§ 5.44 p.m.
§ The Minister of State, Department of Trade and Industry (Lord Clinton-Davis)
My Lords, with the leave of the House, I shall now repeat a Statement which has been made in another place by my right honourable friend the Chancellor of the Exchequer. The Statement is as follows:
"With permission, Madam Speaker, I would like to make a statement.
"This Government's central economic objective is high and stable levels of growth and employment. This can only happen if we build on the solid foundation of monetary and fiscal stability.
"I am determined to set the British economy on a new long-term course by taking the correct long-term decisions.
"The previous arrangements for monetary policy were too short-termist, encouraging short but unsustainable booms and bust and higher inflation, followed inevitably by recession. This is why we promised in our election manifesto toreform the Bank of England to ensure that decision-making on monetary policy is more effective, open, accountable and free from short-term political manipulation"."On 6th May, I announced the means by which we would achieve this promise, by giving the Bank operational responsibility for setting interest rates, and on the first economic day in the new House, I have sought the opportunity to explain my proposals for legislation that will be introduced to and fully debated in the House. The House will understand that the length of the Statement reflects the significance of the changes I propose.
"In undertaking these reforms, I have taken account of the recommendations of the Treasury and Civil Service Committee's report on the role of the Bank of England, which stressed the need for clear lines of accountability and answerability for monetary policy to Parliament. As the committee stated in 1993:The present system for determining monetary policy does not, in practice, allow for clear parliamentary accountability"."The reforms represent a British solution to meet British needs. Their main elements are as follows. The Bank's monetary policy objective will be to deliver price stability and, without prejudice to this objective, to support the Government's economic policy, including its objectives for growth and employment. The Government will set the inflation target for the Bank. This target will be reviewed annually, and announced in the Budget. The Bank will have operational responsibility to achieve the inflation target.
304 "Decisions on what actions need to be taken to achieve the target will be taken by a Monetary Policy Committee, on the basis of a majority vote. The committee will include the Governor and two deputy governors nominated by the Government, and two senior Bank officials with management responsibility for monetary policy and market operations. But it will also include four other expert members appointed from outside the Bank by the Government. The committee will take responsibility for taking full account of regional and sectoral information in its monetary policy decisions.
"The Monetary Policy Committee will meet on a monthly basis. All decisions on interest rates will be announced immediately after the meeting. The proceedings of the meetings, including votes, will be minuted, and published within six weeks. The Monetary Policy Committee's performance will be reviewed by the Court of the Bank. The Court will be substantially reformed, so that it is able to take account of the full range of industrial and business views in this country and for the first time is fully representative of the whole of the United Kingdom.
"The Bank will be expected to report to the Treasury Select Committee and to the House. I will write to the chairman of the committee suggesting that the Bank's annual report be debated in the House, and that the Bank appear four times a year before the committee to give evidence and answer questions on its inflation report, so that the Bank's performance will be able to be judged by Parliament. There will be a review of the Bank's financial arrangements, to ensure that the Bank meets the highest standards of accountability and transparency, in the light of its new responsibilities. The Bank's role in debt management will be transferred to the Treasury.
"The Government will retain the right to override the operational independence of the Bank in extreme economic circumstances, for a limited period only, and subject to ratification by the House. I would expect this right to be exercised rarely if at all. These requirements mean that, while the Government retain clear responsibility to Parliament for the goals of monetary policy, the Bank will be clearly accountable for the operation of monetary policy, and will be required to report to Parliament on a regular basis. In addition, through the regular publication of the minutes of the Monetary Policy Committee's meetings, and the Bank's inflation report, the public will have sufficient information to judge the performance of the Bank against the target it is set.
"I intend to introduce legislation enacting these changes as soon as possible, for the House to consider. In the meantime, the Governor—for whose co-operation in this I am grateful—has agreed on a transitional basis to implement the new procedures for decision-making, and I will be nominating the four new members of the Monetary Policy Committee.
"I now turn to the question of prudential supervision. Of course this concerns not just the Bank of England, but also the reform of the Financial Services Act.
