CHAPTER 5: APPOINTMENTS
95. The membership of the Monetary Policy Committee
is set out in section 13 of the Bank of England Act 1998. It comprises
the Governor and Deputy Governors of the Bank of England and two
other executives of the Bank appointed by the Governor after consultation
with the Chancellor, plus (under section 13(2)(c)), four members
appointed by the Chancellor provided that he is satisfied that
they have "knowledge or experience which is likely to be
relevant to the Committee's functions".
96. Since our previous report, a number of changes
have been made to the membership of the Monetary Policy Committee
(see Appendix 3). In our public hearings, we have refrained
from questioning the merits, as economists or otherwise, of individual
members, and we do not intend to comment on individual appointments.
The Treasury Committee of the House of Commons has taken on a
role in scrutinising individual appointments, on which we say
more below, but we see our role being to examine the processes,
procedures and methods of appointments. In doing so, we have tried
to probe further matters on which, during our previous inquiry,
we had difficulty in securing elucidation. As before, we have
been greatly assisted in this process by all our witnesses but
we would particularly like to thank the Noble and Learned Lord,
Lord Nolan, for sharing with us his experience, not least
from his time as the first Chair of the Committee on Standards
in Public Life during which the Committee made recommendations
about the procedure for making public appointments and proposed
the appointment of a Public Appointments Commissioner. We return
to Lord Nolan's evidence in detail below.
How appointments are made
97. We first analyse how MPC appointments are
in fact made. Those members of the MPC who are ex-officio
under the Act have not concerned us. The appointments which are
relevant to our work as a Committee are of the four members appointed
by the Chancellor under section 13(2)(c). They are often called
the "independent" members, although "external"
is a better description. We were fortunate to have as witnesses
several members who had been recently appointed and we asked each
to tell us what had happened.
98. Dr Sushil Wadwhani said that the
approach came "totally out of the blue". He received
a phone call, accepted and his appointment was announced five
days later (QQ 640643). Chris Allsopp too said
that he was not sounded out in advance; that he was telephoned
and said yes at once (as a member of the Court of the Bank of
England, he already knew what the job would involve); and his
appointment was announced two days later (QQ 756761).
Professor Stephen Nickell said that he was rung on a
Tuesday and invited to a meeting on the following day at which
he was invited to join. He said yes on the Thursday and his appointment
was announced on the Friday (Q 762).
99. The actual process of appointment seems very
fast but, as the date on which appointments are due to end is
usually known in advance, there must in our view be an earlier
phase when alternative possibilities are examined in the Treasury,
and any individual being considered for renewal is sounded out
for availability. We were not able to get a very clear view of
how long this process takes and who is involved. We therefore
wished to probe how the Chancellor decides whom to approach and
whether he could better inform his decisions.
100. Some of our witnesses were able to shed
light on the first of these matters. The Governor told us
that he sends, via the Treasury, a list of possible names and
"the Chancellor is perfectly entitled to take account of
it or not as he chooses". He felt certain that the Chancellor
would welcome a similar list from our own Committee. He added
that the Chancellor had given him an opportunity to comment on
certain individual appointments, and to meet an individual whom
he had not met before. But he stressed that this was a consultation:
"There is no question that it is his appointment and that
it is a courtesy" (QQ 1713). Mervyn King
added that this discussion between the Chancellor and the Governor
was not a "formal procedure" (Q 781). The CBI did
not send a list, but felt that they could if they wanted to, particularly
if there was "a very obvious person". Kate Barker,
the CBI's Chief Economist, had discussed individuals with members
of the MPC (QQ 260263). Sir Andrew Turnbull,
Permanent Secretary at the Treasury, said that "in
practice" no one other than the Governor submitted a list
but the Treasury was "always happy to have suggestions"
of individuals or of "a catchment area" (QQ 3706).
