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Lord Mackay of Ardbrecknish: I fully appreciate that an official from the Treasury attends. I just wonder what his views are and whether what he has expressed to the Monetary Policy Committee will be contained in one of the paragraphs of the minutes.
Lord McIntosh of Haringey: I think the minutes are the minutes of the Monetary Policy Committee, which he attends as an observer and not as a member. It has to be the minutes of the members of the committee. If I am wrong, I will write to the noble Lord, Lord Mackay.
When I read the amendment of the noble Lord, Lord Mackay of Ardbrecknish, quite apart from the admirable
word "inhere", I am puzzled by whether he is saying in the amendment what he really thinks. He talks about
- "constraints experienced by the Monetary Policy Committee".
I think he is really seeking to get the Monetary Policy Committee to say that it wanted to do the right thing but was stopped from doing so by "this wicked Government who set us these terrible economic policy objectives so we could not do what we intended. It is not our fault; it is Daddy's fault". I am not at all convinced by that.
Even taking the amendment literally, it is not necessary. The inflation report will cover the impact of government policy on developments in inflation and how this affects the Monetary Policy Committee's expected approach to meeting its objectives. This is laid out, as my noble friend Lord Peston pointed out, in Clause 18(2).
The whole point of the framework is to give the Monetary Policy Committee operational autonomy to achieve the target, to enhance credibility and give a long-term commitment to price stability. The Government set both the monetary policy objective and their other economic policy objectives. They certainly have no intention of making them inconsistent.
I turn to Amendment No. 39. I am afraid that my noble friend Lord Peston is not up to date. He is quite right in saying that the Bank of England has for a long time published inflation forecasts, but since November of last year it has also published forecasts of growth. The growth forecasts have probability distributions around them. In other words, they are fan charts, in the same way that inflation forecasts are presented as fan charts. That is a considerable advance on the situation that we had before and I hope goes some way to meeting my noble friend's objectives. Let me, however, recount to him the exchange of views between the Treasury Select Committee and the Bank of England, in the hope that it may reassure him.
The Treasury Select Committee, in its report, asked the Bank to clarify,
- "the key assumptions which the MPC makes on foreign interest rates, the exchange rate, and domestic and international growth rates and the Bank's assessment of the likely impact (bearing in mind timing and lags) of interest rate decisions on the real economy".
This was point vi of its conclusions in its report of 23rd October. The Bank replied, and I am sorry to read this out in full but it is appropriate to this amendment:
- "For the Inflation Report forecast, the Bank takes its forecast assumptions on overseas interest rates from forward market rates--ie, the market expectations of future rates (see charts 2.9 and 2.10 on page 13 of the November Report). The exchange rate profile, too, is described in the Report (see page 46 of the November Report). We are now publishing the domestic growth rate projection in the report (see page 48 of the November Report). The forecast of international growth is based on IMF and OECD forecasts, although we modify this to reflect information published after those forecasts were prepared. Our assessment of the likely impact of interest rate decisions on the real economy is reflected in the domestic growth projection mentioned above and the surrounding commentary in the Report".
That may not be a full set of economic forecasts. I have no doubt that my noble friend could find more information that he would like to have, but it does at least show that the Bank is responding positively to pressure to make public the basis of its forecasts. I am
sure that if there is continuing expert pressure, such as that which my noble friend is well capable of exerting, it could respond further. I am not answering for the Bank but I think one can see the direction in which it is working.5.45 p.m.
Lord Peston: This is a rather more technical point, which I should like to raise. I have the February 1998 Inflation Report in front of me, which contains fan charts of the inflation projection and the GDP projection, as well as a couple of similar charts based on market interest rate expectations. What is there, therefore, is not uninteresting but is not what anyone would call a full set of forecasts.
I want to know what underlies all that. My point is that I cannot see why I should not be able to. There is no serious reason why the Bank, anxious to establish its credibility, would be doing two things where it used to do one. I assume that is what my noble friend means by my being up to date. I have noticed chart 6.1 as one of the other charts I had, but it is not the full set of forecasts. I do not see why it should be up to the Bank whether or not to do it.
