Lord O'Brien of Lothbury

Perhaps I may intervene here. I have the greatest admiration for our Civil Service, and none greater than for those civil servants at the head of the Treasury with whom I have worked for many years. They are most admirable people in all respects. However, the fact is that the Bank of England is in the market every day of its life. It is part of the market and therefore it comes to know the market much more intimately than could anybody in Whitehall; and my Treasury friends will be the first to acknowledge that.

Lord Bruce of Donington

In the course of my remarks so far I have not referred to the position taken up by the noble Lord, Lord O'Brien. If I may, I shall touch upon that as politely as I can in the course of the next few minutes. However, it is not necessary for the Treasury to be in the market-place in order to understand it. I have said before many times that experts should be on tap and never on top. This is an occasion on which the Treasury, which is responsible to Parliament, ought to be seen to be on top.

I repeat I am surprised to learn from the noble Lord, Lord Bruce-Gardyne, that the Chancellor of the Exchequer, because he is not in the day-to-day market-place, similarly does not understand it. I have long suspected that many of those who advocate the freedom of the market and who believe in market forces do not really understand them anyway.

Lord Young of Graffham

Forgive me for interrupting, but I think that the point being made is not that my right honourable friend the Chancellor of the Exchequer does not understand the market, which is far from being the case, but that because the Bank is in day-to-day contact with the people in the market it will have better knowledge of individual people who are at that time practising in the market.

Lord Bruce of Donington

That makes it all the more necessary for an independent mind to be engaged on this matter. The market-place, particularly in the City, as the noble Lord, Lord Boyd-Carpenter, has pointed out, is a very cosy kind of place. For the sake of Parliament and indeed the country it is wise that there should be an occasional dose of astringency in the business rather than allowing everything to continue under the old pals act. I have endeavoured to keep party politics out of the debate. The noble Lord, Lord O'Brien, was frank. One can understand what the Bank of England as then constituted—I shall not pass any comment on as now constituted—felt about the policies of successive Labour governments.

Lord Boyd-Carpenter

Hear, hear!

Lord Bruce of Donington

That proves the point that I have been trying to make. When the chips are down, and the noble Lord, Lord O'Brien was kind enough endorse the point, the Bank of England is in fact the Tory party at the place of work.

Lord O'Brien of Lothbury

The point I wanted to make is that the central banker has a professional expertise and concern which he shares with other central bankers throughout the world. He is constantly meeting other central bankers. They always wail about the inadequacy of government and their straying from the path of rectitide. It is part of life. A central banker concerned with correct financial policies, as he sees them, is bound to be unhappy about politicians who stray from them. In the past, Labour may have strayed more often than the Conservatives, but both have strayed.

I always remember that one of Montagu Norman's greatest friends was Philip Snowden. He did not think that Philip Snowden strayed. They were on the same path. It has nothing to do with politics; it has to do with the impact of politics on people who are concerned with professional rectitude.

Lord Bruce of Donington

I am most grateful for the noble Lord's intervention. It reminds me of the observations made by John Kenneth Galbraith when he was American Ambassador to India. In a missive he sent to the then President in connection with domestic affairs he claimed that banking was a profession from which it was difficult to recover.

The purpose of the amendment is to assert, once again, the executive's ultimate responsibility. I understand that those on the Benches opposite find that inconvenient. I am sure that a number of governors of the Bank of England find the amendment repugnant; nevertheless, on the principle, and because we all profess adherence to parliamentary democracy, with governments responsible to Parliament and Parliament exercising ultimate authority, I propose—I am sorry that I shall be unable to attract the members of the Alliance to this concept once again—to divide the Committee on this issue.

4.23 p.m.

On Question, Whether the said amendment (No.6) shall be agreed to?

Their Lordships divided: Contents, 62; Not-Contents, 130.

DIVISION No.2
CONTENTS
Beaumont of Whitley, L	Briginshaw, L.
Beswick, L.	Brockway, L.
Blyton, L.	Bruce of Donington, L
Bottomley, L.	Campbell of Eskan L

Carmichael of Kelvingrove, L.	Molloy, L.
Cledwyn of Penrhos, L.	Morton of Shuna, L.
David, B.	Mulley, L.
Davies of Penrhys, L.	Nicol, B.
Dean of Beswick, L.	Northfield, L.
Denington, B.	Oram, L.
Elwyn-Jones, L.	Phillips, B.
Ennals, L.	Pitt of Hampstead, L.
Ewart-Biggs, B.	Ponsonby of Shulbrede, L.[Teller.]
Falkender, B.
Fisher of Rednal, B.	Rea, L.
Fletcher, L.	Ross of Marnock, L.
Gallacher, L.	Russell, E.
Galpern, L.	Sefton of Garston, L.
Graham of Edmonton, L.[Teller.]	Serota, B.
	Shackleton, L.
Gregson, L.	Shepherd, L.
Hatch of Lusby, L.	Silkin of Dulwich, L.
Heycock, L.	Stallard, L.
Jeger, B.	Stewart of Fulham, L.
Jenkins of Putney, L.	Strabolgi, L.
John-Mackie, L.	Taylor of Blackburn, L.
Kirkhill, L.	Taylor of Mansfield, L.
Leatherland, L.	Underhill, L.
Listowel, E.	Wallace of Coslany, L.
Llewelyn-Davies of Hastoe, L.	Williams of Elvel, L.
Lovell-Davis, L.	Wilson of Rievaulx, L.
Mischon, L.	Ypres, E.
NOT-CONTENTS
Alexander of Tunis, E.	Gray of Contin, L.
Allerton, L.	Greenway, L.
Amherst, E.	Grey, E.
Atholl, D.	Gridley, L.
Attlee, E.	Haig, E.
Auckland, L.	Hailsham of Saint
Aylestone, L.	Marylebone, L.
Bancroft. L.	Hampton, L.
Beaverbrook, L.	Harris of Greenwich, L.
Belhaven and Stenton, L.	Harvington, L.
Belstead, L.	Hemphill, L.
Bessborough, E.	Henderson of Brompton, L.
Blyth, L.	Hesketh, L.
Bonham-Carter, L.	Hirshfield, L.
Borthwick, L.	Holderness, L.
Boyd-Carpenter, L.	Home of the Hirsel, L.
Brabazon of Tara, L.	Hood, V.
Brougham and Vaux, L.	Hooper, B.
Bruce-Gardyne, L.	Hylton-Foster, B.
Butterworth, L.	Ironside, L.
Caithness, E.	Killearn, L.
Campbell ofCroy, L.	Kinloss, Ly.
Carnock, L.	Kitchener, E.
Coleraine, L.	Lane-Fox, B.
Constantine of Stanmore, L.	Layton, L.
Cottesloe, L.	Limerick, E.
Cowley, E.	Long, V.
Craigavon, V.	Lothian, M.
Davidson, V.[Teller.]	Luke, L.
De Freyne, L.	Lyell, L.
De La Warr, E.	McAlpine of West Green, L.
Deeds, L.	McNair, L.
Denham, L.[Teller.]	Marley, L.
Denning, L.	Merrivale, L.
Diamond, L.	Molson, L.
Donaldson of Kingsbridge, L.	Morris, L.
Donegall, M.	Mowbray and Stourton, L.
Drumalbyn, L.	Munster, E.
Dundee, E.	Nugent of Guildford, L.
Ebbisham, L.	O'Brien of Lothbury, L.
Eccles, V.	Pender, L.
Edmund-Davies, L.	Peyton of Yeovil, L.
Elliot of Harwood, B.	Pike, B.
Elliott of Morpeth, L.	Portland, D.
Elton, L.	Rankeillour, L.
Fanshawe of Richmond, L.	Reay, L.
Fraser of Kilmorack, L.	Reigate, L.
Gainford, L.	Ridley, V.
Gibson-Watt, L.	Ritchie of Dundee, L.
Gladwyn, L.	Rochdale, V.
Gormanston, V.	Romney, E.

Saltoun of Abernethy, Ly.	Terrington, L.
Sanderson of Bowden, L.	Teviot, L.
Sandford, L.	Teynham, L.
Seear, B.	Thorneycroft, L.
Selborne, E.	Tordoff, L.
Shannon, E.	Torrington, V.
Skelmersdale, L.	Tranmire, L.
Somers, L.	Vaux of Harrowden, L.
Stedman, B.	Waldegrave, E.
Strange, B.	Ward of Witley, V.
Strathcarron, L.	Whaddon, L.
Strathcona and Mount Royal,	Whitelaw, V.
L.	Wigoder, L.
Strathspey, L.	Wolfson, L.
Taylor of Gryfe, L.	Young of Graffham, L.

Resolved in the negative, and amendment disagreed to accordingly.

4.32 p.m.

[Amendments Nos. 7 and 8 not moved.]

Lord Williams of Elvel moved Amendment No. 9:

Page 2, line 17, at end insert ("or any institution authorised under this Act.").

The noble Lord said: I beg to move Amendment No. 9, standing in the names of my noble friend Lord Bruce of Donington, myself, and my noble friend Lord Morton, in the words on the Marshalled List. It may also be for the convenience of the Committee if I speak also to Amendment No.20.

As the noble Lord, Lord Young of Graffham, said, we are here dealing with the balance on the board and the balance of the board's responsibilities vis-à-vis the ex-officio members. The amendments that we have tabled are in the nature of probing amendments to elicit from the Government, if that is possible, what view they take about executive members of banks serving on the Board of Banking Supervision. We are assured that the members will be truly independent. They are described as being independent members in the Bill. At present in what one would call the shadow board there is a mixture of those who are in some cases chairmen of banks, in one case a partner in a senior accounting firm, and in one case the deputy chairman of British Telecom. There is a mix between those who are involved in banking and those who are involved in banking only in a wholly non-executive role. It is always difficult to discern whether the role of a chairman of a clearing bank is an executive or non-executive role; it varies between banks. However, for the moment I shall call it a non-executive role.

I believe that many Members of the Committee would be concerned if all the independent members of the Board of Banking Supervision were executives in an authorised institution. Some Members of the Committee might be concerned if none of the independent members of the Board of Banking Supervision were executive members of an authorised institution. There is presumably some middle ground which would preserve the independence of the independent members so that the advice that the ex-officio members will be receiving will be properly balanced while keeping the sense of the practitioner relationship—the people who are actually in touch with the day-to-day goings-on of banks.

I am quite happy to accept it if the noble Lord says that my amendment is too extreme. Nevertheless, I hope very much that he will give us the benefit of his views and those of the Government as to where the Government think that the balance should be struck in the group of independent members on the Board of Banking Supervision between those who are not involved on a day-to-day basis with executive responsibilities in banking, and those who are. I beg to move.

Lord Young of Graffham

I appreciate the purpose of these amendments and the need to avoid conflicts of interest arising on the board. But the board is intended to be an expert arm of supervision and in order to play that role it is vital that the board includes—among others—experienced commercial bankers who can bring first-hand knowledge of prevailing banking practices into the supervisors' decision-making process.

There is no reason why this should produce undesirable conflicts of interest. The standard, accepted practice in such circumstances is for a member of a board to declare an interest and to stand aside from any decision of the board that bears directly on that interest. That is the practice that will be followed on the Board of Banking Supervision. Indeed, it would put us under grave difficulty if we were to depart from that standard. All Members of the Committee will agree that it would be a considerable loss to the quality of supervision if a blanket prohibition on bankers playing a role on the board were to be introduced, or that it should be confined to those who have recently retired from playing an active role as a banker. In those circumstances, with all the safety practices which I hope the Board of Banking Supervision will follow to ensure that they stand aside if there is any question of conflict of interest, I invite the noble Lord to withdraw his amendment.

