Monetary Policy and Economic Affairs

HL Deb 12 July 2001 vol 626 cc1181-215

3.35 p.m.

Lord Peston

rose to move, That this House takes note of the Report of the Select Committee on the Monetary Policy Committee of the Bank of England (Session 2000–2001, HL Paper 34) and the First Report of the Select Committee on Economic Affairs (Session 2001–02, HL Paper 5).

The noble Lord said: My Lords, in moving this Motion I am introducing a debate on the last report of your Lordships' committee, the Monetary Policy Committee of the Bank of England, and also, as a technical matter, the first report of your Lordships' new Select Committee on Economic Affairs. On behalf of the committee I wish to thank our Clerks, Simon Burton and Christine Salmon and also our economic adviser, Michael Wickens, who is professor of economics at the University of York.

Perhaps I may also say how much I welcome to our deliberations the noble Lord, Lord Sheldon. The noble Lord was an immensely distinguished figure in the other place. I am confident that he will be equally distinguished in your Lordships' House.

Having made those nice remarks, perhaps I may now be allowed to revert to my normal acerbic self. I shall draw your Lordships' attention to some of the recommendations in our main report. I shall then use that as a basis for some broader remarks on the economy and on economic policy.

On the recommendations I have to say with great regret how disappointed I am with the Treasury's response. It is not that we expect it to agree with us on all our recommendations, or indeed on any of them, but we do expect it to engage with us at a serious level. Its response simply does not measure up to that. Without being too cynical, it is hard to believe that its response took more than one hour's work on the part of some junior official.

Thus, we said that the Chancellor of the Exchequer should consider lowering the inflation target and then report his conclusions to both Houses. The Treasury response simply ignored that and gave us four quite vacuous sentences that are an insult to your Lordships' intelligence. I repeat, I am not saying that the Treasury should agree with us; I am saying that it might flatter us a little by offering some serious arguments.

Similarly, we emphasised the so-called "trade-off" between inflation and unemployment and the speed with which the Monetary Policy Committee should respond and offset an adverse shock. Again, no economics argument was offered to us by way of comment and reply.

Having praised the Government and the Bank of England for its openness on monetary policy—a subject to which I shall return in a few moments—we raised the question of the transparency of fiscal policy and the need for stronger scrutiny in that area, especially with regard to the momentary and fiscal balance. Here, too, having claimed that it is committed to transparency, the Treasury did not take the point of the contrast between the remarkable openness of the Bank of England—I cannot emphasise too strongly how remarkably open it has become—and the relative lack of openness with regard to fiscal policy.

On appointment to the Monetary Policy Committee we continued with our position that your Lordships do not wish to get informed with matters such as confirmation hearings of individual members, which the other place for reasons best known to itself feel that it is able to judge. We did, however, recommend that consideration be given to the involvement of the Commission for Public Appointments in the prior scrutiny of MPC members. That was largely ignored, except that the Treasury reiterated its point that these appointments are specially market sensitive. Your Lordships' committee was quite unconvinced by the Treasury's argument and looks forward one day to the Treasury demonstrating something other than an ad hoc view of that kind.

I turn to the Bank of England. A most important recommendation made by the committee was that it should undertake a review of methods of forecasting—notably of inflation. Our concern was that we should be at the forefront and should be fully cognisant of what is ca fled state of the art forecasting. I interpret the Bank of England's response as a positive one, but I am not yet in a position to report to the House that the review has been set in hand. Given the excellence of the earlier Kohn report on the MPC itself, I would expect such a review of methods of forecasting, once it takes place, to be a major contribution to public policy in this area. The next time the House debates economic matters I hope to be able to report on precisely what the Bank of England is doing.

I turn to our recommendation on the voting procedure of the Monetary Policy Committee. I continue to believe, as does the committee, that voting should be simultaneous, with everyone voting at the same time, rather than sequential, with the late voters knowing what those who spoke earlier have said they want to do with interest rates. By the end, the votes do not matter any more as a majority has already been achieved. On any rational grounds, simultaneous voting is the correct way and sequential voting is wrong. That does not mean that members of the MPC would not wish to take into account each other's views on what the relevant policy should be. But that is a matter of the discussion mechanism before the vote and should not be part of the voting procedure.

An interesting point was made to us that simultaneous voting might once in a while leave the governor in the minority. I do not regard that as a sign of weakness or as undermining the governor's authority. Quite the contrary, it is a sign of strength, both of the MPC and of the governor, that differences of view can be coped with and that any individual person can be in a minority. Perhaps I may make a personal remark. In my committee, we never vote. We always come to an agreement. But it sometimes happens that I am in the minority and the committee decides something with which I disagree. If one is part of a committee, one accepts that. That does not mean I remotely accept that I am wrong when I am in the minority. simply accept that that is how the world has to behave if we are to go ahead in terms of committee behaviour. I certainly hope that one day we shall see the governor in a minority simply to show what a powerful figure the governor is rather than the reverse.

I turn to the question of accountability. It was recognised—certainly as far back as the debates in the House on the 1998 Act—that the House would have a part to play in the process of scrutiny. Indeed, my noble friend Lord Barnett and I, even though we were on the government side, were constantly pressing the Government to recognise that, and they accepted it. The House has done so through your Lordships Select Committee on the Bank of England Monetary Policy Committee and I can assure the House that the new Economic Affairs Committee will from to time continue to scrutinise the Monetary Policy Committee. However, I was disappointed recently to see that a House of Commons research paper on the MPC makes no mention of our first major report on the MPC or of the report we are currently debating. Perhaps Members of the other place are so well versed in economics and economic policy that they have nothing to learn from us. But I doubt it.

I turn briefly to the economy more generally. The Economic Affairs Committee is currently looking at the global economy. One day I hope that we shall produce a report that your Lordships will be interested to debate. What I wish to stress at the moment—this is why the global remark is relevant—is that we have to recognise the extent to which an economy like ours. which is so open, is subject to external economic forces. We do not live in a world of our own. 'We live in a very large world of which we are an important but fairly small part.

Your Lordships' committee has said—I think that most people now agree—that the MPC has done remarkably well, but we have to recognise that the MPC cannot insulate us from world economic shocks. If there is a world downturn, there will be a UK downturn. That leads to the conclusion that good economic policy can dampen the cycle but it certainly cannot remove it.

I, for one, would like to see full employment given as prominent a role in economic policy as low inflation. Noble Lords are aware of my view that young men who have never had jobs, let alone decent jobs, or are unemployed for long periods are prey to those who lead them into crime, rioting and the like. I am not saying that anti-social behaviour is fully explained by economic forces, but I am insisting that those who do not appreciate that unemployment, low incomes or, more significantly, no incomes have serious adverse social effects are hopelessly naive.

