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Lord Mackay of Ardbrecknish: My Lords, as the noble Lord, Lord Barnett, has kindly pointed out,

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Amendments Nos. 8 and 9, which form part of this grouping, are my amendments. The noble Lord, Lord Barnett, is correct that Amendment No. 10 is separate from the other three and I shall deal with that at the end of my contribution. Clause 11 is central to the Bill. The clause gives the Bank of England operational independence over monetary policy and spells out how it should carry that out. In Committee and in the other place there was considerable discussion about the relationship between the maintenance of price stability and, subject to that, support of the economic policy of Her Majesty's Government, including their objectives for growth and employment. Neither in the other place nor in Committee here were participants in the debate entirely satisfied with what the Government said. The noble Lord, Lord Barnett, put the case well. Is price stability the principal objective? Are the objectives in paragraph (b) secondary objectives? As I understand the amendment moved by the noble Lord, Lord Barnett, it seeks to give those objectives the same status. I shall come to that matter in a moment. I do not believe that my amendment does so.

In the other place there was an interesting Second Reading exchange to which I drew the attention of the Committee. To be precise, I must quote some of the interventions by Mr. Dafydd Wigley because the key points that I wish to make are those of the Chief Secretary to the Treasury, Mr. Alistair Darling. The exchange was concerned solely with Clause 11. Mr. Wigley asked the Chief Secretary:

"The Bill gives overriding priority to maintaining price stability. Growth and employment are subject to that".

Lord McIntosh of Haringey: Or words to that effect.

Lord Mackay of Ardbrecknish: I shall quote the Minister. Mr. Wigley's point was that the Government should not make employment secondary to the control of inflation. Mr. Darling gave the following answer:

"The right hon. Gentleman is mistaken. Clause 11 shows that the Government's objectives are high levels of growth and employment".

Mr. Wigley intervened again to say that the Bill said "subject to that". Mr. Darling replied:

"The right hon. Gentleman is reading it the wrong way round. The Bank's objective is to maintain price stability, but that is in support of the Government's objectives of growth and employment".--[Official Report, Commons, 11/11/97; col. 712.]

I am still puzzled, despite what the noble Lord, Lord McIntosh of Haringey, told me in Committee, because if I read it correctly "price stability subject to that" means that the primary objective is price stability. Once I have made sure that that is all right I can look at the other matters referred to under paragraph (b), growth and employment and other matters not specified.

In Committee the Minister tried, at col. CWH 57, to clarify the situation:

"As the Bill says, the monetary policy objective of the Government is to maintain price stability and, subject to that, to support the Government's objectives for growth in employment. But in turn high levels of growth in employment will also create the conditions for price stability on a sustainable basis".

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That may or may not be correct. If it is correct the wording in the Bill does not reflect it. The present wording of the Bill clearly states that the relationship between price stability and growth and employment is such that price stability is on top and growth and employment are to be considered after that has been assured.

I understand that in the world of economists there is considerable argument about the relationship between price stability and employment. I do not believe that I can do much better than quote the evidence given by the noble Lord, Lord Eatwell, to the Treasury Select Committee of another place. He said:

"One group of theorists believes 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 the level of inflation".

Clearly there is disagreement among economists on how those factors relate to one another.

The noble Lord, Lord Barnett, has tried to rephrase the clause so that the point made by the Financial Secretary is clearer. I have tried to rephrase the clause so that the clause itself and the meaning of the words "subject to that" are clearer. In answering my points in Committee, the Minister referred me to the Bundesbank. I read afterwards with interest what I had heard from him:

"The Bundesbank is required to regulate the quantity of money in circulation and of credit supplied to the economy, with the aim of safeguarding the currency".

The Minister pointed out that that was comparable to price stability. It was also required by law to support the general economic policy of the federal government, but only insofar as it can do so without prejudice to the performance of its own function of safeguarding the currency.

That is where I got my wording. The words are not exactly the same, because they are different in the Bundesbank Act from those in the Bill. So that instead of "subject to that", I have rephrased the provision to maintain price stability and:

"to support the economic policy of Her Majesty's Government, including its objectives for growth and employment but only insofar as it can do so without prejudice to paragraph (a)."

That is pretty close to the Bundesbank Act which the Minister quoted with approval. It also makes it clear that it is price stability that is the primary concern of the MPC. Does the noble Lord, Lord Bruce of Donington, wish to intervene, as I have mentioned Europe? Perhaps he does.

