Labour has set out its vision for the financial policy committee, aiming to make it more representative, more accountable and more effective.
Under proposals in the financial services bill, the FPC will be responsible for “protecting and enhancing” financial stability and will have to consider the regulatory burden it places on firms. Labour says while shaping policies to achieve its strategic objective, committee members should also consider any potential impact on the UK’s international competitiveness and the Government’s economic policy.
Amendments to the bill proposed by shadow Treasury financial secretary Chris Leslie (pictured) and shadow Treasury economic secretary Cathy Jamieson, would see the FPC would also “minimise, as far as possible, the use of public funds to support or rescue parts of the UK financial services industry”.
Following calls from the Treasury select committee last year for more independent FPC members, Labour’s amendments would see six chosen by the Chancellor, “ensuring a broad representation of practitioners and consumers” instead of the proposed four. “Sufficient time” should be allowed for the TSC to question potential applicants.
The macro-economic tools of the FPC currently being devised by the interim-committee are likely to include the ability to set loan-to-value ratios. Concerns have been raised these tools could clash with the monetary tools of the Monetary Policy Committee. In order to minimise any potential economic interference, Labour wants the Bank’s governor to be required to inform the Chancellor when the two committees’ aims conflict and explain how it will be resolved.
Parliamentary scrutiny of the tools will be beefed up under the plans. As well as discussing them with the FPC and Parliament, the Government should also consult publicly. In an emergency the bill allows the Chancellor to give the financial stability regulator powers without going through this process, subject to retrospective Parliamentary scrutiny. Labour says if the Chancellor does so they must explain their decision to the TSC.
Labour says the FPC should publish quarterly financial stability reports instead of just two a year. They want them to assess stability against “early warning indicators” and say whether the Bank has been effective in using its macro economic tools, detailing their impact on employment, growth, the functioning of financial markets and the wider economy.