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The Earl of Home: I am most grateful to the Minister for his assurances. Perhaps the Government can be as transparent and produce all the figures from the Bank of England in words of one syllable that I can understand; possibly the noble Lord, Lord Peston, will be able to understand them if they are in words of two syllables. I should certainly welcome clarification, as I am sure would the various associations which have been struggling with these figures.
Perhaps I may make one last point in relation to that. I am grateful that these figures will be published and I urge that they be made clear as soon as possible. We
always face the possibility of institutions looking to invest in Europe with London being one of the centres. We do not want, through uncertainty, to put off any potential foreign investors. The quicker that clarity can be achieved, the better. I beg leave to withdraw the amendment.Amendment, by leave, withdrawn.
The Earl of Home moved Amendment No. 15:
The noble Earl said: This is a small point, but it is quite an important one on timing.
As currently drafted, the Bank has the ability to refuse to put something into its accounts which auditors might require of it. I have no particular quarrel with that in that the Bank might well feel that it is in the national interest not to disclose something, and it may well be right.
However, potentially it leaves the Bank's auditors in an invidious position. The auditors may not be in a position to judge whether or not the Bank is right, but at present they have no way of checking that. All they can do is refuse to either sign the accounts or qualify their opinion. All noble Lords will agree that neither of those options is satisfactory. If, however, the auditors knew that the Bank had received Treasury permission not to include something, that would give them a lot of assurance and they could then sign off the accounts with a clear conscience.
The possibility of the Bank being incorrect in refusing to publish some information is potentially anticipated by Clause 7(7). Under that subsection, the Treasury may require the Bank to publish the information that it excluded. Members of the Committee will note that the wording is "has excluded" and not "proposing to exclude". That subsection may be intended to cover the eventuality when it is inappropriate for the Bank to disclose information immediately but its publication may be desirable later. I believe that that subsection could be read either way.
The main point of the amendment is for the benefit of the auditors, of which I hasten to add I am not one. On that basis, I beg to move.
Lord Stewartby: Perhaps I may add a word of support to my noble friend Lord Home. This is quite an important point, though it is described by him as a small one. A unilateral decision by the Bank to disregard a Companies Act requirement is not something which the Bank--either alone without its auditors or without any other party in the public sector--ought to undertake. I do not know whether it is intended, but if the Bank disregards a requirement, it has to say that it is disregarding the Bank's requirement, just as public companies have to say whether they are disregarding elements of the Cadbury rules, for example, which are not imposed by statute but by Stock Exchange requirements.
As my noble friend Lord Home pointed out, if the Treasury requires the Bank to produce such information, or comment on it at a later stage, it would be more embarrassing for the process to happen in that order. It would be better for it to have been thought through in discussions between the two before it reached that point. I hope the Minister will be receptive to that fact.
Lord McIntosh of Haringey: I am certainly receptive to the idea that, as far as possible, the Bank should keep to Companies Act requirements. That is the objective of Clause 7 and is expressed clearly. It is, however, not always possible. It is really a matter of timing, which is what this amendment comes down to.
Under the Bill as drafted the Bank can, in subsection (4), disregard a requirement to which it is subject under subsection (3). Under subsection (7), as the noble Earl rightly pointed out, the Treasury can require it to provide information which has been excluded. The requirement, therefore, comes after the exclusion, whereas the amendment of the noble Earl would require that the permission of the Treasury should be obtained before the requirement is disregarded.
The point about this is a matter of timing. Although the Bank tries to keep to the Companies Act, it cannot give full disclosure because of the continuing need to keep certain support operations secret, if only for a short period of time. We must therefore have the let-out that it can exclude certain material but we provide, in subsection (7), the provision that it can ultimately be released in accordance with the Companies Act.
The noble Earl raised the question of whether this was a problem for the auditors, to which the answer is, "No, it is not". It is essentially what the Bank does at the moment. Note 1 to the Bank account spells out departures from the Companies Act requirements and the auditors currently sign off the accounts on that basis.