305 "Financial services lie at the heart of a modern, dynamic economy. The effectiveness and competitiveness of all our industries depend on the availability and efficiency of the increasingly wide array of financial products and services, from pensions and insurance to securities and derivatives. Our standard of living depends on them, particularly in retirement. Financial services are often complex and long term. Products, markets and advice must therefore be fair, honest, transparent and command confidence.
"It has long been apparent that the regulatory structure introduced by the Financial Services Act 1986 (FSA) is not delivering the standard of supervision and investor protection that the industry and the public have a right to expect. The current two-tier system splits responsibility between the Securities and Investments Board (SIB) and the self-regulatory organisations (SROs), together with the recognised professional bodies. This division is inefficient, confusing for investors and lacks accountability and a clear allocation of responsibilities. Reform is long overdue to simplify the delivery of financial service regulation, and this was a key commitment in our Business Manifesto. At the same time, it is important to preserve the beneficial aspects of the current Act, including practitioner involvement and differential levels of regulation for wholesale and retail business.
"I can announce today that work is to start immediately on the legislation needed to simplify and reform the regulatory system at an early opportunity. I am announcing our intentions in advance to give the SIB and the self-regulating bodies the opportunity to work with us on the detailed implementation of our proposals, to ensure the smoothest possible transition to the new regime. I am confident that the simpler system we are proposing will reduce compliance costs, and increase public confidence in the regulatory regime.
"But simply reforming the Financial Services Act is not enough in itself. In today's world of integrated global financial markets, the financial services industry transcends geographical and political boundaries and the regulatory response must meet this challenge. The UK financial services industry needs a regulator which can deliver the most effective supervision in the world.
"You cannot ensure the success of British financial services in the 21st century without modernising arrangements for the protection of investors. My reforms are essential to ensure the future confidence of investors large and small, and the future success of the increasingly integrated financial services industry on which so many British jobs now depend.
"At the same time it is clear that the distinctions between different types of financial institution—banks, securities firms and insurance companies—are becoming increasingly blurred. Many of today's financial institutions are regulated by a plethora of different supervisors. This increases the cost and reduces the effectiveness of supervision.
306 "So there is a strong case in principle for bringing the regulation of banking, securities and insurance together under one roof. Firms organise and manage their businesses on a group-wide basis. Regulators need to look at them in a consistent way. This would bring the regulatory structure closer into line with today's increasingly integrated financial markets. It would deliver more effective and more efficient supervision, giving both firms and customers better value for money. This would improve the competitiveness of the sector and create a regulatory regime that would generally meet the challenges of the 21st century.
"So I have decided to take the opportunity presented by the Bank of England Bill to reform the regulatory system. Responsibility for banking supervision will be transferred, as soon as possible after passage of the Bill, from the Bank of England to a new and strengthened Securities and Investments Board, which will also, as a result of forthcoming legislation, take direct responsibility for the regulatory regime covered by the Financial Services Act.
"SIB will become the single regulator underpinned by statute. The current system of self-regulation will be replaced by a new and fully statutory system, which will put the public interest first and increase public confidence in the system.
"The Governor of the Bank of England will be fully involved in drawing up the detailed proposals. The Bank will remain responsible for the overall stability of the financial system as a whole. The enhanced Securities and Investments Board will be responsible for prudential supervision.
"As the House will already be aware, Sir Andrew Large, the current chairman of the SIB, has decided to step down. I would like to take this opportunity to pay tribute to him, and thank him for his contribution to financial regulation over the past years.
"It is crucial to the success of these reforms that I am proposing that we should have a new chairman with the stature and calibre to implement them quickly and smoothly. Because of the importance I attach to drawing on the Bank of England's expertise in these areas I have asked Howard Davies, the Deputy Governor of the Bank, to be the first chairman of the enhanced Securities and Investment Board responsible for integrating the supervision of banking and financial services. I am pleased that he has agreed. He is of course already a member of the SIB board. He will take over as chairman when Sir Andrew Large steps down. Two new deputy governors of the Bank will be appointed in due course.
"I have today written to Sir Andrew Large with further details of my proposals. I have placed a copy of this letter, together with my earlier letter to the Governor on monetary policy, in the Library of the House.