Lastly, I return to transparency and the related matter of democratic scrutiny. Your Lordships' committee continues to complement the Monetary Policy Committee of the Bank of England. That stands in sharp contrast to the European Central Bank. Noble Lords know that, on balance, I favour joining the euro. But the more I reflect on the lack of transparency of the European Central Bank and its failure to be subjected properly to external scrutiny, the more worried I am. I have always been doubtful about the macro-economic foundations of the European Central Bank's policy making. It has seemed to me to be rather naive and primitive compared with the sophisticated approach of the MPC. At least as serious as that is the need to devise a better means of scrutinising what it does—both by the European Parliament and, as I have said before, by the Parliaments of the member countries. I suppose that some of the blame lies with us because we did not join in the first place. But that does not make me any the happier.

However, I must not end on such a negative note. The Monetary Policy Committee of the Bank of England has performed remarkably well and is to be congratulated on its performance, from its inception up to the present day.

Moved, That this House takes note of the Report of the Select Committee on the Monetary Policy Committee of the Bank of England (Session 2000–2001, HL Paper 34) and the First Report of the Select Committee on Economic Affairs (Session 2001–02, HL Paper 5).—(Lord Peston.)

3.47 p.m.

Lord Saatchi

My Lords, I welcome the opportunity to debate this second report of the Select Committee on the Monetary Policy Committee. I also thank its chairman, the noble Lord, Lord Peston, and all the distinguished members of the committee for this second valuable examination of such a vital part of our financial system. It is also a particular pleasure to welcome the first report of the House's new Select Committee on Economic Affairs, again expertly chaired by the noble Lord, Lord Peston. I anticipate with pleasure the maiden speech of the noble Lord, Lord Sheldon, who will add further to the expertise in your Lordships' House on economic affairs.

The creation of the committee is a break-through for the House. I pay tribute to the noble Lords, Lord Peston and Lord Barnett, for seeing it through to fruition. I hope that one fine day it may lead on to further advances by your Lordships' House in the area of economic scrutiny of the government of the day. I look forward to coming back to that issue in the next Session.

The Select Committee system is one of the most respected aspects of our parliamentary system. The depth and precise style of the reports we are considering today confirm why that is so. So is it not deeply disappointing to all sides of the House to hear the views of the noble Lord, Lord Peston, on the Government's response to the committee's recommendations? It is baffling. I look forward later to hearing the Minister tell us why the Government have been so very negative in their response to the committee's recommendations.

It is vital that the committee continues to scrutinise the structure and performance of the MPC, an institution whose verdicts on economic policy each month are awaited with trepidation throughout the country. I believe that in 1781 the then Prime Minister, Lord North, who at the time was arguing for the renewal of the Bank of England's Charter, said that the Bank was, from long habit and the usage of many years … a part of the Constitution". Echoing what was said by the noble Lord, Lord Peston, I hope that the committee will continue for many years to come. Similarly, so should the MPC, which is an excellent creation to which we add our congratulations on its efforts.

Having said that, however, two problems can be seen on the horizon which give noble Lords on these Benches cause for concern as regards the happy arrangements we now have in place. First, I refer to the relationship between fiscal and monetary policy, a point on which the noble Lord, Lord Peston, touched in his remarks when referring to a lack of openness about fiscal policy; and the potential risk to what we now have in place caused by the Government's taxation and spending plans as revealed in the Red Book. The second is the implication for the MPC and its workings of the pressure coming from many quarters in the country to join the euro at a rate which, it is said, will help businesses that are exporting to the euro-zone. Perhaps I may deal with each of those two points in turn.

Paragraph 127 of the report contains what I think is an interesting revelation on the first of the issues; that is, the relationship with fiscal policy. The committee stated that: We are surprised that the Chancellor and the Governor do not discuss the balance between fiscal and monetary policy". In paragraph 2 the report sees a strong argument for openness in, and scrutiny of, fiscal policy, as there is for monetary policy. How effectively can the Bank and the Treasury liaise on monetary and fiscal policies when we are told that the Chancellor and the Governor do not discuss them? Does the MPC rely on the Government's public statements, like the rest of us? The Government's answer, contained in paragraph 4 of their responses to the first report, is that, The Government is committed to openness and transparency in fiscal policy". However, we have just heard the noble Lord, Lord Peston, state that the Government's responses to this expert report could not possibly have taken more than an hour's work. He described them as an, insult to your Lordships' intelligence". When the Government say that they are committed to openness and transparency, was it not also an insult to the intelligence of the editor of the Financial Times who, on this subject, stated that the Government had, reduced Budget transparency to a new low. Important tax changes have been omitted from the speech"? The editor refers here to the Budget Statement.

Statistics have rarely been quoted on a consistent basis. The Budget documentation has been filled with political point-scoring rather than factual analysis. There has been a continued tendency to classify the collection of revenue as anything other than taxation". That is a powerful combination of opinion from the noble Lord, Lord Peston, and the editor of the Financial Times. They do not think that the Government have shown openness and transparency on fiscal matters.

Can the Minister tell the House when the MPC was made aware that in April and May of this year government spending would rise by a staggering yearly rate of 12.5 per cent? Will the Minister also explain how the MPC first found out that the Government, having first repaid debts of £34 billion—and received applause for doing so—would then promptly borrow it again over the next four years? In the Red Book, the Government say that their solution to the gap between income and expenditure is to borrow £12 billion a year by the end of this Parliament. Has the Minister held discussions with the MPC about the consequences of such a deficit? Would it not be better if the Monetary Policy Committee could speak out, if it believes that fiscal and monetary policy are at variance, and perhaps then declare publicly whether its decisions might have been different, given a different fiscal stance?

Those remarks cover the first issues concerning the relationship between fiscal and monetary policy to which the noble Lord, Lord Peston, referred. Perhaps I may turn now to another subject on which he touched; namely, the euro. A sharp weakening of the pound is being quietly cheered on by all those who want this country to join the euro. But wisely, in paragraph 49 of this report, the committee has issued a warning which states that: We note the possibility of serious effects should the markets begin to anticipate that the UK will join the euro". A decision to join the euro inevitably would mean that the MPC would need to pursue a more proactive monetary policy because no one seems to want to join the euro at today's exchange rate.

That is only the beginning of the problems for the MPC which would be created by a move towards the euro. If we start moving towards the euro, this current period—on which the noble Lord, Lord Peston, has correctly congratulated the MPC on sustaining a period of stability—of relatively independent monetary management under the MPC regime, which we all praise, would cease to be a part of what Lord North called the "usage of many years".

