My Lords, again, I support the noble Lord, Lord Sharkey, on his general thrust in this debate. I come at it from a slightly different direction, although I think that the fundamental proposition is, “If it’s not broken, why are we trying to fix it?”. In fact, the supporting paperwork says that it is working well. We need to go behind that—back to the 2012 Act, the FiSMA 2000, as amended, and all that sort of stuff—to look at how the Bank is now going to work.
I think the Bank will move its emphasis from the Monetary Policy Committee towards the FPC. Regarding the control of interest rates and the Government’s injections of cash, depending on which textbook you read, it was the actions of banks in creating credit that formed the bubbles that caused the crisis of 2008-09. I believe that is the technical reason and that we are seeing many bubbles emerging again. As to the process of the FPC, by reading through the consolidated Act we see that its many powers—to make recommendations about new tools, for example—and all the things it is able to do to control the creation of credit, among other things, are absolutely fundamental to how efficiently the money system supports the economy, and hence are fundamental to the economy.
Now, what is the thing that keeps this clean? The thing that keeps it clean is the fact that the PRA is a subsidiary—an independent company, as mentioned, governed by company law—and, therefore, there has to be an arm’s-length relationship between it and the FPC. Under the various terms of the Act, the FPC can create various macroeconomic tools, which it then hands down to the PRA. It hands those down not through some side-channels or influence but, because of that independent legal status, in a very formal way to its subsidiary, and I think that is healthy. I do not believe that in effect moving the PRA closer to the Bank—and, by definition, closer to the FPC—is a good thing. The present separation is working, and I think we should continue it.
The reform included in the Bill ends this subsidiary status. The PRA board will be replaced by the Prudential Regulation Committee and, as I said, that must have the right balance. The Government so far, frankly, have not come up with a good reason for this change. The noble Baroness, Lady Kramer, made the point that mechanisms for information transfer are there, and therefore that is not at risk. The whole purpose of being in a subsidiary company—I headed a subsidiary company of a large organisation—is to get focus on its business, so that there are very clear responsibilities. I think that the move in the Bill away from its being a subsidiary is a bad thing, and I hope that the Government will reconsider the inclusion of this clause.