"I am confident that the new arrangements, taken together, will enhance significantly the credibility of UK monetary policy and improve the workings of the 307 financial markets. That means lower long-term interest rates and higher growth and investment. Indeed, we have already seen long-term interest rates fall since my announcement a fortnight ago, reflecting the positive reaction to the new monetary framework.
"These reforms are founded on sound economic principles. This is a long-term policy for long-term prosperity. It provides the building blocks for a new economic strategy for monetary and financial stability aimed at enhancing longer term growth and prosperity. I am confident that their success will be reflected in a stronger and more robust economy for the long term".
My Lords, that concludes the Statement.
§ 5.57 p.m.
§ Lord Mackay of Ardbrecknish
My Lords, before turning to the Statement, I welcome the noble Lord, Lord Clinton-Davis, to his new post on the Front Bench as a Minister at the Department of Trade and Industry, which I am sure he will greatly enjoy. I especially welcome him to the role of Treasury spokesman, one that I fulfilled previously and took great enjoyment in. It is a little like having responsibility without power. You merely have to answer for what your Treasury colleagues do without having any role in deciding what it is. I found it great fun and very interesting, as I am sure the noble Lord will.
I am grateful to the noble Lord for giving me slightly longer to mull over the Statement than was given to my right honourable friend Kenneth Clarke in the other place. I believe that he had only about a quarter of an hour to look over a Statement of some considerable length and about two very important issues.
Many people were surprised two weeks ago by the announcement—not to Parliament—that the Bank was to be given operational responsibility for setting interest rates. I suppose we should therefore be grateful this afternoon that, two weeks later, Parliament has been properly informed. There was not much indication of that in the manifesto (although a paragraph was quoted in the Statement) nor in any of the speeches by Mr. Gordon Brown. Indeed, as recently as February Mr. Gordon Brown said:The Bank must demonstrate a successful track record in its advice and build greater public credibility".I should like to be assured, as I can only assume, that this was demonstrated over the very first weekend in May, and that in those few days the greater public credibility came about that justified the creation of the monetary policy committee.
When are we likely to see these appointments? As well as the additional deputy governor and the four others who are to be appointed there will have to be a replacement for Mr. Howard Davies. That makes a total of six appointments, all very clearly by the Chancellor of the Exchequer. It sounds very much like the first new quango. How independent will the Bank be if all the appointments are made by the Chancellor of the Exchequer?
308 Perhaps the Minister will tell me when we can expect to hear who is to be appointed and what consultation will take place. I see from the Statement that the Court is to be reformed to be fully representative of the whole UK. That may be fine, so far as it goes, but the real decision-maker will be the Monetary Policy Committee. Will it represent the whole UK? Specifically, will it represent Scotland, with its considerable financial sector? Will the new Scottish parliament and government, if they are set up, be consulted even on one member of the Monetary Policy Committee?
I also note that there is to be accountability to the other place via the Treasury Select Committee and that the annual report of the Bank is to be debated in the House of Commons. Will the Minister give me an assurance that at least the annual report of the Bank will be debated here, in your Lordships' House, to give us a chance to discuss these important matters?
I wonder whether the noble Lord, Lord Clinton-Davis, and his colleagues at the Treasury are confident that this new system will deliver as good a record on inflation as my right honourable friend Kenneth Clarke did, in conjunction with Mr. Eddie George. Is the Minister concerned that when the last Chancellor and the Governor disagreed, about two years ago, events proved the Chancellor right and the Governor wrong? In an independent system, interest rates would have been raised then, as banks have always proved to be more likely to follow deflationary policies than policies that would encourage growth and increasing employment.
We only have to look at the years before the war, when the Bank was independent. Are the Government absolutely satisfied that the Bank will not pursue deflationary policies? Is there not a danger that the Monetary Policy Committee will always err on the side of caution in order to meet the inflationary targets laid down? Therefore interest rates will be at a higher level than they need be and consequently there will be an upward effect on the value of sterling. I know that the noble Lord, Lord Paul, was concerned about that eight weeks ago and he must be much more concerned about it now than he was on the day he questioned me. It will also have an adverse downward effect on growth in our economy and on the employment rate.
