Inflation: Bank of England's Role (Hansard, 18 December 1990)

§ The Parliamentary Under-Secretary of State, Scottish Office (Lord Strathclyde)
My Lords, the Government and the Bank are firmly committed to the objective of getting inflation down. We have no plans to change the Bank's role.

§ Lord Ezra
My Lords, does the noble Lord not agree that there is a strong case for giving greater authority to a body which is independent of the political cycle in fighting inflation and stabilising the currency, always subject to the ultimate control of Parliament? Furthermore, in the light of the negotiations now going on in the European 725 Community in which central banks will clearly be playing a greater role, should we not be looking at the structure of the Bank of England in anticipation of those developments?

§ Lord Strathclyde
My Lords, I do not agree with either of the noble Lord's points. It is the Government's task to get inflation down. We are firmly committed to that and we are fully supported by the Bank. A change in the Bank's status either on a national level or within the European framework would add nothing further.

§ Lord Renton
My Lords, as economics seems to be such an inexact science, is there not some advantage in both the Treasury and the Bank of England having the benefit of being able to consult each other as they frequently do under the present system?

§ Lord Strathclyde
My Lords, I agree with my noble friend. The truth of that has been shown by the success which the Treasury and the Bank of England have had over the past few years.

§ Lord Barnett
My Lords, with or without a change in the role of the Bank of England, can the Minister confirm what his right honourable friends the Prime Minister and the Chancellor of the Exchequer recently said; namely, that there is no intention to cut interest rates while the pound is weak inside the exchange rate mechanism? If that is true, does it also mean that there would be no intention of allowing the pound to fall in order to cut interest rates, even if the length and depth of the recession clearly required it?

§ Lord Strathclyde
My Lords, that is a very good question, but unfortunately it has very little to do with the Question on the Order Paper, which deals with the role of the Bank of England.

§ Lord Boardman
My Lords, does my noble friend the Minister agree that the ultimate responsibility for managing the economy must rest with the Government? Does he further agree that this could be improved by sharing that responsibility between two individuals—namely, the Chancellor of the Exchequer and the Governor of the Bank of England—one of whom is not elected?

§ Lord Strathclyde
My Lords, I agree. As I said earlier, the current method of control through a directly elected government has worked well.

§ Lord Hooson
My Lords, does the Minister agree that, whatever success the Government have had in tackling inflation with the co-operation of the Bank of England, that does not compare with the success the West German Government had when they were assisted by an independent central bank?

§ Lord Strathclyde
My Lords, it is very difficult to make international comparisons. It is a well-known fact that different countries have different ways of controlling their central banks. Some banks are fully independent and successful, while others are not fully independent and not so successful. We have developed our way over a number of years and it has worked reasonably well.

The Earl of Halsbury
My Lords, is not the Old Lady of Threadneedle Street the grandmother of all central banks and might she not therefore have her status returned to her by denationalisation?

§ Lord Strathclyde
My Lords, this is where I bow down to age and experience. I believe that the noble Earl probably knows more about grandmothers than I do.

§ Lord Stoddart of Swindon
My Lords, did the noble Lord see the television broadcast on Sunday last when the Governor of the Bank of England was interviewed by Mary Goldring? During that interview he said that he had a preference for being governed by an independent central bank sitting somewhere in Europe, rather than being controlled by politicians sitting in Parliament. Will the Government repudiate that and inform the Governor of the Bank of England that it is not their policy to denationalise the Bank of England?

§ Lord Strathclyde
My Lords, I am sure that the Governor of the Bank of England is well aware of the Government's policy on the issue.

Lord Bruce of Donington
My Lords, in view of the text of the Bank of England Act 1946, will the Government consider taking steps to prevent officials of the Bank of England, including the Governor, from giving their views on highly controversial political matters which ought not to be their prime concern?

§ Lord Strathclyde
My Lords, any changes to the Bank of England Act would have to be approved by Parliament. However, there is nothing to stop the Governor of the Bank discussing various issues with a variety of people, not least members of the committees of this House.

§ Lord Peston
My Lords, the Question refers to, giving a more important role to the Bank of England". I understood the noble Lord to say that the Government have no intention of giving a more important role to the Bank of England. However, for the sake of clarification, can he at least tell the House what has been the role of the Bank in recent years as regards fighting inflation?

§ Lord Strathclyde
My Lords, perhaps I should draw the noble Lord's attention to the supplementary question put by my noble friend Lord Renton. He said that detailed discussions took place between the Treasury and the Bank of England in order to decide what monetary policy should be in the long term.

§ Lord Peston
My Lords, I thank the noble Lord for that answer. I did not understand the question put forward by the noble Lord, Lord Renton, because he made the great error of referring to economics as an inexact science, which left me completely bewildered. However, am I to understand that the Government view the Bank of England as having solely a secret advisory role and no more role than advising the Treasury; in other words, that it has no independent role and should have no independent role in their view?

§ Lord Strathclyde
My Lords, the Government maintain that the current role of the Bank of England is one that works extremely well. We have no plans to change that role.

§ Lord Tordoff
My Lords, does the noble Lord, Lord Peston, by his remarks mean that economics is not inexact or that it is not a science?