House of Commons - Treasury

Select Committee on Treasury Ninth Report

IV The Role of the Treasury Committee

41. Over the course of this Parliament our Committee has played an important role in enhancing the transparency of the framework and the accountability of the MPC. We have called the MPC to account for their actions and encouraged them to produce papers on a range of monetary policy related issues. We have raised questions with the Governor and the Court about the MPC's procedures and processes and we have conducted confirmation hearings for all the MPC members.

HOLDING THE MPC TO ACCOUNT

42. In our 1997 Report entitled "Accountability of the Bank of England" we examined how our Committee might best hold the MPC to account and concluded that "by bringing information into the public domain we can help to clarify the thinking and actions of those responsible for the formulation and delivery of monetary policy and that the rigorous scrutiny of the basis for policy decisions will enhance the credibility and effectiveness of monetary policy framework as a whole."[84]

43. We have endeavoured to bring "information into the public domain" by holding regular hearings with the MPC, by asking for additional papers on various aspects of monetary policy and by publishing regular reports on the performance of the MPC. During the four years of this Parliament we have taken evidence from the Governor and members of the MPC on eleven occasions. We have ensured that every member of the MPC has given evidence at least once a year. In addition those members of the MPC who have voted against the majority decision have been asked to explain their actions at the next hearing alongside the Governor and other representatives of the majority opinion. We have also published three reports,[85] including this one, assessing the performance of the MPC.

44. We have held our hearings with the MPC following publication of the February, May and November Inflation Reports.[86] Following our statement in the 1997 report, the premise behind these hearings has been to devote about a third of each hearing to recent policy decisions and the remainder to examining the outlook for future policy and the key issues affecting the economy. Former members of the MPC were divided about how well we had conducted our hearings. Professor Goodhart, in an interview for the Spring 2001 edition of Central Banking, said "... the line of questioning is carefully thought out before hand ... the initial questions asked by each MP are very well considered."[87] However Sir Alan Budd and Professor Buiter were more critical. Sir Alan told us that we "could do this rather more rigorously and indeed regularly."[88] Professor Buiter also thought that "the MPC has been given far too easy a ride by the Committee"[89] and claimed he had been given a "harder time" by the House of Lords' Committee on the MPC. He told us he was surprised that he had not been asked "why you voted the way you did?"[90] Professor Buiter thought that much of the problem was because "the TSC ... is under-resourced and under-staffed."[91]

45. Sir Alan Budd and Professor Buiter's recollections of being questioned on their voting record will in part be based on the first 16 months of the MPC when the meetings' minutes were published with a six week delay. This made it impossible for our Committee to question MPC members on their most recent decision. It was our concern at not being able to carry out such questioning that led to our recommendation, which was accepted by the MPC, that the delay in publication of the minutes be reduced to two weeks. Since then we have been able to question individual members on the way they have voted.[92] We accept that individual questioning is very important for accountability and we recommend that our successor committee ensures that over the course of a year each MPC member is called to account in this way. Professor Buiter is also assessing the questioning from an academic standpoint, but, as Members of the House of Commons, part of our role is to provide a forum for the issues which directly concern our constituents such as jobs, output and the exchange rate. In terms of holding the MPC to account it is as important for the MPC to address such concerns as it is to tackle in-depth technical questions. By asking and getting answers to such questions we improve the transparency of the process, and hence the credibility of the framework.

46. We question whether the Committee is as under resourced as Professor Buiter believes. We may have less support than our equivalent committee in the United States but this is because our roles are different. In the US committee members require staff to draft legislation but this is not a feature of our Committee system. The Treasury Committee is serviced by two in-house economic specialists; in addition we are also able to call upon a team of monetary policy experts,[93] who have been described by Professor Goodhart as "a group of very good economic advisers."[94] One of these experts, Professor Bean, has recently been appointed to the MPC. The experts brief us comprehensively before each hearing and we publish this briefing along with the evidence from the MPC itself. Nevertheless we agree it is important that the Treasury Committee is adequately staffed and that the House provide sufficient resources to enable us to continue to recruit and retain suitably high calibre specialists.

IMPROVING PROCESSES AND PROCEDURES

47. It is the role of the Non Executive Directors of the Court of the Bank of England to oversee the procedures and processes of the MPC. However, as we noted in paragraphs 40 and 41, they have not always been able to resolve internal disputes in a timely manner. We have therefore used our position to question the Governor about such issues when necessary. We believe that, in the case of research and support staff for MPC members, this has led to a speedier resolution of internal disputes than might otherwise have been the case. We intend to continue to raise issues concerning the internal processes and procedures of the MPC if we think it will aid the resolution of disputes.

48. We have also aided transparency by reviewing the publications of the Bank and pressing for the publication of additional material when we think it will help improve understanding of the monetary framework. As a result of our recommendations the Bank has published a paper on the transmission mechanism, explained and published its forecasting models, and, in the inflation report, set out an assessment of its forecasting record.[95] We recommend that our successor committee continue to consider whether further explanatory work by the Bank would be beneficial to Parliament and the general public.

CONFIRMATION HEARINGS

49. We noted in our first report on the accountability of the Bank of England that "the involvement of the Executive in the selection process [for members of the MPC] appears to be considerable since candidates for the Governorship and Deputy Governorships will be recommended by the Prime Minister, while the Chancellor will be consulted on the appointment of the two other Bank representatives on the MPC and will select the four members of the MPC appointed from outside the Bank."[96] We therefore concluded that "in our view the independence of the appointment process would be enhanced by giving the Treasury Committee power under the new Bank of England Act to confirm nominations."[97] We believed that this would increase both the accountability and openness of the process. In the event our recommendation was not accepted by the Government though we still believe that confirmation hearings should be put on a statutory basis.