Lord Williams of Elvel

I am grateful to the noble Lord. He responded to my half invitation to say that my amendment was too extreme. I believe that was the thrust of what he had to say. I admitted that the amendment was perhaps designed to elicit some further response than simply that it would not work.

Perhaps I may elaborate for a moment. Practising bankers are not necessarily executive members of a bank. Leaving aside the question of whether a chairman of a clearing bank is executive or nonexecutive—as I say, that is sometimes difficult to discern—on the present shadow board there is the chairman of the Royal Trust Company of Canada, who is a director of the TSB, and indeed a former chief executive of Arbuthnot Latham, who is certainly a banker with enormous experience in banking; but unless I am mistaken I do not think that he has an executive post inside any of those banks that I have mentioned. There is the deputy chairman of British Telecom, who happens to be a director of Barclays Bank as well. I do not think, however, that as a director of Barclays Bank he is an executive of that bank.

There is the chairman of M&G, who is also a director of Kleinworts, but I believe that he is, so far as I know, an executive director of Kleinworts. The noble Earl, Lord Limerick, is correcting me—he is not an executive director of Kleinworts. He is a banker but not an executive director of the bank. There is the senior deputy chairman of Standard Chartered Bank, who is about to resign from the shadow Board of Banking Supervision once he takes over from the noble Lord, Lord Barber, as chairman of that bank. There is therefore a mix on the board at the moment between those who have a day-to-day involvement in an executive capacity and those who have not necessarily a day-to-day involvement but an involvement which allows them to keep in touch with the market and to meet their colleagues on the boards of banks.

I very much hope that the noble Lord can say a little more about the balance that he would expect to be struck, not just to avoid conflicts of interests but to make sure that the outside world has an impact on the board and on the ex-officio members. I draw the analogy with the Securities and Investments Board. It was written into the Financial Services Act that the public should be represented on that board. I am not saying that the public necessarily need to be represented on the Board of Banking Supervision. Nevertheless, I think that the outside world has to be represented; it has to be there. The organisation should not simply be a group of executive bankers, because they will certainly have an interest collectively in ensuring that the Bank of England does things which are to their own profit. I am afraid that is the way of the world.

Perhaps I may ask the Secretary of State to give a little more guidance on how the Government see the balance being struck between non-executive directors of banks, executive directors of banks and people who are neither executive directors of banks nor non-executive directors.

Lord Young of Graffham

I think it is very difficult, if not dangerous, to be drawn in at this stage in settling policy for decades ahead, or for as long as these boards will continue to exist. What is important is that this is a board that has a very real and vital role to perform. In order to perform a supervisory role it must have at its disposal sufficient knowledge of current banking practice. If we accepted the amendment in any way we should first of all get into definitional difficulties about what is the "executive" or "non-executive" role, which can cause a whole raft of problems for the future. Secondly, we would be excluding from the board the very people who are most aware of the latest practices and the direction in which the market is going. They are also most aware of situations which require changes, perhaps in supervision or changes in order to ensure that this board has teeth; that it actually performs properly. It is a way in which the world is changing; it is a fast-changing world, as we have all come to realise.

I wish that I could go some way down the path which the noble Lord asks me to go in talking about the balance. That really has to depend upon the circumstances at the time, as they arise. I could not accept the assertion of the noble Lord, Lord Williams of Elvel, that bankers are totally interested in self-interest, or in the profit which they themselves, or institutions, may make. I suspect that the interest of all who are serving on this board will be to see that the sector itself, the whole banking institution of the City of London will actually prosper and will perform their proper role. In those circumtances we say simply this: that the members on the board will be those which it is thought at the time to be the most suitable members. Above all else, we will ensure that there will be no conflict of interest on individual decisions that the board itself will take.

Lord Williams of Elvel

I am grateful to the noble Lord, and I recognise the difficulty which he is in. He cannot set policy for the next six months. Therefore, we shall have to wait and see what appointments are made to the board. Nevertheless, I should draw his attention again to the problem that I have outlined. I should also draw his attention to the fact that, so far as I am aware, these arrangements are not only different to the Securities and Investments Board, but also to the Building Societies Commission which does not have building societies executives forming the whole of the independent sector of the Building Societies Commission. As much as the Government have tried to introduce this as the third part of a financial regulatory system—if I may put it that way—we have a system in the Bill, the crucial system of the Bill, which is the Board of Banking Supervision. That is different in nature to the others. That is the point upon which we have to reflect. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

4.45 p.m.

Lord Bruce of Donington moved Amendment No.10:

Page 2, line 19, after ("fit") insert ("and in such a manner as they think fit")

The noble Lord said: In speaking to this amendment, I shall, with the permission of the Committee, also speak to Amendment No.11. After listening to the tenor of the debate that has so far taken place, I am quite sure that the Goverment will reply that these particular amendments are completely unnecessary.

All that the first amendment seeks to do is to give the independent members not only the right to give such advice as they think fit, but also in such a manner as they think fit. For example, some members may be constrained to put their objections in writing, which is something we think they ought to be able to do.

The next amendment to which I am speaking states: The independent members may at their sole discretion communicate the advice they have given to ex officio members to the Treasury at any time and in whatever manner they think fit.

I am quite sure the noble Lords, Lord O'Brien, Lord Young of Graffham, and possibly also Lord Bruce-Gardyne and others take the view that this situation will never arise, and that in point of fact, there is most unlikely to be disagreement between the independent members and the ex-officio members. As Members of the Committee will recall, this is a possibility to which I gave some support earlier. In short, any resistance to these amendments is based on the supposition that the relationship between the independent members and the ex-officio members will be supportive rather than critical. However, that is in disagreement with the observations which fell from the lips of the noble Lord, Lord Young of Graffham, when he spoke to the previous amendments.

The noble Lord said that under the Bill the independent members had teeth. I may be a little old-fashioned, but I had always understood that the function of teeth was that when the occasion arose, they were able to bite. Therefore, if, according to the noble Lord under the Bill the independent members should have teeth, then if they consider it necessary, they must be able to bite. Should they decide to bite for whatever reason, these amendments give them the facility for doing so. In particular, Amendment No.11 gives them the right to communicate the advice that they have given to ex-officio members to the Treasury at any time.

Quite clearly this provision envisages a disagreement between the independent members and the ex-officio members. This may be repugnant to those who have red-tinted or rose-tinted spectacles and who envisage a set-up of eternal harmony and amity on this board, the independent members of which are supposed to have teeth. It may cause a revolution in their minds to imagine that such an occasion could ever happen.

The Bill itself is devised to correct a situation which, two and a half years ago, nobody thought would happen. Therefore, how is it possible to be certain? It will be familiar to the noble Lord, to whom I made the opening remarks at Committee stage, that we seek to place the emphasis where we think the emphasis should lie. In this case, independence is quite obviously a virtue. But, so-called independence where none exists at all can be a cloak, a mere pretence that something really independent is being done and, in the words of the noble Lord, that some teeth have been given to the independent members. I do not think that we ought to mislead the country on this point. If differences of opinion are never envisaged at all, why have a board? If on occasions the board, on the basis of its experience and expertise, believes that the e-officios are wrong, it ought to be free to express itself independently.

In conclusion, I am not seeking to anticipate an antagonism that I hope will never exist. I and my colleagues sincerely hope that the supervisory board will work in amity. We do not seek to provoke trouble of any kind. However, sitting where we sit, it is our responsibility to make sure that the word "independent" has a value. The word and the status implied by the term ought to have value. Therefore, in cases which we do not foresee but which might arise, the board ought to be permitted, in the words of the noble Lord, Lord Young of Grafiham, to bite. I beg to move.

Lord O'Brien of Lothbury

As the noble Lord, Lord Bruce of Donington, has referred to Amendment No.11, I should like to comment on that amendment. The noble Lord spoke of the need for the independent members of the board being able to bite. It seems to me that if they have access to the Chancellor of the Exchequer they are able to bite. Naturally, one accepts that the occasions on which they wish to bite will be rare, but the fact that they are able to bite will make it doubly necessary for the Bank to be mindful of their views, as the Bank would in any case. The Bank's influence and knowledge, being concerned on an everyday basis with the question of banking control, may outweigh that of the six independent members. It is all the more important that those members should be able to hold their own and not, as I said on an earlier occasion, be members of the boilermakers union brought in to represent the public. They must be able to stand their ground in relation to the high expertise of the Bank of England.

With their access to the Chancellor, they can stand their ground and see that their views are taken into account. I believe that the Bank will endeavour to operate the supervision in a sensible and intelligent manner. Therefore, the ex-officio members will rarely fall out with the six independent members. I am very much against the latter having access to the Treasury if they disagree with the bank. They may have access to the Chancellor of the Exchequer by all means, but access to the Treasury means downgrading the position of the Bank in this area, and I believe that that would be wrong.

Lord Tordoff

I wonder whether the noble Lord, Lord Bruce of Donington, can assist me? It seems to us on these Benches that Clause 2(5) covers the principle of what he is saying. I accept the distinction made by the noble Lord, Lord O'Brien of Lothbury, in relation to the Chancellor on the one hand and the Treasury on the other hand. However, the principle behind the remarks of the noble Lord, Lord Bruce of Donington, is surely covered by subsection (5), save only with reference to Amendment No.15.

Lord Williams of Elvel

I should like to reply to the noble Lord, Lord Tordoff, on behalf of my noble friend Lord Bruce of Donington, and also make one or two comments concerning the intervention of the noble Lord, Lord O'Brien.

The point raised by the noble Lord, Lord Tordoff, is true: namely, that under Clause 2(5) independent members can have access to the Chancellor of the Exchequer, once the ex-officio members have given written notice to the Chancellor of the Exchequer in any case in which it is decided that the advice of the independent members shall not be followed. That is interpreted by the noble Lord, Lord O'Brien, as meaning access to the Chancellor of the Exchequer, and I accept what he says about the Chancellor of the Exchequer rather than the Treasury. I think that it is a perfectly fair comment as regards our amendment.

Nevertheless, this formulation—which is a revised formulation arising from debates in another place—is not without considerable difficulty. It is presumably not intended that independent members should meet separately in order to draw up a collective statement of their advice to ex-officio members. I hope that the noble Lord, Lord O'Brien, will agree that the board will work better if it works together, rather than one group drawing up something which is called "advice" and communicating that formally to the ex-officio members.

In practice there will be a variety of views on any given topic. Members will be sitting around the table, views will be expressed, and no doubt modified, in the light of the discussion which takes place. It is perfectly possible to imagine that the independent members will not all be of one mind: they may differ in opinion one from another.

Further, it is not entirely clear exactly how one notes the process of decision. When dealing with matters of general policy it is sometimes difficult to say: "Now we decide this". The case is even more difficult where the ex-officio members of the board must say: "Now we decide this; the advice of the independent members is that; and we therefore note a particular situation where a decision has been taken contrary to the advice of the independent members", and the Act (as it will then be) starts to bite. That formulation is difficult and, though I am sure that the Governor, his colleagues and the chosen independent members will be able to handle the matter, I should not like Members of the Committee to think that that will be particularly easy.

Our view is that the independent members, at their own discretion (not if the ex-officio members decide that they will write to the Chancellor saying that they disagree with the advice of the independent members) should have access to the Chancellor. They should be able to say: "We have discussed the matter fully in the board, and, although the Governor felt that he was taking our advice, we must point out to the Chancellor that we do not think the Governor was taking our advice". That situation is not one which is provided for in the Bill as it stands, and that is the purpose of the amendment.

