HC Deb 22 January 1998 vol 304 cc1212-21
Mr. Mitchell

I beg to move amendment No. 30, in page 5, line 41, at end insert 'and an estimate of its effect on inflation, economic growth, employment and the exchange rate.'.

Mr. Deputy Speaker

With this, it will be convenient to discuss the following amendments: No. 36, in page 6, line 2, after 'markets', insert ',act to restrict or control credit, or require deposits to be made with the Bank by lending institutions.'.

No. 37, in page 6, line 9, after 'markets', insert 'acting to restrict or control credit, or requiring deposits to be made with the Bank by lending institutions.'.

No. 38, in clause 15, page 6, line 23, after 'meeting', insert 'together with the economic analysis on which any decisions taken at the meeting were based.'.

No. 39, in page 6, line 27, after 'markets', insert 'act to restrict or control credit, or require deposits to be made with the Bank by lending institutions.'.

No. 16, in page 6, line 41, after 'record', insert 'the principal views expressed by individual members and'.

No. 40, in page 6, line 42, after second 'of', insert ',and the case put forward by,'.

No. 22, in schedule 3, page 23, line 2, at end insert 'and, if he exercises his right to speak, his views shall he recorded in any minutes published under section 15'.

Mr. Mitchell

I continue to build my campaign for the support and affection of northern Members.

This group includes two categories of amendments. The first category comprises amendments Nos. 30, 38 and 40, which require the Monetary Policy Committee and the Bank to tell us their views, the basis of their decisions and dissent, and the prospectus that will arise from their decisions. We want them to justify those views in terms of their expectations so that they can be questioned and discussed.

I do not believe in the wisdom of bankers and monetary experts. It seems to be a kind of Gadarene wisdom. One has only to watch City commentators on television; they appear on every channel whenever there is a change, or prospect of a change, in interest rates and all chant the same nonsense. They return unabashed the following week when their forecast has been proved wrong and say the opposite with equal confidence. That is not wisdom; it is a lemming-like philosophy.

I want bankers to learn on the job and justify what they do. Amendment No. 30 would require them to tell us what they think will result from their decisions. Let us have it spelt out so that we can judge it and assess whether they were accurate or wrong. Amendment No. 38 would require bankers to give the economic analysis on which their decisions were based and say why those decisions were taken. Amendment No. 40 requires bankers to give their individual views.

Those requirements are simple and straightforward. If the views are based on consideration and thought, those concerned will not be afraid to tell us what they are, so that we can judge them for ourselves. It is a process of popular education and of education for the Bank as well. After we set up Select Committees, it was noticeable how much more effective ministerial replies and defence of policy were. I hope to get the same from the Bank.

The remaining amendments, Nos. 36, 37 and 39, deal with a major problem in our economy: how we control credit. Over the years, there has been a shift away from managing the economy by direct control. Labour's post-war triumph was based largely on direct control of capital, labour and investment. When the Conservatives came to power in 1951, they shifted the balance by using interest rates as a financial stimulus. In the 1950s, interest rates became more important in economic management and generally went up. In 1972, continuing the process of relaxation, the Conservative Government introduced measures which effectively abolished the regulator and led to the first huge credit bubble.

In the 1980s, the process of removing controls continued. The corset was swept away until we were left managing the economy only by interest rates, which led to even bigger fluctuations than before. It was boom-and-bust fluctuation; credit bubbles were allowed to form and asset prices increased. Because house prices were increasing, people could borrow more. Asset prices increased further because more money was in circulation, until suddenly the Government had to act. They did so in 1990 by joining the exchange rate mechanism. The economy was deflated and the bubble was pricked.

It is ridiculous to manage the economy in a boom and bust way. However, it is implicit in our inability to manage credit rather than just use interest rates to squeeze credit and check credit booms. I want other requirements to be introduced. The Monetary Policy Committee could suggest other methods of controlling credit. For instance, it could limit the percentage of house value that would be lent in a mortgage. The Bank of England could require any lending institution to ask for deposits. Interest rates could be charged on those deposits and the deposits required could be varied according to the nature of the loan granted by an institution. It would be possible to overfund or underfund the public sector borrowing requirement.

I do not necessarily have the perfect means of controlling credit, but the simple measure of rationing credit through interest rates is not the only means. We should look at other ways of controlling credit, not just wash our hands and say that we cannot control it. If we abdicate the responsibility of looking for new methods of managing credit, we inevitably accept that boom and bust will continue. If the Government accept the amendments so that, as well as proposing changes in interest rates and market dealings, the Monetary Policy Committee looks at ways of managing, restricting and controlling credit, we shall have another weapon to deal with the problem. It will be more than one-club golfing.