Another point on the interesting proposal is this. I wonder whether this is the first step towards European monetary union. One of the first steps on the road to European monetary union is the independence of the bank. Is that the hidden agenda? Has the Foreign Secretary agreed, or has he been out of the country when these important decisions were made?
My last point about that part of the Statement is that I hope that by the new policy the Government do not think that they are off-loading responsibility for interest rates onto the Bank of England and that they can do a Pontius Pilate act on the subject of interest rates so that when the interest rates rise, they can wash their hands of any consequences and say, as they do in the television police programmes: "Honest, guv, nothing to do with me", or in this case, "Nothing to do with me, ask the Guy".
I turn to the second half of the Statement. The two halves merit being two separate Statements and not being run together because they are very important 309 indeed. The changes in the financial services provisions are considerable and wide ranging. When will the new Bill be presented to Parliament? Indeed, why was it not in last week's gracious Speech? Surely a Bill of this importance must have been agreed before yesterday evening. It seems to me that the SIB will have an enormous and important task not just taking direct responsibility for the regulatory regimes covered by the Financial Services Act, but also taking over responsibility for banking supervision from the Bank of England. There will be costs. I noticed that the Statement said that the compliance costs would be lower. I should like an assurance that there will be publication of a compliance cost assessment. When looking at the role of this new regulatory authority, I wonder whether it will include Lloyd's.
The details of these changes are not contained in the Statement but in a letter to Sir Andrew Large which has been placed in the Library. Clearly, we shall have to study the contents of that letter to learn a little more of the proposals. Will the Government consult in a meaningful way all those involved in the banking, insurance and financial sector? Will the Government always remember the vital role that those industries play in the wealth-creating sector of this country? Will they ensure that nothing they do in the creation of the new system will endanger the pre-eminent position of the City in the worldwide financial markets nor will it endanger the important role that other financial centres play around this country—for example, in Edinburgh?
I hope that the Minister will be able to answer those questions. We look forward to the two Bills: one that we knew about, on the Bank of England, the other being the new one which comes to us. Perhaps the Minister will give us an indication of when he expects the supervision Bill to come to Parliament.
§ Lord Ezra
My Lords, I join the noble Lord, Lord Mackay of Ardbrecknish, in extending congratulations to the noble Lord, Lord Clinton-Davis, on his important new ministerial appointment. I had not expected that we would hear from him at such length today. I was looking forward to his speech tomorrow and I hope to participate in that debate. What he has put to us today is of considerable importance and I am glad that we have the opportunity of commenting on it.
From these Benches, we welcome the Statement with its emphasis on long-term objectives. We welcome the greater independence of the Bank of England. That was specifically proposed in our manifesto, as the Minister is no doubt aware. I raised the issue as long ago as the middle of 1993 in a Question. I drew attention to the clear benefits which had arisen in New Zealand through the arrangements which they introduced there and which appear to be the basis for the arrangements now proposed for the Bank of England.
The Statement referred to the recommendations of the Treasury and the Civil Service Select Committee in the other place. It is precisely on the lines of those recommendations made at the end of 1993 that these 310 proposals have been put forward. So they have been carefully studied and there is every reason to be pleased that the proposals are now to be put into effect.
The Minister referred to accountability to Parliament. I join with the noble Lord, Lord Mackay, in saying that while much is made of the Bank's accountability in its new role to the other place, I hope that there will be a full opportunity for a review of the Bank's operations in this House.
Reference was made to the restructuring of the court. Again the point was made by the noble Lord, Lord Mackay, and I hope that, in that restructuring, the regions will be fully represented, as well as the commercial and industrial interests referred to.
I move to the second part of the Statement: the prudential supervision of the banking system. I very much welcome a review of the Financial Services Act 1986. I was one of those who had to sit through the tedious stages of that Bill and I must say that I found it one of the most complex and diffuse pieces of legislation that I have ever come across. It is probably a record in recent times. I ask the Minister for an assurance that its replacement will be more user-friendly.
