Previous SectionIndexHome Page

Mr. Deputy Speaker (Mr. Michael J. Martin): Order. Will the hon. Member for Finchley and Golders Green (Dr. Vis) be seated? He should not address the Chamber from those Benches, as they are not part of the House.

Sir Peter Tapsell: I understand, but I shall be happy to give way to the hon. Gentleman now that he is in the House, if you will permit me to do so, Mr. Deputy Speaker.

Mr. Deputy Speaker: The hon. Member for Finchley and Golders Green was outwith the precincts of the Chamber, so the hon. Member should carry on with his speech.

Sir Peter Tapsell: I bow to that judgment, which has put me, after 38 years, into a unique position of experience in these matters. I see that the hon. Member for Finchley and Golders Green is rising again and, as it is presumably on a different point, I shall be happy to give way to him.

Dr. Rudi Vis (Finchley and Golders Green): Well, it is from a different position and I must apologise to you, Mr. Deputy Speaker. You talked about accountability and transparency, but the bit of the Maastricht treaty that you read out concerned independence, not accountability or transparency, which is elsewhere in the treaty. You would do well to read that out to us.

Sir Peter Tapsell: The occupant of the Chair is being held responsible for a great many things for which I do not think he is responsible. I shall try to answer that intervention within the rules of order.

11 Nov 1997 : Column 758

If we have a European central bank, it will be against the law to seek to influence or bring pressure to bear on it. As the Maastricht treaty explains, one can be heavily fined for attempting to influence the decisions of a European central bank. That will have far-reaching effects on the lives of all our citizens, and it is totally unacceptable.

We are not today debating the European central bank, but there is an enormous and significant difference between that bank as described in the treaty and the proposals for the Bank of England set out in the Bill. The Bill is intended as a halfway house towards our economy being managed by a European central bank. Only by giving it independence at this stage can we take the necessary steps of joining the exchange rate mechanism for two years, joining the single European currency and being subsumed in the European central bank--when our gold reserves will be carried off to Germany.

All that flows from this legislation as, without the establishment as an interim measure of an independent British central bank, it will not be possible for us to join European monetary union. Indeed, the Maastricht treaty makes it clear that countries must establish independent central banks before they can join the European central bank. Those seem good reasons for being suspicious of and, indeed, hostile to the idea of an independent central Bank of England, which will take these vital decisions on monetary matters.

The Bill raises three main political considerations. The great macro-economic objections, which were mentioned by the right hon. Member for Llanelli (Mr. Davies) and my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley), are that the Bill involves the separation of fiscal and monetary policy. That is a profound mistake, and it will lead to great trouble. It will make it much more difficult to manage the British economy efficiently, particularly in times of difficulty, if the Chancellor of the Exchequer is not in control of monetary as well as fiscal policy.

Nye Bevan is famously quoted as saying, "You don't have to read the book because it's all in the crystal ball," although he put it the other way round. The crystal ball shows clearly that a tight monetary policy was operated in tandem with a loose fiscal policy in the United States in the 1980s, and that we had the same thing in Germany in the 1990s after reunification--the Bundesbank operated a tight monetary policy while Chancellor Kohl's Government operated a lax fiscal policy. That impinged harshly on the British economy, because of our membership of the exchange rate mechanism between 1990 and 1992.

Over-tough German monetary policy led to a much too tight monetary policy here at an inappropriate time in our monetary cycle. That caused appalling hardship in my constituency. Many small farmers and business men were bankrupted. It would not be an exaggeration to say that that hardship was the main cause of the Conservatives' unpopularity at the last general election, which stemmed from residual memories of those years of our membership of the ERM. It is extraordinary that there are those in the Labour party, of all parties, who want to go down that road again.

Unemployment has always seemed to me to be the most appalling of all social scourges. I belong to a generation who remember the prewar years. One of my earliest memories was of standing in the dole queue with my

11 Nov 1997 : Column 759

father, who had been a rubber planter in Malaya. When the slump meant that one could not sell rubber anywhere in the world, he came back to England, quite unqualified to work here, and he remained unemployed throughout most of my childhood, until the war broke out and he was able to join the Army again.

