Broad Economic Guidelines

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Mr. Bercow: In case the Minister is in any doubt, or lest she has not had the pleasure of reading the speech that was delivered a few weeks ago on this matter by my hon. Friend the Member for Havant, the shadow Secretary of State for Work and Pensions, I am happy to confirm that the Conservative Opposition believe that the Government have been vindicated on the independence of the Bank of England. I do not hesitate to put that on the record a second time. However, does she accept, as we have argued, that there is a compelling case for four-year non-renewable term limits for members of the Monetary Policy Committee? In the name of underlining the independence of the Bank of England, does she also accept that there is a powerful case for the establishment of a joint parliamentary Committee with a duty to appoint the Governor of the Bank of England, the deputy governor, and members of the Monetary Policy Committee?

Ruth Kelly: I note that the hon. Gentleman makes it clear that he is talking about the Conservative, not the Liberal Democrat, Opposition. That is always useful to know.

Mr. Bercow: There is a limit to what I can be responsible for.

Ruth Kelly: Nevertheless, I am slightly astonished that he thinks that a four-year, rather than a three-year, term for members of the Monetary Policy Committee would markedly enhance the credibility of the Bank of England. I am sceptical that an extra year would transform the operation of monetary policy in this country. I am also not persuaded of the merits of having a parliamentary and/or political entrée into the appointments of the Bank of England Governor and deputy governor. The existing system preserves a high degree of independence for the Bank.

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The fact that we set the framework for monetary policy and inflation targets, and the Bank publishes inflation reports that the Treasury Committee scrutinises, also ensures that it is accountable through the Government and Parliament for the operation of monetary policy.

Mr. Bercow: The Minister's position on this matter is baffling. She cavils at the idea of a parliamentary Committee being responsible for appointments in the way that I suggested, arguing that she does not think that there is merit in the process being politicised in the way that she thinks would result. Does she seriously argue against the politicisation of the process via power being given to a joint parliamentary committee, but contend instead that those appointments, which should not be tainted or undermined by the vulgarity of politicians, should lie in the hands of her right hon. Friend the Chancellor, who, unless I am much mistaken, is a politician?

Ruth Kelly: As far as I am aware, the only person who argues that the appointment system for the Monetary Policy Committee members is political and that they are politicised through the current process is the hon. Gentleman himself. The current system is highly regarded in and outside Parliament and around the world. The hon. Gentleman must be aware that MPC members have the chance to be scrutinised by the Treasury Select Committee as part of the appointment process. People have the opportunity to take a view on the merits or demerits of their appointment.

Matthew Taylor: There are many issues on which the hon. Gentleman is on his own, but this is not one of them. I refrained from intervening a moment ago because he refused to take any responsibility for the Liberal Democrats and I had no wish to take responsibility for the Conservatives. We have long advocated extended but non-renewable terms for Bank of England measures. We are glad to see the Conservatives adopt that policy. It extends the principle of independence for the MPC quite substantially.

While the present Chancellor may be a wholly apolitical individual, although his role as chairman of the Labour party general election campaign twice running slightly belies that, a future Chancellor might not feel so constrained if the MPC did not follow the expected line. We see exactly that principle in the United States with Presidents able to influence, for example, the Supreme Court through the appointments process. If the Minister believes that the MPC should be wholly independent, I urge her to consider such a process. Incidentally, a peculiarity of the MPC, because it is technically—

The Chairman: Order. There was insufficient self-restraint in that intervention.

Ruth Kelly: MPC appointments are slightly different to other appointments. I do not quite understand the hon. Gentleman's approach. I do not know whether he envisages a process in which, for example, there might be six candidates for a particular

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MPC appointment who then duly come before a parliamentary committee to express their views and be judged suitable or unsuitable. Traders in the City would be at their screens anxiously awaiting the committee's decision. These are highly market-sensitive appointments. In that sense they are not directly analogous to other appointments. Our system allows for effective parliamentary scrutiny and extremely thorough external scrutiny too of the functioning of the MPC and the decisions that it makes through the prompt and regular publication of the minutes of its board meetings. There are regular appearances before the Treasury Committee and of course members of the MPC are also allowed to speak freely on issues of their choice outside those hearings. We have an extremely transparent and effective system.

Dr. Palmer: The Opposition are leading us rather far from the subject of the debate. Would my hon. Friend agree that if we were to politicise the selection of MPC members to the extent suggested, it would be seen as an attempt to claw back the independence given to the committee?