I agree with the basic concept of bringing together in an enlarged SIB the regulation of banking and securities and insurance services. As the Statement rightly emphasises, demarcation between those various services no longer exists. Banks have moved into securities and insurance, securities companies have moved into banking and building societies have moved into banking and other services. There are no longer any distinctions in the whole financial sector. So it is right that there should be recognition of that fact. I also happen to agree that it is right that there should be a statutory basis for it. Those are such vital issues that leaving it purely on a voluntary basis is no longer adequate.
However, I should like to ask two questions on the subject. The first concerns the sentence in the Statement that:The Bank will remain responsible for the overall stability of the financial system as a whole".while the new SIB,will be responsible for prudential supervision".How are those two roles to be reconciled? Will there be a formal procedure for contact between the two bodies? I know that Mr. Howard Davies goes from the Bank and to begin with there will be clear contacts with the Bank. But as time goes on they could go their separate ways. I should like to be clear on how those two positions will be brought together.
There was also an emphasis on practitioner representation being maintained. At what level will that be done? Will it be at the SIB level or that of the various subordinate bodies? I presume that there will be subordinate bodies set up eventually. It will be important to know how the practitioners will come into the arrangements.
311 Taking those two measures together, we welcome them and look forward to the detailed legislation to put them into effect.
§ Lord Clinton-Davis
My Lords, at the outset let me thank both noble Lords for their comments. The noble Lord, Lord Mackay of Ardbrecknish, who is an old friend and sparring partner from transport days, was extremely nice about my appointment. He should not read too much into it so far as concerns my Treasury role. After my performance today, I doubt very much whether it will want to prolong it. Also, I note his comment about responsibility without power. Rather like that of a grandparent—which I am eight times over—it is a fallacy to believe that a grandparent has responsibility with power. It is total impotence.
The noble Lord said that we had not made the position clear in the manifesto. With the greatest respect in the world, I feel that he is mistaken; but that is understandable because I cannot believe that he read the manifesto, and least of all the business manifesto. When he acquaints himself with those worthy documents, he will find that we have not set upon this course with absolute suddenness over the past two weeks. With great respect, I feel that the noble Lord represents a party which is least well equipped to criticise us about quangos. A government who set about not simply setting up quangos but tangos—totally autonomous non-governmental organisations—ensure that they are a little out of court on that point.
The noble Lord asked a series of important questions. I am sure that he does not expect me to deal with every single one, but I shall use my best endeavours. He asked whether the new monetary policy committee would be representative of the whole of the United Kingdom. We were very careful in the course of the lead-up to the election and beyond to make sure that we were conscious of the need of the whole of the United Kingdom to be closely involved in matters such as those we have been discussing.
The whole issue of the Bank will be debated in this House, if this House so chooses, through the usual channels. I do not mind the noble Lord not having read our manifestos, but I wish that he had read the speeches of two former Chancellors of the Exchequer, the noble Lord, Lord Lawson, and Mr. Norman Lamont, who said that they wished they had embarked upon those policies. As my noble friend the Chancellor of the Exchequer said in another place not so very long ago, "I have had the courage of your convictions". That is precisely what has happened.
I am grateful to the noble Lord, Lord Ezra, who is another good friend. We worked together on a number of issues when I was in Opposition and I thank him for his co-operation. He knows that the existing system was not acceptable. It was widely opposed by experts in financial markets, by bankers, professionals and, above all, the noble Lord, over a long period of time. I find it astonishing that the Conservative Government appear to have learned nothing. This is not the time for the complacent acceptance that everything that they did was fine. I do not say that everything they did was wrong but apparently the electorate overall did not like the 312 message that they conveyed. That is less evident in this House, with numbers as they are, but certainly in another place it is plain. He ought to go over there and see the efficacy of what I say in that regard.
The noble Lord asked whether this was a first step toward EMU. That is not the case. We put this measure forward on the basis of the merits of the argument. There are many substantial differences, on which I do not have time to enlarge. But this is not a hidden agenda for EMU. In any event, further legislation would be required on the Bank before we would qualify for membership of EMU. If the noble Lord were to examine that matter a little more carefully, he would see that that was right.
