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Mr. Giles Radice (North Durham): I apologise to the right hon. Member for Wells (Mr. Heathcoat-Amory) and to the House for not being present at the beginning of the debate. I have just returned from the funeral of a close family friend.

The Chancellor wrote to me, as Chairman of the Treasury Committee, after announcing the operational independence of the Bank of England in the area of monetary policy. In that letter, he suggested an enhanced role for the Committee in examining the performance of the Bank, and wrote:

The Committee has already taken several steps to develop our role in making the Bank accountable for its decisions. We produced a report on accountability, the Government's reply to which was published today and placed in the Library. We also conducted hearings following the November inflation report and recently decided to hold another hearing after the February inflation report. We shall keep the Bank under constant vigilance.

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Our report concluded that it would help to strengthen accountability--it would be the final brick--if we had a part in endorsing appointments and reappointments to the Monetary Policy Committee. It is essential that the members of the committee should be seen to be competent when they are appointed; effective when they are reappointed; and independent of the Government. They must be independent people who have the necessary competence to carry credibility as members of the committee.

My hon. Friend the Member for Norwich, South (Mr. Clarke) may have covered the matter in his speech, but at the risk of repetition I shall say that our model in new clause 3, to which Opposition Members have signed up, is rather different from that in new clause 1. In essence it states that, within 30 days of a nomination, we should be able to report to the House. Either we would approve the competence and independence of the members of the Monetary Policy Committee, or we would give reasons for considering that members of the Monetary Policy Committee do not meet the criteria, and we would ask the Chancellor of the Exchequer to reconsider their nomination.

I emphasise that we are not seeking a veto. That is all very well in the United States--in a democratic system with the separation of powers--but it is not appropriate in a parliamentary system. Following a request by the Treasury Committee for reconsideration, the Chancellor would have to give reasons for continuing with the nomination of the person whom he wanted to have appointed or reappointed to the Monetary Policy Committee. That is a good model and should receive the Government's support.

My right hon. Friend the Chief Secretary to the Treasury, whose abilities I greatly admire--[Interruption.] If my right hon. Friend listened, he would hear that I was complimenting him before refuting his arguments. He has said that he has an open mind, but he has raised counter-arguments, with which my hon. Friend the Member for Norwich, South was dealing when I came into the Chamber.

My right hon. Friend claimed, first, that our proposal would put people off, but all the members of the Monetary Policy Committee to whom I have spoken believe that it would be helpful for them, for two reasons: first, it would establish their independence; and, secondly, it would establish their profile as members, so that they could explain why they thought they were the right people and what kind of job they expected to do. That would be good for the Monetary Policy Committee and would strengthen it.

My right hon. Friend's second argument is more substantial--that we should take a broader look at the issue because if the Treasury Committee is given a special place in legislation, every other Select Committee will want to have a place in legislation for appointments to the Department that it oversees. I understand that, but I would argue that the Bank of England is an exceptionally powerful body with an exceptional position, and for that reason, exception should be made.

I hope that the Government will accept our new clause tonight, but, whatever happens, I want to make it clear that the Select Committee has decided to go ahead with

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the confirmation procedure. We shall present a report to the House on the procedure that we shall follow. If the procedure is to be effective, it must be consistent. The procedure must be laid down, and we must always go through it. We must be fair to the candidates who come before us, and we must stick to the issues of competence and independence.

It is no secret that we were discussing this morning the possibility of allowing the Chairman to rule out any extraneous issues--for example, the sex life of John Maynard Keynes would not be relevant in deciding whether Maynard Keynes was competent or independent. We must satisfy the House of Commons and the general public that we can do the job properly, as I believe we can. We shall report to Parliament on the procedure that we shall adopt, and we shall go ahead with confirmation hearings throughout this year.

Whatever happens tonight, the confirmation process will go ahead and will become the norm, at least for Bank of England appointments. That will be good for the Government, because we will see that they are not trying to appoint people to the Monetary Policy Committee of the Bank who are not competent or who are creatures of the Government. It will be good for the Bank, as it will underline its independence, credibility and competence. It will be extremely good for Parliament, as it will bring Parliament into the equation, and it will therefore be good for our democracy.

4.45 pm

Mr. Nick Gibb (Bognor Regis and Littlehampton): The new clauses go to the root of the reason for my opposition to the Bill. They go to the root of the accountability of the new Bank of England.