My memories of the 1930s motivated my economics rather more than my subsequent reading of John Maynard Keynes, although he gave me the intellectual understanding of how all that unemployment came about. It is amazing to me that the Labour party, of all parties, has abandoned all those memories and does not seem to appreciate that, if we join a single European currency and have independent banks--whether British or, worse still, foreign--unemployment in this country will be much higher than it would otherwise be. That is not a party political point; it is demonstrably the case.

As almost everyone who has spoken in the debate has admitted, and as my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) rightly said, central bankers, by their nature, have a bias in favour of deflation. The right hon. Member for Llanelli also pointed that out very well. Whenever a group of central bankers get together, they are entirely preoccupied with the level of inflation. Of course that is important.

Mr. Radice: There is a famous central banker called Mr. Greenspan who clearly looks after the real economy as well as the inflationary issues.

Sir Peter Tapsell: I know Mr. Greenspan and I knew his three predecessors. He has done a good job in the United States and he takes a considerable interest in levels of employment and investment, but the US Federal Reserve bank, or the Fed as it is called, is vastly more subject to pressures and to democratic accountability than anything suggested for the European central bank--there is simply no comparison.

Mr. Geraint Davies: Will the hon. Gentleman give way?

Sir Peter Tapsell: Let me finish my response to the hon. Member for North Durham (Mr. Radice).

When asked a similar question by him during a previous speech, I spelled out at considerable length--I shall not repeat it now--the enormous degree of accountability to which the Fed was subject. Mr. Greenspan's immediate predecessor told me that he spent an inordinate amount of time preparing for congressional hearings, which were held in front of the television cameras with millions of his fellow Americans watching, to justify the Fed's every move on monetary matters.

There is no suggestion that pressure cannot be brought to bear on the Fed--every sort of pressure has been brought to bear: President Reagan tried to push out some members of the Fed and replace them with his own nominees, and Franklin Delano Roosevelt did the same in the 1930s. The Fed has always and openly been subject to tremendous pressures, which is regarded as entirely proper and appropriate, but the Maastricht treaty forbids that in respect of a European central bank. Any comparison between what is proposed for the people of this country if we join a single currency and what happens in America in respect of the Fed is entirely misleading.

Mr. Davies: Does the hon. Gentleman agree that the Bank of England's forecasts on inflation are significantly

11 Nov 1997 : Column 760

more optimistic and up-beat than other outside forecasts? That casts doubt on the myth that the Bank of England is run by pessimistic deflationary bankers. In fact, it is not full of bankers but is run more widely by economists. Secondly, does he agree that the whole point of having a committee to hold the Bank of England to account is to ensure that it does not follow that we have a deflationary instinct, which has been suggested by several hon. Members on both sides of the House, and is simply false?

Sir Peter Tapsell: I am bound to say that I agree with every word that my right hon. and learned Friend the Member for Rushcliffe said on this point. I earned my living as a stockbroker for 35 years, and the research department of the firm in which I worked was nearly always more accurate in its forecasting than the Bank of England. We took pride in that fact, and there was widespread comment in the financial press whenever we were nearer the mark than the Bank.

The Bank of England was unduly pessimistic in my right hon. and learned Friend's last months as Chancellor. Although he said that his parliamentary colleagues were reluctant to express a view, several times during his last year as Chancellor I went up to him in the Division Lobbies and said how glad I was that he was resisting Bank pressure to raise interest rates, which I thought to be unnecessary.

I am sure that my right hon. and learned Friend was right to resist that pressure, and I agree with him that the Monetary Policy Committee will pursue unnecessarily deflationary policies, unless we are extremely careful. However, we will have to wait and see. Debates such as this and the occasional contact that even those of us who do not sit on the Treasury Committee have with members of the Monetary Policy Committee will be useful, because the committee can be made aware that we in the House of Commons are anxious about the possibility of unnecessarily deflationary policies. One hopes that they will therefore guard against them.

Next Section

IndexHome Page