Official Report of the Grand Committee on the Bank of England Bill

HL Deb 03 March 1998 vol 586 cc1-68GC

Tuesday, 3rd March 1998.

The Committee met at half-past three of the dock.

[The Deputy Chairman of Committees (Lord Ampthill) in the Chair.]

The Deputy Chairman of Committees (Lord Ampthill)

Before I put the Question that the Title be postponed, it may be helpful to remind your Lordships of the procedure for today's Committee stage. Except in one important respect, our proceedings will be exactly as in a normal Committee of the Whole House. We shall go through the Bill clause by clause; noble Lords will speak standing; all noble Lords are free to attend and participate; and the proceedings will be recorded in Hansard. The one difference is that the House has agreed that there shall be no Divisions in a Grand Committee. Any issue on which agreement cannot be reached should be considered again at the Report stage when, if necessary, a Division will be called. Unless, therefore, an amendment is likely to be agreed to, it should be withdrawn.

If there is a Division in the Chamber while we are sitting, the Committee will adjourn as soon as the Division bells are rung and then resume after 10 minutes.

Title postponed.

Clause 1 [Court of directors]:

Lord Mackay of Ardbrecknish moved Amendment No. 1: Page 1, line 8, at beginning insert— ("() The Bank of England shall henceforth be known as the Central Bank of the United Kingdom ("the Bank").").

The noble Lord said: In moving Amendment No. 1, I shall also speak to Amendments Nos. 74, and 75 and to Clause 41 stand part of the Bill. I am deeply disappointed to hear that I cannot carry on my roller-coaster of victories on behalf of Scotland that I started yesterday evening, but I shall have to have some forbearance in this Committee stage.

I have put down this series of amendments for two reasons. One is that the name of the central bank of this country—of Great Britain and Northern Ireland—being the Bank of England does seem a little unusual in the newly devolved geography of our constitution. Secondly, it allows me to ask what, if any, parts of this Bill will fall to be devolved to the Scottish parliament. I shall start with the second point.

As far as I can see, none of its parts will fall to be devolved—they are all reserved—but I asked the question at Second Reading. I rather hoped that the noble Lord and his officials have been able to look through the Bill and decide whether, indeed, any parts are to be devolved. The Scottish parliament will, of course, have considerably more powers than the Welsh assembly or than any potential Northern Irish assembly which may be introduced. My question is therefore directed largely at the Scottish parliament, but it would also be helpful if the Minister would indicate whether any parts of this Bill will be devolved responsibilities of the Welsh assembly.

The Scottish parliament will have considerable economic powers, and I shall come to those issues later in the Bill. It seems to me that, in every piece of legislation that we now pass, we ought to have a clear statement from the Government as to what, in any Bill we are discussing, will be devolved in the future so that we know whether this is the last time your Lordships' House and the other place will have the chance to address the issue.

If all the matters in this Bill are reserved, as I suspect they are, I wonder, as a second question, whether any of those matters will be the subject of the various concordats which I understand are to be drawn up between the United Kingdom Government in Westminster and the Scottish government in Edinburgh. I am not entirely sure whether the Scottish parliament will meet in a brewery or in the former headquarters of Strathclyde Regional Council. That seems to be the subject of considerable debate in Scotland at the moment, as indeed does the question of a knighthood for Mr. Sean Connery. Those are, however, side issues, and I am sure I would be out of order if I developed them any further. We ought to have a straightforward answer, and it should be quite easy for the noble Lord, Lord McIntosh, to give a fairly straightforward answer about the position of this Bill following devolution.

The first reason I raise this matter is the reason I mentioned as to why the central hank of England, Scotland, Wales and Northern Ireland—collectively known as the United Kingdom—is not known as the central bank of the United Kingdom. Every Scottish schoolboy knows, but I am not entirely sure whether every English schoolboy knows, that the Bank of England was founded by a Scot. But then anybody who goes into the Square Mile of the City today will find that the place is, by and large, run by Scots. However, that is a different issue.

It is interesting that of all the European Union states, the United Kingdom is the only one whose central bank does not carry a clear identification of the state for which it is the central bank. The Bank of England has fulfilled the role of the central bank of the United Kingdom since the Bank Charter Act 1883. In 1832 a so-called secret committee on the Bank Charter focused on the desirability of one bank of issue for Great Britain and whether that should be the Bank of England. The committee report resulted in the Bank Charter Act 1833. The Bank Charter Act 1844 prohibited new banks of issue in the UK and that piece of legislation has been revised many times, most recently in the 1987 Banking Act.

The Bill before us today introduces some further statutory provisions for the Bank of England. It contains reform of its constitution, of the duties of the court of directors and makes new provisions relating to funding, the accounts and profits of the Bank. Most importantly, it sets up a Monetary Policy Committee within the Bank. That Monetary Policy Committee is given a statutory basis for the operational responsibility in relation to monetary policy: the setting of interest rates, in fact, as far as most ordinary people and most business people will be concerned. The Bill sets out the framework in accordance with which the Bank's monetary policy functions are to be exercised. I suspect that that is what will probably take us most of today to discuss.

It seems to me, as I said on Second Reading, that what we are looking at today is the first step in the process towards the independence of the Bank of England consistent with being a member of the single currency. As I believe I said on Second Reading—if I can remember the phrase—if the Prime Minister ever plucks up the courage of the Chancellor of the Exchequer to join the single currency, quite clearly we shall have to have a second Bill to make the Bank totally independent and not just of operational independence.

It has been suggested to me by, among other bodies, the Law Society of Scotland that in this new circumstance where the Bank will have a much greater role as the central bank of the United Kingdom within the European monetary system and where that role will be played out in the new geography of the constitution of the United Kingdom. we should perhaps ask ourselves whether it is not time that the central bank of the United Kingdom should be called just that.

After all, we are to have a government in Scotland—with perhaps limited powers but nonetheless with powers. I am not sure whether I can call it a government, but we are to have an organisation in Wales which will take many of the decisions regarding Wales—and not here at Westminster. It does seem to me that many people in Europe might find it rather odd, especially when they find that in Brussels they are dealing with a government of Wales and a government of Scotland, that the central bank covering those two countries is not called the central bank of the United Kingdom but is called the Bank of England.

I know the historical precedents are all there and everybody is probably well aware of what the Bank of England does at present. However, in the new geography of the constitution of our country, the central bank will hold a new position, initially through its Monetary Policy Committee in deciding monetary policy and eventually—and I suspect eventually will not be too long delayed—in being an independent central bank according to the Maastricht Treaty, in order to allow us to take part in the euro. I make no observations about whether we should or not. I just see that as being the direction of government policy. The Minister really ought to address the question of whether we should take this opportunity to call our central bank what indeed it is—the central bank of the United Kingdom. I beg to move.

Lord Peston

I guess that the noble Lord introduced this amendment in order to talk about Scotland, which I will not talk about. However, I assumed that it was also relevant to the second point he raised, which was our membership of EMU. As the noble Lord knows, I am in favour of joining EMU and still take the view that I would rather we joined earlier than later.

The country which is the member of the European Union is the United Kingdom; as far as I know, Scotland, Northern Ireland, Wales and England are not members of the European Union. This is a technical point, which leads to my question. It is clear that this Bill does not meet the requirements for EMU independence of a central hank. What is interesting, although academic—and I do not use the word "academic" in the pejorative sense ever but in the sense meaning important—is whether there is anything in the various treaties that we have signed that will oblige us to call our central bank the central bank of the member country, namely the United Kingdom. I do not know whether my noble friend has an answer to that. Do we have an obligation to give it the national title, or in theory could it be called the "Bank of England", even though England is not a member of the European Union? I look forward to the answer to that question.

Baroness Carnegy of Lour

I would like to support this amendment. I too have the problem of the Law Society of Scotland explaining a number of points which seem similarly technical to me. What the noble Lord, Lord Peston, has just said is absolutely right—whether we will be in or not, it would be right that the bank should be called that which describes the country of which it is the central hank. That makes sense.

There is perhaps also a political point—with a very small "p"—which is that people in Scotland had not noticed until comparatively lately that there is anomaly in calling the Bank of England the Bank of England. They probably did not realise the extent to which it had to do with them until it began to set interest rates. Since that has happened there has been quite a lot of comment that it is rather an odd thing that the bank setting the interest rates for all of us should be called the Bank of England, which in a way is understandable.

With this matter, as with so many others, points which have been taken for granted with the United Kingdom will be highlighted as devolution happens. That is because of the discussion on reserved powers. People will see a distinction between the powers that are reserved and the powers that are devolved, and doubtless there will be a good deal of argument about that. So far it is not very great and the facts are emerging in the other place as reserved powers are discussed, but it will become an issue. Perhaps it is a hit unwise not to make a change. I can quite see that it will be a great shame for a great many people, because the Bank of England is known very lovingly as "Auntie" and everyone will wonder whether Auntie is the same with a changed name; and I hope the Government will take this point.

Lord Barnett

I share the noble Baroness's love of Scotland, in a different sense. It has adopted my name for some strange reason that I have never quite understood. The Barnett formula now seems to make the headlines in newspapers all over Scotland, or so I hear, although I do not read them too often.

I deal first with the amendment moved by the noble Lord, Lord Mackay of Ardbrecknish. He is smiling now, as he smiles when he moves amendments, for the very obvious reason that he is enjoying himself, and quite right too because he is no longer in government. He is going to be in opposition for a long time; he might as well enjoy it. May I add one or two questions to those of my noble friend Lord Peston? I share his view about joining as early as possible, although he did not quite put it in that way.

I should like to ask my noble friend whether it is government policy that we should join a single currency and, therefore, the European Central Bank, as early as possible. I am sure that is government policy, although my own definition of it might he somewhat different, not necessarily from that of the Chancellor, but from that of the Prime Minister. I would he glad if my noble friend would confirm that as government policy. He need not wait for notes, he will know the answer.

I hope he will also confirm that this Bill will need to be overtaken by the event of our joining and becoming part of the European Central Bank, because there are matters within the Bill—and, I hope, some others that we would propose putting in it—that would not be compatible with our membership. I should like him to confirm that when he says he is not accepting the amendment of the noble Lord, as I assume he will. I myself, however, would have no objection whatever to it being called the "Bank of the United Kingdom". I have no problem with that amendment personally and make that clear, although I gather it cannot be pressed to a vote today, which was never the intention of the noble Lord who I see smiling. Incidentally, the Select Committee, which I have the honour to chair and of which the noble Lord, Lord Boardman is a member, went to Frankfurt last week and is going to Bonn tomorrow. We have looked at the European Central Bank in some depth and as far as I know, there is nothing in there concerning what the different national central banks should be called.

I would imagine that those who set up the European Central Bank could not give a damn what the national banks were called! At the end of the day—and indeed I put this question last week, in Frankfurt—I am not sure what the role of the national central banks will be. They will not have much of a role but they will remain in existence. Again, perhaps my noble friend will confirm that. I assume there will remain national central banks, whether they be called "of England" or "of the UK", even when we have a European Central Bank. For the moment, I will simply ask my main question to my noble friend, that I assume this Bill will fall once we join a European Central Bank.

3.45 p.m.

Lord Boardman

I must say that I find convincing the arguments of my noble friend but, frankly, I am worried about them. First, if EMU, to which the noble Lord, Lord Barnett, referred, should come about—and there are grave reservations over it—there will need to be so many changes that the name of what we call our central hank will he a minor issue. Secondly, we should not forget what the Bank of England really means.

It is a hallmark of respectability and responsibility throughout the world. I should personally be very sorry to see the disappearance of its name. It means much more for the United Kingdom as a whole, around the world, than any name we might produce. Nevertheless, having said that, I must accept that the arguments put forward by my noble friend are convincing.

Lord Montague of Oxford

One can quite understand that people outside England are hoping there might be a different title. However, I am mindful of the tremendous reputation throughout the world that the Bank of England already possesses, as well as the confusion that might come about. We know that we are to have a Central Bank for Europe; I do not think we shall talk about the "Central Bank of the United Kingdom". We shall probably go in for shorthand, and call it simply the "Central Bank", and we shall not know which we are talking about!

When I am in America, I am often asked to explain how it is we always refer to Queen Elizabeth of England. I have no doubt that provides irritation in some places, but we do not seek to amend it. I suggest that we stay with this great reputation we already hold and do nothing to harm that.

Lord McIntosh of Haringey

It is always nice to start off the Committee stage with a wide-ranging debate and it is particularly nice when, from time to time, it grazes on the margins of the subject matter of the Bill, as this debate has. For that I am very grateful. The noble Lord, Lord Mackay of Ardbrecknish, is still on an emotional and psychological high after having achieved 50 per cent, victories with his huge majority in this House. If he thinks that is good statistically, then I leave him happy in that thought and I do not seek to challenge it.

I shall deal with the serious matters that have been raised before I go on to talk about the name of the Bank. The serious matters are, of course, that there are no matters within the Bill which are to be devolved. As the noble Lord recognised, they are all reserved to Westminster. There is no likelihood of any concordat between the Scottish parliament and the Westminster Parliament on any of the matters covered by the Bill. The Bill is concerned with one currency and a single set of financial markets. Although I recognise that all legislation going through Parliament now has to be consistent eventually with devolution, and I have been grappling with that problem on the National Lottery Bill concurrently with this Bill, no such question arises on the Bill itself.

In answer to my noble friend Lord Peston, we can call the Bank what we like as far as the European Union is concerned. We can call it the Bank of Brobdingnag, and they would not be worried about it. The European Monetary Institute has given its opinion on the contents of the Bill, and has not seen fit to make any comment on the name of the Bank.

My noble friend Lord Barnett seeks to tempt me into a restatement of government policy which would he more precise about the timing of our joining of EMU, but I shall not succumb to that temptation. As he knows perfectly well, the Government believe that in principle British membership of a successful single currency would be beneficial to Britain and to Europe. The key factor is whether the economic benefits of joining for business and industry are clear and unambiguous. If they are, there is no constitutional bar to British membership of EMU. That is not to say sooner rather than later; that is a statement of fact.

My noble friend Lord Barnett also asked me to reassure him that the Bill will not fall when we eventually join EMU—those were his words. I can confirm that it will require amendment, but the basic provisions of the Bill will not be changed as a result. It will require substantial amendment. It is not designed to conform to the Maastricht criteria, which we shall consider with later amendments. Of course the Bank of England will remain in existence. It has many roles other than that which is concerned with European monetary union, and, again, we are free to debate those as we go through the Bill.

As to the issue of the name itself, I was glad to hear from the noble Lord, Lord Boardman, the true voice of conservatism. I am slightly worried about the headlong rush of the Hague opposition into new conservative, new iconoclasm. They are perfectly willing to throw away 304 years of distinguished history. The noble Lord, Lord Mackay, gave us a little bit of history himself about the Bank of England, which was very welcome. But the Bank has a reputation after 300 years, and to make a change of this kind, which is neither strictly necessary nor, as everybody agrees, particularly important, would not be of any great value. If we were going to do so, surely we should do it in anticipation of EMU. Should we not call it the "Central Bank of some offshore regions of the European Union", which would have the great advantage of having the acronym CENSOR, which I commend to the noble Lord, Lord Mackay of Ardbrecknish? If it ain't broke, don't fix it—let us leave it alone.

Lord Mackay of Ardbrecknish

I am grateful to noble Lords who took part in this short debate. I am grateful to the Minister for confirming what I thought was the position: that all the matters in the Bill are indeed reserved in the devolutionary settlement, and that there will be no need for concordat in any of them.

I fully accept the point made by the noble Lord, my noble friend Lord Boardman and the noble Lord, Lord Montague, about the position of the Bank of England, and the fact that it is known throughout the world and its reputation, and so on. I fully accept that and I see the force of their argument. However, I must say to the Minister that to argue that if it has been running for 300 years nothing should be done to change it comes ill from a Government who are changing the Constitutional Settlement and the Treaty of Union which has been running for something like 300 years. If the Government are truly radical, they should be looking at all the ancient traditions and not just the Treaty of Union, which some of us feel is even more sacrosanct than the Bank of England ought to be.

Lord McIntosh of Haringey

I think the noble Lord would enjoy this afternoon and tomorrow afternoon rather more if he recognised that the Bill makes substantive changes to the role of the Bank of England. We are interested in the proper conduct of economic, fiscal and monetary policy, which is why we are making changes. What we are not doing is making trivial changes to the name.

Lord Mackay of Ardbrecknish

I fully understand. In fact I said in my introduction that we were making major changes, which is why I thought we ought to look at the name, especially as the major change, in my view and in the view of the noble Lord, Lord Barnett, and the noble Lord, Lord Peston, is but an introductory change to the greater change to come when we move to be part of the European single currency. The noble Lord, Lord McIntosh of Haringey, should not dismiss this too much out of hand.

The noble Baroness, Lady Carnegy of Lour, made some telling points about the Scottish position. One source of great irritation to the people of Scotland is to come south and find that Royal Bank of Scotland bank notes are not accepted here. In the new geography we are creating in the United Kingdom, I suspect that by the time the noble Lord comes back with the next Bill to make the Bank of England truly independent there will be a devolved government in Scotland. He will then find that it will be a little more than just myself and the Law Society of Scotland who will be asking, "Isn't it time we looked at the reality of this and called the Bank what it really is, not the central Bank of England, hut the 'Central Bank of the United Kingdom'?".

Whether the noble Lord, Lord McIntosh of Haringey, will be discussing these matters two or three years down the road, who knows? We may have been translated to other responsibilities. But if we are, I hope he will remember my prophecy, that the government of Scotland will be suggesting that this ought to be changed.

I am grateful to the noble Lord for his assurances about the position of the Bill vis-à-vis devolution and for his understanding at least of the importance of the Bank in the economic life of the whole of the United Kingdom. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 1 agreed to.

Schedule 1 [Court of directors]:

4 p.m.

Lord Mackay of Ardbrecknish moved Amendment No. 2: Page 18, line 9, leave out ("3") and insert ("5").

The noble Lord said: In Schedule 1 we are dealing with the composition of the court of directors. I do not want to make too much of this because further on we come to the terms of engagement of the members of the Monetary Policy Committee where this issue is much more important. I have separated it exactly for that reason.

The court of directors is important, although later on we are going to tease out just exactly what its role is going to be vis-à-vis the Monetary Policy Committee. At present the court is composed of people whose appointment is on a four-year term basis. The Government propose here as elsewhere to change it to a three-year term. That is quite a short term. Indeed, it is much shorter than the life of Parliament. In the course of the schedule it is suggested, quite rightly, that the Government will look to stagger some of the appointments. They will not make them all for one year to begin with. Perhaps the Minister can give us some of the Government's thoughts on how they will do it. Will they make a few of the appointments for one year, a few more for two years, and a few more for three years in order to get to the position that I believe is necessary? I welcome what the Chancellor of the Exchequer said in the Official Report in the other place on 20th May: The Court will be substantially reformed, so that it is able to take account of the full range of industrial and business views in this country, and for the first time it will be fully representative of the whole of the United Kingdom".—[Official Report, Commons, 20/5/97: cols. 508–9.] Given what I said in my first amendment, I obviously welcome that. Indeed, five of the recent appointments very much accord with the Chancellor's view.

