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Mr. Robert Sheldon (Ashton-under-Lyne): My hon. Friend may be aware that the Liaison Select Committee has discussed in general terms the use of this sort of hearing, and in general--I cannot speak for every Committee--supports the view expressed by my hon. Friend the Member for North Durham (Mr. Radice). As this would be the first use made of a particular instrument, it will be important that we have in my hon. Friend a Chairman who not only is distinguished, but would be strong in ensuring that no personal references were made or personal questions asked. We would regard it as the initiation of what could be a useful procedure. I welcome what my hon. Friend has said.

Mr. Clarke: I am grateful to my right hon. Friend for saying that there is general support across Parliament for many of the changes about which we are talking.

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I should add that, this morning, the Treasury Select Committee had a discussion on the types of procedure that would be applied. The personal qualities of the Chairman of the Committee, to which my right hon. Friend has just referred, were part of our discussion, because we recognised the need to have a process according to which inappropriate questions would be ruled out, so that we kept to the twin issues of professional competence and personal independence. I agree with my right hon. Friend's expression of confidence in the Chairman of the Treasury Select Committee.

I know that there is a case for wider reform, but I hope that the consideration of such general issues will not lead to us to say that we will not introduce a reform of the type that I have described simply on the ground that those general issues should be considered more thoroughly. I genuinely believe that the reform would enhance the independence of the Bank, as well as the policies set out in the Bill--and, most important, the accountability of key institutions of state to the House.

Mr. Quentin Davies (Grantham and Stamford): Before I discuss new clause 1, I should like to respond to the observations of the hon. Member for Norwich South (Mr. Clarke), with whom I have the honour to serve on the Treasury Select Committee. As he rightly said, this morning the Committee discussed the matter in considerable detail.

I listened with some surprise to the hon. Gentleman's statement that, although he supported new clause 3--we are both signatories to that second new clause in the group of amendments under consideration--he could not support new clause 1. Apart from obvious considerations of political tactics, I cannot see how anyone who supports new clause 3 could fail to support new clause 1. As far as I can see, there is only one difference of substance between the two new clauses--new clause 1 provides for an open advertisement selection procedure.

The hon. Gentleman notably failed to address that issue. He did not suggest that he disagreed with it or that there is anything wrong with it, so, logically, I cannot see why he cannot support new clause 1. I would be sorry if he decided he could not do so simply because of the dog-in-the-manger principle that it had been brought forward by the Opposition. That is contrary to the spirit in which the matter has been considered in the Treasury Select Committee. I regret that.

As for the hon. Gentleman's other remarks, I thoroughly agree with him. I would like to think that the issue of the Treasury Select Committee asking utterly irrelevant, prurient questions was a red herring. I would never have raised it, but I am a little sanguine, and there is a genuine concern that the procedures might be abused in that particular way. I have the greatest confidence that Parliament would undertake its responsibilities with great care. Certainly it would do so with as great responsibility as that shown by the Executive branch--or greater--and certainly greater responsibility than the current Executive branch has so far manifested in its conduct of the nation's affairs.

I have no doubt about that, but, since others appear to think that there might be some lingering concern on the matter, there is absolute agreement on the Treasury Select

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Committee that, in order to address that possible source of concern, we should, by resolution or otherwise, make it explicitly clear that the questions asked on such occasions would be pertinent ones relating to the competence and independence of candidates. There would be no question of going into people's private lives, sexual behaviour or anything of that kind.

If Maynard Keynes had come before our Committee, I can think of lot of questions that I would have wanted to ask him about his General Theory, but I should not have asked him any interesting questions about his private life.

It is a great pleasure to second the new clause tabled by my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory), which makes an important contribution to the debate. The confirmatory hearings are important for two reasons.

First, such hearings would be in the interest of transparency, and in the interest of gaining public support for, understanding of and confidence in what was being done. They would help to exclude explicitly all types of theoretical dangers--which, with the present Government, might not be so theoretical--that cronies of Ministers, the Chancellor or the Prime Minister might be appointed to the Monetary Policy Committee. Such a position might be considered a nice appointment for someone to whom political favours were due.

It would be a nightmare if we had Mr. Bernie Ecclestone on the Monetary Policy Committee. It would be an even greater nightmare--if such a thing is possible--if we had someone who was simply a nominee of Mr. Rupert Murdoch, of whom the Prime Minister, in his conduct of monetary policy, has already shown that he is terrified.

4.30 pm

Sadly, these possibilities are real, not hypothetical, and it is not a bad idea to use explicit provisions to protect the public and our institutions from them. Confirmatory hearings represent a check and a balance--an additional assurance to the country that such decisions are made objectively, as dispassionately as is possible in human affairs. That is the purpose of checks and balances, which are the basis of public confidence in a democratic constitution.