Lord Bruce-Gardyne

If the noble Lord, Lord Williams, accepts the point made by the noble Lord, Lord O'Brien, concerning the desirability of the access being to the Chancellor rather than to the Treasury at official level, I am not clear why his name is appended to the amendment, because Amendment No.11 says the opposite.

Lord Williams of Elvel

When tabling amendments, Members do not necessarily stick to every conceivable word in Committee. We are allowed to change our minds in the light of discussion.

5 p.m.

Lord Bruce-Gardyne

That is absolutely right and proper, and I accept entirely what the noble Lord has said by way of explanation. I thought that the substantive points made by the noble Lord, as regards the complexities of defining precisely the circumstances of divided opinions within the supervisory board and between the independent and ex-officio members, were valid points. However, I submit that they substantially call into question the whole substance of subsection (5). I have substantial reservations about subsection (5) as it is now drafted.

In introducing the two amendments, the noble Lord, Lord Bruce of Donington, said that he expected to be told that they were unnecessary. I do not think that they are simply unnecessary; I regard them as profoundly offensive. However, I am inclined to feel that the wording of Clause 2(5) in the Bill as it stands, and as altered by the Government following the debates in another place, is somewhat offensive in its approach to the relationship between the Bank and the Treasury. I would remind the Committee that originally subsection (5) ended with the words that the advice of the independent members should not be followed. It is only in the Bill as before the Committee today that the phrase, and the independent members shall be entitled to place before the Chancellor the reasons for their advice", has been added.

I find this a kind of gratuitously offensive double banking. I think we need to watch carefully the evolution of the relationship between the Treasury and the Bank in recent years. I suppose it has always been a relationship of constructive tension—or tension at any rate: perhaps it was not always overwhelmingly constructive in the days when I was involved in these matters. But since then I suggest that there has been a substantial shift of assertiveness from the Bank towards the Treasury, no doubt as a consequence of the Johnson Matthey affair, to which the noble Lord, Lord Bruce, referred and which of course is bound to be substantially at the back of our considerations throughout the perusal of this Bill.

It is important that the Government should beware of the vital importance to the Treasury and the Government that the authority of the Bank, as the overriding supervisory control within the City, is not undermined and diminished. I am not talking about the noble Lord's Amendment No.11, which, as I say, I would regard as profoundly offensive to the Bank and to the authority of the Bank, but I have to say that in my view even subsection (5), as it stands in the Bill after amendment following debates in another place, is somewhat gratuitously offensive to the authority of the Bank.

The Government should beware of doing anything which further undermines the authority of the Bank if they want the Bank to perform the essential supervisory role it has to perform, because for the reasons we discussed on Amendment No.5 I do not believe that the Treasury is qualified to perform that role in the market place. We need to look carefully at the maintenance of the authority of the Bank and do nothing which further diminishes that authority.

Lord Tordoff

Is not the noble Lord, Lord Bruce-Gardyne, supposing that the independent members are in fact Treasury moles rather than independent members? Is that what he is saying?

Lord Young of Graffham

I think I should at the outset remind the Committee that my remarks about the Board of Banking Supervision having teeth referred to the whole board and not to just certain members. In fact I hope they will all have teeth, and I hope they will all use them. We have before us today two amendments, and they are rather different. Amendment No.10, I suspect, goes without saying. The board is empowered by paragraph 4 of Schedule 1 to determine its own proceedings. I feel about this that the words already include giving advice "in such manner as they think fit", and I do not think that we should go much further, but I shall listen to what everybody has to say.

Amendment No.11 is altogether different. I hope—and I think we all hope—and expect that the ex-officio and the independent members of the board will work together in a constructive manner. I am sure that that will be the case. The experience of the shadow board which has been set up in anticipation of this legislation supports that view. But it is right that the Bill should provide for difficult cases, disputes or differences, which turn out to be irreconcilable. That is the purpose of subsection (5) of this clause. I heard what my noble friend Lord Bruce-Gardyne had to say, but we are not discussing the clause itself but a proposed amendment to the clause. However, I listened with great care to what he said, and I do take note of his words.

Subsection (5) provides that where the advice of independent members is not to be followed, then the ex-officio members must notify the Chancellor of the fact, and in such cases the independent members are given the explicit right to approach the Chancellor to explain the reasons for that advice. These are adequate safeguards. The expectation must be that in the majority of cases the issues will be resolved within the board itself, and only occasionally will it be necessary for issues to be referred to the Chancellor.

This is a very powerful weapon indeed. The fact that the members can go directly over the head of the Governor of the Bank of England to the Chancellor of the Exchequer seems to me to be a powerful weapon. I do not think that it adds to it, or does anything else, to have the right to speak to nameless officials within the Treasury.

That seems to confuse the whole position, because the amendment seems to assume that the independent members will be communicating with the Treasury on a regular or frequent basis. There is nothing in this Bill to prevent such communication, but surely it is not the intention, nor is it necessary or even desirable, that the Bank of England and not the Treasury should be responsible for day-to-day supervision under the Bill. I feel strongly that this particular amendment is one that we should reject.

Lord Bruce of Donington

This has been a most interesting debate on these two amendments. I am bound to accept the view that subsection (5) in all effective circumstances gives the independent members an entitlement to place before the Chancellor the reasons for their advice. Provided, therefore, that the ex-officio members give the written notice where it is decided that the advice of the independent members shall not be followed, then the independent members have that right.

Once again the course of the debate, and particularly the contribution of the noble Lord, Lord Bruce-Gardyne is a little indicative of a mood that seems to be governed by the almost complete veneration to which the Bank of England is held to be entitled. I took the words of the noble Lord down: "the Government should not offend the Bank". Those were his words. He can see them in tomorrow's Hansard. Why not, if it is necessary?

The Bank is a corporate institution. If every criticism of the Bank is to be rejected as an offence, or as being offensive to the Bank, then parliamentary proceedings mean nothing. I tend to regard as amiable those people who, by and large, tend to agree with me. This is a human characteristic which I think we all have in common. But I do not necessarily take offence because somebody disagrees with me, or because somebody offers criticism.

Even criticism is not offered either by the subsection to which the noble Lord referred, or indeed by the amendment. Is the Bank composed of super-sensitive people who take any criticism as a mortal blow to their dignity? If one regards the amendment as offensive—or if, as the noble Lord said, even subsection (5) itself is regarded as in some way insulting or offensive—to the Bank, then all parliamentary proceedings in your Lordships' House and in another place are to some degree offensive. There ought to be no offensiveness in honest and straightforward argument and expression of view. Unless these matters are expressed in personal terms, they should give no cause for offence. They are a legitimate expression of views which in a democracy very frequently differ. The Bank of England, no more than anybody else, should be entitled to be immune from criticism, express or implied.

However, I have taken note of the noble Lord's observations about the Treasury in Amendment No.11. Perhaps at Report stage, if we are so minded, and after mature consideration of the debate, we may introduce a similar amendment. I am not saying that we shall, but we could remedy the point made by the noble Lord, Lord Bruce-Gardyne, by putting in "the Chancellor of the Exchequer". That might be more in keeping. I trust that the noble Lord will not thereupon turn round and say that we are being offensive to the Chancellor of the Exchequer.

In the light of the debate and having sensed the feeling in the Committee, I ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No.11 not moved.]

Lord-Williams of Elvel moved Amendment No.12:

Page 2, line 25, leave out ("regular") and insert ("monthly").

The noble Lord said: It may be for the convenience of the Committee if I also speak to Amendments Nos. 13, 14, 15 and 17. The amendments deal with Clause 2(4) which lays on the Bank a responsibility to make reports to the board on matters which are relevant and to provide the board with such information as it needs. I paraphrase that subsection because there are some points in it, to which the amendments are addressed, which I think need certain clarification. It is clearly important that the board be properly briefed by the Bank on matters and it is clearly important that matters should not be irrelevant. There is no point in briefing the board on irrelevant matters.

Nevertheless, I have some problems with the wording of the subsection as it stands. My first question is what is meant in this context by the word "regular"? I have inserted 'monthly" in Amendment No.12, but it could be "quarterly" or any other period. I certainly want to know what "regular" means? Is it on a regular basis or as events occur which happen to occur regularly? Will it be a quarterly piece of information or a weeky bulletin? How will this all happen? I shall return to this if I can, but if it is to be left to the Bank then I cannot see why it is on the face of the Bill.

The next question concerns the expression, which the Bank considers relevant". In other words, the criteria of deciding whether matters are relevant or not to the board rests with the Bank. It is the Bank which decides whether a matter is relevant to the discharge by the independent members of their duty under subsection (3) above". Finally, there is a further qualification on the information that the board may receive; that is the limitation of reasonable requirement. Clearly, it is not to require information which is unreasonable. But I should prefer to see a phrase such as "entitled to" in place of "reasonably require".

These are not matters of world-shaking importance. But, clearly, if we are to have something on the face of the Bill, it is important, first, that it should be clear, and, secondly, that the Committee should fully understand what it is intended to mean. I am bound to say that I have some difficulty in understanding exactly what the responsibility of the Bank is in subsection (4) in respect of the board and the information to be communicated to it. It is so hedged around that either it means everything or it means nothing.

The amendments to which I am speaking would at least make the matter precise. They may make it undesirably precise in the Government's view. I think that they would make the legislation comprehensible as well as precise. If the Government decide that the Bill should be left wholly imprecise, then there is a reasonable formulation which says that the Bank shall keep the board more or less informed about matters it is discussing. These are very general words, but presumably the Bank would do that anyway. I should be grateful for the noble Lord's comments. I beg to move.

5.15 p.m.

Lord Harmar-Nicholls

The noble Lord said that his amendment made the wording more precise. I do not believe that is a proper description of what the amendment would do. There would be rigidity; every month, this would have to be done. That rigidity would create a lot of unnecessary work. Taking all the amendments together, we are very near the point to which the noble Lord, Lord Bruce of Donington, objected on the last amendment—the point where, particularly if one felt in a liverish mood, it could be deemed an unnecessary criticism of the Bank to the extent perhaps of being marginally offensive. At the moment, as the words stand, "regular intervals" mean having to be kept informed when there was something to be informed about.

Lord Tordoff

May I—

Lord Harmar-Nicholls

May I just finish this point? To say that you do not trust the Bank to interpret "regular" to mean that, and to tie it down to "monthly", is a rigidity that stretches behind the point.

Lord Tordoff

With respect to the noble Lord, Lord Harmar-Nicholls, "regular" is restrictive. "Regular" means at a regular frequency. The Bill does not say what that frequency shall be, and the noble Lord, Lord Williams of Elvel, is specifying that the frequency shall be monthly. To put in the word "regular" means that there has to be a report at regular intervals which means a rolling programme.

Lord Harmar-Nicholls

I think the noble Lord and I agree. It is in the judgment of the Bank to interpret the word "regular", whereas the amendment says "monthly", tying it down.

Lord Williams of Elvel

Does the noble Lord, Lord Harmar-Nicholls, not recognise that the rigidity he is talking about is there whether one uses the word "regular" or "monthly"?

Lord Harmar-Nicholls

I am suggesting that the words that the noble Lord has in his amendment make the Bill offensively rigid. As it stands, it recognises the responsibility of the people who have to decide the regularity of reports. A bank is no different to running one's own business. Where the board of any business which meets at irregular intervals says that it wants a weekly or a monthly report and that this shall not be at the discretion of the executive who has to give it, that can give the impression that you do not have a lot of confidence in your executives. It can imply that you do not think they can decide that sort of thing. I do not know what my noble friend will do.

While I had a little sympathy with the noble Lord, Lord Bruce of Donington, when he objected to this offensive stuff, this is getting near to a point where, if I was in the executive, I would begin to wonder whether I had the full confidence of a board which wanted to tie me down as rigidly on giving details as these amendments seem to do.

