I would like the House of Commons to be the first to know about the future leadership of the Bank of England, and the identity of its next Governor.
Sir Mervyn King has served as Governor with great distinction and unquestioned integrity for almost a decade, five years of which have been during the most difficult period of economic policy making of the modern age. He will continue to do his vital work until 30 June next year, and there will be opportunities then to thank him for his service to our country.
Today’s task is to appoint his successor in good time and in good order. We have, for the first time in the history of the Bank, advertised the post, invited applications and put together an experienced panel to interview potential candidates. I want to thank my permanent secretary, Sir Nicholas Macpherson, and the chairman of the court of the Bank of England, Sir David Lees, for conducting this new, open process in a very professional way.
I also want to thank the many individuals who put themselves forward for the job. I have myself interviewed in London all the very distinguished candidates shortlisted by the panel for the job, any one of whom would have made a good Governor. I have made my recommendation to the Prime Minister, who in turn has made the same recommendation to the Queen, and she has today approved the appointment.
I can tell Parliament and the public that the next Governor of the Bank of England is to be Mark Carney. He is currently Governor of the central Bank of Canada and chair of the world’s Financial Stability Board. He is quite simply the best, most experienced and most qualified person in the world to be the next Governor of the Bank of England and to help steer Britain’s families and businesses through these difficult economic times.
Britain needs the very best at a time such as this, and in Mark Carney we have got him. Mr Carney is unique among the potential candidates in combining long experience of central banking, huge international credibility in economics, deep expertise in financial regulation and first-hand experience of private sector financial institutions. He is acknowledged as the outstanding central banker of his generation, and I believe he will bring the strong leadership and external experience that the Bank of England needs as it takes on its heavy new responsibilities for regulating our banking system.
In that respect, Mr Carney will bring a fresh new perspective. During his five years as the Bank of Canada Governor, Canada was acknowledged to have weathered the economic storm better than any other major western economy. Bank bail-outs have been avoided and sustained growth has returned, and it says something of Mark Carney’s abilities and the regard he is held in that he was chosen by his fellow central bank governors and regulators around the world to be the chair of the FSB—the body tasked with strengthening and co-ordinating global financial regulation. That gives him the experience to bring better regulation to the world’s largest global financial centre here in London and other financial centres across the UK.
Subject to the views of other members of the board, he could expect to remain chair of the FSB until 2018. While the appointment as Governor will be for eight years, Mark Carney has indicated that he intends to serve for five years and to stand down at the end of June 2018. That will align with the timing of his role at the FSB, and reflects the fact that by then he will have served for 10 years as a central bank governor. I have spoken to my opposite number in Canada, Finance Minister Jim Flaherty, and the Prime Minister has spoken to the Canadian Prime Minister. I am grateful for the constructive way they have handled this transition, as Members would expect from one of our closest friends and allies.
Mark Carney will continue as central Bank Governor of Canada until the end of May next year. My statement today is matched by a simultaneous announcement in Ottawa at a press conference currently being held by Mr Carney and the Canadian Finance Minister. Mr Carney will be answering questions about his decision to take this new job, but he has made it clear that he will not be commenting at length on British economic policy until he takes up his new post on 1 July 2013. There is one exception to that: Mr Carney has said to me that he would like to appear before the Treasury Select Committee at a mutually convenient time for a pre-commencement hearing, where he will of course expect rigorous questioning about British monetary and financial policy. This will be the first time ever that a new Governor has appeared before a Committee of this House before their term of office begins.
Mr Carney’s pay and benefits are a matter for the non-executive members of the court of the Bank of England. The chair of the court, Sir David Lees, has today confirmed that Mr Carney will be paid a total pay and pension package that is broadly equivalent to the current Governor’s salary and membership of the now closed pension scheme available to the current Governor and deputy governors. The package is also lower than that of other senior regulators, such as the recent chief executive of the Financial Services Authority—even though the Bank now takes on many of that organisation’s responsibilities—and is less than that of the current chief executive of the Financial Conduct Authority. As Mr Carney is moving from Canada with his wife and four children, the non-executive members of the court of the Bank of England have said that they will consider in addition a relocation and accommodation package, which one would expect with such moves.
