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Mr. Heathcoat-Amory: I refer the hon. Lady to her own legislation, which says quite clearly, on page 5, clause 11, that the maintenance of price stability--[Interruption.] If she has it in front of her, perhaps she will read it to the House. It says that the objective of the legislation is to maintain price stability, and that the other objectives of economic policy are to be subject to that.
The Chief Secretary got it all the wrong way round when he introduced the Bill. Perhaps the Economic Secretary will now do us the courtesy of getting it the right way around, and conceding that the other objectives of Government policy, such as growth and unemployment, are only subject to the maintenance of price stability, so that, when there is a dilemma, such as in a shock, price stability will be the overriding statutory requirement of the actions of the Monetary Policy Committee. Will she confirm that that is in her own legislation?
Mrs. Liddell:
I think that the right hon. Gentleman is having a second wind in the wind-up. There must be an echo in here, because I have just read out the relevant clause, and he has read it out again and got it the wrong
That is another example of the confusion that has marked the debate from the very beginning. Whenever the shadow Chancellor got up, he would not say yes, he would not say no. He ended up impaled on the fence of his party's divisions and indecision. He claims on the one hand that the Chancellor is giving up one of the most important tools of economic policy, yet he will not tell us whether any incoming Conservative Government--should the country be so unfortunate as to get one--would repeal this legislation.
However, the same shadow Cabinet, under the leadership of the right hon. Member for Richmond, Yorks (Mr. Hague) is prepared to commit this country, for the next 10 years, to not contemplating a single currency in Europe. He says one thing, but then says another.
Presumably the single currency is of a much lower order than independence from the Bank of England. On the one hand the right hon. Gentleman says that giving the Bank of England operational independence is wrong; then he says that we are not giving it enough independence, because the Monetary Policy Committee could be influenced by the Chancellor. I hope that, by the time the Bill is considered in Standing Committee, Opposition Members will have made up their minds whether they are coming or going.
I shall take up some of the specific points that the shadow Chancellor made. He was effusive in his compliments to the right hon. and learned Member for Rushcliffe, yet he stood against him in the leadership contest.
The right hon. Gentleman referred to issues of debt management, something that was raised a number of times during the debate. One reason why the clauses relating to debt management put distance between the Bank and the debt management agency is specifically to ensure that there is greater transparency and increased credibility, so that there is no chance of Bank actions being misinterpreted in any way as monetary policy actions. Nor can there be any charge of insider trading. Cash management operations will be set up to avoid conflict with banking operations.
The right hon. Gentleman also questioned whether there would be a deflationary bias. During the debate, we have heard that the proposals for the central bank will, on the one hand, be inflationary, while on the other they will be deflationary. Let us take the right hon. Gentleman's view, that there will be a deflationary bias. It is up to the Government and the Chancellor to set the targets for inflation. Indeed, the Government will regard undershooting as seriously as overshooting.
The right hon. and learned Member for Rushcliffe referred to discussions in which he had been involved--the famous Ken and Eddie show, where on every occasion Ken was right and Eddie wrong. That is a classic example of why we need operational independence in the setting of interest rates. Indeed, the hon. Member for Louth and
Horncastle (Sir P. Tapsell) said that he had exerted political pressure on the former Chancellor in regard to his inflation performance.
Sir Peter Tapsell:
I said nothing of the sort. I said that, in the Division Lobby, I had congratulated my right hon. and learned Friend on his decision to resist pressure from the Bank of England unnecessarily to raise interest rates.
Mrs. Liddell:
In relation to the overall impact on the setting of interest rates in this country, is it not reassuring that, outside the closed atmosphere of the Lobbies of the House of Commons, there will be rational debate about the correct level for interest rates to meet the inflation target?
The right hon. and learned Member for Rushcliffe said that, for certain elements of the proceedings, the minutes of the Monetary Policy Committee do not specifically refer to the names of members. However, the voting performance of members is revealed. What a difference from the Ken and Eddie show, when there was one vote plus a casting vote, and Ken held both votes. That is not the right or modern way to set interest rates.
My hon. Friend the Member for North Durham (Mr. Radice), the Chairman of the Treasury Select Committee, made a number of telling points. A number of hon. Members have referred to the Committee's recommendations. I reiterate what my right hon. Friend the Chief Secretary said about having an open mind on the recommendations, while taking up the points about three-year appointments.
There is a good precedent for appointments based on three years. The Hempel report suggests that, for corporate governance, there is logic in company directors being appointed for three years, because that increases accountability. [Interruption.] The hon. Member for Gordon (Mr. Bruce) makes a sedentary intervention. Just because an appointment is for three years does not mean that it cannot be renewed. It could be three years, six years or nine years. If the Monetary Policy Committee were ever to become static, longer appointment periods would not help the analysis of monetary policy.
A number of hon. Members referred to confirmation hearings. As my right hon. Friend the Chief Secretary said when he appeared before the Treasury Select Committee, the Government remain open-minded on that issue, but there are precedents relating to other activities of the House, which might be more widely discussed in other forums.
I greatly regretted the comments of the hon. Member for Louth and Horncastle on the role of Bank of England staff after banking supervision is transferred to the Financial Services Authority. The clear implication of his comments is that, once banking supervision is removed from the Bank of England, those who work in the Bank will be second rate. As one who works closely with Bank of England staff, I think that that was a regrettable point. However, I was much reminded of the quality of the Bank's staff when I heard the very impressive speech by my hon. Friend the Member for Bolton, West (Ms Kelly).