The Governor's list provided a source of names to be used when
necessary, "looking at the overall balance of the committee"
101. We asked the Chancellor to tell us what
his sources were for possible candidates. He denied that there
was a list of potential MPC members in his back pocket, although
there had been a list when the first appointments were made and
when a vacancy arose the Governor submitted a list. He suggested
that market sensitivities were an important factor but thought
that hearings before parliamentary committees, plus the scrutiny
provided by the MPC Minutes, ensured that both accountability
and scrutiny of appointments were satisfied while protecting market
sensitivity (Q 1231). He confirmed that he would welcome
proposed names from our Committee or others (Q 1239).
102. We also tried to discover what the Chancellor
does with the names he is considering. Mervyn King told us
that "a great deal of rigorous discussion and analysis goes
on" and the length of notice to candidates was no less than
that given to cabinet ministers (Q 771). As noted above, the Governor
is sometimes asked for a view, but the Chancellor told us he said
that there would be difficulties if it became known that a particular
individual was under consideration because that would have an
influence on people's perceptions of what might happen to interest
rates (Q 1241).
Publicising of vacancies
103. One fact that is clear is that vacancies
are not advertised. Indeed, the fact of a vacancy is not normally
known until it is filled, and even when a term of appointment
is due to expire (which is known publicly) there is no certainty
that a vacancy will in fact arise, as re-appointment is possible
(QQ 268270). Sir Andrew Turnbull justified
the absence of a process of advertisement, "because we regard
these as posts that have, or can have, a market significance
attached to them" and said that vacancies arising through
illness or other unexpected cause would be filled quickly (QQ 371, 373).
The Governor, however, queried whether market sensitivities were
a particular obstacle to a more transparent procedure for appointments,
although the catchment area was narrow (Q 1280).
104. Lord Nolan questioned whether advertising
would actually bring out new names not previously known to those
making the appointment, given the "relatively restricted
area" in question (Q 684).
105. We can see that, with a Committee such as
the MPC which takes decisions rather than merely being advisory,
there would be a danger if it were known that a member with particularly
strong views was due to retire and that, replacements having been
advertised for, it was clear that there was no automatic presumption
of re-appointment; that the combination of these pieces of information
could affect the market and that conclusions about the
state of the economy might be drawn from a presumption that individuals
of a different outlook might be under consideration. Other arguments
against advertising could be that advertising would demean the
dignity of the post, that it could undermine the credibility of
the Chancellor in making the appointments, or that the Chancellor
might wish to appoint someone not willing to apply publicly. On
the other hand, advertising might in fact lead to a wider constituency
of potential appointees or to an unexpected application by an
individual thought, by the Chancellor, unwilling to serve. On
balance, our conclusion is that there is a valid distinction between
advertising for a particular appointment, in particular at the
time it is to be made; and a more general process of encouraging
possible appointees to make their interest known to the Treasury.
We recommend that the Treasury makes known the existence of vacancies
in the MPC so that people can put themselves forward and that
it publicises from time to time the fact that nominations are
Transparency of the appointment process
106. A second question is whether the process
of appointments is sufficiently transparent. In moving the second
reading of the Bank of England Bill, Lord McIntosh of Haringey
stressed to the House that the new arrangements in the bill would
establish a Bank that was "fully accountable".
Yet the absence of any general understanding of how and why appointments
are made seems to us and Lord Nolan agreed (Q 682)
to undermine any understanding of how well the system
is working. Kate Barker saw merit in the process being more
open. This, she suggested, would perhaps end the debate on process,
which was probably unhelpful to the individuals themselves (Q 266).
We can see from this argument that a more transparent process
of appointment would give reassurance that the independent members
are truly independent, and avoid accusations of "cronyism"
and "exclusivity". We ourselves do not believe that
there has been cronyism but it does concern us that appointments
have tended to be confined to the London/Cambridge/Oxford triangle.
A trawl of the "usual suspects" in any process of appointment
runs the risk of becoming too narrowly focused and lacking in
the rigour and objectivity which the Treasury, rightly in our
view, expects to be involved in such a process.
