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The noble Lord said: When I read the amendment this morning, it suddenly occurred to me that something had gone wrong with somebody's computer as I am not sure that I understand the word "inhere". It may be a good Scots word that my computer has put in for me.
The basis of the amendment is a request or suggestion that when the Monetary Policy Committee reports it should report on any constraints under which it feels it has laboured because of other parts of the Government's economic policy. Professors of economics would probably call that an interaction between fiscal and monetary policy. It seems to me that it might be useful for the Government to know, and for the rest of us to know, whether the Monetary Policy Committee found it difficult to operate within its constraints resulting from other parts of the Government's policy.
I am not sure whether there will be secret communications between the Monetary Policy Committee and the Government or the Treasury. I had the impression that there might be such secret interchanges of view when I listened to the President of the Board of Trade, who was being interviewed this morning. Unfortunately, I did not find a paper and pen quickly enough to take down her words in detail, but I rather felt that she said we would have ways of telling the Monetary Policy Committee what is happening in manufacturing industry.
The whole piece revolved round interviews with people in manufacturing industry who were concerned about the rise in interest rates and its effect on the exchange rate. It is interesting that the person was asked whether he blamed the Bank of England and he said, "No, I don't blame the Bank of England. It has only been given one tool with which to do the job". It will be interesting to see how long that lasts. Even somebody as obviously knowledgeable as that gentleman may some day start to blame the Bank of England and forget that the Chancellor and his fiscal policy played a part in the whole process.
My point is that I had the impression from Mrs. Beckett--though I may have picked it up wrongly and I stand to be corrected--that there will be ways by which the Government can send messages to the Monetary Policy Committee. I am more concerned about whether the Monetary Policy Committee can send messages to the Government. Also, I shall be interested to know whether it does it in secret or whether it does it openly in the report. I should like to think it can be done openly in the report so that Parliament can judge, when it looks at the report, what happened and hold the Government to account for any rises in interest rates that occurred because of problems caused by other parts of the Government's policy. I beg to move.
Lord Peston: Before speaking to Amendment No. 39 in my name and in the name of my noble friend Lord Barnett, let me say that after reading Amendment No. 38 from the noble Lord, Lord Mackay of Ardbrecknish, I had assumed--and I may have misinterpreted the Bill--that what he had in mind was covered by Clause 18(2)(c) which says that the report shall contain,
Following our debate yesterday on Clause 11, though subsection (a) seeks "to maintain price stability", there is still the "subject to" bit of subsection (b) to consider. I do not see how they can wriggle out of not covering that. It means what the noble Lord said it means and I look forward to hearing my noble friend's response.
Turning to my own amendment, this is one which I take extremely seriously. It is not that I have not taken all the other amendments seriously, but this is at the top of my priorities. The Governor himself, who has recently been reappointed, emphasised transparency in his recent Mais lecture. He said:
The Governor clearly favours transparency. The former Chief Economist, Mervyn King, who I think is or will be a deputy governor, said only a couple of years ago:
Excellent economic work is done in the Bank. The Bank of England's quarterly bulletin contains some astonishingly good articles of the very highest quality. Equally, the inflation report is a document of outstanding merit. I assume that when the Bill becomes law, it will still produce documents of this kind.
My problems start from the inflation report itself. Every time it appears, the inflation report contains the Bank's inflation forecast--in an extremely sophisticated way, I might say, without remotely criticising the Treasury where I used to work as a very young man. The inflation report forecasts are much more sophisticated in form than anything the Treasury produces by way of documentation or forecast. I am not criticising the Bank, but the problem with the inflation report is that it is the only forecast it publishes, unless I have misread parts of it. Any sensible person, on looking at those forecasts, says, "What else is it forecasting? What is it not telling us?". If you wish to take an intelligent view of what is being said--and that is vital to the whole operation of monetary policy--it is impossible to make sense of that unless you know what else it has in mind.
Let us compare this with what happens in the Fed. Let me remind my noble friend of the Fed's mandate--the so-called Humphrey-Hawkins Act, which I intended to read out yesterday, but forgot. This is an interesting contrast with Clause 11. The Humphrey-Hawkins Act provides that the Fed must,
Notice, there is no "subject that". They are all on a par. Therefore the Fed, which many would regard as the most successful of the central banks, has a mandate not only to achieve inflation but also to stabilise economic activity.
I read that into the record but the main reason I do so is that, in connection with the Humphrey-Hawkins Act, there is an annual occasion of testimony by Mr. Greenspan to both Houses of Congress on the meeting of these matters. Again, this is not unrelated to certain remarks made yesterday about parliamentary scrutiny of all these matters.
I now come to my final point, which is the essence of this amendment. The Fed publishes its economic forecast twice a year, precisely to meet the requirements of testimony in connection with the Humphrey-Hawkins Act. In other words, the Americans, with their great emphasis on an open society, just take it for granted that the Fed, doing forecasting, will publish those forecasts. It is a source of sadness to me that somehow we do not take this for granted, but we have to argue for it. Normally, our wish is not granted when we ask for forecasts to be published.
There is an economic theory that says that the only way governments manage economies is by misleading markets--essentially by surprising them, tricking them, and so on. I hope that is not the view of the present Government. My own view is that, although there are models that achieve that end, they are overwhelmingly erroneous. I take the view that, for all sorts of reasons, not least those concerned with credibility, we want to be able to believe that what the Bank is doing is the best for the economy. By "we" I do not just mean a few academic economists, but the public at large.
I am convinced that the Bank should publish its forecasts, but not immediately. I would not die in the last ditch for six weeks; I chose six weeks because it is the standard period which appears in the Bill. I commend the amendment very strongly to the Committee, and I hope I have convinced the Minister that as a minimum he ought to say that this is important and that he will not resist the amendment, even if he cannot yet accept it.
Lord McIntosh of Haringey: I will deal with each of the amendments in turn.
The noble Lord, Lord Mackay of Ardbrecknish, seemed to open the argument for his amendment with a conspiracy theory. He thinks that there may be secret contacts between the Bank and the Treasury. I am not sure whether he approves of that or not. Let me assure him that contacts are not secret. A Treasury representative attends all the Monetary Policy Committee meetings, and that is provided for in Schedule 3, paragraph 13, of the Bill. In any case, I am sure he will acknowledge that the Chancellor has been very transparent about all aspects of government policy, particularly fiscal policy. The introduction of the pre-budget report is evidence of that.
Page 9, line 5, at end insert--
("( ) A report under this section shall include references to any constraints experienced by the Monetary Policy Committee in discharging its responsibility under section 13(1) which inhere in other Government economic policies, including the effect of any open market operations undertaken in conjunction with the Government's exchange rate objectives.").
"an indication of the expected approach to meeting the Bank's objectives under section 11".
"Transparency ... can only encourage a better informed public debate and a more sophisticated public understanding of the issues. That in turn can only help to strengthen confidence in the process".
"Central banks can try to accelerate the learning process by teaching by doing, in other words, making clear their own preferences and explaining their own view of how the economy behaves ... and the product of this learning should be communicated to the public at large".
"maintain long-run growth of the monetary and credit aggregates commensurate with the economy's long-run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates".
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