| Previous Section | Index | Home Page |
Monetary Policy
4. Mrs. Anne Campbell: To ask the Chancellor of the Exchequer what steps he is taking to ensure that the Government's monetary policy objectives are met. [1588]
5. Mr. Sutcliffe:
To ask the Chancellor of the Exchequer what steps he is taking to ensure that the Government's monetary policy objectives are met. [1589]
Mr. Gordon Brown:
Last month I announced reforms which gave the Bank of England operational responsibility for setting interest rates. Today I have written to the Governor setting out the Bank's remit and how it will be held accountable for meeting its target.
To meet the Government's objectives of high levels of growth and employment, we need consistently low inflation. That is why I am today announcing a precise and rigorous framework to achieve the Government's inflation target of 2.5 per cent.
Our new long-term framework will ensure that, if inflation is 1 per cent. higher or lower than that target, an open letter will be sent by the Governor to the Chancellor so that the public are fully informed as to why the divergence has occurred and what steps will be taken in response. I have arranged to put the letter in the Library of the House.
Mrs. Campbell:
The whole country will welcome the openness and firmness of my right hon. Friend's pursuit of the Government's objectives. Does he agree that such measures are essential if we are to create a climate of stability and confidence and break out of the cycle of boom-bust economics that was the Conservative Government's policy?
Mr. Brown:
If we are to achieve our aims of high levels of growth and employment in the British economy and avoid the boom-bust economics that bedevilled people's lives during the period of Conservative Government, we need to set a target for consistently low inflation. The Conservative Government's inflation target was not met in any month in 1985 or 1986; average inflation under the Conservatives was 6.2 per cent. and in the 1990s it was 4 per cent. By setting our target of 2.5 per cent. and introducing the modern procedure whereby the Governor will write to the Chancellor if it is exceeded by more than 1 per cent., we are creating the most open and rigorous framework for monetary policy.
Mr. Sutcliffe:
In 1979, manufacturing represented 30 per cent. of gross domestic product, but that is now down to less than 20 per cent. and thousands of jobs have been lost. This country is a net exporter of investment. What do the Government intend to do to improve the situation?
Mr. Brown:
I agree with my hon. Friend. The reason why we have had, on average, high inflation and low growth over many years is lack of investment and lack of capacity in the economy. There is no long-run trade-off between inflation and growth. We need measures that will create a platform of stability on which industry and employees can build. It is precisely for those reasons that we have set in place a long-term framework for monetary
Mr. Malcolm Bruce:
Does the Chancellor acknowledge that what he has just told the House and explained to the Governor of the Bank of England is a clear departure from the Labour party's manifesto commitment? Under the heading "No risks with inflation", it said:
Mr. Brown:
I have tightened the framework and made the procedure more rigorous and open. Under the Conservative Government, the range was 1 per cent. to 4.5 per cent. Under this Government, if inflation goes above 3.5 per cent., the Governor of the Bank of England will write a letter to the Chancellor explaining his views and whether the circumstances are unique. If they are repeated over a period of time, he will write again three months later.
Taken together, the reforms in the Bank of England, the setting up of the Monetary Policy Committee, the appointments that I have made to that committee, which have been widely welcomed, and this new open procedure will be welcomed in Britain and abroad. They are the best guarantee that we shall have the consistently low inflation that has eluded this country. That is the platform on which to build in order to achieve what everyone wants--high and stable levels of growth and employment.
Mr. Kenneth Clarke:
The hon. Member for Gordon (Mr. Bruce) is right. The Chancellor has just tried to slip in an important announcement on a day when the figures show that the Conservative Government hit the inflation target of 2.5 per cent. on the button as a result of our policies. How can the right hon. Gentleman deny that he is loosening the inflation target by moving from 2.5 per cent. or less to 2.5 per cent.? He has now introduced a new obligation on the Bank of England: he will hold it accountable if inflation is more than 1 per cent. below 2.5 per cent.
