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Mr. Kenneth Clarke: First, I welcome the Chancellor of the Exchequer to his new post, and I accept the first apology that he has so far had to give me in the current Session of Parliament. In the national interest, I wish him considerable success, so that he does not have to give too many apologies to the British public for the subsequent performance of the economy.
I should like to ask the Chancellor a few straightforward questions on his statement. What does he think he achieved, two weeks ago, by announcing the operational independence of the Bank of England, before he came to the House to make today's statement? What advantage was there in trailing by two weeks a dramatic change in accountability to the House of those who decide United Kingdom monetary policy? Does he agree that, if he had simply waited for two weeks, he would have succeeded--at least a little--in concealing the Government's triumphalism in their huge majority and the danger, which is already visible, of their becoming contemptuous of Parliament and its procedures?
Will the Chancellor also explain to us why, before the general election, he said that he would consider giving the Bank of England operational independence only after it had established a good track record of success in such
matters? He repeated that statement as recently as February 1997. What track record had the Bank achieved in the Government's first four days in office that caused him so rapidly to change his mind? During the general election, why did he conceal from the electorate his obviously settled determination to make that important change within a few days of taking office?
Why has the right hon. Gentleman so swiftly changed a system in which my decisions as Chancellor produced the United Kingdom's best performance on inflation for 50 years--[Interruption.] Yes, he is making dramatic changes to a system in which the previous Conservative Government produced the lowest mortgage rates, and in which--as we now know--in the last month before the general election, I hit my inflation target of 2.5 per cent. on the button. Does he now accept, as he must--[Hon. Members: "What a pile of paper."] No, this pile of paper is a copy of the Chancellor's statement. These papers are for my speech--[Hon. Members: "Speech."] No, the papers--the first pages only--are my questions.
On the Bank of England, does the Chancellor accept that the current inflation level, to which we both attach importance, is the result of decisions on monetary policy taken two years ago--when the Bank of England was wrong, I was right, and he was silent about his judgment on the subject? Does he accept that the timing of his decision on the independence of the Bank of England very nearly coincided with production of the Bank's most recent quarterly inflation report--which was wrong, by claiming that, later this year, inflation would fall to 2.5 per cent.? We now know that the inflation had fallen to 2.5 per cent. in April, while the report was being printed.
Does the Chancellor therefore accept that, within four days of taking office, he handed total control of those matters to an institution with a track record showing that it has been wrong, whereas the track record of a Chancellor pursuing the previous Government's economic polices has been shown to be right?
Does the Chancellor agree that, if this leads to the Bank being ultra-prudent, and striving, above all, to get below 2.5 per cent.--as it will in order to hit a flat-rate target--interest rates will be set at a higher rate than would otherwise be necessary? When interest rates are higher than necessary, they depress economic growth, investment, consumer demand and job creation--all of which will grow more slowly than they would otherwise. Does the right hon. Gentleman agree that the price for slowing our economic growth will be paid by the men and women who work in British industry and commerce, and by those on the dole queues who will see jobs being created more slowly?
Turning to the Financial Services Act 1986, a separate statement to the House might have been justified, as there is to be a huge change to the regulatory system--probably second only in importance to the monetary policy of the Bank in terms of the financial policy of this country and the City. Why has the Chancellor decided so suddenly to add dramatically to the legislative programme in the Queen's Speech, which we are still debating? The scope of the Bank of England Bill has been extended since the Prime Minister opened the debate five days ago. It has been dramatically enlarged by today's announcement.
The Chancellor talks vaguely about forthcoming legislation on financial services regulation and bringing all previous regulators under the scope of his new
appointment, Mr. Howard Davies, who has been given many such appointments under various Governments--[Hon. Members: "And by you."] And by me, and others--no doubt there will be other appointments under the Labour Government. He brings with him the full experience of about one year at the Bank of England, to which the Chancellor drew particular attention.
Does not the Chancellor accept that making this dramatic announcement with no details causes confusion? The details are contained in a letter to Sir Andrew Large, which, we are told, has been placed in the Library, although no one has had a chance to see it.