And on that basis, I invite the noble Earl to withdraw his amendment.
Lord Stewartby: Before my noble friend withdraws his amendment, if that is what he is going to do, I should like to refer to the point about timing. It may not have quite the weight given to it by the noble Lord, Lord McIntosh. The account will be in retrospect for an elapsed period and companies regularly have to have discussions with auditors about the disclosures in their accounts. Although there are certain matters in principle, such as those operations described by the noble Lord which it is perfectly proper that they should not spell out, that will be something already known because it will relate to a past period.
My view remains that, although the Bank should have the ability to disregard the requirement, under appropriate circumstances--I do not question that point at all--it remains somewhat doubtful whether there is this great constraint of timing. When I was in the Treasury, important decisions could be made quickly when necessary. It would surely be possible in such a case.
Lord McIntosh of Haringey: I have already responded to the point about auditors, which appeared
Lord Stewartby: I understand that totally and do not wish to prolong this debate unduly. The amendment says,
If support operations are, for example, a category where that is appropriate, it is quite reasonable for the Treasury to have discussed it with the Bank and agreed that that area need not be disclosed. Clause (7)(5) clearly could go very wide. It could raise issues, unlike support operations, which are not routine--or not relatively routine--and which therefore it would be better to resolve at the time rather than in retrospect.
Lord McIntosh of Haringey: I do not think so. The wide drafting of subsection (7) is deliberate because it is concerned with other matters than those which are referred to in subsection (4).
The Earl of Home: While it is certainly true to say that the main thrust of my concern was in relation to the auditing point, I hope that the Bank will bear in mind that it could actually be abusing potential powers if it refused to publish something that in the normal course of events would be required either in the public interest or by auditors.
For the time being, we have been round this course enough and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Mackay of Ardbrecknish moved Amendment No. 16:
The noble Lord said: We now move on to Part II of the Bill which is the part relating to the Monetary Policy Committee, about which I believe we shall have some interesting debates. When I first looked at Clause 11 I was minded to put down an amendment to delete subsection (b). But then I thought I would be accused of wanting an independent central bank and all sorts of suspicions might then have come to the surface about whether I agreed with my party's policy on the euro or whatever. Therefore I decided that that was not the way to explore exactly how the clause hangs together. I am glad that I did not because I am flattered to see that the noble Lords, Lord Peston and Lord Barnett, have added their names.
I then decided to try to explore what the clause actually means by removing the words "subject to that". There was some discussion in the other place about "subject to that" and there will be some discussion here
The Monetary Policy Committee can support the economic policy of Her Majesty's Government, including their objectives for growth and employment, so long as that support does not conflict with maintaining price stability. That is what I interpret "subject to that" to mean in this category.
Whatever the consequences for the Government's economic policy, for growth, for employment or the exchange rate--and we will come to that later--it does not matter. The main objective of the Bank is to maintain price stability. If, as is now happening in Scotland, unemployment starts to rise as a result of increasing interest rates, as far as the Monetary Policy Committee is concerned, so be it. That is an unfortunate consequence, but the principal objective, if I may call it that, is to maintain price stability. And if growth begins to fall away and even cease altogether, again as long as price stability has been maintained that lack of growth will just have to be an unfortunate consequence.
At Second Reading, I quoted from Mr. Robert Chote's writings in a Social Market Foundation pamphlet. He said:
I suppose I might be told that excessive government borrowing does not happen at the moment, but one could argue that we have high interest rates and we certainly have a high, if not overvalued, exchange rate. So there is a potential for conflict, which nobody denied at Second Reading, between subsection (a)--maintaining price stability--and subsection (b)--supporting the Government's economic policy, including their objectives for growth and employment.