I should like to consider some aspects of the new regime which we shall be getting into. First, again following on from what was said by the chairman of the committee, the transparency in which the MPC operates is renowned. Everyone considers that to be excellent. But, as the noble Lord, Lord Peston, said in terms, the MPC's practices stand in stark contrast to the opaque workings of the ECB. Perhaps noble Lords would consider the following exchange of correspondence between my researcher in this House and her opposite number in Europe. I believe that it is quite revealing. The Minister should find this particularly amusing: Hi, Samantha, I hope you're OK. I have a really quick query. How long after the ECB meet to discuss euro-zone interest rates are the minutes of the meetings published? Many thanks, Alex". The reply reads as follows: Hi, Alex. Sorry I didn't get the chance to get back to you yesterday. Hope all is well. The ECB does not publish any minutes of meetings at all as they are 'confidential'. All you can get is a two-paragraph statement on the rate that appears on their internet site—www.ecb.int. Hopeless, isn't it? Samantha". I offer a further illustration. On 10th May, the ECB stated that it was cutting interest rates because low growth prospects meant lower inflation. The ECB said that future prospects, no longer pose a risk to price stability". But now we know that in May—the month in which that statement was made—inflation in the euro-zone rose from 2.9 per cent to 3.4 per cent, its highest level since the euro's launch in January 1999. By what reasoning did the ECB get it so wrong? This we shall never know and is the reason why many people, led by the noble Lord, Lord Peston, are becoming worried about replacing the MPC with the ECB.

By contrast, the Bank of England publishes the minutes and voting records from its rate setting meetings. The Bank of England Act 1998 laid down that minutes of the MPC meetings would be published within six weeks. The MPC then voluntarily reduced that period to two weeks. Furthermore, the United States Federal Reserve Open Market Committee publishes the minutes of each meeting before the next regularly scheduled meeting. However, that does not apply to the ECB.

Perhaps I may cite another worrying issue, on which I can offer a further exchange of correspondence, which will be new to the Minister. This is an e-mail to James from Alex: A question, James. Will Eddie George be our man in Frankfurt? Alex". The reply to Alex stated that: The answer to this is yes". James then goes on to say that: Article 10 of the Protocol on the Statute of the European system of central banks and of the European Central Bank states that the Governing Council shall comprise the members of the Executive Board of the ECB and the Governors of the national banks. Together they all vote (by simple majority) on the interest rate policy. In the event of a tie the president has a casting vote. The council is required to meet at least 10 times a year". What that means is that, instead of the MPC regime—I am sure that most noble Lords will praise it in the course of their remarks—we shall get into a situation in which we shall have no more influence on euro-zone monetary policy than the governor of the Luxembourg central bank, even though our economy is much bigger.

If we take these moves towards the euro, the Bank of England's independence and the MPC's role would end. It would become the London branch of the ECB. Control over interest rate decisions to suit not only Britain but the whole of the European Union would pass to the European Central Bank and our Governor's vote would become only one out of 17 votes. I find that extremely worrying.

It will lead to a tangled web at the centre of the future of the MPC. Multinational companies, many of whom we know are pressing the Government to join the euro, are saying that the exchange rate must fall below our current rate of 3.15 to 3.20 deutschmarks. All of them say that the present rate of sterling is "unsustainable" and "uncompetitive" and would cause another ERM débâcle if we joined at this rate. Noble Lords should remember that, when we joined the ERM, it was set at the fateful rate of 2.95 deutschmarks. We all remember what happened. So they say that the pound must be cut. Sir Edward George says that he hears suggestions from such businessmen varying from 2.40 deutschmarks to 2.90 deutschmarks.

This implies, on average, a 12 per cent fall in the pound versus the euro. I am told by those who well know about these things that that kind of devaluation will add 1.5 per cent to UK inflation, taking it to over 4 per cent, way above the Bank of England's target of 2.5 per cent.

We should remember that inflation in the UK is already at 2.4 per cent, so we are already on the Bank of England's limit. Any further rise in inflation caused by a devaluation of the pound to get us into the euro at the right rate, will trigger interest rate rises. That would lead to a wider gap in interest rates between the UK and the euro zone, less convergence and, probably, a higher pound—the exact opposite of what the devaluers in industry want.

It is no wonder that the Chief Economic Adviser to the Treasury said that the inflation target and price stability were both at risk. These are the very essence of the MPC's work. Is not the Government allowing an exchange rate target to creep into the deliberations of the Bank of England, which the Bank of England Act expressly states it will not do? Is not euro entry—or the prospect of euro entry—threatening the separation of powers expressly laid down in the Bank of England Act, on which your Lordships toiled for many a long hour?

As Mervyn King, deputy governor of the Bank of England, said: The only problems worse than those of an excessively strong currency are those of an excessively weak currency". Given all these issues ahead, it is not surprising that the report of the Economic Affairs Committee tacitly foresees the emergence of strong, differing opinions within the MPC and recommends that, any MPC member wishing to offer a short paragraph by way of explaining their vote should be encouraged to do so". That is surely a welcome suggestion from the committee, but so far there has been no response to it. I suspect that, given the difficulties ahead—which I hope I have described—the monetary policy debate will get much hotter in the next few years. I very much hope that the MPC, with the help of the recommendations of the Select Committee, will keep up the good work it has done so far.

4.2 p.m.

Lord Taverne

My Lords, I look forward to the maiden speech of the noble Lord, Lord Sheldon. We have had many discussions in the past about economic policy. That was more than 30 years ago. At that time I was a Treasury Minister and he was a very critical Back-Bencher. We very much look forward to his contributions in general.

I enjoyed being a member of the committee of the noble Lord, Lord Peston. I am sorry that it was incompatible with membership of another committee on which I now serve. It was a pleasure to serve under his vigorous and erudite chairmanship. I am delighted that he has not allowed his tendency for the odd acerbic remark to lapse. In fact, I am slightly worried that his independence may lead to the Government seeing to it that he should follow the fate of Mrs Dunwoody in another place. But no doubt in this House things are better ordered.

I believe that this is a useful report. I do not agree with every detail of the comments on appointments or the voting order, but these seem to me to be relatively minor points. The reason the report was inevitably detailed—as the noble Lord, Lord Peston, pointed out—is because the main conclusion of the Select Committee, which is shared by informed opinion generally, is that so far the Monetary Policy Committee has been working well. I believe that most of us agree that its framework for policy is probably better than that of the European Central Bank, but it is too early to judge whether its record will necessarily be better. These are early days.

One has to remember that so far the MPC has performed in largely favourable circumstances, whereas the next few years are likely to be more testing. I want to talk briefly about the future problems, leaving the details of the report to others who were members of the committee. What prospect do we face at the moment? I do not think that it has ever been more uncertain. Will we face recession? Will we face inflation? Or, possibly, will we face a combination of the two?

