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'(2A) The directors of the Bank shall be representative of the different regions of the United Kingdom.'.

Amendment No. 29, in clause 13, page 5, line 27, at end insert--

'(2A) No person shall be appointed under subsection (2)(b) or (c) unless he is a British subject.'.

Amendment No. 31, in page 5, line 35, after 'experience,', insert

', including knowledge or experience of manufacturing industry,'.

Amendment No. 28, in page 5, line 35, at end insert

'and that his views on monetary policy have been made known to Parliament.'.

Amendment No. 3, in page 5, line 35, at end insert--

(4A) No person shall be appointed under subsection 2(c) if he has within the preceding five years been an employee of the Bank.'.

Amendment No. 18, in schedule 3, page 21, line 31, leave out 'or (c)'.

Amendment No. 20, in page 21, line 32, leave out '3' and insert '4'

Amendment No. 19, in page 21, line 34, at end insert--

'1A Appointment as a member of the Committee under section 13(2)(c) shall be for a period of four years.'.

Mr. Heathcoat-Amory: The House will recall that at the centre of the Bill is the proposal to set up a Monetary Policy Committee to take all decisions relating to short-term interest rates. Indeed, it is already operating, and the Bill gives it statutory force. That is a major departure from previous practice, under which interest rates were set by the Chancellor of the Exchequer after consulting and receiving advice from the Bank of England.

The new clause would give the House some influence over appointments to the Bank, and specifically to the Monetary Policy Committee, through the Treasury Select Committee. As the Bill stands, the Chancellor has truly awesome powers of patronage. He will directly appoint most of the members of the Monetary Policy Committee. The Governor and the deputies will be appointed separately, but on the recommendation of the Prime Minister, so those appointments are also effectively in the hands of the Executive.

The Chancellor will be consulted on the appointment of two of the bank representatives on the Monetary Policy Committee, so he effectively has a veto on those appointments as well. The four other outside appointments to the Monetary Policy Committee are entirely in the Chancellor's gift. It is obvious that this very important new body is effectively, and in practice, a creature of the Executive, and specifically of the Chancellor.

Committee members will be appointed for only three years, so they will have little time to build up any independent authority before facing re-election and coming again under the Chancellor's discretion. That contrasts sharply with practice overseas. The Bundesbank, for instance, makes its equivalent appointments for a term of eight years, giving the members real authority and independence that stretches beyond, for instance, any one Parliament. The three-year term proposed in our case means that people will face reappointment within a single Parliament.

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Members of the relevant committees of the Federal Reserve bank in the United States are appointed for 14 years, so they are not only much more independent in the method by which they are appointed but have a long period of service, which gives them real authority and standing, and the ability, when necessary, to stand up to the Executive and assert their own judgment against political interference. That is not what we will have here.

That is why some of our amendments attempt to establish a longer term of office for the appointees, and I urge the House to support them; but I speak chiefly in support of the new clause, which picks up an idea first floated by the Treasury Select Committee. The Select Committee's members are drawn from all parties, it has a distinguished Labour Chairman, the hon. Member for North Durham (Mr. Radice), and its report was unanimous, so I advance these ideas in the spirit of the House of Commons trying to improve legislation and achieve some influence on the proposed procedure. Otherwise, we are faced with a quango. The Government are in danger of being seen to set up a quango, which they will appoint and on which no restraint is placed.

Hon. Members will remember that, before the election, we heard a lot of windy rhetoric from the then Opposition about how they wished to democratise quangos and make them more accountable. Of course, they have not done that. Indeed, they are creating many more quangos. We are debating just such an advance. Moreover, not only will the Monetary Policy Committee be a quango itself, but it will report to another quango, the court of directors of the Bank. Members of that court are also appointed by the Chancellor of the Exchequer, and their term of office is being reduced from four years to three. We face the rather alarming prospect of one quango reporting to another.

The reason why that is wrong, even according to the Government's own logic, is that it undermines the credibility of what the Government are trying to do: set up an anti-inflation strategy free from political interference. That is not achieved by setting up a body which is so obviously not free from political interference. For the reasons that I have described, the Monetary Policy Committee will be an offshoot of the Treasury.

The other reason why the proposal is wrong is that there are disturbing examples of how the Government respond to pressure. We all remember the episode of formula one and tobacco sponsorship. In that case, the Government changed their policy. Indeed, they broke an election promise because they came under pressure from a very rich donor to the Labour party. It is therefore not good for the Government to be trusted to make impartial appointments to the new, important body that will set interest rates, given that their record is already so unfortunate. It is vital that the appointments are made on merit in an unbiased and impartial way.

Ms Ruth Kelly (Bolton, West): Does the right hon. Gentleman think that the credibility of Government policy fell on the announcement of independence for the Bank of England? From the facts, it is absolutely clear that the markets thought that the credibility of Government policy had been enhanced because long bond yields fell.

Mr. Heathcoat-Amory: The hon. Lady ought not to be quite so sanguine about the inflation record. She will

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know that her Government have missed their own inflation target in every month since the election. So the jury is out. The Government have wisely continued appointments made under the previous Government, but I am debating future appointments that the Government will make as a result of the Bill.

That is why--the hon. Lady should agree--it is very important that the Government are seen to be entirely disinterested. She will correct me if I am wrong, but I think that she was a member of the Select Committee that produced the report to which I referred. I think that I noticed her name on it. She will therefore definitely want to support the new clause.

The new clause is modest. First, it would simply ensure that the appointees are selected after a process of open competition. That is a very modest requirement. Indeed, Ministers suggested in Committee that they had no particular problems with it. Secondly, it ensures that the appointments are subject to confirmatory hearings by the Treasury Select Committee. That does not mean that the House of Commons will make the appointments or suggest candidates: it simply means that the candidates suggested by the Government should be confirmed to ensure that they measure up to the full standards of expertise and impartiality that the House expects.

