Financial Services Bill

This has been a thoughtful and constructive debate covering the wide range of issues in this group of amendments. I shall organise my remarks in two parts. I shall deal first with issues relating to the Bank of England and the Financial Policy Committee, and secondly with the Prudential Regulation Authority and the Financial Conduct Authority. I begin by speaking to Government amendment 12. This change was prompted by an amendment proposed in Committee by the hon. Member for Nottingham East (Chris Leslie), on the wording used to ensure that the view of the Treasury member of the FPC cannot be taken into account in determining whether the FPC has reached a decision by consensus. Although the substance of the provision, which is consistent with the general principle that the Treasury member of the FPC should not have a vote, was endorsed by the Committee, some members of the Committee thought that the wording was ambiguous. Some, including the hon. Member for Foyle (Mark Durkan), felt that the current wording could imply that the Treasury is not even allowed to exercise influence through debate or discussion. I therefore committed to look again at the wording to see whether it could be made clearer. Amendment 12 amends the provision to make it clear that in determining whether the FPC has reached consensus, the chair should disregard ““any view expressed”” by the Treasury member. This does not mean that the Treasury member cannot influence the discussion and debate, but in determining consensus, that voice should not be taken into account. The main focus of the debate has been accountability and transparency. That is absolutely right. Hon. Members are right to highlight the fact that as a consequence of the Bill, the Bank of England takes on more power and responsibility, partly because the PRA becomes part of the Bank family, and through the creation of the FPC. It is right that we strengthen the transparency and accountability of the Bank as a consequence of the reforms before us. The debate about macro-prudential tools was a helpful way of characterising that debate and talking about some of the proposals that we have made. We are committed to ensuring the ex ante approval of those macro-prudential tools by this place and the other place. Hon. Members are right to call for a review of the use of those tools and a retrospective review of the Bank's performance. That is important too. Let me deal first with the ex ante side of the equation. Amendment 22 talks about economic growth being part of the FPC's objective. The Government are clear that the FPC's principal aim should be to make the financial system safer and more stable. We do not seek the stability of the graveyard. The FPC should not be able to pursue stability to the point where the financial sector can no longer support the real economy. This means that the FPC should not be able to take action that would seriously damage the ability of the financial sector to contribute to growth in the medium to long term and the FPC should consider whether the costs of the action that it proposes would be disproportionate to its benefits. The Bill as drafted already ensures this. The economic growth element in the FPC's objective is stronger and more restrictive than the growth element in the MPC's objective. The MPC's secondary objective"““to support the economic policy of Her Majesty's Government””" is subordinate to the primary objective to maintain price stability. This means that the MPC need only pursue its secondary objective if it has no impact on price stability. In contrast, the economic growth ““brake”” imposed on the FPC by new section 9C(4) is an absolute prohibition. The FPC cannot in any circumstances take action that would have a significant adverse effect on the ability of the financial sector to contribute to the sustainable long-term economic growth of the economy, regardless of the impact on stability. There is a strong element in the FPC's objectives to get right the balance between stability and growth. Amendment 23 relates to the super-affirmative procedure for statutory instruments on macro-prudential tools. The Government agree that public and parliamentary scrutiny of macro-prudential tools is important. The Bank has already consulted on tools and made public recommendations to the Treasury. The interim FPC has recommended to the Treasury that the statutory FPC be given the following three tools: the counter-cyclical capital buffer, sectoral capital requirements and a leverage ratio. That was in a document that it published in March. The Government are considering those recommendations and will consult publicly on their proposals for the FPC's initial toolkit during the passage of the Financial Services Bill. The Government will aim to maximise the amount of scrutiny available to Parliament. The secondary legislation itself will, as recommended by the Treasury Committee, be subject to approval by both Houses of Parliament, as will any changes to it to reflect changes to the FPC's toolkit. Therefore, strong arrangements are in place to ensure that there is public and parliamentary engagement in determining the macro-prudential tools that should be available to the FPC.