My Lords, this set of amendments is inspired by the words of the noble Lord, Lord Sassoon, in Committee. He said:
“It is clear that the success of the new regulatory structure, which, rightly, we are spending so much time debating, relies heavily on the relationship between the Treasury and the Bank of England, and I believe that the Bill provides the necessary clarity of responsibilities. However, it also depends on the personal relationships at play here, particularly between the most senior leaders of the two bodies—the Chancellor of the Exchequer and the Governor of the Bank of England. One of the major problems leading up to the financial crisis was that the tripartite committee did not meet at principals level during the previous decade”.—[Official Report, 10/7/12; cols.1051-2.]
The noble Lord’s words are an important warning to us all, in considering this part of the Bill, on the relationship between the Treasury and the Bank of England at times of crisis. That relationship will depend not only on the personalities involved, but on the statutory responsibilities which the Bill places on those personalities. This group of amendments is intended, in some parts, to extend the statutory responsibilities of the Bank and the Treasury; but, most especially, to clarify those responsibilities, so that the failures which we saw under the previous arrangements, which were due to the principals in the tripartite structure not actually meeting for a decade, will not recur.
Amendment 107AA requires the Bank to give early warnings to the Treasury of a threat to public funds. At the moment, the Bill refers to the possibility of a threat to public funds, which must be immediately notified. However, I think that this notion of possibility is far too vague. Suppose that the Bank thinks there may be a catastrophic event, with a probability of 5%. Is that a possibility? But then, what if the probability is 1%—is that a possibility? What if the probability is only 0.5%—is that a possibility? In our view, a full, continuous exchange of information between the Bank and the Treasury, and the addition of a requirement of an early warning, does just what is needed. It ensures that the Bank is required to convey the information when it first has any indication of a threat—let alone any notion of possibility, whatever “possibility” might mean. If we incorporate the idea that the Bank must give early warning to the Treasury as soon as it knows what is going on, or has some inclination of a threat, without fussing about whether it is “possible” or not, then information will flow in an appropriate way.
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Amendment 107AB is consequential but Amendment 107AC is substantial. It adds new triggers to the warning process. A peculiarity of this section of the Bill on
Bank and Treasury co-operation is the limitation on the requirements on the Bank to give warnings. That is, the Bank is required to give a warning when there is a possible need for public funds. This is excessively constrained. What if the Bank detects a set of circumstances that poses a serious and likely threat to the financial system, but not to public funds? Should it then keep quiet? Does it then have a statutory responsibility to convey information? Surely the Bank should convey that information in the public interest. It might be argued that any major economic disruption would result in some threat to public finances. For example, if there was a major failure within some payment system, that might result in a fall in tax revenues, or some other impact on public finances. However, that would be a rather strained interpretation to place on “need for public funds”. It certainly does not accord with the common-sense use of language, which should refer to the impact on markets and regulated persons, as set out in the amendment. Noble Lords will have already noticed that our amendment derives its new triggers for the Bank to inform the Treasury from the objectives of the various regulators; it is hence in accord with the rest of the Bill.
I shall jump over the consequential amendments to Amendment 107AF, which is an extension of the same logic. It strengthens the triggers to be included in the memorandum of understanding. The triggers are not just the need for public funds; they are the threat to financial markets.
Amendment 107AG has a rather different provenance. In addition to the insights provided back in July by the noble Lord, Lord Sassoon, which I cited earlier, it is stimulated by a Written Statement by the Treasury, quoted in the Financial Times on 31 October this year. Note that it was not written by a reporter; it was a Written Statement by the Treasury. Referring to the Bank’s work on economic forecasting, and specifically dealing with the forecast of February 2012—that is, with a past event—the official wrote,
“There is no statutory requirement on the BoE to provide this information”—
that is, information to the Treasury—
“and disclosure would discourage the BoE from sharing information with the UK government”.
A Treasury official is saying that the Bank of England does not need to share information with an organisation called the UK Government. This is simply outrageous. The Bank and the Treasury are both public institutions; their staff are employed by the public. The fact that one of these institutions should conceal data from the other is totally unacceptable. The insertion of “comprehensive”, as this amendment would require, will put a stop to that sort of nonsense for good.
Amendment 107AH is, again, slightly different but still fits into the general issue of information sharing. It deals with the accountability to Parliament of that crucial document, the memorandum of understanding between the Treasury and the Bank. Given the important observations about the lack of communication so clearly set out by the noble Lord, Lord Sassoon, it is surely appropriate that Parliament does not simply have sight of the memorandum of understanding but the opportunity to opine upon it.
This set of amendments, as I said in my introductory remarks, both strengthens the statutory requirement for communication between the Bank of England and the Treasury and clarifies the circumstances in which communication must take place. I beg to move.