Examination of Witnesses (Questions 220-239)|
24 APRIL 2007
Q220 Mr Fallon: I understand that.
Can I turn to something that I think was forced on you by statute
and that is the number of meetings you have each year. You meet
more often than the Federal Reserve and it has been suggested
by Rachel Lomax in a discussion with this Committee that that
can make your Committee rather fidgety in setting interest rates.
Looking back at it over the longer periodand I know there
is the issue of the monthly data and so ondo you think
there is a case for meeting less frequently? I am asking you,
Ms Barker: I have certainly considered
that. There is of course the argument about the monthly data cycle.
I think a natural alternativeand you are quite right it
is forced on us by statutewould be to have the quarterly
meetings around the Inflation Report and only one meeting in between.
Occasionally, of course, events could move faster than that and
then you might want to meet in short order, as indeed we did in
September 2001, so I do not
Q221 Mr Fallon: Sorry to interrupt
but that is provided for anyway in the statute.
Ms Barker: That is provided for
anyway, so personally I would have thought it would be possible
to move to eight times a year. You commented on the fact that
it makes us fidgety. There is of course the opposite danger that,
as it were, news can creep up on you because you look at it month
by month, so we always have to be very careful when we are meeting
not just to say what has happened over the last month but what
has happened over the whole period since we last moved interest
rates. I do not, I have to say, have a terribly strong view on
this. Meeting every month I have found absolutely fine. It has
enabled good thorough analysis of every month's data but if you
were to ask me would it be much worse or much better if we were
to meet eight times a year, I have to say I do not have a terribly
strong view either way.
Q222 Mr Fallon: Do any of the other
three actually have a strong view on this?
Dr Sentance: I have a very strong
view in favour of the status quo. I think from the point of view
of the public having confidence in the Bank of England's arrangements,
the notion that we meet every month at the beginning of the month
and they can see the pattern of meetings, they can see the interest
rate decisions come out on a regular monthly cycle does help to
build confidence. I have found the monthly cycle quite workable.
It does head off the demand for emergency meetings because we
are meeting with that frequency, as laid down in the Bank of England
Act, so I find it difficult from my personal point of view to
mount an argument which says we should meet less often. I would
rather go to the public and say we are meeting every month to
reassure them that we are on the case, we are reviewing the evidence
as it comes up on the monthly cycle, and we will change interest
rates or not as the case may be on that period.
Professor Blanchflower: I have
the same view. I think the concern would be if we went to eight
times a year the potential would be that something would come
along and we would have to start to call emergency meetings, and
that probably would not be good, so I think the benefit of having
meetings every month are we are seen to be watching what is going
on. We do not want to be seen to be asleep at the wheel so I take
the view, as Andrew has done, that we are probably all right as
Q223 Peter Viggers: For such a carefully
planned and structured body the appointments procedure seems to
be rather unprofessional, opaque and patchy. Are you as external
members consulted about the appointment of other external members?
Professor Blanchflower: No.
Ms Barker: No.
Q224 Peter Viggers: Do you as a group
either as four external members or perhaps as an MPC consider
the balance of skills and experience on the MPC and do you have
a view individually or collectively as to the kind of person who
might be suitable for further appointment.
Professor Blanchflower: I take
the view that diversity on that Committee is a good thing and
that we would like to have people with different views from different
walks of life. I think the one thing you would certainly want
to see though is somebody with good experience and background
in economics, not necessarily a PhD, but it is an economics intensive
activity so I think good, solid training in economics, either
from business or from academia, is a fundamental thing. You need
diverse experience but you need to be able to understand the economic
Q225 Peter Viggers: Because you are
the people who do the job, I wonder whether if you have either
individually or collectively formed a view as to the kind of person
who should be invited to fill a particular gap or do you just
receive who is appointed?
Dr Sentance: Just observing the
pattern over the last 10 years, there has been a mix of business,
academic and financial experience brought onto the Committee and
I think that is probably right, to try and keep that mix to those
three elements. The extent to which you have individual backgrounds
depends, I guess, on the availability of individuals. I think
it should also depend on what might help to complement the internal
members. We are not privy to the processes that the Chancellor
goes through in selecting the members but my opinion would be
keeping that balance on the externals between business, academic
and financial experience would be a good thing.
Q226 Peter Viggers: Do you think
that as external members you have anything to bring to the table,
as it were, in terms of suggestions as to who might be suitable?
Would you feel that it would be helpful for you to be able to
express a view? Is there a mechanism for you to express a view
Professor Besley: I would tend
to take quite a strong view that as an independent external member
I would not want to be involved in appointing other members to
the Committee. Part of being independent as an external is being
away from the process and being able to just focus on the job
in hand which is trying to make the right policy decision. That
is not to say I do not endorse the general views about what would
make a good composition of the Committee but in particular as
an external I think it would be inappropriate to be intimately
involved in the appointments procedure.
