Commons Sitting of 11 November 1997

Preamble
The House met at half-past Two o'clock
PRAYERS
[MADAM SPEAKER in the Chair]
Oral Answers to Questions
  HEALTH
  The Secretary of State was asked—
  HEALTH

    National Health Service (Funding)
    Mr. Todd: How much extra money has been made available to the Trent NHS region over the winter period. [13741]
    Jane Griffiths: How much extra money has been made available for the NHS since 1 May. [13809]
    The Secretary of State for Health (Mr. Frank Dobson): Since 1 May, the new Government, as part of their commitment to establishing a reliable and modern health service, have provided an additional £1.5 billion to the national health service—an extra £1.2 billion for next year and an extra £300 million for this winter. In the Trent region, £16 million extra has been provided for this winter to help with emergencies and restrain the rise in waiting lists.
    Mr. Todd: I thank my right hon. Friend for his answer, which will be welcome in my constituency. I hope that it will be possible to provide a breakdown of that expenditure to health authority level in the near future. Is my right hon. Friend aware that I met representatives of my local health authority shortly before his very welcome announcement and that they expressed concern about the mounting crisis this winter? I am sure that the money will be very well spent in our area.
    Mr. Dobson: I can assure my hon. Friend that we will publish a detailed breakdown of the extra £16 million that is being provided to help the health service in the Trent region this winter. It is intended to help with emergencies and to finance local social services in taking steps to prevent old people from having to go into hospital unnecessarily and to take people out of hospital when, from their point of view and everyone else's, they are better off at home.
    Jane Griffiths: Will my right hon. Friend join me in welcoming the announcement of the allocation of £73 million for the consolidation of the Royal Berkshire and Battle hospitals in my constituency—a project that
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    was first discussed 67 years ago and on which almost nothing has been done for the past 18 years because of Tory inaction?
    Mr. Dobson: I entirely agree with my hon. Friend. We very much welcome the commitment to the new hospital for Reading that has just been announced and the new hospital for Sheffield that was announced last week in addition to the 15 new hospital projects that we announced under the private finance initiative that we inherited from the previous Government. All they did was keep announcing that they would build new hospitals, but they never actually got around to it.
    Mr. Hogg: Does the Secretary of State accept that, within the Trent region, there is particular concern about Grantham hospital because of the proposals by Lincolnshire health authority that will have a damaging effect on the paediatric department and other departments in that hospital? My hon. Friend the Member for Grantham and Stamford (Mr. Davies) is particularly concerned about the matter. Does the Secretary of State accept that, should an appeal to him be successful, he may have to make additional funds available to Grantham hospital? Will he please make a reservation in his own mind now against that possibility?
    Mr. Dobson: The right hon. and learned Gentleman has made representations about Grantham hospital, as has the hon. Member for Grantham and Stamford (Mr. Davies). I understand that the proposal will be passed to me by the people whom his Government appointed to run Lincolnshire health authority. I await the opportunity to adjudicate on their ideas.
    Mr. Quentin Davies: The Secretary of State is wrong, because the chief executive of Lincolnshire health authority, whom the previous Government appointed, is now—I am glad to say—leaving his post, and is being replaced by Mr. Jeavons, a new appointee by the present Government.
    May I reinforce the points already made by my right hon. and learned Friend the Member for Sleaford and North Hykeham (Mr. Hogg), because it is important that the future of the Grantham hospital is considered as a whole? We do not want decisions on individual units—in this case, the paediatric unit—to prejudice future decisions about other elements of the hospital. I therefore ask the Secretary of State to turn down the request to close the paediatric ward at Grantham hospital, pending consultation on the future of all the units, including paediatrics, gynaecology, obstetrics and accident and emergency. The future of Grantham as a general hospital is at stake.
    Mr. Dobson: The first requirement is that the interests of the people presently served by Grantham hospital should continue to be served, and that they have a modern and reliable health service to deliver the health care that they want. However, that has to be considered in the light of the other obligations on the rest of the health service in Lincolnshire; as I understand it, that is the proposition that will eventually come to me. I thank the hon. Gentleman for welcoming one of the changes that Labour is making in the membership of health authorities and

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    trusts. In view of some ignorant suggestions, I am always glad to welcome congratulations from the Opposition on the improvement in personnel that we are making.
    Mr. Jim Marshall: I also thank my right hon. Friend for the additional financial resources that will come to Leicestershire this year and next. Will my right hon. Friend guarantee that, in the review of the formulae for distributing the funds nationally, he will ensure that underfunded areas such as Leicestershire receive their due reward in coming years?
    Mr. Dobson: I can make two clear points. First, the allocation that we have recently announced better reflects clinical need and deprivation than did the formulae used by the previous Government. Secondly, and contrary to much scaremongering by Opposition Members, the new formulae involve an element of rurality, so that areas with sparser populations do not suffer. I realise that that does not apply to the city of Leicester, but I expect that Leicester will benefit from the changes that I have mentioned.

    Solihull Hospital
    Mr. John M. Taylor: If he will pay an official visit to Solihull hospital to discuss local health provision. [13810]
    The Parliamentary Under-Secretary of State for Health (Mr. Paul Boateng): I have no plans to visit Solihull hospital, but I will conduct an official visit to Birmingham Heartlands and Solihull NHS Trust in the near future. I am looking forward to it enormously.
    Mr. Taylor: The Minister will be welcome when he comes to Solihull. Contrary to what the Secretary of State had to say, the previous Government gave my constituency a magnificent new state-of-the-art hospital. The Minister of State has recently vouchsafed to me in a written answer the range of services provided by that hospital. I hope that, when the Minister visits Solihull, he will be able to say that that range of services will be sustained for the benefit of my constituents and, perhaps, that other services will be added.
    Mr. Boateng: The NHS in Solihull is certainly safe in our hands: I am not so sure that it was safe in the hands of the previous Government.

    National Health Service (Funding)
    Caroline Flint: What action he is taking to cut waste in the national health service. [13811]
    The Minister of State, Department of Health (Mr. Alan Milburn): On 22 May, we announced a programme of measures to reduce management costs by £100 million this year. Our efficiency task force has identified savings of £40 million. As part of our plans to replace the internal market, we are looking at the scope for further savings from bureaucracy.
    Caroline Flint: I thank my hon. Friend for that response. In Doncaster alone last year, 60,000 people did not turn up for their appointments, thus leaving empty
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    seats in waiting rooms in hospitals. I am sure that that situation is reflected across the country. We all have a responsibility to ensure that we appreciate the resources of the NHS, because the money wasted by people not turning up could fund important projects, such as the breast cancer clinic and Jasmine centre in Doncaster.
    Mr. Milburn: My hon. Friend is quite right to say that with the right that patients have to access to NHS services comes the responsibility to use those services wisely. The Government will be seeking to learn the lessons from best practice, particularly in areas like "did not attends". The efficiency task force will be looking specifically at this area, and we intend to bear down on bureaucracy and waste and to invest more in front-line patient services.
    Mr. Soames: Will the Minister look with care at the programme of savings instituted in the Ministry of Defence by the former Chief Secretary, which was extremely successful in looking at the non-core business and work of the MoD and seeing whether that work could be contracted out or done better by other people? The considerable savings from "Front Line First" were ploughed back into the front line. Will he look at such a programme and not dismiss it out of hand, as there is real scope for substantial savings?
    Mr. Milburn: As the hon. Gentleman knows, what counts for this Government is what works. The efficiency task force will look to ensure that, in future, we will pool together where possible the functions currently provided by NHS trusts. If it is possible to bear down on administration functions and to cut waste, we will do so. I am sure that all hon. Members will back the Government's manifesto commitment to ensure that resources go to front-line patient services.
    Mrs. Anne Campbell: Does my hon. Friend share my concern at recent press reports of waste within the national blood transfusion service, and particularly the waste of blood products donated freely for use by NHS patients?
    Mr. Milburn: As my hon. Friend is aware, a review is taking place of the successes—and some of the failures—of the blood transfusion service. That review will report shortly.
    Mr. Simon Hughes: In the Government's campaign against waste in the health service—which we fully support—will they make sure that NHS trusts and civil servants get the message that projects which are wasteful of taxpayers' money and time and which duplicate perfectly good existing resources will not be approved? When Ministers come to their conclusions about the London review, will they make sure that approval is not given to the spending of between £100 million and £200 million of taxpayers' charitable money on building a new hospital across the river on the St. Thomas's site when £200 million has been spent on building a new hospital on the Guy's site, and when it is proposed that 18 floors of the Guy's hospital buildings will be left empty?
    Mr. Milburn: I would not want to prejudge the outcome of the Turnberg review of London's health

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    services, but I assure the hon. Gentleman that all projects—particularly capital projects—will be judged to ensure that they provide maximum value for money for patients and the taxpayer.

    Child Care
    Ms Rosie Winterton: If he will make a statement about the future regulation of children's day care services and supervised activities under the Children Act 1989. [13813]
    Mr. Boateng: The Under-Secretaries of State for Education and Employment, my hon. Friends the Members for Birmingham, Yardley (Ms Morris) and for Newport, East (Mr. Howarth), and I will be consulting, early in the new year, on our plans to develop an integrated regulation and inspection system that will promote day care and early-years education for young children, provide a quality assurance framework in which parents can have confidence and reduce bureaucracy for providers. That was another commitment in our general election manifesto which we are carrying out.
    Ms Winterton: Is my hon. Friend aware of a case in my constituency where a two-year-old child, Ben Chorlton, walked out of a creche provided by a private gym into a nearby bus station? The creche was not registered because it operated for less than two hours per day. Does he believe that it is acceptable for a creche to operate for one hour and 55 minutes per day solely to avoid registration and inspection? Will he meet me to discuss the implications of the case?
    Mr. Boateng: No, it is thoroughly unacceptable. The two-hour time limit for registration was introduced to ensure that one-off or less formal, unremunerated short-term care arrangements were not unnecessarily burdened by unworkable regulations.
    It was never intended that proper regulation and supervision should be undermined by attempts such as my hon. Friend has described to remove the basis on which they are carried out. I look forward to meeting her to do all that we can to support Doncaster social services in ensuring that the facility puts itself in order.

    NHS Pay
    Mr. Whittingdale: If he will make a statement on the study which he has commissioned on pay rates in the NHS. [13814]
    Mr. Dobson: I have ordered a survey of earnings in the national health service, to make available to the Government information that any employer would want to have. The previous Government stopped collecting that information, presumably on the basis of the motto, "Ignorance is strength".
    Mr. Whittingdale: In conducting his survey, does the Secretary of State intend to take account of the effect of introducing a minimum wage, which is bound to cost the NHS tens of millions of pounds? Can he guarantee that the NHS budget will be increased to cover that cost and that it will not be met at the expense of patient care?
    Mr. Dobson: It is precisely so that we can advise the Treasury and the rest of the Government on the possible
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    impact on the national health service of a national minimum wage that we are collecting the information. It was the hon. Gentleman's own stupid, ignorant Government—for want of a better expression—who, for their own benighted reasons, stopped collecting the information; yet Tory Ministers from the Department of Health came to the Dispatch Box and announced figures of the impact on the national health service of a national minimum wage. As they did not know how many people were earning £2.50, £3, £3.50, £4 or whatever an hour in the national health service, that was pure speculation, like all the rest of the Tory attacks on a national minimum wage.
    Mr. Hinchliffe: On NHS pay rates, may I take my right hon. Friend back to the answer that he gave a few moments ago to my hon. Friend the Member for Leicester, South (Mr. Marshall) about the formula for allocating resources to individual health authorities? What consideration has he given to removing the market forces factor from the current formula, which assumes that NHS wages are low in generally low-waged areas, such as my constituency, and badly penalises those areas?
    Mr. Dobson: We have changed the arrangements for this year and we are considering next year's. To the people who graced—if that is the word—the Treasury Benches for the previous 18 years, all I can say is that I am astonished that they are not ashamed to acknowledge, let alone claim, to the House that a substantial number of the 1 million hard-working people in the national health service are likely to be paid less than what would be a reasonable national minimum wage. They are saying that our national health service depends on paying poverty wages, when they know that poverty makes people ill.
    Rev. Martin Smyth: Will the Secretary of State confirm that the Unison recommendation of £4.42 an hour as the national minimum wage would be more than what is earned by 96.4 per cent. of ancillary workers in the health service; by 5 per cent. of clerical and administrative workers; and by 8 per cent. of professional and technical workers? Does he acknowledge that, if those workers were not paid properly, the health service would suffer?
    Mr. Dobson: Exactly. As the hon. Gentleman knows, the Low Pay Commission is currently considering what the national minimum wage should be. As he points out to Conservative Members, who sit on the same side of the House as him but with whom lie is generally not associated, I am glad to say, a substantial number of badly paid people in the national health service nevertheless provide services that are vital if the highly paid professionals are to be able to do their jobs properly. Once again, it is shameful that Tories should be asking me what the impact on the national health service of a national minimum wage is likely to be, when they are apparently proud of paying poverty wages to people who provide treatment and care for the sick and injured.
    Mr. Skinner: Does my right hon. Friend agree that it is staggering to hear the Tories attacking low-paid workers when a previous Tory Secretary of State for Health, who later became Chancellor of the Exchequer, has now got four extra moonlighting jobs, picking up something approaching £500,000 a year? There are gangs

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    of them on the Tory Benches, all lining their pockets with outside interests, and they have got the cheek to attack low-paid workers in the national health service. Gang of hypocrites!
    Mr. Dobson: As my hon. Friend points out, yet again, the Tories are for the few rather than the many, and we are proud to be for the many rather than the few.

    NHS Waiting Lists
    Mr. Ian Bruce: What has been the trend in NHS waiting lists since May 1997; and what targets he is setting for the next 12 months. [13815]
    Mr. Dobson: In May 1997, the new Government inherited from the Tory Government the longest hospital waiting lists in the history of the national health service after 18 years of Tory rule. Inevitably, those waiting lists have continued to grow. [Interruption.] I am astonished that Tory Members are surprised. We inherited the longest hospital waiting lists in history, and they were rising faster than ever before in the history of the NHS. The extra £300 million that we have made available to the NHS this winter should help restrain the rate of growth but reducing waiting lists will take time. We will shortly announce a package of measures designed to deliver our clear manifesto commitment that waiting lists will be reduced before the end of this Parliament.
    Mr. Bruce: I notice that the Secretary of State, who had a very easy question from me, did not give us the target for the next 12 months. He keeps prevaricating. May I give him an easier question? Dorset never had a problem with waiting lists until this Government came to power. He says that the extra money was given to areas where sparsity was a factor. Dorset must be one of the sparsest counties, so why have we had one of the smallest amounts of money? Why is no attempt being made to keep what the Government said was a top-priority promise?
    Mr. Dobson: I really do not think that I can be reasonably expected to plead guilty to the immediate devastation of South Dorset; nor am I responsible for the hon. Gentleman's majority of 77. Given the sparsity factor, his area will next year get an increase of 4.14 per cent. on its spending this year—an extra £13 million. If he did not have barefaced cheek, he would get up and thank me for it.
    Mr. Gunnell: May I say to my right hon. Friend that the extra money to stop waiting lists rising enormously this winter is welcome? What flexibility will there be in the spending of that money between the health service and social services? Dealing with the problem means tackling bed blocking and putting money into social services. How will that flexibility be applied locally? Who will be involved in the decision making?
    Mr. Dobson: Since we took over, we have emphasised at every stage that the problems faced by the national health and the social services this winter can be dealt with only if they are working together. I have written twice to health service bosses in each area and to local authority bosses. The chief inspector of social services and the chief
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    executive of the NHS have made joint visits to all the areas, to ensure that they are working together. I have made it plain that regional offices should allocate funds only to those areas in which it is clear that social and national health services are working together. Only when they work together will they be able to succeed.
    Mr. Nicholls: The right hon. Gentleman will be aware that waiting lists in Cornwall will rise dramatically if the health authority there carries out its proposal to close four community hospitals. Is he aware that the people of Cornwall regard the so-called public consultation as a complete sham, bearing in mind that the chief executive has said that he would close those four hospitals even if he had unlimited resources? Given that the Secretary of State, to his credit, has on a number of occasions paid due credit to the work done by community and cottage hospitals, will he avoid passing judgment on what the eventual plans may be, but use his residuary powers to quash the present public consultation process and introduce a new one in which the public could have confidence? He acted with commendable speed last week to deal with a crisis in Exeter. Will he act today and intervene to safeguard the position of the people of Cornwall?
    Mr. Dobson: I do not think that that would be sensible. I welcome the hon. Gentleman to the Opposition Front Bench and thank him for his kind remarks about our response to the breast cancer screening crisis in Devon and Exeter. However, it would probably not serve the people of Cornwall to blow the whistle on the existing consultation process and start all over again—that would simply prolong the uncertainty. I give him and the people of Cornwall the assurance that when the proposals come before me, as they certainly will because the community health councils are opposed to them, I shall scrutinise them very carefully indeed.
    Having been belaboured by various people on television, the radio and in newspapers in Cornwall about what was then allegedly the fact that the cottage hospital closures necessarily followed on from a shortage of funds in Cornwall, I was somewhat taken aback to hear the paid public official, the chief executive, announce that he would close them if he had all the money that God sends.

    Smoking
    Mr. Jim Cunningham: If he will make a statement about levels of smoking among young people in England. [13816]
    The Minister for Public Health (Ms Tessa Jowell): In 1996, 13 per cent. of all secondary school children in England were regular smokers, but by the age of 15, 33 per cent. of girls and 28 per cent. of boys were smokers.
    Mr. Cunningham: Can my hon. Friend ensure that the principal aims of the Government's policy to cut the numbers of young people and teenagers smoking will be maintained?
    Ms Jowell: It is a measure of the previous Government's failure that one in three 15-year-old girls are hooked on cigarettes before leaving school. That is why our first priority is to cut smoking among children.
    Mr. Maples: May I remind the hon. Lady, that in a departmental press release on 14 July, she said:
    "Certainly we want to see an end to tobacco advertising in the form of sports sponsorship"?
    In her article in The Daily Telegraph today, she says:
    "The decision to propose an exemption for Formula One is one that has my total support."
    On which occasion was she telling us what she really thought?
    Ms Jowell: Policies to stop children smoking that work have my total support. A ban on advertising will stop children smoking. Negotiating a global ban on advertising with formula one will stop children smoking. That is our overriding priority.
    Mr. Stevenson: Does my hon. Friend agree that the task facing the Government now is to get on with a ban on advertising smoking, where that can be practically and quickly achieved? Would not such a measure of the Government's determination be in stark contrast to the cowardly attitude of the Conservative party, which steadfastly refused to face up to that important issue?
    Ms Jowell: We intend to make progress with a comprehensive range of measures to stop children smoking and to support the seven out of every 10 smokers who want to give up. The mark of success for our Government will be that we make real progress in reducing the needless death and suffering caused by smoking–121,000 people are dying every year and we are determined to stop that.
    Sir Raymond Whitney: Does the Minister accept that, given that thousands of young people are interested in motor sports, there is widespread concern about the impact of the Government's recent decision on advertising in motor sports? Does she also agree that, uniquely, be it rightly or wrongly, the conjunction between the allegations of political contributions and the Government's U-turn causes serious concern throughout the country?
    Ms Jowell: This Government, unlike the last Government, will ban tobacco advertising. This Government, unlike the last Government, will reduce the rate at which people die from cigarette smoking. The only legacy of the last Government was the fact that health Ministers who stood up and tried to do something about smoking were moved very quickly.

    "The Health of the Nation"
    Mr. Pike: What changes he proposes to make to the "Health of the Nation" strategy. [13817]
    Ms Jowell: We shall publish our Green Paper on "Our Healthier Nation" this winter and we shall take careful note of all the responses we receive to the consultation that follows. We shall use them to inform the new health strategy which we plan to publish in summer 1998.
    Mr. Pike: Is it not important that, in that exercise, the Government have recognised that health inequalities exist in this country? Doctors and nurses throughout the country welcome the fact that we not only recognise but
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    are prepared to tackle those health inequalities. Will my hon. Friend confirm that the Department of Health has now removed the ban on its civil servants talking about health inequalities, which will mean that we shall be able to deal with them in a positive way?
    Ms Jowell: My hon. Friend is correct to say that we now have the basis for a public health policy that will work, because we are prepared to confront the fact that, the poorer people are, the worse their health is likely to be. We intend to take action to tackle that. In my hon. Friend's constituency, that action would include reducing the levels of coronary heart disease and lung cancer, where Burnley is among the worst 10 per cent. in the country; and reducing the number of girls under 16 who get pregnant, where Burnley is still well above the national average.
    Mr. Maples: Given that one of the "Health of the Nation" targets was a reduction in teenage smoking, and given that the Minister refused to tell us what she really thought about that issue in answer to my previous question, perhaps she will try to answer this one. Last week, when she was in some difficulty on the issue, she said that she had acted on the advice of the Secretary of State. He was conspicuous by his silence. Does it ever occur to her that perhaps he set her up?
    Ms Jowell: I think that the House will judge that with the contempt that it deserves. The hon. Gentleman's behaviour throughout this matter has been below the standards that people in this country think they deserve. The Conservatives have used nasty smear and innuendo as a way of masking the complete failure of their policies to stop children smoking.

    Healthy Living Centres
    Dr. Palmer: What action he is taking to develop healthy living centres. [13818]
    Ms Jowell: Work is under way to ensure that healthy living centres, which will be funded from national lottery money, contribute to the success of the Government's health strategy and complement existing provision. They will provide a focus for local, community action to improve health, which is one of the pillars of the Government's health strategy.
    Dr. Palmer: Is not the priority that the Government are giving to health spending for lottery money not vastly preferable to the priority of the previous Government, who were even willing to give one of their own Members of Parliament lottery money for his grandfather's diaries?
    Ms Jowell: We attach very high priority to tackling inequality in health, and the spending of that lottery money to develop healthy living centres is one way in which we intend to do so.
    Mrs. Roe: Can the Minister confirm that healthy living centres will not offer services currently provided by the NHS from the taxpayers' money?
    Ms Jowell: As the hon. Lady is aware, the principle that determines the spending of lottery money is what is

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    called additionality. No, the healthy living centres will not replace the services of the national health service, but will be additional to them, and will be a very important way of our ensuring that people have access to exercise and to advice about health. The centres will help us to promote better health and reduce avoidable illness.
    Dr. Brand: Does the Minister agree that the extraordinary decision to exempt formula one racing advertising will undermine the efforts made by those healthy living centres?
    Mr. Bermingham rose—
    Dr. Brand: Does not the Minister now need to advise the Prime Minister that that extraordinary decision will undermine the campaign to achieve the aim, which we are all trying to achieve, of deglamorising smoking among young people?
    Ms Jowell: Since the object of exempting formula one is to ensure that there is less tobacco advertising, not more, it is part of a policy that is entirely consistent with our development of healthy living centres as part of our public health strategy.

    Prescription Charges
    Mr. Peter Bottomley: What is his policy in respect of future prescription charges for pensioners. [13819]
    Mr. Milburn: My right hon. Friend the Chief Secretary to the Treasury announced on 11 June that prescription charges were to be one element of the Department of Health's comprehensive spending review. We aim to complete the review by next spring.
    Mr. Bottomley: Will the hon. Gentleman pass on to his right hon. Friend the message that I am sorry that the Secretary of State was not chosen to answer this question, as, the day after the Treasury Minister made that comment, the right hon. Gentleman was quoted, presumably accurately, as saying that prescription charges for the elderly are "politically unacceptable" and will be brought in only over his "dead body"?
    As, a few days later, on 18 June, the Prime Minister used three columns of Hansard, columns 303-05, to say that prescription charges were being considered, what exactly is the policy of the Department of Health, and how does it square with what is in the Labour manifesto?
    Mr. Milburn: The policy of the Health Department is that we are conducting a review, and the review will report in due course. I would take the hon. Gentleman's concerns more seriously and they would be more convincing if the Conservatives, when they were in power, had not increased prescription charges fourfold in real terms. The outcome of the comprehensive spending review will be judged by one yardstick: the Government's commitment to the historic principle of the NHS that services should be available according to need and need alone.
    Mr. Llew Smith: As the Minister is aware, this week, in my constituency and throughout the land, we are
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    celebrating the 100th anniversary of the birth of Nye Bevan. What does the Minister feel Nye's attitude would have been after 18 years not just of Tory government but of prescription charge increases?
    Mr. Milburn: Only one party in the House is addicted to charges in the national health service. It is the party that introduced prescription charges, dental check charges and eye test charges into the national health service: the Conservative party.
    Mr. Nicholas Winterton: While the prospect of any future charges for prescriptions is immensely important to pensioners and to all elderly people in this country, has the Minister given any thought to another related matter: the ability of people to fund their retirement, and particularly their need for residential or nursing care? The previous Government advanced proposals in that area: are the new Government considering the matter as part of the review?
    Mr. Milburn: I know that the hon. Gentleman takes this issue, and health issues in general, very seriously. I assure him that, before too long, we shall announce details of a royal commission that will examine those issues properly. We shall ensure that, in future, older people receive the sort of treatment and services that they deserve.

    Scottish Devolution
    Mr. Dalyell: What consultation he has had with the Scottish Office since the referendum on the transfer of responsibilities which are currently his to the Scottish Parliament. [13821]
    Mr. Dobson: Our proposals for devolution are set out in the White Paper "Scotland's Parliament". There are no plans to transfer any of my responsibilities to the Scottish Parliament.
    Mr. Dalyell: May I assume that fertility treatment and abortion will remain reserved powers?
    Mr. Dobson: That is correct.

    NHS Staff (Attacks)
    Mrs. Ellman: What guidance has been issued by his Department to protect NHS staff from attacks at work. [13822]
    Mr. Dobson: As my hon. Friend knows, I think it is disgraceful that our society has descended so low that people who work in accident and emergency departments or who go out with ambulances or are district nurses or GPs cannot perform their duties without fear of assault and abuse. Since coming to my present office, I have made it a major priority that national service managers must do whatever they can to reduce the impact of violent assaults on national health service staff.

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    We issued a circular on the effective management of security in accident and emergency departments—which was prepared in part by the previous Government—and, since then, we have issued further health and safety guidance on minimising the risk of violence to staff. I return to my initial point: it is, and must remain, a major target of national health service management to ensure that staff are not assaulted and abused. It is the duty of the whole criminal justice system to make sure that anyone who assaults a national health service staff member is punished severely.
    Mrs. Ellman: I thank the Secretary of State for taking such decisive action in an important area that the previous Government neglected so badly. Can my right hon. Friend inform the House how we might improve the patients charter so that we can move from the empty rhetoric of the charter introduced by the Conservative Government and towards a charter with real rights and responsibilities for both patients and staff?
    Mr. Dobson: National health service staff at all levels and in all disciplines tell me that certain aspects of the patients charter have led to an increase in the number of assaults on and abuses of staff, particularly in accident and emergency departments. That is one reason why we intend to change the patients charter and make it an NHS charter in which patients have responsibilities as well as rights.
    Mrs. Virginia Bottomley: The right hon. Gentleman may be aware that many NHS non-executives fear that they are being attacked by the Secretary of State. There is a large number of outstanding appointments. The system was essentially endorsed after exhaustive examination by Lord Nolan. If the right hon. Gentleman discusses the matter with his noble Friends Baronesses Dean, Jay and Hayman—and many others in this place who served on trusts—he will discover that they are very worried that he will exceed the actions of one of his predecessors who vindictively dismissed 150 appointees when he came to power. Will the right hon. Gentleman state that he has no intention of attacking those NHS non-executives who have done so much for the health service?
    Mr. Dobson: I do not propose to demean the House by answering that stupid question about the former Secretary of State's Tory friends losing their places on national health service trusts, when my hon. Friend the Member for Liverpool, Riverside (Mrs. Ellman) was referring to the physical assault and abuse of nurses, doctors and ambulance staff. If the right hon. Lady thinks that there are parallels between the two cases, no wonder she made such a mess of this job.

    Tobacco Advertising
    Mr. Lock: What action the Government are taking to reduce tobacco advertising. [13823]
    Ms Jowell: The Government are fully committed to banning tobacco advertising and are currently taking an active part in discussions with European Union member states on the draft directive on tobacco advertising.
    Mr. Lock: I thank my hon. Friend for that statement. Does she accept that about one in six of my constituents
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    who die, die as a result of tobacco-related illnesses, and that the vast majority of them began smoking before they reached the age of 20? Does she further accept that the tobacco companies know that, and target their billboard and magazine advertising at young people? Will she join me in condemning the Conservatives, who for 18 years knew the statistics and failed to take any effective action to protect our young people?
    Ms Jowell: As my hon. Friend makes clear, the record of the previous Government is shameful. As a result of their negligence, there has been an increase in the rate at which young people smoke. That is why we are committed to implementing a wide range of measures, which will be set out in our White Paper next year and which are designed particularly to tackle the increasing problem of young people taking up smoking. Most people start smoking before they are 20. That is why it is important to focus on efforts to stop young people taking up smoking in the first place.
    Dr. Julian Lewis: Can the Minister come up with even one formula to explain away the Government's U-turn on their manifesto commitment to ban tobacco advertising?
    Ms Jowell: There is no U-turn on any manifesto commitment: we will ban tobacco advertising, because we are determined to reduce the rate at which people die through smoking.
    Fiona Mactaggart: My hon. Friend the Minister mentioned in earlier answers the increase in smoking among young people that occurred under the previous Government. Has she any particular plans to tackle the increase in smoking among young women, as smoking has increased more quickly among them than among young men? Can she give us a preview of the actions she plans to take to target that group, who are extremely vulnerable and at risk of dying in future from their smoking now?
    Ms Jowell: My hon. Friend makes an important point. There is no single measure that will enable us to be successful in reducing the rate at which people die through smoking. The case of young women is a good example. We will have to work with women's magazines and women's organisations to tackle the glamorising of smoking, which persuades so many women, young and older, to take up smoking. For many poor women, the reason they smoke is that their lives feel hopeless. That is why a range of other Government policies—such as getting young lone mothers back to work and raising educational standards—will all help in our battle to reduce smoking.

    Cosmetic Surgery
    Ann Clwyd: If he will make a statement on the regulation of cosmetic surgery. [13824]
    Mr. Milburn: Statutory control of clinics offering cosmetic surgery in the private sector is provided through a system of registration and inspection delegated to health authorities under the Registered Homes Act 1984.
    Ann Clwyd: I am grateful to my hon. Friend for that answer. I know that the Government have already set up

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    a review into silicone implants. Will he look again at regulations for private cosmetic clinics? I gave the previous Government a great deal of evidence about hundreds of women who have been scarred and injured as a result of treatment by cowboy operators in some private cosmetic clinics. Is my hon. Friend aware that a previous president of the Royal College of Surgeons said that animals are better protected in Britain than are people? Will he re-examine the matter?
    Mr. Milburn: I commend my hon. Friend's work on behalf of patients who have suffered through cosmetic surgery in the private sector. All patients, regardless of whether they receive their treatment and operations in the private sector or the national health service, should expect the highest possible standards of medical care. My hon. Friend will be aware that there are certain safeguards for patients within the current regulatory framework. Ministers are considering how better to safeguard patients' interests when they use private sector medical treatment.

    National Blood Transfusion Service
    Dr. Harris: If he will publish performance indicators for all regions of the national blood transfusion service. [13827]
    Mr. Dobson: A range of performance indicators for the national blood service's operations are being developed. Some of them should be published later this month. I want to ensure that any indicators of performance make sense and are acceptable to the clinicians who receive the services from the national blood transfusion service. I am not wildly impressed by the senior management of that outfit.
    Dr. Harris: Given the recently announced £3.5 million cost of redundancies in the national blood transfusion service since 1 April 1995 and that the interim Cash report on the move of services from Liverpool to Manchester stated that the national blood authority's plans were not proven and that it was too late to reconsider them, may I ask why the Secretary of State announced the setting up of the review only in August, given that it was an issue that the Labour party had campaigned on hard and effectively while in opposition and given also that the Labour Government prided themselves on hitting the ground reviewing in May?
    Mr. Dobson: On getting into office, I immediately asked for reports on the state of the proposals for the transfer from Liverpool to Manchester of bulk processing of blood. Had I been in a position to take the initial decision, I would never have agreed to the transfer. I asked Professor Cash, the president of the Royal College of Physicians of Edinburgh and the former head of the Scottish blood transfusion service, to advise me. His advice was, reluctantly, that the Liverpool service was so run down that, in the interests of the safety and security of blood supplies, it was, sadly, necessary to go ahead with the transfer.
    I expect Professor Cash to report to me shortly on the future of blood services in the north-west as a whole. On the basis of the reports which he has submitted to me, I expect that his views will have an impact on the
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    provision of blood services throughout the country. That is one of the reasons why I am not very happy with the way in which the blood service has been run over the past few years.
    Mr. Bermingham: Does my right hon. Friend agree that the mistake having been made—we all know that it was made in the transfer—steps should now be taken to review the north-west and the supply within it so that there might be adequate services in that area? Will he give me an undertaking that such a review will take place? I know that this appalling mistake is not my right hon. Friend's but his predecessor's, but will steps be taken to rectify it in due course?
    Mr. Dobson: I have asked Professor Cash to produce a report that contains proposals on how best to secure the interests of the people of Merseyside and the needs of clinicians working in the area who are trying to provide top-quality treatment and care, and then to put in place machinery to make that possible.
    I return to the basic point: that the blood service must be adequate and safe for the people of Merseyside and for people in every other part of the country. People throughout the United Kingdom should have sufficient confidence in the service to ensure that they are willing to continue as blood donors. I urge people to do so, because blood is always desperately needed and good use is made of it.

    General Practitioner Fundholding
    Ms Drown: How much money his Department saved by not approving the eighth wave of applications for GP fundholding status. [13829]
    Mr. Milburn: The deferment of the eighth wave of the general practitioner fundholding scheme led to £20 million from the inherited budget for general practitioner fundholders' management costs being immediately redeployed into patient care.
    An additional £9 million has subsequently been released from further management efficiency savings nationally in the fundholding scheme.
    Ms Drown: In the light of that answer, will my hon. Friend review the potential administrative savings that could be made from previous waves of GP fundholding, so that money could be redirected into basic NHS services, such as dentistry, in my constituency? Not only are no new adults in my constituency being accepted on NHS dentist lists, but a recent poll showed that one in three dentists were not accepting new children on NHS lists.
    Mr. Milburn: I am aware of the concerns in the Swindon area about the availability of dental services. I shall see my right hon. Friend before long to discuss these. I can give my hon. Friend an assurance that the Government will do everything that we can to bear down on unnecessary bureaucracy costs wherever they arise in the national health service to ensure that there is adequate investment in front-line patient care.

Points of Order
3.30 pm
Mr. Geoffrey Clifton-Brown: On a point of order, Madam Speaker. You will be aware that many millions of people this morning marked the Armistice day two-minute silence, to commemorate those who have fallen in trying to defeat some of the worst tyrannies that the world has ever seen. They did it to defeat tyranny and uphold democracy. The House is the fount of democracy.
Although I am aware that many Committees and many staff of the House marked the two-minute silence, it seems wholly appropriate that there should be a more official way of marking it in future. Will it be possible for hon. Members, on a purely voluntary basis, to come to the Chamber at 11 o'clock on the 11th hour of the 11th day to mark the silence? If that is not considered appropriate, perhaps there should be a two-minute silence in our normal 2.30 prayers in the House.
If you consider that appropriate, Madam Speaker, I ask you to refer it to the appropriate Committee.
Madam Speaker: I should be glad to give consideration to the hon. Gentleman's suggestion. I do not know whether he was in the House last Thursday when we had an exchange on this matter. I am pleased to tell hon. Members who are interested that all Committees that sat this morning observed the two-minute silence. As the hon. Gentleman will probably know, I sent suggestions to all the Departments of the House asking them to observe the silence, and I know that very many of them did. I looked through my kitchen window when I was observing the two-minute silence and was pleased to see that traffic on Westminster bridge came to a standstill, as did the pedestrians. The House has done an honour to the dead of two world wars, but I will be glad to look at suggestions for next year.
Mr. Gerald Bermingham: On a point of order, Madam Speaker. I apologise for trying to raise a point of order during Question Time. I should have known better.
We have a new Opposition, who are clearly young in their task of learning. Perhaps it could be pointed out to them that questions supplementary to those on the Order Paper are supposed to be relevant to the subject of the main question. We had example after example today where that did not happen. I noticed with considerable interest—this may be something that my own party will take on board—that even Liberal Democrats tried to join in that badly behaved, orchestrated insult to a very honourable Member of the House.
Madam Speaker: That is not a very complimentary comment to me, if I may say so, Mr. Bermingham. I watch the Order Paper very carefully, and I find that many hon. Members on both sides of the House do not follow substantive questions. I had to call to order Members on the Government side yesterday for not following the question. This is an opportunity for me to
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remind all hon. Members that the substantive question has to be followed in the supplementary. Thank you for raising that.
Mr. Ian Bruce: On a point of order, Madam Speaker. Some months ago, I tried to find out from the Registrar of Members' Interests—I have written to the people concerned, as you would wish—whether the use of a blind trust for financing the Leader of the Opposition's office would be acceptable. It was made very clear to me that that would not be acceptable under the existing rules. Therefore, I wrote to the Prime Minister's office, pointing out to him that Sir Trevor Chinn, Sir Emanuel Kay, Sir Alex Bernstein and Bob Gaveron were all named, known and admitted contributors to the Prime Minister's blind trust. This morning, it was suggested that Mr. Max Mosley and Mr. Bernie Ecclestone were also contributors to the blind trust.
My point of order is that I have written to the Parliamentary Commissioner for Standards, pointing out that all that information is available. I have had a letter from the Prime Minister's office saying' that it knows about the information and that it had passed to the political honours scrutiny committee the names of those who had given money to the blind trust. Yet all that information—
Madam Speaker: Order. What is the point of order for me?
Mr. Bruce: The point of order concerns how we can get the Select Committee on Standards and Privileges to investigate what is clearly a breach of our rules. It brings the House into disrepute, because it is alleged that money is changing hands to gain the Prime Minister's influence.
Mr. Dennis Skinner: Further to that point of order, Madam Speaker. Whatever you do in response to the request from the hon. Member for South Dorset (Mr. Bruce), do not send the matter to the committee that I wanted to set up when the Tory party took £440,000 from that crook Asil Nadir. You know, Madam Speaker, that I raised that issue in the House 20 times. I wanted committees; I wanted investigations; I wanted the Tory Government to send the money back to all the shareholders in Mr. Nadir's company—but what happened? The Tories kept the money and used it in the general election campaign. The British people said, "That money stinks and we are going to kick the Tories out." My party sent the money back.
Madam Speaker: Order. These are not points of order. I recognise them only too well as political point scoring, and I will have no more of them. The hon. Member for South Dorset (Mr. Bruce) knows that we have procedures to deal with the matter he raised. He should raise it with the Parliamentary Commissioner for Standards and not on the Floor of the House.
Mr. Ian Bruce: But Madam Speaker—
Madam Speaker: Order. I have had enough.