Mark Carney is not a British citizen, but he is a subject of the Queen. His wife is British, his four children have dual British citizenship and he has lived, worked and studied in Britain for a decade. Although not required of the role, he will apply for British citizenship in the normal way, with no special favours. Let me also say something about—[Interruption.]
Let me also say something about the deputy governor for monetary stability, Dr Charlie Bean, whose term in office expires at the same time as Mervyn King’s. Charlie Bean is a world-class macro-economist and a powerful voice on the Monetary Policy Committee. To ensure a smooth transition next year, he has agreed to my request that he serve for one more year as deputy governor. I am most grateful to Charlie Bean for his continuing service.
The role that the Bank of England plays in our economy cannot be overestimated. It is tasked with keeping prices under control; it sets interest rates, which affect what home owners pay for their mortgages and businesses for their loans; and, following this Government’s reforms, it plays a lead role in keeping our banking system safe. My job brings with it many responsibilities, but few are greater than ensuring that the next Governor of the Bank of England is a person of real quality. Mark Carney is a quality Governor. He is the outstanding central banker of his generation, with unparalleled expertise in financial regulation. He will bring a fresh perspective. He has got what it takes to help British families and businesses through these incredibly challenging economic times. My responsibility was to get the best for Britain, and with Mark Carney we have got that. I commend his appointment to the House and to the country.
I thank the Chancellor of the Exchequer for notice of today’s statement—although not of its content. I join him in thanking the outgoing Governor of the Bank of England, Sir Mervyn King, for his public service and I wish him a long and happy retirement. I commend the Chancellor on his choice of successor, Mr Mark Carney, to be the third Governor of the Bank of England since our decision to make it independent in 1997. We on this side of the House look forward to working with him closely in the coming months and years.
I have known Mark Carney for a number of years and have worked with him closely. He has a long and distinguished record of public service, great financial expertise and a track record of handling tough and complex challenges. He follows in a tradition established in 1997 when the first appointments to the Monetary Policy Committee included Willem Buiter and DeAnne Julius, neither of whom were British citizens at the time. In my view Mark Carney is a good choice and a good judgment, and his experience will be invaluable.
The Chancellor has made a short statement today, but this is a decision of great significance. With the leave of the House, I would like to ask a number of questions of the Chancellor concerning Mr Carney’s appointment and the role that the new Governor will step into.
At a time of economic stress, the new Governor will need to get to grips with a new and massively enlarged central bank that has new, onerous and complex responsibilities in prudential and consumer regulation as well as its role in monetary policy and financial stability. That is a near impossible job for one person, but in our view it is made harder by the way in which the Chancellor has drawn up the Financial Services Bill, which is still being considered in the other place. We remain disappointed that he is continuing to resist the amendments tabled by the Chair of the Treasury Select Committee and ourselves that would enable the complex new arrangements for the Bank of England to be properly scrutinised. In our view, the new Governor would be strengthened and enhanced, not weakened, by greater transparency. Will the Chancellor think again about that matter?
The Chancellor also needs to clear up the deep confusion at the heart of the new arrangements about who is responsible in a crisis, which he has not managed to clear up to our satisfaction under the current Governor. The Bill heaps far too much power on the new Governor, who, when dealing with the Chancellor, will be able to internalise and suppress the inevitable conflicts within the Bank of England between financial stability on the one hand and monetary stability, fiscal risk and moral hazard on the other. It makes no sense that the deputy governors, including the deputy governor who heads prudential stability, will have no undisputed right to put their views directly to the Chancellor, whether or not the Governor agrees. That is neither stable nor sensible. There is obfuscation in the Bill, and it is not good enough simply to have a memorandum of understanding with ad hoc committees. If the new Governor is to have a fair chance of success, the flaws in accountability and crisis management must be resolved. Will the Chancellor agree to sit down with the new Governor and sort this out?
The new Governor of the Bank of England also looks set to inherit a difficult external economic environment, a global economy that still has serious imbalances, the eurozone in continuing crisis, and, here in the UK, challenges to our banking system, to growth and to fiscal policy. So let me ask the Chancellor a further question about the relationship between the Treasury and the Bank of England that the new Governor will inherit.