The noble Lord then chose to inhabit the land of pretending that there are huge divisions between my right honourable friends in the Cabinet. Who are they to talk? Regardless of boxes of chocolates that pass from certain people to Ministers, hardly a moment passes without their being at each other's throats. This is a matter which obviously the Cabinet resolved to introduce as a matter of urgency, and that has been done.
The noble Lord went on to refer to the second half of the Bill and asked when the Bill would be presented. The first priority is to engage in consultation. We shall undertake to do that with great care. Banking supervision is covered in the Bank of England Bill which will be introduced as soon as possible. The financial services element may not be introduced in this Session but we are starting work immediately on the drafting and will introduce it at the earliest opportunity. That will provide for the necessary time for consultation, which is an important ingredient of that reform.
I turn to points raised by the noble Lord, Lord Ezra, who generally welcomed the proposals that we shall put before the House. He asked two specific questions. He asked whether the new SIB would be dealing fundamentally with supervision. I see the noble Lord rising. If I have misinterpreted the question, I am perfectly happy to give way so that he can clarify it.
§ Lord Ezra
My Lords, the point I made was that the Statement mentions that the Bank will retain overall responsibility for the stability of the financial system, while the new SIB would have specific responsibility for supervising banking and the other financial services. I asked how the two would link up.
§ Lord Clinton-Davis
My Lords, the noble Lord referred to contact through the personnel involved in this matter, which is obviously right. There will be a clear co-relationship between the two. That has to be the case. They must work in parallel and in partnership with each other. That will be the situation.
I am not absolutely sure about the element of practitioner representation. I shall certainly write to the noble Lord in that regard. As somebody who comes from a distinguished profession—even though I was not a distinguished member of it—I feel that the noble Lord is right: careful consideration needs to be given to the matter and I am sure that that will be the case.
§ 6.20 p.m.
§ Lord Callaghan of Cardiff
My Lords, perhaps I may make one observation and ask one question which I tried to convey to my noble friend, though I am not sure that it reached him.
The Chancellor of the Exchequer, Mr. Brown, said that to transfer the monetary function to the Bank of England was a bold step. He is right; it is a bold step. It is made more acceptable because the Government intend to set the targets and will appoint four additional members of the Bank monetary committee. The system has been shown to work in other countries. In this country we experienced a total failure when both issues were in the hands of the Government and we must see how it works out.
I do not withhold support from the idea. Both systems can work with the protection that the Government are giving to their own policy ends. It is a step worth trying in this country, though we must watch carefully and see what is the end result. I make just one suggestion; that is, that the four members appointed should have a longer term of office than the three years proposed.
The second point in the Statement is also a bold step and one for which I give three cheers. It is 10 years since I waited on the Bank of England in connection with a bank that I felt was drifting, though eventually it was proved to have criminal activity. I urged the governor to supervise it and take it under his wing, at any rate in so far as its British connections were concerned. He indicated that he had no real resources or facilities to do that and would be reluctant to take it over. There may have been other reasons in his mind which he did not disclose to me, but that was the reason he advanced.
The issuing of banking licences in the 1980s was far too lax. We seemed to take on anybody who wanted to come. Who will be responsible for issuing banking licences under the new regime? Will it continue to be the Bank of England or, as I hope, will that function be transferred to the new supervisory board? Because of the globalisation of financial institutions and the speed of communications, supervision is now an extremely difficult task and should be examined closely. Will the supervisory board be able to enter into discussions on an international basis with other bodies in other countries in order to see what measures of regulation can be applied? That is absolutely vital. Alternatively, will that be left to the Bank of England?
Those are matters which I am sure will be worked out. On the whole, I give two cheers for the proposed transfer of monetary facilities and three cheers for the supervisory board.
§ Lord Clinton-Davis
My Lords, I am grateful to my noble friend for that support. He is always listened to with care in this House and his suggestions are worthy of consideration. I undertake to pass them on to my right honourable friend the Chancellor of the Exchequer.