Manufacturing industry is already in recession. Consumption is still roaring ahead—certainly it is still increasing—but the future of services has become somewhat doubtful. Does this mean, as industry as a whole has demanded, that we need lower interest rates? That would not greatly help exports directly. On the other hand, obviously, we also face the possibility that we will have a lower pound and pressure for higher inflation, which means higher interest rates.

One of the regrets that I have about the Select Committee is that we did not pursue more vigorously the question of the influence of the pound. That is clearly of the greatest importance, both for inflation and for manufacturing. It seemed to me that the circumstances were favourable for intervention. Sterilised intervention was possible with the pound high in a way that would not have affected inflation and would not have led to a loss of reserves.

I was always met with the argument that the case against sterilised intervention is very well known; or that there is academic literature which disproves the case for it. There is also some recent academic literature, which is supported by some highly reputable economists, in favour of it. Indeed, I learnt afterwards that some members of the Treasury, who denied any contemplation of any such intervention at any stage, had discussed it and that some had been in favour. But the issue was rather dismissed and it was not properly examined.

The role of the pound clearly will be crucial. The question we have to face is what is the greater danger at the present time, recession or inflation.

In the short term, the key is not what the Monetary Policy Committee does but what happens in the United States. What will happen there and what can the Federal Reserve do? The name on everyone's lips is "Schumpeter". I do not say it is a subject of daily discussion in the pubs of this country, but many people have raised the question of whether we are facing a Schumpeter recession.

This does not look like a normal business cycle. It is not a case of recession being faced because of a decline in consumption. It is more like the classic Schumpeter cycle where innovation leads to mania, which in time leads to recession. Certainly the irrational exuberance of the American stock exchange—particularly for high tech stocks—has had an element of mania about it. The result has been over-investment, excess capacity and now, of course, sharply lowered profits, which were 10 per cent down in the first quarter of this year.

It is amazing how rapidly the forecasts have changed. In September, most commentators seemed to be expecting a continued high rate of growth in the United States of 4 per cent; now they are forecasting 1.5 per cent, and it may well be that the forecast will go even lower.

Will there be a further fall of the stock market in the United States? Will this lead to a loss of consumer confidence—in which case we really would face a recession? Or is it possible that Greenspan can ride to the rescue again? Certainly the recent results of intervention by the Federal Reserve have been very different. as an article in today's Financial Times points out, from the two previous occasions on which it cut interest rates. Rather perversely, unlike the past two occasions, long-term interest rates have risen; the exchange rate of the dollar has risen, instead of falling as one would expect; and share prices, far from being boosted, have fallen further.

So can the Fed prevent recession? It may be that in due course—again, it is early days—the cuts which have already been announced, and possible future cuts, will lead to more borrowing and will sustain consumer expenditure. On the plus side, it is clear that the housing market in the United States has held up. But if there is further inflation in the United States and the Fed has to raise interest rates, it could be that previous actions will lead to a worse recession than we would otherwise face.

As I said, what happens in the United States is vital. I am not in the business of predicting, except in one respect. I do not know whether we will face a slowdown in the United States and then a recovery, with the increased rate of productivity leading to a recovery sooner rather than later, or whether we will have a recession. However, I can make one prediction. It seems clear that we are, at the least likely to face a period of considerable slow-down. As the noble Lord, Lord Peston, said, that is bound to affect the European Union and this country.

Contrary to expectations, we have not so far been worse hit than other EU countries but rather less so. Germany has been badly hit; France is now also being badly affected. But we are not immune. What seems clear is that economic growth in this country will be much lower than was expected only last autumn. Revenue will be lower because of a lower rate of growth. The public finances will be affected.

Last autumn, figures issued by the Government predicted that, at the present rate of rapid growth in public spending, the deficit would grow to a level that might mean some change of policy by about 2004. My prediction would be that that is more likely to happen in 2003. Then, we shall probably face, in the middle of this Parliament, a choice between either abandoning the higher rate of growth in public services announced by the Government, or we shall have to face a considerable rise in taxes. The rashest promise made by the Government during the election campaign was that there would be no rise in direct taxes, which would leave the burden to fall on indirect taxes. It was a terrible hostage to fortune. It may well result in promises being broken for the continued expansion of the public services.

None of this will make the task of the Monetary Policy Committee any easier. Indeed, I suspect that in a year or two the future minutes of the Monetary Policy Committee will make even more interesting reading than they have done in the past. In two or three years' time we shall be in a better position to judge whether the Monetary Policy Committee has earned the same kind of respect in the United Kingdom as Mr Greenspan has earned in the United States.

4.12 p.m.

Lord Sheldon

My Lords, first, I must express my gratitude for the kindness and help that I have received. I offer particular thanks to Black Rod, to the Clerk of the Parliaments, to my noble friend Lord Carter, to the attendants, and not least to my noble friend Lord Barnett. In another place I enjoyed the presence of my noble friend Lord Barnett on the same Bench for 19 years. I missed it for 18 years and I am delighted to be able to resume my place next to him.

Inflation was the problem of the 1970s, 1980s and early 1990s. The question that we have to ask ourselves is this: is inflation going to be the main economic problem of the early part of this century?

When I entered the House of Commons in 1964, the noble Lord, Lord Callaghan, then Chancellor of the Exchequer, talked about his economic objectives: growth; balance of payments; inflation; and unemployment, as was mentioned by the noble Lord, Lord Taverne. These are surely still the unchanging objectives of our time.

Of course, inflation has been a most serious matter and the present Chancellor of the Exchequer was right to deal with it. In one sense, it is the easiest of the four objectives to deal with. Sufficiently severe deflation can bring it down. In the past four years, it has been dealt with efficiently and sensitively without that severe deflation. The question that needs to be put is this: is inflation still our main economic problem and does our preoccupation with it limit the success we might be able to achieve in the other three areas?

But, first, there is the question as to how far we should pride ourselves on our success in reducing inflation. After all, it may have less to do with the mechanisms we have been putting in place but rather more to do with the international events that have taken place in recent years. World prices, even though distorted by certain continuing trade barriers, continue to provide a deflationary aspect. In the four years 1996 to 1999, world imports increased by nearly 20 per cent. In the same period, world import prices fell by 12 per cent. So we had increased trade with lower prices. The consequence has been a world-wide downward pressure on prices. These movements are the consequences of the reduction in trade barriers and of greater international competition. Additional to this, we have had the over-valuation of the pound, which has reduced import prices.

What of the future? There are two events which are likely to influence inflation. One is the continuing effects of globalisation: the ease with which manufacturing expertise is passed from one country to another. This is the situation where companies operating internationally can produce in whichever country is the most favourable, particularly where there is a combination of low-cost labour and access to modern technology. The other is the influence of the euro, which was addressed by the noble Lord, Lord Taverne.