Lord Young of Graffham

It is a surprising world in which we live. I occasionally hear complaints about how people take offence at programmes on television or the radio or in connection with other matters, but I little thought the day would come when the wording of the Banking Bill would turn out to be quite so offensive. It just goes to show!

The Bill requires the Bank of England to provide the board with regular reports on matters relevant to its functions. "Regular" is the key point. Perhaps it would be as well to look into the present practice of the shadow board, which meets monthly. Since this is in line with the pattern of its meetings, it gets a monthly briefing; but in addition ad hoc briefings are received on matters of special interest should the occasion arise.

We are actually putting in additional rigidities, and as a Minister who has some responsibility for deregulation I should hate to introduce unwittingly some new regulations to specify whether the report should be weekly, monthly or whatever. I think it is a slightly unnecessary form of bureaucracy. The word "regular" really means that it should be at periodic intervals but that those intervals could vary as and when the demands of the market might dictate.

Lord Tordoff

With respect to the Minister, surely "regularly" cannot mean that. "Regularly" means regularly, and what the noble Lord is describing is irregularly, or as and when required. If the Bill said that there shall be recourse to these reports as and when required but not less than quarterly, or something like that, we might have some common ground. But it says "regularly", and once you have started you have to repeat it at those kinds of intervals.

Lord Harmar-Nicholls

I suppose one can put what interpretation one likes on the word "regular", but the point of my intervention is that you are letting the Bank itself decide the necessity and to decide what is "regular". I think that is right. If you have confidence in it to do the job you have given it to do, it ought to be in a position to decide just that.

Lord Tordoff

I am not disagreeing with the noble Lord, Lord Harmar-Nicholls. I am saying that the Bill at the moment says "regularly", and that means at regular intervals and not as and when people feel like it.

Lord Young of Graffham

I am sorry, but what I said a moment or two ago is simply this. The Bill requires the Bank of England to provide the board with regular reports on matters relevant to its function. There may well be times of particular difficulty when the regularity of that report might have to be increased to weekly, or even daily. Who can tell? Merely to provide for "not less than quarterly" does not take us any further. The important point is that there should not be an occasional report. It is seen clearly in the Bill that they should be at regular intervals—but those intervals can vary if the need should arise to make them more frequent. I cannot imagine the need would arise to make them less frequent, but I cannot tell what circumstances may dictate. Also, when one considers that the independent members of the board are empowered to require any further information they may need, over and above the regular reports from the Bank of England, there is that additional safeguard.

On the second amendment, I believe there is a similar case for the retention of the provision stating that the reports to be made by the Bank are those that it considers relevant to the functions of the independent members. What other test could there be for such reports? Even if the proposed words were removed it must still in practice be the Bank's judgment of "relevance" which determines what reports are made. Once again, if the independent members do not share that judgment the safeguard is provided by their power to call for further information.

The third amendment would remove the word "reasonably" from the provision. It states that the independent members may require further information. I take it the noble Lord does not intend that the members should make unreasonable requests, and in that case I see no real purpose to the amendment. The point of the present drafting is perhaps more presentational than substantial because no attempt to exercise these rights in an unreasonable way could or would be enforced by the courts. But on balance it seems better to retain the words. However, I leave that to the noble Lord.

Lord Williams of Elvel

I am most grateful to the Secretary of State. I think this has been a very useful exchange because we have established that there is a certain rigidity, though its type may change. I hope that the Secretary of State was not ruling out irregular reports, in the sense that there may be special occasions when a report might be necessary at a moment's notice. He seemed to refer to the regular report, the frequency of which might change.

Lord Young of Graffham

If the noble Lord will allow me, irregular as to timing but not as to content, I trust.

Lord Williams of Elvel

I am most grateful. We now see that the Bank shall make regular or irregular reports, as the case may be. It is very important to get these understandings absolutely clear in our minds. They are important and we need to have the board, and particularly the independent members, properly informed about what is going on. I take the noble Lord's point absolutely about the independent members having the power, under the clause as drafted, to ask for supplementary information. They can clearly use that should they consider the information they are getting, which the Bank considered relevant, not to be relevant. They can ask for more information. As long as the request for further information is reasonable, as I am sure it would be, there is the necessary power under that clause. So I take the noble Lord's point on that and I shall not press the amendment. I am still very interested in looking at what the noble Lord said about the regular reports and regularity. I shall read his remarks carefully in Hansard.

Lord Tordoff

Just before the noble Lord seeks perhaps to withdraw his amendment, I thought we were coupling Amendment No.17 with these amendments, but I may be wrong. Nobody seems to have spoken on Amendment No.17.

Lord Williams of Elvel

As it happens, I was not going to move Amendment No.17. If that satisfies the noble Lord, Lord Tordoff, I now beg leave to withdraw this amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 13 to 18 not moved.]

Clause 2 agreed to.

Schedule 1[The Board of Banking Supervision]:

5.30 p.m.

Lord Bruce of Donington moved Amendment No.19:

Page 79, line 9, leave out ("the Bank and").

The noble Lord said: I beg to move the amendment standing in my name and the names of my noble friends. I propose to speak also to Amendments Nos. 21 and 22. As drafted, paragraph 1(2) reads as follows: An independent member may resign his office by written notice to the Bank and the Chancellor of the Exchequer". My amendment would seek to eliminate from that wording the words "the Bank and". That would leave the responsibility of the independent member to write direct to the Chancellor of the Exchequer with his resignation. That would be his responsibility. There is of course no reason why he should not simultaneously inform the Bank, but in our view the written notice should be sent to the Chancellor of the Exchequer.

Amendment No.21 concerns the removal from office of an independent member. Paragraph 2 says: An independent member may be removed by the Bank with the consent of the Chancellor of the Exchequer if it is satisfied". Amendment No.21 seeks to eliminate the following words: the Bank with the consent or'. It lays on the Chancellor of the Exchequer the responsibility for removal, and Amendment No.22 is consequential on that. Once again we are on the point of the independence of the member himself. That is why we want the relationship between the Chancellor of the Exchequer and the independent member to be firmly established. That is the purpose of these amendments and they follow very much the same tenor as many of those that have been put previously.

For the avoidance of doubt, I have to say that these amendments are not put down with any object of being offensive to the Bank of England, the sensibilities of which have been perhaps a little exaggerated by the noble Lord, Lord Bruce-Gardyne, who seems to be super-touchy about anything that conceivably might be interpreted by the Bank as offensive. They are not intended in that way at all. They are to put the responsibility in this respect where the responsibility ought to lie and ought reasonably to lie. The word "independent" and the incorporation of the members in the Board of Banking Supervision implies that, although they are working with the Bank, they are not of the Bank. To give the Bank the responsibility either of accepting their resignation or of ordering their removal puts the Bank in a more elevated position than it ought to be in. It is no more or less than that.

There are those who regard any such suggestion that the Chancellor of the Exchequer ought to have anything to do with it as somehow being offensive to the Bank of England. I cannot see that at all. I am well aware that members of Her Majesty's present Government are so fully in concert, agreement and harmony that there is almost a love match between themselves and the Bank of England, but this is not always necessary for the correct conduct of the nation's affairs. The Chancellor is entitled to have his own view independent of the Bank, unless he is so scared stiff, or the Government are so scared stiff, of the Bank of England that they are reluctant to do any thing that might even slightly ruffle its feathers, breathing, as well they might, with the gentleness of a zephyr. This seems to be an extraordinary state of affairs.

I think that these amendments are reasonable. They tend to put the responsibility where it ought to lie in respect of independent people who may on occasion have to be severely critical of the Bank's conduct, and quite legitimately so; and the Government ought to place themselves more squarely behind the independent members of the supervisory board. Otherwise with the best will in the world—and it will not need any words from me—people will tend, with some justification, to regard the independent members of the supervisory board as creatures of the Bank itself.

I am quite sure that this was not the intention of the legislation. I am quite sure that, if the noble Lord, Lord O'Brien, were the governor, he would not regard them as such. I acquit him of any responsibility. Nevertheless, this is what may be thought, and legitimately thought. Why not place it beyond all reasonable doubt and give to the independent members that direct contact—after all, they are important people exercising a very responsible function—with the Chancellor himself in the circumstances envisaged by the paragraphs to which I have referred. I beg to move.

Lord O'Brien of Lothbury

Before commenting on this series of amendments, perhaps I may say a word about the extreme sensitivities of the Bank of England. They do not exist. The Bank of England is well able to take care of itself and anyone else. It does not like criticism—who does? It does not like criticism which it feels is not justified—who does? But its main efforts to avoid criticism are by doing its job in the best manner possible and it takes whatever criticism comes. So do not let us worry too much about the sensitivities of the Bank of England.

But this Committee, following what happened in another place, has decided at an earlier stage of this Bill that this board should be appointed jointly by the governor and by the Chancellor of the Exchequer. That being so, it seems to me that these amendments simply fall. If the members are appointed jointly, they have to tender their reservations jointly to both the governor and the Chancellor, and it seems to me entirely reasonable that if they fail in their duties and responsibilities as members of the board the governor, with the agreement of the Chancellor, should remove them from it. So I think that none of these amendments should be supported.

Lord Harmar-Nicholls

I think that all that needs to be said has been said by the noble Lord, Lord O'Brien, but I get a little disturbed by the noble Lord, Lord Bruce of Donington. He said it is right that there should be direct contact with the Chancellor. The members have it. What these amendments are trying to do is to stop them having any contact with the governor, with the Bank. It is a joint matter as it stands. They have contact with both. As regards the possibility of ending their membership, and not wanting the Bank to be in a position to give any indication on that, they are the ones who would know whether it is desirable to dispense with their services. The noble Lord, Lord O'Brien, talks with greater authority than anybody as to whether or not the Bank of England is likely to be sensitive, but I think that once again this is to some extent by implication downgrading what we think is the role of the Bank and we ought not to do that. It is bound to be detrimental.

Lord Young of Graffham

I take great comfort from the words of the noble Lord, Lord O'Brien of Lothbury, that the Bank will not be irrevocably damaged by our comments in the Committee this afternoon. What we are dealing with now in Amendments Nos. 19, 21 and 22 is voluntary and involuntary removal from the board. It seems to me just a matter of common courtesy that if a member is appointed on a joint basis he should at least be allowed to retire on a joint basis and to write to both the Chancellor of the Exchequer and to the governor of the Bank. I am afraid that I see very little merit in Amendment No.19.

As regards the other amendments which deal with involuntary retirement from the board and the circumstances in which an independent member may be removed, apart from specifying the grounds for removal the clause provides for removal by the Bank with the consent of the Chancellor. This reflects the simple fact that the Bank will be in the best position to know whether any of the specified circumstances have been met, but as a check if you like, the Chancellor must also agree. This seems eminently reasonable to me. I fear that I do not appreciate the desire of the noble Lord, Lord Bruce of Donington, to impose on the Chancellor the sole responsibility, since after all the Chancellor will be less well placed to initiate appropriate action. I fear that we could not accept either of these amendments.

Lord Taylor of Gryfe

We have dealt with the question of joint appointments before on a previous amendment and I simply subscribe to what I said on that occasion. I agree that throughout the amendments so far discussed there seems to be an implication or a suggestion that, somehow or other, the Bank is associated with some cosy City club and therefore we have to establish the supremacy of the Treasury.

