Examination of Witnesses (Questions 280-297)
MR MERVYN
KING, MS
RACHEL LOMAX,
SIR JOHN
GIEVE, MR
CHARLES BEAN
AND MR
PAUL TUCKER
24 APRIL 2007
Q280 Chairman: On that point, Governor,
in the previous session we asked the witnesses about the advisability
of them sending a letter to us or a report. I realise that if
everyone writes a report every month then people are going to
compare it and we get into a bit of a dog fight, but given that
we can have a sensible arrangement in terms of increasing accountability,
would you consider that a reasonable idea?
Mr King: I am slightly reluctant
to impose on the world and on you yet more pieces of paper. We
produce a lot. My honest feeling is that we all come before you.
I come three or four times a year; every member must come at least
twice a year. You have them in front of you in person for as long
as you want. You can make the session last for as long as you
wish. You could put all the points that you wanted orally to that
person and ask them to give an account for what they have done
in the past year, how many visits they have made, why they have
voted the way they have. I am not sure that I see the additional
purpose of a written letter which runs the risk of everyone sitting
round and competing with each other to write the most polished,
or the longest, or the shortest statement.
Q281 Chairman: We had that view put
forward when we were going to televise the House of Commons years
ago. One member would try to be smart and then it would not be
advisable. Ten years or whatever later, it is every day commonplace.
Mr King: If you could hone in
on what the purpose of the statement would be, that is the key
thing. I am all in favour of pieces of paper if they serve a particularly
useful purpose. What I cannot work out yet is what the advantage
would be of that over being able to interrogate us directly.
Q282 Chairman: If people send us
a written report it gives us time to look at it and reflect on
the issues and it draws out issues which maybe are not possible
during a session where time is limited. It gives people the opportunity
to imprint their personality on it as to why they are doing things.
Rather than asking people to do it all at one time, if people
did it, say, at a different month at a time I think that would
certainly be of benefit to us. What about other members of the
Committee? Do you feel that would provide a benefit?
Ms Lomax: To go to the question
underlying it all, I do think that you let members of the Committee
off quite lightly. I come along to these sessions with the Governor
and most of the questioning goes to him. You never ask us along
without the Governor. If you were to decide that you wanted to
explore the positions of individual members in more depth, then
I think a letter might serve a purpose as briefing you for a different
kind of hearing with individual members. In isolation in the context
of the sort of Committee hearings we have at the moment, I am
with the Governor; I am not absolutely certain what purpose it
would serve.
Q283 Chairman: But you send a letter
and you are coming to the Committee a couple of weeks later. We
have that letter and we can sit and reflect on that. Surely that
is a good idea, Charlie?
Mr Bean: If you have in mind a
particular issue that you want to probe on or something like that
you may well want to gather some prior information, very much
like we provided the note on the economic context for you. That
then becomes a sort of ad hoc reaction to things that are particularly
interesting you at the time with a particular focus, rather than
some regular letter-writing or report-writing process.
Q284 Chairman: It would not end up
like a minister replying to Parliamentary questions, would it,
where you do not get any information at all?
Sir John Gieve: No, I think you
would probably get more paper than you wanted. I very much agree
in that I am opposed to everyone having a paragraph in the minutes
every month. We do, as you know, make speeches several times a
year. I certainly have no objection to providing an account once
a year of what has happened.
Q285 Chairman: Paul, would it be
possible for the MPC to provide more information in the future
on the path of interest rates? For example, would it be possible
to produce a future path of interest rates as seen by the MPC?
Mr Tucker: I think it would be
pretty hazardous for the Committee to start publishing its expected
path of interest rates for two reasons. First, and this has run
through a lot of the discussion this morning, is that the thing
that distinguishes the MPC from equivalent bodies elsewhere is
that this really is one person-one vote; it may be almost unique
in that respect. I think it would be formidably difficult for
nine people to agree on a path of rates. The second, and perhaps
more important point, because it would apply to almost every Monetary
Policy Committee I can imagine, is that such a path would be conditional.
It would be determined by so many factors that it would be a communications
nightmare in my view because we would be quickly in the position
of saying well the curve that we published of course is not quite
what we would now envisage if we were to do it again because X
has happened, or Y has not happened, or Z has happened. The public
would, I think, feel justifiably confused. I think the financial
markets would be pretty confused. And that would not enhance the
accountability of the Committee and, most importantly of all,
it would not enhance our ability to do our job. Some of the central
banks in the world are doing this and so I think it would be a
mistake to say never, and we should watch and learn from what
they do, but I certainly would not want to leap into doing that
now.
