28th November 2013
The Treasury Select Committee has published a fascinating exchange of letters between the Chairman of the Treasury select committee Andrew Tyrie MP and the Governor of the Bank of England Mark Carney concerning the controversial Help to Buy scheme.
In his letter, there are two very important points made by the Governor in answer to Mr Tyrie’s typically forensic questioning. First the Financial Policy Committee, the Bank of England committee meant to warn of and help head off threats to the financial system, does not have what would be called a veto over Help to Buy though the letters note that some cabinet ministers have suggested as much.
The key passage in the Carney letter is below.
For the avoidance of doubt, let me stress three important points. First, the FPC has no power to require Her Majesty’s Treasury to vary the terms of, or close, the Help to Buy scheme. The FPC only has the authority to make recommendations in connection with such matters. Second, the FPC is not constrained by the Government’s timetable for any such advice; it could make recommendations at any time. Third, the FPC would consider the merits of any possible change to the parameters of Help to Buy in the context of its assessment of the risks to financial stability arising from the housing market and the use of the considerable range of other tools over which it has influence.
As we can see the committee can, of course, make recommendations to the Treasury. Those worried about the alleged political expediency of Help to buy now have to make a decision as to whether the Chancellor of the Exchequer George Osborne could really defy a Bank of England committee set up specifically to warn about and ward off crises.
At Mindful Money, we think that this would be very difficult politically for any Government. The Opposition would have a field day (and as for Mr Cable…)
Were such a stand-off to arise, it might lead to an intriguing situation where the Bank might seek to slow down Help to Buy by other measures such as Bank capital requirements. But surely a resignation would have been tendered by that stage either in Threadneedle Street or maybe even in Whitehall.
With the FPC due to participate in a review of the scheme next September, it may also be significant to ask whether the committee would self censor itself. We think this is highly unlikely.
The second important point made by Mr Carney is that he says the committee could actually warn about the scheme at any time and is not tied to the review dates. So now we know – a little more at least.