Let me say to the noble Lord, Lord Bruce of Donington, that if he has been down in the City of late he will know that it is not just a cosy club. There is no need to repeat the fact that I believe the balance is right at the moment and it would be wrong to upset the balance. It is an arrangement admired in many parts of the world. There are difficult situations in all central banking-Treasury relationships and so far we seem to have it just about right. I do not know whether the noble Lord, Lord Bruce of Donington, is influenced by some political consideration, such as the unlikely assumption that there may be a Labour Chancellor one of these days. If that is his assumption, the balance would still be wrong and consequently we cannot support the amendment.

Lord Bruce of Donington

I am grateful for the remarks which have fallen from the lips of the noble Lord, Lord Taylor of Gryfe. I am glad to affirm that I am in Parliament for a political purpose. Politics, after all, is about the determination of a policy. I am sorry that the reaction of Members of the Committee, with whom I am on terms of normal personal amity, should consistently be such as to suggest that I am the villain of the piece. It is as though I am such a disturbing influence or said to be a disturbing influence in what is evidently an intimate relationship between the Bank and Her Majesty's present Government that to even be party to the suggestion of a rift is almost regarded as akin to high treason. I am sensible of the personal risks which I run in this matter. It may well be that I shall be severely disadvantaged if on any future occasion I find myself seeking facilities from the banking system for my own affairs. It looks very much as though I shall not be able to get a very good reference, other than one saying that I am being (so-called) offensive to the Bank of England.

I think that the amendment is sensible. I draw the Committee's attention to paragraph 2(d) dealing with removal from office. The first three conditions set out in sub-paragraphs (a), (b) and (c) are obvious enough. However, sub-paragraph (d) contains a sweep-up clause for the removal of an independent member if he, is otherwise unable or unfit to discharge his functions as a member of the board". I can understand "unfit". However, "unable" may be a matter of opinion. "Unable" may mean unable to put forward views amenable to his colleagues or being disadvantaged in some way by being the odd man out. That may well come within the category of "unable". The words are here and I am entitled to put any reasonable construction upon them.

In any event, I still consider that the independence of independent members ought to be established all the way through on the basis that they are not the creatures of the Bank, in spite of their relationship with the ex-officio members. They must be what they are supposed to be—independent.

Having sensed the mood of the Committee, through the views of the sole representative for the Alliance and the remainder of the Committee on the Government Benches and the Cross-Benches, it would be a waste of time for me to press this amendment to a Division. I am not satisfied with the replies which have been given. At any rate, replies have been ventilated and that is sufficient for our present purposes. With the leave of the Committee, I shall withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 20 to 22 not moved.]

5.45 p.m.

Lord Bruce of Donington moved Amendment No.23:

Page 79, line 25, at end insert— ("(2) The Chancellor of the Exchequer shall report to Parliament on the reasons for his removing an independent member from office.").

The noble Lord said: I fear that I must be at it again in moving this amendment. Line 25 in page 79 deals with the removal from office of an independent member. My amendment states: The Chancellor of the Exchequer shall report to Parliament on the reasons for his removing an independent member from office". I am well aware that in the context of previous debates and the amendments which have been rejected, in strict terms removal, as the Bill now stands, must be a joint matter. However, even if that were the case, it should still be the function of the Chancellor of the Exchequer to report to Parliament on the reasons for his concurring in the removal of an independent member from office; that is a matter which could be amended, if necessary, at Report stage. But the general thrust of the argument is that Parliament should be informed.

We must decide how important independent members of the supervisory board are. They have been put there and the Bill is clearly drawn so that six independent members will be included on the board. That may be thought insulting, though I sincerely hope that it will not be because Her Majesty's Government are not normally insulting to the Bank. In any case, it is the considered view of the Government that in addition to the loyal, devoted and skilful servants of the Bank, in exercising the supervisory function there should be independent members.

Some Members of the Committee may say that that in itself is offensive. But what else could be expected after the Johnson Matthey affair and what it revealed? I do not wish to rake that matter up again, though I have the report here. It is something which could be discussed if the Committee wished to prolong the discussion on this point. But I have no wish to rake up old embers and I have made few references to that in this Chamber since it occurred because it has been dealt with thoroughly in another place.

If an independent member is removed, a report on the reasons ought to be made to Parliament because Parliament has insisted on the inclusion of independent members. That is of vital significance to Parliament. The report could be short, terse and to the point. In the event of removal for ordinary reasons of sickness or something of that nature, it could be quite formal. However, Parliament should be officially informed because it is vital in this matter. As I informed the noble Lord earlier, we are back to the question of the relative status of Her Majesty's Government on the one hand and the Bank on the other. This amendment is a reflection of my view that Parliament is ultimately supreme and should be informed. It is moved for no other reason. I beg to move.

Lord O'Brien of Lothbury

Once again I find myself in opposition to the noble Lord, Lord Bruce of Donington. It seems to me, as we are now agreed that independent members of the panel should be appointed jointly by the governor and the Chancellor, that the matter of their going should not be unduly advertised. The noble Lord, Lord Bruce, talks about a report to Parliament being terse and to the point. Can you imagine a terse report saying: "Mr. So-and-So has been removed from the council because he has lost his marbles"? That is indeed terse and to the point.

Whatever the reason for a man going, or a woman—because there may be women on this panel in due course—the manner of going should be tactful. The fact that it is achieved by the governor and the Chancellor in concert must surely be good enough for Parliament. I hope I have as great a respect for Parliament as the noble Lord, Lord Bruce, does, but I do not see why every little thing has to come to Parliament. I should have thought that it could be left to the Minister and the governor to effect this on Parliament's behalf in the most discreet manner possible.

Lord Thorneycroft

I hope that the noble Lord, Lord Bruce of Donington, will take note of what has been said by the noble Lord, Lord O'Brien. When people are asked to join boards and institutions, the object is to try to get the best people available in the country for the job. If the time comes for a member to go, one does not advertise all over the country the reasons, which may be rather personal to the member himself. He may have taken to the bottle; he may fall asleep too regularly at meetings. There may be a dozen different reasons. All of us have known and worked with people whom we think could be eased out, or promoted to the House of Lords or some other occupation. But the idea that these delicate matters should become the subject of parliamentary debate is remote from the realities of the world, and I hope that the noble Lord will reflect on that.

Lord Young of Graffham

I thought that my noble friend Lord Thorneycroft gave the perfect definition of a member of a board supervising my activities: one who would fall asleep whenever we came to discuss them. But this is a serious point, and I do not think I need to draw attention in this Committee to the circumstances in which members can be removed from boards, including physical or mental incapacity and bankruptcy. It would be invidious for the Chancellor to be required to provide as a matter of course details of the reasons for a member's removal on such grounds. If there were anything controversial, if something happened which caused great debate—of course Ministers are answerable to Parliament for all matters under this Bill—that could then be raised.

If I may say so, what is regrettable in the tone of some of the comments of the noble Lord opposite is that there is some cosy arrangment—he used "cosy" in a slightly derogatory way—between the Bank of England and the Government. The Bank of England is an essential pivot in what is one of the fastest growing areas in our economy. I hope the Government, the Bank of England and the City of London will play their proper roles in the growth of that economy. There is no cosy arrangement of which I know. This is yet another amendment which I must resist.

Lord Bruce of Donington

I am very sorry that noble Lords have seen fit to take this view on the amendment that I have ventured to lay before the Committee. In Schedule I there are two ways in which an independent member can leave the board. He can resign his office by written notice or he can be removed. I too have lived within the City and I too have had some experience on the boards of companies, in commerce and in industry. I am much in favour of discreet departures of directors or, in this case, of independent members of boards.

The amendment I am proposing does not deal with those circumstances that provide for discretion. We all know what happens when it is decided that a member—possibly for a variety of reasons—is no longer suitable for the position that he occupies. In compliance with the conditions set out so clearly by the noble Lord, Lord O'Brien, conversations take place following which the director, or in this case the member, tenders his resignation. That does not call for any report to Parliament by the Chancellor of the Exchequer.

This amendment relates only to those cases in which a director is removed from office. When you remove a director from office as distinct from being discreet and persuading him to resign, which happens under Clause 2, you are rupturing an associaton by force; you are removing somebody. There is no queston of persuading him to resign. I can quite envisage the circumstances which the noble Lord, Lord Thorneycroft, had in mind, where somebody gets a bit doddery. Heaven forbid that an independent member of such a high-ranking board should ever be doddery or that he should go to sleep over his claret after lunch or dinner, but this could happen even in the best of regulated families.

In spite of the energies and the skill of the governor of the Bank of England in selecting personnel, failings might occur within months or perhaps years of the appointment—small failings that might ultimately induce a member's colleagues to ask him to resign. We are not dealing with that situation. We are dealing with a situation not of resignation and all the circumstances in which that might be tactfully or discreetly arranged, but of removal. It is my considered view that removal is markedly different from being eased out as the noble Lord opposite described it.

Removal should happen very rarely indeed, but it might happen. I sincerely hope that the occasion will never arise. But we are trying to revise the law that is proposed. In those rare circumstances—and they are bound to be very rare—Parliament should be given the reasons. I am very sorry that the Committee is not prepared to assimilate that view. I greatly regret that I shall have to divide the Committee on this issue.

Lord Harmar-Nicholls

Surely the noble Lord recognises that his amendment as it stands is unnecessary. If Parliament wishes to know the reasons it does not have to wait for a report from anybody. Parliament has the power to ensure that it gets the reasons. If the noble Lord is concerned that Parliament should eventually know, in the circumstances that he has described Parliament will know. These words are therefore unnecessary, and there is no reason for the implication which the words carry, even with the explanation which the noble Lord has given, since Parliament has all the power which he wants it to have.

Lord O'Brien of Lothbury

Before the noble Lord divides the Committee perhaps I may ask him whether he would be satisfied if the report which the Bank of England has to make to Parliament on these matters at regular intervals simply stated, "With the agreement of the Chancellor of the Exchequer So-and-So ceased to be a member of the board from such-and-such a date and someone else was appointed in his place"; or alternatively, "With the agreement of the Chancellor of the Exchequer So-and-So resigned from the board from such-and-such a date and someone else took his place". Is there a need to say any more?

Lord Taylor of Gryfe

I hope that the noble Lord, Lord Bruce, will not divide on this matter. If there is an extraordinary case of the Chancellor of the Exchequer exercising his authority and removing an independent member from office, would not Parliament provide the facilities for discussing this by a Private Notice Question or a debate of some kind? The Chancellor of the Exchequer is answerable to Parliament. If it were an extraordinary case, it would presumably be raised as a subject of public debate in the same way as the appointment of John Kay and the SIB was a matter of general comment and debate. That facility is available. To insist that the Chancellor of the Exchequer "shall report" on the removal is quite unnecessary so long as these facilities are operating.

Lord Bruce of Donington

Perhaps I may answer noble Lords on this matter. Theoretically, of course, those in another place can demand explanations from government in regard to specific actions, but there is no obligation on government to reply. In my own experience over a number of years some matters remained unexplained in spite of questions having been asked in another place. It is right that Members of another place should have a right to ask but there is no legal obligation on the Government to reply. They can take the political consequences of not replying in some instances but there is no constitutional obligation on them to provide an explanation on request.

I very much prefer to have it written into the Bill, because then the Chancellor of the Exchequer will have to make a report. As to what opportunities may or may not be afforded for debate on these matters, that depends on how the usual channels operate in another place. I prefer not to speculate on that, any more than I should like to speculate as to what would happen through the usual channels in this place if there were a demand for a debate. In order to make the position quite clear I should very much prefer the amendment that I have ventured to lay before the Committee to be formally incorporated into the structure of the Bill.

6.2 p.m.

On Question, Whether the said amendment (No.23) shall be agreed to?

Their Lordships divided: Contents, 47: Not-Contents, 124.