Other means of dealing with the issue may be more effective and direct, or may be necessary to supplement interest rates. They may also lead to a smaller increase in interest rates than we have had in the past. I want the Monetary Policy Committee to be able to consider those options and recommend them if necessary.

Mr. Heathcoat-Amory

I, too, want the Government to provide and publish more information about their economic policy, particularly their monetary policy, which is why we tabled amendments Nos. 16 and 22. Amendment No. 16 relates to clause 15, which deals with the publication of minutes. The House will recall that my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) established the procedure for the routine publication of the minutes of the meetings at which interest rates were set. That was a revolutionary advance, because for the first time outside commentators and the markets could see exactly how monetary policy was being set, and how interest rate decisions were being taken.

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At that time, the minutes described in some detail the views of the main participants. The interest rate was set by the Chancellor of the Exchequer: it was his decision alone, after consulting others and after taking the advice of, in particular, the Governor of the Bank of England. The views of the two main participants, the Chancellor and the Governor, dominated the subsequent minutes.

Our amendment seeks to extend that to include all the main participants, so that the views of every member of the Monetary Policy Committee are minuted. No longer will an individual or institution make the decision: it will be made by all the individuals on the Monetary Policy Committee, by vote if necessary. The views of all members will be just as important as the views of the Chancellor and the Governor were previously.

The Government came into office with a great commitment to openness and transparency, and supported the public's right to know. They followed that up recently by publishing a White Paper called "Your Right to Know", in which they described a presumption in favour of openness. We all accept that a good deal of financial and Government information must be confidential. Market-sensitive information can be kept secret, as proposed in the White Paper. However, there is no case whatsoever for keeping secret the views of the members of the Monetary Policy Committee when the minutes are published six weeks later. After all, the Bill provides for their votes to be recorded, so it is a modest step forward to require their main views to be set out in those minutes.

The men and women on the Monetary Policy Committee are not accountable to the House. They will not even be the subject of confirmatory hearings. Therefore, it is important that we, in the outside world, know their views. If a group of individuals on the committee consistently get it right, their reputation will be enhanced, but we are entitled to know if some individuals always get it wrong.

Our proposal also provides a good defence against impropriety. We would have preferred confirmatory hearings to test the views of individuals before they are formally appointed to the committee. That was the opinion of the Treasury Select Committee, but for some mysterious reason the Labour members of that Committee did not back up their views by joining us in the Division Lobby earlier. This proposal is perhaps a poorer substitute, but at least it would salvage something of our earlier intentions if the views of those individuals were made known as they evolve through discussions on the Monetary Policy Committee.

We should extend that proposal to the Treasury representative on the Monetary Policy Committee. They may or may not attend, but they have the right to do so: they will have a voice, but no vote. It is important for the outside world to know of the Treasury's views as expressed at that meeting. We want to know what influence the Treasury has on the committee, what view it has on the direction of the economy and what impact budgetary decisions and fiscal policy have on the committee's deliberations. That can be done only if the minutes record the views of the Treasury representative expressed at that meeting.

There is no conceivable reason why our modest but important request should not be granted. It is entirely in line with the Government's expressed views about the public's right to know. We are not suggesting that the views of those individuals on a change in the interest rate should be made known to the markets immediately. There may be a case for keeping them back for a little while if a decision causes market disturbance, but it should be merely a delay, and not a permanent suppression of the views expressed. That may be particularly important if allegations are made that individuals or a group of members on the committee are biased or prejudiced in their actions. An individual who is usually wrong may be reappointed by the Chancellor because an election is coming up and the individual concerned is always in favour of expansion of the economy and low interest rates, which may help the Government of the day to win another term. The best defence against that is openness and disclosure, so that the world can see whether individuals justify their place on the committee by reason of their competence and record in judging the economy right.

For those reasons, I seriously urge the Government to give effect to their protestations of belief in openness, and accept these amendments in the spirit in which they are offered.

Mr. Gibb

I support my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) on amendment No. 16. Clause 15(4) provides for the minutes of the committee's deliberations to be published, and for voting preferences to be recorded, but it does not provide for the views expressed by members of the committee to be recorded. The Government are not providing information on the economic views held by members of the committee, and the Select Committee on the Treasury, when it participates in confirmatory hearings, will not be quizzing members of the committee on their economic views. Therefore, the only way that we can know their views is for them to be published in the minutes.

