HC Deb 05 November 1998 vol 318 cc996-9
3. Mr. Dennis Skinner (Bolsover)

When he next expects to meet the Governor of the Bank of England to discuss jobs and inflation. [56860]

The Chancellor of the Exchequer (Mr. Gordon Brown)

I meet the Governor of the Bank of England regularly. Today's cut in interest rates, which I welcome, follows the global downturn, which the Bank and I agree will lead to more moderate growth next year. The cut is possible because of the tough long-term decisions that we have taken: making the Bank independent, cutting the deficit by £20 billion and getting inflation back on target. In an uncertain world, Britain is steering a course of stability.

Mr. Skinner

Does my right hon. Friend agree that the political climate in which interest rates had to be cut was created by people in the media and in the House, including a little touch and a steer from him over the past couple of weeks? I am sure that he will not want to be complimented on that, but will he tell the Governor of the Bank of England and the Monetary Policy Committee that they are not dealing with an exact science but making a political judgment, and that we, not they, will have to carry the can? What happened today complements what he said in his pre-Budget statement the other day. To ensure that unemployment does not rear its ugly head in the next few months, will he give the Bank another little steer?

Mr. Brown

My hon. Friend will make his own points. We have made the Bank of England independent, and we will support it in all the difficult decisions that it makes. The Bank of England's notice states that the international environment and the prospects for domestic activity have led the committee to make its decision. It is because we have created a long-term system and tackled the inflationary problem that it has been possible for monetary policy to respond to the downturn in the international environment. In the previous downturn, interest rates had to be above 10 per cent. for four years and at 15 per cent. for one year as a result of the failure to tackle inflationary pressures. The former Chancellor said that he was ready to consider independence for the Bank of England, and we are in a better position to make adjustments now because we have created that long-term framework.

Mr. Kenneth Clarke (Rushcliffe)

Will the Chancellor say where the long-term monetary strategy exists? In the press briefings that he was giving until a few months ago, he said that the Bank of England should have raised interest rates further and faster than it was doing, but in the press briefings he has given since Washington, he said that the Bank of England should start to reduce interest rates. Will he acknowledge that, when he welcomes the present reduction in interest rates, he does so in the face of the policy-induced slowdown that his errors and those of the Bank has caused, and will he invite the Monetary Policy Committee to be alert to the consequences of worldwide slowdown, which will come on top of the slowdown that he has already put in place?

Mr. Brown

I have always said, and I think that the right hon. and learned Gentleman will accept this, that I will support the Bank of England in all the difficult decisions that it makes. Having set up a new framework for interest rate policy decision making, we will find that all political parties will come to support it over time.

As for the inflationary pressures in the economy over the past year—I know that the former Chancellor is concerned about his record in the matter—for the six months before the general election, the Bank of England warned every month that interest rates would have to go up to deal with inflationary pressures, but action was not taken. We took action immediately and, because we did so, inflation is at its target.

I am pleased that the former Chancellor is now ready to consider independence for the Bank of England. It is a pity that the rest of the Conservative party has not joined him yet on this, as it has not on other issues. I hope that we will have clarification this afternoon from the shadow Chancellor about the Conservatives' position on the Bank of England, because we did not get clarification yesterday and it is about time we did.

Dr. Desmond Turner (Brighton, Kemptown)

Will my right hon. Friend join me in welcoming the interest rate reduction as a great step towards helping to ensure that his cautious growth targets are met, and does he agree that any further reductions would be welcome? I invite my right hon. Friend to speculate about the situation that we might have been in had the former Chancellor's policies been pursued.

Mr. Brown

As everybody now knows, when we came into power, inflation was set to rise to twice that of our competitors. If we had not taken action, we would have been back to the old boom-bust that existed in the British economy. The Opposition should not forget that interest rates were above 10 per cent. for four years, and when it was right to lower interest rates because of the international situation in the early 1990s, the Government of the day were unable to do so. It is because we have created a long-term framework for this country that we are able to reduce interest rates. I hope that, in time, the Opposition will see the wisdom of making the Bank of England independent.

Mr. Francis Maude (Horsham)

Is it now clear that not even the Bank of England believes the Chancellor's fantasy forecasts? When will he bring his forecasts in line with the majority of independent economists and begin to take serious policy steps to avoid a rising toll of job losses and business closures?

