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Mr. John Bercow (Buckingham): There is not a single word that my hon. Friend has uttered so far with which I have disagreed. Is not this Bill--although bad and damaging--but a halfway house? Following the logic of my hon. Friend's thesis, is it not an interim step to the wholesale abandonment of the power to control British monetary policy and interest rates outwith the United Kingdom altogether--to a European central bank that we do not elect and cannot remove?

Mr. Gibb: I agree with every word that my hon. Friend says. The decision to join a single currency is part and parcel of the desire to hand over to somebody else--anybody else--economic decisions that the Government know they cannot trust themselves to take. That is why they went on about their promise not to raise taxes. That is why they made such a song and dance about sticking to Conservative spending plans. That is why the first thing that the Chancellor did was to give up his right to conduct monetary policy. Even new Labour does not trust new Labour.

There was not a single word in the Labour party manifesto about giving independence to the Bank of England. It merely said:


Despite what the Economic Secretary said earlier, that does not mean giving the Bank of England independence. There is not a hint in that phrase about a plan which, in the words of the Prime Minister, is the


    "biggest step in economic policy making in Britain since world war two."

Today, we are debating a Bill which the people did not vote for and did not expect--but that is typical of what we have come to expect from the Government. During the election, the Prime Minister wrapped himself in the Union Jack to demonstrate his Eurosceptic credentials; yet within six months, his Government have pledged themselves to take Britain into a single currency. Within four months, the Government have allowed through at two successive ECOFIN meetings a paper on European Union tax harmonisation proposals.

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The Labour party challenged every reduction in unemployment over four consecutive years of the last Tory Government by challenging the basis of the figures. Since the election, the Labour Government have done nothing to revise or change the basis of those figures. The Government were elected on a pledge to bring unemployment down further--that is the whole basis of their economic policy, we are told. But every major economic decision taken by the Government since the election is designed, whether deliberately or not, to increase unemployment.

The decision to give the Bank of England independence is leading to excessive rises in interest rates, which will, in due course, lead to unemployment increasing. The Budget and the Finance Act will take £10 billion out of the economy. The Government have signed up to the social chapter and proposed the introduction of a minimum wage, all of which will lead to job losses.

On 20 May, the Chancellor stated that the introduction of an independent Bank of England and the appointment of a Monetary Policy Committee would be scrutinised by the Treasury Committee. I searched in vain through the Bill for even one reference to the Treasury Committee. Why is that? Are we meant to rely, for the only piece of democratic accountability in this whole undemocratic arrangement, on a statement in a letter from the Chancellor?

The Chancellor also said that the Bank of England could use its own separate foreign exchange reserves to intervene in the money markets. How can we be sure that the Bank will conduct those operations for domestic purposes rather than for exchange rate stability? What is the Government's policy on exchange rate?

The late Lord Ridley, in his autobiography, opposed an independent Bank of England, writing:


What is the Government's strategy, and can the Bank of England be so trusted?

The Government's rhetoric is of openness, but they announced the independence of the Bank of England on 6 May, the day before Parliament assembled. Was that so urgent that it had to be dealt with on a Monday rather than a Tuesday? The Government trumpeted their introduction of a green Budget and draft legislation for consultation, but took the biggest step in economic decision making since the war with no consultation or debate, before any announcement to the House.

The Chancellor may be a close ally of the Prime Minister's, but in his six months in office he has made a series of political decisions that will do our economy enormous damage: the decision to give the Bank of England independence; the £5 billion smash-and-grab raid on Britain's pension funds; and the decision to take Britain into the single currency after the next general election. Those are the Government's three most damaging decisions since the general election; they were all made by the Chancellor and will all, I believe, lead the Labour party to lose office at the next general election. I urge the House to vote against the first of them this evening.

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9 pm

Mr. Charles Clarke (Norwich, South): I strongly support the Bill. I want to talk about the accountability of the Bank, on which the Treasury Committee has reported, and, in particular, to reject everything the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) said. I was glad that he spoke with such brevity--to allow the full involvement of Labour Members.

I also reject the assertion of the right hon. and learned Member for Rushcliffe (Mr. Clarke) that the Bill would create a less transparent and open system of fixing monetary policy. I profoundly disagree, and I hope to explain why.

We in Norwich have a specific interest in financial services. Norwich Union has its headquarters there, as does Virgin Direct with the new Virgin One bank account and Sedgwick's insurance brokers. They employ many people in my constituency. They want a stable economy with low inflation and transparent and open economic decision making so that they know where they stand. I believe that the Bill will supply that, and that is why I support it.

There is concern in Norwich--as elsewhere--about the fact that monetary decisions can be taken according to the febrile concerns of the marketplace in the City rather than as a result of being rooted in the real needs of the economy, and that there is sometimes a mystical approach to monetary policy making that ignores economic realities.