107. The Government's response to our First Report
referred to a need for confidentiality. It stated
that "The Nolan procedures formally cover...the MPC. However,
given the highly market sensitive nature of MPC appointments there
is a need for a particularly high degree of confidentiality in
this process". The Chancellor told us that, while appointments
were formally covered by the Nolan procedures, market sensitivity
meant that not all of the detailed requirements of Nolan were
met (Q 1236). As we were not instinctively satisfied of the
merits of the market sensitivity argument, we probed it with our
witnesses. The Governor did not think that the appointments that
had been made were market sensitive (Q 1279). Lord Nolan
indicated to us that the use of the words "however"
and "formally" implied that "acceptance of the
Nolan principles was not unqualified" (Q 655). He thought
that submitting the process to the scrutiny of the Committee on
Standards in Public Life might act as a long-stop when there were
sensitivities about conflicts of interest (Q 658), whereas
Mervyn King could not see the relevance of Nolan procedures
to whether people would complain about candidates for the MPC
(Q 773). Interestingly, Lord Nolan did not see why the
degree of confidentiality was incompatible with the Nolan principles
of openness (Q 652), but the present system of appointment
did not meet that test (Q 696). Chris Allsopp and Professor Stephen Nickell
confirmed that they would still have applied had Nolan procedures
been in place (QQ 7823).
108. The overwhelming consideration must remain
whether the process produces the best people to do the work given
to them. Before asking this question, we will consider briefly
certain other relevant questions arising in the process of appointment,
namely how long appointments are for; whether they are
renewable; and whether they should be full-time or part-time
Period of appointment
109. Under the Act appointment to the MPC is
for a term of no more than three years (renewable). In our last
report we recommended a period of five years, with renewal, "rare_.if
During the debate on our report it was suggested (by the Shadow
Lord Chancellor, Lord Kingsland), that, to avoid a question
of political influence at the moment of renewal, MPC members needed,
in order to retain credibility, to be appointed for longer than
the length of a Parliament.
The Bank of England Commission recommend a non-renewable six-year
Kate Barker from the CBI supported a longer appointment than
at present, but without renewal (Q 264). Lord Nolan,
on the other hand, thought three years (with renewal), "quite
good" and could not see merit in linking appointments
to the parliamentary five years (Q 697). We think that
our original recommendation a five-year term with very
rare renewal- is still right.
Full-time and part-time appointments
110. Some of our witnesses had views on whether
appointments should be full-time or part-time. We previously recommended
that not all the external members should be full-time appointments.
Part-time members could be more liable to conflicts of interest
but the fact that there are some MPC members who also hold positions
in the Bank and are by definition part-time seems to imply that
full-time appointments are not inevitable. Full-time appointments
might lead to criticisms of lack of independence or of
breadth of view, or in the case of external members that they
might "go native" in the culture of the Bank. The Governor
told us that part-time appointments could widen the range of people
to choose from (Q 160), while the CBI thought that individuals
appointed part-time would have sufficient time to get out and
about and have discussions (Q 258). The Chancellor stressed
that there was an on-going evaluation of the balance between full-time
and part-time appointments, and of the time constraints imposed
by working on the MPC (Q 1235). Again, we stand by our
original recommendation that not all the external members should
be full-time appointments.
111. In our view, the questions of length of
appointment and whether appointments are full-time or part-time
are helpful in informing discussion of more significant issues,
namely whether the existing MPC members are drawn from too narrow
a field, whether conflicts of interest are a significant problem,
and what kind of scrutiny is necessary to show that appointments
are properly and appropriately made.
Qualities required of members
112. What kinds of people should be on the MPC?
As we indicated in our previous report, all MPC members "are
intended _ to be knowledgeable in ways relevant to the formulation
of monetary policy". The Governor confirmed that he wanted
"the best technical experts_.you can get hold of" (Q 151).
Mervyn King confirmed that he thought MPC members would need
to be experts in monetary policy - which was not the same as being
experts in the narrow field of monetary economics (Q 751).
Michael Portillo MP, Shadow Chancellor of the Exchequer,
thought that the MPC was a technical Committee (QQ 924, 926)
but the Chancellor stressed that members' judgement was what mattered
(Q 1223) and the MPC would be judged on its effectiveness
113. Sir David Lees, too, thought that
the primary quality required was to be "expert technicians",
people "technically extremely competent" (Q 497).