Professor Blanchflower: I agree.
Q227 Peter Viggers: On the period
of appointment, Ms Barker you have been reappointed but it is
with effect from the end of next month so it is really quite short-term
activity. Has there been any difficulty caused by a failure to
make appointments when there have been shortfalls in appointments?
Ms Barker: I think the time at
which people have expressed concern clearly relates to last year
where of course there were two things that happened in quick succession.
One of which was that Richard Lambert left the Committee unexpectedly
and at quite short notice and secondly, of course, David Walton
died tragically, and in those circumstances it was inevitable
that there was going to be some kind of gap. I would make a wider
point however. People often talk about the need to appoint people
in advance, but of course one of the difficulties hereand
we were discussing thisis that people come in from very
different backgrounds. Academics, for example, might prefer quite
a long period of notice before they join the Committee because
they will have teaching commitments signed up and it is more difficult
for them to move in short order. If you are appointing somebody
from the financial sector however they will often have to move
out of their job very quickly and it would suit them to have the
appointment made much nearer. I think people from the business
community would probably occupy an intermediate position. So the
idea that there should be some timetable for appointments is theoretically
attractive, but in practice it is actually quite difficult to
see how it would work.
Q228 Peter Viggers: Do you individually
think that the three-year renewable term is the correct one or
would you support those commentators who have said that a rather
longer term would be helpful?
Professor Blanchflower: For an
academic it would be very difficult to accept a longer term. My
university gave me three years' leave. That is the first time
anybody has been given a three-year leave and I think the chances
of getting leave from a tenured job would be nil for a longer
time period, so for an academic that would be a problem in that
you would have to give up your endowed tenured chair so a longer
time period for me would have been an issue.
Professor Besley: I am rather
in favour of Steve Nickell's suggestion of having a six-year appointment
with a possible minimum of three where the option is on the side
of the appointee, so that you could take the longer view that
you were going to do it for six years but you could decide at
the end of three whether in terms of your career it was the right
decision to carry on or not. I think that was what Steve said
in his written submission said and I thought that was a rather
Q229 Peter Viggers: Ms Barker, you
would have an individual view on this?
Ms Barker: To some extent I would
share the view that Tim has just expressed, that one of the difficulties
again of fixed-term periods is that it is very difficult to find
a period that does suit people from different backgrounds. David
has set out very clearly why for an academic it is difficult to
take on a long-term period. However, Andrew and I, both had to
give up all our private sector work when we came to join the MPC,
might well have found something that promised us longer than three
years of job security rather more attractive because we do not
automatically have positions to go back to in the way that academics
do. So something where you had a minimum period that you agreed
to do but the possibility of staying on for longer, provided of
course you had not fallen foul of some of the provisions in the
Act for the removal of members, seems to me more attractive. Something
with some flexibility to meet a range of circumstances I think
could be quite important. I said we saw last year some surprising
circumstances and against that background I think some flexibility
would be helpful.
Q230 Peter Viggers: Or would a full-time
option also be attractive?
Ms Barker: For people who have
had to give up the rest of their work, to some extent a full-time
option is attractive. However, I have to say when I started doing
this job I was doing it on a four-day a week basis. I hinted in
an earlier answer that particularly at the beginning it is quite
helpful to have more time to spend on it. As you move on with
the job three days a week is certainly an adequate time to do
it but then that does raise the question, given the limitations
on what other activities MPC members can do, how they should pass
the rest of that time.
Q231 Peter Viggers: Professor Blanchflower,
I suppose I should give you the opportunity of responding to the
suggestion that there has been diminished engagement by external
Professor Blanchflower: I have
been fully engaged. I have made numerous regional visits. I think
I will have done eight by the end of the year and numerous speeches.
I have been fully engaged. I guess if you want to take it up you
can speak to the Governor about it, but I have been fully engaged.
Q232 Peter Viggers: Can I ask please
how you interrelate with the Court of the Bank of England? Do
you have much contact with them? Do you find this productive?
Have you any suggestions as to any structural changes that might
be helpful in your relationship with the Court of the Bank?
Professor Besley: In the period
I have been doing this I have attended two Court meetings, one
Court lunch, a Court away day and a dinner to meet with the Court
informally and I have also met Sir John Parker one-on-one, so
it seems to me that the Court is at this point taking very seriously
its job of settling in a new MPC member as I was, and checking
that there are no issues that need to be dealt with. I have no
complaint. I do not know about the other members.
Dr Sentance: Generally my experience
is that this relationship works well. There is not a lot of interaction
but the Court are clearly conscious of their responsibility in
terms of the MPC processes and do make sure that they talk to
us on a regular basis. We recently had a lunch where all the externals
were invited and we had an opportunity to talk more informally
about how things were going.
