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Mr. Quentin Davies: I am grateful to my right hon. Friend, whose speech I am following with great care. He has made some extremely powerful points. Is he aware that, in answer to a question that I posed in the Treasury Committee, the Governor of the Bank of England acknowledged quite explicitly that, had the Chancellor done what he obviously should have done in the conjunction of last summer and borne down on consumption and incentivised savings--he did exactly the opposite, and taxed savings with the pensions tax and reduced consumption taxes--the burden on monetary policy would have been significantly less and we would now be enjoying lower interest rates and lower sterling parity?

Mr. Heathcoat-Amory: I am very interested in my hon. Friend's comments. He provides powerful and authoritative backing for my point. I had not realised that the Governor had said that--although I am not altogether surprised. It is now generally accepted that the Government made a colossal miscalculation in targeting people who save. They failed to draw expenditure away from consumption--if that was their aim. If the Government are trying to provide an alternative to the welfare state, they should encourage rather than cut savings. The Government are making mistakes not only in each Budget but in each Treasury announcement. They compounded their attack on pension funds last year by announcing the destruction of personal equity plans and tax-exempt special savings accounts and by capping their successor at £50,000. The Government have made a series of mistakes that throw the strain of the anti-inflationary strategy on to the Bank of England.

Amendment No. 1, and the consequential amendment No. 2, ask the Government to explain themselves rather than expecting other people to sort out the mess. It may have been a rather cunning move on the Chancellor's part to try to pass to others the unpleasant business of raising interest rates. In that way the Chancellor hopes to avoid the hostility that attaches to those who increase people's mortgage payments, which is a form of taxation, in complete contradiction to everything that he promised before the election. I do not think that the right hon. Gentleman's plan will succeed because he still has responsibility for such matters--even if he has handed operational matters to the Bank of England.

Our amendment seeks to force the Government to explain how such matters will be resolved. The Government have an inflation target, which is currently2½ per cent., and several other desirable objectives--two of which are mentioned in the Bill. However, if there is conflict between the various objectives, we want to know how that will be tackled and who will do it. Our amendment also seeks the Government's explanation of the monetary and inflationary consequences of their policies so that they do not set the Bank of England an impossible task.

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As things stand, I seriously believe that, when the economy hits some rough patches, there will be much recrimination and misunderstanding. There is the danger of a direct confrontation between the Bank of England and the Government because the Bank will try to deliver on the inflation objectives but will be hampered in that aim--and possibly prevented from doing so--by the actions of the Chancellor of the Exchequer and the Government who will pull in a different direction. The Government must respond to that serious issue. Our amendments seek to force the Government to think carefully about the matter and to tell the House what they will do.

Sir Michael Spicer: I agree with the hon. Member for Great Grimsby (Mr. Mitchell) on many matters, particularly on the subject of Europe--although we sometimes battle against each other on the "Target" programme. The hon. Gentleman has some interesting contributions to make on European issues. I agree with the amendments' general proposition that Government must make choices between conflicting objectives. My right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) made the same point from the Front Bench.

I do not agree so much with the objectives that the hon. Gentleman is pursuing in some of his amendments. Like my right hon. Friend the Member for Wells, I think that balancing employment against inflation is a false choice. I agree with my right hon. Friend that, when it comes to conflicting objectives, the real choice might lie between fiscal policy and monetary policy. If the Bill is enacted, one part of economic policy will be handed over to a non-elected body, which will be told to get on with it. To that extent, all sorts of potential conflicts--to use my right hon. Friend's words--may emerge in terms of economic policy. As the Government threw out proposed new clause 1, Parliament will have no voice in decisions about conflicting objectives. One feels for Labour Members, who are getting increasingly restless. Suddenly they are becoming frightened. Members of the Treasury Committee, on which I serve, constantly try to probe witnesses in the hope that they will say that the effect of the Bill should be diluted. The hon. Member for Great Grimsby has the merit of trying to amend the Bill to build in different objectives, which is a legitimate aim, although the Government will presumably reject the amendments. As the Bill stands, all the other policy objectives are to be made subject to that of price stability.