To refer back to the Fed, it should be up to Parliament--in this case, particularly as this is the only Bill we have before us--to legislate and to say to the Bank that it ought to do this. We are not requesting this in a threatening way. We are asking for it in the national interest because such transparency, which, as I quoted, is favoured by the Governor, is enormously helpful to the conduct of macro-economic policy.
Having said that, I hope my noble friend will reflect on it. I have not said at any earlier point in these proceedings that this is something I shall raise at Report stage of your Lordships' deliberation, but in this case, it is certainly something I feel noble Lords may wish to look at in more detail. I do not suggest that my noble friend has not been helpful, but I would like to return to the matter and go into it further.
Lord McIntosh of Haringey: I always reflect on things, but perhaps my noble friend would also reflect on what statutory definition he could give to the phrase "a full set" and whether he means the forecasts or the forecasts and the assumptions behind them. As he says, these are technical matters which require thought.
Lord Mackay of Ardbrecknish: I am grateful to the noble Lord for the points he made in response to my amendment. I was trying to tease out a two-way relationship, largely thanks to the interview I heard this morning from Mrs. Beckett. I appreciate that the Treasury official will be at the Monetary Policy Committee and that he will, therefore, tell it what, if any, messages he has to bring from the Government. However, the rest of us are not to know what those messages may be. Usually, all the matters that take place in the committee go into the minutes, including the views of anybody who is attending as an observer. However, perhaps that is the kind of organisation to which I have always belonged. I suppose we may be able to tease out from the rest of the minute what the Treasury official may or may not have said.
We are clearly not going to be told in the report what we are talking about under Clause 18. However, I am interested and reassured that, in the Minister's view, any problems which the Monetary Policy Committee was having with the rest of the Government's policy and any difficulties these were causing it in keeping to its monetary policy and targets would be covered by subsection (2)(b) which refers to,
- "an assessment of the developments in inflation in the economy of the United Kingdom in the period to which the report relates".
With that slight assurance, I will withdraw my amendment.
Amendment, by leave, withdrawn.
The Earl of Home moved Amendment No. 40:
The noble Earl said: This amendment relates to the concerns which other noble Lords and I expressed on Second Reading as regards the words "extreme economic circumstances". We speculated at that time on a variety of possible scenarios which might be covered by this phrase. I simply want to introduce this part of our discussion by referring to one event in the past.
During the Committee stage in another place, the Economic Secretary said that,
She said further on that occasion:
However, when she was asked whether the calling in of the IMF by the previous Labour Government, which immediately sought to influence the course of government policy, would constitute extreme economic circumstance, she replied:
Surely having to call in the IMF is an extreme economic circumstance, if ever there was one. Short of war, I can hardly think of a worse situation. I would ask the Minister not to sit on the fence like his colleague. I ask him to tell us whether that event, for instance, would have qualified as an extreme economic circumstance. At least then we should have some yardstick by which to judge that phrase.
I have added in the words "or financial" for a good reason. It is not just an excuse for a probing amendment. I returned on Sunday from South-East Asia, where some countries are suffering very badly from a knock-on effect of being grouped with Thailand. While it is true that the economies of some of these countries were over-heating, they were not in severe economic circumstances. However, they were plunged into a considerable financial crisis--much more a financial crisis than an economic one. Indeed, at least one of them is still in great financial difficulties.
A similar circumstance could happen here. Both major parties have worries that the single European currency might not work. If it does not work, it could blow up into a mammoth financial crisis, and it could blow up very quickly if there were to be a flight from the euro by central banks and investors worldwide.
There need be nothing wrong with our economy or indeed necessarily with the economies of most of the other members of the European union, or even all of them. However, such an event would have a dramatic effect on sterling. Surely that would be an extreme circumstance, albeit financial and not economic, and the Government might well have to act with great speed. In proposing this amendment, I am giving the Government greater latitude in how they might respond in these circumstances. I beg to move.
Page 9, line 10, after ("economic") insert ("or financial").
"all Honourable Members would hope that the powers in the clause could be used rarely, if at all".
"We are talking about extreme economic circumstances--a major catastrophe, for example, that affected the nation".
"That is an interesting point".
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