Economy, Energy and Tourism Committee, 23 Jun 2009

Meeting date: Tuesday, June 23, 2009

Official Report 211KB pdf

---

Work Programme

Item 2 is consideration of the draft remit for the banking inquiry and other issues arising from the committee's forward agenda.

The inquiry remit, which is set out in annex A of the briefing paper, reflects the discussion that we had on 3 June. Do members have comments or questions?

It has been a constant refrain of mine that we should have an expert adviser for this inquiry, so I am surprised that there is no such proposal in the briefing paper. I have done some digging into how the Treasury Select Committee went about its inquiry into UK financial services and have found that it was supported by a couple of expert advisers who would typically brief the committee before each evidence-taking session to ensure that members obtained maximum value from the sessions.

It seems to me that we need an adviser who can support us in two very different areas of expertise. For our generic look at employment levels in the financial services industry and Scotland's reputation as a financial centre, we need an academic such as Sheila Dow at the University of Stirling, who has been an expert on Scottish banking and finance for a long time now. I wonder whether Chris Harvie knows anyone else, but we should be thinking of someone of that ilk.

On the other hand, very topical matters such as the availability and cost of credit, the practicalities of restructuring and the impact of decisions that are being taken on small to medium-sized enterprise are really about the blood and guts of the behaviour of what are essentially two nationalised institutions. After all, in the past 24 hours alone, we have heard about remuneration packages for bank chairmen, the role of UK Trade & Investment and so on.

I just think that it is better to ask fewer and better questions with support from the right expert adviser than it is to ask a lot of questions blind and perhaps not get to the meat of the issue. The Treasury Select Committee had a lot of support which, although not necessarily visible, made it more effective and helped it to do a good job. We should consider the same approach instead of stumbling into this inquiry with a lot of anecdotal evidence from organisations such as chambers of commerce. I have spent a lot of time talking to the chamber of commerce in my area, and its view is that people are very anxious not to prejudice in any way their relationship with their present bank—or, indeed, any other bank that they might use in the future. As a result, any evidence that we will receive will largely come from anonymous sources. In our attempts to pursue issues, we will simply not have in front of us those who are at the raw end of the market.

We have not only to persuade those on the supply side—in other words, those who work in the banking industry—to be transparent about their current lending practices, but to persuade executives to be candid about their restructuring plans. It seems that there has been no public transparency about such matters, and I feel that they will be very reluctant to expose themselves in that way.

In summary, it would also be valuable if we had a couple of insiders to help us with our task, and I am happy to leave it to the convener, the deputy convener and the clerks to consider the matter over the summer. All I will say is that, otherwise, the committee will risk being compared very unfavourably with colleagues in another place, who undertook a not-dissimilar task less than 12 months ago.

It is for the committee to decide whether it wishes to ask for an adviser. If we do so, we have to agree to that as a committee; it cannot be left to the convener. We have to make various bids. I caution members that, in any event, it might be difficult to get everything in place before September. Therefore, we have some time to work on the remits. At our first meeting in September, when we decide how to take forward the inquiry, we can decide whether we need an adviser and whether we have to commission external research. We would probably not be able to get everything through the system much quicker than that. I am happy to submit a bid for an adviser if the committee thinks we need one.

Last week, I went off to Guernsey as part of the Commonwealth Parliamentary Association delegation. Tom Burns, an academic from the University of Aberdeen who deals with business law, gave us a good paper on shadow banking, which has ominous consequences for banks in Scotland. The paper began with an admission by Tom Burns that, knowing that he was going to be tackling shadow banking and structure derivatives, he had looked up legal documentation on it and discovered that there is none. That shattering revelation governs how we ought to proceed. We are talking about something that has, in essence, been cooked up online. To understand how it took effect, it would be useful to get input from people who know about it. One such person would be Gillian Tett of the Financial Times whose book—oddly enough, it is called ‘Fool's Gold'—is equally penetrating.

I think we are looking for a retired head of business banking from one of Scotland's three clearing banks. At the business in the Parliament conference last week, I talked to a couple of investment advisers who suggested one such individual, but whose name I do not have to hand. A retired head of banking from the Clydesdale Bank, the Royal Bank of Scotland or the Bank of Scotland would have the necessary knowledge of changing practices in relation to the cost and availability of credit. Perhaps the rules compel us to have only one person advising us. However, if we are to do the best possible job, we need the outside perspective of an academic as well as the inside perspective on cost and availability of credit—we will not get a current banker, but we could perhaps get someone who has been head of business banking in the immediate past.