Ruth Kelly: My hon. Friend makes an extremely interesting point. However, we should probably draw the debate on these issues to a close before tackling some of the other matters that have been raised. The hon. Member for Buckingham also mentioned the recent publication of the world competitiveness league tables, in which the UK performance and ranking increased. The commentary associated with the publication of that league table said that the United Kingdom was the world's third most resilient economy. The hon. Gentleman must put the rankings in context; for example, the UK economy better withstood the global uncertainties recently and the downturn after 11 September. The UK was the fastest growing of all the G7 economies in 2001 and the international organisations that make such forecasts predict that it will grow faster in the current year.

Most of the points raised by the hon. Member for Truro and St. Austell were dealt with in the debate. I agree with the hon. Gentleman on the need for the United Kingdom to invest. He claimed that investment is projected to double—I think, although I stand to be corrected—between the years 2000–01 and 2005–06. We are taking action on a wide range of fronts to increase investment; the hon. Members are aware of debates in the House on raising the level of investment in the national health service. We await the outcome of the spending review, which will allocate investment over a three-year period at least, to our public services.

Matthew Taylor: Doubling the investment sounds impressive until we realise that the Government halved it after taking office. It is still low by historic standards, even at the levels that the Government project. I asked whether the Minister believes that those levels of investment will deliver the goods or whether there is not a good case for increasing them further, as is implied by the Government's concern about the stability and growth pact rules.

Ruth Kelly: I accept the hon. Gentleman's point about the stability and growth pact and the need to

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recognise the crucial importance of reversing years of chronic under-investment in our public services and I welcome his comments on the subject. We are the first Government to set out more than one year at a time in our spending plans and part of the problem, historically, is that public investment has always suffered during fiscal retrenchment. We aim to overcome that by setting out three-year plans and programmes in our spending review announcements. In specific sectors such as the NHS and transport we set out 10-year programmes, which will go a long way to overcoming some of the historic problems in those sectors, although I do not under-estimate the importance of raising the overall levels of investment in other areas, too.

The hon. Gentleman also pointed out the need for a balance between tax and spend and I am completely in accord with him on that matter. We need fiscal sustainability underpinning measures to increase productivity, promote enterprise and pursue structural and economic reform across the European Union. Fiscal sustainability is the key issue in this context.

The hon. Gentleman made other points, too, some of which were merely about taking the process further. I welcome the fact that he recognises the importance of the peer review process and the contribution that the broad economic policy guidelines and the stability and convergence programmes can make to the process of peer review.

I dealt with growth in my earlier comments. I said that I wanted the process taken further. The hon. Gentleman pointed to the case of Italy, which the European Commission examined, arguing that further debate on the sustainability of member states' accounts would be helpful. I agree that the process could be furthered in various respects. We are

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committed to peer review and we want a genuine debate about fiscal sustainability and structural and economic reform.

I encourage the Committee to support the Government's welcome of the publication of the Commission's recommendations on broad economic policy guidelines. They provide operational content to the conclusions of the Lisbon and Stockholm summits, reflecting the importance of structural reform and successfully tackling the challenges of globalisation and competitiveness and promoting employment and social inclusion. The motion also welcomes Council opinions and statements on stability and convergence programmes as promoting the objective of sound Government finances as a means of strengthening the conditions of price stability and strong sustainable growth conducive to employment creation.

Question put and agreed to.


    ''That the Committee takes note of European Union Document No. 8389/02, Commission Recommendation for the 2002 Broad Guidelines of the Economic Policies of the Member States and the Community; and supports the Government's welcome for the publication of the Commission's Recommendations for the Guidelines, as giving operational content to the conclusions of the Lisbon and Stockholm summits, reflecting the importance of structural reform in tackling successfully the challenges of globalisation and competitiveness, and promoting employment and social inclusion; also takes note of European Union Documents Nos. SN 1107/02, 1108/02, 1109/02, 1111/02, 1112/02, 1113/02, 1319/1/02 REV1, 1320/1/02 REV1, 1321/02, 1322/02, 1323/02, 1324/1/02 REV1, 1325/1/02 REV1, 1361/02, 1382/1/02 REV1, 1383/1/02 REV1 and 2002/C 51/06, Council Opinions and Statements on the 2001 Stability and Convergence Programmes; and welcomes these Opinions and Statements as promoting the objective of sound government finances as a means of strengthening the conditions for price stability and for strong sustainable growth conducive to employment creation.''

Committee rose at one minute past Twelve o'clock.

The following Members attended the Committee:
Hurst, Mr. Alan (Chairman)
Cairns, David
Farrelly, Paul
Francis, Dr.
Griffiths, Jane
Hopkins, Mr.
Palmer, Dr.
Tami, Mark

The following also attended, pursuant to Standing Order No. 119(5):
Bercow, Mr. John (Buckingham)
Caplin, Mr. Ivor (Hove)
Kelly, Ruth (Financial Secretary to the Treasury)
Taylor, Matthew (Truro and St. Austell)

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Prepared 18 June 2002