Mr. Brown

This morning, the shadow Chancellor said: I am afraid that the Chancellor has made it less likely that interest rates will be able to be cut by the amount that is needed by the way he has conducted policy. That is an example of a Conservative party in search of every soundbite.

In the summer, the right hon. Gentleman said that there was a spending gap, but there is none; we have met our spending ceiling. Then he said that there was a borrowing gap, but the figures show that that is not so. Now he tries to suggest that there is a forecast gap, but the Bank of England and I agree that there will be moderate growth next year, which is why the Bank has acted in the light of what is happening in the international environment. The Bank says in its report that its action is about the international environment and its effect on what happens domestically. It is about time the shadow Chancellor woke up to what is happening around the world. The Conservative party is not living in the real world.

Mr. Maude

We will be ready to welcome what is happening when interest rates come down to the figure at which the Chancellor inherited them. Is it not clear that the outlook for Britain's economy is the worst in the western industrial world, and that Britain has gone into the downturn ahead of north America and Europe? There will be a fearsome toll of job losses, and the blame lies at the Chancellor's door.

Mr. Brown

The facts of the matter are that forecasts for the world economy have been downgraded by 2.4 per cent. for this year, and 1.2 per cent. for next year. The idea that Britain is somehow unique in downgrading its forecast by three quarters of 1 per cent. is ridiculous. It is another example of how out of touch the shadow Chancellor is. I note that he has not corrected his remarks this morning that the Bank of England would have been unable to take the action that was necessary. It is about time that, instead of making comment after comment—later proven to be untrue or incorrect—the shadow Chancellor woke up to the fact that there is a global downturn and that the Government are dealing with it by steering a course of stability. It is also about time that the shadow Chancellor gave us a straight answer on the first issue of economic policy—whether his monetary policy is that the Bank of England remains independent. Until we get a straight answer on his support or otherwise for Bank independence, he will have absolutely no credibility. The real deficit in the United Kingdom is the deficit in Conservative thinking.

Fiona Mactaggart (Slough)

Is my right hon. Friend aware that he is being rather generous to the Conservative party in his account of history? He said that interest rates were above 10 per cent. for only four of the years in which the Conservatives were in office. In fact, there were interest rates of more than 10 per cent. for more like three quarters of that time. This morning, I attended a meeting sponsored by the chamber of commerce in Slough, a town in which new industries and businesses are part of the engine of our economy. Is my right hon. Friend aware that, in towns such as Slough, the main anger is not with what he is doing but with the feeling that people are talking business down and making it more difficult for successful companies to export and to do their business well?

Mr. Brown

I agree with my hon. Friend. It is about time that the Conservative party started to support the potential in our country. Welfare to work helps thousands of people, but the Conservatives oppose it.

Working families tax credit will help 1.5 million people, but the Conservatives oppose it. Bank of England independence gives us economic stability, but the Conservatives oppose it. It is time they woke up to the fact that in the modern world we must make the changes that the Labour party is making. We will take no lectures from a shadow Chancellor who was at the Treasury between 1990 and 1992 when interest rates were at 15 per cent., when a million manufacturing jobs were lost, when manufacturing output fell by 7 per cent., when manufacturing investment fell by 15 per cent. and when the borrowing requirement went up to £50 billion. We have taken action. The Conservatives failed.

Mr. Edward Davey (Kingston and Surbiton)

When the Chancellor next meets the Governor of the Bank of England will the Chancellor ask him to prepare and publish a report for the House on how he would like to see the Bank of England's independence strengthened? Will the Chancellor ask him for his views on the model of central bank independence contained in the Maastricht treaty—a treaty agreed to and signed on behalf of this country by the shadow Chancellor of the Exchequer?

Mr. Brown

The hon. Gentleman is indeed right. The person who signed the Maastricht treaty on behalf of the British people was none other than the shadow Chancellor when he was Financial Secretary to the Treasury. There should be a welcome from the whole House for his action. As I said yesterday to the hon. Member for Gordon (Mr. Bruce), we are prepared to listen to views about the structure and accountability of the Bank of England. I hope that the hon. Gentleman will agree that the reform announced only a few weeks ago, that the Bank of England would publish its minutes within two weeks of its meeting, is a welcome step forward. This comes back to the central question: unless hon. Members make up their mind, on macro-economic policy and monetary policy in particular, and decide whether or not they support the independence of the Bank of England, they have no credibility in terms of their economic policy. The former Chancellor of the Exchequer is facing up to that fact. The Conservative party and the shadow Chancellor must face up to that now.