David Clementi saw the need for "relevant expertise"
but supported, as a "balanced judgement", our previous
conclusion, that not all MPC members needed to be experts in monetary
economics. Breadth of experience and judgement were, he said,
necessary too. But the common language of economics was a prerequisite
as was familiarity with basic economic technique (Q 583).
Ian Plenderleith saw the need for members to have relevant
expertise on top of understanding of basic monetary policy processes
(Q 586). For Chris Allsopp, economists with reasonably
wide experience were needed people who knew about other
things that were going on in the world (Q 752).
114. The significant question for us was what
kind of expertise is required in the members of the MPC. There
are arguments for having strong academic representation: Dr Sushil Wadwhani
thought that a "critical mass" of academic members was
needed to avoid one or two individuals dominating the forecast
process, which was essentially a technical matter (Q 586).
115. The TUC, however, wanted to see members
with more "oil under the fingernails" and a "stronger
sense of industry", although that was becoming harder to
find as major companies dispensed with their economists (QQ 539, 571).
Hence there is also an argument for the MPC to have among its
members those with a sense of the real state of industry, but
our witnesses did not want to see formal representation from various
sectors of the economy. For the CBI, judgement and a sense of
how things affected business were important, on top of an economic
background (Q 258), for the Engineering Employers Federation
what was needed were "good, qualified economists of repute"
preferably with broader business or industrial experience (Q 496),
while Lord Nolan, although having no strong view, thought
it better that views were put to a Committee neutral between different
sectors of the economy rather than having "members who are
representative of the direct interests of the parties" (Q 660).
Of course, a cynic might say that the bankers on the Committee
might represent the interests of bankers.
116. The general view seemed to be that concerns
about a possible narrowness of view among the MPC members were
best met by ensuring a balance between members. Sir Andrew Turnbull
accepted that the field of choice had "narrowed", but
not damagingly, and that a balance was needed between different
kinds of economists "coming together and capable of producing
the judgements that the Act requires" (QQ 380387).
The Chancellor looked at "the overall balance of the Committee"
in making new appointments (Q 375) and he stressed that the
Bank had comprehensive systems in place to gather information
from across the country and from all sectors of the economy (Q 1234).
117. Mervyn King confirmed that the MPC
wanted "a balance of different backgrounds and experience".
Necessary qualifications included an understanding of the case
for low inflation and an ability to explain the decisions, which
meant presentational skills and toughness as well as a capacity
for teamwork. But a range of expertise was also vital, although
the Committee in fact only had one, very clear, decision to make,
namely to vote for the level of interest rates. People from different
backgrounds nevertheless helped to bring new thinking to bear
(QQ 786787). Overall the process was decision by committee,
a group, all of whom made a contribution (QQ 165). The TUC,
however, had some concerns about the balance of experience on
the Committee, and a possible lack of feel for what was actually
happening in industry (Q 564).
118. In our view the arguments about market sensitivity
are out-weighed by the need to ensure a proper balance of relevant
expertise on the MPC. It would be unfortunate were such an argument
to lead to a narrow base for MPC membership. We were accordingly
reassured to note a number of recent appointments of individuals
with expertise other than as monetary economists, and we welcome
this apparent broadening of the base of potential MPC members.
We would be concerned were the MPC to be drawn only from academic
monetary economists and therefore give rise to little more than
a technical committee of experts. We hope that the Chancellor
and his successors will continue to be of this view when making
future appointments to the MPC.
