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Mr. Milburn: The hon. Gentleman should direct that question to his right hon. Friend the shadow Chancellor--Maastricht man--because he is the man who signed the Maastricht treaty.
Giving operational independence to the Bank of England for setting interest rates is at the heart of the new framework that we have established. Before the House today is the Bank of England's first annual report to be published under the new monetary policy framework. The new style accounts are welcome. They contribute to the greater accountability and transparency that we envisaged when the Bank of England was reformed. For the first time, the Bank's annual report is on a statutory basis. It is particularly welcome to have a clear statement of the Bank's objectives and strategy, to have a director's report reviewing the Bank's performance against its objectives, and much more information on how the Bank uses its own resources.
The aim of the new financial framework established by the Bank of England Act 1998 is to provide proper incentives for the Bank to make efficient use of its resources in pursuit of its functions, and to make it more transparent and more accountable, especially to Parliament, for what it does. It is still early days, but we believe that the Bank is on the right track. Indeed, that view is confirmed by the report of the Select Committee on the Treasury on the work of the Monetary Policy Committee, which was issued yesterday. I thank my right hon. Friend the Member for North Durham (Mr. Radice) and his colleagues on the Committee for their hard work in producing it.
The Committee's report underlines the success of the new framework. The Government will respond to the points raised in the usual manner. The report agrees that the Chancellor's decision to reform the monetary policy framework has been vindicated over the past two years. I particularly welcome the Committee's agreement with the Chancellor on two key points. First, that maintaining the same inflation target for a period of time adds to the credibility of our inflation policy. Secondly, that the symmetrical inflation target adds important flexibility to ensure that deviations of inflation below the target are taken just as seriously as deviations of inflation above the target.
Mr. Crispin Blunt (Reigate):
The Chief Secretary says that he welcomes those changes. The Bank of England's report states that one of the objectives is to manage the Bank's resources responsibly. How can he square that with the Government's enforced sale of the Bank's gold reserves?
Mr. Milburn:
That is an extremely tired old tune--a tune that, unfortunately, was partially interrupted during our last Treasury questions. Perhaps that is why the hon. Gentleman wants to return to it.
Mr. Bercow:
He wants to return to it because it is valid.
Mr. Milburn:
We are happy to debate these issues, but the fact is that, like other major industrialised nations--
Mr. Milburn:
I give way to my hon. Friend.
Mr. Davies:
As my right hon. Friend is no doubt aware, the report of the Select Committee on the Treasury says that the activities of the Monetary Policy Committee staved off recession. Does it not follow that, had we not advocated the independence of the Bank of England under the Conservatives, we would not have staved off recession--a quarter of the world is in recession now--and would have returned to the Tory years of unemployment, spending cuts and higher taxes?
Mr. Milburn:
My hon. Friend puts his case--and indeed, the truth--very succinctly.
The Committee's report underlines the success of the new framework. As I have said, the Government will respond to the points raised in the usual manner, but the key point is this. Despite some of the reservations expressed in the report, now, for the first time, interest-rate decisions are made in the long-term interest of the British economy rather than for short-term political reasons.
There were doubts at the outset about the rightness of this approach, many of which were expressed in the House at the time. It is now clear, however, that it is delivering the goods. As my hon. Friend the Member for Croydon, Central (Mr. Davies) just said, inflation is low, and is expected to remain close to target. What is more, for the first time in generations we can look forward to a period of sustained low inflation.
Interest rates peaked at 7.5 per cent., and the Bank of England has been able to cut them seven times in just 10 months. Short-term interest rates are now at their lowest for over 20 years, long-term interest rates are at their lowest for over 30 years, and mortgages have not been cheaper for a generation. We have been steering a course for stability in what are uncertain and troubled times for a global economy.
Of course we cannot build a modern enterprise economy overnight. With a quarter of the world in recession, trading conditions have been difficult for many firms, and we know that that is especially the case for manufacturers. But, as we indicated in last year's pre-Budget report, the economy is set to grow by between 1 and 1.5 per cent. this year, and by between 2.25 and 2.75 per cent. next year. Nor should we lose sight of the fact that, even now, employment continues to grow. It has risen by 400,000 since the general election, and more people are in work than ever before. Long-term unemployment--I hope that Conservative Members in particular will welcome this news--has fallen by more than 50 per cent., and youth unemployment by more than 60 per cent. Conservative Members' constituencies,
among others, have been net beneficiaries of those dramatic improvements in the fortunes of many thousands of people.
Mr. Oliver Letwin (West Dorset):
Why, in that case, did the Chief Secretary--along with his colleague the Chancellor of the Exchequer--decide to tighten the fiscal screws by £40 billion, necessitating those low interest rates in an attempt to rescue the economy from the downturn that he thereby created?
Mr. Milburn:
As I explained to the hon. Gentleman during the early part of my speech, when we came to power we inherited an economy that was structurally flawed and, moreover, in which inflation was clearly back in the system--not surprisingly, perhaps, given that the previous Government had ignored all the Bank of England's advice about interest rate policy. They made the classic error which, I am afraid, has been repeated time and again over the past 20 or 30 years. Short-term political considerations forced changes to the economy which, in the long and indeed the medium term, did not prove beneficial for the economy or for other people.
Everyone now sees that Bank of England independence is working--everyone, that is, with one exception. Conservative Members have never supported Bank of England independence. [Interruption.] Oh, some did. They are about to come out of the closet on the last day of the parliamentary Session. That is very welcome. A last-minute conversion is better than no conversion at all.
Mr. Tyrie:
As I made clear in a speech when the Bank of England Bill was going through, I have been sympathetic to Bank of England independence for many years. Indeed, I was involved in the working up of a proposal for a measure of Bank of England independence in the mid-1980s, when the Labour party vigorously opposed any form of Bank of England independence. It did not even have the courage to put it clearly in its manifesto before the people at the last election.
Mr. Milburn:
The only small piece of advice that I have for the hon. Gentleman is to keep his head down if he wants promotion in today's Conservative party, because the policies that he advocates will not find favour. The Conservative party's position was to vote against the Bank of England Bill; it voted against Bank of England independence. It has restated its opposition on countless occasions since then. Last October, the shadow Chancellor, the right hon. Member for Horsham (Mr. Maude), said:
"We would not have given up control of interest rates in the first place".
The Leader of the Opposition said:
"They"--
the Government--
"have given up control of interest rates when they should have kept hold of them."
The right hon. Member for Wokingham (Mr. Redwood), who is always forthright in his views, said:
"We think it was a big mistake, we opposed it at the time, we said no good would come of it".
Now they say that they are having second thoughts about it.
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