Regulation of Wet Bikes
3.36 pm
Mr. Gareth Thomas: I beg to move,
That leave be given to bring in a Bill to regulate the use of wet bikes; and for connected purposes.
I shall begin by defining the term "wet bikes", which has caused some confusion, and then refer to the nature and scale of the problem caused by these machines and the mischief that the Bill is intended to address. I shall also outline how my Bill will achieve its objectives.
I shall relieve the suspense of many hon. Members and explain that the term wet bikes is interchangeable with jet skis and personal water craft. Jet skis are a proprietary name for a well-known brand of wet bike. Suffice it to say that these craft—we all know what they are because they are an increasingly visible and, I am afraid, audible feature of our coasts—are equipped with very powerful petrol-driven engines. They suck in water and blow it out in the form of a jet at the rear; hence the name jet skis. They are capable of generating up to 135 brake horsepower and great acceleration up to 65 mph. They also generate a great deal of noise.
A particular feature of wet bikes, of which there are about 15,000 in this country, is the ease with which they can be used, which means that many users do not always acquire a sense of the danger inherent in the machines. Kawasaki's top-selling bike costs £7,500, and there is a significant and increasing market in used machines.
It is a surprising fact that, at present, there is no age restriction for the use of the machines. There is nothing to stop a five-year-old using one; there is no national requirement for insurance; there is no national proficiency test; and there is no system of national registration, either of the machines or of their users. In short, there is a glaring absence of consistent and rational regulation, and the danger posed by these machines calls for such regulation.
Wet bikes are a potential danger to all other water users—bathers, yachtsmen, water skiers, surfers, canoeists and children at play—in both coastal and inland waters. The bikes are also a danger to their riders.
Accidents have occurred across the country. This summer, there were two tragic fatal accidents. On the weekend of 10 August, Fay Grundy, aged 17, was fatally injured at Queensford lake, Oxfordshire. She was riding as the pillion passenger on a wet bike that strayed into the path of a boat pulling a water skier. Two weeks later—off the north Wales coast, in the constituency of the right hon. Member for Caernarfon (Mr. Wigley)—a 25-year-old nurse from Rochdale died after her Kawasaki wet bike was involved in a head-on collision with another bike.
Wet bikes are very noisy, and they can ruin people's enjoyment of our coastline and inland waters. In the wrong hands, they pose a threat also to the balanced environment of our estuaries and to the feeding grounds of rare birds.
Furthermore, a significant delinquent element uses the bikes. A police constable from the Essex police force marine unit was recently quoted as saying:
"Sometimes there are 50 or 60 in one area, like yobs teeming round on motor bikes. They buzz swimmers, buzz boats and zip in and out of moorings. It is a catastrophe looking for somewhere to happen."
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There is an increasing body of opinion among local authorities, police forces and those involved in the activity that the public interest now demands that there should be national regulation of wet bikes. My hon. Friend the Member for Hampstead and Highgate (Ms Jackson), the Parliamentary Under-Secretary of State for the Environment, Transport and the Regions, is in the Chamber, and I am very grateful to her for coming to hear my speech. Although I know that her Department is working on solutions, it is time to grasp the nettle and to regulate.
In the United Kingdom—as a reflection of our long nautical history—there is a tradition of minimal regulation of private pleasure craft. Nevertheless, under the various public health Acts, harbourmasters and local authorities can introduce byelaws to prevent danger, obstruction and annoyance of bathers. Moreover, the approach of the Government, and of their predecessor, has been to be sceptical of national regulation; Governments generally have tended to rely on byelaws. There are, however, problems with byelaws.
As those who have been involved in local government well know, the process of enacting byelaws is lengthy, complicated and expensive. Byelaws are difficult to enforce and, significantly, they will do nothing to deal with the real problem of non-registration, making it very difficult to ascertain the identity of culprits or transgressors when they misbehave on bikes.
The byelaw system has produced an inconsistent pattern of regulation in an area where consistent statutory standards are essential. Despite the lightness of the legislative approach in this sphere, 1 propose that a special case should be made for wet bikes—because of their speed, the ease with which they can be used and the injury and damage that they can cause.
I propose, first, establishing a national registration system and requiring that every machine prominently displays its registration number, thereby dealing with the problem of locating the delinquent element.
Secondly, there should be a compulsory system of third-party insurance. Thirdly, there should be a compulsory national training scheme and a licence system for users, which I hope would be self-financing. Fourthly, there needs to be a minimum age requirement of 16. Fifthly, there should be a ban on the use of wet bikes on environmentally sensitive areas of our coast and on beaches traditionally used for bathing, as well as on rivers, reservoirs and lakes within our national parks that are subject to the right of navigation.
I commend the Bill to the House. It would make a modest but much-needed change to the law and would be manifestly in the public interest.
Question put and agreed to.
Bill ordered to be brought in by Mr. Gareth Thomas, Mr. Dafydd Wigley, Mr. Martin Caton, Dr. Peter Brand, Mr. Gordon Marsden, Mr. Gwyn Prosser, Mr. Ronnie Fearn, Mrs. Betty Williams, Mr. Chris Ruane, Mr. John Gummer, Mr. David Hanson and Mr. Andrew Mackinlay.

Regulation of Wet Bikes
  REGULATION OF WET BIKES
  Mr. Gareth Thomas accordingly presented a Bill to regulate the use of wet bikes; and for connected purposes: And the same was read the First time; and ordered to be read a Second time on Friday 6 February, and to be printed [Bill 79].
Orders of the Day

  Bank of England Bill
  [Relevant documents: First Report from the Treasury Committee on accountability of the Bank of England (HC 282) and the minutes of evidence taken before the Treasury Committee on Wednesday 5th November (HC 309).]
  Order for Second Reading read.
  Mr. Tim Loughton: On a point of order, Madam Speaker. I should be grateful for some clarification. When, in May, the Chancellor made the statement that gave rise to today's debate, the proposal was billed as one of the most important economic measures since the war. As the measure purports to occasion the abdication of such a major responsibility from the Treasury to the Bank of England, is it in order for the debate to be led not by the Chancellor himself but by the Chief Secretary? Is it not customary for holders of high office at least to be in at their own abdication, even if Opposition Members believe that it is a case of premature abdication?
  Madam Speaker: It is not a matter for me which Minister handles the legislation. There is collective responsibility.
  3.46 pm
  The Chief Secretary to the Treasury (Mr. Alistair Darling): I am not sure who the hon. Gentleman is, but when 1 find out I might perhaps deal with the matter.
  I beg to move, That the Bill be now read a Second time.
  The Bill is a further step in our determination to modernise the British economy and to equip this country for the new global economy of the future. First, it gives the Bank of England operational independence to set interest rates to meet the Government's inflation target. It will do so through the most open, accountable set of procedures of any central bank in the world.
  The Bill implements the first stage in our promise to modernise and reform the supervision and regulation of the United Kingdom's financial services industry—it spells the end of self-regulation and sets up the new Financial Services Authority, which will enjoy the confidence of consumers and the industry alike. That will give London and the UK industry as a whole a huge competitive advantage.
  Ms Diane Abbott: Will my right hon. Friend explain how one can modernise the British economy by going back to arrangements that we last saw under Montagu Norman in the 1930s?
  Mr. Darling: If my hon. Friend will bear with me, I shall set out exactly how we do that and how the various parts of the Bill will modernise our procedures and institutions.
  The Bill underpins our economic approach, which is to secure long-term stability and the promotion of high and stable levels of growth and employment. It enshrines our
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  commitment to increased openness and accountability, which, in turn, will lead to the enhanced credibility in monetary policy that the world now demands.
  Mr. Llew Smith rose—
  Mr. Dafydd Wigley rose—
  Mr. Darling: I shall give way in a moment.
  The Bill will provide the stable platform that business and the country need, and it will increase confidence in this country's commitment to low inflation in the future.
  I have to give way to one hon. Member at a time, and I think that my hon. Friend the Member for Blaenau Gwent (Mr. Smith) is first.
  Mr. Llew Smith: As we have now passed responsibility for interest rates to the Bank of England, if the rate that the Monetary Policy Committee sets brings about stable prices but creates unemployment, what powers will the Government have? If we join a single currency and hand over even more powers to the European central bank, what powers will the Government have if unemployment rises?
  Mr. Darling: There are two points there. First, we are not joining the single currency this afternoon. That is for another day. Secondly, my hon. Friend must accept that, in the long term, the only way to achieve high and sustainable levels of growth is to ensure price stability and low inflation. I know that some people believe that it is possible to have high inflation and high levels of employment, but I do not accept that.
  Our proposals will give us the necessary long-term stability that has eluded us in the past to enable us to have the high levels of growth and the job opportunities that we all want. I think that the right hon. Member for Caernarfon (Mr. Wigley) would like to intervene on the same point.
  Mr. Wigley: I would indeed. The Bill gives overriding priority to maintaining price stability. Growth and employment are subject to that. That differs from the approach in the United States, where the Federal Reserve has inflation, growth and employment as targets of equal importance. The Government should not make employment subsidiary to the control of inflation, which appears to be the god on all occasions.
  Mr. Darling: The right hon. Gentleman is mistaken. Clause 11 shows that the Government's objectives are high levels of growth and employment.
  Mr. Wigley: The Bill says, "subject to that".
  Mr. Darling: 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. It is not possible to have high and sustainable levels of growth, together with the levels of employment that we all want, without ensuring price stability in the first place. We have had to pay a high premium over the years because of the political

  713
  risks that the markets attach to this country. That is why we have suffered instability and boom and bust, undermining the platform that we all want.
  Mr. Peter Bottomley rose—
  Mr. Darling: I should like to make some progress and then I shall give way. 1 shall come back to that point. If the hon. Gentleman can contain himself, I should be happy to let him in shortly.
  Low inflation is an essential precondition to achieving the Government's objectives of high and sustainable levels of economic growth and employment. Inflation hits business, discourages investment and, therefore, hits jobs. It is also bad for savers and pensioners. This country has paid a heavy price for successive booms and busts. The previous Government delivered two of the deepest recessions since the war, partly because of their misjudgments. Because of that legacy, our long-term interest rates are higher than they should have been, and higher than those in many of our competitor countries. We know that, business knows that, the whole country knows that.
  Mr. Malcolm Bruce: The Government have now agreed in principle on the policy of preparing for entry to monetary union. Given that the Bank can operate short-term interest rates only on the terms that the Chief Secretary has already outlined, what will the Government do to bring about convergence on short-term interest rates before preparing the ground for possible entry?
  Mr. Darling: The thrust of the Government's policy is to achieve stability so that we can have long-term growth and low inflation. That will allow us to compete and converge with other European economies. Regardless of monetary union, the policies outlined by my right hon. Friend the Chancellor in his Budget, coupled with the Bill, will be good for the country and good for business. It happens that it is in the country's long-term interests to ensure stability between ourselves and our competitor countries. The Bill will achieve that.
  Mr. Peter Bottomley rose
  Mr. Darling: To stop the hon. Gentleman, I shall certainly give way.
  Mr. Bottomley: I am grateful to the Minister for allowing me to ask a question, rather than to stop me. During the next two or three years—to the middle of this Parliament—does the right hon. Gentleman expect that the major gap between interest rates in the United Kingdom and those in countries planning to be in the first wave of economic and monetary union will stay the same, increase or reduce? Is it simply a matter for the Bank of England, or do the Government estimate that economic and financial considerations will come together to produce a reduction in the interest rate gap?
  Mr. Darling: I am not sure that I follow what the hon. Gentleman is saying. The Government's objective is to ensure that interest rates are as low as possible, but we cannot do that until we take the necessary action to get
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  inflation out of the system. The new framework in the Bill will not only deliver low inflation, but generate greater confidence in long-term decision making in Britain, which will lead to lower interest rates still.
  We have already seen some of the benefits. Britain's long-term interest rates fell immediately following the Chancellor's announcement of 6 May. Since then, they have remained nearly a full percentage point lower, so we have already seen the gain.
  In the modern economy, markets will demand increasing openness and transparency in decision making, and that is one of the purposes of the Bill. They will want to know that the Government—and any future British Government—are fully signed up to low inflation and have the determination and the institutions to see that commitment through. Most people will recognise that there can be no return to the old ways of monetary targets announced and abandoned—sometimes quietly and sometimes not so quietly—of nods and winks, and of decisions taken behind closed doors that characterised much of the past 18 years.
  Instead, there is a new way. The responsibilities of the Chancellor and the Bank are clearly set out, and no one is in any doubt about the Government's policy and our commitment to low inflation. The Bill will enable us to deliver that objective. We have an opportunity to usher in a new era of stability and a platform on which to build for the future. That will be good for the country and for business.
  Mr. Christopher Gill: As the House knows, the Government are committed in principle to entering a single currency. Has he not observed that, on previous occasions when Britain has been part of fixed exchange rates—during our membership of the exchange rate mechanism in 1990-92 and during our membership of the gold standard in 1925-31—interest rates rose to an inappropriate level? It was only when we left those fixed exchange rate mechanisms that interest rates fell away and economic activity recommenced. Would it not be rash to take us back into fixed exchange rates with the risk that, once again, interest rates will rise to a wholly inappropriate level?
  Mr. Darling: I know that the hon. Gentleman and some of his hon. Friends are obsessed with all matters European, but it is worth reminding him that, during much of the 1980s, when we were not part of a fixed exchange rate, interest rates were extremely high. In 1979, the rate of interest reached 17 per cent., in 1981, it was 16 per cent. and in 1985, it was 14 per cent. Inflation was also high. In 1980, it reached 21 per cent. That had nothing to do with the fixed exchange rate. It had rather more to do with the way in which—
  Mr. Eric Forth: It was a Labour Government.
  Mr. Darling: If I am not mistaken, Lady Thatcher was Prime Minister in 1981 and in 1985, but perhaps Opposition Members would prefer to forget that.
  The hon. Member for Ludlow (Mr. Gill) mentioned our economic policy. Let me remind the House of what we have done in the six months since we won the election. We have begun to deliver the key measures that we believe will build prosperity in future.

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  First, we are committed to economic stability and low inflation. In our manifesto, we said that we would reform the Bank of England to ensure that decision making on monetary policy was more effective, open and accountable, and free from scope for political manipulation. We are delivering that promise with the Bill.
  Secondly, my right hon. Friend the Chancellor announced in his Budget the deficit reduction plan, cutting the high borrowing requirement left by the previous Government from —22.75 billion last year. We need to achieve stability in public finances so that we can meet our priorities for education, higher investment, health and long-term fiscal stability.
  Thirdly, in the comprehensive spending review that I announced in the House on 11 June, we will deliver sustainable public finances and we will be able to reshape and set the Government's spending priorities.
  Fourthly, we are removing barriers to growth and removing inflationary pressure. We are expanding our economic capacity, and thus generating the right climate for high levels of investment. That is why we cut corporation tax in the Budget—to the lowest level ever. We are modernising the welfare state, and investing in skills and education so that we can expand the capacity of the economy.
  Fifthly, we are committed to open markets and to constructive engagement in Europe, as the Chancellor and the Prime Minister have made clear. We are preparing the country for the future because we put our national economic interests first. Business knows what is good for business, even if the Tories do not.
  The Bill marks another milestone in our determination to modernise Britain's economy. We are creating a modern Bank which will meet the new requirements of the 21st century in a global economy in which clarity of purpose is essential.
  Mr. Kenneth Clarke: A few moments ago, the right hon. Gentleman seemed to imply that he did not expect that conflict would ever occur between the objectives of low inflation, growth and higher employment. Does not the Bill contemplate that such conflict might arise? It states that the pursuit of growth and employment can be followed by the Bank of England, but subject to the overriding requirement to hit the inflation target.
  I agree that low inflation normally goes with high employment, the creation of jobs and low unemployment, but we all know that economic shocks can hit countries. Circumstances can arise in which, in the short to medium term, hitting the inflation target can be damaging to the levels of unemployment and of growth. Why is responsibility handed to the Bank with a legal injunction that the inflation target should always be pre-eminent—in all circumstances and at all times in the future?
  Mr. Darling: I appreciate that all former Chancellors of the Exchequer have to defend their position, especially those from the recent past, but I am sure that the right hon. and learned Gentleman agrees that, in the long run, it is not possible to achieve high levels of employment if we have high levels of inflation. We are agreed on that. I shall return shortly to the provision in the Bill to which he refers, but it is clear that, if the inflation target will
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  not be met—for example, because of a shock—and the Monetary Policy Committee has to take the necessary steps to reduce inflation, it has to have regard to the Government's policy for growth and employment to temper what it might otherwise be tempted to do.
  The formulation, as I am sure the right hon. and learned Gentleman knows, is common in most independent central banks. The objective is clear—the Bank has to maintain price stability and meet the inflation target set by the Chancellor of the day. In fixing its interest rate structure, the Bank also has to have regard to the Government's overall economic policy. As the right hon. and learned Gentleman said, there is sometimes a tension between the two in the short term, but—in the long term—unless we have low inflation we will not have the high levels of growth that we all want.
  I shall move on to the responsibility of the Government, as opposed to that of the Bank, because the Bill sets in place a clear division of responsibility. The Chancellor sets the target for price stability and he will do so every year. The target announced by the Chancellor earlier this year provides a more rigorous, open and precise definition—a target of 2.5 per cent., which is a constant target. The Bank, for its part, has the responsibility for achieving that target and maintaining the long-term price stability that I mentioned. It must also support the economic policy of the Government, including their objectives for growth and employment. Therefore, the Bank and the world at large will be clear about its objective of stability in support of the objectives of growth and employment.
  The composition of the Monetary Policy Committee itself will ensure a broader base of decision making than in the past. No one individual can dominate. It will be a blend of experience from the Bank and outsiders appointed by the Governor and the Chancellor for their knowledge and experience. The decisions will also be free from party political manipulation. The interests of the country will come before the interests of the party of government, especially one about to face an election. Decisions will be made with the long-term interests of the economy in mind.
  The Bill ensures that there will be a level of accountability that we have not seen in practice before, not just to the Chancellor, but to Parliament. The Bill proposes three elements that will achieve increased accountability.
  First, the MPC must meet rigorous reporting requirements. It is required to announce all its interest rate decisions immediately. Minutes of each meeting will be published and, if there is a vote, the voting record of each member will be recorded.
  The Bank's quarterly inflation report will be put on a statutory basis for the first time. That is another instrument of accountability and one of the principal ways in which the explanations of the MPC can be assessed and be subject to scrutiny outside the Bank. The House will have ample opportunity to scrutinise the Bank through the Treasury Select Committee, which now has far greater responsibility. The Bank will be held to account, and the Committee has already made it clear that it will expect MPC members to appear before it.
  Mr. Forth: The right hon. Gentleman is introducing the element of accountability, and it is at least arguable

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  that his definition is correct and valid—that merely reporting to another body involves accountability. Some might say that true accountability would involve the ability of another body to remove those who make the wrong decisions. Is he prepared to take the risk that, if those making the crucial decisions get them wrong—not just once, but repeatedly—nothing can be done to affect their position or to remove them, particularly by the House of Commons?
  Mr. Darling: The right hon. Gentleman has been a Member longer than I have and he might agree—when he is in a less partisan mode—that there have been many occasions when Members of all parties have wondered whether the doctrine of accountability has fallen by the wayside. In the previous Parliament and the one before, I cannot remember any Minister resigning because of policy failure. They might have resigned for other, extraneous reasons, but not very often for policy failure.
  The Chancellor is accountable to the House, which can express its displeasure with him or her on any appropriate occasion. The MPC will, in practice, be more accountable and answerable than ever before. The MPC must account for its decisions, and it will appear before the Select Committee, which is able to pass any judgment it thinks fit. The House will have an opportunity through a debate—certainly once a year, but also in other economic debates—to make clear its views. Until now, we may have had theoretical accountability in relation to the policy of price stability and interest rates, but it has not always been so. Through the Bill and other measures, we are setting in place a system of accountability that, frankly, has not existed until now.
  Ms Abbott: On the question of accountability and the use of the Treasury Select Committee as a medium, the Bank already gives evidence to the Select Committee several times a year, and it is not expected that it will appear more often. If the Government were serious about making the MPC accountable to Parliament, would they not have made it possible for the Treasury Select Committee to hold confirmatory hearings of the MPC?
  Mr. Darling: My hon. Friend will know that the Select Committee has made that recommendation. When I appeared before it last week, I made it clear that the Government have an open mind on the matter, but I also made it clear that I thought that the Committee could discharge its obligations and responsibilities to hold the MPC to account whether or not it had those powers. I do not regard the Committee's having those powers as an essential precondition to its holding the MPC to account.
  For the sake of completeness, I said also that, were the House to decide to go down that road, I would find it difficult to see how it could confine confirmatory hearings to simply the MPC. After all, Ministers appoint many people who have influence not only in economic fields, such as the regulators, but in other, sometimes controversial, areas—the head of the Prison Service, for one. We have an open mind on the matter, and the House will need to consider it in due course.
  Mr. Giles Radice: I thank my right hon. Friend for his favourable response to the Select
  718
  Committee report in which we envisage seeing the Governor of the Bank of Englanda—nd members of the MPC—a great deal more.
  Mr. Austin Mitchell: Terrorise them.
  Mr. Radice: Terrorism is not necessarily the best way of enhancing accountability.
  My right hon. Friend says that it is a question of considering the issue of confirmatory hearings across the board, so would he be prepared to refer it to the Select Committee on Modernisation of the House of Commons?
  Mr. Darling: As my hon. Friend knows, I do not have the power to refer the matter to the Modernisation Select Committee, but I undertake to discuss it with my right hon. Friend the Leader of the House.
  Sir Michael Spicer: Can the Chief Secretary confirm that his definition of an open mind was to say that in Committee he would reject any amendment to provide for a measure such as we have been discussing?
  Mr. Darling: I said that I thought that it would be difficult for the Government and the House to come to a concluded view on whether confirmatory hearings would be desirable, not only here but across the board, by the time that the Bill goes to Committee, which, if it achieves Second Reading at 10 pm tonight—I would not want to anticipate anything—will be fairly shortly. I think that my open mind is maintained.
  Several hon. Members rose—
  Mr. Darling: I shall give way again shortly, but I should like to make some progress.
  Before we leave the subject of the Select Committee, the point should be made that the very fact that all the information is published and the discussions are open will in itself create far greater accountability. There is far more interest in these matters than ever before, and that is a direct result of our determination to modernise the decision-making process.
  Secondly, I want to spell out the procedure to be followed when the Bank misses its inflation target, because hon. Members have asked me about it.
  Mr. Nick Gibb: Will the Chief Secretary give way?
  Mr. Darling: I want to develop the theme just a little, and then I will let the hon. Gentleman intervene.
  The Chancellor has laid down a new procedure whereby, when the Monetary Policy Committee believes that inflation is more than 1 per cent. higher or lower than the target, the Bank will be required to publish an open letter explaining why the inflation target has failed to be met and what action it intends to take to get back on target. Again, there is a new clarity and transparency.
  The Bank must set out why, in its view, the target was missed; what action it has taken; how long it will take to get back on target; and, importantly, how the measures that it proposes are consistent with its monetary policy

  719
  objective of price stability and its duty to support the Government's growth and employment objectives. The Monetary Policy Committee will be forced to reveal in public the action that it proposes to take to get back on target. The procedure is open and, therefore, accountable.
  Thirdly, there will be increased accountability through reform of the Bank's constitution.
  Mr. Peter Lilley rose—
  Mr. Darling: I am looking forward to this, because perhaps, for the first time in six months, the Opposition will tell us whether they oppose the principle of the Bill.
  Mr. Lilley: I shall certainly tell the Chief Secretary about that in my speech.
  How would the House exercise accountability if we thought that the Bank was proposing to reach its target either too rapidly or too slowly, and how would the Government, if they reached the same conclusion, influence the Bank's decisions?
  Mr. Darling: It is nice to know that, if nothing else, the Conservatives are now the champions of the House, which is something that I had not noticed in the past 10 years. The Bank will explain its position in its letter and can be held to account. The Chancellor can respond to what the Bank says, as indeed can the House, through the Treasury Select Committee or, if appropriate, a debate on the Floor of the House.
  The very fact that so many people have the opportunity to comment, inside the House and out, brings to bear far greater pressure and influence than have ever existed before. Fundamentally, as the right hon. Gentleman knows, the Chancellor is accountable to the House. If the House believes that the Chancellor is failing, it can make its views known.
  Part I gives an enhanced role to the non-executive directors of the Bank, who will ensure that the Bank performs its functions effectively and manages its resources efficiently. There will be a new post for a senior member who will lead the non-executive directors. They will review the Bank's performance, including, under clause 16, the procedures of the Monetary Policy Committee, and publish a report each year.
  There are three measures, all new, that add up to far greater accountability than we have ever had before in practice.
  Mr. William Cash: The right hon. Gentleman made much play of accountability and mentioned that we could have a debate on any failings in the system as and when they occur. Given that the Government will ultimately control the questions that lie at the heart of the Bill, does he agree that there is a strong case, if things go awry, for having a free vote in the House?
  Mr. Darling: I understand why the hon. Gentleman wants free votes. I was under the impression that he has always exercised the right to a free vote, especially on European matters. He should take the matter up with his Whips, if he is on speaking terms with them.
  Part I also makes provision for the Bank's finances, to ensure that they are on a secure foundation for the future. The House is probably aware that the Bank has long been
  720
  funded by a voluntary arrangement from the banking sector. We are putting the main features of the existing scheme on a permanent statutory basis. It is therefore appropriate that all those who benefit from price stability and the Bank's role in the financial system should pay—building societies as well as banks.
  With the transfer of banking supervision to the new Financial Services Authority, there is an opportunity to look at the overall impact on the financial sector of charges. We want to ensure not only that regulation is effective but that the costs are fully justified. For that reason, we are consulting on the cash ratio deposit scheme during the passage of the Bill. I want to make it clear that the intention is that the overall cost to the financial sector should be no greater than before, and preferably less. Both the Bank of England and the Financial Services Authority will bear down on the costs to the industry, and therefore on the costs that have to be borne by the public.
  Part III transfers banking supervision from the Bank of England to the new single regulator, the Financial Services Authority.
  Mr. Gibb: Before moving to part III, can the right hon. Gentleman point out where in the Bill there is any mention of the Treasury Select Committee? Are we to rely on its existing powers and the letter from the Chancellor to its Chairman of 6 May?
  Mr. Darling: The hon. Gentleman is new to the House. The powers and constitution of Select Committees are a matter for the House, and, quite rightly, not for the Government of the day. The House decides what powers the Treasury Select Committee or any other Select Committee should have.
  Part III is the first step of a much wider reform that we promised and is the result of four years of consultation when we were in opposition. As the House knows, the Government are drafting a financial services reform Bill that will finally lay to rest the discredited system of self-regulation and put in place a regulator with clout and with respect at home and throughout the world.
  Two weeks ago, we launched the Financial Services Authority, which has taken over from the Securities and Investments Board. Nine existing regulators will be replaced by only one. Yet again, we are delivering on our promises. The previous Government talked about cutting red tape; we are doing it.
  Mr. Lilley: Does the right hon. Gentleman agree with these comments about that approach:
  "A blanket approach, the creation of a 'super-regulator', won't do. I know that it makes for convenient shorthand but the idea that if all the regulators are rounded up and put into one building then we will have a system that will solve all our problems simply won't wash"?
  Mr. Darling: The right hon. Gentleman should be wary of quoting selectively from my speeches. I recognise the passage. If he cared to quote the entire speech—I do not expect him to do so this afternoon, but perhaps he could if he is on the Standing Committee—he would find that I was talking about a sudden and immediate change. We propose a gradual change.
  The first stage is in the Bill—the banking supervisory functions discharged by the Bank of England are being transferred to the Financial Services Authority. It will

  721
  gradually take over the work of the existing self-regulatory bodies and, ultimately, that of the Department of Trade and Industry's insurance division which is at present the responsibility of the Treasury on an interim basis. Ultimately, those will all come together.
  If the right hon. Gentleman reads that and other speeches that I have made on the subject in the past four years, he will realise that we always had it in mind that we wanted to bring together the regulators in a manageable way as the distinctions between the areas in which they work became increasingly blurred. Interestingly, although I have been speaking for about 25 minutes, we have yet to hear whether the Opposition are for or against the Bill.
  Mr. Keith Vaz: I welcome my right hon. Friend's proposals for the independent supervision of banks. He will not be aware of this, but in another part of the House today a meeting was taking place of the former depositors with the Bank of Credit and Commerce International. He knows that in 1991, when that bank closed, our right hon. Friend the Chancellor of the Exchequer, who was then in opposition, made a strong and impassioned plea for an independent supervisory system. Does he hope that, as a result of these moves by the Government, there will be greater scrutiny of banks to prevent a repeat of the sort of tragedy that occurred for the victims of BCCI?
  Mr. Darling: I have great sympathy with what my hon. Friend says. Part of the problem with the self-regulatory system that existed in the 1980s was that, in many cases, the regulators turned a blind eye to what was going on. Certainly, in the case of pensions mis-selling, the industry knew that it was going on, but the regulators chose to do nothing about it.
  On banking supervision, my hon. Friend will know that we have made a number of suggestions over the years to improve the situation following the collapse of BCCI and then Barings. As I shall shortly outline, we have taken further steps to ensure that one of the problems that emerged with both BCCI and Barings—that each regulator did not know what the other was doing—will be dealt with. He is right to say that bringing the regulators together will not merely have the advantage of getting rid of a cumbersome and expensive system that is fundamentally flawed in concept, but will ensure that regulation is complementary to the business process and not a hindrance. That will give consumers and the public alike the confidence in the integrity of the system that is lacking.
  In the week in which the new FSA came into existence, recognising the fact that the industry transcends political and geographic boundaries, it signed a memorandum of understanding with the Securities and Exchange Commission and the Commodity Futures Trading Commission in the United States.
  As my hon. Friend will know, the collapse of both Barings and BCCI showed that it is necessary to have a domestic regulator that has sufficient clout and reputation to deal with its international counterparts. That will now be possible with the new FSA.
  As with the second part of the Bill, the objective of the reform is to enhance transparency and improve accountability, through a simpler framework for the
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  industry, and to have a new system that recognises that the industry is changing fast. As I said, the traditional boundaries between banks, insurance companies and building societies have become increasingly blurred and, with most institutions offering a wide range of financial services, the world has moved on. Regulatory reform was inevitable and, indeed, it is what the industry and the public want.
  The old system was far too fragmented and it was very costly, whereas the new system will deliver better regulation. The unprecedented scope of the powers of the FSA will, of course, ensure a better co-ordinated approach. It will also have a specific duty to root out bad practice and financial crime—something which is necessary if we are to ensure that the United Kingdom continues to enjoy its international reputation in financial business for clean markets and fair dealings. Our standard of living and the long-term future of this country depend on that market. The FSA will be at the cutting edge of improving regulation and supervision here and throughout the world.
  Of course, the Bank of England retains responsibility for the stability of the financial system, as my right hon. Friend the Chancellor made clear, but the Bill transfers the supervisory functions to the FSA and, in due course, the Department of Trade and Industry staff responsible for insurance regulation will join the FSA, along with the other self-regulating bodies. That process is already under way, thanks to a great deal of hard work by the staff of the various regulators. The change will be manageable and, at all times, the staff of the FSA will ensure that they keep their eye on the ball and retain a firm grip on day-to-day events in the marketplace.
  As I told my hon. Friend the Member for Leicester, East (Mr. Vaz), we have announced a further step in the modernisation of the system of regulation. We believe that there must be clear divisions of responsibility between the Treasury, the Bank and the FSA, and we have set those out in a new memorandum of understanding that was signed by the Governor, by the chairman of the FSA and by my right hon. Friend the Chancellor two weeks ago. A copy is in the Library. The memorandum is based on principles of clarity, transparency, elimination of duplication and regular exchange of information between the three institutions. It also establishes a standing committee which will meet regularly to ensure an appropriate and co-ordinated response to any future failure or collapse.
  Finally, part IV contains two additional measures. First, the Bill makes provision to improve the efficiency of the gilts market, so that we can cut costs; secondly, it provides for the modernisation of the central money markets office to allow the market to work with computer records alone. Those measures will not only reduce costs, but strengthen London's position as an international financial centre.
  As I move toward the conclusion of my speech, the official Opposition have yet to let us know where they stand. They did not tell us when my right hon. Friend the Chancellor made his statement to the House in May. At least on the question of Europe, we know where they stand—or at least where some of them stand—and we know that they have a policy that has put them on a collision course with business, which knows that the

  723
  national economic interest must come first. Indeed, I noticed in The Sunday Telegraph that the shadow Chief Secretary to the Treasury said:
  "The CBI is bad news for British industry".
  There we have it: the Conservative party does not think much of what business thinks.
  What is the Opposition policy on the Bank of England? I have searched long and hard over the past few weeks to find a single word from the shadow Chancellor, but I have found nothing. We might have hoped that there would be an amendment before us today that spelled out the Conservative party's position, but there is nothing.
  When the shadow Chancellor replies to the debate, perhaps he will answer the two central questions relating to this issue that any respectable Opposition must answer. First, does he support the decision to give operational responsibility to the Bank of England—yes or no? [Interruption.] Secondly, if he does not—as some Opposition Members are mumbling—will he follow the logic of that position and pledge that, at the next election, the Conservative party will campaign to repeal this Act, as the Bill will be by then? Can he answer that, yes or no? We would like to know and business wants to know the answer to those fundamental questions. The whole world—or perhaps only the Conservative party—awaits his reply.
  In just a few short months, the Government have made significant reforms to the institutions and practice of economic policy in this country. We have new fiscal rules and a five-year deficit reduction plan and we have introduced major corporate tax reform, a windfall tax on the privatised utilities and a new deal for young people and the long-term unemployed. We reformed the financing of higher education, and we have a new £1.3 billion capital fund to rebuild schools. We have a UK action plan for employment and flexibility in Europe, and we introduced tough legislation on competition policy. We have a new structure for financial regulation and we have given operational independence to a reformed Bank of England.
  That is just the start—there is more to come, including the pre-Budget report later this month; capital gains tax reform; consultation on the new individual savings account; the Taylor review of taxes and benefits; the Low Pay Commission report on the minimum wage, and more. The Government are committed to reform and modernisation, and we are delivering. We have taken those decisions because we know that they are right for this country. We have demonstrated our clarity of purpose and our commitment to stability with an open and accountable central bank. Yet again, we have shown that we are preparing this country for the future, at home and in Europe. We are making the tough decisions and putting in place the institutions to deliver economic stability and growth, so that everyone can share in higher living standards and greater job opportunities in future. I commend the Bill to the House.
  4.28 pm
  Mr. Peter Lilley: The handling and contents of the Bill reflect four of the Government's most worrying characteristics. The first is their contempt for the parliamentary process. The Chancellor could not be bothered to wait to inform the House of what the Prime Minister described as
  "the biggest step in economic policy-making since world war two",
  724
  and instead announced it when the House was not sitting. Nor does he even deign to introduce the Bill himself—a Bill that hands away his most important responsibility. He will not even speak at his own abdication.
  Secondly, the principal components of the Bill show a cavalier disregard for assurances given a few months before the election. On 7 February 1997, the Chancellor said the following about giving the bank independence:
  "I believe that any consideration of whether to give the Bank operational responsibility for setting interest rates must be preceded by two steps",
  one of which is that
  "the Bank must demonstrate a successful track record in its advice and build greater credibility."
  Mr. Ross Cranston: Will the right hon. Gentleman give way?
  Mr. Lilley: I will in a second, but I thought that the Chancellor might want to intervene and explain what track record was established in the first four days of this Parliament that enabled him to set aside an assurance given authoritatively to the British people not long before the general election, but perhaps the hon. Gentleman can give me information that the Chancellor seems reluctant to give the House.
  Mr. Cranston: Can the right hon. Gentleman tell the House what the Conservative party, if returned to government, would do about the Bill? Would it repeal it?
  Mr. Lilley: I can tell the hon. Gentleman in detail my position on the principle, and I will tell him my response to that and all such questions, which I have given previously: we will never give a knee-jerk commitment from the Dispatch Box to repeal decisions taken by the Government until we prepare our manifesto. We shall not get into the position that the Labour party did by endlessly promising to repeal things and then not doing so.
  Mr. Geraint Davies: Does the right hon. Gentleman agree with the former Chancellor, Norman Lamont, that the Conservative party should agree with its principle, and should go ahead and support the Government?
  Mr. Lilley: I shall explain that in two minutes with great clarity, if the hon. Gentleman will allow me to complete my point.
  Mr. Darling: Will the right hon. Gentleman give way?
  Mr. Lilley: All right.
  Mr. Darling: It would help the House if the right hon. Gentleman would confirm a point. Do I take it from his answer a moment ago that he is saying that the Conservative party will not, therefore, campaign to repeal the Bill if it is enacted?
  Mr. Lilley: The hon. Gentleman has heard me say before, and will hear me say again, that we will give no knee-jerk commitments to repeal Bills passed by the House, even if we oppose them. Shortly before the next general election, we shall consider which measures the

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  Government have undertaken that we can afford to repeal, amend or retain, and we shall do so then, not piecemeal during this Parliament. That is the sensible and responsible thing to do.
  The other aspect of the Bill is the establishment of a "super-SIB", and that too is in flat contradiction of statements by the Chief Secretary, as I exposed earlier. He had previously said that the creation of a super-regulator would not do, and he actually had the cheek to say that he was fulfilling a promise by bringing all the regulators together in one.
  The third weakness of the Government exemplified by the Bill is their penchant for making glib, headline-grabbing statements and announcements without thinking through the substance first. They announced the Bank's quasi-independence, then decided to deprive it of responsibility for banking regulation, nearly precipitating the Governor's resignation. They have also had to chop and change their inflationary target and its form, and the Bill is littered with consequences that, manifestly, the Government have not thought through, as I shall explain.
  Finally, the Bill is yet another example of the Government's desire to remove power from the House and from elected representatives and give it away to appointed officials. They want to escape the blame for difficult decisions, and they want to remove any influence from Labour Back Benchers, whose demands for higher spending and laxer policy have wrecked every previous Labour Government.
  That brings me directly—
  Mr. Steve McCabe rose—
  Mr. Lilley: If I may make some progress, the hon. Gentleman may find that I answer the question that he has been prompted to ask.
  That brings me to the central issue of the role, accountability and independence of the Bank and of the Chancellor of the Exchequer. I shall explain where we stand on that issue. Conservatives have always been the enemies of inflation, because inflation harms the poor and the weak. Moreover, we have realised for far longer than Labour Members that inflation is essentially a monetary phenomenon. We have always believed that the Bank of England, through interest rate and funding policy, plays a key role in controlling inflation.
  As long ago as 1977, in the seminal work—which I know the Chancellor has committed to memory—"The Right Approach to the Economy", the party said that we favoured a more independent role for the Bank of England. A range of views were held then—and have been held since—about how much and what sort of independence the Bank should be given. We spelled out in practice the type of independence that we thought right in the final years of our Administration.
  The right hon. Gentleman may wish to remind me that, in November 1988, the then Chancellor, now Lord Lawson, drew up his specific proposal for giving the Bank operational independence. Although I was a very junior Minister at the time, I had some responsibility for banks, and I was therefore the only Minister consulted about the proposal before it went to the Prime Minister. The view that I expressed then to the Chancellor is that which I hold
  726
  now: the proposal has obvious attractions in reinforcing the battle against inflation, but it is difficult to square it with our system of parliamentary government.
  It is right to give the Bank the independence and the authority—which we did subsequently—to offer the sort of advice that Chancellors cannot easily refuse by publicising its views and its minutes, by making its inflation report independent of the Treasury, and so on. We have done that effectively.
  However, controlling inflation by interest policy is a technical matter that cannot simply be handed over to a group of experts. It involves considerable discretion, and that discretion affects people's livelihoods, their jobs, the value of their savings, the viability of their businesses and the burden of their debts. Such matters are absolutely central to the whole political debate, and they are crucial to the electorate. Whoever takes those decisions must be answerable to the House, and, through us, to the voters. Someone must carry the can—and that person should be the Chancellor.
  Mr. Malcolm Bruce: The right hon. Gentleman described the Bank of England's decision to put up interest rates last week as a "kick in the guts". The inflation figures were released today. Who does he think was right? What would he have done, and how would he have justified his actions?
  Mr. Lilley: I certainly would not have introduced the sort of Budget that, in light of the Bank of England's statements, made increases in interest rates inevitable if the Chancellor failed to take the Bank's advice.
  Mr. Darling: The right hon. Gentleman seems to have moved from the position where he appreciated the attractions of Lord Lawson's memorandum to the then Prime Minister. He has said that, because of what he regards as parliamentary sovereignty, he cannot support the principle of giving operational responsibility to the Bank of England. How does he square that view with the commitment he gave a few moments ago that he will have to wait and see if it works? If he opposes the move on principle, surely the answer must be beyond doubt—as it is for him on Europe.
  Mr. Lilley: The right hon. Gentleman keeps trying to make policies on principle without telling us what the principles are. Accountability is very important. The Chancellor should accept responsibility for important matters such as people's jobs, and the value of their savings and their debts. We cannot accept his attempt to try to escape the blame for taking difficult decisions.
  Whatever the views on either side of the House about delegating the Chancellor's responsibilities to an independent Bank, the Conservatives cannot support a Bill that transfers those powers to a Bank that has been made deliberately less independent.
  The Monetary Policy Committee that will set interest rates will have nine members. No fewer than seven of those will be appointed by the Chancellor, and even the other two will be appointed by the governor
  "after consultation with the Chancellor of the Exchequer".
  Moreover, they will be appointed for just three years. Members of the Bank's court will have their term reduced to three years. No other central Bank in the world, to my knowledge, has its directors appointed for a term of office shorter than the life of the Government who appoint them.

