HL Deb 10 May 1990 vol 518 cc1467-8

3.12 p.m.

Lord Ezra asked Her Majesty's Government:

Whether they consider that the Reserve Bank of New Zealand Act (1989), which provides for a central bank with greater independence consistent with the determination of economic priorities by the elected government, could act as a useful precedent in Britain.

The Paymaster General (The Earl of Caithness)

My Lords, our position has been made clear both in this House and in another place. The Government have no plans to change the status of the Bank of England.

Lord Ezra

My Lords, can the noble Earl indicate whether he is aware that under Section 8 of the New Zealand Act to which I have referred, and a copy of which I have with me, the primary function of the Reserve Bank is laid down as being to determine monetary policy which will lead to the stability of prices in line with Government policies? Is he further aware that the policy agreed between the Government of New Zealand and the Reserve Bank is that by the end of 1992 inflation should be running at a rate of 0.2 per cent.? Does he not agree that those procedures and that objective might be highly desirable in the United Kingdom?

The Earl of Caithness

Yes, my Lords; I am aware of the contents of the Act. However, with regard to the noble Lord's second question, it is the Government's duty to bring down inflation.

Lord Bruce of Donington

My Lords, does the noble Earl agree that the Bank of England already has a very considerable amount of independence in practice as exemplified by the Johnson Matthey rescue operation which was carried out without reference even being made to the Treasury? Is he aware that all the powers which are contained by inference in the Question addressed to him by the noble Lord, Lord Ezra, are already quite adequately dealt with under Section 4 of the Bank of England Act 1946 and that there is no necessity for change?

The Earl of Caithness

My Lords, I agree with the noble Lord, Lord Bruce of Donington, that there is no need for change.

Lord Jenkins of Hillhead

My Lords, is the noble Earl aware that the conservatism of the Labour Party never fails to astonish me? Will he agree that there is a substantial distinction between the operations of the Bank of England as a regulator of the City, to which the noble Lord, Lord Bruce, referred, and the functions of the Bank as regards inflation and dealing with monetary policy?

There are certainly arguments on both sides of the question. However, will the noble Earl further agree that with inflation mounting almost certainly to double figures —possibly 11 per cent. —a little humility on the part of the Government might not be misplaced?

The Earl of Caithness

My Lords, we are actually talking about the role of central banks. As the noble Lord will be aware, that varies from country to country whether one takes the example of America or Japan. Over the past five years Japan's inflation rate has been the lowest in G7, although the Bank of Japan is one of the least independent central banks.

Lord Peston

My Lords, I should like to indicate my conservatism by saying how much I agree with the noble Earl that the Government must take full responsibility for monetary policy. Equally, if monetary policy goes wrong and the inflation rate rises, does he not agree that the Government must also take full responsibility for that situation?

The Earl of Caithness

My Lords, that is another question.

Lord Ezra

My Lords, is it not a fact that in many countries now central banks are beginning to play a more independent role to buttress the efforts of their governments? Is the noble Earl aware that in a recent ballot among such bodies as the Association of Corporate Treasurers, there was an 80 per cent. response in favour of a more independent central bank? Should not such opinion be taken more account of in the formulation of government policy?

The Earl of Caithness

My Lords, we are always delighted to receive opinion from all sources. As the noble Lord knows, we study such opinion with great care.

Lord Nugent of Guildford

My Lords, is my noble friend aware that the Bundesbank did not maintain its independence for very long in the face of Chancellor Kohl's decision on one-for-one exchange rates between East and West Germany?

The Earl of Caithness

My Lords, that is a most fascinating question. However, I think that it is slightly wide of the Question on the Order Paper.

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