Given the blurring of the relationship between monetary and fiscal policy following the recent decision to transfer £35 billion from the Bank of England’s quantitative easing programme to the Treasury coffers—a move that is set to reduce short-term Government borrowing and increase the longer-term burden on the taxpayer—I very much hope that the new Governor and the Chancellor will agree with the Institute for Fiscal Studies, which has stated today that they should
“exclude the impact of this change from all figures when assessing compliance with the fiscal targets”.
Is that a matter that the Chancellor has discussed with the present Governor, the new Governor, the Office for Budget Responsibility or the Office for National Statistics? Can he reassure us that the IFS’s recommendations will be taken on board?
Writing in the Financial Times earlier this year, I began an article by saying:
“Wanted, a new governor of the Bank of England. Only superhumans need apply.”
Superhuman or not, the new Governor of the Bank of England, Mr Mark Carney, is well qualified to take on the role at what will be a very difficult time. I am sure that I speak for the whole House when I say that we wish him and his family well.
Given the many fierce exchanges that the shadow Chancellor and I have across the Dispatch Box, it is only right for me to acknowledge my real gratitude to him today for welcoming this appointment. He knows Mark Carney, and he knows that he is an outstanding candidate for the job. I shall certainly cherish the words “I commend the Chancellor”, because I will probably never hear them from the right hon. Gentleman again. I sincerely thank him for that.
One of the important things about the independence of the Bank of England, which the right hon. Gentleman helped to establish with the previous Prime Minister, is that it commands cross-party support—it did not at the time; it does now—and we must try to keep the appointment of the Governor out of the day-to-day partisan debate. The right hon. Gentleman has certainly played his role in doing that today. Let me answer specifically his questions about the new role of the Bank of England.
First, on the shadow Chancellor’s point about the new responsibilities, the Bank has heavy new responsibilities because, in our judgment, the tripartite system did not work and was not properly co-ordinated. Indeed, the Select Committee of the last Parliament, which was chaired by Lord McFall—John McFall as he was then—said that it was not clear who was in charge. By insisting that the Bank of England is in charge of macro-prudential and micro-prudential regulation, we bring those things together.
It is also important, secondly, that we recognise that the Government have an important role. When there is a material risk to public funds, there is a clear responsibility in the Bill for the Bank of England to inform the Treasury, without deluging it on a day-to-day basis with everything that is happening and not differentiating the things that are significant and really important. We have taken in the Bill the power of direction that did not previously exist. In the memoirs of my predecessor, the right hon. Member for Edinburgh South West (Mr Darling), he made it clear that at one point he was considering using the almost nuclear power of direction in the Bank of England Act 1946, which no one had ever used, but that he backed away from it because he did not have a more targeted instrument. We now have that targeted power of direction, which the elected Government can use.
Thirdly, we have discussed the role of the deputy governors. Although it is incumbent on any good Governor and any good Chancellor of the Exchequer to try to make sure that views are heard, ultimately the Bank has to reconcile its internal differences rather than, as I have said, allowing the internal differences to be expressed externally without any attempt to resolve them internally. I make it my business in doing my job to see the deputy governors and to make sure that their views are heard.
Finally, let me deal with the asset purchase facility coupons. This was done with the support and acceptance of the Governor of the Bank of England and the Monetary Policy Committee, which discussed it and agreed that that was a more transparent way of accounting for the quantitative easing coupons and how they will affect the public finances through the coming years. I can confirm for the right hon. Gentleman that when the Office for Budget Responsibility produces its report next week for the autumn statement, it will clearly show the impact of the APF coupons on the public finances, both before and after.
May I begin by thanking Mervyn King for his outstanding public service and hard work through the appalling financial crisis with which he has had to grapple? I support what appears to be the appointment of an extremely talented and experienced Governor, who has already been welcomed on both sides of the House. I welcome the fact that the Chancellor has come out in support of the Treasury Committee’s holding a hearing prior to the appointment of the new Governor and of the reporting of its conclusions to the whole House. Does the Chancellor agree that the legitimacy of the appointment would be further bolstered by giving the House an opportunity to debate that appointment in the light of our findings?
These days, of course, the House of Commons can choose what it wants to debate through the Backbench Business Committee, while the Opposition are always able to table motions, too. I do not think it would be sensible to try to divide the House on something the appointment of the Governor of the Bank of England. One of the advantages of the Bank of England, as I was saying to the shadow Chancellor, is that there is an agreement that it should be kept out of party politics and the like; we have achieved that today. Mr Carney said clearly in my discussions with him that he did not want to talk about British economic policy at any great length at his press conference today or, indeed, while he continues as the Governor of the Bank of Canada, but that he did want to talk at length to my hon. Friend’s Committee. At a mutually convenient time, he will do that.