There is a second, more pragmatic and, indeed, monetary reason why it would be sensible for the Government to accept new clause 1--but the Government do not often do very sensible things, so I do not expect that they will do this now.

The new clause will make it easier for the Government to achieve what they say was their prime purpose in making the Bank of England operationally independent. The main purpose of doing so was to give the markets confidence that monetary policy is being conducted in accordance with monetary criteria, to achieve the monetary purpose of price stability--the permanent removal of inflation in our national affairs--and is not subject to political, personal or electoral pressures according to the day-to-day convenience and self-interest of Ministers.

The world is changing. As a result of one of the salient changes, almost every civilised country now has an independent central bank. It would be an enormous

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liability for our country if, of the major currencies of the world, only sterling was managed in such a way that it was seen to be subject to extraneous party political or electoral pressures. In those circumstances, all holders of assets in sterling would demand what would probably be a very significant premium: a risk premium for holding such assets, given the uncertainties created, the hostages to fortune represented, by the existence of those pressures on the conduct of monetary policy.

We are already paying such risk premia. The taxpayer is paying 1 per cent. more to service British Government debt, gilts, than the German taxpayer is paying to service German Government debt. That has nothing to do with the inherent creditworthiness of the British or German Governments; it results from the monetary uncertainties associated with holding sterling--the risk of devaluation, the risk of inflation, which are perceived to be greater here.

A lot of money is involved. Public debt in this country is about £350 billion. One need not be a mathematical genius to know that 1 per cent. of that is about £3.5 billion, or roughly 2p on the standard rate of income tax. I believe that that is the price of the Government having been extremely indecisive about, for example, what we are doing about monetary union.

It is very important that the independence of the Bank of England should, as far as possible, achieve some certainty that monetary policy is not subject to party political and electoral pressures. As the hon. Member for Bolton, West (Ms Kelly) said, the announcement of the operational independence of the Bank of England has had some positive effect in terms of the premia we pay in the money markets and in the Government bond markets at present. We still have a long way to go, and it is important that operational independence is regarded as credible, domestically and internationally.

An announcement by the Labour Government thatthe Bank of England has been given operational independence, that monetary policy is henceforth in the hands of the Monetary Policy Committee and that that committee will be answerable for monetary policy not to the Chancellor but to Parliament through the Treasury Committee sounds wonderful. It appears that that arrangement will go quite a long way towards achieving the declared purposes of the move.

However, a slightly closer reading of what is occurring reveals that the members of the Monetary Policy Committee are appointed by the Chancellor. Furthermore, there are no checks and balances upon his decisions. No one is in a position to second-guess or query any appointment: the Chancellor's appointment decisions are entirely arbitrary.

Thirdly, as my right hon. Friend pointed out so ably, members of the Monetary Policy Committee are appointed for only three years. Therefore, members will be up for reappointment within the term of this Government and, if they want to stay on the committee, they had better be nice to the man who appoints them. It does not take a great deal of human intelligence to lead one to discount to a considerable degree the independence of a central bank whose Monetary Policy Committee is appointed on that basis.

In order to achieve independence, to reap the benefits of monetary credibility, achieve a positive impact on inflation expectations in this country--that is vital in

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terms of savings behaviour, wage negotiation, general price determination behaviour and so on--and to ensure that the cost of capital in this country is no higher than we need and that we do not have to pay excessive risk premia in the markets, we should welcome any measure that is designed to strengthen the credibility of that independence. The Government have been presented with a wonderful opportunity to do just that.

It will be no skin off the Government's nose if they accept the proposal. The idea was conceived and developed by a Committee of the House upon which the Labour party has a considerable majority. If the Government do not accept the proposal, we can draw only one of two conclusions--I leave it to you, Madam Speaker, to the House and to the public to decide which is more damaging to the Government.

The first is that the Government are playing this--and one assumes, by extension, other equally important affairs of state--on a purely party political basis. It is a matter of party political ego and face. The Government are not interested in acting in the interests of the country, and they are not being open-minded in their consideration of the national interest: they are concerned merely with gaining party political points. They refuse to accept any proposal that has the Leader of the Opposition's name upon it.

The second alternative--I invite the Chief Secretary to confirm whether there is a third, fourth or fifth logical possibility, but I do not think there is--would realise my worst fears: the Government intend to abuse the power of appointment. They secretly think that it represents a wonderful additional power of patronage, and might be a way of rewarding Mr. Bernie Ecclestone, of conciliating Mr. Rupert Murdoch or of allowing other squalid people to get their hands on the levers of monetary policy in this country for their own purposes.

I do not necessarily claim to be correct, but I can perceive only two logical explanations if the Government act as I hope they will not, and refuse to accept the new clause that contributes positively to the declared purpose of their legislation. If I am wrong, I challenge the Minister to explain why that is so, and to persuade the House in that regard.

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