One of my constituents, who is regularly consulted by the regional agents of the Bank of England, said that he was concerned that decisions might be, and are, taken in the City without consideration of the impact on the price of the green pound or the consequences of the windfalls in Norwich as a result of Norwich Union's conversion. I believe that the Bill will allow those concerns to be dealt with.

Other countries manage in different ways. The Bundesbank and the Federal Reserve have well- established systems of taking into account the real economy. There are different constitutional devices reflecting countries' different constitutions.

The Treasury Committee addressed the issue and came to the central conclusion:


I believe that that is fundamentally right and that that is what we are trying to achieve.

In his evidence to the Select Committee, the Chief Secretary stated:


any Government's credibility--


    "and in turn will lead to a reduction in the premium we have to pay currently in terms of interest rates."

I believe that those principles are right, and that is why the Bill is right.

Our Select Committee sought to set out in its report how transparency and openness could be developed. I want to explain clearly what the Committee is saying. First, we will require the Chancellor to give clear evidence in the public domain about the basis of the clarification

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and instruction that he gives, as set out in clause 12. He will be required to explain, directly and openly, not quietly and secretly, how he deals with the economic shocks mentioned earlier by the former Chancellor, the right hon. and learned Member for Rushcliffe.

The Chancellor will be required to specify why, for example, he chooses a point target for inflation rather than a range; why he takes one measure, such as RPIX, rather than another; why he chooses a particular figure, such as the present 2.5 per cent. plus or minus one; and what general period the target should be met within. If he uses his powers under clause 19 to override the Bank, he will have to explain why he has done so and how he is doing it.

One of the most ludicrous assertions that have been made tonight is the suggestion that the motive behind the Bill is to allow the Chancellor to shift responsibility to the Bank. He could not begin to do that. All Chancellors take responsibility for the inflation target they set and for the structure and framework of monetary policy. They are accountable for that to the House and to the Treasury Committee. The idea that the Chancellor might think that he can get rid of it and give it to Eddie George is ludicrous. That is not the motive that lies behind the Bill or the motive of the Chancellor, and the suggestion that it is is wrong. The accountability of the Chancellor that I have described is the clearest possible demonstration that the Government retain full responsibility for the key indicators of economic policy, including monetary policy. It is right that they should, and right that they are accountable for it.

On the Bank, the Treasury Committee proposes a range of measures to bring into the public arena policy considerations and policy areas that have never been there before. I pay tribute to the former Chancellor, who is in his place, for some of the steps that he took to move that on with the inflation report, the publication of minutes and so on. The Bill seeks to take that further and bring more into the public arena.

Hon. Members asked who would give evidence. Of course the Governor will give evidence and of course we want all members of the Monetary Policy Committee to be interviewed from time to time. If there was a division in the minutes, we would take evidence about why MPC members took different views. We are seeking to take evidence about the role of the court. There is a series of areas within the Bank's decision taking, and different people with different responsibilities in respect of which we hope that views and conduct of affairs will be open.

What will the Committee do? First, we have stated--I believe that this can be achieved--that we will require the Bank to clarify its assumptions on matters such as foreign interest rates, the exchange rate, domestic and international growth and, critically, the relationship between interest rate movements and the real economy. With all credit to the former Chancellor, those areas and assumptions have not been in the public arena before, but they will be now. That will enhance the public debate about the conduct of economic policy.

The Committee set out explicitly that we would require the Bank to provide in its main inflation report an annual statement of the transmission mechanisms that it believes operate in the relationship between monetary policy and

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inflation. That is an important area: many assertions and ideas are discussed in various ways. We are saying that we want it out in the open every year so that we can examine the assumptions that have been made.

On the open letter process, if there is any deviation from the target that is set, there will be full evidence, full hearings and full understanding in the full public arena. There will be hearings on the inflation report, as my hon. Friend the Member for North Durham (Mr. Radice) said, at least twice a year--and probably more often--to draw out the full picture. If we have the reserve powers allowed for in clause 19, there will be every opportunity to air the matter fully in the public arena. The Committee's report also mentions that we are seeking an annual debate on this issue in the House. The process will greatly increase transparency and openness, and will add to the credibility of the Bank.

I am short of time and am coming up against the deadline. I had hoped to comment on the confirmatory hearings. I agree with my right hon. Friend the Chief Secretary to the Treasury that they are not a requirement for the Committee to be able to operate in the way I described, but proper confirmatory hearings would enhance the Committee's work.

In conclusion, I urge hon. Members to read paragraphs 47 and 49 of our report, where we set out how confirmatory hearings can be conducted carefully and effectively without the worst practices of the congressional system. Such hearings would enhance the system. The Chief Secretary generously told our Select Committee that he had an open mind on that matter. I genuinely hope that, even with this Bill, he will have an open mind when considering amendments in that area.


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