I pay due tribute to the maiden speech of my hon. Friend the Member for Batley and Spen (Mr. Wood), who made a most telling contribution to the debate. He brought us back to first principles in many instances, telling us of the history of the community that he represents and the
issues that impact on it. It was an impressive and most gracious speech, in which he paid due tribute to his predecessor. He mentioned the Batley Bulldogs rugby team. Another Batley bulldog has joined the House for our deliberations in this Parliament, and I pay tribute to him.
I shall take together the points made by my right hon. Friend the Member for Llanelli (Mr. Davies) and my hon. Friends the Members for Hackney, North and Stoke Newington (Ms Abbott) and for Great Grimsby (Mr. Mitchell).
We heard well-rehearsed arguments that, in June 1997, were part of an Adjournment debate. It is always very enjoyable to hear my hon. Friend the Member for Hackney, North and Stoke Newington make her case. She has a clear case, although I do not agree with it. I remind her that allowing inflation to get out of control impacts most perniciously on lower-paid and poorer people. Losing control of inflation affects the poor more than it affects anyone else, and establishing more effective means of controlling inflation in our economy is extremely important.
From many of today's speeches by Opposition Members, one would have had the clear impression that Government economic policy begins and ends with inflation. As the right hon. and learned Member for Rushcliffe said, however, other instruments of economic policy are important.
Nevertheless, we must realise that inflation is a cornerstone of much else in economic policy. The right hon. and learned Gentleman mentioned growth trend rates. They are not altered in a six-month period, because experience and performance must build up within the economy. He may mock the Monetary Policy Committee's decisions on interest rates. Nevertheless, he himself will have to take responsibility for the fact that he should have been acting before the general election, but failed to do so. That point was made most eloquently by my hon. Friend the Member for Bolton, West.
We have heard some thoughtful and wide-ranging speeches. We heard an impressive speech by my hon. Friend the Member for Leicester, East (Mr. Vaz), who has taken a considerable interest in the Bank of Commerce and Credit International. Hon. Members on both sides of the House will realise the extent to which he has vigorously pursued that issue. He asked me a very specific question on the Bingham report. As the question goes wider than the subject of today's debate, for now I will say only that I have heard what he said, and that I will get back to him on the matter.
The hon. Member for Twickenham (Dr. Cable) raised some other issues. He asked, as he always does, some specific and very interesting questions. A particularly interesting one related to the possible criteria for market intervention. The Government expect that interventions beyond normal ones in money market operations will be extremely rare, and practised only if there were to be a serious systemic threat.
The memorandum of understanding--which I mentioned earlier--between the Bank and the Financial Services Authority emphasises the need for co-operation and an exchange of information in assessing the need for intervention, and the form that that intervention should take. Ultimately, it will be up to the Chancellor to approve
an intervention, and he will have to have justification for putting public money at risk. I am sure that the hon. Gentleman will recognise the reasons for that.
Several points were made about financial regulation, which is a vital element of the way in which the Government are taking forward our responsibilities for the development of the financial services sector. The Bill is but the first stage in a wider reform of financial services.
The hon. Member for Twickenham asked specifically about the cost of regulation. The explanatory memorandum estimates the cost of banking supervision to be £50 million, including overheads. The basis for the Coopers and Lybrand figure of £250 million to which the hon. Gentleman referred is unknown to us. We think that it might relate to the costs of supervision in general, but we are not clear about the genesis of the Coopers and Lybrand conclusions.
We believe that bringing under a single regulator nine different structures and nine different operating forums, thus avoiding all the duplication that has caused such chaos in the financial community, will provide the opportunity for more effective regulation at lower cost. Indeed, my right hon. Friend the Chief Secretary referred to cash ratio deposits and how they will be put on a statutory basis.
We will consult on that, to make sure that we have a proper assessment of the right level of cash ratio deposits. The Government have made it clear that our aim is that the aggregate burden on the financial institutions should be no higher, and preferably lower, than it is at present.
The hon. Member for Twickenham also asked about the role of the International Organisation of Securities Commissions. One reason we sought to reform financial regulation is that we are determined to see our financial regulation as a world beater--and as a source of competitive advantage to British financial institutions. Financial regulation is a critical element in making markets competitive globally. I hope that the hon. Member is reassured that we hope to build on the extensive experience of financial supervision available in Britain, and to play our part internationally.
The shadow Chancellor referred to the possibility of conflict between the various regulators. There is already substantial potential for conflict, some arising out of the complexity of individual firms. Firms in the financial services sector have changed dramatically since the 1980s; banks have greatly extended their activities; and the building societies that have converted to banks have a mixed bag of financial products available and have a mixed bag of regulators. The Bill will ease the burden of regulation, and make regulation more transparent.
The shadow Chancellor also referred to the cost of regulation. It is a specific commitment of the Financial Services Authority to make sure that the cost of regulation is proportionate to the benefits of regulation.
Several hon. Members mentioned British independence for the central bank, and the EMU-compatible bank. As I said, it is interesting to see how hon. Members have returned to this issue. The preparations for EMU and the debate that must take place in this country are completely different from the issues covered by the Bill. The Bill is about providing the basis for stability in our economy.
Over the past 18 years, we have seen the impact of boom and bust on our economy, and the hardship caused for ordinary people. If our economy is to grow convincingly, it is essential that our decision making should be put on a sound basis that leads to coherent and stable financial policy.
At the end of the debate, the view of the Conservatives remains unclear. They have dodged the question whether they would repeal the legislation. I shall be interested to discover the line that they take in Committee.
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