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Lord Mackay of Ardbrecknish: I am grateful to the noble Lord for that clarification. I look forward to the day when we have a leak where the Governor has told the Chancellor to go and jump in the Thames but is carrying on with his suggested appointment despite the Chancellor's objection. Having expressed a certain
amount of cynicism about the noble Lord's last reply to me, I beg leave to withdraw the amendment.Amendment, by leave, withdrawn.
[Amendments Nos. 23 and 24 not moved.]
Lord Peston moved Amendment No. 25:
The noble Lord said: In speaking to Amendment No. 25 in my name and that of my noble friend Lord Barnett, I note that it is also grouped with Amendments Nos. 26, 27, 31 and 32. I say to my noble friend the Minister that I am a firm believer that if something is worth saying, it is worth saying at least 10 times during the course of your Lordships' Sitting as a Committee, but I always say it in exactly the same way.
With respect specifically to Amendment No. 25, I was aiming to hit two targets at the same time. I originally thought that something of this sort should go into Clause 11(b) where the words,
appear. I was trying to find wording that would refer to growth and employment in the economy as a whole and in the regions of the United Kingdom. However, listening particularly to our Second Reading debate, I reflected that many of us had views on the composition of the Monetary Policy Committee, so it seemed to me that if I put this amendment in where it is, I could both emphasise the importance of the regions of the United Kingdom and the importance of members of the Monetary Policy Committee having that kind of experience.
On the straightforward economic policy, what we have here is that if monetary policy is working, as it seems technically to do, in this country via, say, raising interest rates, that has at least some effect via the exchange rate, which in turn has some effect--adversely, of course--on manufacturing industry, which in turn then has differential effects on different parts of the country. Therefore anybody formulating monetary policy and trying to take account of Clause 11(b) must have a view of the differential effects on the regions and the importance of those regions. As I emphasised yesterday, because the word "including" is there, this seemed a fair point to make under that rubric.
It also struck me, as it may have struck other noble Lords, such as the noble Lord, Lord Mackay of Ardbrecknish, and my noble friend Lord Montague, that at the present time the four that have been chosen look both narrowly chosen in geographical terms and also in experience terms. By geographical terms, I do not mean their country of origin or their place of birth, because I do not know either of those, but where they have lived and worked.
If I had ever been an inhabitant of some of the outer regions of this country, which I define as anywhere on the other side of the M.25, I would be somewhat resentful, not only here but in many other areas, about the sorts of people who are chosen in terms of their location.
Equally, I am sympathetic to both Amendments Nos. 26 and 27, even though it might mean less employment for academic economists and more employment for other people. One of my main criteria in deciding anything is whether this is good for academic economists, particularly those whose view of the economy is the same as mine. If we were to proceed along these lines, it might not be good for academic economists and it might not be good for old-fashioned Keynesians in particular. Occasionally, in the national interest, some of us have to rise above these things, so that I have at least some sympathy with Amendments Nos. 26 and 27. The crux of my contribution, however, is Amendment No. 25. I beg to move.
Lord Montague of Oxford: I ask the Committee to be patient with me as I rehearse, yet again, some of the points that I have made earlier in support of the belief that the Monetary Policy Committee would be best served if there were a requirement on the part of the Chancellor to appoint two people who have practical experience of business and industry. Indeed, I am slightly more in favour of that view after what my noble friend Lord Peston has said. I thought he was going to say that there are plenty of economists who have practical experience in business and industry. But he did come forward to say that he is sympathetic to the view that perhaps some practical experience would be helpful.
I would just remind noble Lords of two incidents in relation to the existing Monetary Policy Committee which have worried me. The first is in respect of its view regarding increases in interest rates and the effect on wage inflation. I should point out to the Committee that, running factories as I have done up and down the country, my experience of increased interest rates is that the moment they arise, particularly when there is a subsequent increase in mortgage rates, the unions are in with a case for an immediate increase in wages. I did not like to read what I read in the last published minutes of the Monetary Policy Committee.
Because I was disturbed by that, I attended the penultimate meeting of the Treasury Select Committee when it was examining the Monetary Policy Committee. Once more, based on my practical experience, it left me confused because it was being said that one of the reasons for the possibility of an increase in interest rates at the present time is the effect on asset values. I sat there thinking that that must mean housing. The members of the Treasury Select Committee were as bewildered as I was, and, when they asked for clarification, they were told that what this particular economist had in mind was the then rising price of shares. The implication was that one of the things that would help curb inflation would be a dramatic reduction in the price of shares, which I again found a little mystifying.