DIVISION No.3
CONTENTS
Blyton, L.	Llewelyn-Davies of Hastoe, L
Borthwick, L.	Lovell-Davis, L.
Boston of Faversham, L.	Milner of Leeds, L.
Brockway, L.	Molloy, L.
Brooks of Tremorfa, L.	Morton of Shuna. L.
Bruce of Donington, L.	Nicol, B.
Campbell of Eskan, L.	Oram, L.
Carmichael of Kelvingrove, L.	Phillips, B.
Cledwyn of Penrhos, L.	Pitt of Hampstead, L.
David, B.[Teller.]	Ponsonbv of Shulbrede, L.[Teller.]
Dean of Beswick, L.
Donoughue, L.	Prys-Davies, L.
Elwyn-Jones, L.	Ross of Marnock, L.
Ennals, L.	Sefton of Garston, L.
Fitt, L.	Shackleton, L.
Gallacher, L.	Silkin of Dulwich, L.
Galpern, L.	Stallard, L.
Graham of Edmonton, L.	Stewart of Fulham, L.
Hatch of Lusby, L.	Strabolgi, L.
Houghton of Sowerby, L.	Taylor of Blackburn, L.
Jeger, B.	Underhill, L.
Jenkins of Putney, L.	Wallace of Coslany, L.
John-Mackie, L.	White, B.
Kirkhill, L.	Williams of Elvel, L.
NOT-CONTENTS
Ailesbury, M.	Attlee, E.
Allerton, L.	Auckland, L.
Amherst, E.	Aylestone, L.

Beaverbrook, L.	Layton, L.
Belhaven and Stenton, L.	Limerick, E.
Belstead, L.	Lindsey and Abingdon, E.
Bessborough, E.	Long, V.[Teller.]
Birdwood, L.	Lothian, M.
Blyth, L.	Luke, L.
Bonham-Carter, L.	Lyell, L.
Boyd-Carpenter, L.	McGregor of Durris, L.
Brabazon of Tara, L.	McNair, L.
Broadbridge, L.	Marley, L.
Brougham and Vaux, L.	Merrivale, L.
Bruce-Gardyne, L.	Mottistone, L.
Butterworth, L.	Mowbray and Stourton, L.
Caithness, E.	Munster, E.
Campbell of Alloway, L.	Napier and Ettrick, L.
Campbell of Croy, L.	Nugent of Guildford, L.
Carnock, L.	O'Brien of Lothbury, L.
Coleraine, L.	Orr-Ewing, L.
Colwyn, L.	Pender, L.
Constantine of Stanmore, L.	Peyton of Yeovil, L.
Cowley, E.	Pike, B.
Craigavon, V.	Portland, D.
Davidson, V.[Teller.]	Rankeillour, L.
De La Warr, E.	Reay, L.
Denham, L.	Reigate, L.
Diamond, L.	Renwick. L.
Dilhorne, V.	Ridley, V.
Donegall, M.	Rochdale, V.
Dundee, E.	Russell of Liverpool, L.
Ebbisham, L.	Saltoun of Abernethy, Ly.
Eccles, V.	Sanderson of Bowden, L.
Elliot of Harwood, B.	Seear. B.
Elliott of Morpeth, L.	Shannon, E.
Elton, L.	Sharpies, B.
Ferrers, E.	Skelmersdale, L.
Fraser of Kilmorack, L.	Stedman, B.
Gibson-Watt. L.	Stockton, E.
Gormanston, V.	Strange, B.
Greenhill of Harrow, L.	Strathclyde, L.
Grey, E.	Strathcona and Mount Royal
Gridlev, L.	L.
Haig, E.	Swansea, L.
Hailsham of Saint	Taylor of Gryfe. L.
Marylebone, L.	Terrington, L.
Hampton, L.	Teynham, L.
Harmar-Nicholls, L.	Thorneycroft, L.
Harris of Greenwich, L.	Tordoff, L.
Hemphill, L.	Torrington, V.
Hesketh, L.	Tranmire, L.
Home of the Hirsel, L.	Vaux of Harrowden, L.
Hood, V.	Waldegrave, E.
Hooper, B.	Ward of Witlev, V.
Hylton-Foster, B.	Whaddon, L. '
Inglewood, L.	Whitelaw, V.
Kaberry of Adel, L.	Wigoder. L.
Kilmarnock. L.	Windlesham, L.
Kimball. L.	Winterbottom, L.
Kinloss. Ly.	Wise. L.
Kitchener, E.	Wolfson, L.
Lane-Fox. B.	Young of Graffham, L.

Resolved in the negative, and amendment disagreed to accordingly.

6.11 p.m.

Lord Williams of Elvel moved Amendment No.24:

Page 79, line 29, at end insert ("provided that the proportion of ex officio and independent members of the Board under section 2(2) of this Act is maintained.").

The noble Lord said: I beg to move Amendment No.24 standing in the name of my noble friend Lord Bruce of Donington, myself and my noble friend Lord Morton of Shuna. This amendment refers to Schedule 1(3) by virtue of which, as the schedule is at present drafted: The Treasury may …by order increase or, subject to section 2(2) of this Act, reduce the number of ex officio or independent members of the Board. As I understand this, the Treasury may make an increase by simple order: that is, there is no particular control under Clause 2(2) on the increase but there is a control under Clause 2(2) on any decrease. The object of the amendment is to make sure that, if the Treasury increases the totality of the board and then subsequently decides to decrease the number of the board, the proportions of independent members against ex-officio members are maintained.

The noble Lord may say that this amendment is unnecessary and that that provision is built in. I wish to make it absolutely clear that there could be no prospect of the Treasury flooding the board, so to speak, and then reducing the proportion so that the independent members no longer had a majority on the board. I beg to move.

Lord Young of Graffham

These provisions are already fairly detailed, and I believe that there is a danger of creating impractical requirements if we accept this amendment. It is clear from the existing provisions that the Government's intention is that there should be a substantial majority of independent members on the board. It may in future prove desirable to increase the numbers and that is why this schedule provides for such increases. If the need for an increase were to deal with a temporary situation, then subsequent reductions might be required, and this too is provided for; but it would not be sensible to insist on a strict retention of the proportion of one sort of member to the other. If it proves desirable to increase the number of independent members, for example, it does not automatically follow that it would be efficient or necessary for the ex-officio members also to be increased. And how would one cope with an increase of a single independent member? The strict proportion could in no way be maintained. I do not believe the amendment is workable; nor, alas, do I think it necessary.

Lord Williams of Elvel

I am grateful to the noble Lord. Do I understand that it is the government's intention to maintain always a majority of independent members on the board?

Lord Young of Graffham

Yes. I think that there is a provision that there is a majority of independent members and I think that the Government would wish to keep the same majority. However, it is not always possible to keep the same proportion.

Lord Taylor of Gryfe

I am grateful for that assurance. I have some sympathy with the point of view expressed by the noble Lord, Lord Williams of Elvel, but with that assurance from the Government I hope that he will not press this amendment to a Division. The position is satisfactory.

Lord Williams of Elvel

I am most grateful to the Secretary of State and to the noble Lord, Lord Taylor of Gryfe. This is exactly the assurance I was looking for—that there will be at all times a majority of independent members on the board of supervision. Having received that assurance from the Government, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Williams of Elvel moved Amendment No.25:

Page 79, line 36 at end insert— ("(3) The Board shall report on its procedure in its annual report prepared under section 2(6) of this Act.")

The noble Lord said: I regret to say that in the Marshalled List there is a printing error in this amendment. For "proceedings" it should read "procedure". Although the title of that part of the schedule is "Proceedings", nevertheless sub-paragraph (1) indicates that the board "shall determine its own procedure." It is to this procedure that the amendment is directed.

Again, it is a question, if I may put it like this, of transparency; to ensure that nothing happens in the board by way of procedure that would be in any sense undesirable and could be objected to. It is vitally important that the board not only is a proper adviser to the ex-officio members, and hence should be a proper board of banking supervision, but should be seen to be such.

As in any company, there are documents and articles of association setting out procedures on how shareholders operate, what they should do and how they should conduct themselves—indeed many boards of directors have those procedures which are perfectly transparent—so it seems to us that the board should make its procedure perfectly clear. The amendment proposes that the board should report in its annual report, and this seems to be a convenient mechanism. In its first annual report it would set out the procedure that the board has adopted, and in subsequent annual reports it would simply say that it had changed its procedure in this, that or the other direction. This is, as I say, something which would line up the board with the sort of arrangements in companies with which we are familiar. It would line up the board—since the Securities and Investments Board is a company—and would give the public full assurance that the board is conducting, as I am sure it will, its proceedings in a proper and sensible manner. I beg to move.

The Deputy Chairman of Committees (Lord Strabolgi)

Amendment proposed, with a manuscript amendment, Page 79, line 36, at end insert— ("(3) The Board shall report on its procedure in its annual report prepared under section 2(6) of this Act.").

Lord Young of Graffham

I feel a little lost on this particular amendment because I can well see that there are some reasons why the board could report on its proceedings—although that is not the intention of this amendment—but to report on its procedure seems to me no more than the board saying that it met X times a year, and that all the members turned up, or stating who did not. In those circumstances, I really cannot see how it should report in this way, unless reporting on that procedure actually had the intention that the board would report on its proceedings, which is something entirely different. In that respect, a blow by blow account of the board's proceedings would be unacceptable. I cannot see the merit of this amendment.

Lord Williams of Elvel

I must beg the pardon of the Secretary of State. I tried to point out that there was an error in the amendment and that it should not read "proceedings" but "procedure". I fully agree with the Secretary of State that it would be rather ridiculous for the board to report on its proceedings publicly. That was not the intention of the amendment but the intention of the amendment as mistakenly printed on the Marshalled List. Its intention is to make sure that the procedure of the board is properly known and understood.

What do I mean by procedure? I mean, as follows: whether there are formal votes on the board; how it conducts its business and is there, or is there not, a formal agenda? Is there any form of resolution? What happens—to get back to a previous debate—when it is clear that the ex-officio members are not accepting the advice of the independent members, which gives them rights under Clause 2 of the Bill? How is that determined? It seems to me that this is quite an important point where we need to know more. I hope that I have explained my amendment to the satisfaction of the noble Lord, the Secretary of State. Perhaps he would be kind enough to reply.

Lord Tordoff

I wonder if I might help the noble Lord. It may be that there is some problem with the wording. Presumably, the noble Lord, Lord Williams, would be satisfied if the amendment were to say "shall report on variations in its procedure in its annual report", so that the board would start with a description of its procedure and then subsequently mention any variations from that basic procedure.

Lord Williams of Elvel

I should be perfectly happy with whatever amendment the noble Lord, Lord Tordoff, feels is more acceptable. I said that I did not see that there had to be a report on procedure in every annual report. I envisage that it would start with procedure in the first annual report, saying, "This is how we operate". Then, subsequent annual reports would give any deviation from that procedure. But the report would be the vehicle.

However, I stick to the principle. It is not for the Opposition to be accurate and totally "bomb-proof" in its drafting. It is for the Government to get the drafting right and for us to explain what we mean. I hope I have now explained what we mean.

Lord Young of Graffham

If only the Government always got its drafting right! But that is another matter entirely. I am in some difficulty over this. I fail to see how you actually describe the procedure of individual meetings without getting to the point where you begin to describe the agenda. However, if the noble Lord will write to me, perhaps we can develop this point a little further and come back to it at a later stage.

Lord Williams of Elvel

Yes, I am very happy to write to the noble Lord explaining what I mean and what I think the noble Lord, Lord Tordoff, interprets us to be saying. Perhaps we may come back to it. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Williams of Elvel moved Amendment No.26:

Page 79. line 38, after ("make") insert ("after consultation with the Treasury").