We have Mr. Graham Hawkes from Wales, Roy Baillie from Northern Ireland, and we have Mr. Jim Stretton from Standard Life from Scotland. Although two of the others do not currently live in Scotland, they both have their roots there—Sheila MacKechnie of the Consumers' Association and Mr. John Neil, the Unipart boss. I am sure we could add some more names, reflecting the whole of Britain. In fact Mr. John Neil, although he does not reflect Scotland now, reflects other parts of Britain. I welcome these appointments, and I welcome the decision of the Chancellor being brought into reality to broaden the geographical base and the spread of interest of members of the court. I would like to see a similar spread of interest, and I notice that the noble Lord, Lord Montague, also wants to see it in relation to the Monetary Policy Committee.

In its preliminary report on corporate governance, the Hampel Committee recommended that directors should submit themselves for re-election at regular intervals and at least every three years. I suspect that the noble Lord, Lord McIntosh, might pray that in aid. However, we are not talking about quite the same thing, because we are not talking about re-election by a company but we are actually talking about reappointment, and about the control by the Chancellor of a bank which is supposedly moving towards independence. That will be the theme of many of our discussions on amendments this afternoon.

In the court's terms, three years does not seem to me to be long enough to show proper independence. It gives the Chancellor the opportunity to weed out anyone whose views turn out not to accord with those of the Government. Indeed, given the majority down the corridor, I do not think I could be accused of straying into pessimism about my party's position when I say that whoever the Chancellor appoints this year is likely—whether the appointments are for one year, two years or even three years—to be in a position to sack them or reappoint them before this Parliament comes to an end. That calls into question, at least in my mind, the independence of the Bank from the Chancellor.

I suggest to the Minister that it might be worth considering a longer term of engagement for the members of the court, so that at least some of them—perhaps not all of them—will inevitably spill over into another parliament. One Chancellor in one parliament will not be able to clear out the whole lot if he discovers that his appointments do not sing from the hymn sheet from which he thought they should.

I accept that the court is not as important as the Monetary Policy Committee. It is not quite the same issue as I believe it is for the Monetary Policy Committee, but it is nevertheless important. It is a reflection of the independence of the Bank. I welcome the decision about appointing members to the court representing a wider spread in Britain that perhaps we have had heretofore. That would be greatly helped if the Government would accept my amendment of five years, or even put in their own amendment of four years, for the term of office for the court of the Bank. I beg to move.

4 p.m.

Lord Montague of Oxford

In some areas, we are thinking along the same lines. I am just rather nervous about this idea. Attention has rightly been drawn to the distinguished members of the court, but they are distinguished because they are already well into their careers. If we appoint them for five years, I am worried that we could well have within the court a very large number who have retired, although I have not looked at the statistics of this. It is wise to bear in mind that there is nothing to stop these people being reappointed. There is the political risk, to which reference has been made, but I venture to suggest that the noble Lord may he over-stating that. For example, as regards quangos, we do not say that no quango leader should be appointed for less than five years. We should bear very much in mind the flexibility that comes with three years, and the possibility of reappointment.

Lord McIntosh of Haringey

I notice that the noble Lord has not explained why it is different from the amendment moved by his party in Committee in the House of Commons. The existing provision is that members of the court should serve for four years. When we proposed in the Bill that it should be reduced to three, his colleagues in another place suggested that it should stay at four. He has not given any particular justification for it going up to five, but it is a sign of welcome flexibility of which I am sure we shall see more this afternoon and tomorrow.

The reasons are straightforward for reducing the term. These are issues of corporate governance which are pretty widely accepted nowadays. The noble Lord anticipated me by quoting the Hampel Committee: All directors should be required to submit themselves for re-election at regular intervals and at least every three years". That seems to us a perfectly good justification in itself for what is being proposed. We have to balance the possible conflict of having people there long enough to gain experience to learn on the job with ensuring that we have an opportunity to get rid of people after their terms of office are completed if they are not pulling their weight—not so much if they disagree. They are there to disagree and their disagreements will be well known, but if they are not acting actively as members of the court it is right that without undue formality it will be possible simply not to renew their terms of office.

The noble Lord asked me about staggering appointments to get a staged turnround. All the existing members will be reappointed for the balance of their existing terms which vary in expiry date from 1999 to 2001, and then the new members, as the Chancellor announced on 18th February, will have terms designed to ensure that roughly equal numbers of appointments expire each year. I believe that that meets the noble Lord's objective.

This is not an issue of fundamental principle. However, we believe that, on balance, the interests of good corporate governance lead to a term of three years as proposed.

Lord Mackay of Ardbrecknish

I thank the noble Lord for his reply and the noble Lord, Lord Montague, for the points that he made. They are reasonable points. Having sat on Government Benches and discussed these things, it does come down to a matter of judgment.

I have to say to the noble Lord, Lord McIntosh, that paragraph 8 in the schedule gives the Bank, with the consent of the Chancellor, the power to remove people who do not attend or are unable or unfit to discharge their functions, so the idea that somebody could be stuck on the court without attending and pulling his weight in that way is not really a good argument.

However, I appreciate the point that has been made about the three years. I put in five years rather than four years simply because I was attempting to be logical with the appointment of the governor three or four lines above. If the noble Lord had given me four years I would have been more than happy to accept that. The point is that three years is rather short.

As I have said, I am not sure where the election is. The electorate seems to be about one man, the Chancellor of the Exchequer, unless there is to be a cabal in No. 11 Downing Street and various Ministers are to be brought in and they are to have a vote on who should be on the court. To describe it as a "re-election" is not strictly accurate; "reappointment" perhaps, but not re-election. I understand that people can be reappointed.

I am grateful to the Minister for his explanation of the position. There does seem to be a major difference between the court and the Monetary Policy Committee and I give him notice that I shall be taking the position on the Monetary Policy Committee a good deal more seriously than this essentially probing amendment. With that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 1 agreed to.

Clause 2 agreed to.

Lord Mackay of Ardbrecknish moved Amendment No. 3: After Clause 2, insert the following new clause—

PARLIAMENTARY SCRUTINY OF BANK APPOINTMENTS

(" .—(1) A joint committee of both Houses of Parliament may, within thirty calendar days of a nomination being made in relation to an appointment under section 1(2) or 13 of this Act, make a report to both Houses—

1. (a) stating its conclusion that a nominee for the post of Governor or Deputy Governor meets the criteria of competence and personal independence or that a nominee for membership of the Monetary Policy Committee meets the criteria specified in section 13(4); or
2. (b) giving its reasons for considering that a nominee for the post of Governor or Deputy Governor does not meet the criteria of competence and personal independence or that a nominee for membership of the Monetary Policy Committee does not meet the criteria specified in section 13(4), and inviting the Chancellor of the Exchequer to reconsider the nomination.

(2) A nomination of which the Committee signifies its approval or on which it decides not to make a report to both Houses shall be confirmed by the Chancellor of the Exchequer on receipt of the Committee's report or after thirty days, whichever is the sooner.

(3) A nomination which the Committee invites the Chancellor of the Exchequer to reconsider shall not be confirmed until seven days after the Chancellor has written to the joint committee giving his reasons for continuing with the nomination.

(4) The provisions of subsections (1), (2) and (3) above shall apply only when the joint committee has been formally constituted.").

The noble Lord said: In moving Amendment No. 3, I shall speak also to Amendment No. 28, and the noble Lord, Lord Newby, will speak to Amendment No. 24, which all cover the same subject.

The problem here is that there are a number of amendments that try to address the same problem; that is, the independence of the Monetary Policy Committee. The way in which this particular amendment is framed includes the court but, if it is of any help to the Minister, I am not addressing the substance of these amendments to the court. I wish to address our attention to Clause 13 of the Bill and the Monetary Policy Committee. Because the court is not nearly such an important body as far as economic and monetary policy is concerned, I am content to leave it the way it is. However, the Monetary Policy Committee is entirely different.

As I said at Second Reading—a number of other noble Lords drew attention to this also—the members of the Monetary Policy Committee are either appointed directly or indirectly by the Chancellor, who has his finger in every one of the pies. I refer to the Governor and the deputy governors, the two members appointed by the Governor after consultation, and the four members appointed by the Chancellor of the Exchequer. A number of amendments, of which this is just the first, suggest that perhaps it would be better if the Monetary Policy Committee was less beholden- to the Chancellor; less the creature of the Chancellor—or at least his creature on appointment and potentially his creature on reappointment if it does not perform in a way the Chancellor wants it to perform. That may not be because it performed badly, but that it performed in a different way because it has a different view of monetary policy than the Chancellor thought when he appointed it.

In the other place the Treasury Select Committee came forward with an amendment—agreed, I believe unanimously, by all the members of that committee, Labour and Conservative, and indeed with a Labour Chairman—to say that there should be confirmatory hearings. There was considerable discussion in the other place as to whether it would be a case of nodding through after a hearing, or whether it would be confirmatory hearings as per the hearings in the United States where, if the Treasury Select Committee said, "We do not like this person", it could black-ball them, and there are variations on that theme. I fully accept that to go down the American road would be a huge break with the traditions in this country hut, on the other hand, granting the Monetary Policy Committee even operational independence is also a huge break in the way in which we have operated things in this country, because the Chancellor is no longer directly responsible for these matters.

If we go to the next step—and inevitably one cannot avoid looking at the next step—the Monetary Policy Committee will have even greater independence, and therefore the appointment of people to the Monetary Policy Committee will be of huge concern to the monetary and fiscal policy of the United Kingdom and to the well-being of almost all the people of the United Kingdom. It is important therefore that we look at how the members of the Monetary Policy Committee will be appointed.

I have changed the amendment a little simply to introduce the fact that perhaps some of your Lordships have enough expertise and interest in these matters to want to play a part in any hearings that may be conducted by both Houses of Parliament. I should not like the poor people suggested by the Chancellor to have to go through two grillings, one from the Treasury Committee of the other place and another from a committee set up in this House. I therefore suggested that we have a Joint Committee of both Houses to look at the nominees and question them, and to explore whether or not they meet the criteria of Clause 13(4) of the Bill. If they do not meet the criteria in the opinion of the Joint Committee, it should give reasons why they do not. It would then approve or not approve and report to both Houses, which report the Chancellor would receive as well. The implication here is that if the Chancellor is advised that the committee does not approve his nominee, he would not proceed with that nominee; but that if it approved, then of course he would proceed.

The way Clause 13 is currently tabled gives the Chancellor considerable powers of patronage. There is not much accountability. We will explore what accountability there is to the court, but there will in fact he precious little. We believe that the Select Committee of the other place and a suitable committee of this place joined together would be a proper forum in which to examine the people nominated by the Chancellor.

In the other place an amendment was moved by my right honourable and honourable friends, but there was also an amendment moved by the chairman of the Select Committee, who is a Labour Member. The Labour members of the Select Committee have not exactly been chosen from the potential rebels in this issue. I did not note, for example, the names of Mr. Austin Mitchell or Diane Abbott on the Treasury Select Committee, or indeed other Labour Members who are a little unhappy. It seemed to me to be a collection of people whom, in the nicest way, one could describe as pretty reasonable loyalists who could be expected to be kind to the Government. I am not complaining about the Government doing that; all governments try to do that if they possibly can. So the proposal from the Treasury Select Committee is made stronger by the fact that some of the Government's critics, as far as the monetary policy moves here are concerned, were not members of the Select Committee.

The noble Lord, Lord Newby, simply dealt with the Treasury Select Committee. Perhaps because I have been here a little longer, I decided to take the feelings of noble Lords into account and suggest a Joint Committee. Undoubtedly, the Treasury Select Committee will be able to call on the members of the Monetary Policy Committee and will be able to discuss matters with them. What it will not be able to do, however, is to say whether or not it approves of their appointment, which I accept is a major step for us in this country. Indeed, in the other place the Government made much of the fact that we were not asking for this to be done in relation to other quangos.

I know that there are many other important quangos in the country, but I honestly cannot think of a more important quango than the one we are setting up in the Monetary Policy Committee. It is very important. It will play a key role in the economic life of our country, and there ought to be some checks and balances on the Chancellor's ability to appoint his own nine good men, or women, and true. This is one suggestion as to how we might go about it. I beg to move.

4.15 p.m.

Lord Newby

Amendment No. 24, which seeks to do essentially the same as the amendment moved by the noble Lord, Lord Mackay of Ardbrecknish, equally has as its root the thought that the appointments that are here being made are among the most important public appointments which a Minister has to make. When one thinks of the absolute importance that Ministers or Chancellors in the past have given to the setting of the interest rate, the secrecy in which that has been shrouded and the importance with which that decision has been taken, we must recognise that this is not just any run-of-the-mill series of appointments. These really are important appointments. It is therefore important that the people who are appointed have the confidence of Parliament and, as far as possible, the confidence of the country.

As far as the country is concerned, it is probably the case that members of the Monetary Policy Committee will never be household names. However, one of the advantages of confirmation hearings is that they at least have some exposure to the public gaze, which at the moment they do not, and at a time when members are being appointed rather than a month—or, as may be the case, months—later when a decision is being made which changes interest rates.

I believe also that it is important that Parliament should feel that it has had a say in quizzing people who are appointed to this particular committee as well as, indeed, to other important public appointments. The very fact of having confirmation hearings will have some influence, or could do, on appointments at the margin. There is an idea, or concern, held by some people, that the Chancellor could put all his chums on this committee to obtain the result he wished for. However remote a possibility that may be—and one, I am sure, to which the current Chancellor would never fall prey—the very fact that the appointments have to stand public scrutiny at the point of appointment, rather than later on, may give him pause.

Again, at the margin, the Chancellor has to be made aware of any proposed change in the appointment and any decision to appoint someone else to the Monetary Policy Committee, rather than continuing with an existing member. If the Chancellor knows that that change is to be considered by the committee and the new appointment scrutinised, it may give him pause from standing down an independent-minded committee member.

As we have looked at the arguments for what seems to us a sensible and relatively modest change, which would enhance the credibility of this committee, we have tried to understand the reticence of the Government to agree to it. There seems to be an increasing tide of opinion in Parliament that confirmation hearings of various kinds are the way to proceed. It is interesting to note that not only do we now have the Treasury Select Committee proposing, in effect, confirmation hearings here, but as the Liaison Committee reported last year in another place, a number of committees are now doing this informally. The Defence Committee, for example, effectively has confirmation hearings for the Chief of Defence Procurement. There are also a number of other cases where Select Committees in the other House see this as being a sensible use of their authority and influence. This is an area of activity which will gain—and is gaining—support.

We have therefore looked to see what major arguments in principle the Government have adduced for not agreeing to that change at this stage. In another place, the Minister explained that the Government had an open mind, but that the issue needed more thought; that it should not be bolted on to the Bill. I always grimace at the idea of something needing more thought, particularly when it is not exactly a difficult or complicated issue. To say that the matter needs consideration is often, in my experience, a substitute for real thought. That does not, by itself, constitute a good reason for delay.

There is an argument that these poor characters might be questioned across too wide a range of their experience. Indeed, they might be asked about their private life—the John Maynard Keynes question, as it became known in another place. The Treasury Select Committee has already dealt with that point adequately by producing its report on confirmation hearings. That sets out exactly how it would constrain the areas of questioning, so that one was looking at the technical competence of the people, rather than their private lives, or their stances on monetary policy. To the extent that there was an argument about questioning, it has been answered.

It has been argued also that the confirmation hearings would give members of the committee the opportunity to get at the government of the day. Perish the thought that Select Committees should get at the government of the day, but I thought that was their purpose: to make the government of the day, and their nominees, justify themselves! I do not believe that is an adequate explanation.

Finally, the paradoxical objection has been raised—having said that this is a major change and we should not rush—that it would be wrong to have the change without a whole raft of other confirmation hearings, across the whole range of public authorities and that it cannot be done alone. If one is to have any at all, a whole raft of public appointments must be dealt with. That seems to be extremely thin gruel.

If one believes, as we do, that it makes sense to have confirmation hearings for these appointments, one should go ahead and do it. Confirmation hearings for other public appointments could equally be made on their merits and we could have an evolutionary development that as changes occur in the structure of the appointments made by government, the whole question of confirmation hearings could he dealt with on a case-by-case basis. I am looking forward to the Minister's reply today, but I have not heard any compelling arguments as to why this change should not take place.

I make one final point about the difference between our amendment and that of the noble Lord, Lord Mackay of Ardbrecknish. It relates to the question of a Joint Committee between this House and another place, as opposed to the hearings being heard by the Treasury Select Committee alone. My first thought was that this was an extremely good idea, not least because of the experience which we see in the Committee today and elsewhere in this House. I have been persuaded in discussions with colleagues that given the role that this plays in respect of taxation and macro-economic policy is very limited and given that we do not have a committee which looks at economic policy across the board, it would be strange to select this small area and suddenly give the House an authority which it does not have in any other area of economic policy.

While I believe it is an on-balance argument, we remain of the view that the most appropriate way of dealing with this at the moment would be to give power to the Treasury Select Committee to scrutinise these appointments.

Lord Peston

In speaking to these amendments, I start with Amendment No. 24 in the name of the noble Lords, Lord Newby and Lord Taverne. I am loath to tell the other place what it should do. Therefore, I certainly reject their amendment. It is up to them to make what progress they can. In so far as the subject is tempting, it seems to me that the noble Lord, Lord Mackay of Ardbrecknish, is nearer to a position than noble Lords could come to, although it is not one that I would go along with.

As I understand the argument of the noble Lord, Lord Mackay of Ardbrecknish, certainly as it is written down, I would regard the central wording as "competence and personal independence". That is what he is about. In a sense he is implying that the Chancellor, whether the present one or one of his successors, would be prone to appoint people who are not competent, incompetent, not personally independent or biased in some critical way. It is an example of the state that this country has come to that what we say about present and future Chancellors could be tabled as an amendment to a Bill. In the old days, given a Committee of this sort, we would have taken it for granted that although they would certainly appoint people that they thought well of, they would appoint the best people. That does not mean that the noble Lord, Lord Mackay of Ardbrecknish, is wrong in worrying about these things.

My view, however, proceeds along the following lines. For this to make sense, we have to ask ourselves whether in practice confirmatory hearings improve matters. Our main experience of confirmatory hearings is in the United States of America, and anybody who has seen those would walk a million miles before introducing anything like that into the British constitution; I certainly would.

I am well passed this sort of thing now, but in my younger days, I would have liked to have been thought of as a possible member of the Monetary Policy Committee. But being the arrogant person I was and still am, the notion then that a group of Members of Parliament could remotely query me on my competence or independence would mean that I should not want to be considered as a candidate. I know that is arrogant, but I am not alone in being the kind of person in this Committee who might take that view. We may have confirmatory hearings in this country because we occasionally make errors of that kind, but I would not like us to go down that path.

