Previous Section Back to Table of Contents Lords Hansard Home Page

2.49 p.m.

Lord McIntosh of Haringey: My Lords, perhaps I may begin by expressing my gratitude to all noble Lords who have taken part in this extremely wide-ranging debate. If one had to count the minutes of debate over the past nearly four hours, I would think that the proportion would probably be two to one--that is, two parts on wider economic policies and one part only on the detailed provisions of the Bill. However, I do not shrink from that and, indeed, I do not shrink from the responsibility of responding to the whole debate.

13 Feb 1998 : Column 1437

Today's debate has not only been wide-ranging in scope, it has also been wide-ranging in time. We have heard a good deal of speculation about the future of economic and monetary union and British participation in it, and we have had some extremely fascinating speeches going back over monetary and economic policy for more than 50 years. We are especially grateful in that respect to the noble Lord, Lord Roll of Ipsden, and the noble Lord, Lord Cockfield. When the noble Lord, Lord Cobbold, referred to what he described as the horrendous nationalisation of the Bank of England in 1946 and spoke of the intervention of Lord Pethick-Lawrence in your Lordships' House in February of that year, I wonder whether the noble Lord, Lord Cockfield, realised that my noble friend Lord Longford, who intervened in his speech this afternoon, actually spoke in that debate in 1946. Of course, I should say that my noble friend spoke as Lord Pakenham rather than under his present Irish title. Nevertheless, perhaps the noble Lord would like to join me in looking back to the debates of 1945 and 1946. Indeed, they certainly are most fascinating.

I was struck today by the extent to which there has been a very general welcome for the Bill. Of course, that is tempered--it had to be tempered by definition from the Opposition Front Bench. It was tempered by the noble Lord, Lord Cockfield, who described his welcome to the Bill as being "hesitant". However, it was more than tempered in the cases of my noble friends Lord Shore and Lord Bruce regarding approval of future participation in European monetary union and, indeed, in far more of the wicked devices of the rest of Europe.

Lord Shore of Stepney: My Lords, I do not object at all to my noble friend the Minister, in his good humoured way, taking up the question of the link between all this and later developments towards the single currency. However, the weight of the remarks that I made, and of those made by others, was really aimed at the direct effect of what has been done on the exchange rate and the consequences that flow therefrom.

Lord McIntosh of Haringey: My Lords, I entirely accept that and I intend to refer to it in my later remarks, just as I shall refer to the many speeches which questioned the relationship between this Bill and European monetary union.

However, before I go any further--I was about to say to kick into touch, but I do not want to interfere with the noble Lord, Lord Spens, kicking his computer. In the trade it is called percussive maintenance, and the noble Lord may be grateful for that term of art in the future if he is to continue kicking it. Nevertheless, I want to kick into touch the issue of the reappointment of Eddie George. Noble Lords should not be misled by any speculation, especially conflicting speculation in press reports. An announcement will be made in due course on that issue.

The noble Lord, Lord Mackay, started by teasing us about our manifesto, our business manifesto and different statements over a period of up to four years. Indeed, I believe that his quotes from different

13 Feb 1998 : Column 1438

Opposition spokesmen of the time went back to 1995. Of course, different things were said over the four-year period during which we consulted on what should happen about the Bank of England. The noble Lord, Lord Boardman, quoted Alistair Darling in 1996 and I have no doubt that he quoted correctly. However, the thrust of their teasing was that there was something wrong with announcing immediately after the election that we were going to hand over responsibility for short-term interest rates to the Bank of England; as, indeed, we did on 6th and 7th May. I take the issue extremely seriously. Like the noble Lord, Lord Taverne, I believe that we would have been extraordinarily irresponsible if, knowing that that was the right thing, we had not done it straight away. The noble Lord, Lord Taverne, has pointed out--as I did in my opening speech--that the immediate effect of that action was to decrease long-term interest rates thereby saving the Treasury hundreds of millions of pounds in unnecessary interest.

Lord Mackay of Ardbrecknish: My Lords, I am grateful to the noble Lord for giving way. If it knew that it was the right thing four days after the election, surely the Labour Party knew it was the right thing a couple of months before then when it wrote its manifesto?

Lord McIntosh of Haringey: My Lords, we have to react to things as the opportunity arises. It was not an issue that was raised at the time of the election. I am grateful for the support of the noble Lords, Lord Taverne and Lord Cobbold, and of my noble friend Lord Peston for the immediate action that we took. While I am referring to my noble friend Lord Peston, he referred to timescales in economic policy and looked back 200 years to David Ricardo. I seem to recall the bursar of an Oxford college who criticised the college's investment policy on the grounds that the past 200 years had been wholly exceptional!

We have had a great deal of debate on the wider issues of monetary policy. I am grateful in particular for the instruction which I have received from the noble Lord, Lord Roll, on this issue. He is quite right in saying that monetary policy is far from being the whole of economic policy. That is why it is not entirely relevant to this Bill for the noble Lord, Lord Boardman, to repeat the complaint which has frequently been made that what we have been doing leaves the Chancellor with only the fiscal tool rather than the control of interest rates. Although the noble Lord, Lord Cockfield, does not claim that monetary policy is all of economic policy, he takes a quite different view. He blames monetary policy for all other evils including, as I heard him, poverty in old age which strikes me as rather strange.