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  I am not suggesting that the worthy men and women appointed to the monetary policy committee and the court will all take instructions from the Chancellor.
  Mr. Geraint Davies: Will the right hon. Gentleman give way?
  Mr. Lilley: I will in a moment, if the hon. Gentleman will forgive me. I am not suggesting that members of the monetary policy committee will take instructions directly from the Chancellor, but we should recall what has happened elsewhere. Professor Gowland records in an interesting book published by Politeia that at the Federal Reserve in America the chairman appointed by Nixon was so anxious
  "to facilitate Richard Nixon's re-election in 1972"
  that it
  "took precedence over all other objectives. He was apparently prepared to manipulate interest rates at the President's request."
  No one suggests that anyone on this side of the Atlantic would give in to such pressures, but those appointed by a Chancellor on short-term contracts might be eager to secure re-appointment, and people would not have faith in their genuine independence. That must undermine the credibility and real independence of the Bank.
  Ms Abbott: I know that consistency is an over-rated virtue, but if the right hon. Gentleman is against independence for the Bank of England in principle, he ought to be reassured that the Chancellor will ostensibly have so much power over the monetary committee.
  Mr. Lilley: The worst of both worlds would be a bank that was influenced by the Chancellor, but for which he would not take responsibility to the House. That is precisely what he is creating through the Bill. I am grateful to the hon. Member for Hackney, North and Stoke Newington for giving me the opportunity to make that point, and for her considerable contributions on the subject, which I have read with great interest.
  The very least that we will demand if the Bill is passed is the lengthening of terms of tenure and the ratification of all appointments by the Select Committee, as recommended in its excellent report. We believe that the Bank should have independence to offer advice, which the Chancellor would find it difficult to refuse. That independence should be clear, visible, laid down in law and enshrined in the terms of appointment and tenure of members of the court and the Bank. We do not believe, however, that the Chancellor should escape his ultimate responsibility for final decisions on interest rates.
  Mr. Jim Murphy: It is appropriate that the right hon. Gentleman should give way at the point when he is discussing short-term contracts and security of tenure. If his performance does not improve in this debate and others, perhaps that is what we will be talking about this afternoon.
  728
  You said earlier that it would be sensible not to rule anything out and not to give any commitments. Why then, on the single European currency, are the Opposition committing themselves not for one term of office, but for two? Is that sensible or senseless?
  Mr. Deputy Speaker (Sir Alan Haselhurst): Order. May I remind the hon. Gentleman that at all times he is addressing the Chair, not the Opposition?
  Mr. Lilley: The answer is that the Government have already begun to campaign for entry to the single European currency in the next Parliament, and we have begun to campaign against it. That is sensible in the circumstances. It has nothing to do with the repealing measures taken by the Government in this Parliament.
  Mr. Malcolm Bruce: Will the right hon. Gentleman give way on that?
  Mr. Lilley: On that, or on the subject of the debate?
  Mr. Bruce: The right hon. Gentleman said at the beginning of his speech that the Bill hands away the Chancellor's most important responsibility. If that is what he believes, should he not be taking it back, not seeking to create an independence that is irreversible?
  Mr. Lilley: We want the Bank to be independent, and those who are members of the court to be independent in offering advice, not in operational control of interest rates. That is the system which we had established in the previous Parliament, and it was working well. The question is whether it would work better as a result of the changes that the Government propose.
  I agree with my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) that the system manifestly was working well. It has given us the longest period of low inflation for half a century—almost 60 months below 4 per cent. By the end of the previous Parliament, it enabled the previous Chancellor to hit his inflationary target of 2.5 per cent. on the button. That is the key part of the golden economic legacy that the previous Government bequeathed to this one.
  If a system works, after half a century of failure, we are reluctant to tear it up and make substantial changes. If it ain't broke, don't fix it.
  Mr. Charles Clarke: The right hon. Gentleman was discussing the manipulation of interest rates a few moments ago. Does he concede that the former Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke), was involved in precisely such manipulation of interest rates before the general election, and that the system set in place by the Bill would prevent Chancellors from conducting such political manipulation?
  Mr. Lilley: I refer the hon. Gentleman to the speech by the hon. Member for Hackney, North and Stoke Newington, in which she said:
  "In May 1995,"
  the
  "then Chancellor refused to accept the Governor's advice … Two years later, we know that the former Chancellor's judgment was correct … he consistently called the economy right more times than Eddie George."

  729
  The hon. Lady is right. Over that period, we had the opportunity to see that my right hon. and learned Friend was right. His judgment has proved impeccable, and it is clear that the present Chancellor does not believe that he could emulate the success of my right hon. and learned Friend.
  Mr. Kenneth Clarke: I am grateful to my right hon. Friend for that tribute on the policies on which we agreed before the election. Is he aware that his clear description of the desirability of a monetary committee being entirely independent to give advice to the Chancellor is Labour party policy from the last general election? Its 1997 business manifesto stated:
  "For the Bank of England, we propose a new monetary policy committee to decide on the advice which the Bank of England should give to the Chancellor."
  How could a reputable Opposition change their mind so dramatically four days after the election, and now attack the shadow Chancellor for adhering to their former views?
  Mr. Lilley: I entirely agree with my right hon. and learned Friend. It is alarming that the Government intend to make the Bank less independent, as well as giving it different responsibilities. That is a serious matter, which we shall continue to criticise during the passage of the Bill.
  Mr. Clifton-Brown: Is not the danger of the Government's proposals that a Chancellor such as my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), who has good judgment, was able to prolong the economic cycle, whereas a Chancellor who has no judgment at all has to hand over weighty decisions to an independent governor? Bankers are always cautious. The proposal is therefore likely to be deflationary, and will have the effect of shortening the economic cycle. Is not that a considerable danger?
  Mr. Lilley: That fear is shared on both sides of the House, although evidently not on the Government Front Bench. I shall deal with that in due course.
  Many hon. Members on both sides argue that several other countries, which have a longer track record of low inflation than we do, have independent central banks, but I believe that independent banks are as much a symptom as a cause of low inflation.
  The German Bundesbank is independent and able to take tough action without losing its independence because Germany has experienced two periods of hyper-inflation. That has created an inflationary culture. It is worth remembering that the Reichsbank had independence in the early 1920s, but that did not prevent the hyper-inflation then.
  Britain has now developed an anti-inflationary culture. That is partly a reaction to the near-hyper-inflation under the previous Government, when money lost a quarter of its value in a single year—[Interruption.] I am sorry; I mean the previous Labour Government. I am grateful to the Chancellor for reminding me that we achieved the best inflationary record in half a century.
  The anti-inflationary culture in Britain is also the result of the demise of the Keynesian illusion that was prevalent among the opinion-forming class in Britain—the belief
  730
  that monetary demand was the cause of economic growth. Even the Labour party leadership—the last group to learn—now accepts that inflationary demand brings no extra growth in the long term, and may even damage the underlying potential.
  The more the detailed proposals set out in the Bill have been examined, the more are the concerns that have been expressed—concerns which many of my right hon. and hon. Friends share. Alas, few of these concerns were addressed by the Chief Secretary. I hope that the Economic Secretary, if the hon. Lady is to reply, will valiantly cover these matters.
  A key concern is whether an independent bank, even a quasi-independent one as is proposed, will have a deflationary bias, as my hon. Friend hon. Friend the Member for Cotswold (Mr. Clifton-Brown) suggested. We are all agreed that inflationary finance cannot generate sustainable jobs and growth; indeed, it may even undermine them. A deflationary bias, however, would be even more destructive of jobs.
  The primary duty of the Bank in the terms of the Bill is to meet its inflationary target. It is my understanding that that overrides its secondary responsibility to support the Government's economic policy, including their objectives for growth and employment. The Chief Secretary seemed muddled on that, and tried to obfuscate the issue. The Bill is clear, however, as the hon. Member for Gordon (Mr. Bruce), the Liberal Democrat spokesman, said.
  Will the Chief Secretary confirm that, if there is a conflict between the inflationary target and the Government's other policies, the inflationary target will take precedence? The right hon. Gentleman cannot confirm that, but it is set out in the Bill. In those circumstances, the Bank is bound to start by trying to demonstrate its anti-inflationary machismo. We have considerable faith in Eddie George—that is not because I discovered recently that we both went to the same direct grant school—because he seems to be aware that there is a real economy as well as a financial system. I am sure, therefore, that he would not deliberately drive the economy into a slump.
  It is worth remembering, however, that the blame for the slump in the 1930s has been laid at the door of the then newly independent Federal Reserve Board. Robert Chote, the economic correspondent of the Financial Times, in an excellent Social Market Foundation booklet, quotes a study that shows that countries with independent banks have suffered deeper recessions than those without them.
  Central banks with the same independence as the Bank of England has before the Bill comes into force have suffered output losses averaging about 5 per cent. of national output in each recession. Those banks with the independence that the Bank will have as a result of the Bill have suffered output losses averaging at least 10 per cent. of national output.
  The hon. Member for Hackney, North and Stoke Newington (Ms Abbott) made a most thought-provoking speech in a recent debate. She reminded us that the reason Labour gave for nationalising the Bank of England in 1945 was that it allegedly played a deflationary role in the inter-war years. I hope that such historic episodes will prove irrelevant. It is just possible, however, that we are approaching a more deflationary era.

  731
  It is said that generals are always busy preparing for the previous war, and it would be tragic if our economic leaders were trying to create a solution to the problems of the past 50 years of inflation when the risks may lie in the opposite direction. The Government should give much thought to that before they finalise the Bill.
  The Bill separates off the Bank from the Treasury, and strips out a number of functions from the Bank, with no clear evidence that the consequences have been thought through.
  How will the Government co-ordinate fiscal and monetary policy? They clearly failed to do so in the recent Budget. Before the Budget, the Bank clearly indicated that, if the Government curbed consumer spending, interest rates need not rise. However, the Chancellor of the Exchequer put almost all his extra tax burden not on consumer spending but on savings, through his pensions tax. That having happened. the Bank immediately resumed raising interest rates.
  That is an example of the danger that Robert Chote, in his excellent pamphlet, presciently spelled out, when he wrote:
  "One danger"—
  Mr. Darling: A straw.
  Mr. Lilley: The right hon. Gentleman may think that Robert Chote is a straw, but I think that he made a cogent case in his Social Market Foundation pamphlet, as did Professor Gowland in his Politeia pamphlet.
  Robert Chote wrote:
  "One danger is that the economy will suffer if the Bank uses interests rate policy to pursue low inflation while the Government uses budgetary policy to pursue employment, growth and votes. This is a recipe for high interest rates, excessive Government borrowing and an overvalued exchange rate."
  I hope that the Economic Secretary will tell us how the Government intend to resolve that possible conflict in future better than they did recently.
  Mr. Geraint Davies: The right hon. Gentleman seems to be in favour of the principle of independence, but has produced a litany of reasons why we should be against it. Is he against independence? Is he against the interests of business as expressed by the Confederation of British Industry, the Institute of Directors and the Federation of Small Businesses?
  Mr. Lilley: The hon. Gentleman should perhaps read my speech, so that he will be able to take it in word by word.
  The Bill will hive off debt management to a new quango under the Treasury. We know that funding policy is an intrinsic part of monetary policy, and the Bill will leave the Bank as a one-club golfer without even a putter left in the bag. How will the Treasury, the Bank and the new board co-operate to handle monetary policy? If they need to get together, why is it necessary to separate them in the first place?
  With the removal of banking control to the Financial Services Authority—the "super-SIB"—it is difficult to see how and whether the Bank remains, as it surely must, responsible for ensuring the liquidity of the banking system and preventing systemic collapse.
  732
  What happens if the needs of the banking system conflict with those of the inflationary target? That has happened in the past in the United States, and it could conceivably be happening in Japan. I understand that there is a suggestion that a committee is to be established to work between the Bank, the FSA and the Treasury to try to cope with that sort of problem. If that is necessary, why is it necessary to hive off powers in the first place?
  That brings me to the creation of the FSA as a super-SIB. The Bill is only part of the process, but it will on implementation directly conflict with pre-election statements. More importantly, concerns expressed by the Chief Secretary when in opposition may, although he has disowned them today, prove well founded.
  The coverage of the FSA will be huge: its objectives will be many, and potentially in conflict with one another. The range of its activities will be so diverse that no one person in it will understand them all. Its structure will be as complex as those of the organisations that it replaces, if not more so. Practitioner involvement is likely to diminish, and costs are likely to escalate as salaries are equalised upwards.
  We have no objection to the objective of trying to bring greater simplicity and one-stop shopping to the business of financial regulation, but we fear that the Government may, almost casually, have bitten off more than they can chew. The process of setting up the FSA may cause regulators to take their eye off the ball, while spivs and crooks have a field day. We shall observe closely what is going on in the development of the proposed legislation.
  Through the Bill, the Chancellor of the Exchequer seeks to create a Bank with a duty to pursue an inflation target set by the Government, and to accommodate other Government policies. The members of the Monetary Policy Committee will be appointed by the Government, and it will, albeit only in a reporting sense, be accountable to Parliament. If need be, the Government, with the assent of Parliament, will be able to override the committee's judgment. We may approve or disapprove of these arrangements, but we can agree that it may claim to be, as the Chancellor asserted in his statement, a British solution to meet Britain's needs.
  The paradox is that, no sooner had the Chancellor published his British solution, than he announced that he wanted to sweep it away in a few years' time and replace it with a European solution to meet Europe's needs.
  The European solution is, of course, rather different from what the Chancellor thinks is right for Britain's needs. The planned European central bank has no inflation target laid down by a democratically elected Government—still less a Government responsible to the House. Only one of its directors will be British, and he or she will take an oath that they will act not in Britain's particular interests but in the interests of the whole. It will not be accountable to any Parliament or Government, least of all Britain's Parliament or Government. Nor will any Government—certainly not the British Government—be able to override its judgment if they think that the national interest requires it.
  Some hon. Members may prefer the approach laid down in the Maastricht treaty to that laid down in the Bill, but it is clear that the Chancellor of the Exchequer does not. If he did, he would have modelled his Bill on the Maastricht

  733
  paradigm. Can he or the Chief Secretary tell the House why they did not do so? May we assume that they considered their approach superior to the Maastricht model?
  Mr. Darling: We introduced the Bill because we thought that it was good for the British economy, regardless of whether this country joins the single currency. Notwithstanding what the right hon. Gentleman is saying about the single currency, does not the logic of his position lead him to exclude this country ever joining the single currency, because of the principles he holds?
  Mr. Lilley: The position of the Chief Secretary may well result in that conclusion, because, if he says that measures based on the principles in the Bill are right for Britain, how can he say that different measures based on different principles in the Maastricht treaty are also right for Britain? Why did he not answer that question? Why did not the Government model the Bill on the Maastricht paradigm? Because they believe that the measures in the Bill are superior. Why, then, do they want to trade in the Bill in a few years' time for the Maastricht independent central bank?
  Mr. Darling: I wonder why the right hon. Gentleman cannot answer the question that I put to him. The logic of his position on the single currency is that the Conservative party would never ever join the single currency. Is not that right?
  Mr. Lilley: The logic of our position is that we can influence only one Parliament—the next Parliament—at a time. The logic of the right hon. Gentleman's position is that, by signing a treaty—[Interruption.] The next Parliament is the one that we will influence, when we are in government. The right hon. Gentleman, by treaty, wants to rule out, for all future Parliaments, this country ever having its own currency, its own independent central bank, its own monetary policy. It is he who is taking a decision for all time. Those who do not want to determine our policy by treaty can do that only in one Parliament at a time.
  Mr. Darling: Which Parliament?
  Mr. Lilley: The Parliament at which we intend to get elected. We did not win in this Parliament, I regret to say, so we have no influence over this Parliament—we have only limited influence, unless we get the support of the hon. Member for Hackney, North and Stoke Newington, and teams of her cohorts and colleagues in voting down the Bill tonight. It is a badly drafted, ill-thought-out and potentially damaging Bill.
  Mr. Geoffrey Clifton-Brown: Did not that little exchange demonstrate precisely the position of Members of Her Majesty's Government? They have not realised yet that they are in government, and that is why they are having to give away these powers to the Bank of England.
  Mr. Lilley: It may be that. I can think of only one saving grace in the Bill: it will take decisions away from
  734
  a Government in whom I have very little confidence, and whom in the few months they have been in office have chalked up a pretty deplorable record.
  Until the Bill becomes law, the Chancellor is, in law, personally responsibly for all the decisions on monetary policy that have been taken in this Parliament. Every interest rate rise so far is his personal responsibility. He cannot blame the bank, because it is no more than his adviser, so five Labour interest rate rises so far are at his door.
  The reason why the Bank of England has used its quasi-independence to put up interest rates is because the Chancellor failed to curb consumer spending by encouraging people to save their building society windfalls. Instead, he taxed savings with his pensions tax. For the fifth successive month, he has missed his inflation target, as we heard today.
  Mr. Geraint Davies: Will the right hon. Gentleman give way?
  Mr. Lilley: No, I have given way to the hon. Gentleman already, and I am drawing to a close.
  Today's figures reflect first and foremost the impact—
  Ms Ruth Kelly: Will the right hon. Gentleman give way?
  Mr. Lilley: No, I shall wind up, if I may.
  Today's figures reflect first and foremost the impact of the Chancellor's interest rate rises, which are feeding through to mortgages and the retail price index. His Budget added, by his own calculation, 0.8 per cent. to the retail price index directly.
  The Bill is a product of a Government who should be ashamed of their short-term record; who are afraid to take the blame for difficult decisions; who are afraid of their own inability to judge the interests and needs of the British people; who are afraid of their own Back Benchers and wish to deprive them of power. It is a bad Bill, badly drafted and badly motivated. We will not let the Government escape their responsibility. We will vote against the Bill.
  5.5 pm
  Mr. Denzil Davies: One can say that the most controversial part of the Bill—we heard this in the speeches from my right hon. Friend the Member for Edinburgh, Central (Mr. Darling) and from the right hon. Member for Hitchin and Harpenden (Mr. Lilley)—must be part II. For part II of the Bill seeks to transfer the power to fix short-term interest rates, to conduct monetary policy and, in effect, control inflation, from an elected Chancellor of the Exchequer—who is directly answerable to the House, and through us in the House to the people—to the non-elected officials of the monetary policy committee of the Bank of England.
  Fundamental economic decisions that can affect the livelihood of our constituents, be they mortgagors, savers, business people, the unemployed, will be taken out of the domain of an elected Government and elected Parliament. In that regard, economic policy will be taken out of politics. My right hon. Friend the Chief Secretary calls it modernisation.

  735
  The implied message, so far as I can see, that is sent to our constituents by the Chancellor's decision to transfer power is clear: "Don't trust us with your money. We are just politicians. We are Chancellors, Prime Ministers, Ministers, Members of Parliament, politicians, but don't trust us with your mortgages. Don't trust us with your money. Don't trust us with inflation. We cannot be trusted to protect the value of your currency." That is the unappealing implied message that comes, I am sorry to say, from the Chancellor's decision.
  We are elected to the House. We enjoy the trappings of power. We obtain from time to time, from the taxpayer. the resources necessary to do our job. Sometimes we complain that we do not have enough. However, when it comes to a tough—that word is used very often these days—decision about money, and no decision is tougher than that to raise or reduce interest rates, I am sorry to say that we abdicate our responsibility and hand over our responsibility as politicians to a non-elected body.
  Why stop with monetary policy? What about fiscal policy? I listened to my right hon. Friend the Chief Secretary explain how wonderful the new system of accountability would be—how it would be far superior to what we have at the moment. Why not transfer all the Chancellor's powers—that is, what powers he has left? Why not transfer his fiscal powers to a board? Let us call it an Exchequer board, and because it is a board, let us give it a president. An Exchequer board would determine taxation, because if we cannot be trusted with monetary policy, how can we be trusted with taxation policy? Let us shift it all. Indeed, we could move on to the Department of Health, to education. Why not transfer all the power to boards, so that we have that marvellous system of accountability and modernisation that my right hon. Friend tells us about?
  It is no exaggeration to say that it was something of a surprise when my right hon. Friend the Chancellor announced a few days after the election that this was to be done. It was a surprise to the City—obviously a pleasant surprise, as the City— approved of the decision—and it was a surprise to most of the financial journalists to whom I have spoken. It has been said—although I am sure that it was a scurrilous accusation without foundation—that it was a surprise to most members of the Cabinet. I do not believe that. However, it was certainly a surprise to most of those who fought the election as Labour party candidates.
  Mr. Andrew Tyrie: Is the right hon. Gentleman aware that giving independence to the Bank so quickly was a complete breach of a clear pledge made by the Prime Minister when he was Leader of the Opposition? In a speech in 1995, he said:
  "We will … watch the track record of the Bank before deciding what, if any, steps should be taken towards greater operational responsibility for the Bank in interest rate policy."
  Mr. Davies: That point has already been made in the debate. Rather than refer to speeches made in opposition, I intend to consult the sacred text of the manifesto.
  Mr. Tyrie rose—
  Mr. Davies: No, I will not give way to the hon. Gentleman again.
  736
  Part II of the Bill was not an express term, as we lawyers describe it, in that covenant with the people on which the Prime Minister fought and won the election. Since the announcement, some Treasury Ministers have tried valiantly to reinterpret the text. While their efforts might gain fairly high marks in a school of sophists or a college of casuists, they are not really credible. It is clear that the move was not part of my party's policy.
  I will satisfy the hon. Member for Chichester (Mr. Tyrie) by quoting from the business manifesto, which is the most sacred text of all. The right hon. Member for Hitchin and Harpenden referred to it in an intervention. It says:
  "We propose a new monetary policy committee to decide on the advice which the Bank of England should give to the Chancellor."
  Nothing could be clearer than that. However, this Bill is not about advice: it is about power and the transfer of power from the Chancellor to the monetary policy committee of the Bank of England.
  Not only was the decision a surprise; it was a contradiction of other areas of Government policy. The thrust of policy—of which I entirely approve—has been and is the greater devolution of power from bureaucracy to democracy. That is one reason why we will establish a Parliament for Scotland and an Assembly for Wales, give greater democracy to the regions of England and have a mayor for London. In all those matters, the whole thrust of Government policy has been to transfer power from bureaucracy back to democracy, where that is possible within the modern state. Now the very heart of Government—the very heart of decision making—is going in the opposite direction and transferring power from democracy to bureaucracy.
  This debate takes place against the background of another increase in interest rates. It is tempting for all of us to wonder whether that decision was correct. I shall resist the temptation. I do not know whether it was or was not the right decision. What I do know—and what surprises me—is that some of the bizarre criticisms of the Bank of England have come from financial journalists who actually support the transfer of power from the Treasury and the Chancellor to the Bank of England.
  I want to quote part of one article in The Guardian last Friday, in which Mr. Alex Brummer wrote:
  "The danger of giving the Bank of England operational independence always was that it would show an inflationary bias".
  I should not talk about rugby after a Saturday when Llanelli was trounced by the All Blacks, but accusing a central bank of showing inflationary bias is like accusing the All Blacks of a try-scoring bias. Inflationary bias is what central banks are about, especially modern central banks. A long time ago, they were concerned with the external value of the currency, but it was at a time when currencies were not floating. The banks have now moved on to another pitch—the internal value of the currency. Inflation targets are being set, but they were not around when the Federal Reserve or the Bundesbank was established.
  The new pitch for power of the central banks is to have an inflationary target—we have it—and then shoot at the target and pretend that somehow interest rates will enable us to hit it. Central banks are about inflationary bias. Mr. Brummer obviously has not read the Bill—or if he has, he has read it in the same way as the Chief Secretary has read it, which is an incorrect way. Clause 11 clearly

  737
  states that the task of the Bank is to maintain price stability—or, in Mr. Brummer's language, to give an inflationary bias. Only subject to that is the Bank to support the Government's economic policy, including the objectives for growth and unemployment.
  That is exactly what is in the Maastricht treaty. I do not want to go down the same road on Europe that the right hon. Member for Hitchin and Harpenden rather foolishly followed. We shall have other opportunities to discuss that. The Maastricht treaty is exactly the same as clause 11—although not in words, as it is more elegantly drafted. It, too, says that the first duty is price stability—subject to that, high employment, apple pie and everything else can be considered. The Bank is being asked to make inflationary bias its priority, as The Guardian said. Of course, questions of growth and employment should be taken into account as part of all these matters.
  I happen to believe that it is wrong to divide fiscal policy and monetary policy. There is no evidence to show that it improves matters. Indeed, there is evidence from Germany just after reunification, and from the United States when President Reagan was pursuing a Keynesian economic policy, that, if there is too loose a fiscal policy, the Bank will over-compensate and have too tight a monetary policy.
  I am old-fashioned. I believe in democracy, but I also believe that decisions on fiscal policy and monetary policy cannot be divided. When we are considering growth and employment, decisions should be made by the elected representatives of the people who have to face elections. That may be old-fashioned, but it is the most sensible way to deal with these matters.
  I have great respect for my right hon. Friend the Chancellor and I hold him in high regard—that is not just a form of words—but he has been too hasty with this decision. It was not necessary to make the decision, and it was the wrong decision. For that reason, I regret that I shall not be able to join him in the Lobby this evening.
  5.18 pm
  Mr. Kenneth Clarke: It is a pleasure to follow the right hon. Member for Llanelli (Mr. Davies). I agree with a substantial number of his points. In fact, he is probably a more severe critic of the Bill than I am. He gave an absolute reason, in his opinion, for voting against it. He referred to a central point, which my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) also pursued—but which, astonishingly, was not mentioned by the Chief Secretary—which is that the Bill contradicts everything that the Labour party said throughout its period in opposition up to the time of the election, and in the manifesto on which it fought the election.
  Labour Back Benchers intervened a number of times in my right hon. Friend's speech. They looked at their bleepers and were obviously told to ask us whether we will commit ourselves to repealing the Bill in five years' time. My right hon. Friend the shadow Chancellor replied admirably to those interventions. After today's vote, we shall be faced with a fait accompli; in four or five years' time, we shall have an opportunity to see whether our fears were justified. Nevertheless, I disapprove of the way in which the change has been implemented and the remit that has been given to the Bank, and I will be quite content to vote against the Bill today.
  738
  The Government have not remotely explained why it took them only four days to eat every word that they pronounced on the subject when they were in opposition. Six months after the general election, we are perhaps getting rather accustomed to that style, as there have been rather more events since then that are in line with their peculiar approach to Government.
  Before the new Parliament was assembled, hon. Members had no opportunity to engage in serious debate on the matter with our constituents, with the general public, with financial commentators or with the business world. Then, with a bang and a flash, the Chancellor—in his first few days of dynamic and, as he always says, "modernising" action—announced to the House that he had a totally different policy towards the Bank of England, which he would include in this Bill.
  Mr. Tim Boswell: Just like that.
  Mr. Clarke: As my hon. Friend says, a bit like that famous magician, "just like that." The Chancellor pulled it out of his hat, and we are now debating the Bill.
  If the Labour party, now the Government, were minded to contemplate marching towards the past by granting a greater degree of independence than the Bank has enjoyed in recent years—as the hon. Member for Hackney, North and Stoke Newington (Ms Abbott) said, we have had experience in the United Kingdom of independent banks—I should prefer the formulation, to which they must now cling, that was occasionally given by both the Chancellor and the Prime Minister when they were in opposition: occasionally hinting that they might contemplate giving independence to the Bank of England after it had established a good track record. As hon. Members have already said in this debate, the Bank had no track record in four days of Labour government.
  I do not criticise the Bank. I worked well and constructively with it, and it is not a form of words to say that I had an extremely high regard for Eddie George and his colleagues in the Bank of England and for the advice that they gave me, even if I did not always agree with it. I was never savagely out of step with them in the advice that they gave me. With respect, however, I cannot say that they have an impeccable track record. They certainly do not have a good track record of inflation forecasting.
  I was rather dismayed by the extent to which the new Chancellor relied on the fact that the inflation forecast showed the need for instant action. In some of the minutes that the Bank now publishes, the Monetary Policy Committee keeps referring to the Bank's inflation forecast. We must have inflation forecasts. With the greatest respect, however, in recent years, the Bank of England has not been very good at forecasting inflation. The Bank has always overestimated the likely upside inflation risk—which is why the right hon. Member for Llanelli said that it has a deflationary bias. The Bank always fears the worst and reacts accordingly, which is what will cause damage. That is what I fear.
  Since the proposals were made, my reservation has been that, over the next few years, we will have a greater deflationary bias in policy. I fear that the Monetary Policy Committee—anxious to prove its anti-inflation credentials—will go in for overkill. If the committee does that and over-insures, to ensure that it establishes a reputation for hitting the inflation target, the price will be

  739
  paid by the general public. If the committee merely slows down growth but growth continues, we will sacrifice some of the extra jobs and rising living standards that we might otherwise have enjoyed. If the committee goes in overly for overkill, it will cause perhaps unnecessary damage to the daily lives of those working in the economy.
  Some independent banks have a better track record and very high respect in their countries. They have acquired a track record of taking a wider view of affairs. The Bank of England and the new Monetary Policy Committee have not yet satisfied me that the committee, on its track record, is the same type of beast as the Bundesbank, not to mention the Federal Reserve in the United State of America. Quite rightly, those bodies pursue price stability and low inflation, sometimes with targets that have been set for them. But they also take a view of the wider economic picture.
  I share what my right hon. Friend the shadow Chancellor described as the Conservative belief in the virtues of low inflation. I believe that creating in the UK a climate of permanently low inflation is a very desirable objective, and that it would be a big change in our culture. I do not believe, however, that hitting an inflation target should override every other consideration of economic policy in all circumstances and at all times. I tried to be a real-economy Chancellor, and I think that the House should require that the authorities deal with the real economy and take a slightly wider view.
  Mr. Malcolm Bruce: The right hon. Gentleman's views on the matter are well known. Is he telling the House, however, that, among his decisions, he accepts no responsibility for the inflationary pressures that have led the Bank to make its current decisions? Does he really believe that, throughout, he has been right and the Bank has been wrong?
  Mr. Clarke: Yes, I do. I think that the Bank is wrong today.
  The right hon. Member for Llanelli—who has been a Treasury Minister—was very wise to be cautious in his estimates of where one goes. One will not know, for about 18 months to two years, whether the judgment made on interest rates on a particular day was correct. One may never know the answer, because so many supervening events ensure that one can never guarantee that an inflation target is hit to the exact decimal point.
  It would have been a fluke if, before the general election, I had delivered a final inflation figure of 2.4 per cent. I aimed, however, to get it below 2.5 per cent. Although the hon. Member for Gordon (Mr. Bruce) gets very excited about today's 2.8 per cent., I am rather pleased with the inflation record of the past three or four years, combined with falling unemployment and high economic growth. The Liberals, and certainly the Chancellor, would be a little reckless in talking about some mythical belief that the previous Government relaxed control before the general election.
  In 18 months to two years, when the first full effects of the Government's decisions are apparent, we shall see how they are getting on in achieving a combination of economic growth, falling unemployment, lower inflation and the generally benign conditions that are required to produce steady growth with low inflation. Neither I nor, I think, any Opposition Member denies that low inflation
  740
  is an extremely important part—perhaps one of the most important parts—in achieving those conditions, but it is only a part of what should be the aim of macro-economic policy.
  It should never be forgotten—it is amazing how frequently it is forgotten in the discussions of commentators—that any democratically elected Government should pursue only one end in economic policy: to attempt to achieve higher living standards, low unemployment levels and improved employment prospects for the general population, whom we serve.
  If low inflation is usually helpful in producing that end, low inflation is very important. However, one should not draft a Bill—as this Bill is plainly drafted—stating that, if some momentary circumstance or shock presents a dilemma in which strict pursuit of the inflation target might damage prospects for growth and employment, the independent Bank should be legally obliged to agree that the inflation target takes priority over growth and employment.
  At the general election, the Labour party would have had a very animated debate indeed if it had made a statement about handing over that power to the Monetary Policy Committee of the Bank of England. All that I recall in the general election, however, was a lot of stuff about going up league tables and the inadequacy of our record on growth and employment—matters that seem to have vanished from the Bill.
  My fear is that the Bill is designed to encourage the extremely good Monetary Policy Committee to go for overkill. All the members of the committee are excellent and I have no criticism of any of them, although it is noticeable that several of them are Bank employees. The majority are from the Bank, while the independent people are appointed by the Chancellor, so these people are drawn from a fairly small circle.
  The Monetary Policy Committee is already demonstrating that tendency to go for overkill. There have already been five interest rate increases since the general election. The first was ordered by the Chancellor on the day that he made his announcement; the committee announced three successive increases in the following months. It also clearly flagged up the fact that it was going to continue to raise interest rates. I think that that was foolish, and particularly that it drove the value of sterling to a level that is causing considerable damage, which has a marked effect on our exports. Having paused for three months, as it said it would, and having considered the evidence, the committee yesterday raised interest rates by a further 0.25 per cent.
  These are difficult decisions. The hon. Member for Norwich, South (Mr. Clarke) alleged that after Christmas of last year I had somehow suspended economic judgment and was simply being driven by politics in not following the Bank's advice. I totally refute that. I printed the minutes. I do not believe that putting up interest rates by a quarter per cent. between Christmas and the general election would have cost one vote. [Interruption.]
  The phrase "Iron Chancellor" was one that I used to claim for myself. I would probably have made the same noises as the present Chancellor, saying that I had raised interest rates to make sure that we avoided boom and bust and that we had stability. The Chancellor has taken all that stuff from speeches of mine made three or four years

  741
  ago. I would have repeated it and it would have been accepted. However, there was an underlying policy dilemma that has not gone away.
  Mr. Charles Clarke: Will the right hon. and learned Gentleman give way?
  Mr. Kenneth Clarke: Yes, as I mentioned the hon. Gentleman.
  Mr. Charles Clarke: Does the right hon. and learned Gentleman believe that, if the Bill had been in force in the first part of the year while he was still Chancellor of the Exchequer, the interest rates would have been the same as they were?
  Mr. Kenneth Clarke: No, they would not. We would have fought the election after several interest rate increases. By the time the election came, we would probably have had the four or five that we have had now. My point is that they would have been wrong. Such increases imposed in that way were unnecessary.
  The hon. Gentleman looks incredulous. He is obviously a natural supporter of the Bill. He looks incredulous at the idea that I am suggesting that the Bank might be mistaken. "Could the Monetary Policy Committee ever be wrong?" is the hon. Gentleman's reaction. He finds it shocking that I could suggest that. In his eyes, I have no doubt committed the great sin of not only rejecting the advice to raise interest rates but then publishing the fact that I rejected it, publishing the advice and giving my reasons for doing so. Those reasons were economic. That was my acknowledgement of accountability to the House and a resistance of short-term political pressures.
  Mr. Charles Clarke rose—
  Mr. Kenneth Clarke: I will give way in a moment, but I must explain the dilemma. It is possible that these decisions are debatable; it is also possible that the eight wise men on the Monetary Policy Committee are getting it wrong, could get it wrong in future and should not be allowed carte blanche.
  At the moment we have a most uneven recovery. The service sector is strong and is the main contributor to the high levels of growth which are believed to be unsustainable. We have a very strong and somewhat unstable level of sterling, which is squeezing exports. There is a very low level of growth in manufacturing.
  The dilemma is to decide the extent to which one has regard to the deflationary effect of the strong value of sterling, the extent to which one has regard to the weak performance of manufacturing, and the extent to which overall stability is threatened by the strong growth of the service sector. This is not the time to have a full debate on the matter, but it is not obvious to me that there were underlying inflationary pressures when the new Government took over which required such a rapid increase. There is no resemblance between the current data and situation and the situation in the later 1980s when we last had boom and bust.
  Unemployment is falling, but the fall is slowing. There are some skill shortages, but the decline in unemployment is slowing. That has not fed through into wage inflation, the
  742
  old British curse. Earnings are now rising by 4.5 per cent., which would have been unimaginable in the late 1980s—4.5 per cent. over an underlying inflation rate of 2.8 per cent. The retail price index, which usually determines earnings, has been driven up by the Government's interest rate increases and the taxes that they have imposed. There was a 3.75 per cent. earnings increase in 1996. This is not driving inflationary pressure. The figures for factory gate prices produced yesterday are astonishingly low. I mentioned the RPI—food prices are almost static, and shop prices are not rising significantly within the RPI.
  Consumer spending has grown strongly by 5 per cent., but it has not shown any signs of accelerating this year. In fact, last month, it seemed to drop a little. That is against the background of the windfalls from the building societies. People feared what would happen when all that money flooded into the economy. My view was that the windfalls were only a one-off—if we acted to deal with the windfall spending, in 18 months' time we would find that the windfalls had gone and the action that we had taken meant our missing the target. In reality, only a quarter of the windfalls appear to be being spent, while most are being saved. The savings ratio in this country is satisfactorily high compared with what it was.
  Everyone, even the Monetary Policy Committee, expects the growth in the economy to slow down next year. I do not know of one commentator who does not think that the present high level of growth will slow next year. If the committee keeps piling on interest rate increases until it sees the slow-down starting, it will face the classic problem of monetary policy: one fires the shot from the cannon, but it takes 18 months to two years before one knows where it lands and what one has hit. If we keep raising interest rates in an economy that is on the point of starting to slow down, it will slow down much faster than expected.
  Two things seem to dominate the Monetary Policy Committee's minutes—which, incidentally, are anonymous, unlike the ones that I used to produce. First, the committee is obsessed with its forecasts. The committee opted for one of the increases because, had it not done so, the Bank's forecast would have shown inflation above 2.5 per cent. two years on, so it thought that it had better build in an interest rate increase to make the forecast that it had printed compatible with the target. I have already commented on the value of the forecasts.
  Secondly, the most serious thing that seems to trouble the committee is that the present rate of growth is unsustainable, despite the fact that everyone believes that it will slow down. The present rate of growth of 4 per cent. per annum is not sustainable, but we are taking a terribly pessimistic view of sustainable annual rates of growth. It has only just touched 4 per cent. In the boom of the 1980s, it was above 4 per cent. for most of four years. I agree that that was before disaster occurred, but let us not take action now, as soon as growth touches 4 per cent., to head off a feared future disaster when everyone knows that the rate will not be maintained.
  The Government are taking the most ridiculously pessimistic view of trend growth in this country. I do not know what trend growth is—no one does, but we have to take our best stab at it. The Government have revised the rate down from my reckless 2.5 per cent. to a more cautious 2.25 per cent., the average of what the British economy has achieved for the past 40 years. What an ambitious, modernising Government! What league tables we will soar up saying that trend growth is 2.25 per cent.!