The noble Lord said: The question of facilities, remuneration and allowances of the board is one which I think needs a little probing. This amendment is designed to probe, and I hope that the noble Lord the Secretary of State will take it in that spirit. The schedule as drafted says: The Bank shall make such provision as it thinks necessary for providing the Board with facilities … and for providing remuneration, allowances or other benefits for or in respect of the independent members".

There are no problems of principle here, but I think we all want to be reasonably clear that nothing which the independent members may recieve by way of facilities, remuneration and allowances is wildly out of line with what other members in other similar boards receive. In saying "similar," I use again the example of the Building Societies Commission and the Securities and Investments Board and what members of those boards receive. Therefore, I believe there should be some consultation.

Perhaps I may also speak to Amendment No.27, for the convenience of the Committee. It seems to me that there should be an arrangement for the board's annual report or indeed the Bank's annual report—properly, I think, it should be the Bank which reports on this—to make those facilities, remuneration and allowances public. For that reason, I beg to move this amendment.

Lord O'Brien of Lothbury

From my knowledge of the ways of the Treasury, if it had thought that it had a useful and necessary part to play here, then the words which the noble Lord, Lord Williams of Elvel, wanted to have inserted in the draft would be there already. Clearly, it did not: nor do I think that it has a part to play. I would therefore be opposed to the amendment.

Lord Young of Graffham

Dealing first with Amendment No.26, the cost of the board and the facilities necessary for its proper functioning will be provided in any event by the Bank of England in accordance with paragraph 5 of the schedule. These costs will be met from the Bank's own resources and voted funds are not in themselves involved. It seems therefore unnecessary for the Treasury to be consulted in this matter, as indeed the Treasury is not consulted about details of the Bank's other expenditures on banking supervision.

Lord Williams of Elvel

Would the noble Lord the Secretary of State tell me whether the Treasury is consulted on facilities, remuneration and allowances for members of the Building Societies Commission?

Lord Young of Graffham

I shall certainly inquire, but at the moment I could not say because it is not one of those facts which I have ever with me.

Lord Williams of Elvel

I ask this question because I am making a point. All along, on all sides of the Committee, we have accepted the Government's view that this is the third leg of legislation to do with the financial markets. Therefore the more that the third leg, if I may use the expression about this rather extraordinary animal, is similar to the other various legs, the better off we are.

There are certain deviations in the Bill before us which, it seems to me, could reasonably be cleared up, and I would have thought that this was one of them. I accept that it is not the Treasury which will pay the independent members. It is after all not the Department of Trade and Industry that will pay the board members of the Securities and Investments Board. It is the SIB itself, if I may use that acronym without offence to the Committee, which will pay the members of its board. Nevertheless, there is still a principle here of parallelism, if I may put it like that, which would seem to be appropriate.

I should be grateful if the noble Lord would look at the matter in that light rather than in the light of trying to have some Treasury intrusion on what is after all a Bank responsibility. It matters not a whit who will pay the people. What we want to know is what they are going to be paid.

Lord Young of Graffham

Without going on, principles should always be had but not taken too far. What we have here are not three corners. The third leg, if you like, is a very substantial edifice indeed. It is the Bank of England; it is there; it has resources of its own; it has always carried on meeting from its own resources and sees as a proper expenditure, I might add, the full cost of banking supervision. It will see this no doubt as another of those costs, and indeed does so.

However, I shall look at what the noble Lord said. At the moment, I must say that I have, alas, little sympathy for his view.

Lord Williams of Elvel

I am grateful to the noble Lord. I see that we cannot get very much further with this today and I therefore beg leave to withdraw the amendment.

Amendment, by leave withdrawn.

[Amendment No.27 not moved.]

Schedule 1 agreed to.

Clause 3 agreed to.

Clause 4[Exempted persons and exempted transactions]:

Lord Williams of Elvel moved Amendment No.28:

Page 3, line 30, at end insert ("or classes of transactions").

The noble Lord said: This amendment is very minor but it will serve to clarify some of the problems of exemption which we see. The exemptions at the moment in the Bill as drafted under Clause 4(5) refer to transactions. I understand that there may be certain individual transactions exempt from the restrictions imposed on acceptance of deposits. I wonder whether it is sensible to go slightly wider than that and refer to certain classes of transactions as well as certain transactions, so as to give the Treasury slightly wider power. I have particularly in mind the issuance of commercial paper by companies which, as I understand it—and again I may be completely at fault in my understanding—under subsection (5) of the Bill, would be caught as deposits. It would seem to me that it is not the intention of the Bill to regulate the issuance of commercial paper. The issuance of commercial paper is a class of transaction which could legitimately be taken outside the Bill by the Treasury. I could probably think of other classes of transactions that may come into the same category but it seems that the Bill is here unnecessarily restrictive and for that reason we have put down this amendment. I beg to move.

Lord Beaverbrook

I am advised that the noble Lord's amendment is unnecessary in that the powers available to the Treasury to prescribe transactions by reference to any factors appearing to it to be appropriate is sufficient to allow the regulations to prescribe classes of transactions. The current regulations under the Banking Act 1979—the Banking Act 1979 (Exempt Transactions) Regulations 1986, which are made under the similar wording of Section 2 of the 1979 Act—already prescribe certain classes of transactions; for example, those involving sterling commercial paper. I believe that this amendment is not necessary, and if the noble Lord has in mind any other class of transaction perhaps he will make it clear.

Lord Williams of Elvel

I am most grateful to the noble Lord. Am I to understand that my amendment is unnecessary in all respects and that the expression "classes of transaction" is superfluous because there are already arrangements under this clause which make it so?

Lord Beaverbrook

Yes; I am advised that that is the case.

Lord Williams of Elvel

I am happy to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 4 agreed to.

Schedule 2[Exempted persons]:

6.30 p.m.

Lord Williams of Elvel moved Amendment No.29:

Page 80, line 7, leave out ("incorporated (or deemed to be incorporated)") and insert ("authorised").

The noble Lord said: Again, this is a very small amendment, and not one of great significance. However, when talking about Schedule 2—exempted persons—it seems to me that it is not a question of whether a building society is incorporated or deemed to be incorporated under the Act but whether it is actually authorised by the Act. Again, the noble Lord may say that my amendment is unnecessary and that these two expressions come to the same thing. I should be grateful for his comments. I beg to move.

Lord Beaverbrook

I was indeed curious as to the purpose of the noble Lord's amendment and I am grateful to him for his explanation. I think that his amendment fails to take into account the fact that the Building Societies Act permits unauthorised societies which are in the process of starting business to accept deposits in the form of subscriptions for deferred shares and certain other payments. If this amendment were to become part of the Bill, new societies would be prevented from having qualifying capital—in the form of deferred shares—from the founders and therefore could not become authorised. If there is another aspect of the noble Lord's amendment to which I have not responded perhaps he will put it to me and I shall consider it.

Lord Williams of Elvel

I am grateful to the noble Lord. I understand the argument that he puts forward against this amendment and I am inclined to accept it. It was something that I had overlooked. However, is he saying that a deferred share in a building society that is incorporated and has yet to be authorised is in fact a deposit for the purposes of this Bill?

Lord Beaverbrook

Yes, I am. That is exactly what I am saying.

Lord Williams of Elvel

In that case I understand, and beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

On Question, Whether Schedule 2 shall be agreed to?

Lord Elton

There is one small point that presumably will be picked up by the printers; namely, that in the rubrics Schedule 2 is referred to as Schedule 1 and Schedule 3 is referred to as Schedule 2. I hope that will be put right in the next printing.

On Question, Schedule 2 agreed to.

Clause 5[Meaning of "deposit"]:

Lord Williams of Elvel moved Amendment No.30:

Page 4, line 9, after ("premium") insert ("or at a discount").

The noble Lord said: I beg to move Amendment' No.30 standing in the names of my noble friends Lord Bruce of Donington and Lord Morton of Shuna and myself. This is another amendment which is of a probing nature and enables us to have something of a discussion about the meaning of the words "deposit" and subsequently "deposit-taking business". I fully understand that Clause 5 generally follows the definitions given in Section 1 of the 1979 Act. That is understood, but the definitions are quite complicated.

It seems to us that Clause 5 defines "deposit" in very wide terms. As we see it, "deposit" covers any loan or other repayable funds unless it is on terms referrable to the, provision of property or services or the giving of security or it is received from an authorised institution, an exempted person or a money-lending business or is a group payment or received from an associate.

Most businesses probably take deposits within the meaning of Clause 5 so the definition is not one that will stand by itself. It will only stand in relation to Clause 6, which concerns the meaning of "deposit-taking business". Commercial companies may take deposits as covered by the definition of "deposit" in Clause 5, but clearly they are not deposit-taking businesses within the meaning of Clause 6. It is therefore important to establish that Clause 5, which defines the meaning of the word "deposit", is not necessarily one to which we should pay so much attention. I do not say that we should pay no more than passing attention, because we have to pay attention to it; but it is not the fundamental clause that deals with the deposit and the deposit-taking business that we are now discussing.

I should like to raise three points with the noble Lord. First, I assume that banknotes are not deposits within the meaning of this Bill. After all, they are promissory notes from the Bank of England promising to pay the bearer a certain amount of money on demand. I assume that those are excluded under Clause 5. I assume too that deposits such as bills of exchange—commercial paper—come within Clause 5 and hence there is the need for them to be taken out when it comes to defining a deposit-taking business in Clause 6. I am uncertain, about the nature of deposits accepted by an institution, a partnership or a body corporate, as agent on behalf of somebody else; for instance, deposits accepted by solicitors as agent though they themselves do not operate as deposit-taking businesses.

Finally, there is the very narrow point of the amendment—I admit that this situation is difficult to conceive but I suppose it is a theoretical possibility—that a deposit may be repaid at a discount if by then it is convertible or if there is an assurance that it will be convertible or there is some arrangement that it may be convertible into an instrument that will more than remunerate the depositor for what he has lost on the face value of his deposit. In practice I find some difficulty in pointing noble Lords toward occasions on which that has happened, but it is not beyond the wit of man in the future to devise circumstances in which it could happen.

I apologise to the Committee and to the noble Lord opposite for having raised a number of rather general points about this clause, which raises certain problems of comprehension. I hope he will not think that I am trying to push him against the wall. I am merely trying to obtain an understanding of what this clause means. I beg to move.

Lord Beaverbrook

I am grateful to the noble Lord for explaining his reasons for putting down the amendment. It is a complicated matter. To answer the points that he made, the Bank of England issues bank notes and is exempted under this provision.

Lord Williams of Elvel

What about Scottish banks? Are they also exempted?

Lord Beaverbrook

I do not have the answer to that, but I imagine that I am probably safe in saying that they will be treated in the same way. Sterling commercial paper is a deposit and hence it is also exempted. Solicitors also have an exemption in respect of deposits taken in the course of business, except under the regulations. I too have had difficulty in identifying, in practice, where deposits would be repaid at a discount because I think that the definition of a "deposit'. would probably contain an element of capital security.

As I understand the effect of the amendment, it is to cover the case of where a depositor pays his deposit, not in the expectation of getting it back with interest but of getting back a lesser sum. I should not regard that as a deposit; nevertheless such transactions could occur. For instance, with a bond, the subscription could be above par, and the initial premium is in effect amortised over the life of the bond as a reduction in the interest actually received by the bond holder. I should still regard that subscription as involving a deposit of the par sum which would be repaid when the bond (or deposit) matured. It may be contended that the inclusion of the words "or at a discount" would put beyond doubt the fact that a subscription to the bond, as I have outlined, would involve the making of a deposit. But the words would also have an undesirable consequence. They do not specify that the rate or amount of discount must he known in advance. They thus introduce the idea of capital uncertainty and might, for example, result in subscriptions to equity-style investments being regarded as deposits.