Those measures loosen the criteria for controlling inflation that the bank previously used. What is the reason for that? Is it a reaction to our criticism that the Chancellor's hasty decision to go to operational independence would lead to overkill? Does it not show that he is making policy on the hoof, and giving no stability or confidence to anyone?
Mr. Brown:
It is interesting to note the right hon. and learned Gentleman's nostalgia for the old Ken and Eddie show. Instead of an ad hoc, personalised and often chaotic system, we have introduced rules based on principles and a rigorous approach. One week the shadow Chancellor argues that our approach is too rigorous, and the next he says that it is too soft. The difference between the Conservative party and the Labour party is that the
6. Ms Mountford:
To ask the Chancellor of the Exchequer what new measures he is proposing to improve the private finance initiative. [1590]
The Paymaster General (Mr. Geoffrey Robinson):
I immediately moved to ask Mr. Malcolm Bates to carry out a complete review of the private finance initiative process with a view to streamlining it, and I abolished the requirement for universal testing which gunged up the process under the Tories.
Ms Mountford:
I welcome my hon. Friend's encouraging reply. Is he aware that the Conservative Government spent £30 million on consultants' fees, yet not one PFI hospital was built? Does he agree that the private finance initiative process is in urgent need of improvement?
Mr. Robinson:
My hon. Friend is absolutely right, and we are giving it that improvement. I am pleased to say that the legislation that we have introduced to enable NHS trusts to become involved in PFI projects is making good progress in another place--or will do next week. I am also pleased to say that, immediately after Question Time, my right hon. Friend the Deputy Prime Minister will introduce a Bill to enable local government to enter into positive public-private sector partnerships for the benefit of the country.
Mr. Dafis:
Will the Minister assure us that PFI companies will never have any responsibility for the hiring and firing of teachers, the provision of books and equipment and the delivery of the curriculum? Will he give a categorical assurance that those responsibilities will remain with local education authorities, schools and governors, where they belong?
Mr. Robinson:
I can give the hon. Gentleman a categorical assurance that none of those aspects features in any of the proposals for private sector investment in education that I have seen; nor would they be approved by me.
Mr. Derek Foster:
Was not the former Chancellor guilty of extraordinary political incompetence, in that he screwed up the whole PFI process over a three-year period? Is it not now crucial for my hon. Friend to cut through the swathe of bureaucracy and put bulldozers on sites, particularly the site of Bishop Auckland hospital in my constituency?
Mr. Robinson:
As my right hon. Friend will appreciate, I cannot give any undertaking in relation to the Bishop Auckland health trust, but I assure him that
Mr. Jack:
I welcome the Paymaster General to his post. Can he confirm that purchasing services with the maximum risk transfer will remain the key objective for the private finance initiative? Can he also confirm that financial reporting standard FRS5 and standard of accounting practice SAP21 will remain the standards by which the viability of the PFI is judged?
Mr. Robinson:
There the Opposition go again, getting bogged down in a whole lot of details and losing sight--[Interruption.] That is precisely why their bureaucratic, pettifogging approach has delivered no PFI deals on hospitals or local government. The right hon. Gentleman ought to be ashamed of his record.
Mr. McAllion:
Elsewhere in Europe, public investment which creates a tangible public asset does not count against the public sector borrowing requirement total. Will my hon. Friend therefore consider bringing Britain into step with the rest of Europe by changing to that form of public accounting? Will he bear it in mind that, as the markets already acquiesce in it throughout Europe, there is no reason to suppose that they would not acquiesce in this country as well? An added advantage would be that Scottish local authorities could raise private money to invest in remedying the housing crisis which afflicts so many people in my country.
Mr. Robinson:
I hear what my hon. Friend says. We shall, of course, consider those matters, but it would be wrong for my hon. Friend to think that we had any immediate proposals for change.
"We will match the current target for low and stable inflation of 2.5 per cent. or less."
By having a fixed 2.5 per cent. with, in effect, a margin of 1 per cent. either way, the Chancellor is setting a range of 1.5 per cent. to 3.5 per cent. Is that not the beginning of a serious relaxation of the commitment to bear down on inflation?
| Next Section
| Index | Home Page |