With world trade still continuing its increase, price differentials in the euro-zone will continue to come under the pressure of international competition. When price differences between countries in the euro-zone become more and more anomalous—when consumers see the identical product priced in the same currency but at a higher price in one country than in another—consumer pressure will be unstoppable. Again, the pressure on prices will increase. Of course, not all transactions are easily tradable across countries, but the overall result will be to drag many prices downwards.

If, as I hope, we shall be joining the euro earlier rather than later, there will be two consequences. The first is the further pressure downwards on common prices in the euro-zone. But the second will be the consequences of entering at a competitive rate for sterling. The net result for inflation will be influenced by the actual exchange rate of entry. On this matter my expectations in the past have usually been disappointed. On such occasions, when a fundamental change in the exchange rate is proposed, I have usually been in favour of a lower rate for sterling than that which has been achieved. That is mainly because of my concern for our manufacturing industry.

Financial interests have always been stronger than industrial interests in Britain. The current piece of evidence for this comes from the very composition of the Monetary Policy Committee. The City is just down the road from Whitehall—manufacturing industry is much further away and its voices are weaker. If the pressures against a truly competitive exchange rate remain as they always have been, then the inflationary consequences even on joining the euro may be only mildly positive. Even if, against my expectation, the rate is realistically competitive, then the inflationary pressures will, I believe, be short term and containable.

Following this assessment, the control of inflation, although obviously a major objective, may need to cede its primacy and revert to the position 30 years ago, when it was one objective among others.

Denzil Davies, the Member for Llanelli—a Treasury Minister in the 1974 to 1979 Labour government—said in another place on 9th April: As I see it—perhaps I should not say this—the problem is becoming not rising inflation but a falling rate of inflation. If the trend continues, there could be a fall in the general level of prices. That would take us into deflation, as may have happened in Japan over the past few years, where inflation has probably settled at zero".—[Official Report, Commons, 9/4/01; col. 748.] Voices such as this are not often heard.

Of the four Callaghan objectives—growth, balance of payments, inflation, and unemployment—the first objective for me has always been growth. It is the prosperity of our nation which must be our first consideration. Thereafter, we ought to be able to deal with the fairer distribution of wealth and income, which was the starting-point of my personal political allegiance.

So, in the more relaxed atmosphere now that inflation might not appear as the overarching consideration, I would hope that we can turn our attention once again to the more difficult task of bringing about growth in the economy; more difficult because there is no sure mechanism. There are, however, a number of useful pointers. The first is the ability to run the economy at a reasonable level of demand; the second is to ensure that this is made more likely by an exchange rate which does not pass too much of that increased demand to overseas suppliers; and the third is to continue and expand the micro-measures to help companies.

In the context of stable, or, on occasion, even falling prices, the consequence will need to lead to a monetary relaxation with, I would hope, a lower pound and a greater importance being given to fiscal rather than monetary policy.

In the past four years, the decisions of the Bank of England have circumscribed the fiscal decisions of the Treasury. The Chancellor of the Exchequer always had to take into account how far the Monetary Policy Committee would assess his economic decisions and whether it might compensate for them. Of course he could alter the 2½ per cent central inflation rate, but that might put the credibility of the Monetary Policy Committee arrangement in some doubt. But if inflation ceases to be the overriding economic problem facing us, the situation may well revert to somewhere near normal with the actions of the Treasury limiting the effectiveness of the Bank's procedures rather than the other way round.

The result of all this might be a fresh look at some of the earlier ways of managing the economy. I suspect that future debates are more likely to deal with the problems of growth, manufacturing industry and the balance of payments than those we have had in recent decades. I look forward to them.

4.23 p.m.

Baroness Noakes

My Lords, in the post-maiden position on the Speakers' List, it falls to me to welcome the excellent speech just made by the noble Lord, Lord Sheldon, in which he demonstrated a completely masterly understanding of economic affairs; and, as such, made a great contribution to today's debate. I hope that he will make many more contributions to our future debates. Of course, all that should not have surprised us because the noble Lord's reputation came before him. However, perhaps I may remind the House of what that reputation—at least, in part—comprises.

The noble Lord, Lord Sheldon, was a Member of the other place for 36 years. For 14 years of that time—the longest ever—he was the chairman of the PAC. The noble Lord has also chaired other committees in the House of Commons and served a spell as Treasury Minister in the 1970s; and, indeed, ended up as Financial Secretary to the Treasury. I believe that that legacy was evident in the most interesting contribution that he has just made to today's debate. We very much look forward to hearing from the noble Lord again.

I am very pleased to have the opportunity today to contribute to the debate on the excellent report of the Select Committee on the Monetary Policy Committee. I join other noble Lords in thanking the noble Lord, Lord Peston, and his committee for a most stimulating report.

Until a few weeks ago I was a non-executive director on the Court of the Bank of England, having first been appointed in 1994. For the past three years, I held the position of chairman of the Sub-Committee of Non-Executive Directors of the Bank of England—in common parlance, the senior non-executive director. This is the first opportunity that I have had to speak on Bank of England matters as an outsider; and I welcome that opportunity.

I hope that I shall not disappoint noble Lords when I say that this will not to be a "kiss and tell" speech. I have no great revelations of life inside the Bank to unleash— at least, not today! Rather, I should like to speak to some of the recommendations in the committee's report on which I have some experience by virtue of my membership of the Court.

It may help noble Lords if I explain briefly the role of the Court of the Bank of England in relation to monetary policy. The Court of the Bank has statutory responsibility for managing the affairs of the Bank with the specific exception of the formulation of monetary policy, which is reserved to the Monetary Policy Committee. But the story does not end there as the Court and, in particular, the Sub-Committee of Non-Executive Directors have a statutory responsibility to keep the procedures of the Monetary Policy Committee under review. In my time as chairman of the subcommittee this oversight of the MPC's procedures was the most challenging of our statutory responsibilities.

I know that your Lordships' committee has taken evidence from all members of the MPC. I hope that the committee found that MPC members are not complacent about the way in which the MPC operates.

One of the features of the MPC from which the non-executive members of Court took great comfort was the willingness to review the way in which it works and, indeed, to make changes. One example of this, which is referred to in the report, is the decision to release the minutes of the MPC meetings two weeks thereafter rather than the four to five weeks that it took previously. That was the MPC's own decision; it did not have to do it. Under the Act, the MPC has up to six weeks to publish the minutes of its meetings. But the MPC cares about transparency, to which the noble Lord, Lord Preston, referred as being one of the positive features of the way in which the new arrangements are working. The MPC also cares about good communications and about stimulating an informed debate on the economic issues of the day. So the committee took that initiative.