I drew attention to the fact that one of the members of the other place, Diane Abbott, made the point very strongly, I believe, when she said that the Government were handing over one of the most important levers of economic power to an unelected quango. That is certainly true. There is no doubt about that. I equally pointed out--and this was in advance of the unemployment figures in Scotland showing the first upward turn for many months--that Mr John McAllion, in a comment he made, pointed to the Bank of England raising interest rates five times since the Government gave it control over monetary policy. He said:
He was discussing it in relation to unemployed young people and about welfare-to-work. It was suggesting that a possible slow-down in the economy and economic growth may mean that the Government's New Deal for the young unemployed will not in fact come about because of policies being pursued by the Bank in order to maintain price stability.
I have a suspicion--I hope the Minister will put me right on this because I hate to be suspicious--that subsection (b) is in here subject to that, and that is the qualification, as a bit of a sop to the Government's own supporters, not only in the House of Commons but perhaps in your Lordships' House, and certainly in the country. If the Government's case is that an independent central bank, pursuing objectives of price stability, is likely to have a better record than governments have had pursuing that policy, then why do we have subsection (b) in at all, subject to that or not subject to that?
The noble Lord will probably point to Germany, where the central bank indeed has a good record of success, but there is a chicken-and-egg situation in Germany. The German experience of hyper-inflation has led them to fear inflation much more than do most people in this country. Indeed, one of the more disturbing things is to meet intelligent people who say that a little bit of inflation would do us some good. It seems to me that economic history suggests that that is a pretty fallacious argument.
One wonders about Germany, for example, if it is the Bundesbank and the independence of the central bank which has caused the low inflation, or if in fact they have been able to ride piggy-back, so to speak, on the deep dislike of inflation which has been burned into the German soul because of the experience they have had. It seems to me that all these problems come together in looking at this clause. If the Monetary Policy Committee looks at subsection (b), and at growth and employment, and says, "My goodness me, we are not actually fulfilling the Government's objectives"--I presume the Government's objectives (every government's objective) is to reduce unemployment, get more employment and to get growth, though some succeed better than others at times--"We had better do something about it", to what extent can it do something about it? If it conflicts with subsection (a) "to maintain price stability", my reading of this is that it cannot do anything about it at all.
Indeed, I believe I quoted the noble Lord, Lord Eatwell, because the monetary policy of the Bank will have a number of economists on it. One could reasonably say they are all economists currently on the Monetary Policy Committee of the Bank. As the noble Lord, Lord Eatwell, said in his evidence to the Treasury Select Committee:
I am not an economist and I am looking forward to some of the other contributions, but with some division in the world of economists as to which of these things gives rise to the other, I am a little worried about the "subject to that" being in there. If it means what I think it means, I am pretty clear that maintaining price stability will be the principal objective of the Bank. On Second Reading of the Bill in the other place on 11th November there was an interesting exchange on this very subject
The question is, and this is really what I have come to, whether he is reading it the wrong way round. If he is reading it the wrong way round, then it should be written the other way round. It should say, "The objectives of the Bank of England shall be to support the economic policy of Her Majesty's Government, including their objectives for growth and employment, and, subject to that, to maintain price stability".
I am confused. When that was raised in Committee, I have to say that Mrs. Liddell did not do any better than Mr. Darling at explaining what it is. If these two good Scots could not explain it simply enough for me to understand, I am conceited enough to think there is something of a problem. I know how I read that. I read that to mean that if I were a member of the Monetary Policy Committee, my top line and bottom line objectives would be to maintain price stability. The other two objectives, and any others, would be secondary. I am sure that the noble Lords, Lord Peston and Lord Barnett, will try to tease out similar points, perhaps in a more economic-minded way than I have done.
I should just like some kind of explanation from the Minister, to clarify what I think was the confusion left, at least in my mind, and also in the minds of many Members of the other place, on the subject of what exactly Clause 11 means and how I should read it if I were a member of the Monetary Policy Committee. I beg to move.
