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Sir Michael Spicer: I hesitate to interrupt a most enjoyable and very interesting speech. The hon. Lady is correct in her description of German interest rate levels and how they compare with ours, and many hon. Members will agree with her comments. Does she agree that the task of trying to make the economies of Britain and Germany "converge"--to use the current idiom--is pretty well impossible?
Ms Abbott: That is another speech for another time, which the hon. Gentleman may await at his pleasure.
It is not just a matter of the British body politic being more sensitive to interest rates. All adherents to the idea of an independent central bank ignore the fact that interest
rates are not a technical matter: they should not be decided in Eddie George's boardroom once a month. Interest rates affect not just house prices, but the level of bankruptcy among businesses and the level of unemployment.
I put it to the House--I have held this position consistently--that it is not the job of central bankers to decide issues that directly affect the levels of jobs, bankruptcy and economic despair among our constituents.
Dr. Vincent Cable (Twickenham)
rose--
Ms Abbott:
Please allow me to develop my argument. I realise that many distinguished hon. Members are passionate about this subject, but I must continue.
Much has been said about how the Treasury Select Committee will hold the new independent central bank to account. I bow to no one in my respect for the Treasury Select Committee, under the distinguished chairmanship of my colleague the Member for North Durham (Mr. Radice). However, we cannot seriously believe that the Treasury Committee, with two and a half special advisers, can hold to account the Monetary Policy Committee and the battalions of economists behind Eddie George.
Mr. Radice:
Will my hon. Friend give way?
Ms Abbott:
I wish to continue. Many hon. Members wish to participate in the debate.
When people make comparisons with the situation in the United States and the Federal Reserve, they must examine also the resources available to those Congress committees that hold the Federal Reserve to account.
I put it to the Treasury: if it is serious about holding the Monetary Policy Committee to account, it should give the Treasury Select Committee not only more powers, but the resources, the back-up and the manpower to match the institutions that it is supposed to hold to account. The Treasury Select Committee has slender resources and other broad responsibilities. It is ludicrous to suggest seriously that it can hold the Bank and the Monetary Policy Committee to account in any meaningful way.
I also have a problem with the intellectual basis for the decision. I would argue that is very flimsy: it is all about the power of fashion. My right hon. Friend said, rather grandly, earlier in the debate that the Government have taken these decisions "because we know they are right". That is quite an impressive statement, but how do we know that they are right? That may be a naive question, but I believe that it is the sort of question that one is sent to this place to ask.
It is worth making another point that has not been made all evening. Although there is a relationship between independent central banks and low inflation--there is no question about that--a definite causal link between an independent central bank and low inflation has never been established. In other words, contrary to what my hon. Friends and some Liberal Democrats may say, merely having an independent central bank by no means guarantees low inflation. I would argue that a country such as Germany, which has an independent central bank, has that independent central bank because it has a low-inflation culture.
Let us stop and ask ourselves why the Germans feel strongly about low inflation and are willing to make sacrifices to keep it low. Twice in people's lifetimes, Germany suffered hyper-inflation--first under the Weimar republic and then immediately after the second world war. That country has an almost primal fear of hyper-inflation. I believe that it is not the independence of the Bundesbank that has caused Germany's excellent low-inflation record, but Germany's history and the state of its economy that has created a low-inflation climate, of which an independent central bank is a symptom and not a cause.
The Bill will hand over one of the most important levers of economic policy to Eddie George. Let me say a word about the Governor of the Bank of England--he will no doubt read the transcript of the debate, if he is not listening to it now at the Bank. I think that Eddie George is a great man, and a fine Governor of the Bank of England. In fact, he plans to come to the House a week tomorrow to speak to the Campaign Group of Labour Members of Parliament about these matters.
I urge all my hon. Friends to attend that meeting, which will provide one of the few opportunities for Back Benchers to question Eddie George closely. He is a fine public servant, and he clearly has a deflationary bias. There is nothing wrong with a central banker having a deflationary bias. That is what central bankers are for. What is wrong is to let central bankers off the leash--to allow central bankers, with their inflationary bias, to set interest rates with no checks or balances or accountability.
