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Lord Stewartby: I find myself, surprisingly, not 100 per cent. satisfied by the arguments so far deployed. If you were a member of the Monetary Policy Committee, you would not know what to do if these words were removed. If you have two objectives, one hopes that they may, most of the time, be consistent with each other. There could, however, well be times when the Bank or the Monetary Policy Committee, or
I had understood my noble friend Lord Mackay to be probing for clarity on the apparent confusion which has been created by Mr. Darling and Mrs. Liddell in another place. It is interesting to have a debate on the balance of these two considerations. I am sure that the Monetary Policy Committee ought always to take account of the economic policy of the government of the day, including their objectives for growth and employment. However, it could certainly arise that there was at least a perceived conflict. Under those circumstances, I do not see how the Monetary Policy Committee could function. I am, therefore, somewhat sceptical about this otherwise highly popular amendment.
Lord Peston: I shall start with some preliminary remarks. I have no difficulty with finding my name on the same amendment as the noble Lord, Lord Mackay of Ardbrecknish. Equally, I share his puzzlement over the statements of my honourable and right honourable friends in another place. Indeed, one reason for supporting this amendment is that what they said, taken literally--though I begin to think we are all naive to read anything literally--was simply impossible. My noble friend the Minister will tell us about that, but I certainly could not make sense of what they were saying.
My third preliminary remark is that I am sorry that this amendment has not been grouped with the next three. Some of my comments, as do those of any other noble Lord, arise with regard to all those amendments. If I stray, I can only promise to say less when we come to those amendments. Let me explain the reasons for that immediately.
In order for Clause 11 to make any sense, we must know what we mean by price stability. So far, the noble Lords who have spoken assume they know the meaning. However, we require Clause 12 for that, because it contains the statement that the Treasury will tell us what price stability is to consist of. That brings in the word "may", on which we shall have a deeply philosophical argument about grammar and semantics in due course.
I can only say that I read price stability as meaning that the average level of prices is constant and therefore that the rate of inflation is zero, but until I discover what it means from my noble friend I may be wasting my time completely because the Treasury may define price stability not to mean that the rate of inflation is zero.
Lord Barnett: I know that my noble friend is a distinguished economist, and he will not mind my saying so. Zero is not what most people in government or banks think of as price stability. I hate to quote Professor Tietmeyer again and Herr Duisenberg, the head of the European Monetary Institute. They both feel
Lord Peston: I wonder whether my noble friend has ever heard the expression "weasel words". I have been lecturing on this subject now for 40 years and I can tell him that price stability means a zero rate of inflation. I am perfectly well aware that a great many people, not least politicians and bankers, are terrified of actually facing up to what they themselves are saying. Therefore they interpret price stability to mean a low rate of inflation. I can only say that that is a contradiction in terms. Price stability means a zero rate of inflation and I believe the Treasury is about to tell us exactly what my noble friend has said: that it means by price stability a low rate of inflation.
We then run into a quite serious difficulty: why that number and no other number? That is again a subject on which I have been lecturing for a great period of time. We cannot talk about how (a) and (b) relate to each other unless we know what price stability means. There is quite a lot of stuff written on this, and one possibility is to follow the noble Lord, Lord Mackay of Ardbrecknish, and say that (a) could not be incompatible with (b). Many economists will say that if we have no inflation, then the economy works perfectly: we get the optimum rate of growth of the economy and we get full employment. Quite a few economic textbooks contain that.
I happen to think that that is complete balderdash and that such an optimistic, rosy view of the way the economy works is not persuasive theoretically and it certainly is not confirmed by experience. Therefore we cannot take that optimistic view.
One may then say that perhaps we mean that some low rate of inflation is compatible, and so on. Our difficulty with that is, which low rate of inflation is compatible and which is not? We are not told anything about that, and until we get an answer in practice, we do not know. My view is that any serious interpretation of an inflation objective must have--to use the word used by the noble Lord, Lord Mackay of Arbrecknish--the potential for conflicting with the Government's economic policy. If that is the case, we have to ask what would happen then: what does the clause then mean?
Again, my reading of the clause as it stands--and this is our difficulty, and my noble friend Lord Barnett is aware of it--is that if there is possibility of conflict, the conflict is resolved by the Monetary Policy Committee, which may take notice, in the sense that it is aware of the Government's objectives for growth and employment, but it then has to say "I'm sorry, but the objective is price stability; we have noted that they are in conflict, but price stability is what we have to go for".
I believe that putting the amendment down is important, and it is particularly important to ask about the conflict resolution. Another possibility is that it is the Government who will adjust; that the Monetary Policy Committee goes for the inflation objective and then the Government adjust their objective for growth and employment to fit that. I read nothing in the debates in the other place to say that the Government accepted that worrying view.
I have one other remark to make before concluding, and that is to ask my noble friend whether the word "maintain" has any meaning. By that I mean that it does not say "to achieve price stability"; it says "to maintain price stability". Presumably in order to maintain it, sticking to the correct use of English, we have to achieve it in the first place and then maintain it. We must, therefore, ask the question, have we achieved it at the moment? In other words, when the Bill becomes law, as it will fairly soon, does it then follow that we have achieved price stability, which I believe is 2.5 per cent. as the mean, plus or minus ½ per cent. or some such thing. Whatever it is, if that is defined as price stability and we have achieved it, we then have to maintain it.
My difficulty with this is, what will the Treasury be doing in the future? For example, is the Treasury capable of announcing in a couple of years, "We now define price stability as meaning a mean of 4 per cent. plus or minus 1"? I do not know if that is possible. It is certainly possible if price stability does not mean what it should correctly mean, namely zero, but any number that anybody comes up with. One can therefore see that the whole thing is rather blurred.
It happens that I have one other difficulty. My firm belief in economic policy is that it is not a bad thing to keep certain things blurred. The noble Lord, Lord Mackay of Ardbrecknish, has had the privilege, which I have not had, of being a Treasury Minister, and he must know that a certain blurring around the edges helps to make policy rather better. I have difficulty in constructing a theoretical model that demonstrates that, but all my experience and intuition tell me that. Therefore, in pressing my noble friend Lord McIntosh for some answers, in another way I would rather not have all of them, because once they are written out it means that we cannot wriggle out of them ourselves when the time comes.
To summarise, I would like to argue that the objective of the Government is the maintenance of full employment; subject to that, the maintenance of maximum growth; and, thirdly, if it is compatible, having as low a rate of inflation as possible. If I were writing this, I would still be repeating the economics of the 1950s, which I have been teaching non-stop for 40-odd years, and I never find any reason to change that, because nothing has happened to convince me of anything being erroneous. I entirely agree with my noble friend Lord McIntosh on Keynes's comment that one changes one's mind when evidence or theory tells one to. Equally, I take the view that, when evidence and theory do not tell us to but convenience tells us to, then do not do it.
I hope my noble friend will at least reflect on some of these remarks and ask himself whether what is here is what the Government really want to be on the face of the Bill. That is why my noble friend and I have intervened as to whether this is what the Government want, and I look forward to hearing his answer on that.
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