Lord Barnett: Unlike the noble Lord, Lord Mackay, I do not want to tease my noble friend. I know the noble Lord loves to do that, but I am not that bothered. He said he was flattered that my noble friend Lord Peston and I had added our names to his amendment. I should tell the noble Lord that I do not know who thought about it first, but he got there first. For similar, although not entirely the same, reasons, we reached the conclusion that the deletion of those words from the Bill would make some sense. The noble Lord said that he did not want to delete the whole thing, because it might conflict with his party's policy. I should make it clear at the outset that I very much want to conflict with the policy of the noble Lord's party, and that of some of his noble
I will say something about the European Central Bank in a moment, but I am sorry that the noble Lord did not want to upset some of his friends. I am sure he would like to but, for some reason, he does not want to put it on record that he disagrees with them. I cannot imagine why, because it will be a long time before he will have any opportunity to get back into government. He could have expressed some conflict with his Front Bench in another place, and I am sorry he did not.
Let us come to the amendment. The amendment makes a great deal of sense, which is why my noble friend and I put our names to the amendment, although the noble Lord got there first. We would have put the amendment down ourselves if we had been as swift of foot as he was. However, we do not have a huge volume of support to enable us to read the Bill and decide what kind of amendments to put down.
The noble Lord says he is not an economist, and I understand that. In his words he does not want to be in conflict with his own party. He assumed that under the Bill as it stood, and he is quite right in my view, price stability--that is, inflation--takes priority. It is quite clear to me, and I believe I referred to it in the House the other day.
that is, price stability, the objectives shall be,
If it is subject to that, unless my noble friend can give me some better interpretation, I do not mind agreeing with the noble Lord, Lord Mackay. He is right about that. What else can it mean? If you are instructing the Bank and the Monetary Policy Committee to support only the Government's economic policy, subject to maintaining price stability, that is what it means. I do not know what those words mean if they do not mean that. If they do not mean that, then I assume that my noble friend can accept the amendment without any problem.
It seems such a simple little amendment but it is rather important. I am delighted that the Official Opposition have tabled such an amendment. I do not know whether the noble Lord took advice from some of his right honourable friends in another place. I assume he did, because he would not do anything to be in conflict with them. Therefore, they agree with this amendment and the attainment of Her Majesty's Government's objectives for growth and employment. That takes us to a later amendment. I assume that the noble Lord and his Shadow Cabinet, long may it so remain, agree with this amendment. I believe my noble friend and I were rather surprised at that. When we went into the Public Bill Office, we did not expect that the noble Lord would already have put down such an amendment. However, he has, and I was delighted.
In my view the Bank would take account of the government's economic policy with or without this amendment. I should tell the Committee that when
This is on the record so I can tell the Committee that Professor Tietmeyer told us that if he happened to be President of the European Central Bank--and I gather he has neither that wish nor expectation--he would take account of the policy of ECOFIN, the European finance ministers, and their economic policy when pursuing a price stability target. However, as the Bill stands, the price stability target would clearly take priority, as the noble Lord rightly said, over the Bank's consideration of the government's economic policy. That concerns me, and I know it concerns my noble friend.
Given that the noble Lord, Lord Mackay of Ardbrecknish, felt obliged constantly to reiterate the five increases in interest rates, if they had still been in government by some miracle, I assume that they would not have increased interest rates at all because that was entirely in the hands of the Chancellor of the Exchequer. Presumably, they do not believe that increases in interest rates necessarily control the rate of inflation.
Speaking for myself, and I believe I speak for my noble friend as well, I certainly would not have increased rates to the degree that they have been increased. I certainly would not increase them any more. I am delighted to hear that the Opposition agree with that. The noble Lord, Lord Mackay, must have consulted them because he never wants to be in conflict with Conservative Party policy, whether it be on Europe or anything else. He is smiling in agreement with something; I am not quite sure what it is. He did not nod or shake his head; I would like that put on the record so we know where we stand. He does not agree with the interest rate increases that we have had so far, and therefore he and his party do not believe that increases in interest rates necessarily control price stability. That appears to be what he is saying, so in that sense he agrees with my noble friend.