My noble friend rightly said that this is a bold step. It is one for which I wish he had given three cheers, though one must be thankful for small mercies. I was not sure where the missing cheer went. I can say that 314 we will not be complacent in regard to working out the scheme relating to the Bank. We shall learn as we go along. As my right honourable friend indicated, this is a time for change, a fact which has been recognised swiftly by the Chancellor of the Exchequer.
In regard to the question relating to the term of office being longer than that proposed, I shall pass on that comment to my right honourable friend. I am sure it will be carefully heeded. In relation to the second part of the Statement, I can say immediately that the enhanced SIB will be responsible for licensing. The Bank will have no responsibility for authorising and supervising banks. That accords fully, I believe, with what my noble friend said.
My noble friend's point in regard to international communication is correct. Financial institutions conduct their business on a global scale now and it would be impossible to conceive that there could not be an enhanced role for international communication to ensure that supervision becomes more effective.
I have said many times in this House when I had some responsibility in the Opposition that the fragmentation of the supervisory roles undertaken by different institutions did not lead to a satisfactory undertaking of supervision in the general sense. What my right honourable friend has in mind will improve that position; indeed, it would not have been introduced if that were not the case. It is not a party political opinion. It is an opinion shared by many people in the financial world. I have heard it debated many times in this House and that opinion has been shared by many noble Lords.
§ Lord Boardman
My Lords, the noble Lord will be aware that for many years past the economic policies of this country have been settled by successive Chancellors of the Exchequer with the use of two instruments; that is, fiscal policy and the fixing of taxation and monetary policy and the fixing of interest rates. The Government now propose to throw away the operational control of monetary policy. Does the noble Lord believe that the economy can be fairly and properly balanced by throwing away one of those important arms? I ask him not to be misled by what happened in the Bundesbank in Germany, in America or in New Zealand. Those are all quite different circumstances.
§ Lord Clinton-Davis
My Lords, while it is true that to cite other instances is not the end of the argument, it is surely worthy to look at the experiences of other countries, which have not been wholly bad. It would be complacent for us to adopt the view that it has been tried elsewhere and fundamentally we should discard that experience. That is not the view of the Government. We can learn from this and may even be able to learn one or two things from the Opposition.
My Lords, the Statement made clear that in fixing the bank rate the Bank of England will have to act within limits set by the Chancellor of the Exchequer. Perhaps I may ask two brief questions in that regard.
315 Will those limits be wide or narrow? Whether they are wide or narrow, what will happen if the Bank decides, after consulting the monetary policy committee, that it would be against the national economic interest of the country to act within the limit instead of outside it? The factors which should be borne in mind are the need to control inflation internally, the fact that interest rates have an effect upon the balance of payments and our obligations within the European Union.
§ Lord Clinton-Davis
My Lords, the Government are very conscious of those obligations. We have spelt out our position. We have certain legal obligations which have to be fulfilled. I have set out in the Statement the remit of the Bank of England and the Chancellor respectively in this matter. Perhaps the noble Lord will look at that carefully after we have engaged in this discussion. Essentially it is giving the Bank operational responsibility for setting interest rates. I do not view the matter in the apocalyptic way in which the noble Lord does, though I always respect his views because he speaks with a good deal of authority in this place. However, I think he is wrong on this occasion.
§ Lord Lucas of Chilworth
My Lords, perhaps I may refer to the second part of the Statement; that to do with the SIB. The Minister will recall that together with my noble and learned friend Lord Cameron of Lochbroom we sat through the proceedings on the Bill concerning the SIB. Indeed, I was in a similar position to the Minister in putting the Bill before the House in 1986 from the DTI. I do not think we got it right then in certain respects. If there is to be a review it seems to me that with the change in circumstances over the past 11 years that matter should not be confused with the Bank of England responsibilities under the new proposals. There are enough grounds in terms of the supervisory nature of the SIB for it to stand on its own. It would be regrettable if there were a confusion—almost a constitutional confusion—between the Bank's traditional responsibilities and its new ones and the straightforward responsibility of the SIB.