Is the Chancellor aware that this may be the first occasion under his chancellorship at which we can wholeheartedly welcome his decision? I hope he will extend to Mark Carney, the prospective Governor, a warm welcome to these shores. We also hope that he will get his citizenship before his term of office expires.
I welcome the hon. Gentleman’s support. Perhaps we could bottle this cross-party consensus and use it on future occasions, but I doubt it.
Mark Carney will apply for British citizenship, but he is absolutely clear that he should do so in the normal way—the same way in which anyone else would apply for it. One thing that I have learned from the last Government is that Ministers of the Crown should be very careful about becoming involved in citizenship decisions.
I welcome the appointment of someone who should bring new thinking to troubled banking and monetary policy in the United Kingdom. Will the Chancellor confirm that, when he has studied the subject, Mr Carney will be free to change our monetary and banking policy in ways that could promote a more sustained and favourable economic recovery?
I thank my right hon. Friend for his support for the appointment. We have now united all points on the spectrum.
The Governor of the Bank will chair the Financial Policy Committee, the body that will be responsible for macro-prudential regulation. In other words, he will set overall guidance on issues such as capital and liquidity, about which I know my right hon. Friend has spoken powerfully. Any decision on the framework of the inflation-targeting regime and the like will be made by the elected Government and not by the Governor of the Bank.
There should not be any conflicts of interest, because he is very clearly the Governor of the central Bank of Canada, will remain so until the end of May, and will fight Canada’s corner as we would expect him to do. However, he is also the chair of the Financial Stability Board, of which we are a member. He is already heavily involved in international financial regulation and in decisions that have a real impact on our financial services. Moreover, Canada is a G7 country, and is probably one of our closest allies: it is difficult to think of a closer ally than Canada. We already work incredibly closely with the Canadians. Incidentally, the fact that we co-ordinated the press conference in Ottawa and the statement in the House of Commons today and the news did not leak in advance shows that the two Governments work together and trust each other.
On behalf of the Liberal Democrats in the coalition, I welcome Mr Carney to his post. Although he will not take up his position until next summer, no doubt his views will be keenly studied in expectation of his doing so. Does the Chancellor agree that one thing that all our constituents will want to hear from him is a clear indication that he will expect the very highest professional standards in the banking industry, so that bankers can be seen to be working in favour of taxpayers and consumers and not just with self-regard?
Mr Carney has been pretty tough in Canada, and Canada has a much better record than this country of avoiding bail-outs and keeping Canadian banks safe. As chair of the Financial Stability Board, he has been very keen to secure international agreement on new, tougher rules on pay, risk-taking and the like in order to ensure that individual financial centres do not try to out-compete each other for less and less regulation. I should also make clear that he supports the John Vickers reforms that will be introduced in the Financial Services (Banking Reform) Bill, including the ring-fencing of retail banking, which is the really major reform of banking that the coalition Government are bringing about.
I am so excited about this appointment that I could jump up and down—but I won’t.
Does my right hon. Friend agree that at some point during the next year he should have a chat with Dr Carney about the ground-breaking bank revolution that would ensue from bank account portability, and about the fact that that could be the very first thing that he did as the new Governor of the Bank of England?
I hope that my hon. Friend will contain her excitement when she has a chance to question Dr Carney, when he appears before her Select Committee. As she knows, from next year we will have full account-switching, which means that people will be able to switch their bank accounts, including direct debits and so on, within seven days. That will make switching much easier. My hon. Friend has advanced strong arguments for going further and introducing account portability, and we are studying that idea closely. There are pros and cons, which the Vickers commission considered, but she has put her case very powerfully.
The present Governor has commented on the dire state of the economy. The new Governor has international commitments, will face European commitments, and new regulations going through the other House give him many other responsibilities. Will the Chancellor please genuinely reconsider the number of posts that the new Governor will be forced to hold under the new arrangements? The grimness of the economic situation demands his full attention, and the posts are far too many for one person.