Economic policy and the conduct of monetary policy are not part of an exact science. That view has been backed up by eminent people such as Sam Brittan, Tim Congdon and Lord Eatwell. Those matters are of wider interest. People outside the confines of the Monetary Policy Committee and the Bank of England want to analyse the committee's deliberations, so that they can establish in the weeks, months and years ahead who was right and who was wrong. Decisions on monetary policy remedies depend on the forecasts provided by the committee. If an inflationary period is forecast, the committee will recommend to the Bank of England that it raises interest rates and tightens monetary policy. On the other hand, if the economic position is forecast to be deflationary, it will recommend a looser monetary policy and lower interest rates.

Such an economic analysis would be useful for the economy, for the country and for academic study. It would be useful to analyse the forecasts, so as to establish whether the recommended remedies have turned out to be correct. A wide debate of that kind took place for a few years, when we had the so-called Ken and Eddie show. Although their views were not necessarily recorded in the minutes, we could see the final recommendation. For example, we knew on one occasion that the Chancellor was recommending no interest rate rise when the Governor of the Bank of England was recommending a rise. In due course, the Chancellor was proved correct.

The debate that took place during the Ken and Eddie show informed the wider debate in the country as a whole. I urge members of the Government to remove the partisan expression from their faces, to consider seriously the effect that the amendment would have in raising the level of informed debate about the conduct of economic policy and to accept it.

The Economic Secretary to the Treasury (Mrs. Helen Liddell)

I am always amused when the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) talks about the Ken and Eddie show. The point of the Bill is to rectify the failings of the Ken and Eddie show, during which partisan politics intervened in the setting of interest rates, to the economy's cost.

We resist the amendments, not because we are opposed to openness, but because many of them are unnecessary. They relate to parts of the Bill that already provide for openness. In other contexts, the amendments are contradictory: in a number of respects, the amendments tabled by my hon. Friend the Member for Great Grimsby (Mr. Mitchell)—about which I shall say more shortly—contradict what he wants to achieve in relation to openness.

As we discussed the issues fully in Committee, I do not intend to delay the House unduly, but I think it necessary to deal with a number of points, in a reasoned way. I know that there has been criticism relating to the fulness of some of the information given in the minutes of Monetary Policy Committee discussions, and I am sure that the committee will take those criticisms on board; but I believe that the amendments would have a negative effect.

Speaking to amendment No. 30, my hon. Friend the Member for Great Grimsby spoke—as he had earlier—of the impact of our proposals on inflation, economic growth, employment and the exchange rate". The amendment is quite unnecessary. If it were adopted, the Bank of England would have to publish a statement about the effect of changes in monetary policy on inflation, economic growth, employment and the exchange rate every time such changes were made. The Bill already provides for the arrangements for monetary policy in the United Kingdom to be among the most open in the world, and, in particular, for the publication of a statement after the debates of the Monetary Policy Committee.

If a regular statement were published along the lines suggested by my hon. Friend, his amendment would be unnecessary. Press notices already accompany the conclusions of each MPC meeting, and, in the event of a change in interest rates, the main factors underlying the decision are set out—factors that, typically, include inflation, economic growth and the exchange rate. If my hon. Friend needs to be convinced, I suggest that he look at the notices that followed interest rate changes in August and November last year.

Amendments Nos. 36, 37 and 39 would have a contradictory effect. They would weaken the commitment to transparency, because they would allow the Bank to delay publication of a decision to impose credit controls, or to require deposits from lending institutions, if it decided that publication of that decision was likely to impede or frustrate the action.

I am aware of the commitment of my hon. Friend the Member for Great Grimsby to the concept of credit controls; indeed, we discussed such matters in detail during an Adjournment debate not long ago. My position has not changed since then: there is no evidence to suggest that credit controls would be effective when we have open, global capital markets. They can easily be circumvented. We know from our own economic history that such controls have been tried in the past, and have failed.

I refer my hon. Friend to the minutes of the August meeting of the Monetary Policy Committee, in which such quantitative controls were considered and rejected. There is no sign that the Bank cannot control inflation without credit controls; indeed, low and stable inflation over time, which is the aim of the Government's economic policy, should lead to less volatile interest rates. The volatility that we are currently experiencing is largely due to the last Government's failure to take overall economic considerations into account in the run-up to a general election.

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Mr. St. Aubyn

I am curious to know whether the Economic Secretary agrees that, although credit controls may not work, reserve requirements may be an important factor in the operation of monetary policies. That has been the case in a number of countries; does the hon. Lady see a role for such requirements here?