What I would like to see happen—and I believe it can happen—is for the Monetary Policy Committee to be seriously scrutinised by the Treasury Select Committee. I hope the Minister will confirm that there is nothing to stop the Treasury Select Committee sending for these people as individuals and saying to them, "Why did you take the line that you did in the minutes? Is it not strange that in your academic writings of several years earlier you took exactly the opposite view until you came on to this committee?", and so forth.

To refer to the noble Lord, Lord Newby, we do not have an equivalent committee, but he will recall that in my Second Reading speech I suggested that your Lordships should have the kind of committee which I regard as well within the Parliament Act where we, too, could scrutinise the Monetary Policy Committee. Indeed your Lordships might like to know—not to put on the face of the Bill—that my noble friend Lord Barnett and I will be writing to the relevant authorities in the House suggesting that we have such an all-party committee, itself independent, because it is a matter in which we are interested. As the noble Lord, Lord Mackay, pointed out, we might be able to make a small contribution on these matters.

I am glad that the topics have been raised. I certainly believe the Monetary Policy Committee must be subject to very powerful scrutiny, including scrutiny which would imply when it comes to reappointment that perhaps there was a lack of independence or a lack of competence—not necessarily, hut perhaps. I am glad the amendments were raised, although I do not believe we should go down that line. However, in the case of your Lordships we should go down the line of positive response to the Monetary Policy Committee.

4.30 p.m.

Lord Boardman

I find it strange that a Government who held themselves up very clearly as requiring to give the Bank of England a larger degree of independence have managed to retain to themselves the control of the key appointments—those of the Bank of England and the monetary committee. The Chancellor of the Exchequer, under the scheme that is proposed, has control over both those bodies.

I can understand that the noble Lord, Lord Peston—although I do not agree—should find greater fear of being examined and rejected by a committee than being examined by a hostile Chancellor and rejected. I am sure none of us would wish to discard his experience. But the independence which is granted in the appointments by my noble friend's amendment is one which is compelling. I am particularly attracted by his suggestion of having a Joint Committee of both Houses. It saves a lot of duplication on time, and my short experience of Joint Committees when they have operated has been entirely fruitful. They seem to cut through a great number of the problems which arise in one House and with which the other House disagrees. That is one I would commend.

Turning to the monetary committee, my noble friend has already said that all of the nine members are either appointed by the Chancellor or appointed with his consent. There is no possible way in which one can claim this is giving them independence. I am sure they will be men of independent character, but they are appointed for only three years. My noble friend pointed out why five years would be more appropriate, but they are appointed only for three years, and in the last year, when they are coming up for reappointment, one wonders whether their judgment can be influenced by the longer-term outlooks that may he held within the Treasury. Assuming that would not be so, it still remains that it is the Chancellor's discretion to call for them.

I would urge in both the amendments put down by my noble friends for a Joint Committee that they should look at the directors of the Bank and decide whether they are appropriate people. I preferred Amendment No. 28, that with regard to the parliamentary scrutiny of the board appointments. This should also apply to members of the monetary committee. They should be coming in here with that degree of independence where the Government's reins have been handed over to the Bank of England. If it had been said, "We are asking the Bank and our nominees to do such-and-such a thing and they will tell us what they want", that would be one thing, and understandably would make the Bank of England quite independent in certain matters. What has not been said is, "We will make sure who runs the Bank of England".

I ask that these amendments should be carefully considered and supported.

Lord Barnett

I say to my noble friend Lord Peston, too little ability maybe to be a member of the Monetary Policy Committee, but too old—most certainly not! I would not accept that. As to whether any member of the Monetary Policy Committee could be brought before a Select Committee of the House of Commons, I must tell my noble friend that I would not want to be a member of a monetary policy committee, or any other committee, who refused to go before a Select Committee of the other place. He would find himself in serious trouble, and as a former chairman of the Public Accounts Committee. I do not know of anyone who ever refused to appear. I am sure that that will apply to the Treasury Select Committee.

Let me turn to the amendments. The noble Lord, Lord Newby, suggested that it should be done by the House of Commons Treasury Select Committee. As my noble friend said, that is nothing to do with us; this particular point is nothing to do with financial matters in the same sense as your Lordships' House does not deal with financial matters such as the Finance Bill. This is a quite different issue altogether. Of course this House can deal with it.

The noble Lord, Lord Mackay, talked about a joint committee. The words he used were "a suitable committee of this House". As my noble friend Lord Peston said, there is not such a suitable committee of your Lordships' House. That is nothing to do with this piece of legislation—or rather it is to do with this piece of legislation in the sense that there should be a suitable committee of your Lordships' House, and my noble friend Lord Peston and myself, as he indicated, will be seeking to ensure that there is such a committee. My noble friend will be pleased that he does not have to deal with that particular point because he does not have to decide that issue. Certainly it is quite wrong that there is no suitable committee.

It was suggested that the European Communities Committee Sub-Committee A could deal with it. As the noble Lord, Lord Boardman, will agree, it already has more than enough to do without having to deal with this as well.

I do not like confirmation hearings either, as the noble Lord, Lord Newby, has suggested, but the new clause that the noble Lord, Lord Mackay, has suggested is not unreasonable. On the other hand, even if it is not in the Bill, members of the Monetary Policy Committee, the Government and anybody else will undoubtedly be called before the Treasury Select Committee in another place, and I hope in due course a committee in this place, and they would be very foolish indeed to seek to refuse to appear.

That is the answer. I am not trying to usurp the role of my noble friend in replying to the amendment, but Amendment No. 3 with the new clause is unnecessary. I would think, if I may reply on his behalf. I personally do not support that, but I believe that there should be a Select Committee of this place to deal with these matters.

Lord Montague of Oxford

Perhaps I might make a further point. This does sound rather alluring, but there is an aspect of it that might he rather worrying. We have heard from the noble Lord, Lord Newby, of the tight parameters about the examination that would be given to these confirmatory hearings. Could that tight examination also apply to the press? Surely if the media knew that an individual was going to come up for consideration, they would trawl every aspect of that individual prior to the hearing. It is no good saying to the media, "Oh, it's irrelevant. The Committee cannot take that into account at all". By the time the confirmatory hearing arrives the person's reputation might be ruined. It might also be enhanced. but that is less likely.

I fear that with that prospect, candidates of great quality might not want to risk that. I believe it is a rather dangerous course. We see it with the media at the moment and I would urge that we be a little hesitant at this time until the whole question of confirmatory hearings has been thought through.

Lord McIntosh of Haringey

I am grateful to the noble Lords, Lord Mackay and Lord Newby, for clearly explaining their amendments and the differences between them. I suspect that the differences between them lie more with the fact that the amendments of the noble Lord, Lord Mackay, are about a joint committee of both Houses, rather than the fact that the noble Lord stopped short of giving a veto to his joint committee. In practice, as I am sure he recognises, if a parliamentary committee had declined to give its support to a candidate, it would be very difficult for the Chancellor to press ahead with the appointment, despite the wording of the amendment.

It is true that, if that is the case, we would be embarking on a very substantial change. Like the noble Lord, Lord Newby, I am not against embarking on substantial change, but we must look at the circumstances rather more closely than we have done.

First, let us look for common ground. We agree, and the Bill makes clear, that we are looking for candidates who are selected for their professional competence and personal independence. Clause 13 on the Monetary Policy Committee requires the Chancellor to appoint only people with, knowledge or experience which is likely to be relevant to the Committee's functions". Noble Lords will agree that the appointments that the Chancellor has made have been welcomed on all sides as meeting those criteria, just as the reappointment of the Governor of the Bank of England has achieved a wide welcome.

The issue of parliamentary confirmatory hearings, however, is indeed a very much wider issue than the Bank of England. I am not suggesting that Giles Radice, the Chairman of the Treasury Select Committee, has delusions of grandeur or that he would suddenly turn strongly about this matter, holding up potential candidates to ridicule and abuse before they even appeared before his committee.

I agree with my noble friend Lord Peston. I do not think that the experience of the United States Senate is a very propitious example for us. The power which the Senate has over the appointment of all sorts of people—ambassadors, judges and who knows what—has been distinctly double-edged. It might have been a necessary result at the time of the framing of the United States Constitution of a particular view of the relationship between the Legislature and the Executive, but we do not have that view of the relationship between the Legislature and the Executive. I am bound to say that the example we have been set in the last 224 years of the effects of the division of powers and the way in which that division of power is implemented by means of confirmatory hearings does not fill me personally with great confidence. I have to say "personally" because, as is well known, the Government have an open mind about whether parliamentary committees should have greater involvement in the selection of candidates.

Lord Boardman

If I may, I would like to recall the Joint Committee between both Houses on the consolidation of Bills, for example. This brings together the best legal minds in this House and in the other place, and it works extremely effectively.

Lord McIntosh of Haringey

Yes, indeed, but there are many examples of effective parliamentary scrutiny. The Government are certainly not against parliamentary scrutiny, whether in a single House of Parliament or in both Houses of Parliament. But that is quite a different issue from confirmatory hearings on individual candidates for particular posts. There is no conflict at all between what I am saying here and our admiration for parliamentary scrutiny, whether of legislation or of any other aspect of public life. We have not in any way opposed the view of the Select Committee, which has already said it will take the opportunity which it has to interview and interrogate individual members of the Monetary Policy Committee and to provide detailed scrutiny of the activity of the Monetary Policy Committee.

I am not sure that I like the example of my noble friend Lord Peston saying to them, "As an academic before you were appointed you said one thing, now you are saying another". I remind him of his hero, John Maynard Keynes, who said: When circumstances change, I change my mind—what do you do, Sir?". I agree with that and that he, as somebody who expresses his views and has done all his life, should adhere to doing so.

I am particularly pleased that the noble Lord, Lord Mackay, should feel strongly about this matter since in his Amendment No. 31 he rules himself out from consideration as a member of the Monetary Policy Committee. However, we will come to deal with that later. It is a tribute to his objectivity if not to his judgment.

There are those who feel that this major constitutional change deserves consideration. I am not one of them. The Government are certainly prepared to consider the issue in its broader sense but I have to say that, if they did consider it, it is unlikely that the Monetary Policy Committee of the Bank of England is where it would start.

4.45 p.m.

Lord Mackay of Ardbrecknish

I have to say to the noble Lord. Lord McIntosh, that if that was an offer he was making, I happily withdraw Amendment No. 31.

We have had an interesting debate. There was a slight difference between the noble Lord, Lord Newby, and myself as to whether it would just be the Treasury Select Committee of the other place or a Joint Committee of both Houses. There was also the question of what role either would play in taking evidence and in bringing members of the Monetary Policy Committee before it.

Perhaps I might start with the Treasury Select Committee or the Joint Committee. As the noble Lord, Lord Peston, said very clearly, there is nothing to prevent this House looking at monetary policy; it is taxation matters that we are forbidden to look at. When I looked at this debate in the other place I noticed that it was only the Treasury Select Committee and I remembered the many times at OFT at which I spoke for the Treasury, as does the noble Lord, Lord McIntosh. I was chided for not having debates after we had the Budget and after we had budgetary-type Statements. People pointed out to me that this House had a role to play, even though it was limited in what it could do with regard to taxation. Without flattering anyone or looking at anyone, there are some prominent academic economists and there are some prominent former Treasury Ministers who would certainly perform quite an interesting role in a Joint Committee of both Houses. I decided to bring in the Joint Committee in order to bring this House into play as it rightly should be in play.

I was interested to hear the noble Lords, Lord Barnett and Lord Peston, say that they intended in this new situation to suggest to the powers-that-be that we should consider having a committee in this House on Treasury-type matters where members of the Monetary Policy Committee could be interrogated, brought before the committee and their views explored. That would be a useful step forward.

The real point here is that of confirmatory hearings. I am in little doubt that the Treasury Select Committee in another place is going to have hearings. Indeed, in its report it said: We believe very strongly in the importance of ensuring that the appointment process is carried out with openness and independence from political influence. We therefore intend, even in the absence of statutory provision, to instigate hearings and make reports to Parliament". So the Treasury Select Committee intends on its own say-so, to have confirmatory-type hearings, not just hearings after people have been put in post.

I say to the noble Lord, Lord Peston, that the reason I put in, criteria of competence and personal independence", was simply to try to ensure that any confirmatory hearings did not go down the kind of route that they tend to go down in the United States, where they seem to be much more interested in a person's marital fidelity and so forth than they are in their competence as monetary policy-makers. It was therefore an attempt to limit the kind of ground which a Joint Committee could plough that led me to put in the words that appear in paragraph (a).

We have an had interesting debate. I have a sneaking agreement with those noble Lords who have asked whether we really want to go down the road of the United States. We are quite different, in that the Chancellor, whether he likes it or not, will be called to account in the other place for any appointments he makes. Similarly, I suspect the noble Lord, Lord McIntosh of Haringey, might also be, if some members of your Lordships' House do not particularly like certain appointments.

I can, therefore, see the strength of the argument that confirmatory hearings are introducing into constitution in this country, something which really does not fit with parliamentary democracy on the Westminster model. One can understand it in the divisions of power in the United States, but not here. So, I take the argument, but find it interesting that, whatever is decided upon in this matter, in this House or the other place, the Select Committee is going to have hearings, confirmatory or otherwise. I suspect it will put those involved through the hoops. We should, as a House, look at what role we might play in this important, new field, for which the Monetary Policy Committee is to have responsibility. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 3 [Functions to be carried out non-executive members]:

Lord Mackay of Ardbrecknish moved Amendment No. 4 Page 2, line 15, at end insert ("except in relation to monetary policy,").

The noble Lord said: I beg to move Amendment No. 4, with which we have Amendment No. 35. Before the noble Lord, Lord McIntosh, rushes to tell me that they are contradictory, in some ways they are contradictory! Diametrically opposed is indeed what the officials wrote—or what the noble Lord wrote—and they are diametrically opposed. I decided, however, that we would take them together because they are an attempt, which is easier to do here where we have agreed that nothing will be pressed to a Division, to tease out the relationship between the court and the Monetary Policy Committee, if there is one, which is the important thing.

When I read the Bill, I understood, on reaching Clause 2(1), the position. It is very clear: The court of directors of the Bank shall manage the Bank's affairs, other than the formulation of monetary policy".

That seemed fair enough. However, it seemed at variance with a letter which the Chancellor of the Exchequer wrote to the Governor on 6th May. At paragraph 13 of that letter he said: The non-executive members will review the performance of the Bank as a whole, including the MPC".

So there we have, in the letter, the possibility of the court reviewing, yet in the legislation it states that the court shall not play any part in the formulation of monetary policy and the work of the Monetary Policy Committee.

In Schedule 3, paragraph 14, it says: The Committee [that is, the Monetary Policy Committee] shall submit a monthly report on its activities to the court of the directors of the Bank".

I have no problem with the Monetary Policy Committee submitting a monthly report, nor indeed with the court discussing these reports, including the decisions which the Monetary Policy Committee has reached regarding the state of the economy, the position on monetary policy it is pursuing and the need to raise, lower or leave interest rates as they are.

I wonder, however, and this is why I put down the second amendment in my name, whether there will be any flow of information in the other direction. Can the court say to the Monetary Policy Committee, "We have indeed"—in the words of the Chancellor's letter—"reviewed what you are up to. We have been looking at your monthly reports and I am afraid we disagree with your analysis. We do not agree with your analysis about the health of the economy and the way it is going, nor with your conclusions. We suggest—if I may go one step further—"that at your next meeting you should lower, or increase, interest rates", or whatever it may be. In other words, will there be a flow of information in the opposite direction from the one laid out?

That is why I have suggested in Amendment No. 4 in Clause 3(2)(a) that we add to the sentence, keeping under review the Bank's performance in relation to the objectives and strategy for the time being determined by the court of directors of the Bank".

and I have put in, except in relation to monetary policy", to ask whether the objectives and strategy of the Bank include what the monetary policy does or does not do. Amendment No. 35 asks whether the court will be able to send a minute back to the Monetary Policy Committee when it reviews what the Monetary Policy Committee is doing and when it receives the monthly report from the Monetary Policy Committee. I hope I have explained why I have moved two such diametrically opposed amendments.

Lord Peston

I am a bit lost. Is my copy of the Marshalled List a misprint? Amendment No. 35 is in the name of my noble friend Lord Montague.

Lord Mackay of Ardbrecknish

I am indeed sorry. That means that I have fallen into the trap of not really looking. I have been on my feet for an hour-and-a-half on every amendment that was mine. I apologise to the noble Lord, Lord Montague. He can explain now why he has a diametrically opposed amendment to mine, and the Minister can remove that criticism from his speech.

Lord Montague of Oxford

I am not sure that I am diametrically opposed, but I will explain what is in my mind and the way I am trying to flush out, as the noble Lord is trying to flush out, this relationship between the Monetary Policy Committee and the court.

It seems to me that in terms of the image that is attempting to be conveyed in the country by presenting this court of diversified experience as encompassing the wisdom one would hope to make available, the implication is that that will have some input into the policy decisions of the Monetary Policy Committee. As I read the Bill, what it is proposing is that the court will provide information: no views, just information.

I am suggesting that it should go a little further: and shall provide advice to the Committee on monetary policy". I would not object to that reading "shall be among those who provide advice to the Monetary Policy Committee". Providing information seems to me to be a little lacking, particularly until we get to that part of the Bill where we come to look at the composition of the Monetary Policy Committee. As we know, at the present time it consists almost exclusively of economists. I have heard those economists, and I will turn to having heard them in a moment. I am not sure that they have quite the rounded view of the economy that one might expect of them.

I said at Second Reading that I had noted in the minutes that it was recorded that it was believed that an increase in interest rates automatically led to a moderation in requests for wage increases. That has not been my practical experience from running factories up and down the land. The moment there is an interest rate rise, within seconds the unions have arrived saying that in order to meet the cost of increased mortgages they must immediately have an increase in wages.

I referred a moment ago to listening to the members of the Monetary Policy Committee, and I did. Some three weeks ago the members of the Monetary Policy Committee went before the Treasury Select Committee and were cross-examined. One heard those economists responding to everyday life as perhaps all of us in this room understand it. And they did it yet again—not this time about wages. This time it was about something called asset values—the inflationary effect of asset values and how we must keep asset values under control. I sat there thinking all the time that this must be housing, but it was not. When asked to clarify, it was share values and the extraordinary inflationary effect of an increase in share values. I almost thought the economists were waiting for the collapse of the Stock Exchange to bring inflation under control. Once more, I had the feeling that they were a little out of touch. That is why, later on, I am among those who are suggesting that the composition of the Monetary Policy Committee be looked at more tightly.

Perhaps I may say in passing that I was a little surprised that, when I asked for the minutes of this particular meeting of the Treasury Committee, I was told they would not be available for another three weeks. I am new to this House, and I find this House remarkably efficient, but it seems extraordinary that when these committees sit the minutes of their meetings are not available for some six weeks since last they met. This seems to be a deficiency which should be looked at elsewhere.