I believe that, in introducing the Bill, my hon. Friends in the Treasury are victims of economic fashion. There is considerable academic evidence that the downside of an independent central bank is, as was said earlier, that it is hard to achieve co-ordination of policy, and there are risks to jobs and growth, and the danger of an overvalued pound.
I remind the House that, of the 20 most frequently cited studies on central bank independence, only one associates independent central banks with growth. In a study by Guy Debelle and Stanley Fischer, they stated:
Sir Michael Spicer (West Worcestershire):
Opposition Members found that a most enjoyable speech. I look forward to seeing how the hon. Member for Hackney, North and Stoke Newington (Ms Abbott) votes tonight after such a wonderful speech. Her colleagues on the Government Front Bench looked pretty grim throughout most of it.
Like the hon. Lady, I have long held reservations about the concept of an independent central bank. Let us not beat about the bush or kid ourselves: once the Bill is enacted, the Chancellor of the Exchequer will have a legitimate right to deflect the questions of hon. Members on any matters to do with interest rate policy. Furthermore, as my hon. Friend the Member for Louth and Horncastle (Sir P. Tapsell) said, it is probable that, on many other matters of monetary policy, we will not be able to question in the House and hold to account the person who is meant to be in charge of the economic management of the country.
Despite the great reservations of most Conservative Members, the real dilemmas are those of Labour Members. The Conservative party has for many years been committed to the concept and the priority of price stability, but that does not apply to Labour. So many of the coded objections and reservations that are being expressed have at their root a fundamental concern about priority being given to price stability in the economic management of the country.
That is why Labour Members have been banging on about the fact that the Bill states that the Bank of England shall take into account economic policy other than price stability, that it will be subject to the priority of price stability. Clauses 11 and 12 bother Labour Members.
Clause 19 gives the Government overriding powers if they see matters getting out of control. It refers to "extreme economic circumstances", which I imagine might include an impending general election.
Mr. Radice:
That is for you lot.
Sir Michael Spicer:
That is a let-out which is written into the Bill.
My concerns are the opposite of those expressed by Labour Members. The Bill opens up the possibility of questioning the price stability objective. Already in the debate, and certainly among some of my Labour colleagues on the Treasury Select Committee, it has been pointed out that the Bank must take account of other objectives. When should price stability be said to have come about? Some discretion is possible, with regard to time. Under the Bill, the bank must take into account objectives other than price stability.
I have two fundamental objections to a Bill requiring the Bank to take into account objectives other than the narrow one of price stability.
The first relates to a matter raised by the hon. Member for North Durham (Mr. Radice), who was rather unfairly attacked by the hon. Member for Great Grimsby (Mr. Mitchell). The hon. Member for North Durham is rather a good Chairman of the Select Committee, if we must have a Labour Chairman. I suspect that the hon. Member for Great Grimsby does not like the hon. Gentleman's views on Europe, and I agree with him. The hon. Member for North Durham and I do not agree at all on Europe, but that is no reason to attack his chairmanship of the Select Committee. The hon. Member for Great Grimsby was most unfair.
In an exchange with my hon. Friend the Member for Louth and Horncastle, the hon. Member for North Durham raised the issue of Mr. Greenspan and the Federal Reserve, and the additional powers that Mr. Greenspan had. My hon. Friend observed that Mr. Greenspan was more accountable than other central bankers.
"Since 1962, countries with independent central banks have suffered deeper recessions on average than those without."
Mark Hutchison and Carl Walsh found the same thing in a study of New Zealand, and Robert Chote, the financial editor of the Financial Times, writing in a personal capacity, said:
"People may lose their jobs unnecessarily because Mr. Brown is abdicating responsibility for achieving his inflation targets to the Bank."
I believe that the wrong decision has been taken, for the wrong reasons, and announced in the wrong way. I believe that, sadly, before the end of this Parliament, I will be proved right on the deflationary bias of letting the central bank decide monetary policy without any democratic checks and balances. For those reasons, I cannot support my Government in the Lobby tonight.
7.20 pm
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