Q286 Chairman: Governor, Lord George,
when he appeared before us, expressed disquiet at publishing immediately
with the interest rate decision information on how individuals
voted. Would you however support the numerical split of votes
being published so that markets could gauge how a decision was
made?
Mr King: No, I would not. I am
not particularly sympathetic to markets who want to know one day
rather than five days earlier some piece of information. What
really matters is that we get a good explanation of the reasons
for the decision that was taken and the range of issues that were
debated around the table and to do that requires us to construct
the minutes. We do it as quickly as we can. A lot of work and
effort go into that process. The minutes go through several rounds
of discussion and changes before we finally publish. If the numerical
vote were published before the minutes were to come out you would
simply be caught up in, first of all, an enormous amount of speculation,
much of which would be inaccurate, about which members had voted
which way. That would not give any useful information and it would
make it almost impossible for a member who actually wanted to
go out and speak after our purdah period finishes. People would
not be able to speak in public before the minutes come out, because
the focus of attention would inevitably be on whether they were
in the majority or the minority. Once one person made clear where
they were it would make it impossible for those who had not yet
spoken. I think you get sucked into a position where people would
start to reveal which way they had voted much earlier and that
mitigates against a very clear explanation of the full debate
that the Committee had. I am struck by how many of my central
bank colleagues overseas see merit in having a long substantive
set of minutes which spell out all the issues as opposed to an
immediate short paragraph statement where you get sucked into
monetary policy by code word. One word is meant to summarise a
whole set of views on monetary policy. It is not like that. It
is much better to be able to explain at full length what were
the arguments for and what were the arguments against the decision
that was finally reached.
Q287 Chairman: Charlie, would you
support a bias statement similar to the US model?
Mr Bean: Not particularly, no.
First of all, it is not something we agree on at the moment as
a Committee and, as Paul has already indicated, it is difficult
enough to agree on the current interest rate, let alone a path
of interest rates. A bias statement is a step in the direction
of providing a complete path for future rates with all of the
problems that Paul has already mentioned. I do not see it as a
particularly useful thing to do. What we do of course in the minutes
is seek to give an indication of our thinking about how the economy
is developing, where the risks are and so forth. That is reinforced
in the Inflation Report which contains our projections and market
participants and others who are interested should be able to draw
their own conclusions from the outlook that we describe in the
Inflation Report for the possible evolution of interest rates
in the future. That seems to me a perfectly adequate way of doing
it.
Q288 Chairman: Governor, would you
think it was a good idea to include the external members at the
press conference for the Inflation Report?
Mr King: No. We have two distinct
publications that come out around that time: one is the Inflation
Report and one is the minutes. They have quite distinctive purposes.
The Inflation Report is to explain essentially the majority decision
that was taken and to explain the collective view of the MPC about
the forecast. When I speak at the Inflation Report press conference
I am speaking on behalf of the Committee. Once we have reached
our decision on that Thursday of that month we then spend quite
a considerable amount of time discussing the drafting of the Inflation
Report that we put out. We go through it word by word for good
chunks of the text. If the Committee agree on that, my task is
to explain that to the audience. That publication and my role
in that is to speak on behalf of the Committee as a whole. Individual
views where all nine members—not just the externals but
internals as well—have different views, as you can see in
the split of votes in the January decision this year, are set
out in the minutes. The minutes are an opportunity for arguments
to be set out and then people can make speeches and so on. We
encourage people to make speeches to set out their views so that
people outside understand why they have voted the way they have.
Q289 Chairman: Is there one thing
that we, the Treasury Committee, could do to improve the process?
Secondly, is there one thing that you would advocate needs change
that we could include in our report?
Mr Bean: We have already raised
the most significant process issue that could usefully be improved
and that is the speediness of appointments. From our perspective
that will enable us to operate more effectively. From the point
of view of the way you actually conduct these hearings, the point
that Rachel raised about quizzing us more intensively on why we
voted the way we did I think would be something to take away.