The hon. Gentleman argued that price stability was not an important component of employment policy. I do not agree; I entirely accept the position outlined by my right hon. Friend. The hon. Gentleman may find historical examples where growth has been accompanied by inflation, but he would have to concede that for growth in jobs to take place, there must be low inflation and high competitiveness. High savings go with low inflation, because if there is high inflation, there is no point in saving, so the resources from which to invest in jobs do not exist.

It is possible to find historical precedents of inflation going hand in hand with growth, but over time countries that have suffered inflation and especially hyper-inflation

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have not experienced growth--in many cases their employment and manufacturing have collapsed. I accept that price stability is a vital part of a healthy economy.

Mr. Mitchell: Having argued well so far, the hon. Gentleman is moving towards a false conclusion. Growth is inevitably associated with increasing inflation. I can think of only two examples of perfect price stability this century: Salazar's Portugal, and the United States in the three years up to the great crash of 1929. Those are examples of almost perfect price stability, and what growth did that generate?

Sir Michael Spicer: There are many examples in history, ranging from the Weimar republic forwards and backwards, and all over the world, in which, because a currency has collapsed, the real economy has collapsed with it. Historical precedents support the view that price stability is accompanied over time by a sound economy.

I agree with the hon. Gentleman on amendment No. 26, which replaces "employment" with


if that arises from his worry about false exchange rates, which may occur if an independent central bank pushes us towards a single currency.

We have only to look across the channel to see what has happened in France. It has been extraordinary over the past 24 hours. The socialist Government in France seem to believe their own claim that the massive unemployment there has nothing to do with the false exchange rate that they created against the deutschmark, and that they will adopt expenditure policies, the like of which the hon. Gentleman may want to have incorporated in the Bill under his amendment No. 26. I would not agree with that, but I agree with him when he implies that false exchange rates have a lot to do with unemployment.

I do not approve of the idea of taking away a major slug of economic policy and handing it outside the control of Parliament, especially now that the Select Committee is to have no statutory say in the appointment of the board. I do not like that, for the reasons stated by my right hon. Friend. The grave distortions that can emerge between monetary and fiscal policy in that context are self-evident.

Once that decision has been taken--I accept the Government's premise that price stability is an important feature--it is right that the Bill should explicitly restrict the Monetary Policy Committee to dealing with a specific policy objective. I cannot see any argument for handing the whole of economic policy, which is effectively the hon. Gentleman's aim, outside the sphere of Government and Parliament. That is the principle behind the amendments.

The hon. Member for Great Grimsby does not like the price stability objective, and he probably does not like the fact that the Bank of England is to run it, so he proposes giving everything to the Bank of England: employment policy, as he defines it, exchange rate policy--everything should be given to an unelected body. That is the end of democracy. He argues strongly, as I do, against the move in Europe towards stripping our Parliament of its powers and handing them to Europe, yet his amendments would strip Parliament and our elected Government of the ability to make choices between economic policies. That is very serious indeed.

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Although I sympathise with Labour Members who are suddenly waking up to the implications of the Bill, the way to put it right is to throw out the entire Bill, not to agree to the hon. Gentleman's amendments. He is effectively saying, "We have put all those powers outside our control, so let us give the Bank even more powers. Let it make the choices, so that Parliament and the Government do not have to do any work, because everything has been given to an unelected outside body."

That cannot be the solution to the worries and dilemmas that many of us share with the hon. Gentleman. The answer is for him to vote against Third Reading and to get 300 or 400 of his colleagues to do the same, and to throw out the Bill. He has about two hours in which to go round the bars and collect all his hon. Friends. We will be with him in the Lobby, if he is prepared to do that.

It is wrong to say, "We do not like giving the Bank of England powers, so let us give it even more powers and choices in the running of our economy." Although I share with the hon. Gentleman many of his initial premises, I could never agree to a group of amendments that gave the Bank of England not only the operational powers to carry out the policy that the Government have set for it in terms of price stability, but the choice between unemployment policy, fiscal policy and so on. The amendments are nonsense in the context of the hon. Gentleman's objectives. I hope that the House will vote against them.


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