  743
  It is because the Government do not approve of all our supply-side changes. They are probably anticipating the social chapter, the minimum wage and the trade union laws which will take us back to the trend rates of growth that this country used to enjoy. They have let loose a monetary committee that may ensure that we achieve disappointing results. The cost will fall on the public we serve, who were not given the faintest warning of the measure at any point in the election campaign.
  On accountability and openness, I share many of the views that have been expressed. The right hon. Member for Llanelli attacked the Government's views eloquently, asking why we should be trusted with anything if we are not trusted with monetary policy. What we now call monetary policy has developed only since Bretton Woods, only since Nigel Lawson was Chancellor has it been operated as it is now, and we have a pretty shocking record on running it.
  Of course there is a danger of short-term political pressures taking over. I am against short-term, populist pressures operating on monetary policy. That is why I published minutes. As Chancellor, I was accountable to the House, but I do not remember the House having any effect on interest rate decisions before they were taken. Even after decisions, most hon. Members were so cautious about giving their views that I was not put under too much pressure. Of course, if it all goes wrong and there is hyper-inflation, the Chancellor is rightly hammered by the House of Commons.
  I thought that the best way to avoid political pressure was to print the advice given to the Government month by month, and my response as Chancellor. That had previously been a state secret. I protected my other officials by not naming them. Junior Ministers enjoyed similar protection, although I do not think that they would have minded if we had given their individual views. I allowed them to disagree with me at the meetings. We produced genuine minutes of genuine meetings for the Select Committee and the Opposition to have fun with.
  We now have a new attempt to ensure openness. I should be cautious about allowing the Select Committee to vet all appointments. I do not like the American system. A similar system here might be subject to political influence. However, the Select Committee should demand proper openness.
  The monetary committee produces anonymous minutes. The opinion of the Governor of the Bank of England cannot be identified from the minutes any more. I do not know whether he allows his colleagues at the Bank to express openly at the meeting views that contradict his. They tended to have a more collegiate approach when I was at the Treasury. I think that there is a pretty safe batch of votes there.
  I shall not believe the new minutes—just as people, rightly, would not believe my minutes—until there is evidence of some division. So far, the monetary committee has been unanimous. It may not have been unanimous on the most recent increase, which was a little dodgy.
  In America, where the Federal Reserve produces minutes, the house view tends to prevail. It is a bit like a political party subject to a whip. The members have a frank discussion, but when they face the outside world they endorse unanimously the opinion that the leader—in this case the Governor of the Bank—has proclaimed.
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  I look forward to seeing evidence of votes. I want to know which members of the committee disagreed and why the rest of the committee overruled them. Until we have such minutes, the openness that is talked about will be inadequate. It is less open than the system before the election under the Conservative Government.
  Great claims are being made for the Bill that will not be borne out. If independence was to be contemplated, it should not have been done as it has been. The new system was rushed and ill thought through. The conditions that have been created do not reasonably resemble anything that Labour talked about at the general election. The Government will take us down the league tables of growth, and they could cause rising unemployment.
  Mr. John D. Taylor: I am thoroughly enjoying the right hon. and learned Gentleman's speech and I agree with most of it. However, I do not understand the consistency of being against an independent bank in the United Kingdom but in favour of control by an independent bank in Europe.
  Mr. Clarke: Making a European central bank politically accountable internationally would probably require an international council of Ministers, which, as the French wish, would produce more political intervention. If there is a European central bank and if we participate, I should prefer us to build on the point that I was making. Accountability to Parliament did not previously involve the House of Commons holding the Chancellor to account the day after an interest rate increase. I cannot remember that happening. Accountability for monetary decisions depends on openness and transparency.
  There is a great deal to be decided about the European central bank. It has to determine its monetary targets and its inflation target if it wants one. It has to decide how it will proceed. There is no reason why Europeans should be more hesitant than Americans in demanding proper minutes and that individual governors should proclaim their opinions. There must be proper openness in their discussions. The Treasury Select Committee should be no less hesitant about interviewing the governor and members of the executive committee of a European bank than it is about the Bank of England at the moment, particularly if the Governor of the Bank of England is one of the members. That is how the Bundesbank operates. The members of the board are the heads of the state banks of the various Länder. They offer themselves to account when they go back home.
  That all has to be worked on. I am discussing the Bill. It does not modernise procedures. It is not a considered step on Bank of England independence. It does not create a new anti-inflationary climate. It is the result of four days of dynamic action and an attempt by the Chancellor to be a macho new reforming Chancellor. We have been placed in the hands of a monetary committee that is showing every sign of overkill in pursuing its target. The Bill should be rejected because it is a gimmick, not a worthwhile addition to the country's armoury of economic powers to deal with its problems.
  5.45 pm
  Mr. Giles Radice: The shadow Chancellor's speech was rather ambiguous and uncertain. I was surprised when he ended up recommending that his party vote against the Bill. The right hon. and learned

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  Member for Rushcliffe (Mr. Clarke), the former Chancellor, made a better fist of putting the case against the Bill, although I should like to take him up on a couple of points.
  I congratulate the Government on their good sense and courage in giving the Bank of England operational responsibility for setting interest rates. It was the right thing to do and they were right to do it straight away.
  The Treasury and Civil Service Committee, of which I was a member, reported on the issue in December 1993. That report helped to lay the groundwork for the Government's policy. We recommended giving operational independence to the Bank. The Chancellor has generously recognised our work.
  We started with open minds. Having taken evidence from many sources and examined experience overseas, we were persuaded by the arguments for independence. There was a Conservative majority on the Select Committee. The conclusion was supported by all but one of the Labour members—the one who is in front of me at the moment—and by the Liberal Democrat member. Our model has now been accepted by the Government.
  Lord Lawson put strongly to us the key argument that Bank independence enhanced the credibility of monetary policy. Whatever the right hon. and learned Member for Rushcliffe may say, nobody—least of all the markets—trusts politicians to set interest rates, particularly in the run-up to an election. The Chief Secretary also pointed that out to the Select Committee.
  Who is to say that the people are wrong, from the track record? When Roy Jenkins was Chancellor, in the run-up to the 1970 election—which the Labour Government lost—he took a tough line. The right hon. and learned Member for Rushcliffe, a number of whose policies—particularly those on Europe—I admire, ran a relatively tight ship for two years, recovering from his rather poor inheritance as Chancellor. But in the run-up to the election, he relaxed public spending. He should have increased interest rates at the beginning of 1997, as I said during the Budget debate at the time, so I am not being wise after the event.
  Ms Abbott: My hon. Friend has repeated the well-rehearsed point that politicians cannot be trusted with interest rates. Will he explain, therefore, the intellectual rationale for trusting politicians with the other levers of monetary policy—fiscal policy and so on?
  Mr. Radice: It is not a purely intellectual argument, but one about practice. One has only to look at the record. That is why so many countries have been giving banks operational independence in respect of monetary policy.
  Mr. Mitchell: It is in fashion.
  Mr. Radice: It is not a question of fashion, but rather the result of practical experience. If my hon. Friend the Member for Great Grimsby (Mr. Mitchell) will settle down for a moment, I shall give him part of the argument.
  Operational independence can help to create a virtuous circle. Such independence enhances credibility, making it more likely that inflation targets will be achieved as the behaviour of the main players is influenced. In time, that enhanced credibility allows lower interest rates. As Lord Lawson said,
  746
  "If monetary policy remains in the hands of politicians, the markets demand an interest rate premium."
  The right hon. and learned Member for Rushcliffe knows that very well. The Select Committee looked into the matter and found that countries with independent central banks had a better inflation record than those without.
  A serious counter-argument has been put by my right hon. Friend the Member for Llanelli (Mr. Davies) and by the right hon. and learned Member for Rushcliffe, who questioned whether operational independence would lead to a more deflationary policy. In other words, would it lead to overkill? Some safeguards against this have been written into the Bill. For example, reasons have to be given if the inflation target is overshot or if there is an undershoot—in other words, if inflation is too low. If there is overkill, the Monetary Policy Committee has to inform the Chancellor why. That was not mentioned by the former Chancellor—in my opinion, unfairly, as it is written into the Bill.
  The primary role of the Monetary Policy Committee is to bear down on inflation, but the committee must also support the Government's economic policy, including the objectives of higher and stable levels of growth and employment, so it cannot ignore those factors. As I have said, the greater the credibility of monetary policy, the lower interest rates can be, increasing the stability of the system and producing a good environment for growth and employment. That is the basic rationale for the system.
  The model presented to us in the Bill also increases the openness of decision making. The right hon. and learned Member for Rushcliffe was gracious enough to admit that there is no golden age of accountability to which we can refer back. Under the old system there was a formal ability to question the Chancellor about interest rates, but he was not very forthcoming in replying to it. I remember Lord Lawson telling us:
  "When I want to put up interest rates I put them up. When I want to bring them down, I bring them down."
  That was a perfectly valid constitutional position, but it does not tell the House very much about the reasons behind the policy. If Chancellors thought they could get away with saying that, they did so.
  I accept that, acting on a suggestion from the Select Committee, the right hon. and learned Member for Rushcliffe published the minutes—all credit to him for that. They were sometimes quite revealing, but sometimes they were not. One had the impression that there may have been a meeting beforehand between officials from the two bodies and that some of the conflict did not come out into the open. It is fair to say that decision making remained fairly opaque.
  Under the new system, there is increased openness. First, the Chancellor sets inflation rates and has to answer to the House and the Select Committee. Secondly, there is a full publication of minutes and votes. Therefore, any differences and divisions will be clear. The Select Committee will certainly insist on that. Thirdly, the non-executive members of the reconstituted court of the Bank will review the performance of the Bank and report to Parliament. That will be one opportunity for Parliament to examine the Bank's performance on monetary policy. Lastly, the Select Committee will have an enhanced role.
  The Select Committee has been given a greater role than in the past. Although we have asked the Governor of the Bank of England to give evidence previously, in future

  747
  it will be done on a very different scale. We are committed to at least two dedicated sessions on the four inflation reports each year, and there could well be as many as four. I can announce to the House that the next one will be when the Governor and the members of the Monetary Policy Committee give evidence on 27 November. If there is division, we shall want to question representatives of the Monetary Policy Committee to find out the reasons for any differences and so get them out into the open. I agree that the best way to achieve an accountable system is to have an open system.
  We shall take evidence on the inflation target from my right hon. Friend the Chancellor, who is responsible for setting it, and the Governor, who is responsible for implementing it. We will do that every year. If there is an open letter from the Governor to the Chancellor on the reasons for the divergence of inflation from its target, we shall take evidence from the Chancellor and the Governor. If the Chancellor uses his power to override the Bank, we shall take evidence from him. We shall also take evidence from the non-executive members of the court on their assessment of the Bank and the Monetary Policy Committee. So the Select Committee will have an enhanced role and a much greater programme of hearings and reports to the House on the performance of the Monetary Policy Committee.
  In a sense, the Select Committee is also on trial. [Interruption.] Although my hon. Friend the Member for Great Grimsby wants me to be a terrorist, I shall not, even for him. However, we shall have to ask sustained and serious questions about the performance of the Monetary Policy Committee. There are very many able people on the Select Committee, and they will do that most effectively.
  We have also said in our report on accountability that there should be confirmatory hearings. The right hon. and learned Member for Rushcliffe has some reservations, but we believe that such hearings would be good for the independence of the Monetary Policy Committee and strengthen the relationship between the Bank and Parliament. Of course, when somebody is appointed, we can have a hearing and issue a report to the House on that person's suitability. The fact that we can and shall do it—even without formal powers being written into the Bill—could influence the Chancellor were he thinking of putting his granny or whoever on to the Monetary Policy Committee. So we hope the Select Committee will contribute to some extent, but it would be much better if formal powers could be written into the Bill.
  Ms Abbott: Is it right for my hon. Friend to talk about the Chancellor's granny in such disparaging terms? For all we know, she might be an expert on monetary policy.
  Mr. Radice: However good she is, it would be ill advised to put relatives on the Monetary Policy Committee.
  Mr. Kenneth Clarke: On a more serious point, I am not concerned about the Chancellor's granny, but I may be leaping in where the Chief Secretary feared to tread. Everybody seems to be very keen on confirmatory hearings. Is the idea that the Treasury Select Committee will cross-examine all the aspirants on their views on monetary policy? Will it award them marks them out of 10 in relation to their competence? Will it insist on more
  748
  or fewer strict monetarists? Will it want some "inflation is dead" men? We could end up with a peculiar Monetary Policy Committee if the Select Committee decided to approve people with whose views it happened to agree.
  Mr. Radice: It is easy to poke fun at the idea, but we shall look at the professional competence of the people concerned. We have good advisers and our own views. It will not be a question of putting monetarists or Keynesians on the committee, because we do not actually appoint members of the committee. That is a decision for the Chancellor. We will be able to make reports to the House on those appointed or nominated by the Chancellor and, in some instances, we may decide that they are not professionally up to the job. We may be wrong, but the House can take account of our view and dismiss it if it wants.
  Confirmatory hearings are a sensible approach, and the House should consider them seriously. We do not intend to introduce an American "advise and consent" system, and we would not delve into the sex life or tax position of Monetary Policy Committee nominees. We will examine their professional qualifications to do the job. I hope that the Government and the Modernisation Committee will consider the proposal with an open mind.
  My last point concerns the terms of office of the members of the Monetary Policy Committee. At the moment, the members—apart from Governor and Deputy Governor—will serve for only three years. It could be argued that that will give the Chancellor undue political influence over those members. Perhaps the terms should be longer than three years, and I hope that the Chief Secretary will consider that suggestion. Appointments to the court have also been reduced from a four-year to a three-year term. What is the rationale behind that change?
  I strongly support the Bill, because it will help to create monetary stability. I believe that is important, because I have lived through the 1970s, 1980s and the early 1990s. It will also help to create conditions for non-inflationary growth and will enhance the openness and accountability of monetary policy.
  6.2 pm
  Mr. Malcolm Bruce: I am glad to be called at last to speak in this debate, not least because there is more united support from the Liberal Democrats for the Bill than from Labour or Conservative Members. The latter appear to be somewhat confused and incoherent on the matter.
  The proposals in the Bill were not contained in the Labour party manifesto, although they were clearly spelled out in the Liberal Democrat manifesto and the paper that we published before that. During the election, the subject came up in numerous debates between the then Chancellor, the then shadow Chancellor and myself, but the current Chancellor gave no indication that he intended to introduce such a Bill. I can only conclude only that he must have been persuaded by the force of the arguments. However he arrived at his decision, the Liberal Democrats are keen to support it.
  The Economic Secretary to the Treasury (Mrs. Helen Liddell): I am loth to interrupt the hon. Gentleman's train of thought, but the issue of the contents

  749
  of the Labour party manifesto keeps being raised. I am sure that he has read the manifesto in some detail, but he may care to turn to page 13, which states:
  "We will reform the Bank of England to ensure that decision-making on monetary policy is more effective, open, accountable and free from short-term political manipulation."
  What is his problem?
  Mr. Bruce: The Economic Secretary knows that that is not a clear statement of operational independence, which is a clear policy that has been well discussed. Labour politicians, when in opposition, did not make their support for it clear. However, that is history. The Government's decision is welcome and I am happy to support it. Indeed, much of the detail is along the lines that we advocated. We would have preferred a more radical review of the structure of the bank, and we proposed that its name be changed to the United Kingdom reserve bank, with full statutory regional representation on the board of management or the court. Nevertheless, the Government have gone a long way towards our proposals.
  I intend to concentrate my remarks on the part of the Bill relating to monetary policy. I hope that my hon. Friend the Member for Twickenham (Dr. Cable) will be able to speak later on the regulatory aspects of the Bill.
  The proposals will bring the United Kingdom into line with almost every other major developed economy. I find it strange that we have heard such vehement opposition from hon. Members on both sides of the House to what has increasingly become recognised as good practice in the day-to-day management of monetary policy. The right hon. Member for Llanelli (Mr. Davies) made a ludicrous leap from the devolution of the day-to-day management of interest rates to the total management of economic policy. The change will enable the Government to get on with the job for which they are supposed to take responsibility-fundamental policy decisions on the economy-instead of being diverted by short-term arguments about interest rates.
  The right hon. and learned Member for Rushcliffe (Mr. Clarke) was unable to restrain himself from justifying the position of the Conservatives in government and his own track record. His argument appeared to be, "I am right and other people are wrong. You should be glad that I had the opportunity to take those decisions, because I was right."
  As the right hon. and learned Gentleman pointed out, the time lag is 18 months and we have not yet seen the full impact of his decisions, never mind those of the present Government. However, if I am not mistaken, it was about 18 months ago that he overruled the Bank of England's determination to put up interest rates—and we now have an inflationary pressure whose importance he downgrades, but which most commentators regard as real and requiring action. He is entitled to his opinion, but I am not sure that he is entitled to such uncompromising self-confidence.
  Mr. Kenneth Clarke: We have 12 months in which my approach may prove to be wrong, although everybody forecast that inflation would fall in the second half of this year. My point was about overkill and excessively deflationary policies. My argument was that five increases
  750
  of 0.25 per cent. each justify my suspicion that the Government have a deflationary policy. I might have decided on a couple of increases myself under the old arrangements, but I would not have reached 7.25 per cent. The Bank is behaving in precisely the way that we warned it would.
  Mr. Bruce: The right hon. and learned Gentleman is entitled to his opinion. He has declared it robustly and the next 18 months may test it out. He also said in his speech, and has just repeated it, that he might have made adjustments earlier. Had he done so, the situation might have been different now. [HON. MEMBERS: "He did not say that."] Yes, he did.
  Mr. Lilley: My right hon. and learned Friend said that the committee might have made adjustments earlier, but that it would have been wrong to do so.
  Mr. Bruce: That is a categorical statement about a matter of opinion, and that is the difficulty that arises in such cases. Such arguments are ultimately fruitless, because in reality someone has to make an objective economic decision. If a Chancellor appoints an independent committee to make the decision and then overrules it on the grounds that he knows best, he is effectively deciding that political, rather than economic, considerations will determine the management of monetary policy.
  Our experience over the years has been fairly bitter and, more often than not, we have been wrong rather than right. We can reflect on the fact that, on the day that the Chancellor announced his decision, long-term interest rates went down. Whatever the short-term considerations, the ultimate objective must be the real gains that are to be obtained from ensuring stable, low inflation, low long-term interest rates and a degree of convergence between our interest rates and those of parallel economies operating similar forms of operationally independent central banks. That ultimately is a prize with real benefits for mortgage payers, businesses and everybody who wants stability in economic management.
  I hope—at the moment it is only a hope—that the Conservative party will end its opposition to the proposal. I repeat what I said to the shadow Chancellor. I find it extraordinary that he can claim that the Chancellor is giving away his most important power—it is a questionable argument, but those were his words—while suggesting that he could not make up his mind whether or not the Conservatives would reverse the decision if they ever regained power. If what he said is true, he ought to commit his party to reversing the Chancellor's decision. The fact that he cannot and will not suggests that it is an argument for today, rather than a substantive belief. The shadow Chancellor then spelled out how one could make the Bank more independent—presumably by improving the Bill to make it acceptable to the Conservatives, and therefore not reversible.
  In our view, it would be helpful to have political consensus on this sooner rather than later. The Conservative party's position may not be a worry at the moment because nobody seriously expects it to be in government for a long time. But if the Conservatives are serious in their pretensions to regain power, people in business will want to know whether they would wish to reverse the policy. They cannot leave it in limbo for ever.

  751
  If they can be so definite about apparently never joining a single currency, it seems odd that they are not clear where they stand on this matter.
  This is the right Bill and it should command wide support. I do not believe that people will rush into the streets demanding that politicians be given the right to interfere once again in the short-term setting of interest rates. If one looks at the American example, I hear no clamour that Bill Clinton should take over control of interest rates from Alan Greenspan. I am not sure whether anyone—even the hon. Member for Hackney, North and Stoke Newington (Ms Abbott)—would replace Eddie George with the shadow Chancellor, although, essentially, that is what the hon. Lady is arguing for.
  Once the system is in place, it will be recognised as a sensible and practical way of making short-term decisions, allowing the Government to concentrate on the things that shape the long-term economy, which clearly include the fiscal stance and policies for promoting growth and investment. If we achieve stable low inflation, the climate for investment will be dramatically improved in the long term. People can start to assess risks on a much narrower basis, and clearly that will encourage a great many more investment prospects which currently fall by the wayside because of the need to allow for unpredictable fluctuations in exchange and interest rates.
  A sensible decision is being opposed by the Conservative party, which nevertheless has among its number a former Chancellor who is most enthusiastic about the policy—Nigel Lawson. The right hon. Member for Strangford (Mr. Taylor) intervened on the right hon. and learned Member for Rushcliffe and got him middle stump by asking for his view on an independent central bank for the United Kingdom as compared with a European central bank. It is neither consistent nor logical to oppose the principle of an operationally independent bank for the United Kingdom while being in favour of a single currency reinforced by a central European bank. He knows that to be the case, and was able to argue only on the detail.
  I had many debates with the right hon. and learned Member for Rushcliffe when he was Chancellor, and I always respected his style and his record, in spite of our differences on the details. Clearly he is proud of his record, and he has some reason to be proud. However, he can get carried away by some of his press releases—he certainly did at the end of the last Parliament. He seems to take the view that there was a great deal of entertainment in the Ken and Eddie show, and he took pleasure in being right, on his terms, more often than Eddie. The funny thing is that, when one talks to Eddie, he sees it rather differently in terms of who was right and who was wrong. He maintains, as the former Chancellor would, that the jury is still out on the final result.
  In spite of his assertions to the contrary, many commentators—I include myself among them—take the view that the conduct of the right hon. and learned Member for Rushcliffe before the election underlined the case for an operationally independent bank. I do not believe him when he says that the rate set in the six-month run-up to the election was not influenced by political considerations. He may have taken a different view, but others in the Cabinet at the time definitely thought that the Conservatives could do without interest rate rises in the run-up to the election. The sooner the Conservative party can accept the principle of the policy, the better.
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  The Conservative party will have no credibility if it opposes the policy, and it is not prepared to say whether it will endorse the policy or leave it uncertain.
  There are a number of issues which we can debate in more detail in Committee, but I should like to follow the hon. Member for North Durham (Mr. Radice), who referred to some of the Treasury Committee's recommendations which bear further consideration.
  The terms of appointment of the members of the Monetary Policy Committee are important and, having discussed the matter with people inside and outside the banking fraternity, I can say that there is a general recognition that three years is rather short, on two grounds. First, if one is trying to determine an inflation target and a policy to hit that target with a lag time of two years, one does not have an opportunity to produce a significant track record in three years. It takes longer than that, and that is fundamental to the argument.
  Second, and less importantly, is the freedom from apparent political pressure. I am not accusing the Chancellor of seeking directly to intervene on or influence the independence of the monetary committee, and I am not convinced that the people to be appointed would be susceptible to pressure. But the perception that they could be put under pressure cannot be removed in the case of a three-year appointment which requires their reappointment this side of a general election.
  Perhaps the period could be extended to five years—not the 10 or 15 years which apply in other countries—which would give them long enough to establish a track record and to depend for their reappointment on the next Government and the next Parliament, not the current ones. Those are persuasive arguments. If the Government genuinely believe that their claim to have an open mind is valid, I hope that they will be persuaded to reconsider the terms of appointment and extend them to take that into account.
  I wish to refer also to confirmatory hearings. The Government have indicated that they are not against them in principle, but the Chief Secretary—in his evidence to the Select Committee—basically said that, although he had an open mind, he would resist all amendments. He argued on the grounds of the time scale and the fact that this would be a radical departure that had implications for other appointments. That is why the hon. Member for North Durham is suggesting that the Modernisation Committee should look into that matter.
  I urge the Government to approach the matter the other way round. If we are to move in that direction—many feel that that is a logical area for Select Committees in general to be involved in—we have to start somewhere. I am suspicious of the argument that we should either introduce it across the board or not at all, because I know where that would lead:it would lead to our not introducing it at all.
  We should start somewhere, perhaps providing a model that could be extended elsewhere. That would be a good constraint from the Government's point of view: a Select Committee that knew that it would be judged to determine whether its use was to be extended would be constrained in its actions by that consideration. I hope that the Government will consider that a reasonable starting point that could be extended if the project was a success and not repeated if it was not. If they do not, I fear that we may never get into that slightly more innovative mode.

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  I ask the Government to follow the spirit of their own terms and allow their open-mindedness to develop into real, practical activity that could help to strengthen the role and respect of Select Committees and to test the Government's good faith. I am not challenging their good faith, but it must be borne into practical action.
  Everybody is aware that the Governor's term of appointment is due for review in the near future. I want to put it on record that, regardless of the differences of view that he has had with a variety of people, he has conducted himself in recent years with great credibility and integrity. The Government would do well, considering that this is a new departure, to take an early decision to confirm his reappointment. If this exercise is to be a success, it is pretty important for the Bank to know in whose hands its new role is to be developed.
  The Government have set themselves the task of preparing the country for membership of a single currency, even if, regrettably, they have effectively ruled out the possibility of an early decision in this Parliament—although I suspect that they may yet have to return to that. The Bank is likely to have some years of operational independence before the decision is finally made to become part of the European central bank, so perhaps its track record in those years will pave the way.
  The Conservative party has put itself in a remarkable position, given its track record and former contacts and support: on all the central issues, it is substantially on the wrong side of the debate with the business community, which needs at least some suggestion of a practical political focus for decision making that takes account of what is really happening.
  In the real world, politicians do not have the power they often claim to manipulate the economy as some interventionists would wish, but they can create a climate of stability and allow business to thrive. In the European environment, there is a clear determination to set up a strong single currency, pursuing policies of monetary and fiscal rectitude to the benefit of all the economies of the European Union.
  There is no apparent role for a United Kingdom that is not part of that, and the Conservative party has not articulated any coherent possible role in that circumstance. If it cannot do that, it can hardly be surprised that it cannot convince the captains of industry and the decision makers in business that what it has to say is relevant to the 21st century.
  The Government have made a commitment in principle to the single currency that accords with practical reality, and have introduced a Bill that accords with good common sense and should lay the foundations for stable low inflation and a climate of good investment. We commend it, and will support it.
  6.24 pm
  Mr. Mike Wood: As the first Labour Member for Batley and Spen and someone who has lived there since 1976, I cannot believe that any hon. Member is unaware of my constituency's precise location, but perhaps for the record I should fix its geographical location at the very heart of West Yorkshire, with a northern boundary that is co-terminous with both Bradford and Leeds.
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  My constituency is a mix of keenly independent-minded towns that pay no deference whatever to their more powerful northern neighbours, interspersed with attractive countryside that still shows the scars of an industrial past. Batley made its name and its wealth in the last century as the centre of the heavy woollen industry and from the manufacture of a specialist product called shoddy: the bringing together of used rags and woollen cloth to produce quality overcoats and carpets—an early example of recycling that brought an influx of workers from Ireland and, later, from the Indian sub-continent. Both those communities are now settled and form the core of the town's diverse and industrious population.
  The Spen valley is the centre of the wire-drawing industry—a process whereby metal rods are transformed into rolls of wire—and until recently was a major producer of asbestos products, resulting in much long-term illness and death for workers and their families.
  The last of our many pits, Gomersal, closed in the 1970s, more than 15 years before my immediate predecessor achieved passing fame by defending certain groups of miners during the Conservative Government's ill-conceived and malicious assault on one of the most efficient industries in the world. As a direct result of that disastrous policy, applications have been made in my area for opencast mining development, with all its attendant environmental and health problems.
  Mrs. Peacock held strong views on issues such as law and order and abortion, and liked to be thought of as an independent-minded Yorkshire woman. I wish her the peaceful and thoughtful retirement that she deserves.
  Over the years, we have suffered more than most at the hands of the boundary commission. The first Labour Member for Batley and Morley, Ben Turner, travelled at his own expense and by a circuitous route to Moscow in the early days of the Soviet Union. Granted an interview with Lenin, he informed the great man that he appreciated the scale of his problems but could not condone his methods. In the House he was hardly less forthright, and was a consistent advocate of a minimum wage.
  A contemporary of Ben Turner's was Tom Myers, the first Labour Member for Spen Valley. Tom for a short while replaced Sir John Simon, and his work is recognised in the name of my office premises in Cleckheaton: Tom Myers house. Constituents still call occasionally and ask to see Tom—or, to be more exact, they think that I am Tom. Recently the Co-op bank demanded his endorsement on a cheque and took a fair time to accept as sufficient justification for his absence the fact that he had been dead for 50 years.
  No introduction to my constituency would be complete without mention of and tribute to Dr. Broughton, who, after working as a Batley general practitioner, served as its Member of Parliament, to equally good effect, for more than 30 years. It was a tragedy not only for him but for his country that, while he was on his death-bed, the Callaghan Government fell for the want of the single vote that he would loyally have provided had his illness allowed.
  Mine is a constituency with many fine museums, some of national note, and a rugby league side in Batley Bulldogs that would also have national standing if its effort received more ample reward and, indeed, more financial backing.
  We are steeped in history, as reference to one short period will show. Dr. Joseph Priestley, one of this country's foremost scientific minds, was born in Birstall

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  and spent his formative years in the area. He is noted for his discovery and isolation of oxygen—not, as so many school essays are supposed to claim, its invention. As a minister of religion he held radical views that even now would not endear him to the establishment, or even to many Labour party selection meetings. As an open supporter of both the American and French revolutions, he was a target of Government agents. To the shame of this country, a great reforming mind was lost to America.
  Government agents also infiltrated and eventually undermined the working-class movement centred on the Spen valley that became known as the rise of the luddites. They were highly skilled and literate workers responsible for putting a fine quality hand finish on local woollen cloth. The machinery that threatened their jobs also threatened their families. That, combined with employers whose idea of industrial relations involved threats to ride up to their saddle girths in luddite blood, precipitated a violent conflict.
  While mortally wounded in a local hostelry, a youth called Booth was tortured to obtain the name of the luddite leader. The vicar of Liversedge, the Rev. Hammond Roberson, an active supporter of local industrialists, in an effort to obtain the confession, assured the lad that he could keep a secret. With his last gasp, Booth assured the cleric that he could, too, and he took the luddite leader's name to his grave.
  Hammond Roberson was a dinner companion of a local curate, the Rev. Patrick Brontë who, a year after the public hanging of the Spen valley luddites at York, brought his new bride to live at Hightown. It was there that Charlotte's sisters Emily and Anne were born. It was in the Spen valley that the famous novelists received their education.
  I do not expect the privilege of serving the area for as long as Dr. Broughton or the opportunity to confront and contradict world leaders as did Ben Turner, but I am confident that in this Parliament, as part of this Labour Government, I shall see the advent of Turner's long-sought minimum wage. I will have the opportunity to vote for regulations to stop further environmental destruction by opencast mining, and I will be part of the process that will introduce the long overdue ban of the import and use of asbestos.
  Today, we debate the Bank of England Bill, which has been headlined as the Bill that will allow the Bank of England the freedom to set interest rates—not an idea that I welcome wildly. Of course, it contains far more: new faces and new freedoms balanced by new responsibilities and accountability, as one would expect from a Government determined to position this country to meet the challenges and take the opportunities that the new millennium will bring. As such, it has much to recommend it to my constituents and to people throughout Britain. I am proud to be able to lend my support to the Bill today.
  6.31 pm
  Sir Peter Tapsell: It gives me great pleasure to be the first to congratulate the hon. Member for Batley and Spen (Mr. Wood) on his excellent maiden speech, to which the House listened with close attention and much pleasure. He spoke in a most interesting way about his constituency and some of its famous figures of the past. He also paid tribute to his
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  predecessor, Elizabeth Peacock, who is a great friend of mine. The only point on which I would venture to disagree with him was his suggestion that she might be looking forward to a quiet retirement. Knowing her as I do, and admiring her tremendous rigour and the bonny way in which she fought for her constituency and, in particular, for her miners, I am sure that quietness is the last thing she has in mind and that she will continue to play an active role in public life. We hope to hear from the hon. Gentleman often. From his closing remarks, it is obvious that he is a man of idealism, and will make a great contribution to our discussions.
  Right hon. and hon. Members on both sides of the House have expressed some astonishment that the introduction of independent monetary control by the Bank of England was announced four days after the general election without having been in the Labour party's manifesto. Even The Guardian of 7 May said that there was no democratic legitimacy for the proposal. One wonders why this dramatic announcement, now encoded in a Bill, should have been made with such a roll of drums so soon after polling day and before the House of Commons reassembled. There are four main reasons.
  The first was explained by Lord Healey in his usual helpful way, when he said that the idea of an independent central bank was a gimmick to be used as an apologia by failed Chancellors to shuffle off their failures on to the Bank of England. As has been pointed out, there have already been five increases in interest rates since polling day. Apart from the introduction of university charges, they are the most unpopular things that the new Labour Government have done.
  One can see that it is in the short term politically helpful to the Government to be able to say that it is the responsibility of other people. I doubt whether that will work for them, because in my constituency surgery on Saturday, nearly half the people who came to see me with their personal problems mentioned higher interest rates on their mortgages as a particular blow. None of them blamed it on the Bank of England. None seemed to have got the message. They seemed to feel that it was the responsibility of the Chancellor of the Exchequer. Perhaps every effort will be made by the spin doctors as time goes on to prove that those matters are no longer the responsibility of the Government.
  The second reason for the change is that every Labour Government have produced a sterling crisis leading to the devaluation of the pound: 1931, 1949, 1967 and 1976. By surrendering control over monetary policy, the Chancellor no doubt hopes that, in the next crisis, the independence of the Bank of England will provide him with an alibi.
  Thirdly, the Chancellor and his senior colleagues must hope that the change will provide him with a defence against his Back Benchers, who will not always be as supine and cringing in their parliamentary behaviour as they have been so far. When things start to go wrong on the economic front, as undoubtedly they will in the nature of things, and when unemployment starts rising, as undoubtedly it will at some point in the cycle, I hope that Labour Back Benchers will not allow themselves to be bought off with the excuse that the measures causing unemployment are not in the control of the Government but are the responsibility of the hard-hearted people on the Monetary Policy Committee of the Bank of England.

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  The fourth, and in many ways most important, reason for the change is to prepare the way for Britain to enter a single European currency managed by a European central bank that will be wholly independent of any form of democratic control. When one tells people—even sophisticated people in the City of London and in business—that the proposed European central bank will be subject to no democratic control or influence, they express disbelief.
  As some hon. Members were not here in the previous Parliament during our interminable discussions of the Maastricht treaty, it might be useful if I read out the relevant extract of article 7, which explains the exact position of the proposed European central bank. Article 7 states, in part:
  "neither the ECB, nor a national central bank, nor any member of their decision-making bodies shall seek or take instructions … from any government of a Member State or from any other body … The governments of the Member States undertake to respect this principle and not to seek to influence the members of the decision-making bodies of the ECB or of the national central banks in the performance of their tasks."
  That is what the Maastricht treaty imposes upon us. So much, therefore, for accountability and transparency.
  Some people have suggested that, as long as the minutes of the European central bank are published and we know who has taken the decisions, there is accountability. I see that the hon. Member for Finchley and Golders Green (Dr. Vis) wants to intervene. If he enters the House, it will be easier for me to give way and I shall most certainly do so.
  Mr. Deputy Speaker (Mr. Michael J. Martin): Order. Win the hon. Member for Finchley and Golders Green (Dr. Vis) be seated? He should not address the Chamber from those Benches, as they are not part of the House.
  Sir Peter Tapsell: I understand, but I shall be happy to give way to the hon. Gentleman now that he is in the House, if you will permit me to do so, Mr. Deputy Speaker.
  Mr. Deputy Speaker: The hon. Member for Finchley and Golders Green was outwith the precincts of the Chamber, so the hon. Member should carry on with his speech.
  Sir Peter Tapsell: I bow to that judgment, which has put me, after 38 years, into a unique position of experience in these matters. I see that the hon. Member for Finchley and Golders Green is rising again and, as it is presumably on a different point, I shall be happy to give way to him.
  Dr. Rudi Vis: Well, it is from a different position and I must apologise to you, Mr. Deputy Speaker. You talked about accountability and transparency, but the bit of the Maastricht treaty that you read out concerned independence, not accountability or transparency, which is elsewhere in the treaty. You would do well to read that out to us.
  Sir Peter Tapsell: The occupant of the Chair is being held responsible for a great many things for which I do not think he is responsible. I shall try to answer that intervention within the rules of order.
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  If we have a European central bank, it will be against the law to seek to influence or bring pressure to bear on it. As the Maastricht treaty explains, one can be heavily fined for attempting to influence the decisions of a European central bank. That will have far-reaching effects on the lives of all our citizens, and it is totally unacceptable.
  We are not today debating the European central bank, but there is an enormous and significant difference between that bank as described in the treaty and the proposals for the Bank of England set out in the Bill. The Bill is intended as a halfway house towards our economy being managed by a European central bank. Only by giving it independence at this stage can we take the necessary steps of joining the exchange rate mechanism for two years, joining the single European currency and being subsumed in the European central bank—when our gold reserves will be carried off to Germany.
  All that flows from this legislation as, without the establishment as an interim measure of an independent British central bank, it will not be possible for us to join European monetary union. Indeed, the Maastricht treaty makes it clear that countries must establish independent central banks before they can join the European central bank. Those seem good reasons for being suspicious of and, indeed, hostile to the idea of an independent central Bank of England, which will take these vital decisions on monetary matters.
  The Bill raises three main political considerations. The great macro-economic objections, which were mentioned by the right hon. Member for Llanelli (Mr. Davies) and my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley), are that the Bill involves the separation of fiscal and monetary policy. That is a profound mistake, and it will lead to great trouble. It will make it much more difficult to manage the British economy efficiently, particularly in times of difficulty, if the Chancellor of the Exchequer is° not in control of monetary as well as fiscal policy.
  Nye Bevan is famously quoted as saying, "You don't have to read the book because it's all in the crystal ball," although he put it the other way round. The crystal ball shows clearly that a tight monetary policy was operated in tandem with a loose fiscal policy in the United States in the 1980s, and that we had the same thing in Germany in the 1990s after reunification—the Bundesbank operated a tight monetary policy while Chancellor Kohl's Government operated a lax fiscal policy. That impinged harshly on the British economy, because of our membership of the exchange rate mechanism between 1990 and 1992.
  Over-tough German monetary policy led to a much too tight monetary policy here at an inappropriate time in our monetary cycle. That caused appalling hardship in my constituency. Many small farmers and business men were bankrupted. It would not be an exaggeration to say that that hardship was the main cause of the Conservatives' unpopularity at the last general election, which stemmed from residual memories of those years of our membership of the ERM. It is extraordinary that there are those in the Labour party, of all parties, who want to go down that road again.
  Unemployment has always seemed to me to be the most appalling of all social scourges. I belong to a generation who remember the prewar years. One of my earliest memories was of standing in the dole queue with my

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  father, who had been a rubber planter in Malaya. When the slump meant that one could not sell rubber anywhere in the world, he came back to England, quite unqualified to work here, and he remained unemployed throughout most of my childhood, until the war broke out and he was able to join the Army again.
  My memories of the 1930s motivated my economics rather more than my subsequent reading of John Maynard Keynes, although he gave me the intellectual understanding of how all that unemployment came about. It is amazing to me that the Labour party, of all parties, has abandoned all those memories and does not seem to appreciate that, if we join a single European currency and have independent banks—whether British or, worse still, foreign—unemployment in this country will be much higher than it would otherwise be. That is not a party political point; it is demonstrably the case.
  As almost everyone who has spoken in the debate has admitted, and as my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) rightly said, central bankers, by their nature, have a bias in favour of deflation. The right hon. Member for Llanelli also pointed that out very well. Whenever a group of central bankers get together, they are entirely preoccupied with the level of inflation. Of course that is important.
  Mr. Radice: There is a famous central banker called Mr. Greenspan who clearly looks after the real economy as well as the inflationary issues.
  Sir Peter Tapsell: I know Mr. Greenspan and I knew his three predecessors. He has done a good job in the United States and he takes a considerable interest in levels of employment and investment, but the US Federal Reserve bank, or the Fed as it is called, is vastly more subject to pressures and to democratic accountability than anything suggested for the European central bank—there is simply no comparison.
  Mr. Geraint Davies: Will the hon. Gentleman give way?
  Sir Peter Tapsell: Let me finish my response to the hon. Member for North Durham (Mr. Radice).
  When asked a similar question by him during a previous speech, I spelled out at considerable length—I shall not repeat it now—the enormous degree of accountability to which the Fed was subject. Mr. Greenspan's immediate predecessor told me that he spent an inordinate amount of time preparing for congressional hearings, which were held in front of the television cameras with millions of his fellow Americans watching, to justify the Fed's every move on monetary matters.
  There is no suggestion that pressure cannot be brought to bear on the Fed—every sort of pressure has been brought to bear: President Reagan tried to push out some members of the Fed and replace them with his own nominees, and Franklin Delano Roosevelt did the same in the 1930s. The Fed has always and openly been subject to tremendous pressures, which is regarded as entirely proper and appropriate, but the Maastricht treaty forbids that in respect of a European central bank. Any comparison between what is proposed for the people of this country if we join a single currency and what happens in America in respect of the Fed is entirely misleading.
  Mr. Davies: Does the hon. Gentleman agree that the Bank of England's forecasts on inflation are significantly
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  more optimistic and up-beat than other outside forecasts? That casts doubt on the myth that the Bank of England is run by pessimistic deflationary bankers. In fact, it is not full of bankers but is run more widely by economists. Secondly, does he agree that the whole point of having a committee to hold the Bank of England to account is to ensure that it does not follow that we have a deflationary instinct, which has been suggested by several hon. Members on both sides of the House, and is simply false?
  Sir Peter Tapsell: I am bound to say that I agree with every word that my right hon. and learned Friend the Member for Rushcliffe said on this point. I earned my living as a stockbroker for 35 years, and the research department of the firm in which I worked was nearly always more accurate in its forecasting than the Bank of England. We took pride in that fact, and there was widespread comment in the financial press whenever we were nearer the mark than the Bank.
  The Bank of England was unduly pessimistic in my right hon. and learned Friend's last months as Chancellor. Although he said that his parliamentary colleagues were reluctant to express a view, several times during his last year as Chancellor I went up to him in the Division Lobbies and said how glad I was that he was resisting Bank pressure to raise interest rates, which I thought to be unnecessary.
  I am sure that my right hon. and learned Friend was right to resist that pressure, and I agree with him that the Monetary Policy Committee will pursue unnecessarily deflationary policies, unless we are extremely careful. However, we will have to wait and see. Debates such as this and the occasional contact that even those of us who do not sit on the Treasury Committee have with members of the Monetary Policy Committee will be useful, because the committee can be made aware that we in the House of Commons are anxious about the possibility of unnecessarily deflationary policies. One hopes that they will therefore guard against them.
  Ms Abbott: Does the hon. Gentleman agree that, even though the Bank of England's current forecasts on inflation might be momentarily optimistic, the Bank's record as a forecaster is that it consistently shows a deflationary bias?
  Sir Peter Tapsell: Yes, that is what I believe. I do not criticise the Bank of England for that—in fact, I have the greatest admiration for the Bank. After the protection of the currency in an international sense, it is the prime duty of a central bank to avoid inflation, and the Bill puts that duty into law; but I object to the Bank being free from political control in that respect. It is one thing to have the Bank advising the Chancellor of the Exchequer on the dangers of inflation, but it is better that the Chancellor, having weighed the advice, should if necessary be able to reject it and subsequently give his reasons for doing so, which was the practice under the Conservative Government.
  I do not want anything I have said to be perceived as meaning that I do not regard the pursuit of stable prices as exceedingly important—of course I do. They are a necessary, but not sufficient, basis for steady growth and high and stable levels of employment, but if we are going to publish an annual inflation target each year, why should we not also have annual employment and growth targets?