Ms Lomax: The one thing that we
have not talked about is the process for setting the target and
changing the target. There is quite a strong argument for that
being a bit more consultative than perhaps it has been in the
past, at least in respect of major changes to the target variable.
Sir John Gieve: I agree with both
of those. The initial hearing that you held with me was a completely
different degree of scrutiny from this Committee than I get coming
with the Governor from time to time.
Q290 Chairman: Are you advocating
coming along on your own then?
Sir John Gieve: No, but I think
you might balance the questions differently. I think the point
on the target is a good one, although my own view is that we should
not change the target except for a very good reason and that it
needs to be stable.
Mr Tucker: I thoroughly agree
with that. I agree with what Rachel says about the target. I think
we are still in the business of explaining that the difference
between CPI and RPIX is not very significant in terms of a regime
of low, stable inflation which I think is the important point
for the public at large. Maybe we should learn something, not
just the Government, about doing more when a change in the target
is made. I agree with what my colleagues have said about just
sprinkling the questions around just a little more, but I do not
think that has to be a major change. Coming back to an earlier
question, I do not think that I would favour more paper.
Mr King: I have one suggestion
which is that it is very good that the hearings are on the Inflation
Report. At present that happens only three times a year and we
have four Inflation Reports now. Our Inflation Report is in August.
I am not suggesting that you come back from the holiday in August,
but if you could possibly find an opportunity in September to
see us, I think that would make it four instead of three, and
that would fit the natural rhythm. Going back to what I said earlier,
one of the good things that has changed is that you do now hold
hearings in connection with the Inflation Report. In the past
the Bank was invited along before the MPC was set up really only
in connection with the Budget, because the Budget was not our
statement. We were not setting policy in the Budget; we were there
to come up with a few words that you could then use in a different
hearing. This is very much focusing on our responsibilities and
that is extremely good to hold us to account for our responsibilities.
Q291 Chairman: Governor, I presume
that you would agree that any good committee needs a bit of creative
tension?
Mr King: Absolutely.
Q292 Chairman: Who are the pains
in the necks on your Committee?
Mr King: I cannot think of any.
Q293 Chairman: Do the rest of you
keep an eye on the boss man when you are making your decision?
Mr Bean: Certainly not.
Q294 Chairman: You do not look at
him? Rachel, would you keep an eye on the boss when you are making
a decision? The Governor is the boss man.
Ms Lomax: Do I vote to please
the Governor? No.
Q295 Chairman: What would you say,
John?
Sir John Gieve: I always try to
vote on the basis that mine might be the swing vote. Very often
you do not know whether it is or it is not because it depends
when you speak.
Mr Tucker: Not remotely. The defining
feature of the MPC is, one person one vote, and virtually all
of its strengths come from that, and virtually all of its challenges
are then how to communicate something that is not misleading,
because what the market cares about is the outcome rather than
our individual to'ings and fro'ings.
Q296 Chairman: What sequence do people
vote in? I have attended lots of meetings and it is important
who speaks first.
Mr King: There is no sequence
of voting in the sense that nobody is called on to cast their
final vote until the very end of the process when they know how
everyone is thinking. There is a sequence in which people speak.
At the beginning of Thursday morning, which is when we come to
our decision, I will open the discussion by presenting a summary
of our discussion on the previous day. I do not normally at that
stage indicate which way I myself would be inclined to vote. I
then turn to Rachel who leads off and who presents as Deputy Governor
for Monetary Policy, her view as to where the evidence suggests
interest rates should be set. After that it is a random order
in which people talk. I then speak at the end and people may or
may not indicate as we go round how they wish to vote. We do not
record votes until the very end of the discussion when everyone
knows what everyone else thinks and it is clear where everyone
is coming out. That may take some time. Somebody may well say
I am inclined to think that we should cut interest rates today
but actually I am not sure and I would like to hear what everyone
says before I finally cast my vote. No-one is called upon to vote
until the very end of the morning when we record the votes that
have been expressed once it is clear we know how everyone is thinking.
In that sense there is no order.
Q297 Chairman: Governor, you tell
us, for clarity sake, that your Committee is populated by pain
in the necks but you are not going to name them.
Mr King: I think you can see that
it is not always easy to get a team to perform and of course that
is the challenge.
Chairman: Governor, you have been very
helpful. We thank you and your colleagues very much for attending
this morning.
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