The Select Committee has suggested some changes in the way that the minutes are handled, especially the attribution of views to individual members of the committee, and giving views on the future path of interest rates. I can assure noble Lords that both of these issues have often been discussed by MPC members. There are both advantages and disadvantages in making a change, and no solution is without difficulty. The MPC currently calculates the balance of advantage in one direction, but I do not think that it is indiscreet of me to say that opinions vary. I should not rule out change in that approach from the MPC in the future. However, I advise the Select Committee not to hold its breath on the subject.

Another example of the flexibility of the MPC is the way in which it has shifted its approach to the quarterly inflation forecasting round, some of which was in direct response to the emerging findings of the report by Don Kohn, to which the noble Lord, Lord Peston, referred. The MPC did not wait for Mr Kohn's final report to be released; it actually took the emerging findings and ran with them. However, I do not believe that the MPC has reached the end of the road on responding to the Kohn recommendations, which raised a number of very complex issues. I know that the Select Committee on Economic Affairs has already discussed some of those issues with the Governor of the Bank of England. I hope that this new committee will take the opportunity to look comprehensively at the Bank's follow up to the Kohn report in due course. There are still many more interesting areas to consider.

Therefore, for those matters that are within the competence of the MPC—of course, not everything has been covered in the Select Committee's report—my firm belief is that the MPC can be relied upon to examine carefully and regularly how they work and to make the necessary changes. From my many conversations with MPC members, both collectively and individually, I believe that they really care about doing their job of formulating monetary policy to the best of their ability. They have a genuine ambition to be world class, if not the global leader, in that task.

One of the suggestions made in the Select Committee's report concerns the process of voting. The noble Lord, Lord Peston, pressed the case for the introduction of simultaneous voting. I urge caution with that recommendation. Whatever theory experts would have you believe, decision-making is more art than science. It concerns the best way for a group of individuals with shared goals to reach agreed solutions to real problems. The MPC is a group of individuals with a common goal of setting the best possible interest rate for the British economy consistent with its statutory remit of price stability. For my money, whatever method the MPC feels most comfortable with is the right method for decision-making. I should be wary of trying to impose some theoretically superior model. "If it ain't broke, don't fix it", remains good advice.

The Select Committee's report raises a number of issues about the appointment of the external members of the MPC. I have much sympathy with those recommendations. Like the noble Lord, Lord Peston, I was extremely disappointed in the Government's response. I highlight especially the recommendation that not all of the external members should be full-time appointments—to which the Government did not even bother to respond. I hope that the Minister will say something about the Government's policy on that issue.

I go further than the committee and question whether any of the external members of the MPC should be full-time appointments. I know that there are some practical difficulties to be resolved relating to conflicts of interest but I am sure that practical solutions can be found if there is the will to do so. I urge the Economic Affairs Committee to consider the time that needs to be devoted by an external member of the MPC to discharge his or her functions and also to consider the benefits that a life, albeit part-time, outside Threadneedle Street can bring to the workings of the committee.

On the subject of appointments, the committee confined its observations to the appointment of the external members. I urge the Economic Affairs Committee to cast its net wider. The four external members of the MPC are appointed by the Chancellor. Two of the internal Bank members are appointed by the Governor in consultation with the Chancellor, but in effect they are ex officio appointments as laid out in the Act. The remaining three are the Governor and the two deputy governors and these appointments are likely to be live issues over the next couple of years. The Governor's term and that of one of the deputy governors expires in 2003 while the other deputy governor's term expires in the autumn of next year.

These appointments are formally made by the Queen but, of course, on the advice of the Prime Minister and his Chancellor. The appointment of other members of the Court, also Crown appointments, are now made following Nolan procedures. The previous appointments of the Governor and the deputy governors were not made using open selection procedures—far from it. I should be interested to know how the Government intend to proceed with these new appointments, or indeed the process of reappointment if that is thought to be appropriate for any of the three positions.

I am sure that the Economic Affairs Committee should take an interest in that matter. These three make up one-third of the MPC and the Governor's role as chairman of the MPC is pivotal. Furthermore, the Act states that the external members must have knowledge and experience relevant to the MPC's functions and the two internal ex officio members by definition bring to the job particular expertise. However, the Act is silent on the competencies required of the Governor and the deputy governors. The Government's specification for those appointments is thus a crucial issue and one which I hope can be exposed along with the process itself.

For the past seven years the Bank of England has been an important part of my working life. I am proud to have been a director and continue to hold the Bank dear in my affections. I hope therefore that I shall be forgiven for having taken so much of your Lordships' time in responding to the valuable report produced by the Select Committee.

4.35 p.m.

Lord Barnett

My Lords, I hope that your Lordships will not mind if I say a few words about my noble friend Lord Sheldon. After all, we were elected together nearly 37 years ago—I was a child at the time! It is marvellous to see him here. Noble Lords may not appreciate how lucky we are to have the noble Lord with us, as last year in St James's Park his life was saved by Duncan Goodhew, the famous swimmer. My noble friend collapsed but his life was saved. I, too, am delighted to welcome him as it is wonderful to have him here.

The noble Baroness appeared to indicate that she would reveal some secrets about the Bank of England, if not today, then tomorrow. I look forward to reading a serialisation in the Sun newspaper at some stage. I refer to the opening remarks of my noble friend Lord Peston. I agree with everything he said. As regards why the Treasury response was as it was, anyone who has been a Treasury Minister—as have my noble friend, myself and the noble Lord, Lord Taverne—will know—I state this mildly—that Ministers in the Treasury do not care very much about what happens in the House of Lords. They do not respond in the way that we should like. I am sorry that that is the case. It is a pity that the situation has not changed since my day but I hope that it will soon. As my noble friend Lord Peston said, as regards appointments to the Monetary Policy Committee, the Treasury gave a totally inadequate response.

I hope that, on reflection, the Treasury will recognise that House of Lords Select Committees are rather more important than those in another place. We are normally much more objective, brighter, more perceptive and show a greater understanding of the issues, but, more importantly, we do not make party political points. We are, of course, also more modest! The important point to note is that our committees do not take on board party political views. We consider matters more objectively. I hope that the Treasury will recognise that point and will respond to our reports rather more satisfactorily than it did as regards the report we are discussing.

Unlike the Members of the Treasury Select Committee who indulge in many party political disagreements in their reports—I do not know how Mr Radice, who is soon to become my noble friend Lord Radice, managed to chair such a committee—our committee quite rightly does not second guess what the Monetary Policy Committee does from month to month. We are much more concerned with how and why it makes its decisions.

