Bank of England: Tercentenary (Hansard, 22 July 1994)

§ The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish)
My Lords, the Bank has arranged a programme of events to mark its tercentenary. They have included a symposium on the future of central banking, held on 9th June, which involved 130 current and former central bank governors from around the world. The celebrations will culminate on 27th July with a service of thanksgiving at St. Paul's Cathedral which will be attended by Her Majesty the Queen and the Duke of Edinburgh. That will be followed by a reception at the Bank that same evening.

Lord Campbell of Croy
My Lords, I thank my noble friend for his reply, telling us that most suitable arrangements are being made for the anniversary of receipt of the Royal Charter. Is he aware that the Bank of England was founded by a Scotsman—William Paterson—and had it not been 13 years before the Union, it would no doubt have been named the Bank of Great Britain? Would not that have been a more appropriate name for the United Kingdom's central bank? Now that the mature Lady of Threadneedle Street has come of age, will she be accorded more independence to catch up with her younger cousins, the central banks of the United States and Germany?

§ Lord Mackay of Ardbrecknish
My Lords, let me say to my noble friend that we should not remind the English how much they depend on our fellow Scots to run their country. They might get a little jealous about it. With regard to the serious question about the independence of the central bank, Ministers have always made clear that they understand the argument in favour of it. However, they feel that there are other arguments which counteract the argument in favour of independence. Among those arguments there are genuine concerns about ministerial accountability, as Ministers would no longer be accountable to Parliament for decisions on matters of monetary policy.

§ Lord Ezra
My Lords, in relation to that last point, does the noble Lord agree that the more positive and transparent role of the Bank of England in recent months has been wholly beneficial? In the light of that experience, will the Government—without perhaps at this stage going to full independence of the Bank— nevertheless seriously contemplate giving it a still more positive role, particularly in regard to maintenance of the stability of the currency?

§ Lord Mackay of Ardbrecknish
My Lords, we believe that the current institutional arrangements are capable of delivering the kind of policies that we all want to see in the relationship between the Bank of England and the Government. As the noble Lord rightly pointed out, much has been done recently to make 477 monetary policy more transparent—for example, by the publication of the minutes of the monthly meetings between the Chancellor and the Governor.

§ Lord Eatwell
My Lords, let me first congratulate the noble Lord on his new post. I am sure that all Members of the House will agree with the noble Lord, Lord Campbell of Croy, that we should learn from the lessons of history lest we repeat them. Does the Minister recall that at the time of its first centenary the Bank of England was an independent, non-accountable institution? Has he read the assessment from his native Scotland, expressed by Mr. Thomas Robert Malthus—yes, that Mr. Malthus!—in the Edinburgh Review of 1811, that the then directors of the Bank were: the instruments of much mischief to their country"? Does he agree with the great economist David Ricardo, who argued in another place on 22nd March 1819 that an independent, unaccountable Bank had: involved this country in considerable difficulties"? In the light of that lesson of history about the need for political accountability, can the noble Lord reassure the House and tell us who determines interest rates today? Is it the Governor or the Chancellor?

§ Lord Mackay of Ardbrecknish
My Lords, I thank the noble Lord for his congratulations. Clearly, I am on a fairly steep learning curve. This morning that also seems to include a lecture on economic policy from the noble Lord, which I shall certainly study with interest. I think that he was putting the counter-argument against the call for an independent central bank. I have already answered my noble friend Lord Campbell of Croy and we agree that accountability to Parliament is an important aspect of the relationship between the Government and the central bank. As to the question of whose is the decision about interest rates, very clearly it is primarily the role of the Chancellor to determine interest rates. Nothing that has been done to improve transparency has changed that situation.

§ Lord Beloff
My Lords, will my noble friend follow the arguments of the noble Lord, Lord Eatwell, a little further and agree that it is puzzling that we should want to celebrate this event at all? As I understand it, the Bank of England was founded in order that we should have a national debt. The national debt is usually regarded as a burden. Would it not be a simple matter to reduce that debt a little further if the celebrations were cancelled?

§ Lord Mackay of Ardbrecknish
My Lords, I appear to be sandwiched between professors this morning. I can say to my noble friend that, given the size of the national debt, the celebrations of the tercentenary of the Bank will not make much difference. But over the lifetime of this Government, since 1979, we have taken steps to reduce the national debt.

§ Baroness Seear
My Lords, having regard to the fact that, important though the past is, the future is even more important, does not the noble Lord agree, in view of the answers he gave in relation to the independence of the Bank, that some countries—notably Germany— 478 have done rather well by having an independent bank? Indeed, it would have done better still if Chancellor Kohl had taken the advice of the central bank when he foolishly allowed an exchange rate of one for one.

§ Lord Mackay of Ardbrecknish
My Lords, one can always point to countries where at any moment in history the independence of their central bank is an advantage to them. But one must look at the situation over the whole sweep of time and at all the issues which face governments and central banks. I can counter the suggestion of the noble Baroness by pointing out that perhaps considerable disturbances in the currency in Europe a few years ago might not have occurred if the central bank in Germany had been more mindful of the objectives of the German Government's policy.

§ Lord Harmar-Nicholls
My Lords, is my noble friend aware that few people with practical experience of running any business would accept 100 per cent. that the private conversations between the Treasury and the Bank of England should be published in the way that they sometimes are? They can be forgiven for keeping private some points that are capable of being varied if circumstances later justify it.

§ Lord Mackay of Ardbrecknish
My Lords, I understand the point made by my noble friend. Indeed, the same point was made when government announced that we would publish the minutes of the monthly meetings between the Chancellor and the Governor. However, in monetary policy, as in other aspects of government policy, it is important to be as transparent as one can. In that way the reasons for policy can be better understood by this House, by the other place and by the country.