One other question was asked of the committee, which I draw to noble Lords' attention because it was a very interesting meeting. One member asked the Governor—and I was enormously impressed by the openness of the Governor—"Tell me. Governor, there are four representatives of the Bank of England. Are you always going to vote as a block?". And the Governor replied, "No, no way. It is absolutely inevitable that at some time we shall disagree". I thought that was quite interesting. If it might be argued that the Governor is the chairman of the court, and he is the chairman of the Monetary Policy Committee, and therefore he is conveying the view of the court on monetary policy, that does not really hold up if we have been told by the Governor that it is inevitable that the four representatives will at some time disagree. That is why I have put my amendment down.

5 p.m.

Lord Boardman

I am afraid I fail to understand the run of the amendment of the noble Lord, Lord Montague of Oxford. It suggests that the monetary committee should provide advice to the Committee on Monetary Policy—that the court of directors should keep the procedure followed by the monetary committee under review and provide advice to the Committee on Monetary Policy. The whole of this has isolated it: the Monetary Policy Committee has its own remit, not to be interfered with by the directors of the Bank, and nor is the Bank involved in the monetary policy. It is running completely contrary to that. I very strongly support the amendment by my noble friend, which puts the matter perfectly clearly, excluding from the directors of the Bank anything in relation to monetary policy. So I support this amendment, and I find it difficult to go along with the other one.

Lord McIntosh of Haringey

First, I congratulate the noble Lord, Lord Mackay, on a bravura performance. The noble Lord spent a whole speech, like Houdini, extricating himself from the contradiction into which he had not actually fallen. I know that this will be recorded in Hansard but I think it should be engraved in stone—it is worthy of the greatest of all conjurers!

Despite that, I have to say that the Bill is perfectly clear. The role of the court of directors vis-à-vis the Monetary Policy Committee is entirely clear. The job of a court of directors is to review the performance of the Bank in all of its functions, except monetary policy. That is laid down in Clause 2(1): The court of directors of the Bank shall manage the Bank's affairs, other than the formulation of monetary policy". In every other respect, it is managing the Bank's affairs. The only way in which it relates to the Monetary Policy Committee is in its responsibility for reviewing the procedures of the Monetary Policy Committee, and that is laid down in Clause 16(1): The court of directors of the Bank shall keep the procedures followed by the Monetary Policy Committee under review". The purpose of that is that it should be concerned, as the management body of the Bank. that the Monetary Policy Committee has had before it the regional, sectoral and other information necessary for the formulation of monetary policy. It is quite clear from the Bill that the court of directors is reviewing the Bank's performance in relation to objectives of strategy as determined by the court, but that does not in turn relate to monetary policy. The formulation of monetary policy is the statutory responsibility of the Monetary Policy Committee alone. Hence the formulation of monetary policy is already a matter excluded from the review of the sub-committee of non-executive directors of the Bank specified in this particular clause of the Bill.

It is important that we should recognise that and that there should be no confusion, otherwise we would have two separate bodies making decisions in public about the monetary policy of this country and that would not be acceptable. The amendment of the noble Lord, Lord Mackay of Ardbrecknish, would not overturn that because it is formed in such a way that his insert would be overruled by Clause 2(1). Therefore his amendment is strictly unnecessary.

The amendment of my noble friend Lord Montague is rather different. It would undermine the autonomy of the Monetary Policy Committee by confusing responsibilities in the way I set out. The monetary policy framework gives the MPC operational autonomy. It has statutory responsibility and therefore it can be held to be properly accountable. The role which the wider court and non-executives have is enormously important, but it must not duplicate or conflict with the role of the Monetary Policy Committee. I invite the noble Lord, Lord Mackay of Ardbrecknish, in the first instance to withdraw his amendment.

Lord Mackay of Ardbrecknish

I am grateful to the Minister for not making too much of the fact that I slightly misread this. I was a bit surprised myself when I read it and wondered why I had done it. I assume it is the new role in which I find myself as part of the Opposition. I need to make up amendments to Bills. I hope I do not get too used to it.

I wanted to explore the two-way relationship. I thought that the noble Lord, Lord Montague of Oxford, made some telling points about the relationship flowing in the other direction from the court, widely drawn, to the Monetary Policy Committee. We will have an interesting debate when we come later to the composition of the Monetary Policy Committee and whether it is entirely right that its members should all be drawn from the narrow circle of Oxford, Cambridge and London. That debate is still to come.

This debate has been useful. If I understand the Minister correctly, and I am sure I do, my amendment is not necessary because Clause 3 is governed by Clause 2, which makes it perfectly clear that the court, shall manage the Bank's affairs, other than the formulation of monetary policy". My slight concern is that when I went on to read Clause 3(2)(a), it looked as if it perhaps had a wider role. I will read with some interest what the noble Lord, Lord Montague of Oxford, said. I may return to it because I may decide that a belt and braces exercise is needed. However, I understand the point that the noble Lord made. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Mackay of Ardbrecknish moved Amendment No. 5: Page 2, line 25, leave out ("Chancellor of the Exchequer") and insert ("Governor").

The noble Lord said: Amendment No. 5 refers to Clause 3 and to the subsection which tells me that, The Chancellor of the Exchequer may designate one of the directors to chair the sub-committee". The question which I put down in the margin when I looked at the Bill initially was, "Why him?". One theme that has already run through the Committee is just how independent the Bank is; how independent the Monetary Policy Committee will be, and just how much control the Chancellor will really have.

I notice that this particular wording uses the word "may" and that, by implication, I take to mean that he may not. If he decides not to, how is the director who chairs the sub-committee to be chosen? I notice the use of the word "chair" but I shall use "chairman", as chair is what we are all sitting on, and I do not suppose this director will be sat upon by anybody—at least I hope he will not. If the Chancellor of the Exchequer decides not to designate, will the Governor then have to do it, or will the chair, so to speak, be left empty?

I am not sure why the Government used the word "may" and not "shall" here. If they really mean "may", why cannot they accept that the Governor will appoint the chairman or—even better—the court will appoint the chairman? The Governor may perhaps suggest to the court who might chair this sub-committee, but surely the Governor and the court can be trusted to pick one of the directors of the Bank to do that job. After all, they are all perfectly satisfactory people, otherwise one would hope that they would not have been appointed. The Minister keeps telling me that the Chancellor and everybody else will be careful about appointing people to these positions and that they will all be perfectly sensible. Therefore, why cannot he take his hands off this appointment and allow the Governor to appoint? In any case—do I read this correctly?—is it possible that the Chancellor may not appoint and that therefore the Governor will have to? I would be grateful for some clarification from the Minister. I beg to move.

Lord Peston

Before my noble friend replies, perhaps I can say that I wrote a question mark beside this when I first read the Bill because I was completely mystified by this sentence. I tried to reflect on anything I knew about management theory that would tell me that this sentence had any use whatsoever. I came to the conclusion that, if the sentence were not there at all. it would make no difference to the way this sub-committee would operate. I would take it for granted that if a sub-committee was set up, it would appoint its chairman. Then I thought, "We are New Labour; we are very clever; we must have some brilliant idea about the management of sub-committees". However, I could not come up with any idea myself at all. Therefore, I say to the Minister that I am looking forward to his answer as to why we have any need to tell a sub-committee who ought to appoint its chairman. That is my helpful in formation.

Lord McIntosh of Haringey

First, I have to be clear what I am answering. The noble Lord, Lord Mackay, put in another bravura performance in which he moved one amendment and spoke to two other amendments which he had not tabled. He moved an amendment which provides for the Governor to appoint the chair of the sub-committee of directors. He then spoke to an amendment which would have provided that the Governor, or the Chancellor, "shall" designate one of the directors—an amendment which he had not tabled—and then he spoke to a third amendment which is his idea that the court should appoint its own chairman. He must make up his mind which of the three alternatives to the Bill he wants to promote. I am restricted to the amendment he tabled.

Lord Mackay of Ardbrecknish

The Minister is giving me a "teach-in". It seems to me that all he is doing is suggesting ways in which I might have elongated the Committee proceedings by putting down three amendments. Indeed, I tabled the one about the Chancellor, and felt that I should throw in the "may" and "shall", I am sure the Minister can answer me. However, I will take his "teach-in" to heart.

Lord McIntosh of Haringey

Perhaps I may respond to that point. The noble Lord, Lord Mackay, as a Minister, used to do this all the time. It used to infuriate me when government Ministers would generally tell me that "may" really meant "shall", and I could never accept that from the Opposition Benches. Now the noble Lord, Lord Mackay, will have to accept it from the Opposition Benches.

However, the possibility of the Chancellor not designating a member has been raised and the question has to be answered. And the answer is that if he does not designate somebody as chairman, then the sub-committee of the court itself will have to make that designation, because Clause 3(7) says that the sub-committee shall be responsible for its own procedures. I hope this answers that question.

5.15 p.m.

Lord Boardman

Would the noble Lord answer the point of the noble Lord, Lord Peston, a point with which I am equally intrigued, as to why a sub-committee needs to have an outsider to appoint its chairman?

Lord McIntosh of Haringey

That is a more substantial point and I certainly will answer, as I intended. This comes back to the issue of corporate governance with which we were concerned on an earlier amendment. The noble Lord, Lord Mackay, and I both quoted the Hampel Report, and I would like to do so again, and also to quote the Cadbury Report. The Hampel Report said, we see a need for vigorously independent non-executive directors. These should be led by a director other than the chairman and the leader publicly identified in the annual report''. The Cadbury Code of Conduct says: The majority"— that is of non-executive directors— should be independent of management and free from any business or relationship which could materially interfere with the exercise of their independent judgment". The point here is that you cannot pursue the analogy with private business too far because there are no shareholders other than the Chancellor. The Chancellor is, on behalf of the people in this country, the shareholder in the Bank of England, and that is why it is appropriate that he should appoint the chairman of this non-executive committee.

Lord Boardman

The report does not say that the Chancellor, or anyone else, shall appoint the chairman. The implication is that the committee would, as indeed any committee, public or private, would appoint their own chairman in a circumstance such as this.

Lord McIntosh of Haringey

That is one possibility, but this brings me back to a point to which I failed to respond when the noble Lord, Lord Boardman, spoke on an earlier amendment. He was suggesting that somebody other than the Chancellor should appoint the members of the Monetary Policy Committee at that time. I wondered when he said it who else he thought should. If it is not the Chancellor acting on behalf of an elected government, who else should it be? The only realistic alternative is a self-perpetuating oligarchy of members of the Monetary Policy Committee, and I am glad to have the opportunity of getting in that dig which I failed to make on the earlier amendment.

The answer here is that it is perfectly possible for the non-executive directors, who are a sub-committee of the court, to appoint their own chairman if the Chancellor decided not to designate a chairman. I do not feel very strongly about the matter. The word "may" is there and allows for that possibility, but it also provides for the Chancellor to make a designation.

Lord Barnett

Before my noble friend sits down, what is coming through to me is how often committees like the Hampel Committee and the Cadbury Committee get it wrong. They often do, and have done so. I honestly cannot see it, and I have made the point; they do not need this sentence. If that sub-committee is set up of members of a named body, one of them will be chosen as a chairman. I can see now why our legislation is as long as it is, because we put in unnecessary sentences. What is the point of having the criticism of this? I am sure the noble Lord, Lord Mackay, would not mind deleting the whole sentence. Why is it in here? Perhaps he can tell us.

Lord McIntosh of Haringey

Let me reflect on all three of the amendments of the noble Lord, Lord Mackay, both the one he put down and the two that he did not put down but discussed. If there is anything to be said at a later stage I will come back.

Lord Stewartby

I hope I "may" raise a question with the noble Lord, because I "shall". In reading this clause and looking at the composition of this committee, right at the top it says that this sub-committee should consist of the directors of the Bank, which is presumably all the directors, both executive and non-executive, although the root of the clause refers only to non-executive directors. I have looked elsewhere in the document and have been unable to find where it is stated that this is a sub-committee which is meant to be of non-executive directors, but I assume that it is pointless if it is a committee of the whole board.

Lord McIntosh of Haringey

No, my Lords, Clause 1(2) states that the court consists of a governor, two deputy governors and 16 directors of the Bank; in other words, the executive committee of directors excludes the Governor and two deputy governors.

Lord Stewartby

I read the same words as the noble Lord. The Governor and the two deputy governors are directors. Are they not directors? Clause 1(1) says: There shall continue to be a court of directors of the Bank", and Clause 1(2) that: The court shall consist of a Governor, 2 Deputy Governors and 16 directors". That seems to me to make it clear that they are directors of the Bank.

Lord McIntosh of Haringey

No. there are three groups which are mutually exclusive: there is one Governor, two deputy governors and 16 directors.

Lord Stewartby

Will the noble Lord look at this at leisure? It seems to me that if one says that there should be a court of directors of the Bank and the court consists of different categories which include the Governor and the two deputy governors, I do not see how they can fail to be directors.

Lord McIntosh of Haringey

Schedule 1, paragraph 5(2), states on page 18: A person is disqualified for appointment as director of the Bank if he is a servant of the Bank". The Governor and two deputy governors are servants of the Bank.

Lord Stewartby

I thank the noble Lord for that explanation, but in that case it casts doubt on the wording of Clause 1(2). May I suggest that he has another look at that because I believe that it conveys the opposite meaning?

Lord McIntosh of Haringey

I am always willing to have another look at things, but it does not cast doubt.

Lord Mackay of Ardbrecknish

For all that I put the wrong amendment down, or I should have put three amendments down, we have had quite an interesting little chat. I should have remembered the rule that if one is putting down amendments, every time one sees "may" one should put "shall" and every time one sees "shall" one should put "may", but I forgot about that; I was attempting to get to the heart of the matter rather than to put down all the amendments. I well remember the noble Lord and his noble friends putting down amendments to irritate me, as he said; perhaps I should be trying to irritate him!

May I say to the noble Lord that I see what he is saying: the 16 directors are, as explained in Clause 1(2), the non-executive members referred to in the margins of Clause 3, In truth, one has to work quite hard to come to that conclusion and perhaps the noble Lord could look at that.

I am grateful to the noble Lord for saying that he will look at the whole debate we have just had. The amendment of the noble Lord, Lord Barnett, went a little further than mine. I indicated that I thought that the Governor could designate the chairman of the sub-committee, but I can see the argument for going one step further and mentioning the non-executive directors—which is what we are talking about, and they were all appointed by the Chancellor, so I cannot believe any of them will be that unsound as to be not fit to be chairman of this sub-committee. There is merit in the noble Lord having a look at this and I am grateful to him for that. With that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 3 agreed to.

Clause 4 [Annual report by the Bank]:

Lord Peston moved Amendment No. 6: Page 3, line 1, at end insert— ("(ia) the Bank's objectives and strategy as determined by the court under section 2(2),").

The noble Lord said: Although Amendment No. 6 is an amendment to Clause 4. in my attempts to understand Clause 2(2) I wrote in the margin where it refers to the Bank's objectives—this is other than the Monetary Policy Committee—"what objectives?", and therefore what strategy? I was completely mystified by what the court was actually up to.

It then seemed that a more sensible way to amend the Bill would be to add the wording that my noble friend and I have put into Clause 4. What we are anxious to do is to discover what the Bill has in mind by way of those objectives, what is meant by strategy, and then to do it in the way that says that the court will say, "These are our objectives. This is what we are trying to do under this general heading. This is our strategy". In due course it will then say, "These were our objectives. This is what we were trying to do, this is how we were trying to do it and these were the outcomes". I hope my noble friend will respond sympathetically to this amendment. It does not change in any way the nature of this prospective legislation. It seems to be an example of what the Committee should be doing, which is to clarify the Bill and make it achieve what I assume the Government were hoping it would achieve. I beg to move.

Lord Mackay of Ardbrecknish

Like the noble Lord, Lord Peston, I wrote in the margin of Clause 3(2)(a) "What are these?" beside "objectives and strategy". I shall be very interested to hear the Minister's explanation in response to the amendment of the noble Lord, Lord Peston, which would require the Bank to spell out its objectives and strategy in its annual report. I presume, because we have just had the debate, that monetary policy will not come into that at all. So what are these objectives and what is the strategy?

Lord Montague of Oxford

All our minds have been working along similar lines. I telephoned the Bank to ask whether it was a fact that it possessed a mission statement, and it told me it did. I asked whether I could have a copy of it, but they said they were sorry but they could not make the mission statement public.

Lord McIntosh of Haringey

I was congratulating myself on the fact that the Bill contained nothing like a mission statement—a particularly objectionable piece of management jargon, as far as I am concerned, and one to which I have objected for many years. I am sorry that they have a mission statement, and I am sorry they did not give my noble friend a copy of it. However, if he looks at the annual report of the Bank, of which I have pages 10 to 15 in front of me, he will see that this covers the Bank's core purposes, which sounds rather close to a mission statement to me, although it takes up a whole page. The report sets out the Bank's strategy, including monetary stability, monetary analysis, monetary operations, banking activities, financial stability, supervision and surveillance, financial structure, other areas, finance and personnel, and implementation. That is quite thorough. It sets forth the Bank's core purposes and strategy for the forthcoming year.

My noble friend's amendment would provide a statement of the objectives and strategy for the previous year, the year which is being reported on. I am not sure whether that is all he wants. I suspect he wants a statement which covers both years in comparable terms, which would seem the sensible way to proceed. It would be best if I say to him and to my noble friend Lord Barnett that we will take their amendments away, consider them, and come back at Report stage with suitable wording which would cover the point which I understand lies behind Amendments Nos. 6 and 7.

Lord Barnett

Before my noble friend sits down, I wonder, when we come to Report stage, whether he will be able to obtain a copy of this mission statement. If it is different from what he has read out to us, I am sure the Committee would love to hear it. If there is a mission statement which my noble friend Lord Montague was refused sight of, then the Committee and the House should ask for it. I hope my noble friend will do so.

Lord McIntosh of Haringey

I suppose I will have to, yes.

Lord Peston

I thank my noble friend for his positive answer. I am somewhat torn. We are not making very rapid progress. I would like to debate with him whether "mission statement" is worse than "core objectives"—I find both equally loathsome. Equally horrible is the word "chair" instead of "chairman", which I regard as the worst solecism of all, and which I never use. I thank my noble friend, and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No.7 not moved.]

5.30 p.m.

Lord Mackay of Ardbrecknish moved Amendment No. 8: Page 3, line 12, at end insert ("and make a statement to Parliament on the contents of the report").

The noble Lord said: In moving Amendment No. 8 I shall be brief as it is pretty self-explanatory. The Bill as it stands says: The Chancellor of the Exchequer shall lay copies of every report under this section before Parliament". That, of course, can mean there may be a debate, if arrangements are made, or there may not. I have added the words, and make a statement to Parliament on the contents of the report", to take this one step forward, so that it is not just a matter of laying the report before Parliament. This could be a very important document, especially if we discover what the mission statement is, and this amendment could give both Houses the opportunity to discuss serious issues relating to the Bank. However, the problem, as I see it, is that laying copies before Parliament does not necessarily mean that there will be any kind of question and answer or debate, which is why I put in the words I have proposed. I shall be interested to hear what the Minister has to say. I beg to move.