The one thing that we have learned is that regulation of banks and managing of demand in our economy cannot be separated; they are part of a continuum and that is one of the things that went wrong. Of course the Bank of England takes on heavy responsibilities, and the new Governor will have to manage the Bank in a very effective way to manage those new responsibilities. Mervyn King has already said that there needs to be a chief operating officer in the Bank, and there will be three deputy governors: for macro-prudential, micro-prudential and monetary policy. They too need to shoulder the burden, as indeed they currently do.
One thing that attracted the panel that interviewed Mr Carney, and me when I interviewed him, was his management experience in Canada. He is well regarded for having run a good bank in Canada as a manager, as well as for the international credibility he has earned for his economic and financial policies.
I welcome my right hon. Friend’s announcement and wish Mr Carney the very best. Will my right hon. Friend reassure me that women were encouraged to apply for this role? If he is looking for someone superhuman, often it is women who fit that category.
There were some excellent female candidates but—I will be absolutely candid with my hon. Friend—it was rather disappointing that there were not more female candidates of the highest quality. Both I and my predecessor faced that issue with appointments to the Monetary Policy Committee, and I would like to work constructively with people who have ideas on how we can encourage women in the economics profession to aim for a career in public service, the MPC, or central banking. We must do more to encourage that because, as I said, both I and my predecessor found that we did not have as wide a range of female candidates for the MPC as we would have liked.
There are good reasons for the Chancellor to appoint the Governor of the Bank of Canada. As he said, Canada weathered the crisis well and was the first G7 country to restore employment and GDP to pre-crisis levels—a stark contrast with our own position. Will the Chancellor discuss the Canadian experience with the new Governor in order to get lending moving? He will know that initiatives such as Merlin have not worked, and unless we get lending flowing to the real economy we will not get the recovery that we all want.
Canada had the advantage of going into the crisis with properly managed public finances, and it avoided the large bank bail-outs that we had in this country—RBS was the biggest bank bail-out in the world—because its banks were better regulated. Hopefully, Mr Carney will bring some of that experience.
The right hon. Gentleman makes a serious point about lending in the economy. The Bank of England has created the funding for lending scheme, and we see the impact of that in new products that banks such as Santander and Lloyds have launched. He is right to say that that is one of the things we have to be on in terms of economic management. The de-leveraging in our economy is still one of the real headwinds to recovery.
My right hon. Friend, if I understood him aright, has just said that Dr Carney supports the ring-fencing arrangements recommended in the Vickers report. May I ask him to bear in mind that Sir Mervyn King made it clear last week that he does not support them and nor do Mr Paul Volcker and the Archbishop of Canterbury-select? And nor do I.
My right hon. Friend has read out an extremely distinguished group of individuals. What he did not say was that, as I understand his position, he would like the banks split entirely in a Glass-Steagall-like separation. Over the past couple of years we have constructed a consensus on ring-fencing. We appointed John Vickers and his very experienced commission to do the job, and they looked explicitly at ring-fencing and came forward with their proposal. That proposal has now been discussed in this Chamber and commands consensus across the system. If we were suddenly to back away from it now and say that we wanted to start all over again with some other approach, that would delay everything. That would not be the right approach, and it would destroy the consensus that exists on ring-fencing.
I do not want to strike a dissonant note, but is it not a little surprising that in practically the leading banking nation on earth we could not find a British candidate for the job? We have chosen a Canadian, who I am sure was a good candidate. Normally, the overlap between the retiring Governor and the new one would be longer. Is that not a worry, even with Dr Bean staying on an extra year?
As I said, there were excellent British candidates, any of whom would have made a good Governor. In my judgment, though, Mr Carney was a better candidate. He was the only one who combined central banking experience, economics, experience of financial regulation and experience in the private sector. It says something about Britain that we have the self-confidence to go and get the very best in the world to serve as our Bank Governor.
I will not speak for the new Governor, but I am sure he could be asked that question. I am pretty clear that he would support the pound, because he has seen at first hand through the Financial Stability Board some of the problems that have arisen in the euro. I reassure the hon. Gentleman that any decision to ditch the pound would be one for the Government of the day and the House of Commons, and while this Government are in office we will keep the pound.
In Mr Carney, we have a man with unprecedented experience of financial stability. We also have an Office for Budget Responsibility that publishes transparent, independent numbers, and we now have a structural and regulatory plan for the banking system and a Government committed to restoring faith in the public finances. Does the Chancellor agree that the risk of boom and bust is therefore diminished?