However, this amendment is clearly one of the most important that has been tabled. Without this amendment, the Bank could ignore the Government's economic policy even if unemployment was rising because of the Bank's policy. If it was rising substantially, it would not matter; the Bank's primary consideration under the terms of the Bill has to be the control of price stability.
We have discussed how directors can be appointed and how they can be dismissed and not be dismissed. I know the present Governor of the Bank and I am pleased that he has been reappointed for another five years; and I know some members of the Monetary Policy Committee and some of the present directors of the Bank of England. I would hope, like Professor Tietmeyer, that in the case of the European Central Bank they would take account of the Government's economic policy. I would be very disappointed if they did not.
If the Government want to see them take account of their own economic policy, then why oppose this amendment? It is a simple amendment. All they have to say is that the Bank has to maintain price stability under Clause 11(a), and
I would have thought that my noble friend could certainly go along with that. Just as the noble Lord, Lord Mackay of Ardbrecknish, speaks for his Front Bench, I am sure my noble friend would speak for ours. He has a great deal of flexibility in his ability to respond to this amendment, and I know he would be happy to see the Bank of England and its Monetary Police Committee maintain price stability and support the economic policy of Her Majesty's Government. Why not? Why should they not do both?
It is a short and very simple amendment, but a very important one. The Bank of England and its Monetary Policy Committee should not do anything that would damage the Government's own economic objectives. It is not asking much of the Bank of England or the Government to do something that would ensure that their own economic policy is supported. I hope my noble friend will be able to accept the arguments about the need to control both inflation and the Government's own policy. In that sense, I strongly support the amendment itself, if not every positive and detailed word of the noble Lord, Lord Mackay of Ardbrecknish.
Lord Newby: If the noble Lord, Lord Barnett, complains of lack of swiftness of foot, he is a veritable hare to the tortoises of the Liberal Democrats in respect of this amendment! We did not even get around to putting our name to it at all. Perhaps I should claim even more meagre resources, but we certainly support the amendment.
In the currently drafted form of the clause, the phrase "subject to that" does, first, suggest that subsection (b) is a sop. Secondly, it encourages the Monetary Policy Committee, in our view, to ignore any objective other than price stability and, as a result, it opens the prospect of it acting in a slightly more macho way in respect of interest rates. The case might be different if the committee had to explain how it had taken into account both (a) and (b), when reaching its decisions.
We have heard eloquent arguments in favour of deleting the words "subject to that", to which I will not add, except to say that we too believe this to be an important and straightforward decision, which the Government could now make to give greater balance to the thought processes of the Monetary Policy Committee.
Page 3, line 35, after ("may") insert (", with the permission of the Treasury,").
6.15 p.m.
"with the permission of the Treasury".
Page 5, line 15, leave out ("subject to that,").
"One danger is that the economy will suffer if the Bank uses its interest rate policy to pursue low inflation while the Government uses budgetary policy to pursue employment, growth and votes. This is a recipe for high interest rate, excessive Government borrowing and an over-valued pound".
"There is a macro-economic policy being pursued by the Government and the Bank of England which seeks to slow down the economy and that is the problem".
"One group of theorists believe that there is no particular medium-term relationship between the level of unemployment and the rate of inflation. Another group believes that the key relationship runs from the level of unemployment to the rate of inflation, and from this group monetary policy is a means of controlling the level of output and so controlling inflation".
"The Bill gives overriding priority to maintaining price stability. Growth and employment are subject to that. That differs from the approach in the United States, where the Federal Reserve has inflation, growth and employment targets of equal importance. The Government should not make employment subsidiary to the control of inflation, which appears to be the god on all occasions".
"The right hon. Gentleman is mistaken. Clause 11 shows that the Government's objectives are high levels of growth and employment".
"The Bill says, 'subject to that'".
"The right hon. Gentleman is reading it the wrong way round".--[Official Report, Commons, 11/11/97; col. 712.]
6.30 p.m.
"subject to that",
"to support the economic policy of Her Majesty's Government".
"support the economic policy of Her Majesty's Government, including its objectives for growth and employment".
6.45 p.m.
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