Select Committee on Treasury Minutes of Evidence

Examination of witnesses (Questions 20 - 39)



  20. So you are saying the number specifically of monetary analysts has been met and the issue is now retention.
  (Baroness Noakes) Fundamentally that is the case.

  21. May we move on to retention of staff and read the Financial Times at the end of November? We understand that the Court has hired International Survey Research specifically to look at staff morale. That is clearly a concern. When did you decide to employ that particular outfit and how long had you been concerned about staff morale before you actually engaged International Survey Research?
  (Baroness Noakes) The decision was actually a recommendation made to Court by the executive of the Bank to carry out a survey. It was not something Court thought up all by itself; it was the executive members of the Bank who had been concerned about the morale in the Bank for some time. We have had a number of discussions in Court about staff matters generally. You will be aware that a new benefit system has been introduced over the last year. There have been a lot of changes in the Bank over the last two or three years, starting with when the FSA took chunks of the Bank away and there were a lot of consequential changes within the Bank. I know the executive of the Bank have been conscious that morale has been an issue that has been troubling them and in the light of that they brought in a recommendation that that should be carried out. That is a broad concern about bank employees having gone through a huge period of change. You started the question in the context of Monetary Analysis and a much newer and younger staff who will not necessarily—I do not know—have the same concerns as some of the members of staff who have been there a long time, which is where many of the concerns were initially coming from. They will not be excluded from looking at what the morale of staff is. We hope the current exercise will try to identify what the problem areas really are so that the Bank executive can then devise strategies to overcome the particular areas. I suspect there will be different problems in different parts of the Bank; that is what you normally find.

  22. You must have some idea which clearly this piece of work is going to quantify as to what some of the broad issues are in terms of impacting on staff retention. Would any of you like to comment on some of those areas which you might see as issues, for example the attitude of senior management? Is that an issue?
  (Ms McKechnie) I would comment as a manager here. The Bank has been through an enormous process of looking at its contracts of employment and bringing them up to modern standards and that is a process which as anyone who has ever done it knows, will cause problems because people get very attached to certain kinds of benefits. The Bank traditionally has tended to "grandfather" things but had got to the point where it just could not move forward without actually having a fundamental review. What has happened, as always will happen, is that some of the staff whose conditions have been changed are very unhappy about it and six of them ultimately—six out of over 2000—said they did not want to accept the new contracts. To then conclude from that that there is some fundamental problem would be a mistake. The problems in monetary analysis certainly in the article you refer to in the FT got very confused because actually the issue of the contract was much more in the other areas of the Bank than in Monetary Analysis. Monetary Analysis was to do with recruitment and retention of sufficiently qualified economists in a very tough marketplace where the Bank clearly is having difficulty in competing with the rewards which are offered in other areas. It is a fairly common problem with any Government institution operating in a very competitive employment market.

  23. If we just stick with general morale for the moment and this piece of work, how long is this work going to go before there are some results? Is it over six months, a year or is it something you want some information on fairly rapidly and then we shall be acting on that?
  (Baroness Noakes) To be honest, I am not really aware of what the timetable is. I should be surprised if it were longer than six months before a report came back to Court; I should be very surprised if it were longer than that. I know the executive management are very interested in trying to bottom out what the nature of staff's concerns is, what the depth of the concerns is, all those things. We shall be guided by them. This is something that they want to do because it is part of good management.

  24. Will you let this Committee know how long this piece of work is intending to last and when you expect the report back? That would be quite helpful.
  (Baroness Noakes) Certainly.

  25. I take the point that you have now separated out the concerns surrounding monetary analysts and the general problem of a lack of morale. Going back to retention of monetary analysts and competing in a fairly tough marketplace, what kind of approach and policies will you be implementing to ensure as much as possible that you do actually retain these highly prized professionals in the marketplace?
  (Baroness Noakes) You are trying to prejudge the outcome of the work which is going to go on to identify what concerns staff. I do not know what concerns them. I could speculate but we are not in there working so we do not know. I do not think it is really sensible to try to speculate what we think might be the outcome and then devise strategies to meet that. We must wait until we get the feedback from people who are trained to elicit the feedback from staff and then look for what the executives' suggested response to that is. Unfortunately we are talking about waiting a few months.
  (Sir Ian Gibson) If we are talking specifically about the MA people, the economists, then also we have to wait to see the beneficial effects of some actions which have been taken by the executive. Several steps have been taken, one in terms of changing the employment package, including salary levels, but also in terms of this benefits package change. Two, a new position was invented, a new level of position, which was more senior, which both enabled some more recruitment but secondly and perhaps more importantly for the younger, less experienced people, said that in the not too distant future there was some degree of career progression for them within the Bank because they could see a senior job within MA. There is also a degree of counselling and followup being implemented by the executive, talking with those people about their continuing aspirations as well as their higher aspirations. The economist strength in Monetary Analysis was recognised by the Bank as a key concern and took a number of actions both line and HR management which has enabled better recruitment, which should bring better retention and we have to see the effects of that and we have to review it. It is significant that it is one of the ten major objectives of the Bank to fill all the positions in MA and improve retention. That is something which in a review of the Bank's annual objectives the management brings before Court for their review. We would expect to look at that quite separately from, although perhaps with some feedback from some common information, a general exercise in establishing morale.