I hope that I have said enough to indicate that the amendment unnaturally and unhelpfully alters the nature of the definition of "deposit". I can reassure the noble Lord that the problem addressed by the amendment has not so far been a practical one for the Bank of England. But, if it were, the power to alter the definition given in Clause 7 would enable the Government to take action. For those reasons, I find that the amendment adds nothing to the Bill.

Lord Williams of Elvel

I am most grateful to the noble Lord. I fully accept, as I said in my introduction, that at the moment I cannot see anything other than rather esoteric transactions involving deposits made and repaid at a discount, but I can see the possibility of that happening. I accept what the noble Lord says—that the Treasury has the power to make an order to cope with any such eventuality.

I was a little confused by what the noble Lord said about sterling commercial paper. As I understand the clause, money market operations by companies in receipt of deposits from anyone are covered. They are deposits because companies are not—I use the word almost by definition—institutions authorised under the Bill. It seems to me, from reading through the clause—with great difficulty, I accept, as the noble Lord accepts—that money market operatings by companies give rise to deposits which are not covered by Clause 5, as at present drafted.

I also accept that we hope that Scottish banks would be authorised institutions under the Bill, if enacted. Any Scottish bank that is not an authorised institution presumably would not be in a position to issue its own bank notes, so that would cover that point.

I shall leave out the question of deposits with the Bank of China, which is a wholly unrelated and separate question that I could raise, but I shall not. My only outstanding question is whether money market activities of companies which involve receiving deposits in the open market qualify for "deposits" under Clause 5. If the noble Lord can satisfy me on that point I shall be happy.

Lord Beaverbrook

It is a deposit. It therefore needs an exemption. It already has one under the 1979 Act which is equivalent to Clause 4. I hope that that is helpful.

6.45 p.m.

Lord Williams of Elvel

I am grateful to the noble Lord. If the 1979 Act is to be repealed, will sterling commercial paper also have an exemption under this Bill?

Lord Beaverbrook

Yes, it will. These are complex matters. If I have missed any point that the noble Lord would like answered, I shall be pleased to look at Hansard and I shall write to the noble Lord to clarify the matter further.

Lord Williams of Elvel

I am most grateful. I was going to press the noble Lord on money market operations which do not involve the issue of paper, but I shall not worry him with it. Perhaps he will be kind enough to look at the matter and write to me. In the meantime. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 5 agreed to.

Clause 6[Meaning of "deposit-taking business"]:

Lord Williams of Elvel moved Amendment No.31:

Page 5, line 6, leave out ("received by way of deposit").

The noble Lord said: I beg to move Amendment No.31. We are again dealing with a clause which is substantially the same as Section 1 of the 1979 Act. There is no reason to dwell too long on this matter; nevertheless, it gives us an opportunity to review the provisions of that Act to see whether there is any improvement that can be made.

My concern is with Clause 6(1)(a), which specifies that the business is a deposit-taking business for the purposes of the Act if: in the course of the business money received by way of deposit is lent to others; or"— and it then goes on with Clause 6(1)(b). In Clause 5 we have already established that deposits—if I may use that expression in a non-technical way—made by authorised institutions—in other words, inter-bank deposits—do not qualify as deposits because the authorised institution which makes the deposit is exempt. Many organisations lend money and finance themselves partly by way of—I shall use the expression "retail deposits"—deposits under Clause 5, and partly through wholesale deposits coming from other authorised institutions. Some institutions would say that the majority of their lending was financed through the wholesale market (through money market deposits).

Clause 6(1)(a) says that a business is a deposit-taking business if: in the course of the business money received by way of deposit"— that is, a deposit as defined by Clause 5— is lent to others". If the majority of the money that is lent by the institution that I have in mind is financed from the money market—that is, by deposits made by exempt institutions which do not therefore under the Bill count as deposits—what is the position of that institution as a deposit-taking business? From my argument, it would seem that it would be excluded from being a deposit-taking business. Clearly, that would be wrong. The purpose of the amendment is to clarify the position to ensure that I am wrong and the Government have it right. I beg to move.

Lord Beaverbrook

This is another complicated matter. I followed with interest the remarks made by the noble Lord in moving his amendment. The Government's view of this amendment is that it would capture a very much wider range of business than is presently caught—that is, those businesses which accept deposits but which do not do so as a profit-making activity. For example, the deposits may be ancillary to other activities. If such deposit proceeds are segregated and placed on deposit with the businesses' bankers, then it cannot be readily said that the deposits have been lent to others.

If the definition were amended as proposed, then the Bill would catch any business which undertook lending—no matter how small—if that business then accepted deposits with any frequency, regardless of whether it segregated those deposits from its business. This would be an undesirable and unnecessary extension of the Bill's ambit. Where deposits are segregated—for example, by being placed in a client's account—and the interest accounted for to the depositors, and not used in the business, then there is no need to bring the Bill's requirements into play.

I hope that I have covered the points made by the noble Lord. If I have not, perhaps he will come back to me.

Lord Williams of Elvel

I am grateful to the noble Lord. He has certainly covered a totally different point from the one I made. I agree that if my amendment were accepted it would widen the ambit in the way that he has suggested. He may think that that is undesirable. I was not directing my attention to that. I was concerned that there are businesses which, by any commonsense definition, would be deposit-taking businesses, yet which finance their loan book in such a manner that they would be excluded because they were financing themselves by more than half, three-quarters, or 80 per cent. (whatever it might be) from transactions which were not under this Bill "deposits" because they were wholesale money market transactions; that is, inter-bank deposits. That was the point I was making.

Lord Beaverbrook

The businesses which finance themselves wholly from the money markets do not require to be authorised. The lenders do not require the protection of this Bill. If they regularly take some retail deposits then they would need authorisation.

Lord Williams of Elvel

That is an interesting and slightly novel point of view. The banks which finance themselves and their lending activity from the money markets do not require authorisation under this Bill? Do I hear the noble Lord correctly? But those who take some form of retail deposit require such authorisation?

Lord Beaverbrook

Correct.

Lord Williams of Elvel

I shall certainly have to think about that and read very carefully what the noble Lord has said in Hansard because I am sure that there are institutions that would like to call themselves banks which finance themselves almost entirely out of the money market.

Lord Beaverbrook

Before the noble Lord sits down, perhaps I may say that these are very complex matters. They will need to be looked at carefully and some time taken to study them. If the noble Lord would like to consider what I have said, perhaps he would like to withdraw the amendment in the meantime.

Lord Williams of Elvel

I shall certainly consider what the noble Lord has said. Perhaps he will be kind enough to think about the problem and drop me a line clearly confirming the position of the Government. At the moment I am in some doubt about the exact position. If he can do that, I shall be most grateful.

Lord Beaverbrook

I shall write to the noble Lord on this point. I give that assurance.

Lord Elton

Will a copy of the correspondence be placed in the Library of your Lordships' House? This point is of some interest generally.

Lord Beaverbrook

Certainly. I am willing to give that undertaking.

Lord Williams of Elvel

I am most grateful to the noble Lord and to the noble Lord, Lord Elton. It is a very important point. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 6 agreed to.

Clause 7[Power to amend definitions]:

Lord Williams of Elvel moved Amendment No.32:

Page 5, line 31, after ("Bank") insert ("or the Securities and investments Board or both")

The noble Lord said: I beg leave to move Amendment No.32 standing in the names of my noble friends Lord Bruce of Donington and Lord Morton of Shuna and myself. For the convenience of the Committee, I speak also to Amendments Nos. 33 and 34.

We are dealing here with a power to amend definitions. The definitions about which I am worried, as I think I have made clear to the noble Lord, are definitions of deposit-taking businesses. We cannot foresee the circumstances that will prevail in the future but it is perfectly clear even now that there will be a mix in what are broadly known as financial conglomerates between deposit-taking businesses which are authorised under this Bill and investment businesses which are authorised in one way or another by the Financial Services Act.

During the passage of the Financial Services Bill, when it was before this Chamber, we were seeking to determine the relationship between the banks within a conglomerate (if I may use that ugly expression) and the stockbroker or the investment manager or whatever it might be. These relationships are clearly known and very clearly understood. It would seem to me therefore that deposit taking which may arise in other parts of a conglomerate (if I may again use that expression), and which may have to be amended by definition, should at least have the benefit of some input from the Securities and Investments Board when that definition is made or changed.

It has been a constant theme—and I am not ashamed to bring it up again—that the SIB and the Bank have to work very closely together. There are a lot of activities which will be controlled by one under one piece of legislation and by another under another piece of legislation but which in fact march very closely together. I am concerned that the Securities and Investments Board or the designated agency—or whatever the Government like to call it—should not be involved when the definition of deposit taking is made or changed. It is for that reason that I am moving the amendment.

Since we are getting near seven o'clock perhaps I may anticipate a "stand part" debate that I was going to have with the noble Lord on Clause 7(2). I do not understand why Clause 7(2) singles out, the activities of any person who is connected with it in such manner as is specified in the order". The Treasury have a clear power under the clause to amend definitions. Nevertheless, one category of possible deposit-taking business is singled out under subsection (2). I am not quite clear why the draftsman thought it necessary to single that out. I beg to move.

Lord Beaverbrook

With regard to the Amendment No.32 of the noble Lord, and speaking, with the leave of the Committee, to Amendments Nos. 33 and 34, the effect of these amendments would not be to require the Treasury to consult the Securities and Investments Board as well as the Bank, but would require the Treasury to consult one or other or both of them. As such, they are not necessary. It is open to the Treasury, as well as consulting the Bank (as they must do under the subsection) to consult other interested bodies—including the SIB. If the amendment were to be made, it would, with respect to the noble Lord, result in a somewhat confusing situation, in that some orders could be made after consultation with the Bank, some after consultation with the SIB, and some after consultation with both—a confused state of affairs that I am sure Members of the Committee would not wish to bring about.

I am assured, that in appropriate circumstances, the Treasury will certainly consider whether the SIB (or any other interested bodies) should be consulted as well as the Bank. Having heard that assurance, I hope that the noble Lord will feel able to withdraw his amendment.

With regard to Clause 7(2), the subsection provides that in amending the definition of deposit-taking business the Treasury may include within the definition, or otherwise take into account, activities of persons other than the institution but connected with it. For example, account can be taken of the activities of a subsidiary in determining whether a holding company carried on a deposit taking business. I hope that satisfies the noble Lord on that point.

Lord Williams of Elvel

I am grateful to the noble Lord. I hoped that I had explained the purpose of my amendment. I accept that the wording may be defective. The Treasury should have some duty, when redefining or defining deposit taking businesses, to consult the Securities and Investments Board, or whatever designated agency there may be or indeed the Building Societies Commission, if that is necessary. This should also apply where there are activities which impinge on the deposit taking business that the Treasury is seeking to define. That seems to be a matter of common sense. The noble Lord said that the Treasury may do this: indeed, the Treasury may consult the man in the moon but here the Treasury is under an obligation to consult the Bank. I should like to place the Treasury under an equal obligation to consult other institutions such as the Securities and Investments Board or the Building Societies Commission, which have an interest in the matter. That is the point of the amendment. Nevertheless, I hope that I have made my point and indeed, maybe we shall return to this matter at a later stage so I hope that the noble Lord will reflect on what has been said. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 7 agreed to.

The Earl of Dundee

This may be a convenient moment to take a break in the proceedings. In moving that the House be resumed, perhaps I may suggest that we reconvene at eight o'clock. I beg to move that the House do now resume.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.