The Minister went on in Committee and said:

"If we started to bring in all sorts of other targets--a later amendment is a target on exchange rates--this would be a target on growth and employment. The members of the Monetary Policy Committee would scratch their heads and say, 'We have a choice. We can either protect one or the other. Which should we do? The Government have not told us which we should do'."--[Official Report, 3/3/98; CWH58.]

As I understand it, the noble Lord, Lord Barnett, will probably say to them, "You must look at them all. You must not make one of them your primary concern". On the other hand, I have made it clear to them in my

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amendment that it is price stability with which they are concerned. That is their principle concern. I am therefore clarifying the position.

I read Clause 11 as doing that also, but as there is clearly doubt, even in the mind of the Financial Secretary to the Treasury, I felt, in a helpful way, that I should come to the Government's aid in writing down in the Bill what the Financial Secretary said he wished to achieve.

If we are uncertain over these matters, we should not be too worried about it, because I noticed in the MPC meeting on 4th and 5th February an interesting quote at paragraph 28 which said that uncertainty was a normal state of affairs in economic policy making, so it obviously agrees with the uncertainty caused in this debate. The noble Lord, Lord Barnett, and I, from different points of view, wish to make Clause 11 clearer than it is. The noble Lord is saying that the MPC must look at those other issues, because he is one of the theorists who believe that they are tied closely together. I suggest, as per the Bundesbank, that the MPC should look principally at price stability.

I have a great deal of sympathy with Amendment No. 10. I shall talk, perhaps at length, on this general area later. My only point is the one that I made in the first debate, relating to national and regional aspects. Is Scotland among the national aspects, or are Scotland and Wales among the regional aspects? Having brought us devolution, the Government will have to sort out their terminology. The draftsmen will have to sort out their terminology. I am content with Amendment No. 10. If the Minister accepts that, I shall cheer because it will go some way towards addressing the problems which the noble Lords, Lord Montague, Lord Barnett, Lord Peston and I aired in Committee. I fear that the Government will not accept it. I do so on the rule of thumb that when the amendments moved by the noble Lord, Lord Barnett, were accepted a few minutes ago, his speech was brief. As he spoke for longer on this occasion, I suspect that the Government are not going to accept them.

4.45 p.m.

Lord Bruce of Donington: My Lords, I am most grateful to my noble friend Lord Barnett for having introduced the amendment and for the interesting participation of the noble Lord, Lord Mackay of Ardbrecknish. In general, after listening to the debate, I am more than ever convinced of the undesirability of endeavouring to incorporate what must be the generalities of economic argument into an Act of Parliament, because, of course, Acts of Parliament cannot possibly encapsulate economic theories which are the subject of considerable debate. They are not always even in nature among economists themselves.

I look, for example, at the term "price stability". What does it mean? I do not see anything that might have been incorporated as a definition of the words used. What do they mean? What do the Government mean, and what do the Opposition mean, by "price stability"?

I have been studying these matters for some time. I have always been given to understand that in a competitive society stability is not what one requires. In

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fact, price competition among firms and nations, possibly even among banks, is just trying to freeze something that cannot be frozen without abolishing the nature of competitive society. Competitive society thrives, not on stability but on instability. To endeavour to put that into an Act of Parliament seems to me to be highly dangerous.

I was first given the opportunity to express those views in the debate on the Maastricht Treaty. I still think that it was extreme folly to put an economic formula or a series of formulae into a treaty, because they would be bound, sooner or later, to be falsified by events. I have the utmost sympathy with the Chancellor of the Exchequer and my noble friend Lord Barnett, who are trying to freeze these things into a frame and lay them down as a policy for eternity. I can sympathise deeply with that, but human nature is somewhat more fragile. Even the commercial and banking sectors of world and national economies have been known to be a little fragile also, and not least the banking professions themselves.

Therefore, I wonder how the Governor of the Bank, to whom has now been entrusted the fixing of interest rates--I observe that they have gone up six times since he has been appointed and the Chancellor of the Exchequer has been relieved of the responsibility--will interpret "price stability". I fear, and I hope that I am not being unduly prophetic, that the whole thing will fall to pieces very quickly if the definitions of "price stability" and "growth and employment" are to be kept within their ordinary meaning. Apart from that, I have nothing more to say on the matter.

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