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Mr. Lilley: No, I shall wind up, if I may.
Today's figures reflect first and foremost the impact of the Chancellor's interest rate rises, which are feeding through to mortgages and the retail price index. His Budget added, by his own calculation, 0.8 per cent. to the retail price index directly.
Mr. Denzil Davies (Llanelli):
One can say that the most controversial part of the Bill--we heard this in the speeches from my right hon. Friend the Member for Edinburgh, Central (Mr. Darling) and from the right hon. Member for Hitchin and Harpenden (Mr. Lilley)--must be part II. For part II of the Bill seeks to transfer the power to fix short-term interest rates, to conduct monetary policy and, in effect, control inflation, from an elected Chancellor of the Exchequer--who is directly answerable to the House, and through us in the House to the people--to the non-elected officials of the monetary policy committee of the Bank of England.
Fundamental economic decisions that can affect the livelihood of our constituents, be they mortgagors, savers, business people, the unemployed, will be taken out of the domain of an elected Government and elected Parliament. In that regard, economic policy will be taken out of politics. My right hon. Friend the Chief Secretary calls it modernisation.
The implied message, so far as I can see, that is sent to our constituents by the Chancellor's decision to transfer power is clear: "Don't trust us with your money. We are just politicians. We are Chancellors, Prime Ministers, Ministers, Members of Parliament, politicians, but don't trust us with your mortgages. Don't trust us with your money. Don't trust us with inflation. We cannot be trusted to protect the value of your currency." That is the unappealing implied message that comes, I am sorry to say, from the Chancellor's decision.
We are elected to the House. We enjoy the trappings of power. We obtain from time to time, from the taxpayer, the resources necessary to do our job. Sometimes we complain that we do not have enough. However, when it comes to a tough--that word is used very often these days--decision about money, and no decision is tougher than that to raise or reduce interest rates, I am sorry to say that we abdicate our responsibility and hand over our responsibility as politicians to a non-elected body.
Why stop with monetary policy? What about fiscal policy? I listened to my right hon. Friend the Chief Secretary explain how wonderful the new system of accountability would be--how it would be far superior to what we have at the moment. Why not transfer all the Chancellor's powers--that is, what powers he has left? Why not transfer his fiscal powers to a board? Let us call it an Exchequer board, and because it is a board, let us give it a president. An Exchequer board would determine taxation, because if we cannot be trusted with monetary policy, how can we be trusted with taxation policy? Let us shift it all. Indeed, we could move on to the Department of Health, to education. Why not transfer all the power to boards, so that we have that marvellous system of accountability and modernisation that my right hon. Friend tells us about?
It is no exaggeration to say that it was something of a surprise when my right hon. Friend the Chancellor announced a few days after the election that this was to be done. It was a surprise to the City--obviously a pleasant surprise, as the City approved of the decision--and it was a surprise to most of the financial journalists to whom I have spoken. It has been said--although I am sure that it was a scurrilous accusation without foundation--that it was a surprise to most members of the Cabinet. I do not believe that. However, it was certainly a surprise to most of those who fought the election as Labour party candidates.
Mr. Andrew Tyrie (Chichester):
Is the right hon. Gentleman aware that giving independence to the Bank so quickly was a complete breach of a clear pledge made by the Prime Minister when he was Leader of the Opposition? In a speech in 1995, he said:
Mr. Davies:
No, I will not give way to the hon. Gentleman again.
Part II of the Bill was not an express term, as we lawyers describe it, in that covenant with the people on which the Prime Minister fought and won the election. Since the announcement, some Treasury Ministers have tried valiantly to reinterpret the text. While their efforts might gain fairly high marks in a school of sophists or a college of casuists, they are not really credible. It is clear that the move was not part of my party's policy.
I will satisfy the hon. Member for Chichester (Mr. Tyrie) by quoting from the business manifesto, which is the most sacred text of all. The right hon. Member for Hitchin and Harpenden referred to it in an intervention. It says:
Not only was the decision a surprise; it was a contradiction of other areas of Government policy. The thrust of policy--of which I entirely approve--has been and is the greater devolution of power from bureaucracy to democracy. That is one reason why we will establish a Parliament for Scotland and an Assembly for Wales, give greater democracy to the regions of England and have a mayor for London. In all those matters, the whole thrust of Government policy has been to transfer power from bureaucracy back to democracy, where that is possible within the modern state. Now the very heart of Government--the very heart of decision making--is going in the opposite direction and transferring power from democracy to bureaucracy.
This debate takes place against the background of another increase in interest rates. It is tempting for all of us to wonder whether that decision was correct. I shall resist the temptation. I do not know whether it was or was not the right decision. What I do know--and what surprises me--is that some of the bizarre criticisms of the Bank of England have come from financial journalists who actually support the transfer of power from the Treasury and the Chancellor to the Bank of England.
I want to quote part of one article in The Guardian last Friday, in which Mr. Alex Brummer wrote:
The new pitch for power of the central banks is to have an inflationary target--we have it--and then shoot at the target and pretend that somehow interest rates will enable us to hit it. Central banks are about inflationary bias. Mr. Brummer obviously has not read the Bill--or if he has, he has read it in the same way as the Chief Secretary has read it, which is an incorrect way. Clause 11 clearly
states that the task of the Bank is to maintain price stability--or, in Mr. Brummer's language, to give an inflationary bias. Only subject to that is the Bank to support the Government's economic policy, including the objectives for growth and unemployment.
That is exactly what is in the Maastricht treaty. I do not want to go down the same road on Europe that the right hon. Member for Hitchin and Harpenden rather foolishly followed. We shall have other opportunities to discuss that. The Maastricht treaty is exactly the same as clause 11--although not in words, as it is more elegantly drafted. It, too, says that the first duty is price stability--subject to that, high employment, apple pie and everything else can be considered. The Bank is being asked to make inflationary bias its priority, as The Guardian said. Of course, questions of growth and employment should be taken into account as part of all these matters.
I happen to believe that it is wrong to divide fiscal policy and monetary policy. There is no evidence to show that it improves matters. Indeed, there is evidence from Germany just after reunification, and from the United States when President Reagan was pursuing a Keynesian economic policy, that, if there is too loose a fiscal policy, the Bank will over-compensate and have too tight a monetary policy.
"We will . . . watch the track record of the Bank before deciding what, if any, steps should be taken towards greater operational responsibility for the Bank in interest rate policy."
Mr. Davies:
That point has already been made in the debate. Rather than refer to speeches made in opposition, I intend to consult the sacred text of the manifesto.
"We propose a new monetary policy committee to decide on the advice which the Bank of England should give to the Chancellor."
Nothing could be clearer than that. However, this Bill is not about advice: it is about power and the transfer of power from the Chancellor to the monetary policy committee of the Bank of England.
"The danger of giving the Bank of England operational independence always was that it would show an inflationary bias".
I should not talk about rugby after a Saturday when Llanelli was trounced by the All Blacks, but accusing a central bank of showing inflationary bias is like accusing the All Blacks of a try-scoring bias. Inflationary bias is what central banks are about, especially modern central banks. A long time ago, they were concerned with the external value of the currency, but it was at a time when currencies were not floating. The banks have now moved on to another pitch--the internal value of the currency. Inflation targets are being set, but they were not around when the Federal Reserve or the Bundesbank was established.
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