A number of noble Lords have poured scorn on the provision in the Bill for a clear and open inflation target. The noble Lord, Lord Mackay, thought that this was a loosening of the target compared with the previous government. The previous government had a range of 2.5 per cent. or less, which is considerably wider than the possible range we have now. I must point out to the noble Lord that under the previous government inflation

13 Feb 1998 : Column 1439

went down to 2.5 per cent. over the whole 18 years they were in power. At least we have a clear and unambiguous target.

I cannot accept the comments of noble Lords that because we have a target for inflation we should have targets for all the other complex elements in economic policy. One cannot really have targets for inflation, the exchange rate, the interest rate, and employment and growth. If one did, one would tie one's hands in almost every respect in economic policy and one would guarantee failure. In the wide-ranging overview of economic policy to which we have been treated this afternoon, I think there has been an element of unreality. Price stability is not an end in itself. It is an end in the Government's thinking because it is a pre-condition for high and stable rates of growth and employment. I can express our view best by quoting Mr. Alan Greenspan in his Humphrey-Hawkins testimony in July 1997 when he said,

    "Our objective has never been to contain inflation as an end in itself, but rather as a precondition for the highest possible long-run growth of output and income--the ultimate goal of macroeconomic policy".

I commend that to my noble friend Lord Peston who said in simpler but true words that it is a case of getting the real economy to work better.

I turn at last to the Bill and to the criticisms and comments that have been made about the Bill. The fundamental point to which noble Lords have referred concerns the operational autonomy given to the Bank of England to meet price stability. As many noble Lords have recognised, this gives the benefit of long-term stable policies and a macro-economic environment. I believe that point was recognised by the noble Lord, Lord Roll. It is one of the many long term measures that we are taking. It has been generally well received. My noble friend Lord Desai expressed modified rapture, if I may put it in Gilbertian terms, on independence, and worried whether we were not being seduced by excessive admiration of the Bundesbank. If he takes part in our Committee stage, he will see the extent to which our recipe is our own recipe and not one copied slavishly from other countries.

The Bill also strikes the right balance between independence and democratic accountability. It provides that the Government should set the target and the Bank deliver on it, as indeed, it has done. The Bank reports to Parliament regularly. It sends an open letter if it is missing the target of 1 per cent. above or below the 2.5 per cent., and it creates one of the most open and accountable systems of any central bank in the world.

My noble friend Lord Desai referred to the "Ken and Eddie show". I am happy to acknowledge to the noble Lord, Lord Stewartby, that the innovation which Mr. Kenneth Clarke introduced was indeed a proper precursor of what is being done now. This is not a privatisation of the Bank. It is not doing what I learn now the then Mr. Nigel Lawson wanted to do--to create the full independence of the Bank. The noble Lord, Lord Cockfield, recognised the extent to which the Bank is still under government control. Unlike him, a number of noble Lords welcomed that.

13 Feb 1998 : Column 1440

My noble friend Lord Randall asked whether we would match the openness of the ECB and the ESCB. The provisions are already open and transparent. We publish the minutes of the decision-making committee. My noble friend Lord Montague says that the minutes should reflect the discussions. He echoes what my honourable friend Mrs. Helen Liddell said at Report stage in the House of Commons. It is certainly a matter that we shall consider.

I can do no more than acknowledge the point raised by a number of noble Lords, notably the noble Earl, Lord Home, about the disclosure of privileged information and the question of legal privilege. There is no change at present in the provisions of the Banking Act. But we are aware of the concerns of the British Bankers' Association and we shall certainly be addressing them.

A considerable amount of debate took place on the respective roles and membership of the monetary policy committee, the court, and the committee of non-executive directors. There was much criticism that they were too Oxbridge and London based--based too much on the financial services, with too little reflection of manufacturing industry in particular, and of the regions and country of the United Kingdom. Sir Sam Brittan was quoted as saying that the people on the monetary policy committee are those who are likely to reflect the conventional wisdom of the moment. In the absence of my noble friend Lord Eatwell, the noble Lord, Lord Mackay, spoke of my noble friend's reference to the need for practical experience. I rather think that my noble friend Lord Eatwell was saying in updated words what Keynes said in the general theory. He said that practical men who believed themselves to be quite exempt from any intellectual influences are usually the slaves of some defunct economist. We might reflect on that when we consider the balance of membership.

I was grateful for the support for membership from the noble Lord, Lord Boardman. I was a little discouraged to hear from the noble Lord, Lord Cockfield, that we cannot trust either politicians or bankers. That makes life somewhat difficult when making appointments.

Let me make the respective roles clear. The monetary policy committee is responsible for the formulation of monetary policy. The committee of non-executive directors is responsible for reviewing the procedures of the monetary policy committee rather than policy. In response to my noble friend Lord Randall and other noble Lords, Clause 2(4) of the Bill states that the court's aim,

    "shall be to ensure the most efficient use of the Bank's resources".

