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Ms Kelly: If the right hon. Gentleman believes that the decision to loosen the inflation target--as he put it--is so damaging to the British economy, can he explain why bond yields fell by half a point on the day that the announcement was made?
Mr. Heathcoat-Amory: I am sorry to tell the hon. Lady the bad news: inflation has increased since the Chancellor made that announcement. The Chancellor routinely, month after month, misses his inflation target. It is now above 2.5 per cent. He not only sent a signal that Labour Governments are soft on inflation, but compounded the error in the Budget by failing to deal with what he thought was incipient overheating with excessive consumer expenditure.
If that was the problem--and he certainly thought it was--why did he fail to deal with it? Instead of taxing consumer expenditure, the Chancellor taxed the corporate sector through the windfall tax and the notorious £5 billion a year raid on pension funds. He has done nothing on the fiscal side to bring down inflation since the election--in fact, he has added to it.
The strain of that anti-inflation strategy has been borne by the Bank of England. That is why we have seen five interest rate increases since the election. Who can tell whether the great men on the Monetary Policy Committee are right? We do not know, and we will not know for 18 months. That brings us back to the Chancellor's comment that he would have to wait some time until he could assess whether the Bank had built up the correct track record, before he handed it the powers. As I said, however, the Chancellor overrode that, and, in a great and unnecessary rush, he has given the Bank the authority to change interest rates.
The detail of the Bill weaves an uncertain path between making the Bank independent and keeping it as an appendage of Government. That muddle has been spotted not only by hon. Members who have spoken in the debate, but by outside commentators. Professor Gowland has
been quoted. He knows a great deal about financial regulation and banking, and he has pointed out that the new arrangement, which is in fact a contract between the Treasury and the Bank,
If we in this country were to experience an economic shock, perhaps a mild one--cost pressures of one sort or another--the Bank is forbidden by statute to give a higher priority to the maintenance of output and employment than to its overriding objective, which is to maintain price stability. Before the end of this Parliament, we shall see what strains and stresses that can create.
In other words, the Bill combines minimal discretion with the maximum potential for damage. The reason is that the Government want to keep the Bank on a very short lead, while at the same time being able to blame the Bank for the unpopular decisions that may be required.
The Treasury Select Committee concerned itself with the appointment of the great men on the committee and the directors. The Select Committee spotted the fact that the Monetary Policy Committee will, in part, report to the Bank's court of directors. All the members of that court are to be appointed by the Chancellor of the Exchequer, but the terms of appointment of the court are to be reduced from four to three years--less than a normal Parliament.
Will the Economic Secretary accept the recommendations of the all-party Select Committee that the terms of appointment of members of the Monetary Policy Committee and the court should be made longer than is proposed in the Bill?
Will the hon. Lady comment on another issue--who should be appointed to those important independent committees? We saw last week the rather regrettable spectacle of powerful outside lobbies getting at a Labour Government. We saw the motor racing industry successfully buying favours from a Labour Government. That was regrettable. It is now certain that the Labour party has broken an election pledge, under pressure from a powerful industrial lobby which happens to have given a lot of money to the Labour party.
Understandably, the House and the Select Committee, which may have anticipated that, want to be certain that the appointees to the proposed bodies are above suspicion and beyond reproach. That is the least that the House can expect from the Government. I ask the Minister to state in her reply that the appointments to the Monetary Policy Committee should be confirmed by the Treasury Select Committee, if necessary after hearings.
Another point that I would like the Minister to answer--it was raised by my hon. Friend the Member for Arundel and South Downs (Mr. Flight)--relates to the transfer of banking supervision from the Bank of England to the Financial Services Authority. A joint committee might be proposed to try to keep the Treasury, the Bank and the FSA in touch with one another, but at present it is the Bank that has the expertise and the knowledge to judge systemic risk in the banking system. We believe
that it is most unwise to transfer these responsibilities now to a new and untried organisation that is struggling still to set itself up and to take on the other tasks that it has to undertake.
The Economic Secretary to the Treasury (Mrs. Helen Liddell):
We have just heard a speech encapsulating the difficulties in which the Conservative party finds itself. The right hon. Member for Wells (Mr. Heathcoat-Amory) could not even decide how long he wanted for his summing up.
We have seen mounting tonight the extent to which one side of the Tory party does not know what the other side is doing. Until tonight's experience, I was rather doubtful about the theory of Pavlov's dogs, but bearing in mind the number of times that Conservative Members have returned to the issue, I am now convinced that, even in their sleep, they talk about the single currency.
There is confusion on the Opposition Benches: on the one hand we are told that the inflation target is too tight, while on the other we hear that it is too loose. We hear that the right hon. and learned Member for Rushcliffe (Mr. Clarke) is the greatest thing since sliced bread--from a man who resigned from the right hon. and learned Gentleman's team in government. We have seen kissing cousins and the making of a marriage of convenience from a party that does not know whether it is coming or going.
Mr. Tim Boswell (Daventry):
Will the Minister give way?
Mrs. Liddell:
Give me a minute, and I shall willingly give way to yet another member of the Opposition Front Bench, who perhaps will tell us whether the Conservative party is in favour of repealing the Bill.
Mrs. Liddell:
I shall give way shortly.
When the hon. Gentleman comes to the Opposition Dispatch Box, perhaps he will tell us whether he takes the view of the shadow Chancellor of the Exchequer, who says that there will be no knee-jerk reaction to whether the proposed legislation will be repealed, or whether he takes the view of the right hon. Member for Wells, who says that there will be no need to repeal it.
Mr. Boswell:
I take precisely the view of the shadow Chancellor of the Exchequer.
The Minister seems to think that the question of European monetary union is not in any way associated with the Bill. That being so, why was it that, when the Chancellor of the Exchequer spoke only last week about
the preparations for monetary integration and the Governor of the Bank of England referred to our being in a sense a "pre-in", the operation of monetary policy widened the divergence between British interest rates and those in continental Europe? Is that a triumph for the Government's policy?
Mrs. Liddell:
We have just heard the alternative Opposition reply. It is yet another example of the extent to which Conservative Members find themselves isolated.
Various hon. Members repeatedly wanted to bring the issue round to a European central bank. Let me say quite clearly: the decisions on monetary policy that have been taken by the Chancellor and the Government are based on the domestic needs of our economy. That is one aspect that seems to be singularly lacking from Opposition Members. What else can we expect, when the right hon. Member for Wells writes in The Sunday Telegraph:
Indeed, the right hon. Gentleman made it fairly clear that he has not followed the details of the Bill. He referred to price stability, and to whether action could be taken in the event of any external shocks to the economy. I draw his attention to part II of the Bill, clause 11, which specifically points out that, in relation to monetary policy, the objectives of the Bank of England shall be
"will reduce the Bank's discretion."
The Bank's task is to deliver a narrowly defined inflation target. It is required to take into account the Government's more general economic objectives, such as growth and employment, but those are explicitly to be subject--and therefore secondary--to the aim of price stability. That is to be written into statute law in clause 11.
"The CBI is bad news for British industry"?
We have seen Opposition Members tonight driving yet another wedge between the Conservative party and business in this country.
"to maintain price stability and, subject to that, to support the . . . economic policy"
of Her Majesty's Government,
"including its objectives for growth and employment."
Indeed, the right hon. and learned Member for Rushcliffe pointed out quite clearly the mix of elements that make up macro-economic policy. Perhaps the right hon. Gentleman will now tell us which side he is on. Is it to be repealed? Or is it not?
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