Lord McIntosh of Haringey

I hope we can do better than that. The Chancellor said on 20th May last year that he would arrange for a debate in the Commons on the Bank's annual report. If I may speak to myself as a "usual channel", I shall encourage myself to see that a comparable debate is arranged in this House. The noble Lord will agree that a debate would be much better than a statement. A statement is a very limited thing which provides only for questions from principal Opposition spokesmen and then 20 minutes of Back-Bench contributions. We would much prefer to have a full debate and that is the intention.

Lord Mackay of Ardbrecknish

I am delighted to hear that. I thought, when I was preparing this this morning, that I had asked for the wrong thing; I should have asked for a debate. But I am delighted to hear that the Chancellor has given that indication to the other place, and that the Minister appreciates that this House would also like that opportunity. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 4 agreed to.

Clause 5 agreed to.

Clause 6 [Cash ratio deposits]:

The Earl of Home moved Amendment No. 9: Page 3, line 25, after ("with") insert (", and the payment of fees in lieu of such deposits to.").

The noble Earl said: As we are now moving on to the financial arrangements and the payment of fees, perhaps it is appropriate that I should again declare an interest in that I am a director of a merchant bank, Morgan Grenfell. It is a British registered merchant bank and ultimately owned by the German Deutsche Bank.

Amendment No. 9 is prompted by a remark made by the Chief Secretary for the Treasury in Committee in another place, when he said: We considered all the options—fees and charges—and came to the view that the cash ratio deposit system had worked quite well in the past and we are now putting it on a statutory basis". That may well be, but the Bill more than halves the reasons for having them at all. The new look Bank will be so different from its former self that I seriously wonder whether CRDs are as appropriate as they were previously.

I wonder, therefore, whether the Minister can tell us why the Chief Secretary discarded fees and charges as an option, particularly at a time when there is a plethora of financial and other institutions which will escape paying anything towards the work of the Bank. Fees and charges seem to me to be becoming ever more appropriate as CRDs become less appropriate, just at a time when CRDs are being put on the statute book for the first time.

I also believe that fees would give the Bank and the relevant institution much greater flexibility. There are institutions, for instance, which have a very small deposit base but a very large asset management business. The imposition of this scheme may put considerable strain on the banking book of an institution such as the one I describe, whereas the asset management side of the business could absorb equivalent costs comparatively easily. Indeed, there are all sorts of other types of institution which could be affected by the Bill.

I apologise to noble Lords, as I should have said at the beginning that I was also speaking to Amendment No. 14. Some of the institutions which could justifiably be involved are spelled out in Amendment No. 14. Other institutions may specialise in mergers, securitisation, insurance or leasing. There are many types. To carry out some of these specialisations, for prudential reasons the institutions will keep an appropriate level of capital, reserves and liquidity. From this, noble Lords will see that there are potential wide divergencies in the type of the eligible liability base of different institutions.

Paragraph 2 of Schedule 2 is misleading as it now reads. It refers to the aggregate of sterling and foreign currency liabilities. However paragraph 19 of the consultation paper on cash ratio deposits tells us that foreign currency liabilities are only foreign currency liabilities which back sterling assets. Not everything is quite as simple as it seems, and this is only one example of how very different the banks and financial institutions' balance sheets may turn out to be and how very different their eligible base may be.

The amendment is designed to give the Government and the Bank more flexibility in the way the Bank is funded, and as such I hope that the Government will take it seriously. To discard fees as an option, at least at this stage, would be extremely restrictive. I beg to move.

Lord Stewartby

May I add a word in support of my noble friend Lord Home? I repeat the declaration of interest as a director of a bank and a building society which I made on Second Reading. I am also a director of one or two other companies which might be required to pay if these amendments were agreed.

The point I want to make is that when cash ratio deposits were introduced, a very substantial part of the work of the Bank of England was in the supervision of deposit-taking institutions. Therefore, the requirement for such institutions to provide the bulk of the funding of the Bank was evident. However, now that the supervision is due to be transferred away from the Bank of England, the residual functions of the Bank of England which will remain are not nearly so closely focused in aggregate on the deposit-taking institutions as they were before, and there is a case for looking at spreading this charge more widely.

My only concern about this is how it could be defined in detail and made workable. You would have to have a de minimis exemption; otherwise under the wording of Amendment No. 14, for example, which states, any institution authorised for the purposes of the Financial Services Act 1986". it could cover a large number of bodies and it might not be practicable. Certainly, within the City of London there are many institutions which gain from the work of the Bank of England in the international market place in relation to sterling and other international matters. They will receive the services of the Bank for nothing, and the deposit-taking sector will be paying separately to the Financial Services Authority, but will also be left carrying the whole weight of the Bank of England in its revised form.

I believe there is merit behind the amendment of my noble friend Lord Home, although its actual implementation may require some further refinement.

Lord McIntosh of Haringey

The noble Earl, Lord Home, in moving the amendment asks the Government to take it seriously. I can assure him that we do. Let me set out the basis on which we have approached this problem and the rationale for our views on currency ratio deposits.

The CRD scheme is important because it puts this source of funding for the Bank on a statutory basis for the first time, and makes the income secure. The current voluntary scheme applies only to banks authorised in the UK, and UK branches of European authorised institutions. The proposed statutory scheme will apply also to building societies, which have acquired many of the characteristics of banks in recent years. What distinguishes banks and building societies from other groups of financial institutions is that they typically borrow short and lend long—their balance sheets contain loans and other assets of long maturity and deposit liabilities, many of which can be called on at short (or no) notice. Other financial institutions, including securities firms and insurance companies, typically match the maturity of their assets and liabilities much more closely.

The amendment would widen the population of institutions that fund the Bank to include all institutions that are authorised under the Financial Services Act of 1986 and also insurance companies. Those are the ones which I described as matching the maturity of their assets and liabilities more closely.

It is appropriate for hanks and building societies to place CRDs to provide income to the Bank, because they clearly benefit from the Bank's function as a provider of liquidity to the financial system. Only a few banks have accounts at the Bank of England to settle obligations with each other. But the other deposit-taking institutions manage their liquidity through deposits and credit facilities with the settlement banks, which in turn ultimately depend on their access to liquidity from the central bank. This in effect ensures deposit-taking institutions against the risk they run from having liabilities at call but assets that are less liquid.

Therefore there is a clear dividing line between deposit-taking institutions which depend on access to central hank liquidity and other financial institutions which do not. When the noble Earl recommends a system of fees and charges which would widen the base, he forgets the fact that it is a very common central banking arrangement in many countries that cash-ratio deposits or their equivalent should be used as a way of approximating the benefit of liquidity. For those reasons we cannot support this amendment.

Lord Peston

Before my noble friend sits down, he raises an interesting piece of technical financial economics. Can my noble friend tell us whether there have been any studies done in the Bank which relate the benefits of the lender of last resort function and the availability of liquidity, to the loss of interest via cash-ratio deposits? If there have been any such studies I have never seen them published. I have always assumed that the Bank has an extraordinarily good deal in terms of cash-ratio deposits, and I would always advise, if asked, "Do not to go down the path of fees or anything like that: you will end up a good deal poorer than you are". I wonder whether he has additional information? In saying that, I support exactly what my noble friend said.

Lord McIntosh of Haringey

No, not off the cuff; but if there is anything of any value I shall write to my noble friend.

The Earl of Home

I thank the Minister for that response and should like to make just a couple of comments. Indeed, I have read much of what he said in his remarks in the consultation document issued last November, but the fact is that the Bank of England, which we still cannot call the Bank of the United Kingdom, whilst a provider of liquidity to part of the system, is certainly not a member of last resort to any member of the banking system. The bank is under no obligation, legal or otherwise, to bail out any hank which might happen to have a temporary financial liquidity problem.

I have some sympathy for the comment of the noble Lord, Lord Peston, on this, and perhaps we can have it more appropriately answered under Amendment No. 10 which we will come on to in a minute. The noble Lord said that he would take this seriously. I am not saying here that I am substituting a fee and charging basis for cash ratio deposits; I am merely suggesting that the Government should add this as an extra element of flexibility. However, in the hope that the Government will look at that side, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 6 agreed to.

Schedule 2 [Cash ratio deposits]:

The Earl of Home moved Amendment No. 10: Page 20, line 2, at end insert—

("Preliminary

. The powers conferred by this Schedule shall be exercised only after the Government has explored other ways of financing the operations of the Bank.").

The noble Earl said: This amendment carries on from the other and is particularly designed to ask the Government—who obviously do not like the use of fees and charges—to consider whether they have really explored all other options open for funding the operations of the Bank.

As we were saying, with the departure of the supervisory function, the relevance of the Bank to banks and building societies in particular has dropped dramatically. The main extra (albeit probably temporary) activity of the Bank—that of setting interest rates—could in a perverse way work against the interests of banks. That is because banks, especially those with large treasury departments, have more opportunities to make money at a time of high volatility in interest rates than they do during periods of stability.

We heard a great deal during the passage of this Bill about the requirement that the Monetary Policy Committee should attach high priority to monetary and price stability. If, therefore, it does its job properly, the effect would act against the interests of those institutions. Paradoxically, it may be a good reason for putting the CRDs on to a statutory basis, as building societies and banks may not now be such enthusiastic payers, perhaps, as they were.

I said also in relation to the last amendment that the Bank does not have to be a lender of last resort, which I believe to be another reason why the banks will now be less interested and reaction to the Bank somewhat less relevant to the banking system than before. Can the noble Lord tell the Committee whether the Government really did explore the other ways and suggestions for funding this part of the Bank's exposure? Those were, I gather, put forward as a result of the consultation paper. One suggestion was based on turnover; other criteria for companies such as insurance companies or fund managers could be related to funds under management. For market makers and brokers, numbers of transactions might possibly be relevant criteria.

The Government seem to have rejected those and I would be grateful if the noble Lord could tell us whether they really did consider them and why they were rejected? I beg to move.

5.45 p.m.

Lord McIntosh of Haringey

The short answer to the question of the noble Earl is that we did. We explored other sources. He read the consultation documents. As usual, it is difficult to publish the responses to consultation documents because one is never sure whether or not the people who make them wish their comments to be published. However, if there is any way in which we can make more information available to him as a result of the consultation process, I shall certainly undertake to do so.

My answer to the previous amendment, which I would have preferred to have grouped with this one, indicates the careful consideration which has been given to alternative methods of funding, such as fees and charges. I should, however, remind the Committee that cash ratio deposits have been part of the framework for financing the Bank for a long time. The banks have accepted it on a voluntary basis and there is no indication that they are resisting the idea of continuing it on a statutory basis.

Let me also make clear that the Bank already has many other sources of income. That is not the only way in which the Bank is financed. It receives money from the Government for issuing banknotes, for managing the foreign exchange reserve and for providing gilt registration services. That is about £75 million in 1997–98. It receives money from private clients for banking and settlement services and income from its own reserves.

We should therefore put cash ratio deposits into context. The noble Earl is entitled to ask for as much as we can give him about the consideration which has been given to this issue, but my conclusion must be that we have explored others and that this seems to be the best solution. I would urge him to withdraw the amendment.

The Earl of Home

I am grateful to the Minister for saying that he will make such responses available to me as he can within the confines of confidentiality in the responses given to him. I hope that throughout the early years of the experience of the Bank funding under this new provision, the Bank, in conjunction with the Treasury, will continue to look very hard to see whether this really is the most appropriate way to fund part of the Bank's operations. We shall keep an open mind as to whether there are other systems which should be reconsidered or revisited as a possibility.

With those reassurances from the Minister that he has indeed looked at other options, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Earl of Home moved Amendment No. 11: Page 20, line 11, at end insert ("and (d) an institution authorised to accept deposits under any other Act.").

The noble Earl said: Having previously spoken about cash ratio deposits, or the theory of them, it now seems that they are here to stay and will indeed be enshrined in the law. It seems to me to be only fair that we should explore whether paragraph I of Schedule 2 covers the right group of institutions. Paragraph 1 specifically categorises three types while paragraph 2 says that the Treasury may add anyone else it feels like. It seems to me that the first is too restrictive and the second is rather too wide.

If we look at those covered by paragraph 1 of Schedule 2, I do not believe that it is right to say that just because a hank or a building society takes a lot of deposits it will necessarily benefit from the actions of the Bank as envisaged, any more than any other institution. Any company will use the money markets if it has excess cash, and obviously anybody with liquid capital will make more money if rates are high. However, this does not apply exclusively to banks and building societies. They are certainly not unique in that they alone benefit from the Bank's provision of liquidity. Banks indeed must keep liquidity for other reasons, not least of which are prudential management reasons.

Another reason that I say that paragraph 1 is too restrictive is that through the increasing use of credit cards and other incentives, an increasing number of companies are offering credit and will often offer discounts on goods purchased if there is a credit balance on the customer's account. This credit is returnable if the customer closes his account. It is quite possible, if this proves popular, that it could become quite big business. Let us take supermarket chains as an example. In effect, they would be embarking on a type of banking service that would not necessarily come under the Banking Act 1987. While it may be necessary to regularise their activities by statute, it may not be desirable at that time to amend the Banking Act. A short new Bill may be a better way to achieve the objective.

That is just one example, but I am sure that other noble Lords can think of many others. Indeed, the Bill anticipates that there may be others by including sub-paragraph (2).

Returning to that clause, that itself may go too far the other way. If anyone accepts a deposit which is, in effect, an earnest of a good intent by a potential purchaser, in the way this Bill is drafted, that could then be caught up within sub-paragraph (1).

Taking that to an extreme, someone like a property developer could be caught in it if he accepts a deposit from a potential house owner but then has to return it, indeed plus interest. That is an extreme example and noble Lords may say it is going too far. But again, it is an example that it could go too far the other way.

It seems to me that an appropriate halfway house between these two extremes would be, if Parliament agreed that a deposit-taking activity should be regulated, that the institutions affected by an Act of Parliament should come under this clause. I beg to move.

Lord McIntosh of Haringey

I must confess that I am slightly puzzled by Amendment No. 11. I do not really know to which other Act of Parliament the noble Earl is referring, nor to what other institutions he is referring. With those difficulties, I find it difficult to respond.

I refer the noble Earl back to my quite lengthy answer to Amendment No. 9, in which I set out in some detail the reasons why we believe it is appropriate that institutions which benefit from the provision of liquidity from the central bank—and that is fundamentally banks and building societies—should be those who contribute to the financing of the Bank. I have not heard an answer to that case which I put forward in such a way that encourages me to give any support to the amendments that the noble Earl is now proposing.

The noble Earl's second amendment would remove the Treasury's power by order to amend the definition of eligible institutions. Let me make it clear that although, on the face of it, this is a Henry VIII power, we do not envisage using it at the moment. However, it is sensible to have this degree of flexibility in order to respond to possible future changes in market and institutional structure. Since any such orders would have to be approved by both Houses, there are sufficient safeguards in place on the exercise of this power. The Delegated Powers and Deregulation Committee has not raised any objection to the power proposed here.

On that basis, the initial designation of institutions is a matter of deliberate policy, and has been carried out after a full exploration of alternatives. The Bill provides in paragraph 1(2) of Schedule 2 for flexibility in relation to any future changes. I hope the noble Earl will withdraw his amendment.

Lord Stewartby

Before my noble friend rises, may I ask whether this would be by affirmative resolution, when the noble Lord, the Minister, says that this would have to be approved by both Houses?

Lord McIntosh of Haringey

I am grateful to be told that it is by affirmative resolution.

The Earl of Home

The Minister said he could not envisage what sort of institutions I was thinking of. Surely, the fact that sub-paragraph (2) refers to people or institutions, or institutions unknown at this moment, answers his own question. He is anticipating that there may be other institutions which, at some time in the future, it may be appropriate to regulate. I took a stab at a couple, one of which I thought was too restrictive, and the other which I thought was too wide, and gave two, albeit highly theoretical examples. Surely, if it is envisaged, as it is under Schedule 2, paragraph 1(2), that there may be other institutions which could appropriately be brought into this clause, then surely we should be able to define rather more precisely which institutions they might be.

Lord McIntosh of Haringey

I am grateful to the noble Earl for giving way. Yes, I should have responded to his specific examples, but I believe he will agree, on reflection, that what he was talking about were loans rather than deposits. There is no maturity transformation problem with just granting loans. Maturity transformation can he a problem if you borrow to lend, which is what banks and building societies are doing, and that is what CRDs attempt to evaluate.

The Earl of Home

I hear what the noble Lord has to say on this topic. I will now read his response carefully in Hansard. We may wish to return to this point at Report stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 12 not moved.]

6 p.m.

The Earl of Home moved Amendment No. 13: Page 20, line 45, at end insert— ("() The total burden of cash ratio deposits levied under this Schedule shall not exceed that part of the Bank's expenditure which deals with public goods.").

The noble Earl said: The purpose of Amendment No. 13 is to explore the current position as far as quantifying the costs of the Bank which will be funded through the cash ratio deposit scheme. The consultation paper, to which we have already referred, quotes from the Bank's 1997 annual report which gives pre-tax profits of £121 million and costs of resources of £210 million. It further states that the cost of banking supervision is roughly £50 million, including an overhead allowance. If this figure is deducted from the total costs, it would leave some £160 million to be funded. As the Minister was saying earlier, this comes from various sources: agency services, payments for direct banking services, its own capital and reserves apart from CRDs.

It is, however, difficult to extract precise figures from the way that the Bank's annual report is drafted, and perhaps in the spirit of transparency the Government could clarify these figures for us. Figures produced by the British Bankers' Association put the cost of public goods functions at £75.6 million, or 36 per cent., while the cost of supervision is estimated at £31.5 million, or 15 per cent. What of course we do not know at present is what the on-going cost of the Monetary Policy Committee, which we have spent some time debating today, and the infrastructural back-up related to that committee is going to be, and therefore whether this will have any effect on the percentages that I have quoted.

However, what does seem to be equitable is that the cash ratio deposit system should not have to fund any part of the banking or market services, or indeed banknote printing or registration services. Nor does it seem equitable that the profits of the Bank should come from this source either, given, as I have already said, that many other institutions will benefit from not having to make deposits of this nature.

The current rate of eligible deposits is 0.35 per cent., which is at least three times that required to cover the £75.6 million costs anticipated by the BBA. Given the anticipated increase in eligible liabilities anyway, further augmented by the advent of the building societies into the scheme, this rate could be reduced at least threefold, possibly down to 0.1 per cent. I would be grateful if the Minister could confirm that these figures are indeed approximately correct in their outcome, and it is the Government's intention to confine this scheme to the finance of the public group function. I beg to move.

