The Treasury select committee has called for a veto over the appointment and dismissal of the governor of the Bank of England.
The committee made the call in its report into the accountability of the Bank, published this week. The TSC was given the power of veto over the head of the Office for Budget Responsibility by the Chancellor, but in July George Osborne told the committee it was right the Government appointed the Bank’s governor.
The report says: “The power of veto with respect to the OBR was given to ensure its independence and accountability. The governor of the Bank’s independence from Government is crucial for his or her credibility.
“Given the vast responsibilities of the governor, the case for this committee to have a power of veto over the appointment or dismissal of the governor is even stronger than it is with respect to the OBR. We therefore recommend that, in order to safeguard his or her independence, the Treasury select committee is given a statutory power of veto over the appointment and dismissal of the governor of the Bank of England.”
The report also calls for Mervyn King’s successor to serve only one eight-year term instead of two five-years terms. Currently after the first term, the Government decides whether to reappoint the incumbent or bring in someone new.
The report says: “The present provision for the renewal of the term of office of five years could cause instability and at least the perception of political interference in the Bank.”
The report says governance at the Bank is too weak and must be strengthened to reflect extended powers it will have under the new regulatory architecture. Under plans in the draft Financial Services bill the Bank will be responsible for prudential regulation and financial stability as well as home to the Monetary Policy Committee.