Will the Economic Secretary acknowledge that, for all her trenchant criticism of the last Government, they did at least meet the inflation target by the end of their tenure? Because of their tax-raising activities since the moment they took office, the present Government have signally failed to do the same.

Mrs. Liddell

That—if I may use an expression that I had cause to use to the hon. Gentleman in Committee—is baloney. We observed the discussions about the setting of interest rates during the Ken and Eddie show, and we have had a lengthy discussion. Yes, the last Government managed to hit the target once, but there has been a cost to the overall structure of our economy, and, indeed, the whole concept of the Ken and Eddie show has been brought into disrepute.

I am not sure why amendments Nos. 36, 37 and 39 were tabled, other than to give my hon. Friend the Member for Great Grimsby another opportunity to expound his theory about credit controls. Other amendments relate to the detail that goes into the minutes in relation to economic analysis. In amendment No. 38, my hon. Friend asks for fuller economic analysis to be included. Again, I ask him to look at the minutes that have been published. The minutes already include comprehensive discussion of economic developments, and a summary of the analysis presented by Bank staff. The quarterly inflation report—which is much respected by economic commentators and others—also contains the Bank's economic analysis. I do not think that amendment No. 38 would add to the information that is already provided.

Amendments Nos. 16 and 40 bring us back to issues that were discussed fully in Committee, when I understood that the Opposition had accepted the force of the Government's arguments. Let me repeat what I said at the time. We do not want the legislation to be overly prescriptive, for a very sound reason: we want members of the MPC to be free to be as frank as possible in their discussions at the meeting.

One of the reasons why we must resist the amendments is our experience in the United States, where the Federal Open Markets Committee publishes a transcript after about five years. Members of that committee have increasingly been in the habit of reading out prepared statements. We do not want that kind of discussion in the MPC; we want the fullest and frankest possible exposition of views on the state of the economy and the impact on the inflation rate.

The voting record of individual Monetary Policy Committee members is available, and will therefore make it clear where each member stands. Although the thought might seem unusual in the House, Monetary Policy Committee members might change their mind during a debate, and we must give them that opportunity. Should they decide in economic discussion to change their position, they should feel free to do so.

I reiterate, however, the point that I made earlier: we should like there to be fuller and perhaps more transparent minutes of Monetary Policy Committee meetings. I am sure that the committee will respond to those concerns.

Mr. Gibb

What will happen when we try to read the minutes of the Monetary Policy Committee? We will look at the voting record, read the text of the opinions expressed and try to correlate one with the other, but we may not get it right. Would it not be far clearer, easier and more open to publish names next to the views?

Mrs. Liddell

I reiterate the point that I made about the FOMC. Whenever such practice has become enshrined in procedure, it has led to a reduction in economic debate and the delivery of prepared statements, because people know that their views will be fully represented when the minutes are published. There is about five years' delay in publishing those minutes.

The right hon. Member for Wells (Mr. Heathcoat-Amory) made a point about the Treasury representative's role in the meetings. The minutes already include a full record of discussion at the meetings, including the views expressed by the Treasury representative. Regardless, that representative does not have a vote and, therefore, does not take part in the decision-making process. I therefore believe that amendment No. 22 is also unnecessary.

Therefore, because of the contradictory nature of some of the amendments, and because the amendments are unnecessary and could conflict with the Monetary Policy Committee's purpose and the nature of its debates, I ask the House to resist the amendments.

Mr. Fallon

It is up to the hon. Member for Great Grimsby (Mr. Mitchell) to defend his own amendments and to decide what to do with them. However, I should like to respond to the debate and to the Minister's reply on amendment Nos. 16 and 22.

The Economic Secretary really did deploy a poor argument against amendment No. 16. She tried to criticise the arrangements that she inherited, although those arrangements delivered very low inflation—inflation lower than we have now—and were working well. Bizarrely, she then went on to criticise her own arrangements. She admitted to the House that the current Monetary Policy Committee minutes were not full enough. She accepted that criticism, and even almost invited the Monetary Policy Committee to improve its way of recording its decisions.

The Economic Secretary introduced a total red herring by making an analogy with the Federal Open Markets Committee. We do not want to be overly prescriptive. However, the amendment does not suggest that transcripts should be published, as happens with the FOMC; it simply suggests that, when the main views are noted, the name of the member who expressed those views should be included with them, as happens with any minute of, for example, a Cabinet Committee.

