HC Deb 12 June 1997 vol 295 cc1263-4
3. Mr. Mitchell

To ask the Chancellor of the Exchequer what liaison arrangements he proposes between the Treasury and the Bank of England to ensure effective management of demand to ensure the attainment of the Government's commitment to growth. [1587]

The Chief Secretary to the Treasury (Mr. Alistair Darling)

The Government's central objectives are high and stable levels of growth and employment. Price stability is an essential foundation and the Government have introduced radical reforms to monetary policy arrangements to achieve this. It is the Government who set the objectives by setting the inflation target, and the Treasury and the Bank of England will continue to have regular liaison at all levels.

Mr. Mitchell

As the Bank of England's highest wisdom in any situation is to put up interest rates—it has already done so, despite the fact that real interest rates are at a record level and the pound is substantially overvalued—is not the Bank preparing the way for a manufacturing contraction, a rise in unemployment and a fall in growth next year? If we are to have an independent central bank, should not the Government at least appoint an expansionist Governor, and is the Minister aware that the shadow Chancellor might well be available for the job next week?

Mr. Darling

I think that the shadow Chancellor has another job in mind and would not want to rule himself out of that at this stage. My hon. Friend will accept that, if we are to achieve long-term sustainable growth, we must have low inflation and stability—something that Britain has not had for many years. We must avoid the situation that we have experienced in the past 18 years, when the Conservative Government delivered two of the deepest recessions since the war. If businesses and individuals are to be able to plan in the long term, we must have stability. My hon. Friend will have noticed that long-term interest rates have fallen since my right hon. Friend the Chancellor's announcement three or four weeks ago.

Sir Peter Tapsell

Why does the Chancellor think it wise to separate the management of fiscal and monetary policy? Is it that he rejects the advice of John Maynard Keynes and is embracing the policies of Philip Snowden?

Mr. Darling

No. My right hon. Friend made it clear why we have taken the decision to give the Bank greater operational autonomy. We believe that it is important that interest rates are struck with a view to the long term. I am sure that the hon. Gentleman, who has been in the House—and in politics indirectly—for a long time, will agree that when Britain's performance is compared with equivalent competitor countries, our record for stability is not so good as it should be. We believe that the steps that we have taken to give the Bank of England greater operational autonomy in support of the Government's economic policy—an important point, as my right hon. Friend has made clear—are the way to achieve the stability that most people agree is essential.