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  In my time in the House of Commons, I have noticed that all Ministers have always refused to estimate future levels of employment. How is it possible to be confident that one has got the inflation target right 12 months ahead if one is not prepared to state one's employment target 12 months ahead? In Committee, we should try to amend the Bill so that the Chancellor of the Exchequer has to give employment and growth targets as well as an inflation target.
  Incidentally, that would horrify the Bank of England. Whenever I have suggested it to Bank officials, they have always replied that they would not want to take on that responsibility.
  Any fool—and the Bank of England is not staffed by fools—can produce stable prices by plunging an economy into the doldrums, as Montagu Norman demonstrated in the 1920s and 1930s, and as the current rulers of many of the continental European countries are demonstrating daily.
  By far the best economic state paper published this century was the all-party 1944 White Paper on employment, which made a point of saying that four aims should be given equal significance: stable prices, high levels of employment, a healthy balance of payments and an expanding economy. Those are the four economic balls that a Chancellor should always be juggling, so that no one ball falls to the ground.
  It is a great mistake to toss one of those balls—the monetary ball—across to the Bank of England and to leave the elected politicians to play with the other three. That might work for a time when unemployment is falling, but when unemployment starts to rise, this parliamentary democracy—as long as it is not abolished by our joining a single European currency—will not tolerate the key decisions affecting everyday life being taken by anyone other than Ministers answerable to the House.
  I turn finally to more technical, but still vital, issues posed by the Bill. Having been stripped of its supervisory role and its responsibility for managing the public debt through the gilt-edged market, it is not at all clear in the Bill whether the Bank of England is to continue to act as the lender of last resort. That is a matter of vital importance on which we need complete clarity, so I hope that, when she replies to the debate, the Economic Secretary will make a point of explaining whether the Bank is still to be regarded as the lender of last resort.
  The capacity to act effectively and in time as lender of last resort in a crisis such as the Barings crisis depends on the Bank's commercial intelligence system. The roles of prudential supervision and operational surveillance are closely linked, but they are not the same thing, and they are now to be separated, leaving the bank with responsibility for operational surveillance but stripped of its powers for supervising prudential banking.
  Will the Bank continue to have the same day-to-day knowledge of everything that is happening in the banking world when its supervision staff are transferred to the new Financial Services Authority? I doubt it, although it will retain responsibility for the stability of the financial system as a whole. I therefore predict considerable buck-passing in the years ahead between the Financial Services Authority and the Bank of England when anything goes wrong. The Bank of England will say, "We
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  could not have known in advance that this would happen: we no longer supervise that institution, and the FSA never told us." That will be a source of great trouble, whichever political party is in power.
  The fundamental truth about the Bill, however, is that, overall, it gives the Bank of England a greatly diminished institutional status. This aspect has been largely overlooked by commentators, who have concentrated on the Bank's enhanced independence in the setting of interest rates, but everyone in the Bank of England understands all too well the loss of power and prestige that will flow from the Government announcement of 6 May, which is why the Governor of the Bank of England very nearly resigned on that day, as he has said.
  Ever since it was founded in the reign of King William III, the Bank of England has exercised authority over a wider range of matters than any other central bank. That has been one reason for its great prestige. The Bill strips the Bank of many of its most important powers. It will no longer exercise prudential supervision over the financial institutions. It will no longer manage the Government bond market and the public debt.
  I can tell you, Mr. Deputy Speaker, from my experience as a stockbroker, that the Bank of England officials who operated in the Bank's supervision departments and in the gilt-edged departments enjoyed enormous prestige in the City of London. They were regarded as doing vital jobs and were treated with great respect, even by the most senior and successful of commercial bankers. When one takes those tasks away from the Bank of England, one is in fact, despite giving it enhanced powers over interest rates, transforming it into a quango, in which all but two of the new nine-man Monetary Policy Committee will be appointed by the Chancellor of the Exchequer—and the other two, appointed by the Governor, will also have to be approved by the Chancellor of the Exchequer.
  Furthermore, anyone with acquaintances in the lower echelons of the Bank of England will know of the crisis in morale that is gripping the whole staff of the Bank of England. Previously, Bank of England technical professionals wielded great power and influence—I have mentioned two of the spheres in which they did so. Although there has always been a court of directors, it was composed of non-executive directors who used to meet for lunch once a month and were usually grandees from other walks of life. In the career structure of the Bank, the objective of most Bank of England staff was to become an executive director; that was what motivated them.
  There will not now be many jobs for executive directors, so the career structure of the Bank of England has been largely destroyed by the proposals in the Bill. That will have a significant effect because, when I was at university, it was a matter of great prestige to get into the Bank of England on leaving university. Only getting into the Treasury or the Foreign Office ranked higher in prestige if one was seeking a career in public service.
  Under these proposals, few high fliers will want to join the Bank of England at the age of 23 and make a career. There will be no career for them. Only comparative mediocrities will join the Bank of England from now on. That is what my friends in the Bank of England, of whom I have several, tell me. It is the almost universal view of the junior and middle ranks of the Bank of England.
  Mr. Deputy Speaker, you may say that this is a matter of personalities and that it does not matter, but part of the prestige enjoyed worldwide by the City of London has

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  flowed from the immense respect in which its prime institution, the Bank of England, has been held by commercial, as well as central, bankers throughout the world. By diminishing the role of the Bank of England, as he is doing in the Bill, the Chancellor is reducing the standing of the City.
  The Chancellor and many others in the modern world dislike deference in all its forms, but deference to the Bank of England has been an important economic asset for the United Kingdom. Probably this will not worry the Chancellor, as he hopes to subsume the Bank of England into a European central bank run by foreigners over whom the British electorate and their representatives in this House will have no control, as I have shown by my quotations from the Maastricht treaty.
  My conclusion is that the Bill should be opposed, not only on the practical grounds that it will make the efficient macro-economic management of our affairs more difficult, lead to higher levels of unemployment than are necessary and diminish the power, influence and prestige of the Bank of England, but above all because it is a further constitutional retreat along the road to a single European currency and the sacrifice of British parliamentary self-government to the bureaucracies of a federal Europe.
  7.6 pm
  Ms Diane Abbott: There is no more powerful thing in the realm of economic ideas than fashion, and it is with some timidity that I stand up against the prevailing tide of fashion, which says that the answer for the British economy is an independent central bank; none the less, faced with the facts, I must do so.
  It was remarkable to see a Labour Government, elected in triumph with the biggest majority since the war, within days—not even weeks, but days—hand over one of the most important levers of economic power to an unelected quango. Of course, as my hon. Friends will remind me, at the time it was greeted with tremendous acclaim by the popular press. We must thank for that the—until recently unsung—labours of Charlie Whelan, who span it to political journalists in such a way that the coverage of the decision made it seem comparable to Moses parting the Red sea. Interestingly, the Government chose to announce the decision, not on the Floor of the House, where they might have been challenged and questioned, but in the press, via spin doctors.
  Even in the clamour of the acclaim and the triumph, however, I was reminded of nothing so much as a quotation from Horace Walpole:
  "They now ring the bells, but they will soon wring their hands."
  Everyone in the House wants low inflation. It is relatively easy to bring down inflation by simply slowing down activity; the trick is to achieve growth and low inflation. The argument that I have consistently advanced in my eight years on the Treasury Select Committee, and which I advance tonight in the Chamber, is that an independent central bank is not the best way to combine low inflation with growth.
  I really cannot accept the attempts of Ministers to wrap this policy decision up in the mantra of modernity. A bad idea is a bad idea, regardless of whether one calls it "modern". And the idea that there is anything modern in going backwards in monetary policy to a set-up that was discredited before most Members of the House were
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  born—the idea that we are modernising monetary policy by going backwards to the set-up of the 1930s—does not bear examination.
  I remind hon. Members that an independent central bank is not a new idea: Britain had experience of an independent central bank until 1945. I shall quote from the 1945 Labour manifesto—I know that it will embarrass some of my hon. Friends who do not like to remember that Labour has a past—which contained a commitment to bring the Bank of England under the control of the Government.
  Referring to the 1930s, the manifesto said:
  "Great economic blizzards swept the world in those years. The great inter-war slumps were not acts of God or of blind forces. They were the sure and certain result of the concentration of too much economic power in the hands of too few men. These men had only learned how to act in the interests of their own bureaucratically-run private monopolies which may be likened to totalitarian oligarchies within our democratic state. They had and they felt no responsibility to the nation."
  The issue of democratic accountability caused the 1945 Labour Government—I think everyone will concede that it was one of the greatest Labour Governments—to bring the Bank of England under democratic control. I argue that, far from being outmoded and swept aside by the triumphal progress of new Labour, the democratic accountability issue is as relevant today as it ever was.
  A fundamental problem with the Bill and the proposal is that they create a democratic deficit. My hon. Friends who support the proposal go on about monetary policy as though it were a mere technical matter that is best left to technicians with oily rags—politicians should not bother their heads about it. The hon. Member for Gordon (Mr. Bruce) said that, if the Government leave monetary policy to the independent central bank, they can concentrate on things that really shape the long-term economy. What a fatuous thing to say. What shapes the long-term economy more than the level of interest rates?
  When Europhile Members talk about other European countries and their independent central banks, they do not mention that the role of interest rates in the British economy is rather different, and slightly more sensitive, than that in other economies. For example, in Germany, a far smaller proportion of people own their own homes. Those who do have fixed rate mortgages, with interest rates fixed for the term of the mortgage.
  It is worth politicians' remembering that the British body politic is far more sensitive to changes in interest rates than the body politic in Germany or France. That is not the most important reason, but it is one reason why we should be wary of assuming that, because something works on the continent, it must work here also.
  Sir Michael Spicer: I hesitate to interrupt a most enjoyable and very interesting speech. The hon. Lady is correct in her description of German interest rate levels and how they compare with ours, and many hon. Members will agree with her comments. Does she agree that the task of trying to make the economies of Britain and Germany "converge"—to use the current idiom—is pretty well impossible?
  Ms Abbott: That is another speech for another time, which the hon. Gentleman may await at his pleasure.
  It is not just a matter of the British body politic being more sensitive to interest rates. All adherents to the idea of an independent central bank ignore the fact that interest

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  rates are not a technical matter: they should not be decided in Eddie George's boardroom once a month. Interest rates affect not just house prices, but the level of bankruptcy among businesses and the level of unemployment.
  I put it to the House—I have held this position consistently—that it is not the job of central bankers to decide issues that directly affect the levels of jobs, bankruptcy and economic despair among our constituents.
  Dr. Vincent Cable (Twickenham)rose—
  Ms Abbott: Please allow me to develop my argument. I realise that many distinguished hon. Members are passionate about this subject, but I must continue.
  Much has been said about how the Treasury Select Committee will hold the new independent central bank to account. I bow to no one in my respect for the Treasury Select Committee, under the distinguished chairmanship of my colleague the Member for North Durham (Mr. Radice). However, we cannot seriously believe that the Treasury Committee, with two and a half special advisers, can hold to account the Monetary Policy Committee and the battalions of economists behind Eddie George.
  Mr. Radice: Will my bon. Friend give way?
  Ms Abbott: I wish to continue. Many hon. Members wish to participate in the debate.
  When people make comparisons with the situation in the United States and the Federal Reserve, they must examine also the resources available to those Congress committees that hold the Federal Reserve to account.
  I put it to the Treasury: if it is serious about holding the Monetary Policy Committee to account, it should give the Treasury Select Committee not only more powers, but the resources, the back-up and the manpower to match the institutions that it is supposed to hold to account. The Treasury Select Committee has slender resources and other broad responsibilities. It is ludicrous to suggest seriously that it can hold the Bank and the Monetary Policy Committee to account in any meaningful way.
  I also have a problem with the intellectual basis for the decision. I would argue that is very flimsy: it is all about the power of fashion. My right hon. Friend said, rather grandly, earlier in the debate that the Government have taken these decisions "because we know they are right". That is quite an impressive statement, but how do we know that they are right? That may be a naive question, but I believe that it is the sort of question that one is sent to this place to ask.
  It is worth making another point that has not been made all evening. Although there is a relationship between independent central banks and low inflation—there is no question about that—a definite causal link between an independent central bank and low inflation has never been established. In other words, contrary to what my hon. Friends and some Liberal Democrats may say, merely having an independent central bank by no means guarantees low inflation. I would argue that a country such as Germany, which has an independent central bank, has that independent central bank because it has a low-inflation culture.
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  Let us stop and ask ourselves why the Germans feel strongly about low inflation and are willing to make sacrifices to keep it low. Twice in people's lifetimes, Germany suffered hyper-inflation—first under the Weimar republic and then immediately after the second world war. That country has an almost primal fear of hyper-inflation. I believe that it is not the independence of the Bundesbank that has caused Germany's excellent low-inflation record, but Germany's history and the state of its economy that has created a low-inflation climate, of which an independent central bank is a symptom and not a cause.
  The Bill will hand over one of the most important levers of economic policy to Eddie George. Let me say a word about the Governor of the Bank of England—he will no doubt read the transcript of the debate, if he is not listening to it now at the Bank. I think that Eddie George is a great man, and a fine Governor of the Bank of England. In fact, he plans to come to the House a week tomorrow to speak to the Campaign Group of Labour Members of Parliament about these matters.
  I urge all my hon. Friends to attend that meeting, which will provide one of the few opportunities for Back Benchers to question Eddie George closely. He is a fine public servant, and he clearly has a deflationary bias. There is nothing wrong with a central banker having a deflationary bias. That is what central bankers are for. What is wrong is to let central bankers off the leash—to allow central bankers, with their inflationary bias, to set interest rates with no checks or balances or accountability.
  I believe that, in introducing the Bill, my hon. Friends in the Treasury are victims of economic fashion. There is considerable academic evidence that the downside of an independent central bank is, as was said earlier, that it is hard to achieve co-ordination of policy, and there are risks to jobs and growth, and the danger of an overvalued pound.
  I remind the House that, of the 20 most frequently cited studies on central bank independence, only one associates independent central banks with growth. In a study by Guy Debelle and Stanley Fischer, they stated:
  "Since 1962, countries with independent central banks have suffered deeper recessions on average than those without."
  Mark Hutchison and Carl Walsh found the same thing in a study of New Zealand, and Robert Chote, the financial editor of the Financial Times, writing in a personal capacity, said:
  "People may lose their jobs unnecessarily because Mr. Brown is abdicating responsibility for achieving his inflation targets to the Bank."
  I believe that the wrong decision has been taken, for the wrong reasons, and announced in the wrong way. I believe that, sadly, before the end of this Parliament, I will be proved right on the deflationary bias of letting the central bank decide monetary policy without any democratic checks and balances. For those reasons, I cannot support my Government in the Lobby tonight.
  7.20 pm
  Sir Michael Spicer: Opposition Members found that a most enjoyable speech. I look forward to seeing how the hon. Member for Hackney, North and Stoke Newington (Ms Abbott) votes tonight after such a wonderful speech. Her colleagues on the Government Front Bench looked pretty grim throughout most of it.

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  Like the hon. Lady, I have long held reservations about the concept of an independent central bank. Let us not beat about the bush or kid ourselves: once the Bill is enacted, the Chancellor of the Exchequer will have a legitimate right to deflect the questions of hon. Members on any matters to do with interest rate policy. Furthermore, as my hon. Friend the Member for Louth and Horncastle (Sir P. Tapsell) said, it is probable that, on many other matters of monetary policy, we will not be able to question in the House and hold to account the person who is meant to be in charge of the economic management of the country.
  Despite the great reservations of most Conservative Members, the real dilemmas are those of Labour Members. The Conservative party has for many years been committed to the concept and the priority of price stability, but that does not apply to Labour. So many of the coded objections and reservations that are being expressed have at their root a fundamental concern about priority being given to price stability in the economic management of the country.
  That is why Labour Members have been banging on about the fact that the Bill states that the Bank of England shall take into account economic policy other than price stability, that it will be subject to the priority of price stability. Clauses 11 and 12 bother Labour Members.
  Clause 19 gives the Government overriding powers if they see matters getting out of control. It refers to "extreme economic circumstances", which I imagine might include an impending general election.
  Mr. Radice: That is for you lot.
  Sir Michael Spicer: That is a let-out which is written into the Bill.
  My concerns are the opposite of those expressed by Labour Members. The Bill opens up the possibility of questioning the price stability objective. Already in the debate, and certainly among some of my Labour colleagues on the Treasury Select Committee, it has been pointed out that the Bank must take account of other objectives. When should price stability be said to have come about? Some discretion is possible, with regard to time. Under the Bill, the bank must take into account objectives other than price stability.
  I have two fundamental objections to a Bill requiring the Bank to take into account objectives other than the narrow one of price stability.
  The first relates to a matter raised by the hon. Member for North Durham (Mr. Radice), who was rather unfairly attacked by the hon. Member for Great Grimsby (Mr. Mitchell). The hon. Member for North Durham is rather a good Chairman of the Select Committee, if we must have a Labour Chairman. I suspect that the hon. Member for Great Grimsby does not like the hon. Gentleman's views on Europe, and I agree with him. The hon. Member for North Durham and I do not agree at all on Europe, but that is no reason to attack his chairmanship of the Select Committee. The hon. Member for Great Grimsby was most unfair.
  In an exchange with my hon. Friend the Member for Louth and Horncastle, the hon. Member for North Durham raised the issue of Mr. Greenspan and the Federal Reserve, and the additional powers that Mr. Greenspan had. My hon. Friend observed that Mr. Greenspan was more accountable than other central bankers.
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  I was worried by the tone and direction of that discussion. It was implied that, if we chose the American route, it would lead to government by bank. Once the Bank is given responsibility, not just for the narrow application of the Government's inflation target—which, to be fair, is being offered—but for a panoply of economic objectives, however accountable one pretends the bank is, it will never really be accountable to the people.
  Labour Members who support the Government on the Bill will push the Government—they are already probing in the debate and elsewhere—to turn the bank into the economic manager of our country. That is dangerous territory. At least the Bill restricts the bank to a limited monetary application of a target set by the Government. Once we try to move beyond that—
  Mr. Radice: The Bill puts the matter simply. It states that the primary task of the Bank is to concern itself with inflation, but it must also consider the objectives of Government economic policy, which include growth and employment. It does not hand over everything; it gives the Bank a role.
  Sir Michael Spicer: The hon. Gentleman puts the matter in terms that worry me greatly. Once the bank starts to think of matters other than the narrow remit of the monetary policy it should set in order to achieve a target given to it by politicians, we are in dangerous territory.
  The hon. Gentleman is right to say that that is becoming the public perception of the way in which the bank will operate. I greatly admire Anatole Kaletsky, and agree with him on almost every aspect of European policy. I particularly agree with his article in The Times today, in which he exposed the fallacy of the leadership of the Confederation of British Industry and the figures it claims in support of its opposition to the single currency. That was a brilliant article. Last week he wrote a piece on the Bill in which he said:
  "In the long run, public support must be any central bank's overriding objective."
  He continued:
  "That is why it was right to raise interest rates yesterday but equally the Bank cannot afford to be acquiescent in high unemployment or snuff out economic growth."
  Once we talk about the Bank being popular or unpopular, we are in extremely dangerous territory. We are talking, in effect, of handing over the task of politicians to not a surrogate but a real government. That course is being pressed by Labour members of the Select Committee, who probe those who come before us in an attempt to get them to say, as in a way the Chairman, the hon. Member for North Durham said just now, that there is a range of objectives that the Bank must take into account and have in mind when it is applying its interest rates policy.
  In that approach, we are talking about a parallel Government. That causes me enormous worry, and that is one of the fundamental reasons why I am against the Bill and the path we are following.
  In this instance, the Labour party cannot have its cake and eat it. If it claims enormous responsibility for having set up a mechanism because it did not trust itself to apply a proper inflation-price—stability policy—a mechanism for

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  achieving that and guaranteeing it—it will have to accept that there may be a price to be paid in short-term unemployment.
  Present conditions are relatively easy for the Government because the Conservative Government left this Administration with such a strong economy. As my hon. Friend the Member for Louth and Horncastle (Sir P. Tapsell) said, it is possible now to have four or five objectives in mind at one time because they can all be met simultaneously. The problem will arise for the Government—the time may not be too far off—when they suddenly find themselves, in their own words, having to make hard choices. When that happens they will try to fudge. At the same time they will try to bully the Bank. Not only that, they will try to cast the blame on it for getting things wrong. In those circumstances we are without democratic government. That is what worries me so much about the implications of the Bill.
  7.32 pm
  Ms Ruth Kelly: I am grateful for the opportunity to take part in such an important debate. The move to grant operational independence to the Bank of England is certainly the most radical shake-up that has been seen in the operation of monetary policy since sterling's departure from the exchange rate mechanism, and possibly the most radical shake-up since the war.
  I shall not engage in the argument as to whether low inflation or price stability is a good idea. Many reputable economists have argued that there is no long-run trade-off between prices and output—the objective of monetary policy should be to provide a platform of stability for savers and investors to enable them to plan their futures, an objective which, if met, could increase the long-run growth rate of the economy.
  I was struck today by the comments of the right hon. and learned Member for Rushcliffe (Mr. Clarke), who asked why we should not continue the practice of the Chancellor of the Exchequer always taking decisions on interest rates. After all, the right hon. and learned Gentleman argued, he was always right and the Bank was always wrong about interest rates, whatever the facts of the case.
  Anyone who argues that the right hon. and learned Member for Rushcliffe showed better judgment than the Bank is severely misled. He took risks. He was also lucky. His most important piece of luck was the unexpected and massive appreciation of sterling since last August, and who would argue that that was a good thing? The appreciation of sterling was the only factor that ensured that the right hon. and learned Gentleman hit his inflation target; without it, he would have missed it hopelessly.
  Mr. Gibb: I agree with the hon. Lady that the rise in sterling has been damaging to large parts of the economy, but will she explain how the Government's proposal will lead to a depreciation of sterling?
  Ms Kelly: I shall address the impact of interest rates on sterling later.
  Under the previous Chancellor of the Exchequer, we saw a cavalier attitude to his inflation target in which economic propriety was sacrificed to political advantage.
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  I do not accept for one minute that the right hon. and learned Gentleman did not think that he was taking a risk with inflation. He was certainly prepared to take a risk, and prepared to stoke up inflationary pressures within the economy. If the right hon. and learned Gentleman had been allowed to continue his policy, we could have seen the re-emergence of yet another unsustainable Tory boom named after a Chancellor.
  It is not only the right hon. and learned Member for Rushcliffe who has played fast and loose with monetary policy, however. It seems that the practice is endemic to the office of Chancellor of the Exchequer. One just has to consider different countries throughout the world which operate in very different environments when considering bank independence, as my hon. Friend the Member for North Durham (Mr. Radice) said. Evidence suggests that independence is associated with lower inflation. Only one study suggests that it is connected with the growth of output. The implication is that it is possible to have low inflation without any loss of output or jobs.
  Some will argue, of course, that the Bank has the opposite flaw—that it has a tendency to excessive caution. I suppose that many right hon. and hon. Members would adopt that argument. Indeed, I heard the right hon. and learned Member for Rushcliffe taking up that very point, but the facts do not support it. Contrary to popular wisdom, the Bank's record since 1992 when the current system was set up has been incredibly impressive. Its track record demonstrates that it has consistently been among the most optimistic economic forecasters. Since 1992 it has nearly always been in the bottom quarter of economic forecasters, being far more optimistic than it has been given credit for.
  Indeed, the Bank's record shows that it was overly optimistic. Inflation outturns have consistently been in excess of the then Government's target of 2.5 per cent. over the past few years.
  The Bank has independence, whereas Chancellors are prone to political manipulation—a fact that has been recognised. My hon. Friend the Member for Hackney, North and Stoke Newington (Ms Abbott) said that few decisions made by Ministers had been met with such acclaim as the decision to grant operational independence to the Bank. The immediate reward was half a point off gilt yields. If the Bank is successful over time in reducing inflation to meet the Government's inflation target, gilt prices could fall even further.
  Gavyn Davies, the chief economist at Goldman Sachs, has estimated that, if yields on long bonds fall eventually by a full point, the Government's funding costs will be reduced by about £3.5 billion. That sum could be invested in the economy and could be used for extra public spending. A fall in bond yields would also reduce the cost of investment for private investors, and hence boost the economy in that way.
  I accept that some people have fundamental points to counter Bank independence, including those who have raised the problem of co-ordinating monetary and fiscal policy. It is true that, if we had an all-knowing benevolent Government who took all decisions in the national interest with no prospect or hint of political interference, it might be possible to deliver price stability, but anyone who thinks that that has been happening over the past 25 years

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  must have been living on another planet. Instead of stability, Government co-ordination has delivered boom and bust, unemployment and insecurity.
  Mr. John Hayes: Will the hon. Lady define more closely what she describes as "political interference" and the difference, in her estimation, between such interference and the exercise of political will as accountable to the electorate?
  Ms Kelly: I think that I have defined exactly what I mean by political interference. I have argued that the right hon. and learned Member for Rushcliffe played fast and loose with monetary policy and risked stoking up an inflationary boom just because an election was approaching.
  I shall now come back to the point about sterling, if I may. Some argue that relying so heavily on monetary policy to deliver the inflation target adds to the imbalance in the economy and contributed to the recent rise in sterling. I would draw their attention to the recent study carried out by Bank of England economists and referred to in yesterday's Financial Times, which showed that much less than a quarter of the recent rise in sterling since last August can be accounted for by monetary policy decisions, by expectations of future decisions or by anything to do with monetary policy.
  I will now deal with the charge that the inflation target ignores output. It was very interesting to hear some people argue that the central bank should have nothing to do with output while others argue that it should have targets for growth and output. Some argue that it is necessary to supplement the inflation target with separate, different targets. There is a separate case for that.
  It may be desirable to have targets to raise the underlying growth rate of the economy, but I would argue that output is not ignored when decisions are taken on interest rates. Those decisions are not completely technocratic—important judgments will be made in the short run between output and inflation.
  My right hon. Friend the Chancellor has framed his inflation target in such a way as to ensure that it is impossible to hit with precision at every moment. Indeed, the Governor of the Bank of England has recognised that, operationally, he interprets the target as meaning that the bank should aim to hit it on average over time, that the way to judge him will be to look back in five years' time, or whatever, to see whether he has achieved an average rate of 2.5 per cent. over that period.
  That means, inevitably, that the bank will have some discretion as to how it reacts to unexpected events which occur not just from month to month or year to year but from day to day. There will be events that impact on the economy, whether generated from the domestic economy or from abroad. Some of these completely unpredictable events—or supply shocks, such as a rise in the price of oil—will, if no corrective action is taken, reduce output and raise inflation. In those circumstances I would argue that it would be wise for the Bank to let inflation rise temporarily and not to exacerbate the short-term loss of output.
  I completely disagree that such discretion is undesirable. Indeed, my right hon. Friend the Chancellor recognised this dilemma in his Mansion House speech, in which he set out a system whereby the bank would have to write an open letter if inflation breached the trigger points of 1.5 per cent. or 3.5 per cent. The Bank has to
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  write an open letter to say what action it intends to take to return inflation to the target, and the time scale in which it intends that that should happen. He does not assume that the target will be met continuously.
  As Mervyn King, director of monetary policy at the Bank, and soon to be Deputy Governor, argued in his lecture to the London School of Economics last week:
  "It is striking that central banks have been reluctant to acknowledge openly that monetary policy has two components, an inflation target and a response to shocks. Provided an inflation target framework is interpreted to include these two distinct elements of monetary policy, then the charge of the critics that inflation targets mean ignoring output is false. Moreover, by allowing the horizon over which inflation is brought back to its target level to depend upon the nature and size of the shocks hitting the economy such a policy … is superior in principle to"
  the alternatives.
  Mr. Gibb: Did the hon. Lady not say in the Treasury Select Committee that how far the Bank of England deviates from its inflation target, how it deals with output in dealing with shocks, are political issues, but that the Bank of England appears to have great discretion here?
  Ms Kelly: I would argue that these decisions are fundamental to the way in which monetary policy is carried out. It is for those precise reasons that I would argue that proper accountability of the Bank is essential. In fact, precisely because of these responsibilities, the Treasury Select Committee has been given much greater powers to examine the Bank's policy and to hold it to account.
  The Select Committee system is recognised by Parliament and operates in the normal fashion. It is for those reasons that, although I support the Bill and support the granting of independence to the Bank, I argue that the hand of Parliament should be strengthened so that a Select Committee can properly carry out its responsibilities and hold the Bank to account.
  In particular, I suggest, as the Treasury Select Committee has suggested in its recent report, that members of the Monetary Policy Committee have the opportunity to come before the Select Committee in confirmatory hearings after their nomination to the Monetary Policy Committee by the Chancellor. I do not believe that such hearings would deter applicants. Given our assessment of the situation, it is clear that some of them would welcome the opportunity to appear before the Select Committee to clear up any points of potential public controversy.
  Such a system would enhance transparency and aid accountability. It would also shield the Chancellor from any charges that appointments might have been made on party political grounds.
  It is also vital—here I agree with my hon. Friend the Member for Hackney, North and Stoke Newington—that extra resources should be granted to the Select Committee so that it can correctly discharge its responsibilities and ask questions about the trade-offs that the Bank has made between output and inflation in the short run.
  The Bill is moving in the correct direction, and I welcome it. It is precisely because this decision is so momentous that I hope that my right hon. Friend the Chancellor will take the Select Committee's considerations seriously.
  7.45 pm
  Mr. Andrew Tyrie: It was a pity that my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) was not here to answer some of the allegations made about him by the hon. Member for Bolton, West (Ms Kelly). Some of those allegations were very strong, and I am sure that when he reads them in Hansard he will be very disappointed that he was not here to answer them.
  I am sympathetic in principle to the idea of central bank independence, but I cannot support these half-baked proposals. I shall explain why in just a moment. Before I do, I want to clear up one issue that has been bouncing around in the House this evening: whether the decision to go ahead with independence was a breach of the Labour party's pledge in its manifesto. The manifesto says pretty clearly:
  "We will reform the Bank of England to ensure that decision-making on monetary policy is more effective, open and accountable."
  That may seem fairly clear, were it not for the fact that almost identical words were used by the Prime Minister when he was Leader of the Opposition. In a speech in 1995, he then went on to say that, after those reforms had been put in place:
  "We will then watch the track record of the Bank before deciding what, if any, further steps should be taken towards greater operational responsibility for the Bank in interest rate policy."
  It is absolutely clear that the public were misled by the manifesto wording. That is a disgrace. It is nothing more than we might expect. There was, of course, another remark from the then Leader of the Opposition along the lines, "We have no plans to raise taxes at all." How does that sit alongside the raid on pension funds? Or, to go back to the manifesto again, a line immediately above the one about the Bank, which says:
  "We will match the current target for low and stable inflation of 2.5 per cent. or less."
  Within a few weeks, that target was changed to a band, making inflation of 3.5 per cent. permissible. Those breaches of pledge do not register with the electors at the moment, but they will in time—as will the arrogance of the Chancellor, for example, when he reluctantly came to the House to announce Bank of England independence.
  I want to make three points. First, I want to explain why Bank of England independence has become such an issue only over the past 15 years. Secondly, I want to explain why the proposals in the Bill are a bit of a dog's dinner and why they probably will not deliver independence—I would be much more sympathetic to them if I thought they would. Thirdly, I want to suggest how, with the help of the Treasury Select Committee, the proposals could be made a little more palatable.
  For most of modern economic history—that is, the industrialised and relatively free trading period of the last 150 years—monetary policy was set by an external anchor: the exchange rate. For most of that time the monetary anchor was the gold standard, or Bretton Woods in the post-war period. National monetary policy was subordinate to the external anchor, so central bank independence did not matter very much.
  It was only after Bretton Woods collapsed that the debate about central bank independence gathered pace, both here and abroad—a period during which many countries decided to create independent central banks, and
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  a time during which successive Britain Governments had directors at the International Monetary Fund who were busy encouraging all countries to adopt independent central banks.
  After the collapse of Bretton Woods, our politicians soon had British monetary policy in a mess, which began to be sorted out only when the IMF arrived in 1976. Even so, attempts to find a substitute for the exchange rate anchor have had a mixed track record. Monetary base control was rejected as too crude, so it was never tried. Targeting the monetary aggregates became difficult with financial deregulation. Before long, policy became extremely discretionary, and it appeared that all depended on what the Chancellor thought.
  The problem for Britain with the discretionary approach, especially as other countries separated monetary policy from short-term political control, was that the UK's policy appeared to carry less and less credibility in the markets. A credibility gap was opening up between our monetary policy on inflation and those of the best-performing countries. It was a measurable gap in terms of bond yield differentials. Of course, part of the premium we were paying reflected policy mistakes, but the policy makers are just as likely to make misjudgments whether they sit in Threadneedle street or in Whitehall.
  The main purpose of central bank independence is not to call upon superior minds to do the job—I do not think that they are better ones in Threadneedle street—but to close the credibility gap and deal with the belief that politicians might be meddling in monetary policy with political objectives in mind.
  The crucial question is whether the Bill's proposals close the credibility gap. Do they really distance the Chancellor from decisions on short-term interest rates? That gap will be reduced only to the extent that people believe that the Bank is fully independent, and that is where these proposals are at their most deficient: there are too many get-out clauses—too many opportunities for the Government to meddle.
  It is, of course, right that the Bank should be obliged to act in accordance with overall Government economic policy—as set out in clause 11. The statutes of most central banks include something similar. Even the Bundesbank's statutes carry a similar injunction. The problems start with the fact that only operational responsibility is being given to the Bank; the inflation target will continue to be set by the Chancellor. As I have just said, he loosened the inflation target as one of his first gestures.
  Then there is the so-called override whereby, at least temporarily, the Chancellor can assume direct control over interest rate policy. Presumably, he would want to do that only when he could not achieve his objectives by relaxing the inflation target. It is a draconian power.
  Most worrying of all—other hon. Members have referred to this—is the term of office given to the Monetary Policy Committee. Of its nine members, five are effectively controlled one way or another by the Bank of England. Six—of whom two come from the group controlled by the Bank—are appointed for a term of only three years. Even the Governor and the Deputy Governors are appointed for only five years. That compares with the Bundesbank council, which has an appointment period of eight years, and with the US Federal Reserve board, to which appointments are for 14 years.