Lord Peston

We are looking at Amendment No. 13 in which the expression "public goods" appears. I once wrote a book called Public Goods in the Public Sector. I wonder whether the noble Earl means the expression public goods to correspond to the technical definition of this as it appears in economics. If he does, am I to understand it is possible in the case of the Bank of England to quantify the extent to which it creates value in a public goods sense? He quoted some figures, but he was speaking so rapidly I could not keep up with him. I would be amazed if one could produce figures of that sort. I have no doubt that the Bank of England creates what we in economics call the public good, but I am somewhat taken aback that the noble Earl seemed to be saying that we could estimate that and therefore relate it to the Bank's income.

I would certainly like to know how the estimate takes place. I would like to know the provenance of that estimate, and I would like to be in a position to check it myself. If I ask what public good the Bank creates, I would wave my hands in the air and say, "A lot"—and certainly my guess would be a lot more than the Bank of England costs us. I was a bit taken aback by that expression, but it may well be that the noble Earl is using the words "public goods" in a completely different sense from that in which we use it in academic economics.

The Earl of Home

Perhaps I may clarify that point. I am quoting from the British Bankers' Association response to the consultative paper. Talking about the public good functions of the Bank as a percentage of resources, it refers to monetary analysis/policy at 6 per cent., monetary statistics 2 per cent., monetary operations 5 per cent., financial stability/structure 4 per cent., Centre for Central Banking 1 per cent., central overhead costs, including personnel, finance, audit and secretaries' department, 18 per cent. This adds up to a total of 36 per cent., which in turn equates to £75.6 million.

Lord Peston

If the noble Earl will forgive me, as I am as anxious as anybody to get a move on, I am still not clear of what that 36 per cent. is a percentage. The numbers just astonish me in terms of the relevant body's ability to do them, but I suppose the answer is that, with any luck, if they read in our Hansard our small debate here, they might send me their documentation so that I can persuade myself that it was meaningful. I have no idea what my noble friend is about to say, but my strong advice is not to fall into the trap of assuming that those figures have any weight at this moment.

Lord McIntosh of Haringey

I take my noble friend's warnings very seriously. In so far as the figures quoted come from the Bank of England annual report. I can confirm them. In so far as they come from calculations by the British Bankers' Association in its response, I will be considerably more cautious and leave it to my noble friend and the noble Earl to puzzle over.

I can be a little less negative to the noble Earl than I was on previous amendments. The starting point must be that the Government have decided that deposit-taking institutions should continue to contribute to financing the Bank because of the benefits they get from access to central bank liquidity. But government are also mindful of the need to minimise the burden on these institutions. That is why we said explicitly that taking into account also the charges that the FSA intends to levy for banking supervision, it intends that. the total burden on credit institutions in aggregate should be no greater than it is today, and preferably lower". As to whether the burden from CRD should be limited to certain of the Bank's functions, we take that point seriously too, again with the warnings that my noble friend Lord Peston has given. We have received a number of representations asking for a clear link between the CRD rate and the Bank's expenditure on its monetary policy and financial stability functions. The Government are still considering the responses to the consultation process, but we are looking sympathetically at this approach and see advantages in terms of transparency and accountability, and we hope to announce our conclusions on the CRD consultation soon.

Also, since the order setting the CRD bands and ratios will be subject to affirmative resolution by both Houses, your Lordships will have an opportunity of reviewing the Government's proposals in detail.

As to the issue of what the CRD scheme will raise, in a response to the consultation the Treasury will set out fully the rationale for the level set and the transparency of the Bank's costs.

In the light of those assurances, I hope that the noble Earl, Lord Home, will feel it possible to withdraw his amendment.

The Earl of Home

I am most grateful to the Minister for his assurances. Perhaps the Government can be as transparent and produce all the figures from the Bank of England in words of one syllable that I can understand: possibly the noble Lord, Lord Peston, will be able to understand them if they are in words of two syllables. I should certainly welcome clarification, as I am sure would the various associations which have been struggling with these figures.

Perhaps I may make one last point in relation to that. I am grateful that these figures will be published and I urge that they be made clear as soon as possible. We always face the possibility of institutions looking to invest in Europe with London being one of the centres. We do not want, through uncertainty, to put off any potential foreign investors. The quicker that clarity can be achieved, the better. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 14 not moved].

Schedule 2 agreed to.

Clause 7 [Accounts]:

The Earl of Home moved Amendment No. 15: Page 3, line 35, after ("may") insert (", with the permission of the Treasury,").

The noble Earl said: This is a small point, but it is quite an important one on timing.

As currently drafted, the Bank has the ability to refuse to put something into its accounts which auditors might require of it. I have no particular quarrel with that in that the Bank might well feel that it is in the national interest not to disclose something, and it may well be right.

However, potentially it leaves the Bank's auditors in an invidious position. The auditors may not be in a position to judge whether or not the Bank is right, but at present they have no way of checking that. All they can do is refuse to either sign the accounts or qualify their opinion. All noble Lords will agree that neither of those options is satisfactory. If, however, the auditors knew that the Bank had received Treasury permission not to include something, that would give them a lot of assurance and they could then sign off the accounts with a clear conscience.

The possibility of the Bank being incorrect in refusing to publish some information is potentially anticipated by Clause 7(7). Under that subsection, the Treasury may require the Bank to publish the information that it excluded. Members of the Committee will note that the wording is "has excluded" and not "proposing to exclude". That subsection may be intended to cover the eventuality when it is inappropriate for the Bank to disclose information immediately but its publication may be desirable later. I believe that that subsection could be read either way.

The main point of the amendment is for the benefit of the auditors, of which I hasten to add I am not one. On that basis, I beg to move.

Lord Stewartby

Perhaps I may add a word of support to my noble friend Lord Home. This is quite an important point, though it is described by him as a small one. A unilateral decision by the Bank to disregard a Companies Act requirement is not something which the Bank—either alone without its auditors or without any other party in the public sector—ought to undertake. I do not know whether it is intended, but if the Bank disregards a requirement, it has to say that it is disregarding the Bank's requirement, just as public companies have to say whether they are disregarding elements of the Cadbury rules, for example, which are not imposed by statute but by Stock Exchange requirements.

As my noble friend Lord Home pointed out, if the Treasury requires the Bank to produce such information, or comment on it at a later stage, it would be more embarrassing for the process to happen in that order. It would be better for it to have been thought through in discussions between the two before it reached that point. I hope the Minister will be receptive to that fact.

Lord McIntosh of Haringey

I am certainly receptive to the idea that, as far as possible, the Bank should keep to Companies Act requirements. That is the objective of Clause 7 and is expressed clearly. It is, however, not always possible. It is really a matter of timing, which is what this amendment comes down to.

Under the Bill as drafted the Bank can, in subsection (4), disregard a requirement to which it is subject under subsection (3). Under subsection (7), as the noble Earl rightly pointed out, the Treasury can require it to provide information which has been excluded. The requirement, therefore, comes after the exclusion, whereas the amendment of the noble Earl would require that the permission of the Treasury should be obtained before the requirement is disregarded.

The point about this is a matter of timing. Although the Bank tries to keep to the Companies Act, it cannot give full disclosure because of the continuing need to keep certain support operations secret, if only for a short period of time. We must therefore have the let-out that it can exclude certain material but we provide, in subsection (7), the provision that it can ultimately be released in accordance with the Companies Act.

The noble Earl raised the question of whether this was a problem for the auditors, to which the answer is, "No, it is not-. It is essentially what the Bank does at the moment. Note 1 to the Bank account spells out departures from the Companies Act requirements and the auditors currently sign off the accounts on that basis.

And on that basis, I invite the noble Earl to withdraw his amendment.

6.15 p.m.

Lord Stewartby

Before my noble friend withdraws his amendment, if that is what he is going to do, I should like to refer to the point about timing. It may not have quite the weight given to it by the noble Lord, Lord McIntosh. The account will be in retrospect for an elapsed period and companies regularly have to have discussions with auditors about the disclosures in their accounts. Although there are certain matters in principle, such as those operations described by the noble Lord which it is perfectly proper that they should not spell out, that will be something already known because it will relate to a past period.

My view remains that, although the Bank should have the ability to disregard the requirement, under appropriate circumstances—I do not question that point at all—it remains somewhat doubtful whether there is this great constraint of timing. When I was in the Treasury, important decisions could be made quickly when necessary. It would surely be possible in such a case.

Lord McIntosh of Haringey

I have already responded to the point about auditors, which appeared to be the main concern of the noble Earl. However, if the noble Lord, Lord Stewartby, is concerned with support operations, I have to advise him that some could be sensitive for a number of years. The Bank does disclose them when they cease to be sensitive, which may be later rather than sooner. It is not a question of how quickly the Treasury can respond, but rather of when it is appropriate to do so.

Lord Stewartby

I understand that totally and do not wish to prolong this debate unduly. The amendment says, with the permission of the Treasury". If support operations are, for example, a category where that is appropriate, it is quite reasonable for the Treasury to have discussed it with the Bank and agreed that that area need not be disclosed. Clause (7)(5) clearly could go very wide. It could raise issues, unlike support operations, which are not routine—or not relatively routine—and which therefore it would be better to resolve at the time rather than in retrospect.

Lord McIntosh of Haringey

I do not think so. The wide drafting of subsection (7) is deliberate because it is concerned with other matters than those which are referred to in subsection (4).

The Earl of Home

While it is certainly true to say that the main thrust of my concern was in relation to the auditing point, I hope that the Bank will bear in mind that it could actually be abusing potential powers if it refused to publish something that in the normal course of events would be required either in the public interest or by auditors.

For the time being, we have been round this course enough and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 7 agreed to.

Clauses 8 to 10 agreed to.

Clause 11 [Objectives]:

Lord Mackay of Ardbrecknish moved Amendment No. 16: Page 5, line 15, leave out ("subject to that,").

The noble Lord said: We now move on to Part II of the Bill which is the part relating to the Monetary Policy Committee, about which I believe we shall have some interesting debates. When I first looked at Clause 11 I was minded to put down an amendment to delete subsection (b). But then I thought I would be accused of wanting an independent central bank and all sorts of suspicions might then have come to the surface about whether I agreed with my party's policy on the euro or whatever. Therefore I decided that that was not the way to explore exactly how the clause hangs together. I am glad that I did not because I am flattered to see that the noble Lords, Lord Peston and Lord Barnett, have added their names.

I then decided to try to explore what the clause actually means by removing the words "subject to that". There was some discussion in the other place about "subject to that- and there will be some discussion here because, as I shall explain, I do not believe that the Committee stage in the other place finished with everybody entirely convinced about exactly what "subject to that" meant. I believe I know what it means: it means this.

The Monetary Policy Committee can support the economic policy of Her Majesty's Government, including their objectives for growth and employment, so long as that support does not conflict with maintaining price stability. That is what I interpret "subject to that" to mean in this category.

Whatever the consequences for the Government's economic policy, for growth, for employment or the exchange rate—and we will come to that later—it does not matter. The main objective of the Bank is to maintain price stability. If, as is now happening in Scotland, unemployment starts to rise as a result of increasing interest rates, as far as the Monetary Policy Committee is concerned, so be it. That is an unfortunate consequence, but the principal objective, if I may call it that, is to maintain price stability. And if growth begins to fall away and even cease altogether. again as long as price stability has been maintained that lack of growth will just have to be an unfortunate consequence.

At Second Reading, I quoted from Mr. Robert Chote's writings in a Social Market Foundation pamphlet. He said: One danger is that the economy will suffer if the Bank uses its interest 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 rate, excessive Government borrowing and an over-valued pound".

I suppose I might be told that excessive government borrowing does not happen at the moment, but one could argue that we have high interest rates and we certainly have a high, if not overvalued, exchange rate. So there is a potential for conflict, which nobody denied at Second Reading, between subsection (a)—maintaining price stability—and subsection (b)—supporting the Government's economic policy, including their objectives for growth and employment.

I drew attention to the fact that one of the members of the other place, Diane Abbott. made the point very strongly, I believe, when she said that the Government were handing over one of the most important levers of economic power to an unelected quango. That is certainly true. There is no doubt about that. I equally pointed out—and this was in advance of the unemployment figures in Scotland showing the first upward turn for many months—that Mr John McAllion, in a comment he made, pointed to the Bank of England raising interest rates five times since the Government gave it control over monetary policy. He said: There is a macro-economic policy being pursued by the Government and the Bank of England which seeks to slow down the economy and that is the problem. He was discussing it in relation to unemployed young people and about welfare-to-work. It was suggesting that a possible slow-down in the economy and economic growth may mean that the Government's New Deal for the young unemployed will not in fact come about because of policies being pursued by the Bank in order to maintain price stability.

I have a suspicion—I hope the Minister will put me right on this because I hate to be suspicious—that subsection (b) is in here subject to that, and that is the qualification, as a bit of a sop to the Government's own supporters, not only in the House of Commons hut perhaps in your Lordships' House, and certainly in the country. If the Government's case is that an independent central bank, pursuing objectives of price stability, is likely to have a better record than governments have had pursuing that policy, then why do we have subsection (b) in at all, subject to that or not subject to that?

The noble Lord will probably point to Germany, where the central hank indeed has a good record of success, but there is a chicken-and-egg situation in Germany. The German experience of hyper-inflation has led them to fear inflation much more than do most people in this country. Indeed, one of the more disturbing things is to meet intelligent people who say that a little hit of inflation would do us some good. It seems to me that economic history suggests that that is a pretty fallacious argument.

One wonders about Germany, for example, if it is the Bundesbank and the independence of the central bank which has caused the low inflation, or if in fact they have been able to ride piggy-back, so to speak, on the deep dislike of inflation which has been burned into the German soul because of the experience they have had. It seems to me that all these problems come together in looking at this clause. If the Monetary Policy Committee looks at subsection (b), and at growth and employment, and says, "My goodness me, we are not actually fulfilling the Government's objectives"—I presume the Government's objectives (every government's objective) is to reduce unemployment, get more employment and to get growth, though some succeed better than others at times—"We had better do something about it", to what extent can it do something about it? If it conflicts with subsection (a) "to maintain price stability", my reading of this is that it cannot do anything about it at all.

Indeed, I believe I quoted the noble Lord, Lord Eatwell, because the monetary policy of the Bank will have a number of economists on it. One could reasonably say they are all economists currently on the Monetary Policy Committee of the Bank. As the noble Lord, Lord Eatwell, said in his evidence to the Treasury Select Committee: One group of theorists believe that there is no particular medium-term relationship between the level of unemployment and the rate of inflation. Another group believes that the key relationship runs from the level of unemployment to the rate of inflation, and from this group monetary policy is a means of controlling the level of output and so controlling inflation". I am not an economist and I am looking forward to some of the other contributions, but with some division in the world of economists as to which of these things gives rise to the other, I am a little worried about the "subject to that" being in there. If it means what I think it means, I am pretty clear that maintaining price stability will be the principal objective of the Bank. On Second Reading of the Bill in the other place on 11th November there was an interesting exchange on this very subject between Mr. Alistair Darling, the Chief Secretary and Mr. Wigley, the Member for Caernarfon, who intervened and said: 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 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". The Chief Secretary replied: The right hon. Gentleman is mistaken. Clause 11 shows that the Government's objectives are high levels of growth and employment". Mr. Wigley said: The Bill says, 'subject to that"'. The Chief Secretary replied: The right hon. Gentleman is reading it the wrong way round".—[Official Report, Commons. 11/11/97; col. 712.]

The question is, and this is really what I have come to, whether he is reading it the wrong way round. If he is reading it the wrong way round, then it should be written the other way round. It should say, "The objectives of the Bank of England shall be to support the economic policy of Her Majesty's Government, including their objectives for growth and employment, and, subject to that, to maintain price stability".

I am confused. When that was raised in Committee, I have to say that Mrs. Liddell did not do any better than Mr. Darling at explaining what it is. If these two good Scots could not explain it simply enough for me to understand, I am conceited enough to think there is something of a problem. I know how I read that. I read that to mean that if I were a member of the Monetary Policy Committee, my top line and bottom line objectives would be to maintain price stability. The other two objectives, and any others, would be secondary. I am sure that the noble Lords, Lord Peston and Lord Barnett, will try to tease out similar points, perhaps in a more economic-minded way than I have done.

I should just like some kind of explanation from the Minister, to clarify what I think was the confusion left, at least in my mind, and also in the minds of many Members of the other place, on the subject of what exactly Clause 11 means and how I should read it if I were a member of the Monetary Policy Committee. I beg to move.

6.30 p.m.

Lord Barnett

Unlike the noble Lord, Lord Mackay, I do not want to tease my noble friend. I know the noble Lord loves to do that, but I am not that bothered. He said he was flattered that my noble friend Lord Peston and I had added our names to his amendment. I should tell the noble Lord that I do not know who thought about it first, but he got there first. For similar, although not entirely the same, reasons, we reached the conclusion that the deletion of those words from the Bill would make some sense. The noble Lord said that he did not want to delete the whole thing, because it might conflict with his party's policy. I should make it clear at the Outset that I very much want to conflict with the policy of the noble Lord's party, and that of some of his noble friends and right honourable and honourable friends in another place. I am sure I speak also for my noble friend when I say that.

I will say something about the European Central Bank in a moment, but I am sorry that the noble Lord did not want to upset some of his friends. I am sure he would like to but, for some reason, he does not want to put it on record that he disagrees with them. I cannot imagine why, because it will be a long time before he will have any opportunity to get back into government. He could have expressed some conflict with his Front Bench in another place, and I am sorry he did not.

Let us come to the amendment. The amendment makes a great deal of sense, which is why my noble friend and I put our names to the amendment, although the noble Lord got there first. We would have put the amendment down ourselves if we had been as swift of foot as he was. However, we do not have a huge volume of support to enable us to read the Bill and decide what kind of amendments to put down.

The noble Lord says he is not an economist, and I understand that. In his words he does not want to be in conflict with his own party. He assumed that under the Bill as it stood, and he is quite right in my view, price stability—that is, inflation—takes priority. It is quite clear to me, and I believe I referred to it in the House the other day.

Clause 11(b) states that, subject to that". that is, price stability, the objectives shall be, to support the economic policy of Her Majesty's Government". If it is subject to that, unless my noble friend can give me some better interpretation, I do not mind agreeing with the noble Lord, Lord Mackay. He is right about that. What else can it mean? If you are instructing the Bank and the Monetary Policy Committee to support only the Government's economic policy, subject to maintaining price stability, that is what it means. I do not know what those words mean if they do not mean that. If they do not mean that, then I assume that my noble friend can accept the amendment without any problem.

It seems such a simple little amendment hut it is rather important. I am delighted that the Official Opposition have tabled such an amendment. I do not know whether the noble Lord took advice from some of his right honourable friends in another place. I assume he did, because he would not do anything to be in conflict with them. Therefore, they agree with this amendment and the attainment of Her Majesty's Government's objectives for growth and employment. That takes us to a later amendment. I assume that the noble Lord and his Shadow Cabinet, long may it so remain, agree with this amendment. I believe my noble friend and I were rather surprised at that. When we went into the Public Bill Office, we did not expect that the noble Lord would already have put down such an amendment. However, he has, and I was delighted.