I will not make the mistake of the last Prime Minister and claim to have abolished boom and bust. I do not know which young adviser of his put that idea into his mind. [Interruption.] With transparent and independently audited public finances, an excellent central bank Governor and new responsibilities for the Bank of England, we have a better framework than the one that we inherited.
Is it not the case that Mr Carney ruled himself out some months ago? So what does the Chancellor think changed his mind—could it have had anything to do with Labour’s new lead in the opinion polls and the new Governor’s long-standing friendship with the shadow Chancellor?
The Monetary Policy Committee has not requested additional headroom to conduct QE. As I have said, I think QE has been the right instrument to try to keep yields down and support demand, but any questions about Mr Carney’s view of QE in the British context will be ones that the Treasury Committee can direct at him.
I welcome this appointment and, in particular, Mr Carney’s willingness to come before the Treasury Committee as his first duty. What discussions has the Chancellor had with the Office for National Statistics and the Office for Budget Responsibility about the £35 billion asset purchase facility coupon scheme? Does he accept that it will be an exceptional item in the Government accounts?
Crucially, I discussed this matter with the Governor of the Bank and he discussed it with the Monetary Policy Committee, and they thought it was a sensible move. As I have said to the shadow Chancellor, when the OBR produces its fiscal forecasts next week it will make very clear—I requested this—the distinction between the public finances with and without the APF move.
May I applaud the Chancellor for making his statement to the House of Commons first, and urge him to use that as a precedent for any future statements he may wish to make? What particular experience of recent Canadian economic performance will be of most use to Mr Carney in his new role as Governor of the Bank of England?
First, I am glad to have been able to make this announcement to the House of Commons, and I commend all those involved in the process for keeping the information secret. I want to pay tribute to the Canadian Government for also keeping this information secret until we could simultaneously make this announcement to the House of Commons and to the Canadian people in the Ottawa press conference. Sorry, I have forgotten the second bit of the question—
The Canadian economy did better than any other major western economy in weathering the financial crisis. Its public finances were in better shape, its banks were better regulated and the Bank of Canada was able to take Canada through this period in a way that in Britain and in many other western economies we wish we could have emulated.
When the Chancellor speaks to the new Governor, will he discuss the Engineering Employers Federation’s comments that further austerity will not help the British economy because it is too weak and that the policy should be for growth and not cuts?
Fiscal policy is the responsibility of the elected Government and the House of Commons, but I would say that all the business organisations have supported our plan to deal with the deficit because they know how important it is to securing low interest rates and stability. Frankly, I have yet to hear what the current alternative is from the Labour party. I will save this for next week, but the Opposition used to have a five-point plan and I have no idea whether they are still committed to it. They claim that they want to be responsible with the deficit, but they have absolutely no plans to cut the deficit. I am just getting warmed up for next week, but we will wait a week to have those arguments.
I thank the Chancellor for his announcement and associate myself with the warm words of welcome from both him and the shadow Chancellor. He has already mentioned the ring fence between investment and retail banking. Will he go a little further and tell the House what specific conversations he has had with Dr Carney about the ring fence?
I think that that would breach the confidentiality of the interview process, but Mr Carney will come before the Select Committee and will no doubt be asked about his views on the Vickers reforms. As I have said, he supports them and it is important—this comes back to a point made by my right hon. Friend the Member for Louth and Horncastle (Sir Peter Tapsell)—that we now have consensus across our regulatory system. John Vickers has provided that consensus. We will introduce a Bill next January. Let us get on and make that important change. We are leading the world and, interestingly enough, a lot of the rest of the world is thinking of following us in that direction.
Mark Carney’s actions have played a major part in helping Canada to avoid the worst of the financial crisis. Will the Chancellor reassure the House that he will be given the necessary freedom to take the required action here in the UK —something that the current Governor did not always enjoy under the last Administration?
I will leave the accounts of what happened under the previous Government to the various memoirs and the like. Of course, Mark Carney has independence in monetary policy and will have to work with the Government on financial stability, which is a crucial issue in which the elected Government are also involved when public money is put at risk. We will work closely together to secure the British recovery and ensure that we have something more of the Canadian experience here in Britain.