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  If the main purpose is to generate belief in the markets that interest rate policy will not be subject to short-term political considerations, it is as plain as a pikestaff that the terms of office should be longer than the life of a typical Parliament. Seven years sounds sensible; three will not do. As it happens, the Chancellor of the Exchequer made exactly that point, in a speech in May 1995 when in opposition, about his proposed advisory monetary policy committee's membership. He agreed that seven years would be right, so why on earth is that number not in the Bill? The fact that the Government seem reluctant to budge on any of these points must mean that, at the first sign of trouble, markets may once again open up the credibility gap.
  What can we do if the Bill does not find support in the Lobby tonight? We shall have to rely on the Treasury Committee—I was pleased to hear some of the remarks of the hon. Member for North Durham (Mr. Radice) on that. The Committee will have to make the best of a botched job and at least inject some accountability into the proposals. These arrangements give the Committee some scope to exercise that power, although there is no mention of that in the Bill—I gather from an earlier response to an intervention that that is for technical reasons. Incidentally, giving Parliament a more direct role in this area is an innovation; Parliament has never had a direct responsibility for the creation of money, or for the operation of monetary policy: both have always been matters for Executive—and before that Prerogative—control.
  I am pleased that the Treasury Committee will look beyond how well the Monetary Policy Committee will deliver the inflation target and look at the target itself and ask, "Is this the right target?" In doing so, I hope that it will take evidence not just from the Chancellor or even the Governor, but also from individual members of the Monetary Policy Committee. I am glad that the Treasury Committee will be able to dig its heels in to obtain some confirmation hearing power for all appointments to the Monetary Policy Committee; de facto, it will interview them. On this, the issue is not, as my right hon. and learned Friend the Member for Rushcliffe suggested, that people with a particular view will be chosen; it is that the wider public should be allowed to know their views. We should have a clear explanation of their thinking on crucial issues.
  I am also glad that the Treasury Committee will press for an extension of the term of office of the Monetary Policy Committee. Only if people have that extension will they speak freely when they come before the Select Committee. I also hope that the Treasury Committee will limit the scope of the Chancellor's use of the "extreme circumstances" clause. What are the extreme circumstances which might lead the Chancellor to override the Bank's operational independence? The circumstances must be defined. Let us go through the matter in detail.
  Mr. Geraint Davies: The hon. Gentleman has made some play about the Chancellor intervening in the extreme circumstances of economic shocks; yet earlier we heard the former Chancellor—the right hon. and learned Member for Rushcliffe (Mr. Clarke)—say that there is no
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  opportunity for us to intervene. Where do the Opposition stand on the convergence criteria, as it appears that there are enormous divisions?
  Mr. Tyrie: I am not on the Front Bench. I am expressing my view on the Bill. If we are going to go for independence, we must make a proper job of it and not have the sort of half-baked hotch-potch of a job that we have with this Bill. If we are going to go for independence, we must give the Bank not only operational responsibility but target or goal-performance responsibility.
  Mr. Davies: Will the hon. Gentleman give way?
  Mr. Tyrie: No, I will not give way a second time.
  I am also concerned that members of the Monetary Policy Committee will not be permitted to speak their minds after committee meetings.
  Mr. Loughton: Gagging orders.
  Mr. Tyrie: Yes, it is like a gagging order. I disagree not so much with the purdah period that the committee has decided to impose on itself around the time of the meetings, as there is some sense in that, as with the six-week lag between meetings and publication of the minutes. Minutes should be published much more quickly, within a few days. Moreover, committee members should be free to speak about them and, if necessary, to dissent from the decisions that have been taken. The forces of collegiality in the committee will be strong enough to ensure that the freedom to speak will be exercised only in extreme circumstances.
  If the Treasury succeeds in beefing up its role, we shall get at least half a loaf because, compared with current practice, there will be an increase in democratic accountability. For the first time. Parliament will have a little say in monetary policy.
  It will, however, be only half a loaf. Today, we are not debating a proposal for genuine independence. At best, it is a faltering step along the way; at worst, it is another political stunt—an attempt by new Labour to shed responsibility for tough decisions while keeping its hands on policy.
  If we cannot defeat the Bill in the Lobby today, it will be up to hon. Members—particularly those on the Treasury Select Committee—to try to make the best of this botched job.
  8 pm
  Mr. Keith Vaz: I welcome the Bill and pay tribute to my right hon. Friend the Chancellor of the Exchequer for his boldness and determination in attempting to reform one of our most redoubtable institutions, the Bank of England. I congratulate him on the Bill's provision for transferring control of interest rates to the Monetary Policy Committee. For far too long, our economic strategy has been characterised by the boom and bust policies preferred by the Conservative party. The Bill will guarantee the fiscal and monetary stability that our economy badly needs.
  I welcome also the Bill's provisions for transferring control of the regulation and supervision of banks to the Financial Services Authority. The measure will be of great

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  benefit on two counts: first, allowing the Bank to concentrate on its central task of maintaining economic stability; secondly, removing from the Bank a responsibility which it was totally inept in fulfilling—an incompetence demonstrated in its scandalous misconduct in the regulation of the Bank of Credit and Commerce International and of Barings.
  The House knows of the long-standing support of many hon. Members for the campaign to obtain justice for the thousands of depositors who lost everything in the BCCI collapse. In the six and a half years since the bank closed, I and other hon. Members have met the tragic victims of BCCI. I remember meeting a man who won the Spanish lottery and put his winnings into BCCI one week, only to lose them in the bank's collapse a week later. I remember also pensioners in Gibraltar who lost their life savings, and people driven by the shock to hunger strike and, in some cases, almost to suicide. I continue to receive letters from people for whom the suffering and stress is as great and as real today as it was on 5 July 1991, the day that BCCI closed.
  Six years after the then Secretary of State for Trade and Industry established a liquidation committee to chase up the $10 billion stolen by the fraudsters and to return the lost funds to the victims, depositors are not much closer to recovering their money than they were in 1991. Only one dividend, amounting to 24.5 per cent., has been paid out. Today—I do not know whether it was in advance of this debate—the liquidators announced for next year a second dividend, of 11.5 per cent. Despite those two payments—which amount to only 36 per cent. of the money that people had placed in BCCI—the tragedy of the bank's collapse continues.
  I should remind the House of the closure of BCCI. It closed because the Bank of England used its supervisory powers to step in and shut down the bank's operations. The merit of that decision is questionable, because it was within the Bank's remit temporarily to restrict the bank's licence, to force a management change, or even to mount a rescue operation, as it had done in the case of other banks. It remains a matter of great consternation for thousands of victims that the Bank employed what can be described only as a discriminatory attitude towards BCCI, whose situation was not totally dissimilar to other banks facing crisis or fraud.
  The decision to close the bank was made in a private meeting between the then Prime Minister, the then Chancellor of the Exchequer, the then Governor of the Bank of England, Mr. Leigh-Pemberton, and the then Deputy Governor of the Bank of England, Mr. Eddie George. At the time, we pointed out that Mr. Eddie George, despite his involvement in the bank's closure, was promoted to the Bank's governorship. I stopped calling for Mr. George's resignation over BCCI because, every time I did so, he was promoted by the previous Government. Today, I resist the temptation to praise him or to call for extending his contract, as it may have the opposite effect.
  Whatever the merits of the decision to close BCCI, the Bank's neglect of duty in allowing the fraud to be perpetrated for as long as it was, jeopardising the investments of thousands of depositors, is beyond doubt.
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  Lord Justice Bingham was asked to conduct the inquiry established by the then Chancellor of the Exchequer into the supervision of BCCI. He found that
  "the Bank's supervisory approach to BCCI was in my opinion deficient".
  Further in the report, he said:
  "the Bank did not pursue the truth about BCCI with the rigour which BCCI's market reputation justified".
  Lord Justice Bingham stated that no action was taken before 1991 to change the structure or management of BCCI, despite representations having been made to the Bank about fraudulent conduct within BCCI throughout the 1980s, and despite evidence having been presented to the Bank by the Foreign Office and the intelligence services. Lord Justice Bingham painted a picture of a Bank of England whose employees failed to communicate properly with each other, that disregarded and misplaced evidence that was being fed into it, that had a laid-back and relaxed attitude to the tasks in hand and that was incapable of acting decisively, despite having all the information before it.
  Lord Justice Bingham's report stated that the Bank's attitude towards a 1988 incident, in which BCCI was linked to drug traffickers, was
  "so off-hand as to suggest a lack of interest."
  Elsewhere in the report, again and again, the Bank was found to have
  "failed to live up to the task."
  Such conduct was totally unacceptable then, and it is totally unacceptable now. No disciplinary action of any type has been taken against any employee of the Bank of England.
  I should add that the full story of the Bingham report has not yet been told, as some of the appendices have been withheld from the public.
  Mr. Tyrie: What does all that have to do with the Bill?
  Mr. Vaz: Unfortunately, the hon. Gentleman has not read the Bill. He will see that the Bill deals with transfer of regulatory functions from the Bank of England. My speech therefore has absolutely everything to do with the Bill. Had he been in the Chamber for the opening speeches—
  Mr. Tyrie: I was.
  Mr. Vaz: —the hon. Gentleman will have heard the Chief Secretary to the Treasury refer specifically to BCCI and Barings and the need for independent regulation.
  I ask my hon. Friend the Economic Secretary to the Treasury to deal in her reply with the previous Government's decision to refuse to publish the confidential memorandums and appendices to the Bingham report. I do not want to put her on the spot, because I know that she will want to consider the matter carefully. In consultation with the Chancellor of the Exchequer, will she, please, consider the possibility of publishing that confidential information? It is not often that I find myself in total agreement with the liquidators of BCCI. At today's meeting in the House, however, they called for publication of the report. I hope that the Government will consider doing so.

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  I should like to pay tribute to those who have been involved in the campaign over the past six years. I pay tribute to Dr. Elias, who is chairman of the depositors protection association; Bernard Clarke, who has been advising the liquidation committee; and, most recently, Mr. Paul Lehmann and Mr. Jonathan Hirshler, both of whom are involved in trying to get justice.
  I must also mention the position of BCCI employees. Hon. Members who can cast their minds back to 5 July 1991 will know that the then Governor of the Bank of England, who had supervisory jurisdiction over the bank, described the employees of BCCI as part of a "criminal culture". As a result of that statement, many of the ex-employees, who were not involved in any way in the fraud, have found it extremely difficult to obtain employment.
  The Bingham report and its appendices are now history, but the Bank's conduct over BCCI is not. It is clear that the previous Administration failed to learn the lessons of Bingham. Norman Lamont, who was Chancellor at the time of publication of the report and who lost his seat on 1 May, told the House that Lord Justice Bingham said:
  "the Bank of England's general approach to supervision has served this country well"—[Official Report, 22 October 1992; Vol. 212, c. 580.]
  Mr. Lamont also agreed with the recommendation that a radical recasting of the legal structure of banking supervision would not be appropriate. It is important to note that that was the policy pursued by the Conservative party for a number of years, which is why we greatly welcome the Bill and the fact that there is going to be a change.
  The right hon. and learned Member for Rushcliffe (Mr. Clarke), who makes fleeting appearances in the Chamber, said in 1995 that we had one of the best regulatory systems in the world. I do not agree, and nor do the Government, which is why the Bill has been introduced.
  Mr. Loughton: This is all very interesting, and many of us have heard it many times before, but could the hon. Gentleman suggest how the successor to the Bank of England in this aspect of regulation—the Financial Services Authority—might do a better job, given that it will be an exceptionally bureaucratic, large and expensive organisation, which will take several years to get its act together? How does the hon. Gentleman think that the FSA will make a better fist of it than he claims the Bank of England has done in recent years?
  Mr. Vaz: The hon. Gentleman has not heard what I have to say, because he was not a Member of Parliament when I last spoke about BCCI. He has not been able to follow the argument. Clearly, the Bill will enable people who put their faith in British banks, and who therefore deposit their money in British banks, to know that there is an independent regulatory and supervisory authority.
  My point is that the collusion between the previous Government and the Governor of the Bank of England, which was not independent, enabled meetings to take place about BCCI, and stopped an independent view being taken of the problems with BCCI. Had there not been that collusion, and had there been independent and proper regulation. BCCI would not have closed.
  Mr. Loughton: I take the hon. Gentleman's point. The fact that I was not here when he last spoke about BCCI
  780
  does not mean that I am not aware of what he said. How does he think that the FSA will be more independent of the Chancellor than the Bank of England was?
  Mr. Vaz: The FSA is a new organisation which will be concentrating on supervising banks, and it will have the regulatory power to do so. With the greatest respect, I have to say that the involvement of the then Deputy Governor of the Bank of England, now the Governor, and all his officials at the Bank meant that there was not the necessary independence. The Bank did not have the necessary credibility to supervise BCCI properly. The hon. Gentleman has obviously not been listening to what I said. Had there been proper supervision, the mistakes that were made over BCCI would not have occurred.
  I welcome the Bill. I know that it will make a great deal of difference, not only to the credibility of the way in which this country supervises its banks but to the thousands of depositors—the 1.2 million account holders—who looked to Britain and to the Bank of England properly to supervise a bank like BCCI. Of course, the Bill has come far too late for the victims, who will have to wait at least 10 years for the liquidation to be completed, but it is not too late for all the others who may be caught in exactly the same situation.
  8.14 pm
  Dr. Vincent Cable: I want to talk primarily about part III of the Bill, which has attracted very little attention. I suspect that that is because it is less politically sexy, or perhaps it is just too complicated. However, it covers some important matters which need to be debated now, before the Bill goes into Committee. In general, my party supports the Bill, as we favour operational independence for the Bank of England and the idea of statutory uniform regulation. Within that broad framework, however, many questions still need to be answered.
  I shall maintain the flow of the debate on the management of monetary policy and take up some of the issues that have not yet been dealt with properly. I tried to intervene in the speech of the hon. Member for Hackney, North and Stoke Newington (Ms Abbott), who has left the Chamber. She perpetuated a fallacy that has been repeated several times. She tried to link the conduct of monetary policy with long-term investment and growth decisions.
  The simple fact is that the Bank of England, whether or not it is independent, has responsibility solely for short-term interest rates. Long-term interest rates, which are what really matter for the cost of capital in business and which influence long-term investment decisions, are set not by the Bank of England or the Government but in the markets. Governments can influence them only indirectly.
  Long-term interest rates are set in international markets but can be affected by expectations of inflation. It is the ability of an independent central bank to maintain low and stable inflation which gives low long-term interest rates. That is what matters for investment and growth, and that is why the Bill is so important.
  On the issue of central bank independence, I have a query about the link between this debate and our eventual entry into economic and monetary union. As the

  781
  Government know, we support their broad approach to EMU, but we are critical of the fact that they have passed up the opportunity for early entry. That will present some tricky transitional problems for an independent Bank of England.
  Those problems were graphically outlined in the interviews given by Mr. Duisenberg yesterday in the United Kingdom. He said that other countries in Europe would maintain close scrutiny of the United Kingdom's policy over the next few years should we wish to join EMU. They will scrutinise our policy closely not only in respect of inflation, which has converged very well, or of interest rates, but also of exchange rates.
  Whether or not we join the exchange rate mechanism, we will be expected later in this Parliament to maintain exchange rate stability. Given that there is no reference whatsoever to nominal or real exchange rate stability, it is not at all clear from the Bill how the Bank of England will carry out that task and reconcile it with its other task of maintaining low inflation. Some clarification of this problem, which has arisen as a result of delayed entry, needs to be provided.
  My frustration with the Bill and with some of the documentation that led to it—for example, the Large report—is that it is very much concerned with institutions and procedures. I recall an anecdote involving the former Prime Minister, James Callaghan. He spent a long time with civil servants who were describing a complex administrative reorganisation. With some frustration he said, "I can see the harness, but where is the horse?" The horse in this debate is the basic philosophy which will govern the regulation of the financial sector. It is not clear what the Government's thinking is, and we should be grateful for some guidance.
  We could caricature two possible ways forward. The first is that regulation proceeds in a permissive way which respects the flow of markets: in the retail market, it observes the principle of caveat emptor; in the wholesale market, it allows competition between institutions and allows bankruptcy for banks and other institutions. We know the dangers of that approach. Emptors are ripped off by vendors, as the hon. Member for Leicester, East (Mr. Vaz) has just described. If institutions are allowed to collapse, there is a danger of a collective, systemic collapse. That is why we do not endorse a totally permissive approach.
  However, it is possible to steer too far in the other direction. An over-regulated system presents its own problems of inflexibility and stifling initiative. We have seen examples in east Asia in recent months of the dangers of an over-regulated banking system, which perpetuates bad lending. We hope that the system of regulation that emerges from the new institutional arrangement is flexible and market oriented, which will allow more competition.
  If we are to be satisfied that the Government's proposals are the way forward, they must address various issues. The first, which has not been answered, was raised by the hon. Member for Louth and Horncastle (Sir P. Tapsell). What does the lender of last resort facility mean? At what point does the Bank of England intervene and according to what criteria? That is all buried in the
  782
  memorandum of understanding. Whether the central bank intervenes too frequently or not at all is of enormous importance.
  We also need clarification on the cost of regulation. The Bill says that the cost will rise from £30 million to £50 million as a result of the FSA inheriting the overheads of the Bank of England. However, there are other estimates. Coopers and Lybrand, which is a reputable organisation, has talked about a £200 million a year cost for regulation. I have no way of knowing whether that estimate is correct, but there may be a ballooning cost. If that happens, it will have a considerable effect on the operational efficiency of financial institutions, particularly small boutique institutions serving private clients as investors. Many such organisations could not afford the cost of monitoring complex regulation, and would be driven out of business, leaving large institutions to dominate. We need answers to such questions.
  Another issue that needs to be addressed is perhaps best covered by the dreadful word globalisation. To his credit, the Chief Secretary acknowledged the extent to which we are dealing with internationally integrated financial markets. He is the only contributor to the debate to have mentioned the international dimension. The Large report is entirely about regulation in one country and does not refer to international aspects. We are dealing with a highly integrated market. That involves not just the links between different banks. Any investor can now lock into electronic systems and take a broker in the United States as well as here. National systems of regulation increasingly make little sense.
  We must have clarity on how the international dimensions will be handled. The Chief Secretary made passing reference to that, but he did not mention that probably one of the most important international institutions at present is the Bank for International Settlements, which prevents collective collapse in the banking system. It is not clear from what has been said so far whether that will remain the responsibility of the Bank of England or be transferred to the new regulator.
  What will happen to our participation in the International Organisation of Securities Commissions, which is another key international institution designed to prevent collective collapse in the securities markets? There is an important international dimension to regulation which has not been properly covered.
  My final point relates to a specific aspect of financial markets that affects ordinary individuals more than any other—mortgages. We have heard about the impact of interest rates, but the Bill is important in another sense. There have been big changes in the home loans market. Banks have become building societies, and building societies have become banks. One of the main structural changes in the past year is the disappearance of large numbers of mutually owned institutions. That is a matter of great concern for many Labour Members and for me.
  Representations have been made to the Economic Secretary to get her to have a fresh look at the system of regulation that she inherited under the Building Societies Act 1997. I know that the issue may be more appropriate to the legislation that will succeed the Bill, but there is some urgency, because mutual institutions may have disappeared before the next batch of legislation comes forward. Will the Government be receptive to an amendment to the Bill to allow stricter regulations on mutual conversions?

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  I received a fax this morning containing an internet guide to carpetbagging, which illustrates the extent to which abuses are taking place, permitting the asset stripping of institutions. The situation needs to be addressed urgently. I wonder whether the Government would be prepared to use the Bill as a vehicle for that.
  The Bill provides a good structure, which we support in principle. However, as in so many other cases, everything depends on the small print. We shall criticise those aspects of the Bill with which we disagree.
  8.25 pm
  Mr. Austin Mitchell: I want to try to give a good Labour speech, rather like that given earlier by the right hon. and learned Member for Rushcliffe (Mr. Clarke), the previous Chancellor of the Exchequer. I regret the fact that, while the first act of the Labour Government in 1945 was to nationalise the Bank of England, the first act of the Labour Government in 1997 was to give the Bank of England independent control over the most important lever of economic management.
  I have no quarrel with the regulatory parts of the Bill, because the Bank of England had too many roles—none of which it performed well—to be an effective regulator. We have been reminded of its deplorable record on BCCI, Barings and Johnson Matthey. I read an article in The Sun a few years back and wondered how an organisation that could not stop its staff taking used bank notes home in their knickers until there were 14 cars parked outside the home of the used bank note taker could be an effective regulator. That is only an aside. Chaps regulating chaps did not work and does not work. It is as well that we are ending it—slightly too late for my preference, but it should be ended.
  I want to concentrate on independent control of interest rates, based on criteria that deal only with inflation, taking no account of employment, growth and all the other important factors for the performance of a Government. Inflation is a dead enemy. It is not going to resume. We are using a nuclear weapon to destroy a phenomenon that is dead anyway. That is overkill.
  The policy is justified by non sequiturs. The argument is that stability creates the conditions for growth. That is not true. There is no causal relationship between low inflation and growth, although it is clear that higher growth leads to a quickening of inflation, because inflation is a symptom of life. We need some inflation. If we got growth to 5 per cent.—which is not very high—inflation would go over the 2.5 per cent. target at which the Bank is instructed to aim. The Bank would therefore have to kill high growth, which seems disastrous.
  The economy is being fitted into a monetarist corset, rather like those impregnable Spirella corsets that used to be advertised in newspapers when I was a teenager and noticed such things. After years of slow growth, the economy needs a substantial boost. It is easy to get stability and low inflation—they can be found in graveyards. The only two periods of stable prices that I know of in recent economic history were in Salazar's Portugal and during the five years up to 1929 before the great crash in the United States. Neither case suggests that price stability and low inflation are of any great benefit to the economy.
  784
  There is no evidence on whether an independent central bank is better at dealing with inflation. That is a fad, not a fact. The best authority on the issue is a book by Eijffinger and de Haan. Their conclusions, which appear to be common sense, are that
  "a country with an independent central bank will. ceteris paribus,"—
  which they never are—
  "have a lower rate of inflation than will a country where politicians can steer the central bank's policy."
  However, the study compares a list of countries comprising the Philippines, Brazil and various south American economies with examples such as Germany where low inflation is inevitable because of its powerful industrial base, so it proves nothing.
  The study continues:
  "Most empirical studies, however, show that central-bank autonomy does not enhance economic growth £ Indeed, most studies suggest that central-bank independence is associated with higher disinflation costs."
  The evidence from the best study of such matters shows that central banks overkill and clobber the economy, and that their management of the economy produces deeper recessions.
  Television commentators and the Bank of England trot out the monetarist myth that a slight increase in interest rates now will produce lower inflation later, as if it were a scientific law—but that is not the case. Higher interest rates increase the value of the pound and make imports cheaper, thus dealing with inflation. They also make exports dearer and put people out of work, thus dealing with wage inflation. Essentially, they clobber the manufacturing economy and put people out of work as a means of restraining inflation. It is rather like trying to maintain an expensive car by bashing the carburettor with an enormous great hammer.
  Bank of England management is the opposite of stable. In a world of floating exchange rates, any increase in interest affects the exchange rate. The uncertain prospects for monetary union in Europe, which may or may not happen—the position may be wide, narrow, soft or hard—affect conditions here. Investors are attracted to Britain by higher interest rates, but repelled by the uncertainties in Europe.
  Giving the Bank of England—which has no higher wisdom in facing any problem than to put up interest rates—independent power over interest rates inevitably increases the value of the pound, and that has a damaging effect on the economy. Indeed, it will lead to a balance of payments problem, a fall in exports, an increase in imports and a loss of jobs. All that will happen next year, just when the new deal will be coming in to fight inflation and unemployment by micro-policies that will run contrary to the macro-policy enforced by the independent Bank of England.
  If Britain is managed by interest rates—which is what the Bank of England is attempting to do—it will be inherently more unstable than most of its competitors, because interest rates are crucial in our economy and most people are on flexible rather than fixed-rate mortgages. Therefore, an increase in interest rates has automatic and substantial effects on the retail prices index and house prices.
  One has only to recall what happened in the Lawson boom when interest rates were kept low because we were shadowing the deutschmark. There was an explosion of

  785
  credit and economic activity that had to be damped down massively within two years. It was followed by the Major deflation, when interest rates rose too high, leading to deep recession. We have disproportionate fluctuations as a result of the importance of interest rates in our economy. Therefore, interest rate management that is designed to produce stability instead produces instability in the economy.
  The Bank of England is not a repository of abstract wisdom and scientific knowledge about inflation. It is a vested interest in respect of finance, the City, housing and bankers, unleavened by the interests of manufacturing, which has been deeply damaged by the Bank's role in the economy, or the interests of the regions, which should be represented in the court and in our monetary policy.
  We need a Monetary Policy Committee composed of diverse economic interests, but instead we have clapped-out monetarists, Keynesians turned monetarist and then turned halfway back again into budding new Keynesians, and foreigners with curious backgrounds, as I read in The Observer. We need a diversity of economic viewpoints—labour economists, Keynesian economists and expansionary economists—rather than just monetarists.
  Finance is implicitly interested in dear money. The philosophy is to pile it high and sell it dear—quite unlike that of the supermarkets. Currently, the real interest rates are at record levels. In the 1970s and part of the 1980s, the real interest rate was actually negative, so people could afford to invest. Indeed, there was an incentive to do so. Now, with inflation at 2.8 per cent. and the interest rate at 7.5 per cent., the real interest rate is at a record level. That is a direct, damaging penalty on investment. The Bank of England and the banking community has an interest in high interest rates and a high, stable exchange rate. However, they do not represent the interests of manufacturers, which remain the drive motor of our economy and generate jobs.
  A misguided decision based on myths and inaccurate information, carried out at the wrong time—just when it can do maximum damage to the economy—made the Bank of England independent on interest rate policy. That brings me to my basic argument against the entire Bill: it destroys democratic accountability.
  All sides of the argument have been exaggerated today. Those in favour of the Bill have defended it, and exaggerated its benefits, saying that it will provide stability. People such as me might be inclined to exaggerate the penalties—although, frankly, I think not. Even if the Bill's effect in making interest rates and the exchange rate higher than they would otherwise have been and growth a little slower than it would otherwise have been is marginal, there will be damaging consequences for the British economy. We can argue about that, but the proof of the pudding will be in the eating. The people elect the Government to run the economy for their purposes—betterment, enrichment, jobs and growth. If those purposes are not achieved, the people can throw the Government out.
  The Government are now giving up power to an oligarchy whose interests point in the opposite direction from those of the people. It will not remove blame from my right hon. Friend the Chancellor of the Exchequer. We
  786
  saw that after the Budget, when he was blamed for not reducing demand by increasing taxes. It will not make him blameless—simply less powerful. We shall transform ourselves from one-club golfing, which was the approach of the right hon. and learned Member for Rushcliffe, to no-club golfing.
  If the Government are committed to not increasing taxes and they do not control monetary policy, how will they manage the economy without the fiscal or the monetary weapon? Democratic, accountable government needs to have both those weapons and to use them for the purposes of the people, which are different from the purposes of bankers. The people want economic management to provide jobs, growth, a maximisation of living standards and betterment. Because it reduces our ability to achieve those objectives and follow the purposes of the people in economic policy, I cannot vote for the Bill.
  8.38 pm
  Mr. Nick Gibb: I begin by congratulating the hon. Member for Batley and Spen (Mr. Wood) on an excellent maiden speech. I hope that we shall hear more from him in future.
  I shall keep my remarks brief, as I am keen to hear the debate among Labour Members on a matter that obviously divides them deeply.
  The Chancellor's decision to give the Bank of England independence over interest rates will prove to be the Government's first major policy error, and it occurred within four days of the new Labour Government coming to office. It has resulted in the abandonment of a monetary and economic policy that has yielded the best inflationary record for 50 years, low and falling unemployment, and steady growth. It has removed from direct control and accountability a principal lever of economic policy. As Robert Chote—who has been quoted many times tonight—the economics editor of the Financial Times, wrote in his excellent paper for the Social Market Foundation, an independent Bank of England
  "will weaken democratic control over a vital area of public policy."
  Monetary policy, and the conduct of monetary policy, has such a fundamental effect on people's lives and is so fundamental a part of economic policy that it has to be in the hands of those elected to office.
  The Bill will divorce monetary policy making from fiscal policy making. It will result in higher than necessary interest rates, with all the consequences for mortgages, for the competitiveness of British business and for higher unemployment.
  By giving the Bank of England independence on interest rates, the Government are signing up to the latest fashionable, quick-fix panacea. All the panaceas that Governments have adopted over many decades—the gold standard in the 1920s and 1930s, the parity with the dollar in the 1940s, the Bretton Woods arrangement and, most recently, the exchange rate mechanism—have ended in failure. There is no short cut to the successful management of the economy, which is difficult and sometimes requires unpopular policies.
  Mr. Nigel Beard: The United States and all the other nations in the European Union have separated fiscal control from their

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  Governments for some years. Why have all those countries performed better than we have in the past 18 years?
  Mr. Gibb: I shall come back to that point in a minute, but France and Germany currently have levels of unemployment that are twice as high as ours. The Conservative Government, by adopting a balance between sensible monetary and fiscal policies, achieved a steady and stable economy. Any number of trendy panaceas proposed and adopted by the present Government will not change that truth.
  I acknowledge that the immediate effect of giving the Bank of England control over interest rates was to reduce the premium between short-term and long-term interest rates. However, that premium had built up since the war because Britain has been plagued by periods of high inflation, mostly brought on by previous Labour Governments. The Government faced a choice between a quick-fix panacea, which would reduce the premium in the short term but at a cost to growth and employment, and a long-term commitment to conducting monetary and fiscal policy in such a way as to demonstrate that Britain has at last become a stable, low-inflation economy. They have gone for the quick fix. The previous Conservative Government opted for, and delivered, long-term stability.
  The various studies that have been trumpeted by the very few supporters of the Bill who have spoken today show that countries with an independent central bank have lower average inflation rates than countries that do not. I acknowledge that. The Harvard Institute of Economic Research showed, for example, that countries with central banks with the most independence—Switzerland, Germany and the USA—had an average inflation rate of less than 4 per cent. between 1951 and 1988. Those countries with central banks with the least independence—Spain, Australia and the United Kingdom—had average inflation rates of 7 per cent. during that time.
  However, as the hon. Member for Hackney, North and Stoke Newington (Ms Abbott) said, when she opposed the Government's policy in an Adjournment debate:
  "although there may be a statistical relationship between central bank independence and low inflation, no causal relationship can be established."—[Official Report, 11 June 1997; Vol. 295, c. 1055.]
  She repeated that comment today. That view is backed up by Michael Jenkins of Hull university, who has commented that there is no statistically significant relationship between high central bank independence and low inflation.
  I come to the cost of the policy. It is not the lack of a causal link that prompts my opposition to the Bill. Those countries with independent central banks have experienced much deeper recessions than those without, as the hon. Member for Great Grimsby (Mr. Mitchell) pointed out. He quoted the academics Sylvester Eijffinger and Jakob de Haan, who have studied the point in great detail. They cite five studies of central banks, four of which show that, for any given reduction in inflationary pressure, the deflationary cost is higher in those countries with independent central banks than in those without.
  Another academic study in 1994 by Guy Debelle and Stanley Fischer showed that since 1962 those countries with independent central banks have suffered deeper recessions, on average, than those without. The countries
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  with independent central banks did not enjoy higher growth levels, despite the high social costs of the recessions, so there was no compensatory rise in growth in the long term.
  The reason for that phenomenon is plain. If a Government give a central bank the duty to meet an inflation target, that is what it will do. Any idiot can eliminate inflation from an economy by pushing interest rates sky high, oblivious to the consequences for growth and unemployment. A successful manager of an economy has to secure a balance between low inflation and economic growth. As Stanley Fischer has pointed out:
  "An important reason to expose central bankers to elected officials is that, just as the latter may have an inflationary bias, the former may easily develop a deflationary bias. Shielded as they are from public opinion, cocooned within an anti-inflationary temple, central bankers can all too easily deny that cyclical unemployment can be reduced by easing monetary policy."
  That over-deflationary bias has been the experience of the Bank of England since before 1 May. In November 1995, for example, the Governor proposed a 0.5 per cent. rise in interest rates to combat what the Bank saw as incipient inflationary pressure in the economy. That rise was opposed by my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) and, 18 months later, his opposition has been proved correct.
  Since the election, evidence of over-deflationary bias has been still more manifest. In six months, we have seen five interest rate rises—empirical evidence that independent central banks are more prone to set higher and excessive rates of interest than those that are not independent, because the incentives exist for them to do so. The Government acknowledged that fact soon after their announcement, on 6 May, of their decision to give the Bank independence. A few weeks later, the Chancellor revised his proposals.
  Mr. Geraint Davies: The hon. Gentleman asserted that the five rises in interest rates since the election were caused by independence being given to the Bank of England. He has no counter-factual evidence to suggest that interest rates would not have been higher under political control. The shadow Chancellor has no view on that, because he and the Conservative party do not know what the rate should be. In essence, he said, "This situation is awful, but I don't know what we would do." To suggest that the rises are a function of independence is rubbish—they are a market response to the current economic conditions.
  Mr. Gibb: The Government and the Chancellor say that it is the Bank's responsibility to determine interest rates, but now the hon. Gentleman is saying that the Chancellor is in favour of the five rises in interest rates since the general election.
  The Chancellor revised his original proposals, announced on 6 May, a few weeks later, seemingly in response to the criticism, which was abounding, that they would lead to excessive interest rates. He relaxed his inflation target and brought in a lower parameter below which the Bank was not allowed to let inflation stray. None the less, the deflationary instinct remains, as evidenced by last Thursday's interest rate rise, which was not widely acclaimed in the City.

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  That instinct will be institutionalised by the way which the Bill is drafted. Clause 11 proposes:
  "the objectives of the Bank of England shall be—

  (a) to maintain price stability and

  (b) subject to that, to support the economic policy of Her Majesty's Government".

  That appears to be copying the objectives of the Bundesbank. The 1957 Bundesbank law says that the Bundesbank shall regulate the volume of money in circulation and of credit supplied to the economy with the aim of safeguarding the currency.
  Section 12 of the Bundesbank law adds that the Bundesbank shall be required to support the general economic policies of the Federal Government. The same word "support" is used. That vague imperative to have regard to the general economic policy of the Government clearly has not worked well in recent years in Germany, where unemployment is more than 12 per cent., compared with 5.5 per cent. in Britain. Anatole Kaletsky argued in The Times in June that the very independence of the Bundesbank has led to the prolonged recession in Germany for the past few years.
  The United States, on the other hand, has a different model. The Federal Reserve Act of 1913 provides that the Federal Reserve shall conduct its operations
  "with a view to accommodating commerce and business."
  In 1978, the Humphrey-Hawkings Act specifically set the Federal Reserve the dual target of full employment and price stability.
  We are talking about something more fundamental than merely the structure of the objectives of an independent central bank, however. The principal reason for the success of the Federal Reserve in recent years is that the Fed is chaired by Alan Greenspan, a man who consistently gets it right. If another individual with a different view of the way in which monetary policy should be set had taken his position, the chances are that the Federal Reserve might not have been so successful. However, one cannot legislate for an Alan Greenspan. Monetary policy is not an exact science.
  As my right hon. Friend the Member for Fylde (Mr. Jack) said in the Adjournment debate on the subject in June:
  "Setting interest rate objectives requires feel, touch and sensitivity."—[Official Report, 11 June 1997; Vol. 295, c. 1073.]
  Even more than that, however, interest rate judgment depends on how potent an effect one believes an interest rate rise or fall will have on the economy. That is very much a political view.
  Whether an independent central bank will be successful depends on the composition of the Monetary Policy Committee and on the Governor. That is fine if things go well, but what happens if they go wrong? Because one cannot pass a law to ensure that the Bank gets monetary policy right; because the mechanics of interest rate policy are still the subject of political debate; and because handing that over to an independent bank will not stop interest rate policy being the subject of political debate, it is essential that such decisions remain in the hands of those elected to office, who are accountable and can be turfed out by the electorate if they get it wrong.
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  The key to maintaining a low-inflation economy is to have a low-inflation culture. To create that, one needs the backing of the British people. We can have any number in of independent institutions which are crafted and structured in any way we wish, but if the support of the people is not there, the central bank will not succeed. As Robert Chote says:
  "Central banks will only succeed in delivering low inflation if they reflect fundamental support for price stability in society."
  It is important that, when people go to the polls, they understand that they need to elect politicians for whom low inflation as a principal object of economic policy.
  In a free and democratic society, people must have the ability to determine the economic policy of this country, whether they are right or wrong. That is what the Government want to avoid. They realise that, given Labour's instinct for economic mismanagement, people will not vote for a Labour Government unless that Government hand over their conduct of the economy to someone else—anyone else.
  Mr. John Bercow: There is not a single word that my hon. Friend has uttered so far with which I have disagreed. Is not this Bill—although bad and damaging—but a halfway house? Following the logic of my hon. Friend's thesis, is it not an interim step to the wholesale abandonment of the power to control British monetary policy and interest rates outwith the United Kingdom altogether—to a European central bank that we do not elect and cannot remove?
  Mr. Gibb: I agree with every word that my hon. Friend says. The decision to join a single currency is part and parcel of the desire to hand over to somebody else—anybody else—economic decisions that the Government know they cannot trust themselves to take. That is why they went on about their promise not to raise taxes. That is why they made such a song and dance about sticking to Conservative spending plans. That is why the first thing that the Chancellor did was to give up his right to conduct monetary policy. Even new Labour does not trust new Labour.
  There was not a single word in the Labour party manifesto about giving independence to the Bank of England. It merely said:
  "We will reform the Bank of England to ensure that decision making on monetary policy is more effective, open, accountable and free from short-term political manipulation."
  Despite what the Economic Secretary said earlier, that does not mean giving the Bank of England independence. There is not a hint in that phrase about a plan which, in the words of the Prime Minister, is the
  "biggest step in economic policy making in Britain since world war two."
  Today, we are debating a Bill which the people did not vote for and did not expect—but that is typical of what we have come to expect from the Government. During the election, the Prime Minister wrapped himself in the Union Jack to demonstrate his Eurosceptic credentials; yet within six months, his Government have pledged themselves to take Britain into a single currency. Within four months, the Government have allowed through at two successive ECOFIN meetings a paper on European Union tax harmonisation proposals.

