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Bank of England

Volume 741: debated on Monday 26 November 2012


The Commercial Secretary to the Treasury (Lord Sassoon): My Lords, I will now repeat a Statement made in another place by my right honourable friend the Chancellor of the Exchequer. The Statement is as follows.

“Mr Speaker, 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 new governor. Sir Mervyn King has served as the current 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 would like 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. 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 like this and in Mark Carney we have 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 a 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 itself 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 Canadian bank governor, Canada is acknowledged to have weathered the economic storm better than any other major western economy. Bank bailouts have been avoided. Sustained growth has returned. 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 Financial Stability Board, the body that is tasked with strengthening and co-ordinating global financial regulation. This 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 2018. This will align with the timing of his role at the FSB, and reflects the fact that by then he would 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. As you would expect from one of our closest friends and allies, I am grateful for the constructive way they have handled this transition. Mark Carney will continue as central bank governor of Canada until the end of May next year, and my Statement today is matched by a simultaneous announcement in Ottawa at a press conference held by Mr Carney and the Canadian Finance Minister. He will be answering questions about his decision to take this new job, but he has made 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 come 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.

His 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 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. This package is lower than other senior regulators like the recent chief executive of the Financial Services Authority, even though the Bank now takes on many of that organisation’s responsibilities, and it is less than 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 you would expect with such moves.

Mark Carney is not a British citizen, but he is a subject of the Queen. His wife is British and his four children have dual British citizenship, and he has lived, worked and studied in Britain for a decade. While 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 the Deputy Governor for Monetary Stability, Dr Charlie Bean, whose term in office expires at the same time as that of Mervyn King. Charlie Bean is a world class macroeconomist 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 underestimated. It is tasked with keeping prices under control. It sets interest rates which affect what homeowners 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 that. I commend his appointment to the House and to the country”.

My Lords, that concludes the Statement.

My Lords, I thank the noble Lord, Lord Sassoon, for repeating the Chancellor of the Exchequer’s Statement, and I commend the Chancellor and the Government on their choice of the new Governor of the Bank of England, Mr Carney. Perhaps the noble Lord could let us know why the Government have brought forward the announcement of this post, which we were told on several occasions by the Treasury would be included in the Autumn Statement. What motivated the decision to bring the announcement forward?

We have been discussing the role of the Governor of the Bank of England extensively during the passage of the Financial Services Bill, which is before your Lordships’ House right at this moment. One of the issues that have dominated our discussion of the role of the governor is the extraordinary number of responsibilities which are going to be heaped upon him by this Bill. The Chancellor has said that Mr Carney will maintain his position as chair of the Financial Stability Board, which is also a very onerous job at the very centre of international financial regulation, especially innovation in financial regulation. Are the Government really content that it is appropriate for all these tasks to be heaped upon one individual or have they received assurances from Mr Carney of plans to spread the load somewhat among his deputy governors when he actually assumes these very heavy responsibilities?

In this respect, I wonder what commitments the Governor-elect may have given with respect to the future organisation of the Bank to ensure that it is properly accountable in a way that the Financial Services Bill, which is before us, does not ensure? For example, have the Government examined the structure of accountability of the Bank of Canada? They would find that there are much more rigorous procedures in place than those that we are currently putting in place for the Bank of England.

We on this side are delighted that Mr Carney has requested that he have a pre-commencement hearing before the Treasury Select Committee. Do the Government now recognise that this should be a standard form for senior appointments of this type at the Bank and, indeed, at the major regulators being put in place by the Financial Services Bill?

The Government will be aware that in August Mr Carney was asked whether he was a candidate for the governorship of the Bank of England. He replied, “No, never”. Can the noble Lord, Lord Sassoon, enlighten us as to what led Mr Carney to this fortunate change of mind?

Finally, I am delighted that the Chancellor took the opportunity to pay suitable credit to the current Governor, my former colleague and friend, Mervyn King. I, too, look forward to the opportunity of thanking him in an appropriate way when he retires from his position. However, in the mean time, I return to my first comment and congratulate the Government on the appointment they have made.

I am very grateful to the noble Lord, Lord Eatwell, for commending the appointment. I am pleased that he recognises what a great catch Mark Carney is for the Bank and the country. To answer the noble Lord’s last question first, he ought to ask Mr Carney directly about his change of mind. However, as the noble Lord says, we are very fortunate that he did change his mind.

On the other questions, there was no question of bringing the announcement forward. My right honourable friend the Chancellor has always said that he sought to complete the appointment process by the end of the year. I do not believe that there was any statement to say that the announcement would be made in the Autumn Statement or at any time; people may have been speculating on that, but it was pure speculation.

The noble Lord, Lord Eatwell, asked about Mr Carney’s role as chair of the Financial Stability Board. At the moment, Mr Carney combines being chair of the Financial Stability Board with being a central bank governor, so he is quite used to doing the two things. The main thing is that, subject to his term on the FSB being renewed—as I would expect it to be—it is very good news for the United Kingdom that we will have a Governor of the Bank of England who is also taking this lead central role through the Financial Stability Board in the G20’s leadership of the future shape of financial regulation globally.

The first time I had the pleasure of working with Mr Carney was when, in earlier lives, he and I sat on the predecessor body, the Financial Stability Forum, so I know from my own direct experience going back over 10 years what a contribution he has made over a long period. He will, of course, be very well supported by three deputy governors in the Bank of England on the important and wide-ranging responsibilities that he will have. One of the things that the interview panel will have looked at is Mr Carney’s management experience, which is unquestioned in his present job. I believe he will be able to combine his responsibilities.

As for accountability, the key thing is not so much how other countries do it but whether we have got the right accountability for the Governor and the Bank in the new structure. We have spent many hours, quite rightly, in the heart of the Financial Services Bill, that we are considering again this afternoon, to get that right. Most importantly, partly as a consequence of the debates in your Lordships’ House, we have introduced the oversight committee of non-executive directors, which introduces an important new strand of accountability that has not been present hitherto in the Bank.

Lastly, the important thing is that for the first time a Governor of the Bank of England will go through—has volunteered to go through—a pre-commencement hearing with the Treasury Select Committee. That is a major step. I am not going to offer thoughts on what other cases it may be appropriate for, but in this case, it is breaking new ground and totally appropriate. However, the main thing here is that I am very grateful to the noble Lord, Lord Eatwell, for confirming, as I am sure the whole House will agree, that this is an extraordinarily good appointment of the best available person.

I thank the Minister for repeating the Statement and congratulate the Government on the appointment of Mr Carney. I send congratulations from these Benches, and perhaps commiserations too, to Mr Carney.

I note that two weeks ago, in a speech to the Canadian Club of Montreal, Mr Carney addressed the question of whether we have ended “too big to fail”. He concluded by saying that it is not yet clear that it has been ended. He said, quite explicitly, that each “global systemically important” financial institution,

“ must have mandatory recovery and resolution plans”

in place. I look forward to discussing Mr Carney’s views on this subject with the Minister when Report stage of the Financial Services Bill resumes later this afternoon.

I am grateful to my noble friend and look forward to our further discussions on that important topic later this afternoon.