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Mr. Lilley: The right hon. Gentleman may think that Robert Chote is a straw, but I think that he made a cogent case in his Social Market Foundation pamphlet, as did Professor Gowland in his Politeia pamphlet.
Robert Chote wrote:
Mr. Geraint Davies:
The right hon. Gentleman seems to be in favour of the principle of independence, but has produced a litany of reasons why we should be against it. Is he against independence? Is he against the interests of business as expressed by the Confederation of British Industry, the Institute of Directors and the Federation of Small Businesses?
Mr. Lilley:
The hon. Gentleman should perhaps read my speech, so that he will be able to take it in word by word.
The Bill will hive off debt management to a new quango under the Treasury. We know that funding policy is an intrinsic part of monetary policy, and the Bill will leave the Bank as a one-club golfer without even a putter left in the bag. How will the Treasury, the Bank and the new board co-operate to handle monetary policy? If they need to get together, why is it necessary to separate them in the first place?
With the removal of banking control to the Financial Services Authority--the "super-SIB"--it is difficult to see how and whether the Bank remains, as it surely must, responsible for ensuring the liquidity of the banking system and preventing systemic collapse.
What happens if the needs of the banking system conflict with those of the inflationary target? That has happened in the past in the United States, and it could conceivably be happening in Japan. I understand that there is a suggestion that a committee is to be established to work between the Bank, the FSA and the Treasury to try to cope with that sort of problem. If that is necessary, why is it necessary to hive off powers in the first place?
That brings me to the creation of the FSA as a super-SIB. The Bill is only part of the process, but it will on implementation directly conflict with pre-election statements. More importantly, concerns expressed by the Chief Secretary when in opposition may, although he has disowned them today, prove well founded.
The coverage of the FSA will be huge; its objectives will be many, and potentially in conflict with one another. The range of its activities will be so diverse that no one person in it will understand them all. Its structure will be as complex as those of the organisations that it replaces, if not more so. Practitioner involvement is likely to diminish, and costs are likely to escalate as salaries are equalised upwards.
We have no objection to the objective of trying to bring greater simplicity and one-stop shopping to the business of financial regulation, but we fear that the Government may, almost casually, have bitten off more than they can chew. The process of setting up the FSA may cause regulators to take their eye off the ball, while spivs and crooks have a field day. We shall observe closely what is going on in the development of the proposed legislation.
Through the Bill, the Chancellor of the Exchequer seeks to create a Bank with a duty to pursue an inflation target set by the Government, and to accommodate other Government policies. The members of the Monetary Policy Committee will be appointed by the Government, and it will, albeit only in a reporting sense, be accountable to Parliament. If need be, the Government, with the assent of Parliament, will be able to override the committee's judgment. We may approve or disapprove of these arrangements, but we can agree that it may claim to be, as the Chancellor asserted in his statement, a British solution to meet Britain's needs.
The paradox is that, no sooner had the Chancellor published his British solution, than he announced that he wanted to sweep it away in a few years' time and replace it with a European solution to meet Europe's needs.
The European solution is, of course, rather different from what the Chancellor thinks is right for Britain's needs. The planned European central bank has no inflation target laid down by a democratically elected Government--still less a Government responsible to the House. Only one of its directors will be British, and he or she will take an oath that they will act not in Britain's particular interests but in the interests of the whole. It will not be accountable to any Parliament or Government, least of all Britain's Parliament or Government. Nor will any Government--certainly not the British Government--be able to override its judgment if they think that the national interest requires it.
Some hon. Members may prefer the approach laid down in the Maastricht treaty to that laid down in the Bill, but it is clear that the Chancellor of the Exchequer does not. If he did, he would have modelled his Bill on the Maastricht
paradigm. Can he or the Chief Secretary tell the House why they did not do so? May we assume that they considered their approach superior to the Maastricht model?
Mr. Darling:
We introduced the Bill because we thought that it was good for the British economy, regardless of whether this country joins the single currency. Notwithstanding what the right hon. Gentleman is saying about the single currency, does not the logic of his position lead him to exclude this country ever joining the single currency, because of the principles he holds?
Mr. Lilley:
The position of the Chief Secretary may well result in that conclusion, because, if he says that measures based on the principles in the Bill are right for Britain, how can he say that different measures based on different principles in the Maastricht treaty are also right for Britain? Why did he not answer that question? Why did not the Government model the Bill on the Maastricht paradigm? Because they believe that the measures in the Bill are superior. Why, then, do they want to trade in the Bill in a few years' time for the Maastricht independent central bank?
Mr. Darling:
I wonder why the right hon. Gentleman cannot answer the question that I put to him. The logic of his position on the single currency is that the Conservative party would never ever join the single currency. Is not that right?
Mr. Lilley:
The logic of our position is that we can influence only one Parliament--the next Parliament--at a time. The logic of the right hon. Gentleman's position is that, by signing a treaty--[Interruption.] The next Parliament is the one that we will influence, when we are in government. The right hon. Gentleman, by treaty, wants to rule out, for all future Parliaments, this country ever having its own currency, its own independent central bank, its own monetary policy. It is he who is taking a decision for all time. Those who do not want to determine our policy by treaty can do that only in one Parliament at a time.
Mr. Darling:
Which Parliament?
Mr. Lilley:
The Parliament at which we intend to get elected. We did not win in this Parliament, I regret to say, so we have no influence over this Parliament--we have only limited influence, unless we get the support of the hon. Member for Hackney, North and Stoke Newington, and teams of her cohorts and colleagues in voting down the Bill tonight. It is a badly drafted, ill-thought-out and potentially damaging Bill.
Mr. Geoffrey Clifton-Brown (Cotswold):
Did not that little exchange demonstrate precisely the position of Members of Her Majesty's Government? They have not realised yet that they are in government, and that is why they are having to give away these powers to the Bank of England.
Mr. Lilley:
It may be that. I can think of only one saving grace in the Bill: it will take decisions away from
Until the Bill becomes law, the Chancellor is, in law, personally responsibly for all the decisions on monetary policy that have been taken in this Parliament. Every interest rate rise so far is his personal responsibility. He cannot blame the bank, because it is no more than his adviser, so five Labour interest rate rises so far are at his door.
The reason why the Bank of England has used its quasi-independence to put up interest rates is because the Chancellor failed to curb consumer spending by encouraging people to save their building society windfalls. Instead, he taxed savings with his pensions tax. For the fifth successive month, he has missed his inflation target, as we heard today.
Mr. Geraint Davies:
Will the right hon. Gentleman give way?
Mr. Lilley:
No, I have given way to the hon. Gentleman already, and I am drawing to a close.
Today's figures reflect first and foremost the impact--
Ms Ruth Kelly (Bolton, West):
Will the right hon. Gentleman give way?
"One danger is that the economy will suffer if the Bank uses interests rate policy to pursue low inflation while the Government uses budgetary policy to pursue employment, growth and votes. This is a recipe for high interest rates, excessive Government borrowing and an overvalued exchange rate."
I hope that the Economic Secretary will tell us how the Government intend to resolve that possible conflict in future better than they did recently.
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