I want to consider what the Monetary Policy Committee would do if there were to be convergence of the euro and sterling. It was made crystal clear to us by the Governor that virtually the sole concern of the committee is to meet the inflation target. If noble Lords care to look at the evidence, they will see that despite pressure the Governor simply would not admit for one moment that it considers economic and other issues. As regards a secondary target, subject to that, of considering the Government's economic policy, he refused point blank to say that the committee ever directly takes account of economic policy. I found that rather surprising, but there you are. He says that achieving a sustained inflation target alone meets all the objectives of the policy, as set out by the Bank of England Act.

Uncynical as I am, I found the Governor's replies possibly somewhat economical with the truth. Having read the minutes of the Bank of England Monetary Policy Committee, which discusses economic policies in great depth, I cannot believe that the issues are ignored after they have been discussed.

After what we have heard from the Governor of the Bank of England and others, there is little doubt that an overnight convergence of the euro-sterling exchange rate would have an impact on the inflation rate and on the economy generally. Exactly what would happen in such circumstances would depend on many other factors as well, and the action needed by the Monetary Policy Committee would depend as much on those other factors as on the convergence. There would be some beneficial effects for exporters, although importers might not be so delighted. It is worth at least wondering what the Monetary Policy Committee would do, because a lot would depend on its reaction.

Total convergence is highly unlikely to happen overnight. In any event, convergence—or a lack of it—with the euro is not the real issue. It is nonsense to suppose that the world is waiting to see whether sterling and the euro are converging and if so by how much, or that it would be the end of the world if they did not do exactly as we would like. The real question is how the Monetary Policy Committee would react.

Not untypically, the noble Lord, Lord Saatchi, taking on board what my noble friend Lord Peston said about the European Central Bank, took the opportunity to make a strongly euro-sceptic speech. He will be pleased to know that he even had my noble friend Lord Shore nodding in agreement. That is the best that can be said about his speech—or at least about that part of it; I like the jokes that his researcher found and the noble Lord delivered them well.

Given the objectives set in the Bank of England Act and the interpretation described by the Governor, there is an expectation that interest rates would rise, possibly substantially, if there happened to be such convergence. What about the Chancellor's reaction to his five economic tests on whether we should join the euro: the first and most critical is convergence"? Those are not my words, but those of the Chancellor. He explained that that meant, sustainable convergence between Britain and the economies of a single currency".—[Official Report, Commons. 27/10/97; col. 584.] That means convergence not just of exchange rates, but of economies as well.

If the Monetary Policy Committee's remit is as stated by the Governor, euro-sceptics such as my noble friend Lord Shore—of whom I am very fond., as he knows—should be delighted. If we met the exchange rate convergence criterion, we would inevitably diverge even more on interest rates and other parts of the business cycle. In those circumstances, whatever the views of the Governor or the Monetary Policy Committee, the Chancellor at least is committed in principle to Britain joining the euro. The concern must be that with the Government's present policy we will never have the sustainable convergence that the Chancellor wants. As soon as we converge, we will immediately diverge. I am glad to see my noble friend Lord Shore nodding in agreement. If we stick rigidly to the present policy, we will never meet the Chancellor's five tests. I hope that that is not the reason why he set them.

Euro-sceptics would be even more delighted if the present member states of the euro had to meet the Chancellor's test of convergence for all time. They would never achieve it and the euro-zone would break up. However, that is not going to happen. There is not sustainable convergence even between any 15 counties of the UK. Economics does not work that way in the real world.

The Government have told us that the Chancellor and the Prime Minister—I assume that it will be only those two—will make an assessment in two years on whether we shall have a referendum. It will be a trifle difficult, to put it mildly, for the average voter to understand the complex arguments on whether, at that time or in the future, there could be sustainable convergence. I dare say that most Members of your Lordships' House, or even members of the committee, would find it difficult to assert that there would be sustainable convergence. However, that is required by the five tests. The average reader of the Sun, the Mirror or any other paper would know all about that, of course, because they would read our debates avidly and would know exactly what was going on. I have always opposed the idea of a referendum on such a complex matter and I am even more opposed now.

Neither the Governor nor the Chancellor, who are both very able men, can say when the country will achieve sustainable convergence. Nobody can say that. The Chancellor said on 27th October 1997 that among his main reasons for divergence was the, legacy of Britain's past susceptibility to boom and bust". We know from the number of times that the Chancellor has used that phrase that they are his favourite words. However, we cannot be susceptible to boom and bust any more, because he is in charge and he has assured us that measures are in place, to ensure that we are capable of maintaining stability".—[Official Report, Commons, 27/10/97; col. 584.] Stability is not the same as sustainable convergence. The main problem could be how the Monetary Policy Committee interprets the Bank of England Act. We are told that the Chancellor and the Governor never discuss what the Monetary Policy Committee is doing on fiscal and monetary policy. I find that surprising. There is no "Ken and Eddie show" any more, but there is a private "Eddie and Gordon show". I suppose that they talk about the weather or something, because we are told emphatically that they do not discuss monetary or fiscal policy. I can only conclude by saying that it is time that they did, especially on the interpretation of how they will achieve sustainable convergence.

4.48 p.m.

Baroness O'Cathain

My Lords, I welcome the opportunity to debate these two reports—the end of term report of the Select Committee on the Monetary Policy Committee of the Bank of England and the first report of the Select Committee on Economic Affairs, which is really the final chapter in the work of the first select committee, being the Government response to the former report. In one way it will be difficult to adjust to the new name for the old committee, as it is very much a case of plus ça change, plus c'est la même chose. I use that phrase particularly for the benefit of the noble Lord, Lord Barnett, Europhile that he is—although he probably does not understand it. The new committee has a much wider remit, but we shall still keep our collective beady eye on the continuing work of the Monetary Policy Committee.

It is customary to pay tribute to the chairman, the specialist adviser and the clerks of the committee. I do so with no hesitation. In my experience, which is now quite extensive, all four of them were fundamental to the creation of a good atmosphere, which encouraged all the members of the committee to give of their best. I am sure that all the members of the committee agree that we have been very fortunate in our quartet and I thank them.

Although the report printed on 13th February was a follow-on report to our original work, it is important. It shows how the House can serve a useful purpose in continuing to scrutinise a relatively new area of activity and ensure that it is satisfied that all is going well.

The granting of independence to the Bank of England was a dramatic development in many ways, but one that has achieved positive acceptance. It is seen to have worked and, indeed, is seen to be working. But there is nothing that cannot be improved upon in life, and both the reports are, I suggest, required reading for those with a keen interest in how the MPC has progressed during its still relatively short life.

In this debate I want to highlight two recommendations in the first report and, while doing so, comment on the Government's response to them, contained in the second report. They are, first, the advisability of maintaining the inflation target at 2.5 per cent, as referred to in paragraph 18 of the report, and, secondly, the subject of the scrutiny of appointments to the Monetary Policy Committee, dealt with in paragraph 122.