The intentions in 1986 were perfectly sound. They were upset by the chairman-designate in the build-up of the SIB itself during the passage of the Bill. A good many alterations had to be made to accommodate that. In the department itself there was not total agreement. Nevertheless, it established a regime which is now in need of updating. I hope therefore that the Minister can answer the question of the noble Lord, Lord Ezra. Will Lloyd's be included? Another point follows on. In looking at the regulation of securities and banking one might at the same time have to look at the repercussions there will then be in terms of the present Insolvency Acts.
§ Lord Clinton-Davis
My Lords, the issue of insolvency is a separate one. I would not wish to deal with that today. On the other constructive points made by the noble Lord—he speaks with some experience in this field—it is worthy of note that the noble Lord believes that it is important to carry out this 316 review of policy and to undertake legislation but after appropriate consultation. I welcome what he said in that regard.
As to whether Lloyd's will be included, this is a matter, as with other professional organisations, that we shall be discussing and consulting on. We shall not pre-empt that position. With respect, the noble Lord perhaps in a way misconceived what we are trying to do. We have announced the very definitive proposals which will be the subject of the first Bill dealing with the Bank of England and then we shift on to the other area which we have covered. But I think it was appropriate to announce today what those signposts are. They are not unrelated but they will be separate Bills. As I have indicated, there may not be time in this Session for the Bill dealing with the supervisory role. I notice that the noble Lord is shaking his head in agreement. I thank him for that and I thank him for his constructive comments.
§ Lord Monkswell
My Lords, I congratulate my noble friend on his new position and I am particularly thankful that he has long experience of parliamentary affairs, going back, dare I say, to the last Labour Government under the noble Lord, Lord Callaghan. Can my noble friend confirm that we will learn from the experiences this country has had under the Conservative Government, from the problems that emerged ranging from Johnson Matthey, BCCI, Barings, and the personal pensions scandal to the problems at Lloyd's and also from the fact that we have had two major recessions which generated mass unemployment on a scale unseen since before the war and the destruction in the early 1980s of one-third of British manufacturing industry? Can we have an assurance that the object of government policy now is a reduction in unemployment and inflation and not just inflation on its own, which was the policy of the previous government, and that the measures he has put before the House in the Statement are designed to ensure that twin-track policy, bearing in mind the changed world situation, with particular emphasis on unemployment and manufacturing industry in this country?
§ Lord Clinton-Davis
My Lords, I thank my noble friend for that intervention. As I said at the beginning of my remarks—it now seems a long time ago—our central purpose economically is high and stable levels of growth and employment. We have made that clear over and over again. We are committed to that. It is because we are seeking to learn from the experience of the past and it is because we have identified a number of deficiencies in this regard that we have come forward with these proposals. So the answer to my noble friend on both counts is yes.
§ Lord Hooson
My Lords, will there be any formal provision for liaison between the Chancellor and the new committee? At the moment there is a monthly meeting between the Governor of the Bank of England and the Chancellor. What will happen if the committee has it in mind to put up interest rates because of a 317 deteriorating situation and the Chancellor at the same time is thinking in terms of putting up taxation? When will the liaison take place?
§ Lord Clinton-Davis
My Lords, the liaison, in so far as it occurred in the past at the monthly meetings and so on, is now at an end. What we are talking about is a different commitment altogether with different responsibilities, which I have, I hope, outlined satisfactorily to this House this afternoon, if not to everyone's satisfaction. I am sure that my right honourable friend the Chancellor will not fail to see the Bank of England officials from time to time but the formality of those meetings and the way they are conducted will now be different. I think this is a better way to proceed than the situation over the past two or three years when the previous regime obtained.
The Earl of Balfour
My Lords, is it the idea of Her Majesty's Government to make the Bank of England more independent, rather like the Bundesbank appears to me to be independent of the German Government?
§ Lord Clinton-Davis
My Lords, the proposals that we have for so-called "independence" are not necessarily akin to those of the German Bundesbank. This is a British solution for British needs, as, I hope, I purposefully said at the very beginning. What I do not want to do is to ignore the experience of others; we can always learn from them and it is to be hoped that they might even learn from us.