Monetary policy is not an exact science. The Chancellor of the Exchequer, who is accountable to the House, will determine the inflation target, but the translation of the inflation target into monetary policy is incumbent on the Monetary Policy Committee. The Government seem to believe that they simply need to set an inflation target and throw a bunch of experts into a committee, and that, as if by magic, those experts will come up with the correct interest rate policy to translate that inflation target into reality.

The report of the Treasury Committee, a learned tome, provides ample evidence to support the view that that is not the case. Sir Samuel Brittan stated:

He continued:

    "Monetary economics is not a hard science. An attempt to confine the Monetary Policy Committee mainly to so-called experts will simply enthrone the conventional wisdom of the moment."

In his evidence to the Select Committee, Tim Congdon wrote:

    "Two main schools of thought on the monetary situation can be identified,

    --economists (the National Institute, narrow-money monetarists such as Sir Alan Walters and Professor Patrick Minford) who believe that the rapid growth of the money supply since early 1995 is of no relevance to the economic situation, and that the over-valued pound and the recent rise in interest rates. . . may cause a recession in late 1998 and 1999".

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    That school of thought must be contrasted with the views of another group:

    "--economists who believe that the rapid growth of the money supply, on the broad definitions"--

rather than the narrow definitions--

    "since early 1995 is not only the main reason for the current buoyancy of demand, but will cause continued above-trend growth in late 1997 and early 1998, with inflation rising thereafter."

Lord Eatwell told the Treasury Committee:

    "Moreover, there is a tendency in monetary policy matters to regard certain propositions as 'obvious' and anyone who questions such propositions to be at best a nit-picking academic and at worst a crank. Yet the notion that the theory of monetary policy is 'obvious' and 'pragmatic' is belied by the fact that the theory and practice of monetary policy has undergone quite radical revisions over the past 20 years."

He went on to ask:

    "If views held 10 years or 15 years ago were so obviously right then, why are they so obviously wrong now?"

That is the very essence of why we need to consider further and crucially the appointments to the Monetary Policy Committee.

There are all kinds of views. There are broad and narrow monetary policy views, Keynesian economics and the economics of those who wish to stick to the gold standard. The views of the members of the Monetary Policy Committee are pivotal in determining Britain's monetary policy. I was surprised by the remarks of the hon. Members for Norwich, South (Mr. Clarke) and for North Durham (Mr. Radice) that, when the Treasury Committee comes to question members of the Monetary Policy Committee in its confirmatory hearings, they will not want to discuss their ideological or economic views, but will solely consider competence and independence. Unless the Government set down beforehand a set of criteria for determining the economic views that are to be represented on the Monetary Policy Committee, it is important to know the views of its members.

If the Treasury Committee considers merely economic competence and independence, the monetary views of the members of that committee will be determined by lottery. If one happens to pick four economists with narrow monetary views, that will be the committee's make-up.

I put that point to the Paymaster General in Committee and he said:

I think that it is important to delay our proceedings with them, which is why I intend to do so today.

If the criteria are not provided, how will the Monetary Policy Committee be made up? What criteria will determine its prevailing point of view? In Committee, the Paymaster General, speaking of me, said:

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    But the Government have given us no idea of how serendipity and lottery will be prevented from determining the prevailing point of view of the Monetary Policy Committee.

The Treasury Committee is determined that the committee's membership will be scrutinised. The Government, in their vast exchanges of correspondence with the Governor and the Chairman of the Select Committee, which seems at the moment to be determining Government policy, said that accountability is of the essence. The Chancellor of the Exchequer, in his letter of 6 May, says:

    "The Bank of England will make reports to and give evidence to the House of Commons, through the Treasury Select Committee on an enhanced basis, and I will write to the Chairman of the Committee."

When that letter to the Chairman came, it said:

    "Given its responsibilities, I believe that it is important that the Bank should be subject to enhanced Parliamentary scrutiny, in particular through your Committee. I am writing to suggest . . . an enhanced role for that Committee."

The Government see a role for the Treasury Committee. The Treasury Committee has an enormously important role in determining the ideological make-up of Britain's future monetary policy. Given that the Government see the Treasury Committee as paramount in ensuring accountability of the Bank of England--the Government accept that the Treasury Committee will be the only method of parliamentary accountability for the Bank of England--and given that the Treasury Committee wants to undertake confirmatory hearings, is it not beholden on the Government, under their own criteria, to give the Treasury Committee statutory responsibility to conduct confirmatory hearings?

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