I understand the point that you are making. If the committee decides that we require academic research that is not available internally, we can commission it. However, that issue is separate from the appointment of an adviser. I am trying to be helpful. An adviser is there to help the committee set the remit of the inquiry and draft questions. Commissioning research and appointing an adviser are both possible, but are dealt with in slightly different ways. We do not need two advisers. We could commission academic research on a specific area if we decide that we require it, as well as appoint an adviser to help us with the inquiry, if necessary. It is for the committee to decide whether it wishes to appoint an adviser. If it does, we can ask the clerks to make some recommendations for us to consider at the first meeting after the recess; we certainly would not be able to have an adviser in place before then.

I share Wendy Alexander's concern. I am pleased with the remit, which is tight and clear; it does not cause me any difficulties. However, the terms of reference seem to be extensive, given that we are trying to conduct a short and focused inquiry in the period between September and Christmas. I cannot say which parts I would take out, but the focus seems to me to be quite wide. Perhaps that is necessary to meet the remit, but I am not certain that it is. The terms of reference have to be a little more focused if we are to conduct an inquiry quickly.

The convener suggested that an adviser could not be appointed before September. That creates a dilemma, if we want to get expert advice on how to focus the terms of reference. I would like us to get such advice.

The committee can agree today to seek permission to appoint an adviser. If it does, we must go through the process, which involves coming back to the committee with a shortlist of recommended candidates from which to choose. That could not happen until after the recess.

Because of the summer recess, can we delegate the choice of an adviser to the convener and deputy convener?

First, the committee is required to agree the principle of appointing an adviser. Secondly, the Parliamentary Bureau must agree to that, provided that the appointment is for up to 15 days at the standard rate. The curricula vitae of likely candidates are then presented to the committee. It is for the committee to decide which adviser to appoint—the task cannot be delegated to the convener or deputy convener or to a combination of the two and the clerk.

Is that in standing orders?

Yes.

Is it not just convention?

It is a procedure that is agreed for the appointment of advisers.

Fair enough, but there is a big difference in status between a procedure that is set out in standing orders and one that is just convention. The committee could say that, because of the urgency of the matter and the short timescale that is available, it is happy for the convener and deputy convener to choose who should do 15 days of consultancy work for us.

From experience, it is fairly clear to me that the matter cannot be delegated.

There are several issues: the remit of the inquiry, the time that we are giving ourselves for it and the degree of expert advice that we may require. I find the remit challenging, but it would allow us to seek evidence from people from a wide range of sources. This morning I read in The Herald what the Commissioner for Competition, Neelie Kroes, has had to say. Her comments made me think that it is important that we ask a lot of people who affect our financial services to give evidence to us.

Once we have started to seek written evidence, which is to be submitted by the beginning of September, we will have some idea of the range of people who may be prepared to give oral evidence. I presume that those from whom we seek written evidence must include the Treasury, the Bank of England and a wide range of the Scottish business community on which we are focusing. It may be best for us to decide at that stage whether we need specific advice. However, that does not preclude our examining a list of potential advisers now and deciding in September whether we need an adviser of that sort.

Although we would like to finish the inquiry by Christmas, it relates to a large subject that may—like tourism and other issues—need to be revisited at a later date. If we want to arrive at interim conclusions, or a reasonable set of conclusions, by Christmas, I would be happy to consider a list of potential advisers, on the basis that we will look at the matter in September, once we have seen the written evidence that has been submitted. Part of the adviser's brief would be to work specifically on some of that evidence, rather than to help the committee to draw up its remit, which is the normal process. That would be a compromise, but it might allow us to address the points that Wendy Alexander makes about the need for us to obtain specific advice in certain areas. It would not preclude our seeking evidence from journalists and others. Let us see what we get.

Do members agree to the proposed remit and terms of reference in annex A?

Members indicated agreement.

There is a typo in paragraph 8 of the terms of reference. Unless I have misread it, ‘sector' should be replaced by ‘centre'. That is the only error of substance.

Do members agree to the change that Lewis Macdonald has proposed?

Members indicated agreement.

Does the committee agree to propose the appointment of an adviser? Standing orders require that the appointment be made by the committee. We can agree not to go ahead with the appointment at a subsequent stage, but do members agree that we should identify potential advisers?

Members indicated agreement.

That concludes the public part of the meeting. Before we move into private session, I thank all members for their support in the past year, since I took over convenership of the committee. It has been a challenging but enjoyable year. I look forward to continuing to work with members after the summer recess—provided that I remain in post.

Meeting continued in private until 18:03.