Select Committee on Treasury Minutes of Evidence


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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