So, to respond to my noble friends, Lord Montague and Lord Thomas, the combination of the court and the committee of non-executive directors does seem to cover the waterfront of ensuring that the Bank is well run.

My noble friend Lord Peston asked whether members of the monetary committee could be sacked. The answer is no--under Schedule 3, paragraph 9 only if they are unfit or unable to perform their duties, not for poor

13 Feb 1998 : Column 1441

performance. There were conflicting views as to what was the appropriate term of office, so it is possible that we have got it right.

The result is that we have, in the provisions of the Bill relating to the governance and finance of the Bank of England, a modern bank, in line with the new role of the Bank and reflecting current best practice. There are provisions for greater financial disclosure; and there are greater provisions for a new secure source of funding through the cash ratio deposits. That was a matter of considerable controversy, and I shall not give definitive answers. My noble friend Lord Thomas in particular questioned the relevance of cash ratio deposits based on deposits rather than lending. He raised a question as to why the tax on banks should be inflation-proofed. I undertake to see that the matter is discussed with him before we reach the next stage of the Bill since he raises serious issues.

The functions of the Bank of England in relation to financial stability are set out very clearly in the memorandum of misunderstanding--I am in Freudian slip mode today, my Lords--the memorandum of understanding. Additionally its functions are fundamentally related to monetary policy. But they are also related to financial stability, which means, above all, the supervision of payment systems; agency functions for Her Majesty's Government, including the printing and issuing of notes; and commercial functions such as taking deposits. I do not think there is any lack of clarity as to the role of the Bank of England in relation to the Treasury and the Financial Services Authority.

A question was raised regarding the role of the Bank as lender of last resort and how that fits in with the provisions for the Financial Services Authority. My noble friend Lord Desai was particularly concerned about the separation and was worried, as were a number of noble Lords, about what is the necessity of avoiding crises such as Barings and BCCI. I was interested in the comments made by my noble friend Lord Thomas on BCCI. There is no way in which we can guarantee that fraud and abuse of that kind will not appear and cause damage before it is identified.

The purpose of the memorandum of understanding, if I may say so to the noble Lord, Lord Stewartby, is very much that there should be a rapid exchange of information. There is provision in it also that the Bank should collect information for the FSA so that we have the same unity of thrust in dealing with financial crime as we have at the moment; indeed, I hope considerably better.

The noble Earl, Lord Home, talked about the need for a lifeboat. I wondered whether he was referring to the analogy made by my noble friend Lord Desai of economic policy being navigation rather than decision. The immediate answer is that the memorandum of

13 Feb 1998 : Column 1442

understanding provides for early Treasury involvement. It is an issue which we can discuss at length, if need be, in Committee.

The single regulator won general approval. The noble Lord, Lord Mackay, was worried about whether the single regulator could deal adequately with individual investments. But there was support for the single regulator, notably from Opposition Benches and the noble Lord, Lord Stewartby. There is a need to control the costs of the single regulator and it is necessary that the rules of the FSA should reflect the needs of the different kinds of businesses regulated. That is a matter to which we shall pay great attention. I hope that we shall be able to satisfy noble Lords in the later stages of the Bill.

I have left myself little time to deal with the issues with which I promised to deal about EMU and the reserve powers. I repeat what I said at the outset, that the Bill does not make the Bank compatible with EMU and is not intended to do so. The operational autonomy for the Bank is closer to the EMU model than the previous arrangements, but noble Lords are quite right to say that in two particular respects it does not meet the Maastricht requirements. The Government still have the responsibility of determining what is meant by "price stability". The Government retain reserve powers in Clause 19 for use under extreme economic circumstances. I say to my noble friend Lord Peston that I shall not attempt a definition; but I will say that it is intended that the powers should be rarely, if ever, used and they will need parliamentary approval if they are used.

I repeat to the noble Lord, Lord Mackay, that the commitment of the Government is that if and when we make progress to EMU we will need the prior agreement of the Cabinet, Parliament and the people of this country. I realise that none of that will satisfy my noble friends Lord Shore and Lord Bruce and we shall have to continue to disagree.

This is only the first step in regulatory reform, as has been recognised. I cannot say in advance of the Queen's Speech when the second stage will take place, but I can say that we are already working on the Bill. Some features of it have already been announced. We intend to publish a draft Bill in the summer and this Bill is seen as a first step towards a more comprehensive reform.

The noble Lord, Lord Cockfield, welcomed it as a first step, though hesitant and incomplete. I believe that it is less than hesitant and more than incomplete. I believe that it deserves the support of your Lordships at this time. I commend the Bill.

On Question, Bill read a second time.

Lord McIntosh of Haringey: My Lords, I beg to move that the Bill be committed to a Grand Committee.

Moved, That the Bill be committed to a Grand Committee.--(Lord McIntosh of Haringey.)

On Question, Motion agreed to.

        House adjourned at fourteen minutes past three o'clock.

Next Section Back to Table of Contents Lords Hansard Home Page