In my view the Bank would take account of the government's economic policy with or without this amendment. I should tell the Committee that when I took my Select Committee to Frankfurt last week, we met and were entertained very well indeed by the President of the Bundesbank. Professor Tietmeyer—a charming man, if I may say so. I listened with great interest to what the noble Lord. Lord Mackay, said about the reasons that lie behind the German need, as they saw it, for this kind of policy, because of their fear of past inflation. They therefore put inflation above anything else, including government's economic policy.

This is on the record so I can tell the Committee that Professor Tietmeyer told us that i f he happened to be President of the European Central Bank—and I gather he has neither that wish nor expectation—he would take account of the policy of ECOFIN, the European finance ministers, and their economic policy when pursuing a price stability target. However, as the Bill stands, the price stability target would clearly take priority, as the noble Lord rightly said, over the Bank's consideration of the government's economic policy. That concerns me, and I know it concerns my noble friend.

Given that the noble Lord, Lord Mackay of Ardbrecknish, felt obliged constantly to reiterate the five increases in interest rates, if they had still been in government by some miracle, I assume that they would not have increased interest rates at all because that was entirely in the hands of the Chancellor of the Exchequer. Presumably, they do not believe that increases in interest rates necessarily control the rate of inflation.

Speaking for myself, and I believe I speak for my noble friend as well. I certainly would not have increased rates to the degree that they have been increased. I certainly would not increase them any more. I am delighted to hear that the Opposition agree with that. The noble Lord, Lord Mackay, must have consulted them because he never wants to be in conflict with Conservative Party policy, whether it he on Europe or anything else. He is smiling in agreement with something; I am not quite sure what it is. He did not nod or shake his head; I would like that put on the record so we know where we stand. He does not agree with the interest rate increases that we have had so far, and therefore he and his party do not believe that increases in interest rates necessarily control price stability. That appears to be what he is saying, so in that sense he agrees with my noble friend.

However, this amendment is clearly one of the most important that has been tabled. Without this amendment, the Bank could ignore the Government's economic policy even if unemployment was rising because of the Bank's policy. If it was rising substantially, it would not matter; the Bank's primary consideration under the terms of the Bill has to be the control of price stability.

We have discussed how directors can be appointed and how they can be dismissed and not he dismissed. I know the present Governor of the Bank and I am pleased that he has been reappointed for another five years; and I know some members of the Monetary Policy Committee and some of the present directors of the Bank of England. I would hope, like Professor Tietmeyer, that in the case of the European Central Bank they would take account of the Government's economic policy. I would be very disappointed if they did not.

If the Government want to see them take account of their own economic policy, then why oppose this amendment? It is a simple amendment. All they have to say is that the Bank has to maintain price stability under Clause 11(a), and support the economic policy of Her Majesty's Government, including its objectives for growth and employment". I would have thought that my noble friend could certainly go along with that. Just as the noble Lord, Lord Mackay of Ardbrecknish, speaks for his Front Bench, I am sure my noble friend would speak for ours. He has a great deal of flexibility in his ability to respond to this amendment, and I know he would be happy to see the Bank of England and its Monetary Police Committee maintain price stability and support the economic policy of Her Majesty's Government. Why not? Why should they not do both?

It is a short and very simple amendment, but a very important one. The Bank of England and its Monetary Policy Committee should not do anything that would damage the Government's own economic objectives. It is not asking much of the Bank of England or the Government to do something that would ensure that their own economic policy is supported. I hope my noble friend will be able to accept the arguments about the need to control both inflation and the Government's own policy. In that sense, I strongly support the amendment itself, if not every positive and detailed word of the noble Lord, Lord Mackay of Ardbrecknish.

6.45 p.m.

Lord Newby

If the noble Lord, Lord Barnett, complains of lack of swiftness of foot, he is a veritable hare to the tortoises of the Liberal Democrats in respect of this amendment! We did not even get around to putting our name to it at all. Perhaps I should claim even more meagre resources, but we certainly support the amendment.

In the currently drafted form of the clause, the phrase "subject to that" does, first, suggest that subsection (b) is a sop. Secondly, it encourages the Monetary Policy Committee, in our view, to ignore any objective other than price stability and, as a result, it opens the prospect of it acting in a slightly more macho way in respect of interest rates. The case might be different if the committee had to explain how it had taken into account both (a) and (b), when reaching its decisions.

We have heard eloquent arguments in favour of deleting the words "subject to that", to which I will not add, except to say that we too believe this to be an important and straightforward decision, which the Government could now make to give greater balance to the thought processes of the Monetary Policy Committee.

Lord Stewartby

I find myself, surprisingly, not 100 per cent. satisfied by the arguments so far deployed. If you were a member of the Monetary Policy Committee, you would not know what to do if these words were removed. If you have two objectives, one hopes that they may, most of the time, be consistent with each other. There could, however, well be times when the Bank or the Monetary Policy Committee, or the Treasury, or the Government, or Parliament, considered that they were not consistent. Under those circumstances, I am not sure how the members of the Monetary Policy Committee could conduct their responsibilities.

I had understood my noble friend Lord Mackay to be probing for clarity on the apparent confusion which has been created by Mr. Darling and Mrs. Liddell in another place. It is interesting to have a debate on the balance of these two considerations. I am sure that the Monetary Policy Committee ought always to take account of the economic policy of the government of the day, including their objectives for growth and employment. However, it could certainly arise that there was at least a perceived conflict. Under those circumstances, I do not see how the Monetary Policy Committee could function. I am, therefore, somewhat sceptical about this otherwise highly popular amendment.

Lord Peston

I shall start with some preliminary remarks. I have no difficulty with finding my name on the same amendment as the noble Lord, Lord Mackay of Ardbrecknish. Equally, I share his puzzlement over the statements of my honourable and right honourable friends in another place. Indeed, one reason for supporting this amendment is that what they said, taken literally—though I begin to think we are all naive to read anything literally—was simply impossible. My noble friend the Minister will tell us about that, but I certainly could not make sense of what they were saying.

My third preliminary remark is that I am sorry that this amendment has not been grouped with the next three. Some of my comments, as do those of any other noble Lord, arise with regard to all those amendments. If I stray, I can only promise to say less when we come to those amendments. Let me explain the reasons for that immediately.

In order for Clause 11 to make any sense, we must know what we mean by price stability. So far, the noble Lords who have spoken assume they know the meaning. However, we require Clause 12 for that, because it contains the statement that the Treasury will tell us what price stability is to consist of. That brings in the word "may", on which we shall have a deeply philosophical argument about grammar and semantics in due course.

I can only say that I read price stability as meaning that the average level of prices is constant and therefore that the rate of inflation is zero, but until I discover what it means from my noble friend I may be wasting my time completely because the Treasury may define price stability not to mean that the rate of inflation is zero.

Lord Barnett

I know that my noble friend is a distinguished economist, and he will not mind my saying so. Zero is not what most people in government or banks think of as price stability. I hate to quote Professor Tietmeyer again and Herr Duisenberg, the head of the European Monetary Institute. They both feel it is anywhere between zero and 2 per cent. That is their view. And one of them may be an economist, I am not sure.

Lord Peston

I wonder whether my noble friend has ever heard the expression "weasel words". I have been lecturing on this subject now for 40 years and I can tell him that price stability means a zero rate of inflation. I am perfectly well aware that a great many people, not least politicians and hankers, are terrified of actually facing up to what they themselves are saying. Therefore they interpret price stability to mean a low rate of inflation. I can only say that that is a contradiction in terms. Price stability means a zero rate of inflation and I believe the Treasury is about to tell us exactly what my noble friend has said: that it means by price stability a low rate of inflation.

We then run into a quite serious difficulty: why that number and no other number? That is again a subject on which I have been lecturing for a great period of time. We cannot talk about how (a) and (b) relate to each other unless we know what price stability means. There is quite a lot of stuff written on this, and one possibility is to follow the noble Lord, Lord Mackay of Ardbrecknish, and say that (a) could not be incompatible with (b). Many economists will say that if we have no inflation, then the economy works perfectly: we get the optimum rate of growth of the economy and we get full employment. Quite a few economic textbooks contain that.

I happen to think that that is complete balderdash and that such an optimistic, rosy view of the way the economy works is not persuasive theoretically and it certainly is not confirmed by experience. Therefore we cannot take that optimistic view.

One may then say that perhaps we mean that some low rate of inflation is compatible, and so on. Our difficulty with that is, which low rate of inflation is compatible and which is not'? We are not told anything about that, and until we get an answer in practice, we do not know. My view is that any serious interpretation of an inflation objective must have—to use the word used by the noble Lord, Lord Mackay of Arbrecknish—the potential for conflicting with the Government's economic policy. If that is the case, we have to ask what would happen then: what does the clause then mean?

Again, my reading of the clause as it stands—and this is our difficulty, and my noble friend Lord Barnett is aware of it—is that if there is possibility of conflict, the conflict is resolved by the Monetary Policy Committee, which may take notice, in the sense that it is aware of the Government's objectives for growth and employment. but it then has to say "I'm sorry, but the objective is price stability; we have noted that they are in conflict, but price stability is what we have to go for".

Let me say en passant that I hope noble Lords have noticed the use of the word "including". Since it says, including its objectives for growth and employment". I should like to know what other objectives the Government might have in mind. It does not say "growth and employment"; it says "including". What else might we have to think about?

I believe that putting the amendment down is important, and it is particularly important to ask about the conflict resolution. Another possibility is that it is the Government who will adjust: that the Monetary Policy Committee goes for the inflation objective and then the Government adjust their objective for growth and employment to fit that. I read nothing in the debates in the other place to say that the Government accepted that worrying view.

I have one other remark to make before concluding, and that is to ask my noble friend whether the word "maintain" has any meaning. By that I mean that it does not say "to achieve price stability"; it says "to maintain price stability". Presumably in order to maintain it, sticking to the correct use of English, we have to achieve it in the first place and then maintain it. We must, therefore, ask the question, have we achieved it at the moment? In other words, when the Bill becomes law, as it will fairly soon, does it then follow that we have achieved price stability, which I believe is 2.5 per cent. as the mean, plus or minus ½ per cent. or some such thing. Whatever it is, if that is defined as price stability and we have achieved it, we then have to maintain it.

My difficulty with this is, what will the Treasury be doing in the future? For example, is the Treasury capable of announcing in a couple of years, "We now define price stability as meaning a mean of 4 per cent. plus or minus 1"? I do not know if that is possible. It is certainly possible if price stability does not mean what it should correctly mean, namely zero, but any number that anybody comes up with. One can therefore see that the whole thing is rather blurred.

It happens that I have one other difficulty. My firm belief in economic policy is that it is not a bad thing to keep certain things blurred. The noble Lord, Lord Mackay of Ardbrecknish, has had the privilege, which I have not had, of being a Treasury Minister, and he must know that a certain blurring around the edges helps to make policy rather better. I have difficulty in constructing a theoretical model that demonstrates that, but all my experience and intuition tell me that. Therefore, in pressing my noble friend Lord McIntosh for some answers, in another way I would rather not have all of them, because once they are written out it means that we cannot wriggle out of them ourselves when the time comes.

To summarise, I would like to argue that the objective of the Government is the maintenance of full employment; subject to that, the maintenance of maximum growth; and, thirdly, if it is compatible, having as low a rate of inflation as possible. If I were writing this, I would still be repeating the economics of the 1950s, which I have been teaching non-stop for 40-odd years, and I never find any reason to change that, because nothing has happened to convince me of anything being erroneous. I entirely agree with my noble friend Lord McIntosh on Keynes's comment that one changes one's mind when evidence or theory tells one to. Equally, I take the view that, when evidence and theory do not tell us to but convenience tells us to, then do not do it.

I hope my noble friend will at least reflect on some of these remarks and ask himself whether what is here is what the Government really want to be on the face of the Bill. That is why my noble friend and I have intervened as to whether this is what the Government want, and I look forward to hearing his answer on that.

Lord McIntosh of Haringey

This has been a nice discursive debate and I am grateful to all noble Lords who have taken part. Let me first of all deal with one false impression which may be gained. I admit that we have tried to group these amendments rather aggressively, hut they have now been ungrouped rather aggressively to such an extent that the debate, for example, on the funding of the Bank of England was ruined by aggressive ungrouping and could not be taken seriously. Now, this debate has become ruined. The fact that the noble Lord, Lord Mackay, has his name on the same amendment as my noble friends Lord Peston and Lord Barnett does not mean that they agree. It is simply that we are dealing with one part of the argument, rather than with the argument as a whole. The noble Lord, Lord Mackay, made it quite clear that his objective in leaving out the words "subject to that" would be to leave out the reference to high levels of growth and employment altogether, whereas my noble friends would prefer to have growth and employment put in as having equal status with price stability.

Lord Mackay of Ardbrecknish

I do not think I said that. I said that when I considered how to have a discussion on the relationship between subsections (a) and (b) I wondered whether it would be easiest to knock out (b) and then just ask the Minister why he wanted (b), and explore the matter in that way. However, I decided that that would be construed as a move in the direction I intended, and therefore I proposed the deletion of "subject to that". If you take out the other things, it would be like saying that the people who run your monetary policy are trying to do that like a golfer with only one club.

7 p.m.

Lord McIntosh of Haringey

The noble Lord distances himself from the implications of his own argument, if I may put it that way, even if he did not say what I accused him of.

Let me set out as clearly as I can what we mean by Clauses 11 and 12. As the Bill says, the monetary policy objective of the Government is to maintain price stability and, subject to that, to support the Government's objectives for growth in employment. But in turn high levels of growth in employment will also create the conditions for price stability on a sustainable basis. There really is no other way of promoting and maintaining high levels of growth and employment other than in circumstances of sustained price stability.

In the long run there is no conflict. Price stability is a necessary condition to ensure sustainable growth and high employment. There is evidence to suggest that high and variable inflation can actually damage growth and productivity. The framework is designed to ensure that price stability is the long-term objective of monetary policy.

At Second Reading I quoted Alan Greenspan in his Humphrey-Hawkins testimony last year. That sets out the position very clearly. He said: Our objective has never been to contain inflation as an end in itself, but rather as a precondition for the highest possible long-run growth of output and income—the ultimate goal of macroeconomic policy". The Bundesbank has very similar requirements, although they are expressed in rather different terms. The Bundesbank is required to regulate the quantity of money in circulation and of credit supplied to the economy, with the aim of safeguarding the currency". That is comparable to price stability. It is also required by law to support the general economic policy of the Federal Government, but only insofar as it can do so without prejudice to the performance of its own function, safeguarding the currency". That is in the Bundesbank Act 1957.

Price stability and high employment go hand in hand. Achieving price stability will help to achieve high employment, and achieving high employment will help to achieve price stability.

If I may anticipate my noble friend's question, I am sure he will then ask me, as he did, quite reasonably, why we do not give them equal status. Why do we not say "price stability and the Government's economic objectives"? I think we do so, and I am surprised to be able to call in aid the noble Lord, Lord Stewartby, but he is right. If we are to give targets to the Bank of England, we have to give it targets which are explicit and which do not involve internal contradictions, otherwise they will simply be warm words. Somebody used the term "weasel words". If we started to bring in all sorts of other targets—a later amendment is a target on exchange rates—this would be a target on growth and employment. The members of the Monetary Policy Committee would scratch their heads and say, "We have a choice. We can either protect one or the other. Which should we do? The Government have not told us which we should do". What we are saying here is that, for the reasons I have given, we give priority to price stability and we recognise that, subject to that, there should be support for the Government's other economic objectives.

Lord Peston

I hope my noble friend will forgive me for interrupting, because I know how irritating it is when you are in full flow. If what he says is to make sense, then it seems to me that he would be just as happy with a wording of the Bill which said: The objectives of the Bank of England shall be … to support the economic policy of Her Majesty's Government, including its objectives for growth and employment, and subject to that, to maintain price stability". In other words, if the two are simply always compatible and price stability is a means to an end, it could be done the other way around. I take it that it is this way round for a reason.

My noble friend was more or less saying that price stability has priority when there is any conflict. Clearly I will read my noble friend's words in great detail, hut I do not think, listening to them at this moment, that they stand up. If they were to stand up then reversing the clause would work just as well, and I am certain that he will not accept reversing the clause.

Lord McIntosh of Haringey

I am certain they are not, because then we would find the Monetary Policy Committee scratching its head even more. If they say, "Our first priority is to encourage and support high levels of growth and employment", then how do we do it? The means available to the Monetary Policy Committee are the setting of short-term interest rates. It is the setting of short-term interest rates which has the most direct connection with price stability, and the other objectives of government economic policy, according to this model, follow from that. But we do not go out to the ultimate objectives—what I recognise as being the ultimate objectives and what Alan Greenspan calls the ultimate objectives—and then come hack to the means by which they are achieved.

Lord Mackay of Ardbrecknish

I am sorry to interrupt the noble Lord again, but I thought I was quite clear in what I was saying. I did not take the interpretation as the noble Lord, Lord Peston, took it. I took it to mean quite clearly what I think it means, but I am still puzzled because that is at variance with what Mr. Darling said when he said it was being read the wrong way round. Subsection (b) seems to me to be subsidiary to subsection (a), but Mr. Darling said that it was being read the wrong way round. The Minister said what I believe "subject to that" means, which is that price stability is the principal objective. That is okay, and then you can worry about the other things. That is maybe too simple, but I think that is what he is saying.

Lord McIntosh of Haringey

That is right, because that is most closely within the power of the body which has the control of short-term interest rates. I have to take the Bill as I find it. I have not read the quotes from the Chief Secretary, but I base my arguments on the way in which the Bill has been framed.

Lord Barnett

I am not concerned about what the Chief Secretary says. I took down the words my noble friend used, "Price stability is necessary to support the objectives for growth and unemployment. They go hand-in-hand". If that is the case we do not need the words there. We can have it as the amendment suggests. Either one takes priority over another or they go hand-in-hand. Which is it? Is he saying that they go hand-in-hand or is he saying that one takes priority over the other?

Lord McIntosh of Haringey

We are in danger of becoming theological in this argument, quite honestly. When I say that they go hand-in-hand, I mean that achieving price stability helps to achieve high employment, and high employment helps to achieve price stability. But in terms of what the Bank of England Monetary Policy Committee has to do, we have to pick on something and that is price stability, because that is the measure that is most closely related to the powers of the Bank of England. Short-term interest rates are the responsibility given to the Bank of England by the Treasury, and they are given the power to set short-term interest rates with the direct responsibility set by the Government of maintaining price stability.

I do not doubt that in the economic lectures of my noble friend Lord Peston it is impossible to interpret price stability as being a low level of inflation, but I am sure that he is correct in terms of economic theory that price stability means stability: in other words, zero inflation. We are not using the words in that sense. In the Bill we are saying the Government take responsibility for setting the inflation target which they think is appropriate and consistent with price stability. We have set that inflation target at 2½ per cent., and we said that in the first instance the Bank has to explain when the inflation target varies from 2½ per cent, by 1 per cent. either way. There is an open-letter system whereby if it varies more than 1 per cent. either way, it has to go much further and explain itself and say what it is going to do to get itself back into line.