Conflicts of interest
119. A different question arises, however, from
a genuine and well-motivated desire to see the necessary balance
of expertise on the Committee. Does this not open up the possibility
of undesirable conflicts of interest? The Governor told us that
such considerations ruled out as full-time MPC members those continuing
to work in a financial market capacity or a financial services
group (Q 153). Sir Andrew Turnbull confirmed that "a
very strict view" was taken, because British public life
was very demanding in such matters. A relevant expert from a bank
or major commercial company would not be judged acceptable; a
regulator or servant of a non-commercial public board might be
(Q 385). Dr Brash too saw conflict in an MPC member
who was a company chief executive or Director (Q 448). For
Lord Nolan, the relatively small size and limited function
of the MPC contributed to the danger of conflict of interest:
one individual might dominate the committee if they were a strong,
prominent "representative member" from manufacturing
industry (QQ 656, 659). The small size of the MPC also
meant that a declaration of interest would not be a sufficient
safeguard (QQ 663, 665). The French system already has
procedures in place to deal with conflict of interest issues,
although the Governor thought that the French involvement of those
from a commercial field was in the event quite restricted (Q 154).
Scrutiny of appointments
120. We consider that there are a number of different
methods of ensuring that the appointments to the MPC are judged
to have been made in an appropriate and proper fashion. These
fall into two broad categories: procedures during the process
of appointment; and post facto scrutiny, including confirmation
by Parliament. Possible forms of pre-appointment scrutiny include
the Nolan procedures, the difficulties with which we have referred
to above (paragraph 107). There are a number of other forms
of pre-appointment scrutiny. Lord Nolan wondered why the
Commissioner for Public Appointments could not be involved (Q 649).
That office was well suited to intimate confidential and detailed
investigation by a very small number of individuals (Q 672).
Certainly some form of independent scrutiny was required of the
Chancellor's decisions (Q 654) and the process of "filtration"
would have to take place at the same time as the decision was
made on an appointment. That was a significant element of the
Nolan principles (QQ 6746).
121. An alternative would be post facto
scrutiny by way of confirmation hearings. The House of Commons
Treasury Committee does in fact conduct such confirmation hearings
and has both indicated that it will carry on doing so and called
for such hearings to be put on a statutory basis. In May 2000,
the Committee reported that the Chancellor should think again
about Chris Allsop's appointment.
They had had evidence from the Chancellor and the Bank that such
hearings were of value
but in his appearance before our Committee, the Governor was not
convinced of the value of the hearings and suggested that if they
became too frequent, potential applicants might be deterred (Q 1274).
has suggested that "this ex-post arrangement, whilst useful,
is no substitute for prior scrutiny and approval", although
it would be possible to define what is relevant in ratification,
perhaps on the basis of a two-tier system, with some appointments
going through automatically unless vetoed, and with others requiring
positive approval. The Chancellor, however, was more positive
that the scrutiny system was a good system: it had only been in
existence for two years and as the procedures developed they would
become more constructive and more informative (Q 1227).
122. Lord Nolan doubted whether a statutory duty
on the Chancellor would be of value: "it is really almost
a question of good manners_..that he should explain to the House
in as much detail as he can, possibly giving the reasons for his
choice" (Q 671). On the other hand, scrutiny hearings
(such as those conducted by United States Senate Committees) could
deter good applicants and a blocking veto on appointment, whether
by a joint committee or a committee of one House, would disrupt
the daily work of the MPC (QQ 700702). We would add that
such a veto would weaken Ministerial accountability for appointments,
although we accept the TUC's view that the work of the Commons
Treasury Committee in this area adds value in bringing "public
exposure" to the process (Q 564). We note the continuation
of non-statutory confirmation hearings by the Treasury Committee.
We do not propose such confirmation hearings for the new Economic
Affairs Committee. We do call on the Chancellor, however, to report
to Parliament on the merits and implications of involving the
Commissioner for Public Appointments in prior scrutiny of MPC
39 House of Lords Debates, 13 February 1998 col 1384. Back
Printed in Appendix 5, paragraph (6). Back
Paragraph 7.14. Back
House of Lords Debates, 4 November 1999 Col 1077 Back
Paragraph 7.21. Back
7th Report from the House of Commons Treasury Committee, Session
1999-2000 (HC520-I), paragraph 5. Back
8th Report from the House of Commons Treasury Committee, Session
1998-99 (HC505), paragraph 40. Back
"Parliament under Blair " (Politicos 2000) page 94. Back