50. We decided to hold hearings on a non statutory basis assessing an individual's personal independence and professional competence. We have conducted thirteen confirmation hearings and one reconfirmation hearing. On all but two occasions, we have confirmed the nominations unanimously. On the first of these occasions we confirmed the candidate, Dr Wadhwani, on a majority decision.[98] We noted in our report following the hearing[99] that Dr Wadhwani's replies to our questionnaire "relied heavily on the replies given by the existing MPC members in last year's confirmation hearings" and that this cast doubt on his ability to formulate his own opinions. We therefore cautioned that Dr Wadhwani should remember "... that he is a member of the MPC as an individual with individual responsibility and independent views."[100] We note that, since his hearing, Dr Wadhwani has been one of the most prolific members of the MPC producing papers on a range of issues, most notably the new economy, and it was his research work that led to the Bank revising the exchange rate assumption used in its inflation forecast.

51. On the second occasion, again on a majority decision,[101] we did not confirm the candidate, Mr Allsopp, and asked the Chancellor to reconsider his nomination. The Chancellor responded by stating that "Mr Christopher Allsopp fully satisfies the criteria for appointments to the Bank of England Monetary Policy Committee. He is one of a line of distinguished academics who serve on the MPC ... His appointment has been widely welcomed, including personally by the Governor and Deputy Governor."[102] Mr Allsopp subsequently took up his place on the MPC.

52. Our rejection of one nominee and the Chancellor's subsequent overruling of our decision raised questions about the purpose of our non-statutory confirmation hearings. The Committee did not take its decision lightly but it was perhaps inevitable that the Chancellor should override our decision, as to do otherwise would have led to questions about his own judgement over choice of candidate. This does not however mean that our hearings are without purpose. We think that confirmation hearings, even on a non-statutory basis, act as a stimulus to the Chancellor to choose candidates who are competent and independent. We also believe that our questionnaire and hearings provide essential information about the background of the appointees which is not otherwise readily available. Above all, the hearings underline the fact that MPC members are accountable to Parliament and to the public.

53. A range of opinions have been expressed on the conduct of our confirmation hearings. Professor Buiter thought that "having real confirmation hearings ... in principle ... would be valuable."[103] However, he cautioned that "this would only work of course if Parliament [as represented by the Treasury Committee] somehow could commit itself ... not to turn it into a three ring circus."[104] However Mr Flemming was against formal confirmation hearings where "the taking up of appointment would be formally conditional on approval by the Committee". He thought that it was "... highly desirable that the people who are doing the implementing should be unambiguously his [the Chancellor's] nominees, and if he appoints incompetent people that will show up in the performance for which he should be held accountable by this Committee and the House."[105] The Governor told the House of Lords' Committee that "the experience of the confirmation hearings that we have had in some cases do not encourage me to think that that process is a good one. I do not think they were focusing simply on independence and professional expertise." He emphasised that if confirmation hearings were to be held it was "tremendously important that it were done in a responsible way, focusing on the qualifications which are necessary for this appointment."[106]

54. We agree with the Governor and Professor Buiter that it is important that we conduct our confirmation hearings in a "responsible" manner. However we strongly dispute the Governor's suggestion that we have not always focused on independence and professional expertise. Our report following our hearing with Mr Allsopp explicitly stated that "we were disappointed in his answers to our questions and believe that this casts doubt on whether he possesses the skills required to take part in meetings of the Monetary Policy Committee."[107] We think it is vitally important that MPC members are able to express themselves well in public and withstand robust questioning, as they will undoubtedly face this both from within the MPC and from the general public. We note Professor Goodhart's comments that "it is a part of the responsibility of taking a decision which does affect the lives of everybody to some extent that they themselves in their own words are able to express their argument for doing so."[108]

55. We also question the Governor's assertion, made to the House of Lords Committee, that our hearings may lead to a situation where "you would find that there were quite a lot of people who said 'frankly I am not prepared to go through this process.'"[109] Any candidate who is worth a place on the MPC should have the expertise and ability to withstand responsible questioning from our Committee. If the prospect of a confirmation hearing puts the candidate off from applying then he or she is probably not suitable for the post in the first place.

84 First Report, Session 1997-98, Accountability of the Bank of England, HC 282, para 61(ii). Back

85 Seventh Report, Session 1997-98, Bank of England: Operation of Accountability-One Year On, HC 993; Eighth Report, Session 1998-99, The Monetary Policy Committee-Two Years On, HC 505. Back

86 See Annex for details. Back

87 Central Banking, Volume XI.3 February 2001. Back

88 Q 134. Back

89 Q 137. Back

90 Q 122. Back

91 Q 136. Back

92 For example see Q 295-300. Back

93 During this Parliament our expert advisers have been: Professor Charlie Bean, London School of Economics; Mr Roger Bootle, Managing Director of Capital Economics; Professor David Miles, Imperial College Management School; Ms Bridget Rosewell, British Retail Consortium; Professor Andrew Scott, London Business School; Mr David Walton, Director of UK Research Goldman Sachs. Back

94 Central Banking, Volume XI.3, February 2001, p 13. Back

95 This appears each August. Back