HL Deb 02 February 1994 vol 551 cc1265-9

2.59 p.m.

Lord Barnett asked Her Majesty's Government:

What plans they have for converting the Bank of England into an independent central bank.

The Parliamentary Under-Secretary of State, Department of Employment (Lord Henley)

My Lords, the Government have no such plans but they are listening with interest to the debate on the subject.

Lord Barnett

My Lords, I am delighted to hear the noble Lord's Answer. Will he go further and agree with me that to give to an unelected institution independence over interest rates and the money supply, with its serious consequences for employment and economic growth, would be quite wrong? Does he agree that that should be in the hands of an elected government rather than an unelected institution?

Lord Henley

My Lords, the noble Lord is quite right to draw attention to the question of accountability. That is certainly one of the major factors in the mind of my right honourable friend the Chancellor of the Exchequer when he considers the issue. However, as he has made clear, he will continue to listen to what is a very interesting debate. His mind is open on the subject.

Lord Boyd-Carpenter

My Lords, is my noble friend aware that many of us agree with the noble Lord, Lord Barnett, and feel that ultimate control of the management of the economy must lie in the hands of the elected government?

Lord Henley

My Lords, my noble friend makes a similar point to that made by the noble Lord, Lord Barnett. I believe that many members of the House would echo my noble friend's views. As I said, I think that the issue of accountability is one of the most important here. It is certainly one which my right honourable friend will bear in mind.

Lord Lawson of Blaby

My Lords, do my noble friend and the Government appreciate —as I am sure they do—that there is a very important distinction between whether there is a political decision in the determination of interest rates and whether there is political accountability by the body that is responsible for it? In the United States, a country which no one would dream of not calling a democracy, there is the independent Federal Reserve, which is fully accountable for its actions to Congress but which, nevertheless, has freedom to take such actions if it wishes to do so. Experience shows that that is a more successful form of the conduct of monetary policy and one which enjoys greater credibility in the financial markets. Is my noble friend aware that, if we do not take that route, we may find ourselves in growing difficulties in this country?

Lord Henley

My Lords, my noble friend also makes an interesting point. That is why I have to say that we find this to be a most interesting debate. My right honourable friend will continue to listen to all points that are raised. However, I must repeat what I said earlier. We believe that accountability, who makes the final decision and whether they are accountable to Parliament is very important.

Noble Lords

Order! Cross-Benches!

Lord Marsh

My Lords, can the Minister give some indication as to when his right honourable friend will have begun to reach some sort of conclusion on these fascinating arguments, which we all agree are incredibly important in their outcome? However, we believe that reaching a decision upon them is also significant.

Lord Henley

My Lords, my honourable friend the Financial Secretary to the Treasury said only last Friday when debating such matters that we do not envisage a decision to be taken in the near future and we certainly do not envisage an independent Bank of England in the foreseeable future.

Lord. Bruce of Donington

My Lords, as the Minister expressed very admirable sentiments in confirming the proposition of his noble friend Lord Boyd-Carpenter, will he give the House an unequivocal assurance that the same degree of consistency will be carried through at European level; and that Her Majesty's Government will, under no consideration, agree in the Council of Ministers to the establishment of a European central bank which is completely independent of any kind of democratic control?

Lord Henley

My Lords, the noble Lord asks a different question; but, I have to say, it is a most interesting one, as indeed are all noble Lords' questions.

Lord Ezra

My Lords, I should like to follow the intervention made by the noble Lord, Lord Lawson. Even though it might be generally agreed that ultimate responsibility for interest rates rests with the government of the day, could not the Bank, nonetheless, play an increasingly important role? Indeed, the Government have strengthened that role. Do they have it in mind to go even further than they have at present?

Lord Henley

My Lords, the Bank plays an increasingly important role and we shall of course listen to its advice. However, as I made quite clear, it is a matter for my right honourable friend to make the decision. As I said, in the end we believe that the question of accountability is very important. To go any further and create an independent central bank, one would have to look at considerable safeguards in that field.

Lord Cockfield

My Lords, as the proof of the pudding lies in the eating, can my noble friend tell me how much the pound has depreciated in value since the Bank of England was nationalised in 1946 and politicians started to meddle in monetary policy?

Lord Henley

My Lords, I cannot answer my noble friend's question without notice. Of course, there are a great many different types of independent central bank. They all have a greater or lesser degree of independence but, I have to say, a greater or lesser degree of success in maintaining price stability. It does not necessarily follow that those which are the most independent have had the greatest success in maintaining their price stability.

Lord Stoddart of Swindon

My Lords, do the replies that have been given so far mean that the Government repudiate the remarks of the Governor of the Bank of England yesterday which seemed to imply that politicians cannot be trusted with monetary and interest rate policy as they might use it for party-political purposes?

Lord Henley

My Lords, I believe that the noble Lord may have slightly misinterpreted the gist of what the Governor of the Bank of England was saying. I can quote further from what the Governor said. He also said that the Bank's independence would be a poisoned chalice unless there was a national consensus for price stability.

Lord Boardman.

My Lords, does my noble friend agree that responsibility for monetary policy remains with the Chancellor of the Exchequer, as does that for fiscal policy? Does he also agree that the mix of those two—the economic policy results—is the responsibility of the democratically accountable Chancellor of the Exchequer?

Lord Henley

My Lords, my noble friend is absolutely correct. However, as I said, we are listening with great interest to this quite fascinating debate.

Noble Lords

Order!

Lord Eatwell

My Lords, in his reply to my noble friend Lord Barnett the Minister stated that the Government have no plans to make the Bank of England! independent. Does he mean that the detailed planning which took place under the chancellorship of the noble Lord, Lord Lawson, has now been abandoned?

Lord Henley

My Lords, I said that we have no plans. I repeat those very words: we have no plans at present to create an independent Bank of England.

Lord Clark of Kempston

My Lords, as regards thinking that an independent bank is a panacea for any economic ills of any national government, does my noble friend agree that my noble friend Lord Boardman is absolutely right that, at the end of the day, any decision on monetary policy, interest policy, and so on, must remain with the government of the day? Does my noble friend also agree that that happened with the reunification of the ostmark and the deutschmark when, eventually, the President of the Bundesbank resigned because he was overruled by the Chancellor of Germany? Does my noble friend further agree that it is quite extraordinary to have former Chancellors of the Exchequer (who could in fact have had an independent bank) talking about having such a bank once they are no longer in office?

Lord Henley

My Lords, my noble friend makes an interesting point. As my right honourable friend the Chancellor of the Exchequer suggested, we ought to exercise just a little caution over what he described as suspiciously "fashionable ideas".

Lord Barnett

My Lords, at the outset in reply to my Question the Minister said that the Government have no such plans at present. However, he then referred. to the answer given by the Financial Secretary in the debate in another place last Friday stating that they had no plans for the "foreseeable future". I assume that the Minister agrees with that. In those circumstances, can he tell us why the Government agree with that and whether it means that they agree with the points that I put to him earlier?

Lord Henley

My Lords, perhaps I may quote the words of my honourable friend the Financial Secretary to the Treasury precisely. He said: I do not think that we envisage that"— referring to the independent Bank of England— happening in the foreseeable future". I also said that we have no plans to create an independent central bank. I see no contradiction in those two remarks.