I shall quote just one paragraph from the Select Committee report. I see now that the hon. Member for Bolton, West (Ms Kelly) was a member of the Committee, and therefore will fully support this sentiment. It said:

I therefore move the new clause in the knowledge that it has the support of Labour and other members of the Treasury Select Committee, including some who are in the Chamber this afternoon. It will ensure that appointments are impartial, and will give added credibility to what the Government are trying to do in setting up the committee in the first place.

4.15 pm

Mr. Charles Clarke (Norwich, South): I do not support new clause 1. It gives an inappropriate role to the Treasury Select Committee in the formation of Government legislation. I support new clause 3 which, as the right hon. Member for Wells (Mr. Heathcoat-Amory) said, was supported by the Treasury Select Committee, although not unanimously. The right hon. Member for Fareham (Sir P. Lloyd) did not agree with that proposal, so it would be wrong to give the impression that a proposal unanimously supported by the Select Committee was lying before the House.

We do not think that confirmation is a precondition for the effectiveness and independence of the Bank, but we believe that it would enhance it, and we support the way in which the Government are going about these things. The Select Committee will hold hearings in any event, as we make clear in paragraph 49 of the report, but we believe that establishment of the role of the Select Committee in statute would enhance the Bill.

There are several reasons for that. First, it would make it clear that the appointment of the key people who determined monetary policy was made not only with

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reference to the Government of the day, but on the basis of a broad-based discussion about the issues at stake, in which everything was brought out into the open. Secondly, it would strengthen the relationship between the Bank and Parliament. A new feature of the Bill is the establishment of precisely such a relationship. The confirmation hearings would make it clear at the time of the appointment of key people that the role of Parliament was important. Thirdly, it would enhance public confidence in the people in the Monetary Policy Committee who took key decisions.

There was a time when decisions were all taken behind closed doors in a dark and secret way, and it is to the credit of the Government that they have introduced the Bill and brought many decisions into the open. Already, not long since the new Government came to office, the publication of the minutes of the committee has enhanced public understanding of the considerations taken into account when interest rate policy is established.

New clause 3 would therefore increase accountability and openness. The Treasury Select Committee is giving great attention to the way in which the reform would operate. It would be done extremely carefully, in the way set out in paragraph 47 of the report. We do not believe in a type of open house on the American Congress select committee model, in which people's private lives and conduct can be brought into the public arena. Discussions must be on key issues of professional competence and personal independence.

That is why we propose that the questioning of candidates should be circumscribed and limited to professional competence and personal independence, not ideologically based. It would be a speedy process of decision making; it would not be time-consuming; it would not be a veto; and it would allow the Government and the House to consider the candidates and come to a view. I submit that that is a powerful case for the reforms set out in new clause 3.

My right hon. Friend the Chief Secretary to the Treasury came to the Select Committee and, in a distinguished, open and candid performance, identified three main arguments against the proposal, although he said throughout that he had an open mind on the matter. He said, first, that their having to come before a Select Committee of the House before being appointed might deter candidates.

Secondly, there were certain political circumstances--for example, a hung Parliament--in which the process might increase instability, rather than promote stability.

Thirdly, the issue of confirmation was of such importance that it should run across a whole range of appointments in public life and would need to be considered by the House; therefore, a decision should not be taken on the Monetary Policy Committee or the Bank until that wider consideration had taken place. I shall deal with each of those points--all of them powerful--in turn.

On the question of a deterrent effect, my right hon. Friend cited the example of John Maynard Keynes and suggested that that distinguished economist might have not wished to serve in public life if he had felt that his personal life might come under scrutiny in a process of this sort. All I shall say on that point is that I believe that we live in different era in terms of the public scrutiny of those who serve the public in a variety of ways, not only Members of Parliament, but public servants more generally.

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Most public servants would prefer to have the chance to answer charges directly, rather than to have those charges circulated by nudge and wink or media leak. They would prefer to address the issue straight up, and I believe that, had he been alive today, John Maynard Keynes would have been of that mind. Many potential candidates for the MPC and the Bank--we have discussed this question informally with them--would prefer a state of affairs where there was an open process, open discussion and open accountability, rather than a process that took place behind closed doors. Provided--it is an important proviso--that the Select Committee dealt with the matter in a sensitive and rapid way, rather than following the example of congressional committees, potential appointees, those appointed and the body politic as a whole would all gain from the open process.

The Chief Secretary's second argument was that, in a hung Parliament, a party political ball game would be played in the Select Committee, which would make it difficult for the Government to govern and make those key appointments. I take that point, but, if we are concerned with the independence of the central bank from those party political ball games and the uncertainties surrounding a hung Parliament, it would be better and more effective to use the open hearing process; in addition, there would be no risk of the Prime Minister or Chancellor appointing cronies with no chance for public scrutiny. Therefore, the second argument does not stand up.

The third argument has more substance. It relates to the issue of the wider reform of the relationship between Parliament and the Executive in the matter of key appointments, and contends that it would be better to wait before taking the process forward.

After the Chief Secretary had given his evidence, I tabled a question to my right hon. Friend the Leader of the House to ask what assessment she was making of that issue. She replied that the Government were reviewing the situation, but that they had "no immediate plans" to propose a process of Select Committee scrutiny. If we accept the Chief Secretary's argument, there is a real danger that we will make the best the enemy of the good by saying that we cannot carry out this reform until we have achieved wholesale reform across the board.

In addition, the Bill deals with important issues relating to the Select Committee and the Governor of the Bank which differ from many of the other areas of public scrutiny, so there is a particular case to address.

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