Q233 Chairman: Kate, you mentioned
earlier that you were thinking about the forecasting round. Are
there any key issues that need to be addressed, that need changing?
Ms Barker: The conversation is
to some extent an internal one. Actually I should say in the time
that I have been on the Committee the forecasting round has been
altered in the number of meetings and the way we have tackled
those meetings, and the key thing that we are trying to achieve
this time around is to try and maximise the opportunity for the
members of the Committee to have as much conversation as possible
about the economics of the issue rather than to have longer presentations
from the staff. We are anxious to try and ensure that we are able
to fully explore all the issues in the meetings and there are
some rather tedious questions about the way in which we arrange
the room to make sure that we get that high level of interaction.
Q234 Chairman: For the other members
it might be a good question. How well have you been introduced
to the economic modelling undertaken by the Bank? Is there greater
scope for the Bank to release more information on the modelling
process and the Inflation Report?
Dr Sentance: Certainly we are
provided with an introduction to the model. I think, however,
the job of producing an inflation forecast is not the same as
the job of using the model. In my experience, a model is a tool
and a forecast is a product of trying to bring all the available
information to bear. I notice some of the comments from Professor
Wren-Lewis who seemed to lay a greater emphasis on expertise in
modelling with the external members. I am not sure that is quite
right. I think some familiarity with forecasting, which I have
in my background and I know Kate has, is helpful among the external
members but I do not think we should get hung up on the model
as being the sole source of everything. We have to produce a forecast
and anyone who is practically involved with forecasting knows
that that involves bringing in a wide range of information and
judgments as well as modelling.
Professor Besley: That is exactly
the direction in which we are trying to take the forecast process
now, in the sense that we are trying to achieve a better balance
between cranking the handle and getting out of the model something
that is helpful in looking at the medium-term prospects for inflation,
but the need to understand the economic forces that are going
to shape that going forward. That is a back and forth process
and it is getting that balance right. I think that is just echoing
what they are saying.
Q235 Chairman: The Treasury model
is used and maintained outside the Treasury. Should the same apply
to the Bank?
Dr Sentance: Actually I did not
know that, I confess my ignorance about the Treasury. I am not
sure. I think there are some sensitivities about the actual detail
of the model given the purpose for which it is used. I think the
Bank should be free to use the tools that it needs to do the job
that it has to do, and the job that it has, as laid down in the
Act, is to produce an inflation report, an inflation forecast,
and I think one of the difficulties I could see of that approach
is it would perhaps put too much emphasis on the model as against
the way in which the model is used to produce a forecast, so I
am not sure I would want to necessarily go in that direction.
Q236 Chairman: Is there any opposing
view to that?
Professor Besley: I agree with
Q237 Chairman: So you all feel the
same? Okay. For most of you here your time at the Bank has been
short. Notwithstanding that, what impression have you gained from
the Bank and if there was one thing that you want to leave us
with in this Committee for the next 10 years, one thing that should
be changed, let us know now. Kate, since you have been on longer,
is there one thing you want changed, and then the rest of you?
Ms Barker: Are you asking me a
question about the way the Bank conducts itself or the Act?
Q238 Chairman: Anything. You are
privy to things that we are not. A lot of things go on behind
closed doors so give us a shaft of light on it.
Ms Barker: Somebody said earlier
that they did not think there were big things that needed changing,
they are in the tweaks. I have indicated that in terms of thinking
about how we work internally we try ourselves very actively to
think about the ways in which we could improve it. I very much
hope that we will continue to do that. Frankly, I am not sure
that there is anything that I would change about the framework
of the Act. There are always things that you think as a team perhaps
you could do a little bit better, in particular one of the things
that sometimes causes concerns is the way in which differences
of opinion are communicated clearly in the minutes. That is something
that we are paying more attention to, so I think it is always
right looking at the way in which we perform and the way in which
we could behave better. You have raised some questions about the
appointments process. I raised some points about the fact I thought
setting out a very clear process was not necessarily going to
be possible given the different backgrounds that people come from,
but I do think that advertising positions on the MPC in order
to draw up a full list of potential candidates might be something
that was worth pursuing.
Q239 Chairman: Professor Blanchflower?
Professor Blanchflower: I do not
have an obvious thing to recommend. On the point I made earlier,
which is the system seems to be operating very well, at the edges
there may be things we would need to change a little bit, perhaps
on the appointments process, but in general I think many of the
changes we can make we have tried to do internally so the framework
allows us to make changes as we go and, as colleagues have said,
we are making changes particularly about how the Inflation Report
is done. There are other issues about how we communicate and that
is obviously something we need to keep thinking about.