Setting of Interest Rates: EMU (Hansard, 30 October 1996)

§ The Minister of State, Department for Education and Employment (Lord Henley)
My Lords, yes.

§ Lord Tebbit
My Lords, is my noble friend aware that I find that an extremely satisfactory and sensible Answer to the Question? But that begs the further question of why in that case is it, in the Chancellor's view, possibly a good thing to hand over that right to the governors of a new central bank in Frankfurt whom he would not be able to veto?

§ Lord Henley
My Lords, perhaps I may say how grateful I am that my monosyllabic reply satisfied my noble friend, just as the similar reply of my noble friend Lord Inglewood earlier, I hope, satisfied my noble friend. The second part of my noble friend's question was to some extent predictable. Perhaps I may explain to him that my right honourable friend the Prime Minister has made it clear on many occasions that the United Kingdom will only ever take part in a single currency if it is in our national interest so to do given the circumstances at the time. Any decision will be based on a hard-headed assessment of the United Kingdom national interest in terms of jobs, capital investment and the ability to sell goods and services in the world market.

Lord Bruce of Donington
My Lords, may we take it from the noble Lord's reply that the Government will not proceed with a Bill to make the Bank of England completely independent, that being one of the conditions for Britain's entry into the single currency? Is the noble Lord aware that if he can give that assurance that the Government will not introduce such a Bill, it will not only be in conformity with the Answer that he gave to the noble Lord, Lord Tebbit, but it will also please me greatly?

§ Lord Henley
My Lords, as my right honourable friend the Prime Minister says in another place, I refer the noble Lord to the Answer that I gave earlier. I should explain to the noble Lord that we believe that central bank independence would not be the panacea that some 323 believe that it would be. The report of the panel of independent forecasters last November noted that there is no evidence that the exchange rate would be more stable or long rates lower if the Bank were made more independent.

§ Lord Clark of Kempston
My Lords, does my noble friend agree that if there were a central bank it could not stand aside from the political pressure of the member states? Does he further agree that even as regards the Bundesbank, which is presumed to be independent, at the reunification of East and West Germany the Ostmark and deutschmark exchange was controlled by the Chancellor of Germany, Helmut Kohl, to the anguish and dismay of Herr Pohl, who was the president of the Bundesbank?

§ Lord Henley
My Lords, I can accept what my noble friend has said. Further, I can say that ultimately it is the record on low inflation and not the precise institutional arrangements that matters in terms of bringing about the new arrangement. What we should look at is our recent record on inflation, and that is a good one. The Government will not jeopardise that achievement.

§ Lord Stoddart of Swindon
My Lords, if, as the noble Lord said in reply to his noble friend, it is in the national interest for the Chancellor of the Exchequer to be able to overrule the Bank of England in the matter of monetary policy, which is the interest rate policy, how on earth can it be in the national interest for us to join a single currency in the first stage of EMU when we shall not be able to exercise then what is apparently now in the national interest? Will the Minister further confirm for the benefit of his noble friend that Article 107 of the Treaty on European Union specifically precludes any interference either from any institution of the European Community or any national government?

§ Lord Henley
My Lords, I stated the position as it is at the moment. I also stated quite clearly that the Government will make the appropriate decision on the single currency at the appropriate time. It would not be right to try to make that decision in advance of that time. When it is the appropriate time we shall make that decision in terms of the national interest.

§ Viscount Chandos
My Lords, does the Minister condone the unsporting timing of the Chancellor's announcement of a rise in interest rates in relation to the Question of the noble Lord, Lord Tebbit? Even more importantly, does the Minister believe that the presentation of the discussions between the Chancellor and the Governor and the delayed timing of the release of .the minutes make it more difficult for the markets and the country to assess whether the decision on interest rates is right or wrong?

§ Lord Henley
My Lords, I would never be one to accuse my noble friend of being unsporting. I am grateful that he put down this Question on the day 324 on which my right honourable friend the Chancellor of the Exchequer met the Governor of the Bank of England. No doubt the noble Lord will be looking forward to seeing the minutes of that meeting in six weeks' time. As regards the timing of making those minutes available, I believe that that is something which my noble friend Lord Mackay dealt with in response to a Question from the noble Lord, Lord Bruce of Donington, only last February when he said: The publication of the minutes of the monthly monetary meetings helps to increase accountability and improves the transparency of the policy process. As a result UK monetary policy has become one of the most open in the world. Earlier publication of the minutes would complicate the short-term conduct of policy".—[Official Report, 22/2/96; col. WA 84.]

§ Lord Dixon-Smith
My Lords, does my noble friend agree that neither bankers nor politicians have an absolutely unblemished record in this regard?

§ Lord Henley
My Lords, I suppose as a politician that I should be one of the first to agree with that remark. But one of the great advantages of politicians making those decisions is that they are accountable to both Houses of Parliament.

§ Lord Taverne
My Lords, is the noble Lord aware of the evidence that, viewed over a longer period, countries such as the United States and Germany, which have an independent central bank, on the whole have a rather better record, and in general a better record as regards inflation, than those countries which have been excessively influenced by political decisions?

§ Lord Henley
My Lords, if I may misquote Professor Joad, it depends very much on what is meant by the independence of those central banks. That was very much the point made by the noble Lord, Lord Stoddart of Swindon, earlier. The important point to remember is that our recent record on inflation is very good. The Government will not jeopardise that achievement. Further, it is important to remember that my right honourable friend the Chancellor of the Exchequer, who makes those decisions, is accountable to Parliament and therefore to the people.