Mr Davey

  26. One of your tasks is to keep under review the procedures followed by the MPC. However, the last bit of your report in the Bank's annual report, where you sign it off, says, "Although non-executive Directors did not attend meetings of the Monetary Policy Committee itself NedCo has no reason to believe that had they done so it would have altered its opinion". Are you entitled to go to the meeting of the MPC?
  (Baroness Noakes) There is nothing in the law which says members of NedCo can attend the MPC. The MPC is a completely separate committee of the Bank, set up by statute, and the attendees of those are the members of the MPC and a very small number of Bank staff and the Treasury representative. It has been the view of the MPC that those are meetings which are intimate to them, should be focused on their processes, that others should not attend and no others attend other than those I have described: the members of the MPC, the Treasury representative and a small supporting staff. We needed to decide whether or not we wanted to insist on attending, given that it was very strongly represented that these meetings are meant to be interchanges amongst the MPC and only that, not fulfilling any other purpose. We took a view that by discussing with every member of the MPC how those meetings worked in practice and discussing also with the Treasury's representative how those meetings worked, and of course by looking at the minutes of the meeting, we could gather sufficient evidence about how those meetings actually worked in practice so that we did not have to say we had to come in and break into this meeting where they are trying to do this monetary policy purpose alone. We did not feel we had to force ourselves into that because we felt we could handle it another way.

  27. Some people might find it rather odd that your job is to review the way this particular committee is working, its procedures, but you are not going to attend that committee.
  (Baroness Noakes) The final meeting where they come together is only one small part of the MPC's procedures.

  28. The most important part.
  (Baroness Noakes) We attend pre-MPC. It is the meeting where they formulate monetary policy and that is the meeting where they are not surrounded by banks of staff or anything like that. These are meetings which are very closely held meetings. We had to decide whether or not we should go into that or whether we could obtain other evidence. Just because you are looking at the procedures does not mean you have to obtain evidence in only one way. We felt we could obtain evidence of how they worked by asking all those who did attend, individually, not collectively, about how those meetings worked in practice. We are only trying to ascertain whether or not in the conduct of those meetings the matters were being discussed in a way which was likely to reach the right decision, that is that there was not perhaps a ballot going on on what the interest rate should be, to take a frivolous example, that there was actually a genuine discussion process. By the methods I have described, we felt able to make the statement we have made there. We have not hidden that we have not attended those meetings but we believe we obtained alternative evidence. Indeed no concerns have been raised to us to say we really should watch that for ourselves.

  29. It is partly the job of this Committee to raise those concerns and it is one of the reasons why I am asking you the question. It does seem prima facie rather odd that given that Parliament has given the Court this job, to oversee the procedures, you have decided yourselves not to take the opportunity which is only available to you. We as the Treasury Committee could not demand to sit in on those meetings, you are the only people who can do that, and you have chosen not to do that. I have understood your explanation of that but I must admit when I read the report by Donald Kohn, which you obviously commissioned, he says on page 2 that his report "... does not include a discussion of the decision-making procedures" and there is a footnote which says, "In my conversations with people who do attend, these meetings were reported to work quite well". So not only did you not attend, but the central banker you commissioned to write a report about the procedures of the Monetary Policy Committee was not allowed to attend those meetings. So no-one who has been scrutinising the procedures of the Monetary Policy Committee has actually attended any meetings of that committee. Do you not find that rather odd?
  (Baroness Noakes) I understand that point you are making and it is something we have discussed many times amongst the non-executives about whether we can be satisfied with that position given the very strongly held view of the MPC that these are meetings which would have their purpose impaired by the presence of external members. We regard the fundamental purpose of the 1998 Act to create the Monetary Policy Committee setting monetary policy in an effective way rather than allowing the non-executives to go wherever they happen to choose on a day. We see the prime purpose of trying to make monetary policy work well and we have concluded at the moment that no concerns have been expressed to us about the way in which the meetings are conducted. There is considerable transparency about how those meetings are conducted. I know there is a detailed description in the annual report, there have been several descriptions in evidence to this Committee and to the House of Lords Committee about how those meetings work and no concern has come to us which says we need to change what we do.
  (Ms McKechnie) We start from the premise that the Act makes it very clear that the Court has no role in interest rate decisions. Our job is to make sure that the information and the data which the Committee has, are appropriate, that all the questions you have been asking about that data and the quality of the research, all of these things work, but the actual MPC meeting itself is focused on setting the interest rate target. That is the fundamental reason.