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  The Labour party challenged every reduction in unemployment over four consecutive years of the last Tory Government by challenging the basis of the figures. Since the election, the Labour Government have done nothing to revise or change the basis of those figures. The Government were elected on a pledge to bring unemployment down further—that is the whole basis of their economic policy, we are told. But every major economic decision taken by the Government since the election is designed, whether deliberately or not, to increase unemployment.
  The decision to give the Bank of England independence is leading to excessive rises in interest rates, which will, in due course, lead to unemployment increasing. The Budget and the Finance Act will take £10 billion out of the economy. The Government have signed up to the social chapter and proposed the introduction of a minimum wage, all of which will lead to job losses.
  On 20 May, the Chancellor stated that the introduction of an independent Bank of England and the appointment of a Monetary Policy Committee would be scrutinised by the Treasury Committee. I searched in vain through the Bill for even one reference to the Treasury Committee. Why is that? Are we meant to rely, for the only piece of democratic accountability in this whole undemocratic arrangement, on a statement in a letter from the Chancellor?
  The Chancellor also said that the Bank of England could use its own separate foreign exchange reserves to intervene in the money markets. How can we be sure that the Bank will conduct those operations for domestic purposes rather than for exchange rate stability? What is the Government's policy on exchange rate?
  The late Lord Ridley, in his autobiography, opposed an independent Bank of England, writing:
  "For what purpose would they use interest rate policy? In order to try to secure an artificial exchange rate, or to control the domestic money supply? The Bank of England is well known for its attachment to interfering with the exchange rate, and could never be trusted to operate interest rate policy for the sole purpose of domestic stability."
  What is the Government's strategy, and can the Bank of England be so trusted?
  The Government's rhetoric is of openness, but they announced the independence of the Bank of England on 6 May, the day before Parliament assembled. Was that so urgent that it had to be dealt with on a Monday rather than a Tuesday? The Government trumpeted their introduction of a green Budget and draft legislation for consultation, but took the biggest step in economic decision making since the war with no consultation or debate, before any announcement to the House.
  The Chancellor may be a close ally of the Prime Minister's, but in his six months in office he has made a series of political decisions that will do our economy enormous damage: the decision to give the Bank of England independence; the £5 billion smash-and-grab raid on Britain's pension funds; and the decision to take Britain into the single currency after the next general election. Those are the Government's three most damaging decisions since the general election; they were all made by the Chancellor and will all, I believe, lead the Labour party to lose office at the next general election. I urge the House to vote against the first of them this evening.
  9 pm
  Mr. Charles Clarke: I strongly support the Bill. I want to talk about the accountability of the Bank, on which the Treasury Committee has reported, and, in particular, to reject everything the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) said. I was glad that he spoke with such brevity—to allow the full involvement of Labour Members.
  I also reject the assertion of the right hon. and learned Member for Rushcliffe (Mr. Clarke) that the Bill would create a less transparent and open system of fixing monetary policy. I profoundly disagree, and I hope to explain why.
  We in Norwich have a specific interest in financial services. Norwich Union has its headquarters there, as does Virgin Direct with the new Virgin One bank account and Sedgwick's insurance brokers. They employ many people in my constituency. They want a stable economy with low inflation and transparent and open economic decision making so that they know where they stand. I believe that the Bill will supply that, and that is why I support it.
  There is concern in Norwich—as elsewhere—about the fact that monetary decisions can be taken according to the febrile concerns of the marketplace in the City rather than as a result of being rooted in the real needs of the economy, and that there is sometimes a mystical approach to monetary policy making that ignores economic realities.
  One of my constituents, who is regularly consulted by the regional agents of the Bank of England, said that he was concerned that decisions might be, and are, taken in the City without consideration of the impact on the price of the green pound or the consequences of the windfalls in Norwich as a result of Norwich Union's conversion. I believe that the Bill will allow those concerns to be dealt with.
  Other countries manage in different ways. The Bundesbank and the Federal Reserve have well-established systems of taking into account the real economy. There are different constitutional devices reflecting countries' different constitutions.
  The Treasury Committee addressed the issue and came to the central conclusion:
  "We believe that by bringing information into the public domain we can help to clarify the issues and that rigorous scrutiny of the basis for policy decisions will enhance the credibility and effectiveness of the monetary policy framework as a whole."
  I believe that that is fundamentally right and that that is what we are trying to achieve.
  In his evidence to the Select Committee, the Chief Secretary stated:
  "maximum transparency and openness in policy making … will add to the Government's credibility"—
  any Government's credibility—
  "and in turn will lead to a reduction in the premium we have to pay currently in terms of interest rates."
  I believe that those principles are right, and that is why the Bill is right.
  Our Select Committee sought to set out in its report how transparency and openness could be developed. I want to explain clearly what the Committee is saying. First, we will require the Chancellor to give clear evidence in the public domain about the basis of the clarification

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  and instruction that he gives, as set out in clause 12. He will be required to explain, directly and openly, not quietly and secretly, how he deals with the economic shocks mentioned earlier by the former Chancellor, the right hon. and learned Member for Rushcliffe.
  The Chancellor will be required to specify why, for example, he chooses a point target for inflation rather than a range; why he takes one measure, such as RPIX, rather than another; why he chooses a particular figure, such as the present 2.5 per cent. plus or minus one; and what general period the target should be met within. If he uses his powers under clause 19 to override the Bank, he will have to explain why he has done so and how he is doing it.
  One of the most ludicrous assertions that have been made tonight is the suggestion that the motive behind the Bill is to allow the Chancellor to shift responsibility to the Bank. He could not begin to do that. All Chancellors take responsibility for the inflation target they set and for the structure and framework of monetary policy. They are accountable for that to the House and to the Treasury Committee. The idea that the Chancellor might think that he can get rid of it and give it to Eddie George is ludicrous. That is not the motive that lies behind the Bill or the motive of the Chancellor, and the suggestion that it is is wrong. The accountability of the Chancellor that I have described is the clearest possible demonstration that the Government retain full responsibility for the key indicators of economic policy, including monetary policy. It is right that they should, and right that they are accountable for it.
  On the Bank, the Treasury Committee proposes a range of measures to bring into the public arena policy considerations and policy areas that have never been there before. I pay tribute to the former Chancellor, who is in his place, for some of the steps that he took to move that on with the inflation report, the publication of minutes and so on. The Bill seeks to take that further and bring more into the public arena.
  Hon. Members asked who would give evidence. Of course the Governor will give evidence and of course we want all members of the Monetary Policy Committee to be interviewed from time to time. If there was a division in the minutes, we would take evidence about why MPC members took different views. We are seeking to take evidence about the role of the court. There is a series of areas within the Bank's decision taking, and different people with different responsibilities in respect of which we hope that views and conduct of affairs will be open.
  What will the Committee do? First, we have stated—I believe that this can be achieved—that we will require the Bank to clarify its assumptions on matters such as foreign interest rates, the exchange rate, domestic and international growth and, critically, the relationship between interest rate movements and the real economy. With all credit to the former Chancellor, those areas and assumptions have not been in the public arena before, but they will be now. That will enhance the public debate about the conduct of economic policy.
  The Committee set out explicitly that we would require the Bank to provide in its main inflation report an annual statement of the transmission mechanisms that it believes operate in the relationship between monetary policy and
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  inflation. That is an important area: many assertions and ideas are discussed in various ways. We are saying that we want it out in the open every year so that we can examine the assumptions that have been made.
  On the open letter process, if there is any deviation from the target that is set, there will be full evidence, full hearings and full understanding in the full public arena. There will be hearings on the inflation report, as my hon. Friend the Member for North Durham (Mr. Radice) said, at least twice a year—and probably more often—to draw out the full picture. If we have the reserve powers allowed for in clause 19, there will be every opportunity to air the matter fully in the public arena. The Committee's report also mentions that we are seeking an annual debate on this issue in the House. The process will greatly increase transparency and openness, and will add to the credibility of the Bank.
  I am short of time and am coming up against the deadline. I had hoped to comment on the confirmatory hearings. I agree with my right hon. Friend the Chief Secretary to the Treasury that they are not a requirement for the Committee to be able to operate in the way I described, but proper confirmatory hearings would enhance the Committee's work.
  In conclusion, I urge hon. Members to read paragraphs 47 and 49 of our report, where we set out how confirmatory hearings can be conducted carefully and effectively without the worst practices of the congressional system. Such hearings would enhance the system. The Chief Secretary generously told our Select Committee that he had an open mind on that matter. I genuinely hope that, even with this Bill, he will have an open mind when considering amendments in that area.
  9.10 pm
  Mr. Howard Flight: This hotch-potch privatisation—the independence of the Bank of England—will, like the Chancellor's Budget, soon lose its initial popularity. If we are to have an independent central bank, let us do it properly like the Federal Reserve and have proper, full and open accountability and let those who are responsible be properly serviced and have objectives that cover the full range of economic activity, not merely over-narrow, anti-inflation objectives.
  The Government are claiming that there is some democratic accountability in the Bill and that they are opting for a midway house—the best that Britain can do at this stage. In that case, I cannot understand why the Chancellor is so keen on the proposed arrangements for the European central bank. That will be the worst sort of independent central bank arrangement—a bank that is not in any way democratically accountable and that leaves the door wide open for all the dangers that the hon. Member for Hackney, North and Stoke Newington (Ms Abbott) described so well. My great fear is that the ECB will be besotted with the desire to make the euro a strong reserve currency when Europe already has a large trade surplus. Over-valuation will result, and we will have Japanese-style deflationary and stagnatory problems.
  My main concerns relate to the dangers that will face Europe, given the coming climate. The proposals for how the Bank of England is to manage banking problems are weak. At the starting point, there are signs of misunderstanding. The Chancellor pointed out in the early summer that it was frightfully important that the

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  management of interest rates should be purely for inflation control and should not be contaminated by other factors. Was he not aware that in America, for example, this very decade, interest rates had to be managed to be low for quite some time in order to rebuild the capital base of the banking system, which had been ravaged by the previous recession? Was he not aware that the same situation obtained in Japan? Interest rate policy and being lender of last resort is a crucial part of a central bank's job in managing the overall stability of the banking system.
  My great fear is that the debt deflation and the competitive devaluations in the Asian economies will blow a nasty cold wind to the mature economies of America and Europe. The climate will be extremely difficult for the banking system. It is worrying that responsibility is not clearly laid out in those areas. One cannot have a central bank that might have to take large decisions against the background of systemic problems when responsibilities are not clearly laid down.
  To know what to do with particular banks, the Bank of England has to have responsibility for monitoring them, yet that power has now been sent off to the FSA. It is noteworthy that Alan Greenspan pointed out when the proposals were made that, in his opinion, it was extremely unwise to separate the responsibility for monitoring the banking system from overall responsibility for maintaining stability.
  The arrangements have not been clearly organised in the Bill: the co-ordination arrangements and the process for decisions on when the Bank of England may need to intervene massively to support the banking system and what authority it requires from the Government are not clear. I was around during the 1974 crisis, when many of our largest banks had to be supported by the Bank of England in the lifeboat. The lifeboat was a great tribute to the effectiveness of the Bank during a major systemic crisis. Given the current economic winds, I am greatly concerned that, because of the insufficiently clear and divided responsibilities, we might find that, at the crucial moment, these new and ill-defined arrangements will leave the Bank of England and the banking system ill equipped to deal with problems.
  Like my hon. Friend the Member for Chichester (Mr. Tyrie), I am opposed to the Bill. It does not do the proper professional job required if we are to go down the route of having an independent central bank. If we want to do that, let us do it professionally, like the Federal Reserve. For goodness' sake, let us be extremely wary. There is at least some democratic accountability back to the Treasury Committee, so let us be extremely aware of the risks ahead and get the Bank of England ready to deal with the great dangers that may face our banking system over the next two years.
  9.16 pm
  Mr. Ross Cranston: I have only four minutes to make a few points.
  I support the Bill without deviation and without hesitation. First, it puts the constitution of the Bank of England on a firm basis. It sets out the mechanisms for accountability that my hon. Friend the Member for Norwich, South (Mr. Clarke) described. Secondly, it sets out quite clearly the Bank's status in terms of monetary policy. Opposition Members do not seem to agree on that point—the right hon. and learned Member for Rushcliffe
  796
  (Mr. Clarke) says that we should leave things as they are, but others have said that we should make the Bank completely independent.
  Some hon. Members do not seem to have read the Bill, and I include some hon. Friends in that number. Clause 12 makes it clear that the Government set monetary policy; clause 11 makes clear that it is up to the Bank of England to set interest rates to meet the targets that the Government have determined. Under the Bill, the Bank will not be completely independent, but neither will it be completely under political direction. There is a fine balance, and the Government have got it right. The arrangements reflect those in other countries, such in as the Bundesbankgesetz.
  Thirdly, the Bill puts financial services on a firm footing. One of the problems that now face us is that, unfortunately, the Conservative Government did not implement properly the Gower report. They set up a range of self-regulatory organisations: we started with seven, reduced that number to five and then got down to four. It was a complete shambles.
  Under the Bill, financial services regulation will be brought under a proper umbrella. I am pleased that insurance is to come under that umbrella: current insurance law has not felt the wind of consumer protection, but the Bill puts investor protection in the retail sector to the forefront. I welcome that unreservedly. I support the Bill and I am sure the House will give it its approval.
  9.19 pm
  Mr. David Heathcoat-Amory: This most interesting debate has revealed deep cracks in the facade of new Labour. The most notable speeches by Labour Members were made by hon. Members who obviously do not believe that it is one of the tasks of a Labour Government to hand over control of economic policy to bankers, however eminent those bankers may be. Although they are bound to be dismissed as the voice of old Labour by the trendies on the Treasury Bench, they nevertheless represent a more authentic Labour tradition, from which we shall hear much more before this Parliament is out.
  More generally, the debate has shown that the Government proposals for a central bank that is independent in this country are not proposals for an independent bank in a real sense. They would be better described as proposals for a quango bank, designed to take unpopular decisions about things such as interest rates, but leaving the powers of appointment, the power to override and many other important powers, in the hands of the Chancellor of the Exchequer and the Government.
  As a result, the Bill will not satisfy those who believe in a genuinely independent central bank. They must be pretty numerous on the Labour Benches, because they are now committed in principle to the most independent central bank in the world, to be set up in Frankfurt—the European central bank. That bank, as we heard in the debate, will be forbidden to take any instructions from national Governments or Parliaments, and will not be accountable to any democratic body or institution, anywhere, for the foreseeable future. That is entrenched in treaty law—which is, of course, superior to national law.
  The Government, and Labour Members who want the United Kingdom to join a single European currency, have not followed through on that in the Bill, or even taken the

  797
  halfway step of setting up such a genuinely independent bank for our own purposes, so the Bill will not satisfy those who believe in a genuinely independent central bank. Nor will it satisfy those hon. Members from whom we heard tonight who believe that interest rate decisions should remain in democratically accountable hands. It is a dog's breakfast of a Bill, which will satisfy no one.
  Mr. Radice rose—
  Mr. Nigel Beard rose—
  Mr. Cranston rose—
  Mr. Heathcoat-Amory: I had better give way to the Chairman of the Treasury Select Committee.
  Mr. Radice: If it is such a dog's breakfast of a Bill, why do not the Opposition say that they will repeal it if they get into government? If it is so bad, why not repeal it?
  Mr. Heathcoat-Amory: That point was dealt with satisfactorily and comprehensively by my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley).
  The hon. Member for North Durham (Mr. Radice) will know, because he was in the previous Parliament and the one before it, that Labour made several ill-judged promises to repeal legislation when it achieved office. There was scarcely a privatisation that was not accompanied by a ringing commitment to renationalise when Labour came back into office. All that has been ditched under the impact of events and reality.
  We shall not make the mistake of making knee-jerk reactions and promises to repeal legislation, but we are entitled to draw attention to the deficiencies in the legislation so that we do not need to repeal it, because it will not have become law by receiving a Second Reading. I hope that Labour Members who have spoken against the legislation will join us in the Lobby at 10 o'clock.
  Supporters claim that the Bill and the thinking behind it will establish a low-inflation culture in this country, and will commit everyone to the national imperative of low inflation. If that is the case, why did the Chancellor make no effort to consult anyone before he announced, four days after the general election, his intention to hand over powers to the Bank of England? There is nothing about it in the Labour manifesto, apart from a few weasel words about the Bank of England.
  As the right hon. Member for Llanelli (Mr. Davies) pointed out, the business manifesto—which is the really important one—contains a commitment to do something else: to set up a statutory advisory committee in the Bank of England. No preparations were made in the Labour manifestos, yet an announcement was made almost immediately, not to the House of Commons in the normal manner but by letter to the Governor.
  That announcement conflicted with the Chancellor's assertion in opposition that the Bank should demonstrate a successful track record in good advice and build greater public credibility. That is what he said on 26 February this year, but, rather than wait for the Bank and its committees to establish a track record of good advice,
  798
  he rushed in with this ill-considered proposal. Today the Chancellor of the Exchequer showed further contempt for the House by failing to introduce his legislation—he is not even present for the winding-up speeches. That is his attitude towards accountability to the House, and it is reflected in the Bill.
  In a typically powerful speech, my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) explained to the House that the achievement of low inflation does not require an independent central bank. The Conservative Government established an inflation target of 2.5 per cent. or less. We said that we would reach that target by the end of the Parliament, and we did.
  One of the first things the present Chancellor did was relax that target—it is now 2.5 per cent. plus or minus 1 per cent. That sent a very dangerous message to the markets, financial commentators, economic agents and those who bargain wages and prices. That rather familiar message was that all Labour Governments are finally soft on inflation and give way on inflation. I am certain that this Labour Government, for one reason or another, will be no exception.
  Ms Kelly: If the right hon. Gentleman believes that the decision to loosen the inflation target—as he put it—is so damaging to the British economy, can he explain why bond yields fell by half a point on the day that the announcement was made?
  Mr. Heathcoat-Amory: I am sorry to tell the hon. Lady the bad news: inflation has increased since the Chancellor made that announcement. The Chancellor routinely, month after month, misses his inflation target. It is now above 2.5 per cent. He not only sent a signal that Labour Governments are soft on inflation, but compounded the error in the Budget by failing to deal with what he thought was incipient overheating with excessive consumer expenditure.
  If that was the problem—and he certainly thought it was—why did he fail to deal with it? Instead of taxing consumer expenditure, the Chancellor taxed the corporate sector through the windfall tax and the notorious £5 billion a year raid on pension funds. He has done nothing on the fiscal side to bring down inflation since the election—in fact, he has added to it.
  The strain of that anti-inflation strategy has been borne by the Bank of England. That is why we have seen five interest rate increases since the election. Who can tell whether the great men on the Monetary Policy Committee are right? We do not know, and we will not know for 18 months. That brings us back to the Chancellor's comment that he would have to wait some time until he could assess whether the Bank had built up the correct track record, before he handed it the powers. As I said, however, the Chancellor overrode that, and, in a great and unnecessary rush, he has given the Bank the authority to change interest rates.
  The detail of the Bill weaves an uncertain path between making the Bank independent and keeping it as an appendage of Government. That muddle has been spotted not only by hon. Members who have spoken in the debate, but by outside commentators. Professor Gowland has

  799
  been quoted. He knows a great deal about financial regulation and banking, and he has pointed out that the new arrangement, which is in fact a contract between the Treasury and the Bank,
  "will reduce the Bank's discretion."
  The Bank's task is to deliver a narrowly defined inflation target. It is required to take into account the Government's more general economic objectives, such as growth and employment, but those are explicitly to be subject—and therefore secondary—to the aim of price stability. That is to be written into statute law in clause 11.
  If we in this country were to experience an economic shock, perhaps a mild one—cost pressures of one sort or another—the Bank is forbidden by statute to give a higher priority to the maintenance of output and employment than to its overriding objective, which is to maintain price stability. Before the end of this Parliament, we shall see what strains and stresses that can create.
  In other words, the Bill combines minimal discretion with the maximum potential for damage. The reason is that the Government want to keep the Bank on a very short lead, while at the same time being able to blame the Bank for the unpopular decisions that may be required.
  The Treasury Select Committee concerned itself with the appointment of the great men on the committee and the directors. The Select Committee spotted the fact that the Monetary Policy Committee will, in part, report to the Bank's court of directors. All the members of that court are to be appointed by the Chancellor of the Exchequer, but the terms of appointment of the court are to be reduced from four to three years—less than a normal Parliament.
  Will the Economic Secretary accept the recommendations of the all-party Select Committee that the terms of appointment of members of the Monetary Policy Committee and the court should be made longer than is proposed in the Bill?
  Will the hon. Lady comment on another issue—who should be appointed to those important independent committees? We saw last week the rather regrettable spectacle of powerful outside lobbies getting at a Labour Government. We saw the motor racing industry successfully buying favours from a Labour Government. That was regrettable. It is now certain that the Labour party has broken an election pledge, under pressure from a powerful industrial lobby which happens to have given a lot of money to the Labour party.
  Understandably, the House and the Select Committee, which may have anticipated that, want to be certain that the appointees to the proposed bodies are above suspicion and beyond reproach. That is the least that the House can expect from the Government. I ask the Minister to state in her reply that the appointments to the Monetary Policy Committee should be confirmed by the Treasury Select Committee, if necessary after hearings.
  Another point that I would like the Minister to answer—it was raised by my hon. Friend the Member for Arundel and South Downs (Mr. Flight)—relates to the transfer of banking supervision from the Bank of England to the Financial Services Authority. A joint committee might be proposed to try to keep the Treasury, the Bank and the FSA in touch with one another, but at present it is the Bank that has the expertise and the knowledge to judge systemic risk in the banking system. We believe
  800
  that it is most unwise to transfer these responsibilities now to a new and untried organisation that is struggling still to set itself up and to take on the other tasks that it has to undertake.
  The Bill formalises an interest-rate-setting mechanism that we believe is not necessary to control inflation, and could in practice lead to a dangerous deflationary bias. That has been asserted by Labour Members as well. We believe also that the Bill risks a wider split between fiscal policy, which remains with the Treasury, and monetary policy, which is going to the Bank. For those and other reasons advanced by my right hon. and hon. Friends, we shall be urging the House to vote against Second Reading.
  9.35 pm
  The Economic Secretary to the Treasury (Mrs. Helen Liddell): We have just heard a speech encapsulating the difficulties in which the Conservative party finds itself. The right hon. Member for Wells (Mr. Heathcoat-Amory) could not even decide how long he wanted for his summing up.
  We have seen mounting tonight the extent to which one side of the Tory party does not know what the other side is doing. Until tonight's experience, I was rather doubtful about the theory of Pavlov's dogs, but bearing in mind the number of times that Conservative Members have returned to the issue, I am now convinced that, even in their sleep, they talk about the single currency.
  There is confusion on the Opposition Benches: on the one hand we are told that the inflation target is too tight, while on the other we hear that it is too loose. We hear that the right hon. and learned Member for Rushcliffe (Mr. Clarke) is the greatest thing since sliced bread—from a man who resigned from the right hon. and learned Gentleman's team in government. We have seen kissing cousins and the making of a marriage of convenience from a party that does not know whether it is coming or going.
  Mr. Tim Boswell: Will the Minister give way?
  Mrs. Liddell: Give me a minute, and I shall willingly give way to yet another member of the Opposition Front Bench, who perhaps will tell us whether the Conservative party is in favour of repealing the Bill.
  Mr. Boswell rose—
  Mrs. Liddell: I shall give way shortly.
  When the hon. Gentleman comes to the Opposition Dispatch Box, perhaps he will tell us whether he takes the view of the shadow Chancellor of the Exchequer, who says that there will be no knee-jerk reaction to whether the proposed legislation will be repealed, or whether he takes the view of the right hon. Member for Wells, who says that there will be no need to repeal it.
  Mr. Boswell: I take precisely the view of the shadow Chancellor of the Exchequer.
  The Minister seems to think that the question of European monetary union is not in any way associated with the Bill. That being so, why was it that, when the Chancellor of the Exchequer spoke only last week about

  801
  the preparations for monetary integration and the Governor of the Bank of England referred to our being in a sense a "pre-in", the operation of monetary policy widened the divergence between British interest rates and those in continental Europe? Is that a triumph for the Government's policy?
  Mrs. Liddell: We have just heard the alternative Opposition reply. It is yet another example of the extent to which Conservative Members find themselves isolated.
  Various hon. Members repeatedly wanted to bring the issue round to a European central bank. Let me say quite clearly: the decisions on monetary policy that have been taken by the Chancellor and the Government are based on the domestic needs of our economy. That is one aspect that seems to be singularly lacking from Opposition Members. What else can we expect, when the right hon. Member for Wells writes in The Sunday Telegraph:
  "The CBI is bad news for British industry"?
  We have seen Opposition Members tonight driving yet another wedge between the Conservative party and business in this country.
  Indeed, the right hon. Gentleman made it fairly clear that he has not followed the details of the Bill. He referred to price stability, and to whether action could be taken in the event of any external shocks to the economy. I draw his attention to part II of the Bill, clause 11, which specifically points out that, in relation to monetary policy, the objectives of the Bank of England shall be
  "to maintain price stability and, subject to that, to support the … economic policy"
  of Her Majesty's Government,
  "including its objectives for growth and employment."
  Indeed, the right hon. and learned Member for Rushcliffe pointed out quite clearly the mix of elements that make up macro-economic policy. Perhaps the right hon. Gentleman will now tell us which side he is on. Is it to be repealed? Or is it not?
  Mr. Heathcoat-Amory: I refer the hon. Lady to her own legislation, which says quite clearly, on page 5, clause 11, that the maintenance of price stability—[Interruption.] If she has it in front of her, perhaps she will read it to the House. It says that the objective of the legislation is to maintain price stability, and that the other objectives of economic policy are to be subject to that.
  The Chief Secretary got it all the wrong way round when he introduced the Bill. Perhaps the Economic Secretary will now do us the courtesy of getting it the right way around, and conceding that the other objectives of Government policy, such as growth and unemployment, are only subject to the maintenance of price stability, so that, when there is a dilemma, such as in a shock, price stability will be the overriding statutory requirement of the actions of the Monetary Policy Committee. Will she confirm that that is in her own legislation?
  Mrs. Liddell: I think that the right hon. Gentleman is having a second wind in the wind-up. There must be an echo in here, because I have just read out the relevant clause, and he has read it out again and got it the wrong
  802
  way around, as he has done repeatedly throughout the evening. Indeed—to take up another point that he made about financial stability and the role of the Bank of England, the Treasury and the Financial Services Authority—he plainly has not even bothered to consult the memorandum of understanding agreed between those organisations.
  That is another example of the confusion that has marked the debate from the very beginning. Whenever the shadow Chancellor got up, he would not say yes, he would not say no. He ended up impaled on the fence of his party's divisions and indecision. He claims on the one hand that the Chancellor is giving up one of the most important tools of economic policy, yet he will not tell us whether any incoming Conservative Government—should the country be so unfortunate as to get one—would repeal this legislation.
  However, the same shadow Cabinet, under the leadership of the right hon. Member for Richmond, Yorks (Mr. Hague) is prepared to commit this country, for the next 10 years, to not contemplating a single currency in Europe. He says one thing, but then says another.
  Presumably the single currency is of a much lower order than independence from the Bank of England. On the one hand the right hon. Gentleman says that giving the Bank of England operational independence is wrong; then he says that we are not giving it enough independence, because the Monetary Policy Committee could be influenced by the Chancellor. I hope that, by the time the Bill is considered in Standing Committee, Opposition Members will have made up their minds whether they are coming or going.
  I shall take up some of the specific points that the shadow Chancellor made. He was effusive in his compliments to the right hon. and learned Member for Rushcliffe, yet he stood against him in the leadership contest.
  The right hon. Gentleman referred to issues of debt management, something that was raised a number of times during the debate. One reason why the clauses relating to debt management put distance between the Bank and the debt management agency is specifically to ensure that there is greater transparency and increased credibility, so that there is no chance of Bank actions being misinterpreted in any way as monetary policy actions. Nor can there be any charge of insider trading. Cash management operations will be set up to avoid conflict with banking operations.
  The right hon. Gentleman also questioned whether there would be a deflationary bias. During the debate, we have heard that the proposals for the central bank will, on the one hand, be inflationary, while on the other they will be deflationary. Let us take the right hon. Gentleman's view, that there will be a deflationary bias. It is up to the Government and the Chancellor to set the targets for inflation. Indeed, the Government will regard undershooting as seriously as overshooting.
  The right hon. and learned Member for Rushcliffe referred to discussions in which he had been involved—the famous Ken and Eddie show, where on every occasion Ken was right and Eddie wrong. That is a classic example of why we need operational independence in the setting of interest rates. Indeed, the hon. Member for Louth and

  803
  Horncastle (Sir P. Tapsell) said that he had exerted political pressure on the former Chancellor in regard to his inflation performance.
  Sir Peter Tapsell: I said nothing of the sort. I said that, in the Division Lobby, I had congratulated my right hon. and learned Friend on his decision to resist pressure from the Bank of England unnecessarily to raise interest rates.
  Mrs. Liddell: In relation to the overall impact on the setting of interest rates in this country, is it not reassuring that, outside the closed atmosphere of the Lobbies of the House of Commons, there will be rational debate about the correct level for interest rates to meet the inflation target?
  The right hon. and learned Member for Rushcliffe said that, for certain elements of the proceedings, the minutes of the Monetary Policy Committee do not specifically refer to the names of members. However, the voting performance of members is revealed. What a difference from the Ken and Eddie show, when there was one vote plus a casting vote, and Ken held both votes. That is not the right or modern way to set interest rates.
  My hon. Friend the Member for North Durham (Mr. Radice), the Chairman of the Treasury Select Committee, made a number of telling points. A number of hon. Members have referred to the Committee's recommendations. I reiterate what my right hon. Friend the Chief Secretary said about having an open mind on the recommendations, while taking up the points about three-year appointments.
  There is a good precedent for appointments based on three years. The Hempel report suggests that, for corporate governance, there is logic in company directors being appointed for three years, because that increases accountability. [Interruption.] The hon. Member for Gordon (Mr. Bruce) makes a sedentary intervention. Just because an appointment is for three years does not mean that it cannot be renewed. It could be three years, six years or nine years. If the Monetary Policy Committee were ever to become static, longer appointment periods would not help the analysis of monetary policy.
  A number of hon. Members referred to confirmation hearings. As my right hon. Friend the Chief Secretary said when he appeared before the Treasury Select Committee, the Government remain open-minded on that issue, but there are precedents relating to other activities of the House, which might be more widely discussed in other forums.
  I greatly regretted the comments of the hon. Member for Louth and Horncastle on the role of Bank of England staff after banking supervision is transferred to the Financial Services Authority. The clear implication of his comments is that, once banking supervision is removed from the Bank of England, those who work in the Bank will be second rate. As one who works closely with Bank of England staff, I think that that was a regrettable point. However, I was much reminded of the quality of the Bank's staff when I heard the very impressive speech by my hon. Friend the Member for Bolton, West (Ms Kelly).
  I pay due tribute to the maiden speech of my hon. Friend the Member for Batley and Spen (Mr. Wood), who made a most telling contribution to the debate. He brought us back to first principles in many instances, telling us of the history of the community that he represents and the
  804
  issues that impact on it. It was an impressive and most gracious speech, in which he paid due tribute to his predecessor. He mentioned the Batley Bulldogs rugby team. Another Batley bulldog has joined the House for our deliberations in this Parliament, and I pay tribute to him.
  I shall take together the points made by my right hon. Friend the Member for Llanelli (Mr. Davies) and my hon. Friends the Members for Hackney, North and Stoke Newington (Ms Abbott) and for Great Grimsby (Mr. Mitchell).
  We heard well-rehearsed arguments that, in June 1997, were part of an Adjournment debate. It is always very enjoyable to hear my hon. Friend the Member for Hackney, North and Stoke Newington make her case. She has a clear case, although I do not agree with it. I remind her that allowing inflation to get out of control impacts most perniciously on lower-paid and poorer people. Losing control of inflation affects the poor more than it affects anyone else, and establishing more effective means of controlling inflation in our economy is extremely important.
  From many of today's speeches by Opposition Members, one would have had the clear impression that Government economic policy begins and ends with inflation. As the right hon. and learned Member for Rushcliffe said, however, other instruments of economic policy are important.
  Nevertheless, we must realise that inflation is a cornerstone of much else in economic policy. The right hon. and learned Gentleman mentioned growth trend rates. They are not altered in a six-month period, because experience and performance must build up within the economy. He may mock the Monetary Policy Committee's decisions on interest rates. Nevertheless, he himself will have to take responsibility for the fact that he should have been acting before the general election, but failed to do so. That point was made most eloquently by my hon. Friend the Member for Bolton, West.
  We have heard some thoughtful and wide-ranging speeches. We heard an impressive speech by my hon. Friend the Member for Leicester, East (Mr. Vaz), who has taken a considerable interest in the Bank of Commerce and Credit International. Hon. Members on both sides of the House will realise the extent to which he has vigorously pursued that issue. He asked me a very specific question on the Bingham report. As the question goes wider than the subject of today's debate, for now I will say only that I have heard what he said, and that I will get back to him on the matter.
  The hon. Member for Twickenham (Dr. Cable) raised some other issues. He asked, as he always does, some specific and very interesting questions. A particularly interesting one related to the possible criteria for market intervention. The Government expect that interventions beyond normal ones in money market operations will be extremely rare, and practised only if there were to be a serious systemic threat.
  The memorandum of understanding—which I mentioned earlier—between the Bank and the Financial Services Authority emphasises the need for co-operation and an exchange of information in assessing the need for intervention, and the form that that intervention should take. Ultimately, it will be up to the Chancellor to approve

  805
  an intervention, and he will have to have justification for putting public money at risk. I am sure that the hon. Gentleman will recognise the reasons for that.
  Several points were made about financial regulation, which is a vital element of the way in which the Government are taking forward our responsibilities for the development of the financial services sector. The Bill is but the first stage in a wider reform of financial services.
  The hon. Member for Twickenham asked specifically about the cost of regulation. The explanatory memorandum estimates the cost of banking supervision to be £50 million, including overheads. The basis for the Coopers and Lybrand figure of £250 million to which the hon. Gentleman referred is unknown to us. We think that it might relate to the costs of supervision in general, but we are not clear about the genesis of the Coopers and Lybrand conclusions.
  We believe that bringing under a single regulator nine different structures and nine different operating forums, thus avoiding all the duplication that has caused such chaos in the financial community, will provide the opportunity for more effective regulation at lower cost. Indeed, my right hon. Friend the Chief Secretary referred to cash ratio deposits and how they will be put on a statutory basis.
  We will consult on that, to make sure that we have a proper assessment of the right level of cash ratio deposits. The Government have made it clear that our aim is that the aggregate burden on the financial institutions should be no higher, and preferably lower, than it is at present.
  The hon. Member for Twickenham also asked about the role of the International Organisation of Securities Commissions. One reason we sought to reform financial regulation is that we are determined to see our financial regulation as a world beater—and as a source of competitive advantage to British financial institutions. Financial regulation is a critical element in making markets competitive globally. I hope that the hon. Member is reassured that we hope to build on the extensive experience of financial supervision available in Britain, and to play our part internationally.
  The shadow Chancellor referred to the possibility of conflict between the various regulators. There is already substantial potential for conflict, some arising out of the complexity of individual firms. Firms in the financial services sector have changed dramatically since the 1980s; banks have greatly extended their activities; and the building societies that have converted to banks have a mixed bag of financial products available and have a mixed bag of regulators. The Bill will ease the burden of regulation, and make regulation more transparent.
  The shadow Chancellor also referred to the cost of regulation. It is a specific commitment of the Financial Services Authority to make sure that the cost of regulation is proportionate to the benefits of regulation.
  Several hon. Members mentioned British independence for the central bank, and the EMU-compatible bank. As I said, it is interesting to see how hon. Members have returned to this issue. The preparations for EMU and the debate that must take place in this country are completely different from the issues covered by the Bill. The Bill is about providing the basis for stability in our economy.
  806
  Over the past 18 years, we have seen the impact of boom and bust on our economy, and the hardship caused for ordinary people. If our economy is to grow convincingly, it is essential that our decision making should be put on a sound basis that leads to coherent and stable financial policy.
  At the end of the debate, the view of the Conservatives remains unclear. They have dodged the question whether they would repeal the legislation. I shall be interested to discover the line that they take in Committee.
  Question put, That the Bill be now read a Second time:—
  The House divided: Ayes 364, Noes 139.

  Division No. 86]

  [9.59 pm

  AYES

  Adams, Mrs Irene (Paisley N)

  Church, Ms Judith

  Ainger, Nick

  Clapham, Michael

  Ainsworth, Robert (Cov'try), NE)

  Clark, Rt Hon Dr David (S Shields)

  Allan, Richard

  Clark, Dr Lynda

  Allen, Graham

  (Edinburgh Pentlands)

  Anderson, Donald (Swansea E)

  Clark, Paul (Gillingham)

  Anderson, Janet (Rossendale)

  Clarke, Charles (Norwich S)

  Armstrong, Ms Hilary

  Clarke, Eric (Midlothian)

  Ashton, Joe

  Clarke, Rt Hon Tom (Coatbridge)

  Atherton, Ms Candy

  Clarke, Tony (Northampton S)

  Atkins, Charlotte

  Clelland, David

  Austin, John

  Clwyd, Ann

  Ballard, Mrs Jackie

  Coaker, Vernon

  Banks, Tony

  Coffey, Ms Ann

  Barron, Kevin

  Cohen, Harry

  Battle, John

  Coleman, Iain

  Bayley, Hugh

  Colman, Tony

  Beard, Nigel

  Connarty, Michael

  Begg, Miss Anne

  Cook, Frank (Stockton N)

  Beith, Rt Hon A J

  Cooper, Yvette

  Bennett, Andrew F

  Corbett, Robin

  Benton, Joe

  Corston, Ms Jean

  Bermingham, Gerald

  Cotter, Brian

  Berry, Roger

  Cousins, Jim

  Best, Harold

  Cranston, Ross

  Blizzard, Bob

  Crausby, David

  Boateng, Paul

  Cummings, John

  Borrow, David

  Cunliffe, Lawrence

  Bradley, Keith (Withington)

  Cunningham, Jim (Cov'try S)

  Bradley, Peter (The Wrekin)

  Dalyell, Tam

  Brinton, Mrs Helen

  Darling, Rt Hon Alistair

  Brown, Rt Hon Gordon

  Darvill, Keith

  (Dunfermline E)

  Davey, Edward (Kingston)

  Brown, Rt Hon Nick (Newcastle E)

  Davidson, Ian

  Brown, Russell (Dumfries)

  Davies, Geraint (Croydon C)

  Browne, Desmond

  Dawson, Hilton

  Bruce, Malcolm (Gordon)

  Denham, John

  Burden, Richard

  Dismore, Andrew

  Burgon, Colin

  Dobson, Rt Hon Frank

  Burnett, John

  Donohoe, Brian H

  Burstow, Paul

  Dowd, Jim

  Butler, Mrs Christine

  Drew, David

  Cable, Dr Vincent

  Drown, Ms Julia

  Caborn, Richard

  Dunwoody, Mrs Gwyneth

  Campbell, Alan (Tynemouth)

  Eagle, Angela (Wallasey)

  Campbell, Mrs Anne (C'bridge)

  Eagle, Maria (L'pool Garston)

  Campbell, Menzies (NE Fife)

  Edwards, Huw

  Campbell, Ronnie (Blyth V)

  Efford, Clive

  Campbell-Savours, Dale

  Ellman, Mrs Louise

  Casale, Roger

  Ennis, Jeff

  Caton, Martin

  Fearn, Ronnie

  Cawsey, Ian

  Fisher, Mark

  Chapman, Ben (Wirral S)

  Fitzpatrick, Jim

  Chaytor, David

  Fitzsimons, Loma

  Chidgey, David

  Flint, Caroline

  Chisholm, Malcolm

  Flynn, Paul

  807

  Follett, Barbara

  Kelly, Ms Ruth

  Foster, Don (Bath)

  Kemp, Fraser

  Foster, Michael Jabez (Hastings)

  Kennedy, Charles (Ross Skye)

  Foster, Michael J (Worcester)

  Kidney, David

  Foulkes, George

  Kilfoyle, Peter

  Fyfe, Maria

  King, Andy (Rugby & Kenilworth)

  Galloway, George

  King, Ms Oona (Bethnal Green)

  Gapes, Mike

  Kingham, Ms Tess

  George, Andrew (St Ives)

  Kirkwood, Archy

  George, Bruce (Walsall S)

  Kumar, Dr Ashok

  Gerrard, Neil

  Ladyman, Dr Stephen

  Gibson, Dr Ian

  Lawrence, Ms Jackie

  Gilroy, Mrs Linda

  Lepper, David

  Godsiff, Roger

  Leslie, Christopher

  Goggins, Paul

  Levitt, Tom

  Golding, Mrs Llin

  Lewis, Ivan (Bury S)

  Gordon, Mrs Eileen

  Liddell, Mrs Helen

  Gorrie, Donald

  Livsey, Richard

  Grant, Bernie

  Lock, David

  Griffiths, Jane (Reading E)

  McAllion, John

  Griffiths, Nigel (Edinburgh S)

  McAvoy, Thomas

  Griffiths, Win (Bridgend)

  McCabe, Steve

  Grocott, Bruce

  McDonagh, Siobhain

  Gunnell, John

  Macdonald, Calum,

  Hain, Peter

  McFall, John

  Hall, Mike (Weaver Vale)

  McGuire, Mrs Anne

  Hamilton, Fabian (Leeds NE)

  McIsaac, Shona

  Hanson, David

  McKenna, Mrs Rosemary

  Harman, Rt Hon Ms Harriet

  Mackinlay, Andrew

  Harvey, Nick

  McLeish, Henry

  Heal, Mrs Sylvia

  Maclennan, Robert

  Healey, John

  McNulty, Tony

  Heath, David (Somerton & Frome)

  MacShane, Denis

  Henderson, Doug (Newcastle N)

  Mactaggart, Fiona

  Henderson, Ivan (Harwich)

  McWilliam, John

  Hepburn, Stephen

  Mahon, Mrs Alice

  Heppell, John

  Mallaber, Judy

  Hesford, Stephen

  Mandelson, Peter

  Hill, Keith

  Marsden, Paul (Shrewsbury)

  Hinchliffe, David

  Marshall, David (Shettleston)

  Hodge, Ms Margaret

  Marshall, Jim (Leicester S)

  Hoey, Kate

  Marshall-Andrews, Robert

  Home Robertson, John

  Martlew, Eric

  Hood, Jimmy

  Maxton, John

  Hoon, Geoffrey

  Meacher, Rt Hon Michael

  Hope, Phil

  Meale, Alan

  Howarth, Alan (Newport E)

  Merron, Gillian

  Howarth, George (Knowsley N)

  Michael, Alun

  Howells, Dr Kim

  Michie, Bill (Shef'ld Heeley)

  Hoyle, Lindsay

  Michie, Mrs Ray (Argyll & Bute)

  Hughes, Ms Beverley (Stretford)

  Milburn, Alan

  Hughes, Kevin (Doncaster N)

  Miller, Andrew

  Hurst, Alan

  Moffatt, Laura

  Hutton, John

  Moonie, Dr Lewis

  Iddon, Dr Brian

  Morgan, Alasdair (Galloway)

  Illsley, Eric

  Morgan, Ms Julie (Cardiff N)

  Ingram, Adam

  Morgan, Rhodri (Cardiff W)

  Jackson, Ms Glenda (Hampstead)

  Morley, Elliot

  Jenkins, Brian

  Morris, Ms Estelle (B'ham Yardley)

  Johnson, Alan (Hull W & Hessle)

  Morris, Rt Hon John (Aberavon)

  Johnson, Miss Melanie

  Mountford, Kali

  (Welwyn Hatfield)

  Mudie, George

  Jones, Barry (Alyn & Deeside)

  Mullin, Chris Chris

  Jones, Mrs Fiona (Newark)

  Murphy, Denis (Wansbeck)

  Jones, Helen (Warrigton N)

  Murphy, Jim (Eastwood)

  Jones, Ms Jennifer

  Murphy, Paul (Torfaen)

  (Wolverh'ton SW)

  Naysmith, Dr Doug

  Jones, Jon Owen (Cardiff C)

  O'Brien, Bill (Normanton)

  Jones, Dr Lynne (Selly Oak)

  O'Brien, Mike (N Warks)

  Jones, Nigel (Cheltenham)

  O'Hara, Eddie

  Jowell, Ms Tessa

  Olner, Bill

  Kaufman, Rt Hon Gerald

  O'Neill, Martin

  Keeble, Ms Sally

  ÖOpik, Lembit

  Keen, Alan (Feltham & Heston)

  Organ, Mrs Diana

  Keen, Ann (Brentford & Isleworth)

  Osborne, Ms Sandra

  Keetch, Paul

  Palmer, Dr Nick

  808

  Pearson, Ian

  Stewart, David (Inverness E)

  Pendry, Tom

  Stewart, Ian (Eccles)

  Perham, Ms Linda

  Stinchcombe, Paul

  Pickthall, Colin

  Stoate, Dr Howard

  Pike, Peter L

  Stott, Roger

  Plaskitt, James

  Strang, Rt Hon Dr Gavin

  Pollard, Kerry

  Straw, Rt Hon Jack

  Pond, Chris

  Stringer, Graham

  Pope, Greg

  Stuart, Ms Gisela

  Pound, Stephen

  Stunell, Andrew

  Powell, Sir Raymond

  Sutcliffe, Gerry

  Prentice, Ms Bridget (Lewisham E)

  Taylor, Rt Hon Mrs Ann

  Prentice, Gordon (Pendle)

  (Dewsbury)

  Prescott, Rt Hon John

  Taylor, David (NW Leics)

  Primarolo, Dawn

  Taylor, Matthew (Truro)

  Prosser, Gwyn

  Thomas, Gareth (Clwyd W)

  Purchase, Ken

  Thomas, Gareth R (Harrow W)

  Quin, Ms Joyce

  Timms, Stephen

  Quinn, Lawrie

  Tipping, Paddy

  Radice, Giles

  Todd, Mark

  Rammell, Bill

  Tonge, Dr Jenny

  Raynsford, Nick

  Touhig, Don

  Reed, Andrew (Loughborough)

  Truswell, Paul

  Reid, Dr John (Hamilton N)

  Turner, Dennis (Wolverh'ton SE)

  Rendel, David

  Turner, Desmond (Kemptown)

  Robinson, Geoffrey (Cov'try NW)

  Turner, Dr George (NW Norfolk)

  Roche, Mrs Barbara

  Twigg, Derek (Halton)

  Rooker, Jeff

  Tyler, Paul

  Rooney, Terry

  Vaz, Keith

  Ross, Ernie (Dundee W)

  Vis, Dr Rudi

  Roy, Frank

  Walley, Ms Joan

  Ruane, Chris

  Ward, Ms Claire

  Russell, Ms Christine (Chester)

  Watts, David

  Ryan, Ms Joan

  Webb, Steve

  Salter, Martin

  White, Brian

  Sanders, Adrian

  Whitehead, Dr Alan

  Sawford, Phil

  Wicks, Malcolm

  Sedgemore, Brian

  Williams, Rt Hon Alan

  Sheerman, Barry

  (Swansea W)

  Sheldon, Rt Hon Robert

  Williams, Alan W (E Carmarthen)

  Shipley, Ms Debra

  Williams, Mrs Betty (Conwy)

  Short, Rt Hon Clare

  Willis, Phil

  Singh, Marsha

  Wills, Michael

  Smith, Angela (Basildon)

  Wilson, Brian

  Smith, Miss Geraldine

  Winterton, Ms Rosie (Doncaster C)

  (Morecambe & Lunesdale)

  Wise, Audrey

  Smith, John (Glamorgan)

  Wood, Mike

  Smith, Sir Robert (W Ab'd'ns)

  Woolas, Phil

  Snape, Peter

  Wray, James

  Soley, Clive

  Wright, Anthony D (Gt Yarmouth)

  Southworth, Ms Helen

  Wright, Dr Tony (Cannock)

  Squire, Ms Rachel

  Wyatt, Derek

  Starkey, Dr Phyllis

  Tellers for the Ayes:

  Steinberg, Gerry

  Mr. Clive Betts and

  Stevenson, George

  Mr. David Jamieson.