The Bill does not say that the Chancellor should only appoint economists. However, it might be argued that he is likely to do that anyway and, if so, it would be just as well if he were obliged to do it and then there could be no misunderstanding.
We have heard reference to the Fed. One-third of the Fed's existing membership are not economists. They come from all different strands of business and commercial life. The equivalent committee in the Fed works very well. Those are the reasons behind what I hope will have the support of your Lordships and the Government.
Lord Mackay of Ardbrecknish: In speaking to Amendment No. 27, I shall reinforce the points already made by the noble Lord, Lord Peston, and the noble Lord, Lord Montague of Oxford. There is no doubt that the Monetary Policy Committee will be important and that it will have an important impact on manufacturing industry, on business and on all parts of our country. As I said in the last debate and at Second Reading, it seemed that the furthest northerly member of the current Monetary Policy Committee came from whichever was further north, Oxford or Cambridge--in my view, neither is very far north, and certainly neither goes into the industrial areas of England, the Midlands or into Scotland or indeed Wales. We should address this problem, as the Government should address it.
The noble Lord, Lord Montague of Oxford, homed in on the question of manufacturing industry and business. Two letters which appeared side by side in The Times on 18th February caught my eye. One was from Professor Sidney Pollard, who is not in the magic circle, living as he does in Sheffield. I will read the first and last paragraphs:
I am not sure how many other spectacles might fall into that category.
The other letter was from a noble Lord opposite--not opposite me today in the Committee--the noble Lord, Lord Thomas of Macclesfield. On 18th February he wrote that the Monetary Policy Committee:
He went on to talk about the question of wages, and what impact a stronger pound would have on the rate of inflation and on more and higher wage claims--exactly the point that the noble Lord, Lord Montague, has made.
There is a reasonable case for the Government to address on the question of somebody on the Monetary Policy Committee having some knowledge and experience of the business sector and manufacturing industry. But more than that, as I have said, there is much more to the United Kingdom than the triangle of Oxford, Cambridge and London, especially when we are moving towards a new geography in the United Kingdom of having a government in Wales and a
The problem over many years has been that Scotland, Wales and the north of England have certainly suffered in times past when decisions have been made on matters such as interest rates entirely because of the position in the south-east of England. It was said in Scotland that when the south-east of England sneezes, Scotland catches a cold. It was certainly true for a number of decades after the war that the Scottish and Welsh economies would be at different stages of their economic cycle than the south-east of England. The economies of Scotland and Wales would be attempting to recover, but if the dampers were put on in the south-east of England the net result was that the recovery in Scotland and Wales would be stopped dead in its tracks.
I am happy to say that in the last five years the Scottish economy has done rather better than that and the evidence in this decade and towards the end of the last would suggest that the Scottish economy had broken free. However, I am not sure that that evidence is continuing. As I said yesterday, unemployment in Scotland on the last monthly figures had begun to increase, after having decreased month after month and year after year. So there is a problem there.
I have a similar problem with the single currency and a single interest rate over the whole of Europe. I know from my personal experience and interest in politics in Scotland over many years that a single interest rate for the United Kingdom has sometimes been of considerable disadvantage to Scotland. I have put down a marker about Scotland and Wales because much of what I have said for Scotland can certainly also be said for Wales.
I accept that monetary policy may be a bit of an academic expertise. If that is the Minister's answer, I must tell him that the universities of Scotland certainly have more than their fair share of high-powered economic dons. I am pretty certain that the Chancellor could pick from one of the Scottish universities an academic expert in those matters who would be equally able to take a place on the Monetary Policy Committee. Coming, as he would, from a Scottish university, he would have knowledge and experience of what was happening in the Scottish economy at first hand.
I hope that the Minister will not try to say that the only decent academic monetary economists are to be found in Oxford, Cambridge or London. I am sure a few are, but I am sure that other universities have the same.