  30. May I stop you there and read from the 1998 Act, section 16(1) "The court of directors of the Bank shall keep the procedures followed by the Monetary Policy Committee under review." If you are trying to do that and you are not going to attend the decision-making meeting of that Committee it seems rather odd.
  (Baroness Noakes) We just try to obtain alternative evidence.

  31. You do not need to find that evidence, you can go there yourself and actually see it.
  (Mrs Heaton) It is a judgement as to whether or not we go. You have had put to you the argument that the MPC members prefer to keep their tight cadre having a very private conversation and interacting with one another. Another reason why it could lead to complication if members of the Court were to start to go to those meetings is that it is very much a market sensitive event.

  32. Presumably you have been appointed to the Court because you can be trusted with this.
  (Mrs Heaton) We are all people who are in commerce of one sort or another, whereas the members of the MPC, if they are appointed, have to give up any commercial position, as for example did DeAnne Julius. There would be quite a lot of ramifications if we were to go down that route.

  33. That might suggest there might need to be members of the Court who were empowered or were asked to give up any outside interest to enable the Court to fulfil its statutory function.
  (Mrs Heaton) If that were felt to be worthwhile, and losing what we bring to the Court in terms of being—


  34. The fact that you have an outside function.
  (Baroness Noakes) Exactly. We are only paid £5,000 a year.

Mr Davey

  35. I do think this is a serious point. There is a job laid down by statute and the Court before us today are telling us they are not able to do that because they have outside interests.
  (Mrs Heaton) It is a judgement.
  (Baroness Noakes) The outside interest point is a decision which might affect some individuals. I should not like to say that every single member of the Court would have a conflict such as would stop them being a member of the MPC. That is a broad issue of just being careful about who would attend because there are market sensitive judgements. Our main point is that there is not only one way to do a job and there is not only one way to review procedures and it does not necessarily mean you have to sit and physically observe procedures to find out whether or not they work well. You look at all the other evidence you have about how those procedures work, whether gathered internally or from any other sources you have and we have had nothing which said to us that we should go back and change the way we do that. If evidence came to us, for example in our conversations with MPC members, that they were concerned about the way those meetings work, those particular meetings, and we are only talking about the day and a bit each month, if we ever got those concerns, we would have to look at that again. I am telling you we have never had that.

  36. May I suggest that there is a concern which I noticed in the report by Donald Kohn, page 14? He says, "Moreover, a number of members perceive some game playing with regard to choices on individual assumptions; that is, members", members of the MPC, "argue for particular assumptions not out of conviction on those assumptions, but rather to shape the overall outcome in a direction they are most comfortable with". You actually said a few minutes ago the reason you thought you might need to attend such a committee was because you might be concerned that there was balloting, there was some sort of process which you would want to comment on. Although Mr Kohn did not attend those meetings, as I made clear earlier, he has clearly talked to members who have talked about game playing, the very issue you raised. So I put it to you that it may be that you or members of the Court do need to attend.
  (Baroness Noakes) I think what you are referring to are the forecast round meetings. That is what Don Kohn's report refers to, not the policy meetings themselves. Don Kohn's report makes no specific points in relation to the policy meetings other than the comment you quoted that they appeared to work quite well. What you are talking about there is a series of meetings which take place every quarter which leads to the production of a forecast which goes in the Inflation Report. It is those meetings he was concentrating on. That is an area where there has been a lot of discussion about how those meetings work and a lot of changes have taken place since Don Kohn did the work in July. He was not referring there to an MPC policy meeting, the Wednesday/Thursday just before the rate decision.

  37. Could you tell me whether the Court is unanimous in its decision that it should not attend the MPC meetings? Will the Court undertake to review that decision?
  (Baroness Noakes) It is a discussion which is taking place in NedCo, the committee of non-executive directors. From memory I believe that the position we had was unanimous that we did not need to attend, but that we would keep it under review, which is what we do. We probably talk about it two or three times a year.

Mr Plaskitt

  38. You said in answer to Mr Davey that you thought your attendance at the MPC would impair the meeting. That was the word you actually used. Is it your view that it would impair the meeting or is that something the MPC has said to you?
  (Baroness Noakes) They have probably not used those words but the feeling was that an external presence would make those meetings less effective for their purposes. It is that. My view does not really matter on that. If the MPC believe that the external presence would make their meetings less effective for them, then that is a matter which we must take seriously.

  39. It sounds as though the MPC has said to you that they do not want you to be present at their meetings. Is that right?
  (Baroness Noakes) The argument is that they do not want anybody to be present at those meetings.

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