1. In October 1997, in their Report Accountability
of the Bank of England,
our predecessors announced their intention to hold confirmation
hearings to establish whether those nominated to the Monetary
Policy Committee (MPC) of the Bank of England
fulfilled the criteria which they specified, namely demonstrable
professional competence and personal independence of the Government.
They believed that such hearings would not only encourage the
Government to appoint people with the qualities required, but
would also underline the independence, credibility and competence
of the Bank, and involve Parliament more closely in an important
process. In the event, provision for confirmation hearings was
not written into the Bank of England Act 1998 and they were therefore
held on a non-statutory basis. In their Eleventh Report of Session
our predecessors summarised the work they had done in relation
to both confirmation hearings, and the MPC more generally. They
had previously concluded:
"We think that confirmation hearings, even on
a non-statutory basis, act as a stimulus to the Chancellor to
choose candidates who are competent and independent. We also believe
that our questionnaire and hearings provide essential information
about the background of the appointees which is not otherwise
readily available. Above all, the hearings underline the fact
that MPC members are accountable to Parliament and to the public."
2. It is right that Select Committees should scrutinise
major public appointments. We agree with our predecessor's conclusions
about the value of conducting hearings with prospective MPC members
and we are therefore continuing the practice.
We also intend to continue our predecessor's practice of restricting
questioning relating to their suitability for appointment to this
important role to the two criteria of professional competence
and personal independence, and of asking each prospective member
to complete a preliminary questionnaire.
3. The composition of the MPC is prescribed in the
Bank of England Act 1998,
and its members include, ex officio, the Governor and the
two Deputy Governors of the Bank. The Act also provides that the
Governor and the Deputy Governors are members of the court of
directors of the Bank. Persons are appointed to those offices
by Her Majesty for a period of five years.
4. On 31 August 2002, the term of office of Mr David
Clementi as Deputy Governor of the Bank of England expired, and
he did not seek an extension. We would like to thank him both
for his service as Deputy Governor with responsibility for financial
stability and for his contribution to the work of the MPC, in
which capacity he has given evidence to us and our predecessors.
We wish him well for the future.
5. On 3 September, the Treasury announced
that Her Majesty had been pleased to appoint Sir Andrew Large
as Deputy Governor (Financial Stability). The appointment had
immediate effect, thus filling the vacancy, but Sir Andrew did
not attend the September meeting of the MPC, which was held on
4 and 5 September. The Treasury has, at our request, submitted
a note on the appointment process for the new Deputy Governor.
This is reproduced as an Appendix to this Report.
6. We took evidence from Sir Andrew Large on 25 September.
This evidence, for which we are most grateful, will be published
shortly, together with his curriculum vitae and his response
to our questionnaire.
7. Sir Andrew brings to this appointment extensive
experience of the operation of the financial markets. He was cautious
in his response to a number of our questions relating to monetary
policy, in effect reserving his position in a number of key areas.
This is, perhaps, understandable given the limited time he has
been able to devote to this matter since he was offered his current
appointment. We are sure that, as he gets greater experience of
his role at the Bank, and on the MPC, and greater involvement
in monetary policy matters, he will feel able to be more forthcoming,
both when appearing before us and when acting as a public representative
of the Bank. He has an important part to play in the latter context
in ensuring that its policy, and that of the MPC, is disseminated
clearly and effectively. We look forward to seeing him again in
the near future in his capacity as an MPC member.
8. We are satisfied that Sir Andrew Large fulfils
our criteria for appointment. We wish him every success in his
new roles as a Deputy Governor of the Bank of England and a member
of the MPC.
9. We are, however, concerned about the way the
appointment process was handled by the Treasury. Mr Clementi gave
several months notice that he did not wish to seek an extension
of his term of office as a Deputy Governor of the Bank. This should
have provided adequate time for the Treasury to identify a suitable
successor, and for the appointment to be announced, before Mr
Clementi's term of office expired. The failure to do so meant
that the Bank was left without a Deputy Governor, albeit only
for a few days, and ruled out any possibility of us following
our preferred course of examining Sir Andrew Large before, rather
than after, he took up his appointment. The delay could also have
led to operational difficulties for the MPC, as there is a statutory
requirement for its quorum of six to include two holding office
as Governor or Deputy Governor.
Given Sir Andrew's absence from the September meeting, the MPC
would have been unable to proceed to business had either the Governor
or the other Deputy Governor been unexpectedly absent.
10. We recommend that all future appointments
and re-appointments to the posts of Governor or Deputy Governor
of the Bank of England should be announced before the expiry of
the previous appointment, except in unavoidable circumstances.
1 First Report, Session 1997-98, HC 282, paragraphs
46 and 48. Back
The MPC's role is to set monetary policy so as to deliver price
stability as defined by the Government's inflation target, currently
2½% for RPIX (retail price inflation excluding mortgage interest
payments), and subject to that, to support the Government's economic
policy, including its objectives for growth and employment (sections
11 and 12 of the Bank of England Act 1998 and see Official Report,
4 June 1998, col 329). Back
Eleventh Report, Session 2000-01, HC 449-I Back
Ninth Report, Session 2000-01, HC 42, paragraph 52 Back
There has so far been one hearing with prospective MPC members,
on 22 May 2002, when Ms Marian Bell and Mr Paul Tucker gave evidence.
See Fourth Report, Session 2001-02, HC 880. Back
Section 13. Back
Bank of England Act 1998, Section 1 and Schedule 1. Back
HM Treasury Press Notice 82/02 (3 September 2002). He will also
be a non-executive member of the board of the Financial Services
See HC 1189-II (2001-02) Back
Bank of England Act 1998, Schedule 3, paragraph 11. Back