Bank of England: Accountability (Hansard, 28 June 1993)

The Minister of State, Department of Transport (The Earl of Caithness)
My Lords, in his Mansion House speech on 15th June my right honourable friend the Chancellor of the Exchequer said that he had no intention of rushing into or anticipating future debate on the issue of an independent central bank.

§ Lord Ezra
My Lords, is the noble Lord aware that two recent Chancellors and the retiring governor, at that same function, spoke in favour of this proposition and that in a subsequent interview in the Financial Times the present Chancellor said that he had an open mind on the subject? Is the noble Earl also aware that an increasing number of countries are giving greater responsibility to their central banks in the control of inflation and of monetary policy? Is he aware that in New Zealand a successful regime has been introduced which is based on a contract between the Government and the central bank? Therefore, does not the noble Earl agree that it is timely that we should re-examine that issue in Britain? At the moment inflation is fortunately low, but our past experience in keeping it low has not beer, particularly good. Therefore would it not be appropriate to think again about the instruments that we use for that purpose?

The Earl of Caithness
My Lords, the answer to the noble Lord's first question is yes. The answer to his second question is yes. The answer to his third question is yes. As regards looking at the issue again, the noble Lord is one of the prime movers in keeping the debate going.

§ Lord St. John of Fawsley
My Lords, does not my noble friend agree that the character and attributes of the Governor of the Bank of England are just as important as the status of the bank? Will not the Bank of England have a governor, in the person of Mr. Eddie George, who will be prepared to give the Government independent, well-informed and robust advice? In short, he is an Emmanuel man.

The Earl of Caithness
My Lords, I am sure that the governor will continue to give the Government the very best advice that he can. However, the policies of the Government are also important.

§ Lord O'Brien of Lothbury
My Lords, is the Minister aware that 20 years ago next Wednesday I left the Bank of England, after 46 years? Is he also aware that not long after leaving the bank I was invited by the Royal Belgian Economic Society to deliver a lecture on the independence of central banks, which I did with particular reference to the independence of the Bank of England? That is a long time ago, and I would not like to say that it was the last word on the subject. However, if noble Lords would like me to put a copy of the lecture in the Library, provided I can find a copy, I would be willing to do so.

The Earl of Caithness
My Lords, I am sure that the House would be most grateful if a copy were placed in the Library.

§ Lord Barnett
My Lords, I speak as one who is broadly in favour of the Maastricht Treaty and the European Communities (Amendment) Bill. Nevertheless, does the Minister accept that it would be quite wrong to give independence to a European central bank which does more than merely control inflation? Does he agree that control of interest rates 588 gives much greater power to an independent central bank, and will he confirm that that would not be the policy of the Government?

The Earl of Caithness
My Lords, I was particularly disappointed that the noble Lord was not with us on Wednesday of last week when we discussed this issue.

§ Lord Eatwell
My Lords, does the Minister agree with my noble friend that fiscal and monetary policy are interdependent and that the Government's decisions on taxation and spending affect interest rates and that the level of interest rates will affect both government spending and tax revenue? Does he therefore also agree that it is foolish to separate the determination of monetary and fiscal policy from one another? In particular, does he agree that it is notably foolish to charge an independent central bank with the task of managing monetary policy alone without any concern for other aspects of policy, as is so clearly illustrated by the devastation being wrought on the German economy by the blinkered policies of the Bundesbank?

The Earl of Caithness
My Lords, we discussed that particular point on Wednesday. I believe that the noble Lord put exactly the same question to me, and I gave him a very good reply.

§ Baroness Seear
My Lords, in response to what the noble Lord, Lord Eatwell, said, does the Minister agree that it was the blinkered policy of Chancellor Kohl and not of the Bundesbank which led to the exchange rate of one for one of the German Mark and the East German Mark which has caused endless trouble throughout the European Community?

The Earl of Caithness
My Lords, the noble Baroness is right to remind your Lordships that that was a government decision and not a Bundesbank decision.

§ Lord Cullen of Ashbourne
My Lords, does my noble friend agree that, considering the opposition of the Conservative Party, let alone of industry and commerce, to the nationalisation of the Bank of England, and the zeal with which they have privatised. so many nationalised industries, it is a little strange that the Government have not tackled the first nationalisation target of the Labour Party?

The Earl of Caithness
My Lords, I believe that the Bank of England has been doing a very good job for the country under the 1946 Act. Of course, the bank is accountable to Parliament.

§ Lord Stoddart of Swindon
My Lords, does the noble Lord recall that the noble Lord, Lord Ezra, was one of the most, if not the most, vociferous and consistent among those who urged us into the ERNI? Bearing in mind the disaster which that policy caused for the economy of this country, will the Minister be very cautious about accepting any further advice from the noble Lord?

The Earl of Caithness
; My Lords, we listen to all advice with great care, including advice from the noble Lord, Lord Stoddart of Swindon.

§ Lord Ezra
My Lords, as my previous advice is called in question perhaps I may make it quite clear that when I proposed that we should enter the ERM it was long before we did so and at a much lower currency value than that at which we finally joined.

The Earl of Caithness
My Lords, I seem to recall general support for the Government when we went into the ERM, not least from the leader of the opposition party.