I return to the difference between setting high levels of growth and employment as a target and setting price stability as a target. Price stability is deliberately set in terms of short-term interest rates. It is in the long term that the two go hand in hand.

Lord Peston

Perhaps I might just interrupt my noble friend once more. I promise him that it is the last time on this amendment. I understand fully what he says. He is having no difficulty in arguing his point, but I wonder if he appreciates the consequences. Taking a specific example: it may well be that the Monetary Policy Committee this week interpreting price stability in the way it does will raise interest rates. The result, many of us would predict, will be dampening down in aggregate demand in the economy. a slow-down in the rate of increase of gross domestic product and possibly a rise in unemployment. My noble friend Lord McIntosh of Haringey would say that that is all short term. All I am asking him to appreciate is that presumably that is short term. At least in the short term, since the Government cannot possibly want an increase in unemployment, we are saying that what we mean by compatibility is that in the long term those people will he hack to work.

I will not go back to the old cliché again that in the long term we are all dead, but in the short term, I remind my noble friend Lord Mackay, that those people are actually unemployed. Whatever one says about the long term, they are the ones that hear the cost. As long as noble Lords appreciate what this means, then we have done our job and clarified what the policy-making involved here will do.

I have an ulterior motive. What this applies to will apply to the European Central Bank under EMU, where I am much more frightened of what might happen with this kind of approach, much as I am a strong supporter of EMU. My point in intervening was to make sure that my noble friend understands what it is he is committing himself to when he says, as he is about to, that he rejects this amendment.

Lord McIntosh of Haringey

I am not committing myself to anything other than to what the Bill clearly states. There is no difficulty about understanding it. We are setting the proximate target and we are providing the Bank of England Monetary Policy Committee with the means—the control—of short-term interest rates in order to achieve that target, it is accepted.

Price stability is the most important contribution which monetary policy can make to sustaining high and stable levels of growth and employment. Other policies may make other contributions, but it is monetary policy which is the subject of the Bill and with which we are concerned today. Our legislation ensures that price stability is the primary objective, but subject to this goal the Bank must also support the Government's other economic objectives. That is the basis on which this has been framed, and that is why the words "subject to that" are necessary in the Bill.

Lord Mackay of Ardbrecknish

I think we have had an interesting debate. I hope the Minister has not minded the teasing out of this. It is complex and it is absolutely central to what the duties of the Monetary Policy Committee are going to be. The Minister has clearly said that my interpretation of the clause appears to be the correct one. I will therefore ignore what the Chief Secretary said in the other place and listen to the noble Lord, Lord McIntosh of Haringey. If you are on track for (a), yes, you can worry about (b) and see what you can do about that, hut you must be on track for (a). I was interested in the quote—and I will read it in detail—from the Bundesbank, because it seemed that the Bundesbank was doing exactly the same thing but the other way around. It was, however, still making monetary policy its principal objective.

So I am a little wiser and even better informed after this debate. If I may say so to the noble Lord, Lord Barnett, my colleagues down the corridor, interestingly, had this debate around replacing the word "support" with "pursuing"—"to pursue the economic policy of Her Majesty's Government", which was quite an interesting nuance on what we have just discussed. For the moment, we will all read rather carefully in Hansard what the Minister has said and we may well return to it. I rather suspect, however, that I am more cheered by listening to him than are his noble friends. With that, I withdraw the amendment.

Amendment, by leave, withdrawn.

7.15 p.m.

Lord Mackay of Ardbrecknish moved Amendment No. 17: Page 5, line 16, at end insert ("and a stable and competitive exchange rate over the medium term.").

The noble Lord said: I accept that I responded to aggressive "bunching" with aggressive "debunching", if that is the best way to describe it. On the other hand, this is slightly separate from the important point we were discussing as to what took primacy. I want to add, at the end of objectives for growth and employment, a stable and competitive exchange rate over the medium term". I have taken these words from those of the Chancellor himself to the Treasury Select Committee, when he said, We want a stable, competitive pound over the medium term". I thought that a good place to look for some sensible words that the Minister might not disagree with! I am telling him where I took them from, in case he does disagree with them!

I am, of course, adding another objective, which I am doing because the exchange rate is extremely important. British manufacturing industry at the moment would perhaps say it is one of the most important things for them. They are probably more concerned about that than about the interest rate rises themselves or their consequences. I know that the pound was rising while I was still a Minister. My recollection is that I twice had to respond to my noble friend Lord Paul who drew this to my attention as something which was damaging British industry. He asked what was the policy of the then Government on exchange rates.

Indeed, the noble Lord, Lord Ezra, for the Liberal Democrats, was on to this particular subject on a number of occasions. I could go on and point out a quote from the Birmingham Post about manufacturing industry in that part of the world being concerned about exchange rates. Looking slightly further ahead, although it is not down here, it does say "including" and I presume it must include exchange rates.

What happens as we get nearer to EMU, which I feel pretty certain we will be joining, as I said before? I make no observation about the policy, simply that if we are to join it, is the pound to float right up to the point of joining? Will we be shadowing? Will we be in the ERM? Will that influence the Bank? Will it have to take that into account when looking at its primary objective of price stability?

I know the Minister may well not wish to specify too many things here and I remember these arguments on a number of occasions. The danger is that if you specify too much, it is assumed that anything not specified was not meant to be included. There is always that danger, which I appreciate. However, the Government have specified growth and employment. I am wondering why they have not decided to specify exchange rate, which is very dependent on the decision made by the Bank on price stability. I beg to move.

Lord Peston

My judgment is that this is an important amendment and, although I was acerbic earlier, I am sorry that we did not discuss it under the general rubric of the objectives of the Government. I am particularly concerned about it because there is an interesting article in the Financial Times today pointing out precisely the consequences of using interest rates, I assume, to maintain price stability. This is what the Monetary Policy Committee is about. It appears that simultaneously in the economy, the economy at large is booming, in the sense that there is too much demand, which is the whole point of the restrictive interest rate policy. On the other hand, the manufacturing sector is well into recession, at least according to this article, and we have a most peculiar state of the economy which simply derives from the nexus between the interest rate and the exchange rate. I add again that in my view, in so far as monetary policy affects price inflation. it certainly does not do it directly. The original monetarist's view seems to me to be theoretically preposterous and totally refuted by the available data. It does it either via the exchange rate or by damping down aggregate demand in any event.

Going back to the earlier debate, although I do not wish to go into it in full detail, this is as good an example of the conflict as one could possibly imagine. Let us assume that the Monetary Policy Committee claims it can see some signs that the inflation rate may well be going up and beyond the band. Therefore, it feels that it has to tighten interest rates. Someone present then puts up his hand and says. "What about the objectives for growth and employment?", to which reference is made in Clause 11(b), and that would be true if the Bill were already law. He says, "Ah, but the words 'subject to that' appear. Therefore we have looked at it but the 'subject to that' provision says that we must give priority to price stability. Therefore, if that means destroying another hit of UK manufacturing industry, so what?", My noble friend Lord McIntosh believes that, in the long run, manufacturing industry somehow revives itself, but all the evidence is that it does not. It is damaged once and for all. That is precisely why what we have been debating is so important.

Clearly, the noble Lord, Lord Mackay of Ardbrecknish, does not want this on the face of the Bill; at least that is how I interpret it. He wants to air this as an example of the kind of problem that arises here. I am glad he does that but the point of it is so that my noble friend the Minister and his honourable and right honourable friends can reflect further on what this means. When we come onto the monetary consequences of fiscal policies, we shall be making similar points.

Lord McIntosh of Haringey

I am afraid my answer will he very similar to that which I have already given for the reason that the amendments should have been grouped together. The fundamental answer is that the more objectives are set for the Monetary Policy Committee, the more prospect there is of conflict and the more you are saying to it, "Make up your own mind as between these two and the inter-relationships between them". That may be a proper subject for academic debate in the Monetary Policy Committee hut it has something different to do: it has to set short-term interest rates.

There is an additional reason why it would be unsuitable to put this onto the face of the Bill. Of course, the noble Lord, Lord Mackay, is right because he is quoting from an entirely reliable source. We all want a stable and competitive exchange rate over the medium term. Unfortunately, however, the exchange rate does not just depend on UK monetary policy. It depends also on the economic monetary policy of other countries and other factors that are not within the direct control of the Government or the Bank.

In the longer term, the exchange rate depends on the underlying productivity of the economy relative to others. Of course, as recent experience shows, the exchange rate can move in the short term for reasons unrelated either to monetary policy or economic fundamentals. So if that is set as an objective, it is very hard to see how the monetary policy could give effect to that objective. I hope the noble Lord will withdraw his amendment.

Lord Mackay of Ardbrecknish

I am not entirely sure the amendment would have been better grouped with Amendment No. 16, because this amendment deals with the question of what do you define as being included in the word "including". I am not entirely sure whether or not the Minister has signalled, in a sort of Pepper v. Hart way that, yes, the Monetary Policy Committee can have a look at other issues, and one of those other issues may be the rate of exchange. He has explained to me quite rightly that the rate of exchange can be quite detached from our own economic policy.

Lord McIntosh of Haringey

I hope there is no question of Pepper v. Hart because I am trying very hard not to say anything new. The wording of the Bill states: Subject to that, to support the economic policy of Her Majesty's Government, including its objectives for growth and employment". Clearly, therefore, the economic policy of Her Majesty's Government can change from time to time other than in growth and employment, and stable and competitive exchange rates are not of themselves excluded from that further consideration.

Lord Mackay of Ardbrecknish

They are not excluded. I take the caveat that it may be something quite unrelated to what is going on in this country that causes the exchange rate to move up or down. At the moment it is a combination of events.

Lord Barnett

It is something that the noble Lord may not like. but, subject to our being outside of EMU, is a factor in what is happening to the exchange rate, not just interest rates.

Lord Mackay of Ardbrecknish

I accept that. As I have said, there are those outside events and undoubtedly our decision on EMU seems to make our currency more attractive at the moment to some people. Whether that means that our decision not to be in is the right one or not, I do not know. Well, I do know: it is the right one. But whether that is the reason that it is the right one is another matter.

The noble Lord wants to ask his noble friend a question. I had better let him because I am about to withdraw the amendment.

Lord Barnett

I just wanted to ask my noble friend whether I am correct in taking what he said as meaning that the reason the Bill is drafted as it is is to give the Monetary Policy Committee a simple objective, namely price stability, and for it not to be troubled about the Government's economic policy, exchange or anything else. My noble friend may correct himself, but he told us that he does not want to confuse the Monetary Policy Committee; he wants to give it a simple objective, namely price stability. Nothing else.

I should tell him, incidentally, when we are talking about the Bundesbank, that Tietmeyer does not want a price target; he just wants a monetary target. However, that is an aside.

Lord McIntosh of Haringey

I do not want anything that the Bill does not want. I do not want price stability by itself. The Bill says: 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". That is what the Government think and that is what I believe should be the objectives of the Bank in relation to monetary policy.

Lord Mackay of Ardbrecknish

The Minister has tried to be helpful and I am sure we shall all have an interesting read. He has been clearer than his right honourable and honourable friends in the other place. I hope that will not do him damage at the Ministers' meeting tomorrow. With that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 11 agreed to.

Clause 12 [Specification of matters relevant to objectives]:

Lord Peston moved Amendment No. 18: Page 5, line 17, leave out ("may") and insert ("must").

The noble Lord said: In introducing the amendment, let me say to my noble friend that he is being a little modest, which is uncharacteristic of him. Whether it is anything new or not, as far as I am concerned, as a student of these matters, he has thrown an enormous amount of light on a Bill with which I was having great difficulty. I do not want to commit him to any Pepper v. Hart interpretation, but I now understand quite a lot of the Bill that I did not understand before and certainly could not get from the debates in the other place. It is up to him whether he regards that as flattery on my part or, as the noble Lord, Lord Mackay, said, undermining his future career. I am sure that the former is the correct interpretation, again on Pepper v. Hart terms.

Here is an amendment which I hope my noble friend will accept. He has already referred earlier to the "may"/"must" problem, let alone the "shall" problem. In the nearly dozen years that I spent on the Opposition Front Bench—rather less than my noble friend did—this sort of thing used to drive me completely potty. Someone once said to me, "You are a legislator, you ought to understand these things". I replied, "I am not a legislator, I am an economist". However, it appears that I am a legislator simply by agreeing to come to this place.

If I am a legislator, I believe that words ought to mean what they say, and I interpret "may" to mean "may not", I cannot think of the English language if "may" does not imply that the other possibility is "may not". That is why the word "must" is introduced into the language, to differ from "may". And yet when I raised it before—and although I do not believe I have raised it with the noble Lord, Lord Mackay, I have certainly raised it with one or two of his noble ministerial friends—they kept saying, "That shows what an idiot you are. 'May' does not mean `may', it means 'must', and then I would say, "Why then does it not say `must'?", and then I would get some argument that I never understood.

My view—and this follows very much from what my noble friend has already said—is that the Monetary Policy Committee cannot operate unless the Treasury gives it the answers to the questions in Clause 12. Therefore "may" has to mean "must". Can you imagine the Monetary Policy Committee saying, "Oh dear, Treasury, what does price stability consist of?". "We are not going to tell you. If you don't know we will not tell you", which is the way one sometimes treats one's children. Therefore, the Treasury must, by notice in writing, do these things. It then makes sense that the word "shall" appears a few lines later.

It may well be that the genius of a parliamentary draftsman yet again has written something for my noble friend which he will read out, and we will all nod sagely and pretend we understand it. I can only say that I understand it, within the limits of the language on which this country has based its history, and I think the word should be "must". I beg to move.

Lord Mackay of Ardbrecknish

I shall be brief. I fully accept that I may have erred on this issue before, and it drove me to despair as a Minister. Clarity is everything. I have always thought I knew what "may" meant, and I do not think it means "must". Interestingly enough, subsection (3) reads, Where the Treasury give notice". Now that implies that there may be circumstances where it does not give notice. I am with the noble Lord, Lord Peston, on this one, and I do not wish my previous convictions to be taken into account.

Lord McIntosh of Haringey

This is one of those occasions where I think I understand it, and if I understand it, then it seems to me anybody can understand it. Now it is a question of whether I can explain it. It does indeed say "may" in Clause 12(1), but Clause 12(2) requires, The Treasury shall specify … both of the matters", at least once a year, before the end of the period of 7 days beginning with the day on which this Act comes into force, and at least once in every period of 12 months"; thereafter, in effect. So there is a requirement on the Treasury to do that once a year. There is a power in Clause 12(1) for the Treasury to do it more often if it wants to, and that is why the Bill says "may". The objective of my noble friend in putting down this amendment is achieved by Clause 12(2).

Lord Peston

I must congratulate my noble friend. That is masterly! I have to tell him I have always thought of myself as a Smart Alec, but it never occurred to me that Clause 12(1) meant several times, and Clause 12(2) then said at least once a year. If that is what it is meant to mean. I could write a clause which said that in those terms and did not require the genius of my noble friend to explain it.

Before withdrawing the amendment, could I ask my noble friend whether that is a Pepper v. Hart intervention?

Lord Barnett

Could I ask my noble friend the Minister—and I entirely take his point—in that case, why can he not accept the amendment?

Lord McIntosh of Haringey

Because it is unnecessary, and because it achieves something which would not necessarily be achieved by "must".

Lord Barnett

Would it do any harm?

Lord McIntosh of Haringey

Yes. Unnecessary amendments do harm.

Lord Peston

I am sorry to pursue this, but on my noble friend's interpretation it is not an unnecessary amendment, assuming he accepts that he has now placed in the proceedings of your Lordships' House the definitive interpretation of this clause. I ask him again, in terms, whether the definitive interpretation of this clause is that "may" means several times and "shall" means at least once.

Lord McIntosh of Haringey

No. "May" does not mean several times; it opens up the possibility of more than once, but it does not mean several times.

Lord Peston

"May" means the possibility of several times, and "shall" means at least once. Can I ask for confirmation of that and then I shall sit down?

Lord McIntosh of Haringey

Clause 12(2) means once a year and it is quite explicit. As to "other occasions", that possibility is opened up by Clause 12(1).

Lord Mackay of Ardbrecknish

Perhaps I may intervene. I absolutely accept that, but it would be a great deal easier if subsection (2) were first. That is the normal procedure: once a year, this has to be done, and then subsections (1) and (3) which is "and other times". It is just a drafting point, but I understand how the draftsmen work.

Lord McIntosh of Haringey

I am happy to seek the draftsmen's opinion on that point.

Lord Peston

I am truly indebted to my noble friend Lord McIntosh of Haringey for those answers which makes the whole day's proceedings seem so worthwhile. Having said that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Mackay of Ardbrecknish moved Amendment No. 19: Page 5, line 21, at end insert ("or (c) what the monetary consequences of its fiscal policies are likely to be.").

The noble Lord said: It is clear what I am asking here. When the Treasury gives its notice in writing, of what is price stability to be taken to consist and what is taken to be the economic policy of Her Majesty's Government? I would add a third paragraph, if there are to be three paragraphs: what are the monetary consequences of the Government's fiscal policy likely to be? That would be an indication to the Bank and to the Monetary Policy Committee how they ought to look at their conduct of monetary policy. I could go on a hit longer, but that is sufficient for the Minister to give me an indication of this additional point in the letter that the Treasury will send to the Bank. I beg to move.

Lord McIntosh of Haringey

What a pity! I was prepared to make a very long speech in response to this extremely important and complicated amendment, but now I shall not be able to do so.

Monetary and fiscal policy together affect the level and distribution of demand. The separation of monetary policy from fiscal policy is a discipline against excessive expansion. It is the discipline which Government impose on themselves against excessive expansion and against rising interest and exchange rates. The important point to be recognised is that neither the Governor, nor the Bank, is responsible for setting goals for both monetary and fiscal policy: monetary policy through the specification of the inflation targets, and fiscal policy through its own normal actions. There is no intention of making the two inconsistent.

The Government intend to pursue both a prudent fiscal policy and the goal of price stability in order to achieve the goal of overall stability in the economy. The Government are not intending to do the Bank's job, which would be the implication of the amendment of the noble Lord, Lord Mackay of Ardbrecknish.

Lord Mackay of Ardbrecknish

I should not like to leave the Monetary Policy Committee unemployed. What the noble Lord, Lord McIntosh of Haringey, has said as regards Clause 12(1)(b), is that the economic policy of the Government will be consistent with the target they set the Bank for price stability. On that basis, I beg leave to withdraw my amendment.

Amendment, by leave, withdrawn.

Lord Haskel

I think this may be a convenient moment for the Committee to adjourn until tomorrow at 3.30 p.m.

The Committee adjourned at twenty-two minutes before eight o'clock until the following day.