  NOES

  Ainsworth, Peter (E Surrey)

  Butterfill, John

  Ancram, Rt Hon Michael

  Cash, William

  Arbuthnot, James

  Chapman, Sir Sydney

  Atkinson, David (Bour'mth E)

  (Chipping Barnet)

  Baldry, Tony

  Chope, Christopher

  Beggs, Roy

  Clark, Rt Hon Alan (Kensington)

  Bercow, John

  Clark, Dr Michael (Rayleigh)

  Beresford, Sir Paul

  Clarke, Rt Hon Kenneth

  Blunt, Crispin

  (Rushcliffe)

  Body, Sir Richard

  Clifton-Brown, Geoffrey

  Boswell, Tim

  Collins, Tim

  Bottomley, Peter (Worthing W)

  Colvin, Michael

  Bottomley, Rt Hon Mrs Virginia

  Cran, James

  Brazier, Julian

  Curry, Rt Hon David

  Brooke, Rt Hon Peter

  Davis, Rt Hon David (Haltemprice)

  Browning, Mrs Angela

  Day, Stephen

  Bruce, Ian (S Dorset)

  Donaldson, Jeffrey

  Burns, Simon

  Duncan, Alan

  809

  Duncan Smith, Iain

  Malins, Humfrey

  Emery, Rt Hon Sir Peter

  Maude, Rt Hon Francis

  Evans, Nigel

  Mawhinney, Rt Hon Dr Brian

  Faber, David

  May, Mrs Theresa

  Fabricant, Michael

  Nicholls, Patrick

  Fallon, Michael

  Norman, Archie

  Flight, Howard

  Ottaway, Richard

  Forth, Rt Hon Eric

  Page, Richard

  Fowler, Rt Hon Sir Norman

  Paterson, Owen

  Fox, Dr Liam

  Pickles, Eric

  Fraser, Christopher

  Prior, David

  Gale, Roger

  Randall, John

  Garnier, Edward

  Robathan, Andrew

  Gibb, Nick

  Robertson, Laurence (Tewk'b'ry)

  Gill, Christopher

  Roe, Mrs Marion (Broxbourne)

  Gillen, Mrs Cheryl

  Rowe, Andrew (Faversham)

  Goodlad, Rt Hon Alastair

  Ruffley, David

  Gorman, Mrs Teresa

  St Aubyn, Nick

  Gray, James

  Sayeed, Jonathan

  Green, Damian

  Shepherd, Richard

  Greenway, John

  Simpson, Keith (Mid-Norfolk)

  Grieve, Dominic

  Smyth, Rev Martin (Belfast S)

  Gummer, Rt Hon John

  Soames, Nicholas

  Hamilton, Rt Hon Sir Archie

  Spelman, Mrs Caroline

  Hammond, Philip

  Spicer, Sir Michael

  Hawkins, Nick

  Spring, Richard

  Hayes, John

  Steen, Anthony

  Heathcoat-Amory, Rt Hon David

  Streeter, Gary

  Heseltine, Rt Hon Michael

  Swayne, Desmond

  Hogg, Rt Hon Douglas

  Syms, Robert

  Howard, Rt Hon Michael

  Tapsell, Sir Peter

  Howarth, Gerald (Aldershot)

  Taylor, Ian (Esher & Walton)

  Hunter, Andrew

  Taylor, Rt Hon John D (Strangford)

  Jack, Rt Hon Michael

  Taylor, John M (Solihull)

  Jackson, Robert (Wantage)

  Taylor, Sir Teddy

  Jenkin, Bernard

  Townend, John

  Johnson Smith,

  Tredinnick, David

  Rt Hon Sir Geoffrey

  Tyrie, Andrew

  Key, Robert

  Viggers, Peter

  King, Rt Hon Tom (Bridgwater)

  Walter, Robert

  Kirkbride, Miss Julie

  Wardle, Charles

  Laing, Mrs Eleanor

  Waterson, Nigel

  Lansley, Andrew

  Wells, Bowen

  Leigh, Edward

  Whitney, Sir Raymond

  Letwin, Oliver

  Widdecombe, Rt Hon Miss Ann

  Lewis, Dr Julian (New Forest E)

  Wilkinson, John

  Lidington, David

  Wilshire, David

  Lilley, Rt Hon Peter

  Winterton, Mrs Ann (Congleton)

  Lloyd, Rt Hon Sir Peter (Fareham)

  Winterton, Nicholas (Macclesfield)

  Loughton, Tim

  Yeo, Tim

  Luff, Peter

  Young, Rt Hon Sir George

  Lyell, Rt Hon Sir Nicholas

  MacGregor, Rt Hon John

  Tellers for the Noes:

  Maclean, Rt Hon David

  Mr. Oliver Heald and

  McLoughlin, Patrick

  Mr. John Whittingdale.

  Question accordingly agreed to.
  Bill accordingly read a Second time, and committed to a Standing Committee, pursuant to Standing Order No. 63 (Committal of Bills).

  BUSINESS OF THE HOUSE
  Motion made, and Question put forthwith, pursuant to Standing Order No. 15 (Exempted business),
  That, at this day's sitting, Consideration of Lords Amendments to the Local Government (Contracts) Bill may be proceeded with, though opposed, until any hour.—[Mr. Kevin Hughes.]
  Question agreed to.

Local Government (Contracts) Bill
Lords amendments considered.
Local Government (Contracts) Bill
  Clause 1

    FUNCTIONS TO INCLUDE POWER TO ENTER INTO CONTRACT.
    Lords amendment: No. 1, in page 1, line 19, after ("financier") insert
    (", or any insurer of or trustee for the financier,")
    10.14 pm
    The Minister for Local Government and Housing (Ms Hilary Armstrong): I beg to move, That this House doth agree with the Lords in the said amendment.
    Mr. Deputy Speaker (Mr. Michael Lord): With this, it will be convenient to discuss also Lords amendment No. 9.
    Ms Armstrong: Clause 1(2) provides that a local authority may make arrangements with financiers for step-in rights; that is, rights to intervene where the contractor is unable to meet his obligations to the authority or to the financier. The amendment provides that these arrangements can also involve—[Interruption.]
    Mr. Deputy Speaker: Order. I ask hon. Members to leave the House quickly and quietly if they are not taking part in the debate.
    Ms Armstrong: The amendment provides that these arrangements can also involve financiers' insurers or trustees. Amendment No. 9 amends clause 4 of the Bill to provide that a contract between a local authority and a financier's insurer or trustee may be a certified contract and thus may have the protection of clause 2 (1) of the Bill. That is the "safe harbour" provision.
    Lords amendment agreed to.

  Clause 2

    CERTIFIED CONTRACTS ASSUMED TO BE INTRA VIRES.
    Lords amendment: No. 2, in page 2, line 22, leave out from first ("a") to end of line 27 and insert ("local authority has entered into a contract which is a certified contract
    ("the existing contract") and the existing contract is replaced by a contract entered into by it with a person or persons not identical with the person or persons with whom it entered into the existing contract, the replacement contract is also a certified contract if—")
    The Minister for London and Construction (Mr. Nick Raynsford): I beg to move, That this House doth agree with the Lords in the said amendment.
    Clause 2 (4) provides that, where a certified contract is novated—that is, replaced by another identical contract because a new contractor or financier is substituted for the original one—the new contract shall also be a certified contract. The amendment makes it absolutely clear that, for these purposes, a contract is replaced only if the parties to the contract are different.
    Lords amendment agreed to.
    Lords amendment: No. 3, in page 2, line 37, at end insert—
    ("( ) The application of subsection (1) in relation to a contract entered into by a local authority does not affect any claim for damages made by a person who is not (and has never been) a party to the contract in respect of a breach by the local authority of any duty to do, or not to do, something before entering into the contract (including, in particular, any such duty imposed by a statutory provision for giving effect to any Community obligation relating to public procurement or by section 17(1) of the Local Government Act 1988).")
    Mr. Raynsford: I beg to move, That this House doth agree with the Lords in the said amendment.
    The amendment reflects concerns raised by the hon. Member for Christchurch (Mr. Chope) in Committee, as well as points made during the outside consultation. The amendment makes it clear that clause 2(1) does not prevent a person other than the contractor from bringing an action against the authority seeking damages because procurement procedures had been disregarded. In particular, we have in mind a claim by an unsuccessful bidder for the contract who feels that proper procurement procedures have not been complied with. Such legal action could result only in the payment of damages by the authority and not in the setting aside of the contract. It would not, therefore, affect the position of the appointed contractor or his financiers.
    Mr. Christopher Chope: We are grateful for the Government's response to the concerns expressed on the issue.
    Lords amendment agreed to.

  Clause 3

    THE CERTIFICATION REQUIREMENTS
    Lords amendment: No. 4, in page 2, line 41, at beginning insert
    ("The requirement specified in this subsection is that")
    Ms Armstrong: I beg to move, That this House doth agree with the Lords in the said amendment.
    Mr. Deputy Speaker: With this, it will be convenient to discuss Lords amendments Nos. 5 to 7.
    Ms Armstrong: The amendments clarify a point about the certification requirements referred to in clause 3, and ensure that the requirements for certifying contracts will operate as intended. As long as a certificate states that it has been copied to any persons prescribed in regulations, and confirms that requirements imposed by regulations concerning the issue of the certificate have been complied with, the contractor can be satisfied that the certificate will not be invalidated if it becomes evident that the authority has not in fact done those things.
    Lords amendment agreed to.
    Lords amendments Nos. 5 to 7 agreed to.

  Clause 4

    CERTIFICATION REQUIREMENTS: SUPPLEMENTARY
    Lords amendment: No. 8, in page 3, line 25, at end insert—
    ("( ) Where the certification requirements have been satisfied in relation to a contract by a local authority within section 1(3)(a) or (d), the local authority shall secure that throughout the period for which the contract operates—

    (a) a copy of the certificate which has been issued is open to inspection by members of the public at all reasonable times without payment, and

    (b) members of the public are afforded facilities for obtaining copies of that certificate on payment of a reasonable fee.")

    Mr. Raynsford: I beg to move, That this House doth agree with the Lords in the said amendment.
    The amendment was drafted in response to an undertaking that I gave to the hon. Member for Christchurch in Committee. It requires a local authority that has issued a certificate, other than the receiver of the Metropolitan police district or a probation committee, to secure that a copy of the certificate should be freely available for inspection by members of the public at all reasonable times, and to provide facilities to allow copies to be obtained for a reasonable fee. The authority remains under that duty for as long as a certified contract operates.
    Mr. Chope: I am grateful to the Minister for his positive response on this open government amendment, which originated with the Opposition. Perhaps he could explain, however, why it does not extend to the receiver for the Metropolitan police district or to a probation committee.
    Mr. Raynsford: I feared that the hon. Gentleman would pursue that point: it is a complicated one, and I ask him to bear with me while I explain the circumstances.
    Unlike other local authorities, probation committees are accountable to the Home Secretary and not to the local taxpayer. They are under a statutory duty under section 4 of the Probation Service Act 1993 to ensure that probation services are provided efficiently, and the Home Secretary has statutory powers to intervene when a probation committee fails to discharge its duties responsibly.
    The expenditure of probation committees is 80 per cent. funded by the Home Office. Only about 20 per cent. is funded by local authorities, and much of that is supported by revenue support grant from my Department. Only a small proportion is raised by local taxation and, accordingly, probation committees are primarily accountable to central Government.
    Sir Robert Smith: It occurs to me that that is just about the ratio of funding for local government at the moment: 80 per cent. from central Government, and 20 per cent. raised locally.
    Mr. Raynsford: The hon. Gentleman is talking about something that is not relevant to the specific Lords amendment. If he consults the procedures of the House, he will realise that he is speaking wide of the mark.

    813
    Probation committees are not subject to the disclosure requirements of the Local Government (Access to Information) Act 1985. The accountability of probation committees to the Home Secretary for the effectiveness and efficiency of the services they provide covers the lawfulness of the contracts that they enter into, and, through the Home Secretary, they are accountable to Parliament. The Home Secretary monitors the provision of probation services through Her Majesty's inspectorate of probation and the Audit Commission.
    In view of those existing arrangements, it is not necessary to require probation committees, for reasons of public accountability, to allow inspection of certificates by members of the public.
    On 16 July, my right hon. Friend the Home Secretary announced the prisons/probation review, which, after public consultation, may have a major impact on the structure and organisation of the probation services and the legislation covering their functions. Similar arrangements apply to the inner London probation service, where the receiver for the Metropolitan police district acts for statutory purposes in place of the responsible authority—that is, one or more local authorities. The probation committee for the inner London probation service is also accountable to the Home Secretary.
    The receiver for the Metropolitan police district is not subject to local government disclosure requirements. The receiver is for most purposes not a local authority. Through the Home Secretary, as police authority, he is accountable to Parliament. His general liability to account and be answerable with the Commissioner of Police of the Metropolis is contained in the Metropolitan Police Act 1829 and the subsequent 1851 Act.
    Lords amendment agreed to.
    Lords amendment No. 9 agreed to.

  Clause 5

    SPECIAL PROVISION FOR JUDICIAL REVIEWS AND AUDIT REVIEWS
    Lords amendment: No. 10, in page 4, line 5, after ("on") insert
    ("an application for judicial review or")
    Ms Armstrong: I beg to move, That this House doth agree with the Lords in the said amendment.
    Mr. Deputy Speaker: With this, it will be convenient to discuss Lords amendments Nos. 11 and 12.
    Ms Armstrong: The amendments reflect concerns raised by the hon. Member for Sutton and Cheam (Mr. Burstow) in Committee, as well as in outside consultation. They have two effects. They expressly give a court a discretion in judicial review, as well as in audit review, to determine that a certified contract shall have effect as if the local authority had had power to enter into it and had exercised that power properly. They also require the court, in considering how to exercise that discretion, to have regard to two matters. The court would have to consider the likely consequences of a decision to
    814
    set the contract aside, first, for the authority's financial position and, secondly, for the provision of services to the public.
    It is important that where a certified contract is challenged in judicial review or by the auditor, the court shall have a clear discretion to allow the contract to continue if, after weighing up all conflicting interests and taking account of all relevant circumstances, it feels that, on balance, that would be in the wider interests, financial and otherwise, of the local community.
    Mr. Paul Burstow: I thank the Minister for considering the discussions in Committee and on Report in which I raised the matter and which led to the amendment. It is important that the courts can have regard for the consequences for council tax payers and for the finances of the local authority, but I ask the Minister to assure the House that the Bill does not preclude the courts from considering the impact of discharge terms. Having read the debate in the other place, especially in Committee, I was struck by the remarks of the Lord Donaldson, who said:
    "I just do not know whether a court could set aside discharge terms."—[Official Report, House of Lords, 21 October 1997; Vol. 582, c. 629.]
    Can the Minister say whether the Bill would prevent a court setting aside discharge terms? That goes to the heart of the matter that I raised. It would help the House to have an assurance on that basis.
    Ms Armstrong: As we are in the final stages of the Bill, I want to make sure that I get this absolutely right.
    If the discharge terms are set aside, the repudiation terms apply, as set out in clause 7. In other words, if the judge is not satisfied that the discharge terms are not proper discharge terms, he can apply clause 7, the repudiation terms.
    Lords amendment agreed to.
    Lords amendments Nos. 11 and 12 agreed to.

  Clause 7

    ABSENCE OF RELEVANT DISCHARGE TERMS
    Lords amendment: No. 13, in page 5, line 16, leave out from ("section") to ("do") in line 21 and insert
    ("the circumstances in which there are no relevant discharge terms having effect between the local authority and a person who is a party to the contract include (as well as circumstances in which no such terms have been agreed) circumstances in which the result of a determination or order of a court, made (despite section 6(4)) on an application for judicial review or an audit review, is that such terms")
    Mr. Raynsford: I beg to move, That this House doth agree with the Lords in the said amendment.
    The amendment was made partly in response to a point raised by Lord Bowness on Second Reading in another place about the relationship between clauses 6(4) and 7(3).
    The amendment clarifies the circumstances under which there are no discharge terms having effect. Clearly, there will be no discharge terms where none have been agreed by the parties to the certified contract. It is also possible, however, that, despite clause 6(4), a court might conclude in an extreme case in public law proceedings

    815
    that terms agreed as discharge terms are not to have effect. The amendment to clause 7(3) makes it clear that that, too, would be a situation in which there were no discharge terms, so that the contractor or financier would be entitled to repudiatory damages.
    Lords amendment agreed to.

    New clause
    Lords amendment: No. 14, after clause 8, to insert the following new clause— Contracting out of functions in connection with certified contracts—
    ".—(1) An authorisation given by virtue of an order under section 70 of the Deregulation and Contracting Out Act 1994 (authorisation by local authority of exercise by another person of functions of authority for period not exceeding ten years) may specify that it is to be for a period exceeding ten years if it is given in connection with a certified contract.
    (2) But an authorisation given in connection with a certified contract may not by virtue of subsection (1) specify that it is to be for a period exceeding the shorter of—

    (a) the period for which the contract is to operate, and

    (b) forty years.

    (3) For the purposes of this section an authorisation is given in connection with a certified contract if

    (a) the authority by which it is given is a local authority for the purposes of this Act,

    (b) the authority and the authorised person are parties to the contract, and

    (c) the authorisation is given to enable the authorised person to perform or better perform his obligations under the contract."

    10.30 pm
    Mr. Raynsford: I beg to move, That this House doth agree with the Lords in the said amendment.
    Mr. Deputy Speaker: With this, it will be convenient to take Lords amendments Nos. 16 to 18.
    Mr. Raynsford: I beg to move that this House doth agree with the Lords in the said amendment.
    The effect of amendment No. 14 is that where a local authority is to enter into a certified contract, it may authorise the contractor to exercise any function that it is permitted to contract out by an order under part II of the Deregulation and Contracting Out Act 1994 for the period for which the contract is to operate, subject to a maximum of 40 years. The 1994 Act at present limits authorisations to 10 years, which would limit the scope for partnerships.
    Amendments Nos. 16 and 17 are consequential. The effect is that the new clause will be treated in the same way as clauses 2 to 8. It will come into force at the same time as those clauses, on a day to be appointed by the Secretary of State, and it will apply to any contract entered into after 12 June 1997.
    Amendment No. 18, which slightly modifies the title of the Bill, is required to reflect the subject matter of the new clause.
    Lords amendment agreed to.

    Clause 9

      POWER TO TREAT EXPENDITURE AS NOT BEING CAPITAL EXPENDITURE
      Lords amendment: No. 15, in page 6, line 22, leave out ("55(7)") and insert ("55(3) or (7)")
      Ms Armstrong: I beg to move, That this House doth agree with the Lords in the said amendment.
      The amendment refines the amendment to section 57 of the Justices of the Peace Act 1997 proposed in clause 9 of the Bill, and further extends the opportunity to enter into partnership contracts. Under section 55(2) of the Act, a magistrates courts committee is able to procure any goods and services that are current expenditure items direct from suppliers, rather than through the paying authority.
      Section 55(3) defines current items as items that, if they were procured by the paying authority, would not be capital expenditure. The amendment, by including section 55(3) in the regulation-making power conferred by clause 9, will enable expenditure under certain partnership contracts to be treated as "not capital" for the purpose of allowing magistrates courts committees to procure direct. That will allow the committees to enter into specified contracts direct with suppliers.
      Mr. Chope: I thank the hon. Lady for the way in which she has dealt with this and the other amendments. It is significant that there is a lot more interest in the Bill at this stage, after it has been considered in the other place, than there was when it was initially considered. Perhaps that is an indication of the increasing pressure on the Government as the weeks of this Parliament go by.
      Conservative Members are certainly conscious of the fact that we could have debated these issues all night. The lack of knowledge that certain Labour Members have on this subject tempted us to take them through the procedure for the whole night, but we decided on reflection that we would not do so on this occasion. Perhaps future opportunities will arise.
      Lords amendment agreed to.
      Lords amendments Nos. 16 to 18 agreed to.

      EUROPEAN COMMUNITY DOCUMENTS
      Motion made, and Question put forthwith, pursuant to Standing Order No. 119 (9) (European Standing Committees),

      FIFTH FRAMEWORK PROGRAMME FOR RESEARCH AND TECHNOLOGICAL DEVELOPMENT (RTD)
      That this House takes note of European Community Documents Nos. 7310/97, on the European Fifth Framework Programme for Research and Technological Development, and 10385/97, on the amended proposal for the Fifth Framework Programme; and supports the Government's view that the Commission's proposals would benefit from amendment in key areas to improve focus, targeting and responsiveness to user needs.—[Mr. Clelland.]
      Question agreed to.

  Transport Links (Dover)
  Motion made, and Question proposed, That this House do now adjourn.—[Mr. Clelland.]
  10.34 pm
  Mr. Gwyn Prosser: I am grateful for the opportunity to make my maiden speech in this Adjournment debate on the subject of my choice—a matter essential to the past, present and future well-being of my constituency. Although more than half of my constituency can be described as rural, the majority of jobs are either related to the port or town-based, and the very existence of the port and the town relies on Dover's transport links—road and rail links to other parts of Kent and to London, the cross-channel links to France and Belgium, and deep-sea shipping links to other parts of Europe and to the worldwide shipping lanes.
  Early in my Merchant Navy career, I developed the British seafarer's natural affection for the sight of the white cliffs of Dover—it was our first sniff of Europe, our first view of Britain and our first sight of home. However, over the past 18 years, living in Dover and Deal and bringing up my family in Dover, I have been able to enjoy the much wider attractions of the area. These include the greenery of the north downs which lie above the white cliffs, the splendid views from Dover castle, the enchanting seaside town of Deal and, of course, the warmth and steadfast character of the people who populate my very special and very beautiful constituency—the constituency that we like to call the white cliffs country.
  Those people's jobs and their futures are closely related to the sustained success of our cross-channel ferries, our sea-cats and our hovercraft, and the continued development of the public trust port of Dover, which has served one of the busiest and most strategic sea crossings in the world for more than a century. Dover has long been privileged to act as the gateway to Europe: we are pleased to serve in that role, which provides us with direct jobs on cross-channel ferries, jobs in the port of Dover and jobs in port-related service industries. However, we are also charged with serving as gatekeepers, which brings duties and responsibilities that on occasion tax our resources, impact negatively on our communities and strain our inadequate transport links.
  In the short time since the new Labour Government came to power, we have suffered the criminal activities of bootleggers, the influx of hundreds of mostly bogus asylum seekers and the crippling disruption caused by the recent French lorry drivers' dispute. For many years, we have had to witness the carriage of live animals for export: we have seen the cruelty that it inflicts, and we look forward to the day when this evil trade will cease. Just over the horizon, we are bracing ourselves for major job losses with the P and 0 and Stena line proposals to cut their fleet in a merged operation. We face the threat of further massive redundancies if our on-board duty-free sales are abolished.
  Of course, I make no connection between the election of the new Government and Dover's difficulties—on the contrary, Ministers have listened to our concerns and, where possible, acted promptly to ease our problems. However, problems in our transport links have remained unaddressed for many years. The link that has caused
  818
  most of our distress has been the fixed link—the channel tunnel—not only because it was allowed to be built without a public inquiry, but because of the uneven way in which the previous Government supported the tunnel in relation to the cross-channel fleet and the port of Dover.
  Nothing highlights the uneven approach of the Conservative Government more than the comparison between the tunnel, which was provided with a four-lane motorway connection right up to the terminal entrance before the tunnel was operational, and the port, which, after 20 years of all-party campaigning, still relies on the inadequate A2 single carriageway at its eastern approach.
  I acknowledge that, after the tunnel was operational, the A20 was extended into Dover, but that was one of the tunnel-related roads, to give east Kent access to the tunnel, and its configuration means that drivers travelling from London to east Kent are exposed to 70 miles of channel tunnel signage and are then invited to leave the motorway for the Eurotunnel terminal 10 miles before they reach the port of Dover.
  Dualling of the last seven miles of the A2 from Lydden to Dover is well overdue. It will make an important contribution to the economic development of the area by easing traffic flows to the port and to the towns of Dover and Deal, opening up better access to the White Cliffs business park and supporting improved road links to the proposed new industrial development at the redundant Ministry of Defence site at Old Park barracks, in addition to greatly improving safety on a piece of road that has an unacceptably high accident rate.
  I am aware that the project is now being considered as part of the roads review, but I urge Ministers to take account of the fact that this short stretch of inadequate road is an essential link to the port of Dover, which is diversifying and expanding to meet the challenge of the channel tunnel, and it is crucial to the successful development of our job creation projects.
  At this stage, it may be appropriate to give some recognition to the efforts of my predecessor, Mr. David Shaw, the work that he put into campaigning for the dualling of the A2, and the careful attention that he gave to his constituents in casework. He took a robust and combative stance in the Chamber on many issues—as you may well remember, Mr. Deputy Speaker—but I felt that he had gone a little too far when, only four months after the general election, he returned to Dover with a camera crew and accused the new Labour Government of failing to dual the A2.
  Before Mr. Shaw, there was Mr. Peter Rees, who, in the few contacts that I had with him, always acted in a gentlemanly and helpful manner; before him was the late David Ennals, who enjoyed a distinguished career in the House before being elevated to another place, where he continued to work hard promoting overseas aid and fostering international relationships.
  All three of my predecessors pressed hard for better road links, but Dover also suffers from inadequate rail links. As the Government consider their existing plans to develop an integrated transport system, I am sure that Ministers will wish to take account of the need to encourage investment in the rail links to ports such as Dover, where relatively small amounts of funding can open up new modes of rail transport and enhance the potential of our train service facilities.

  819
  A truly integrated transport system will need to link road and rail networks to international shipping routes as well as the short sea routes to continental Europe. With such links in mind, it troubles me to hear that, at a time when the Government are seeking to shift freight from road to rail, Railtrack appears to be selling off its freight yards, such as Town Yard at Dover's Western Docks terminal.
  Dover has survived many difficulties in the past 15 years. First, we had to put up with the disruption caused by the construction phase of the channel tunnel and its road connections. In the little village estate of Aycliffe, thousands of tonnes of countryside were gouged out behind Shakespeare cliff, and 71 homes were demolished for road building.
  Secondly, in a premature response to the impact of the tunnel, P and 0 European Ferries forced staff cuts in 1988 which resulted in a bitter 12–month dispute and the sacking of more than 1,000 local seafarers who were fighting to maintain safe manning levels on the vessels. Many of those sacked are still unemployed, and the P and 0 Sacked Seafarers Committee is still campaigning for justice and compensation for those local people.
  Thirdly, at Christmas 1993, as the single market came into being, we lost 600 jobs in one weekend when the roles of the freight forwarders and the frontier brokers ended. Just last month, ex-miners in the village of Aylesham gathered to mark the 10th anniversary of the closure of their pit and the complete shut-down of the east Kent coalfield. Overall, some 2,000 jobs have been squeezed out of our ferry and port-related industry in an effort to compete with the tunnel. People are rightly angry that a bankrupt channel tunnel with £ 8 billion of debt, which was heavily favoured by the previous Government, should be allowed to continue to steal traffic from the highly successful surface fleet, and further to threaten the jobs of local people.
  Dover has suffered in the past and survived, and we are fighting back again now. In the village of Aylesham—where male unemployment reached 25 per cent.—the local people, supported by public and private partnerships, have opened a complex of workshops, training areas and community facilities to create jobs and breathe new hope into the village and the surrounding areas. The Labour district council has won single regeneration budget funding for a £17 million project to regenerate the east Kent coalfield and create more than 500 new jobs.
  The barracks, vacated when the Royal Marines school of music in Deal was shut down, will hopefully soon be developed to create jobs and provide educational and community facilities. However, we shall need help from Kent county council with improving the A258 and providing better access. Similarly, the St Radigund's industrial estate will be sustained and enhanced if improved access can be provided at the notorious Coombe Valley road railway bridge.
  The port of Dover is now safe from privatisation. I thank the Minister and my hon. Friend the Member for Stoke-on-Trent, North (Ms Walley) for their visits to Dover and their robust support for our campaign to stop the privatisation of the port in 1996. Now that the threat has passed, the harbour board is planning an ambitious expansion of the already successful cruise terminal. I am pleased to say that it is determined to retain the train ferry services to take advantage of Labour's new transport initiatives.
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  Dover has other ambitious plans too numerous to cover in this short debate, but the key to them all is the provision of improved road links, the maintenance and upgrading of our existing rail links, and even-handed support for our highly successful surface fleet as it adapts to meet the changes and the challenges posed by the channel tunnel.
  10.47 pm
  Dr. Stephen Ladyman: I am grateful to my hon. Friend the Member for Dover (Mr. Prosser) and to the Minister for allowing me to make a brief contribution to the debate.
  My hon. Friend's maiden speech was excellent, and I enjoyed it very much. I wish to associate myself with all his comments, and I add an extra plea to the Minister—I do not expect her to respond to it tonight. Will the Government give sympathetic consideration to the need to improve the road that links my hon. Friend's Dover constituency with the neighbouring constituency of South Thanet?
  I have referred to the A256 before in the House. The road link is crucial to the economic future of Thanet and supports the largest employer in our region, the pharmaceutical company Pfizer. The improvement of that road is absolutely vital not only to that company but to my whole constituency and to the ferry industry in Ramsgate, which is a close neighbour of Dover.
  10.48 pm
  The Parliamentary Under-Secretary of State for the Environment, Transport and the Regions (Ms Glenda Jackson): I congratulate my hon. Friend the Member for Dover (Mr. Prosser) on his maiden speech. It is regrettable that so few hon. Members were in the House to hear him give a speech that showed not only his intimate knowledge of his constituency and his constituents, but his dedication to them and their interests. He displayed his generosity by allowing my hon. Friend the Member for South Thanet (Dr. Ladyman) an intervention in his debate.
  I am grateful to my hon. Friend the Member for Dover for giving us an opportunity to debate such an important topic. In 1996, the port of Dover accounted for 36 per cent. of the United Kingdom's international passenger traffic and 12 per cent. of the UK's international unitised freight.
  Dover is the largest trust port in the UK in terms of turnover—£43 million in 1996, an increase of 8 per cent. on 1995. The harbour board has been investing substantial sums in the port, where there has recently been important expansion in the cruise liner business.
  Clearly, Dover has a major role in the United Kingdom's links not only with continental Europe but with the rest of the world. That highlights the fact that good transport links are vital to this country's continued economic success. The best use of the existing transport infrastructure will be made to ensure that the economic importance of Dover is maintained and enhanced in a sustainable way.
  I well understand my hon. Friend's desire for early decisions on the road schemes that he and my hon. Friend the Member for South Thanet mentioned, particularly the dualling of the A2 from Lydden to Dover. As my hon. Friend the Member for Dover will be aware, that scheme

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  is currently being considered as part of our roads review. He will also know that the Government have embarked on a fundamental review of transport policy. Our objectives are a strong economy, a sustainable environment and an inclusive society. Transport is a vital part of all those aims.
  Good communications are central to the economy and our quality of life. However, the backdrop to the fundamental review is a candid recognition that we need a shift in direction. Revised national road traffic forecasts published last month show traffic increasing by almost 40 per cent. over the next 20 years. If current policies continue, congestion will get worse, the impact on the environment will be even more severe, and those who have no access to private transport will find it even more difficult to get around.
  We must develop an integrated transport system that makes the best use of the contribution that each mode can make; ensures that all options are considered on a basis that is fair and is seen to be fair; and takes into account from the outset considerations of accessibility, integration, safety, the environment and the economy. Above all, an integrated transport system must be sustainable. One of the encouraging aspects of such an ambitious task is the degree of consensus attaching to the view that we need to change.
  It is a feature of the policy development work now under way that we are involving a wide range of external advice and expertise, including local authorities, businesses, trade unions, transport professionals and transport users. That is the context for the roads review examining the role that trunk roads should play in an integrated and sustainable transport policy.
  Against the background of increased congestion, we have three broad options for roads: first, to make better use of existing infrastructure; secondly, to manage demand; and thirdly, to provide new infrastructure.
  To make best use of existing infrastructure is the obvious first choice. It has been provided at substantial cost in financial and environmental terms, and we must make the best use of that investment. We must, however, be realistic about what the various options can deliver.
  We must also seriously consider other, harder options—managing demand and providing new infrastructure. Managing demand is a vast topic. It encompasses reducing the need to travel —by land use planning, for example—an assessment of the extent to which a shift to other modes can be encouraged, and inevitably, the question of controlling demand by pricing or rationing mechanisms.
  Providing new infrastructure is a very difficult option, financially and in terms of its potential impact on the environment. Our starting point is that we will not proceed with major new road construction unless we are satisfied that there is no better alternative. Even then, there will be difficult choices to be made within the limited resources available.
  There is no substitute for rigorous case-by-case examination of the options. Volume 2 of our roads review consultation document entitled "What role for trunk roads?" sets out, region by region, the perceived traffic problems and the roads programme inherited from our predecessors.
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  We are seeking from those regional consultations a view on whether those are the most important problems, or whether other problems deserve greater priority. We envisage two outputs from this part of the review: a firm, short-term investment programme, and a programme of studies to examine the remaining problems, out of which the medium and long-term investment programme will emerge.
  The Government office for the south-east has held three day-long seminars over the autumn as part of our consultation process on integrated transport. A seminar in Ashford on 14 October examined transport corridors in the east of the region, including the Kent transport corridor between the M25 and the channel ports. Points made by my hon. Friend about the importance of the A2 Lydden-Dover improvement, in terms of safety, regeneration and support of the local economy were also made at the seminar. There was a clear consensus on the importance, regionally and nationally, of high-quality reliable routes, both road and rail, to the south-east ports. Some problems were highlighted as requiring particularly urgent solutions. We shall be taking all these views into account, along with the written and other representations that we have had.
  Developing a forward-looking integrated transport policy that supports a strong economy, contributes to a sustainable environment and helps to create a just and inclusive society, is a huge challenge. The road network is, of course, only one piece of the transport jigsaw. My hon. Friend has spoken of the way in which the port of Dover is responding to the challenge of the channel tunnel. The tunnel has added to the importance of south-east Kent as a transport hub, and the building of the channel tunnel rail link will increase this still further. As well as allowing a doubling of the number of trains between London, Paris and Brussels at peak times, development of the channel tunnel rail link, which the Government are keen to see delivered as quickly as possible, will provide additional capacity for new and much faster commuter trains between Kent and London.
  The Government are determined to encourage greater use of the railways for passengers and freight. We wish to see improvements in existing rail services. My right hon. Friend the Minister of Transport recently gave the franchising director new objectives, setting out the development of the passenger rail network of the future and mapping out the key role that we envisage for railways in our integrated transport policy. Connex South Eastern, which operates rail services to Dover, is required by its franchise agreement to replace all its existing mark 1 slam-door rolling stock.
  I understand that it is its intention that the brand new 375 class rolling stock will be deployed on the route to Dover via Sevenoaks-Ashford by the end of 1999. Railtrack, in partnership with Connex South Eastern, is also in the process of carrying out major improvements to Dover Priory station to enhance the service that is provided to passengers. I shall write to my hon. Friend about the proposed sale of rail lands.
  The Government are keen to encourage an increase in the use of rail freight, thus delivering important environmental benefits by taking lorries off our roads. Rail freight grants are available to help meet the extra costs generally associated with moving freight by rail.

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  My hon. Friend raised the question of the recent French lorry drivers' dispute. The Government deeply regretted the disruption caused by the blockade in France. We are pleased that the dispute has now been settled and that our hauliers are again able to go about their legitimate business.
  We acknowledge that the ferries had the option of sailing to alternative ports in Belgium, whereas the channel tunnel is a fixed link, but we made it clear that we sought unrestricted access through this principal entry point to mainland Europe.
  My hon. Friend raised a number of issues that are of particular concern to Dover and to his constituents, though not all are within my direct responsibility. The proposed merger between P and O and Stena Line is a matter, as I am sure my hon. Friend is aware, for my right hon. Friend the President of the Board of Trade.
  My hon. Friend mentioned also a topic that is of concern in Dover and, I would say, throughout the country—the export of live animals. I understand that it would not be possible for the Government to take unilateral action to ban live exports but we await with great interest the outcome of the Compassion in World Fanning case. The Government have already taken significant steps to improve the welfare of animals during
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  transport, and we are committed to making further progress.
  The abolition of duty free sales for intra-EU journeys is a matter for my right hon. Friend the Chancellor of the Exchequer. I regret that my hon. Friend has heard me reiterate a point that I made to him when he came to see me with a deputation of other colleagues who are also concerned about the issue.
  My hon. Friend also touched on the recent influx of asylum seekers arriving at Dover, which now appears to have abated owing to the measures that the Government have taken—including television broadcasts in the Czech Republic—to correct misleading impressions about our immigration procedures. However, we continue to monitor the situation carefully.
  Again, I am most grateful to my hon. Friend for bringing Dover's transport links to the attention of the House. I am sure that he will appreciate that, until we have completed our fundamental review of transport policy and the role of trunk roads within that policy, I cannot tell him what priority the schemes he advocates can expect to be given, but I can assure him that the Government are fully aware of the important—indeed, unique— role that Dover plays in Britain's transport network.
  Question put and agreed to.
  Adjourned accordingly at Eleven o'clock.