It is important to realise, as the Economic Secretary did not, that the new arrangements introduced by the Government are regressive. Under the previous arrangements, we knew the Chancellor's views and we knew the Governor's views. It is fair enough to say that the views of the more junior officials attending the Ken and Eddie show were not recorded, but at least we knew where the Government stood, and we knew where the Bank stood.

Now that the Chancellor has withdrawn from the exercise, it is even more important that we know the position of the Governor and the deputy Governor of the Bank and of the external members of the Monetary Policy Committee. It is precisely because the Chancellor himself has withdrawn from the exercise that it is important for us to know the Treasury's view and the Treasury representative's comments. Therefore, I again commend amendment No. 16 to the House.

The Economic Secretary rather tried to brush aside amendment No. 22. Exactly what the Treasury representative will do on the Monetary Policy Committee is unclear in schedule 3 to the Bill. The matter was unclear until the point was raised in Standing Committee by my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb), who pressed the Government on it. It then emerged that the Treasury representative was not some observer or a mere assessor but would be playing something of a supervisory role.

I shall quote the words of the Paymaster General—where is he, by the way? He dealt with the subject and the procedure in Standing Committee, and it is about time that he attended the proceedings on them. It is a shame that he has not done the House the courtesy of attending the conclusion of our proceedings on the Bill. Nevertheless, when pressed in Committee, he revealed the Treasury representative's role. He said that the Treasury representative would ensure that the actions of the Monetary Policy Committee"— would not— be violently at odds with Treasury fiscal policy."—[Official Report, Standing Committee D, 27 November 1997; c. 187.] We discover, therefore, that the Treasury representative is no mere notetaker; he has the freedom to intervene in the debate.

The Treasury representative could be a very senior Treasury official. As Ministers are Treasury officials, a Treasury Minister might attend Monetary Policy Committee meetings. The Economic Secretary, the Paymaster General—if he finds time—or the Chancellor might attend the meetings. If relations continue to deteriorate, perhaps the First Lord of the Treasury might want to go along to the meetings to get a grip of what is going on.

It is therefore all the more important that we ensure that, if the Treasury representative does intervene, his or her views should be recorded. If all the other amendments to clause 15 fall, I hope that the Government will think again on amendment No. 22.

Mr. Mitchell

I did not expect the Economic Secretary to rush to her feet to accept my amendments. She has a fairly unique characteristic for a Treasury Minister: I do not feel bad when she rejects my amendments or arguments with her steely charm. She has exercised that characteristic in this debate. However, I reiterate my plea for openness. I should like more openness to be built into the Bill, as it would have been by my amendments.

Monetary policy should be made the subject of a national debate in which all people and interests can participate. We do not want interests—whether manufacturing, finance or farming interests—to submit to the wisdom of bankers and monetary economists as if it were some type of divine wisdom. Such wisdom may be the rationalisation of a prejudice, a vested interest or a set of attitudes, and policy must be publicly argued and justified. Requirements for openness would have accomplished that, and I wish that they could have been built into the Bill.

I wish also that we could include amendments to find some alternative to rationing money by high interest rates and some way in which to manage credit. I wish not to prescribe or require such measures but to include in the Bill the ability to develop desperately needed methods and systems for managing credit.

The United Kingdom now has a terribly competitive market and too many institutions pouring out credit, inciting people to spend and to run themselves into debt. Credit is pouring out so much that we sometimes have a laxative-type economy. In managing our economy, we are unusually dependent on interest rates. Booms and busts—wild fluctuations—are therefore built into our economy and are almost inevitable.

The first result of the attempt to provide greater stability, by giving independent power to the Bank of England, has been to increase instability. In real terms, interest rates are now at almost record levels and are certainly higher than in the 1960s and 1970s.

That will have a dampening effect on the economy. Indeed, it is already happening. Comparative boom, which we had, will become bust. We must find a way of regulating things better to stop that. I was distressed to hear the Economic Secretary say that there was no way of controlling credit. If that is so, how can we control interest rates?

If we are as subject to international markets and international fluctuations as that, there is no way of producing stability in the economy. Instability is inevitable, and all the international trends will wash straight in. That is a counsel of despair, against which I must warn my hon. Friend.

We must try to find a way of managing credit. I would rather that opportunity were in the statute, but it will not be. I see little point in pushing amendments to a Division at this time of night, but I am sure that the Government are committed to openness and will expand and develop the idea as time goes on, even if that is not written into legislation as tightly as I should like.

I am certain that the Government will be driven by the fluctuations in the economy to find a better way of managing and controlling credit than the simple use of interest rates—the one-club golfing technique—has allowed them. Content in the knowledge that those things will happen, even if more slowly than I want, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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