I have to find the appropriate page in order to introduce my other two amendments. According to Schedule 3, a person is disqualified,
I have suggested in Amendment No. 31 that it should not only say "is" but also "has been". That clearly indicates that I do not consider myself as a candidate for the Monetary Policy Committee, no matter the
The second amendment, No. 32, is more important--if,
My worry stems from this. I am sure the current members of the Monetary Policy Committee are all excellent people and I have no problem about that. However, when one looks through them, apart from the geography of where they live, there are some interesting common factors. Professor Goodhart, for example, is now the Norman Sosnow Professor of Banking and Finance at the London School of Economics, but he worked in the Bank of England for 17 years as a monetary adviser and became the chief adviser in 1980. He is hardly one of the away players, having been that closely involved.
Dr. DeAnne Julius does not have any kind of baggage of that nature. However, Sir Alan Budd has been the Chief Economic Adviser at the Treasury since 1991. That is quite interesting and on anybody's guess he is not an away player. Professor Willem Buiter I think I can excuse as well because I do not believe he has any experience. However, there are two out of the four: one who has been closely involved with the Treasury and the other closely involved with the Bank of England. Those are the four members of the away team to balance the five in-house people.
Without reflecting in any way on those gentlemen--the lady does not actually come into it--I believe I have made my point about the closeness of the team of people who are the nine members of the Monetary Policy Committee. I started off just being concerned about Scotland's manufacturing industry, but when I read the press release from the Treasury telling me who the four members were, I became even more concerned about the independence--if I can call it that--in more general terms of the away members of the team.
I hope that the Minister can give me some comfort on all of those issues. They are important, and if the Monetary Policy Committee has to make difficult decisions--which indeed it will have to do, otherwise the Chancellor would not have passed the buck to it; if the decision about interest rates was easy he would have kept it for himself--these important decisions have to be made, in my view, by people who are seen by the whole of the United Kingdom to be knowledgeable and broadly based.
Lord Newby: I should like to express support for Amendment No. 25 in relation to broadening out the experience on the Monetary Policy Committee. There is absolutely no doubt that one's view of the economy, if one has based one's entire existence in the south-east of England, is very different from if one is based in the north, in the Midlands and certainly in Scotland and Wales. There is always a temptation in this kind of appointment, it seems to me, that people appoint people that they know, who tend to be people with whom they come into contact, who tend to be geographically
I do not, however, go as far as the noble Lord, Lord Mackay of Ardbrecknish, in suggesting that there should be a Scot and somebody with an understanding of Wales within this group. We have here four appointments. If two are taken up by Scotland and Wales (says he, speaking as a Yorkshireman!) I suspect there will be virtually nobody appointed from the English regions, or indeed from Northern Ireland. That seems to me an unnecessary constraint. Equally, while I support the idea of having a representative from business and industry on the committee, again if that is two out of four, somewhat tight constraints begin to arise. Were I to pick out part of the amendment of the noble Lord, Lord Mackay, it would be that one person with that specific knowledge would be sufficient.
The final point I make on Amendment No. 31, which I do not support, is that it seems that whereas there is a danger in relation to home players, as has been suggested, equally there is a danger of ruling out people who may have spent some time (in their youth, as it were) as a member of a government department. Although I do not aspire to be a member of the Monetary Policy Committee, the fact that I worked for HM Customs and Excise for a few years immediately after leaving university does not seem of itself to be an adequate bar, 20 or 30 years later, to being appointed to this kind of committee. As a general principle, we should be encouraging more people to spend time working both inside and outside government, rather than pigeonholing them into one or the other. Again, this amendment has an unnecessarily constraining effect.
Page 6, line 8, at end insert (", especially in connection with the likely impact of monetary policy on the regions of the United Kingdom").
"including its objectives for growth and employment",
"Once again the productive sectors of the economy are waiting to see whether a small committee meeting at the Bank of England will inflict further damage on them by another rise in the interest rate ... The object behind it being to hold down inflation".
"Altogether, the picture of a small group of people sitting around a table and raising interest rates by a minute amount, and then looking in the following weeks to see whether that has lowered inflation by a similar minute amount, must seem among the most bizarre spectacles visible in London these days".
"appears to be gearing itself up for a further interest rate increase of a quarter per cent to 7½ per cent on the basis of guessing rather than hard evidence".
"if he is a Minister of the Crown, or a person serving in a government department in employment in respect of which remuneration is payable out of the money provided by Parliament".
"he is a member of the court of directors of the Bank or has been".
4.15 p.m.
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