The regulation of insurance, of all financial services and of banking has hitherto been done by separate people with separate skills. The Chancellor now proposes that they should be brought together in a way that is still to be defined in a massive piece of legislation. When will that legislation--the new Financial Services Act--be forthcoming? Will it be in this Session of Parliament? If not, what will the Chancellor do about the uncertainty that he is creating by suddenly throwing this country's financial regulatory system into turmoil without giving detailed proposals?
Finally, will the right hon. Gentleman please stop acting like a Chancellor in a desperate hurry? Will he stop acting as if he were making policy on the hoof, as he and his colleagues did in opposition? Will he start placing the preservation of our present excellent economic prospects much higher on his agenda?
Mr. Brown:
May I first welcome the shadow Chancellor to his new job, which he already seems to be enjoying? Secondly, although I suppose that he would not want me to say it, I wish him well in the future leadership contest of the Conservative party, and commend his views on Europe to Opposition Members. Thirdly, after the entertainment of yesterday, I thank him for getting back to the real business of the House: the Opposition attacking the Government instead of each other.
The right hon. and learned Gentleman's remarks dealt with all sorts of things, but not the central question whether he supports my reforms of the Bank of England and the regulatory structure. He says, first, that the Government have broken the traditions of consultation in the House whereby Governments have consulted over major monetary decisions. May I remind him that the decision to create the new monetary policy framework and the new inflation target in 1992 was announced by the previous Chancellor to the Conservative party conference, not the House? The right hon. and learned Gentleman's decision to create the "Ken and Eddie show"--for which he showed some nostalgia--was announced in a written answer to the House, without full parliamentary debate. The Labour Government will take no lectures on consultation from the previous Government, who had the chance before the election to publish the Downey report, which would have been one way in which Parliament could have looked at the issues.
On the substantive issue of inflation, the shadow Chancellor seems to have changed his position from the one he held before and during the general election campaign. During the whole campaign, he said of Labour that we would be responsible for higher inflation, that we would return to the days of high inflation, and therefore boom and bust--new Labour, new inflation. Now, for the
leadership election into which he has entered, he has seems to have changed tack completely and accuses us of being, not inflationary, but deflationary.
The right hon. and learned Gentleman should look at the article he wrote on these matters for the Financial Times. I have to ask him, why is he criticising us for saying that our inflation target will be met? This Government will keep their promises, and will keep their promises throughout a Parliament.
I shall deal with the issue of regulation, before coming to that of the Bank. We have taken action that the Conservatives should have taken long ago to protect pensioners against the misselling of pensions, to improve the co-ordination of the regime governing financial services products, and to end the situation in which a bank has five separate regulators to which it has to report and in which the costs of compliance--and, indeed, the compliance departments in those organisations--are now almost bigger than the marketing departments that produce the results for those organisations. I shall take no lectures. We have taken swift action on the misselling of pensions, the structure of the financial regime and the operational independence of the Bank of England.
It ill befits the shadow Chancellor to criticise the appointment of Mr. Howard Davies, whom he appointed as the deputy Governor of the Bank.
Let me now deal with the substantive issue that was left unaddressed. The shadow Chancellor's opposition to the reforms we have made at the Bank of England seems to be entirely about method, style and presentation--and, if I may say so, his opposition is recent. Did he not say in 1993 that he had an open mind on this issue, not a closed mind? Did he not say in an interview on "Breakfast With Frost" at the beginning of the year that right-wing parties throughout the world supported the independence of central banks? Does he not understand that his well-known enthusiasm for the European Community means that, if there was to be economic and monetary union, there would have to be an independent central bank?
Let me remind the right hon. and learned Gentleman also of the statements that have been made in the Centre for Policy Studies' Conservative agenda pamphlet, which recommends:
"Give the Bank of England its independence, and a statutory responsibility for meeting certain targets in terms of inflation and economic growth . . . remove the political risk premium on interest rates . . . the Bank will . . . need reform. The current autocratic structure gives the Government too much power . . . interest rate decisions should be taken by a Council".
Those are the very arrangements that we have introduced. The author of that pamphlet was the ex-Chancellor's own former political adviser, Tessa Keswick.
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