Although the committee supported the symmetric inflation target and considered that the figure of 2.5 per cent should be retained for the moment, it recommended that the Chancellor should give consideration to setting the target at a lower level and that he should report his conclusions to both Houses of Parliament. The noble Lord, Lord Peston, has already spoken of his disappointment at the Government's response. That response, in effect, thanked the committee for endorsing the continuation of the 2.5 per cent target but ignored the suggestion that consideration—mark the word "consideration"—be given to setting the target at a lower level; in other words, "Thanks for the support and don't make any stupid suggestions that are not worthy of comment or consideration".

I appreciate that at times the deliberations of Select Committees are an irritant to a government who have, in their view, "Better things to do". But irritants can often lead to better things in themselves—let us not forget the grit in the oyster. The Government's response reads a little like, "Run away, little boy"—or "little girl", as the case may be. Indeed, the noble Lord, Lord Barnett, stated that even more succinctly, "Treasury Ministers do not care"—he stated that twice—"about the House of Lords". Perhaps I may suggest gently that sometimes the mandarins at the Treasury do not interpret the impact that economic fundamentals, such as the inflation rate, have on lesser mortals. Wage claims is a case in point.

The argument out there goes something like this. The Government believe that 2.5 per cent is the correct inflation rate for this economy. We know that the true inflation rate, if measured on the same basis as it is measured in the EU, is somewhere below 1 per cent. It is acceptable to ask for 2.5 per cent wage increases and some more—say, another two or three percentage points—as the Government appear to be sanguine about inflation. Then what happens to our competitiveness?

We are constantly reminded that we cannot operate in isolation and that we are part of the global economy. I do not wish to anticipate the work on globalisation being undertaken by our revamped committee—the Select Committee on Economic Affairs—but none of us should be unaware that economic developments, particularly in the areas of finance and business, now impact much more rapidly throughout the world than they did even four years ago. In fact, work has been carried out which suggests that they operate within hours. That is borne out when one looks at the impact on stock markets over the past few months.

Fixing an inflation rate target immutably may not be such a bright idea. We are not suggesting for one moment that the Government should fix and change the target on a regular basis; rather, we suggest that it would be sensible at this stage for the Chancellor to consider setting the target at a lower level and to report his conclusions to both Houses of Parliament.

I know that the Government will not readily admit that they have inherited, and been blessed with, a benign period of economic stability since 1997. Even less readily will they admit that they inherited the best set of economic fundamentals that any government have done since World War II. However, that should not result in the perception being created that it is valid to seek to increase wage settlements and prices by near monopoly suppliers of goods and services to a figure above the 2.5 per cent target rate of inflation when our true rate of inflation, measured on the same basis as that of our major trading partners, is about 1 per cent. I believe that the Government should look again at our recommendation and report back.

With regard to my second point, following the government response to the recommendations in the February report—namely, on the scrutiny of appointments—our recommendation stated: We note the continuation of non-statutory confirmation hearings by the [Commons] Treasury Committee. We do not propose [that the new Economic Affairs Committee should undertake] such confirmation hearings … We do call on the Chancellor, however. to report to Parliament on the merits and implications of involving the Commissioner for Public Appointments in prior scrutiny of MPC members". In view of the evidence that we had received, the response from the Government was utterly predictable. One cannot but feel that on issues of the selection of individuals to take on hugely important roles, this. Government consider that they "know best". Is it always the case that they know best? Has it always been the case that governments know best? Do government fly in the face of valued experience from other sectors, readily offered, and, indeed, free advice readily given?

As an aside, I remember vividly the arguments that the roles of the FSA chairman and chief executive could easily be combined under one person, as they are now. In view of the latest hot-off-the-press information in the sorry saga of Independent Insurance, I wonder whether the onerous responsibility of the combined role on one man might have led to a less than detailed scrutiny of the warning from France many months ago that all was not particularly well with that organisation.

However, I return to the subject of the debate. The third paragraph of the Government's response to the recommendation states: The MPC is also subject to internal scrutiny by the directors of the Bank's Court who are responsible for monitoring the M PC's procedures"— as my noble friend Lady Noakes described to us— The membership of the Court is broad, including leading figures from organisations representing the consumer, from manufacturing industry, the trade unions and the financial services industry". However, I ask noble Lords to note the words: The MPC is also subject to internal scrutiny". Nothing whatever is said about the scrutiny of appointments. The response to the MPC Select Committee can be seen on page 40. I want to ask the Minister whether appointments to the MPC have been subject to internal scrutiny by the Court of the Bank of England and what the Court has done in that regard. In looking at the printed words, I believe that there has been no scrutiny by the Court because no mention is made of it in the evidence to the committee.

As a consequence, I believe that two of the three paragraphs in the Government's response to our recommendation about appointments have nothing whatever to do with appointments. That reinforces the view of the noble Lord, Lord Peston, that the response was put together in about an hour and probably with the use of a Word programme so that two paragraphs could be slotted in to make the response appear more wordy.

The Court of the Bank of England is held in high regard. The doubts that I have about the necessity for a broader method of scrutiny of appointments to the MPC could be allayed if the Court scrutinised the appointments. I would welcome a response from the Minister telling me whether the Court does or does not do so.

In the early stages of my contribution this afternoon, I remarked that the granting of independence to the Bank of England was seen as a positive move. It has worked, and is working, well. I suggest that my comments are in a positive vein, wishing the MPC well and hoping that it will continue to be successful. Above all, however, one wants to avoid a situation where a bland acceptance of the target inflation rate leads to complacency, which, in turn, creates a casual disregard of global and national economic reality. It sometimes behoves us to remember, as I do, vividly the 10 consecutive months in 1975 when inflation in this country ran at a rate of between 21.2 and 26.9 per cent per annum. At least we are now somewhat more financially secure.

4.59 p.m.

Lord Burns

My Lords, it has been a great pleasure for me, too, to participate in the committee and I also pay tribute to the noble Lord, Lord Peston, for his chairmanship. I am sure that he will understand if I say that his style often has challenging aspects. Sometimes I am not sure whether we are taking evidence or helping the noble Lord to give witnesses a tutorial.

Sometimes our deliberations take on the style of an academic debate on some finer points of economic theory. It is an even greater tribute to the noble Lord that he is able to secure such a wide measure of agreement amidst such fine activity.

The delay in having this debate meant that we had time to receive responses from the Treasury and the Bank of England. As noble Lords, including the noble Lords, Lord Peston and Lord Barnett, have said, the report received the most cursory response from the Treasury, which simply does not do it justice. I am always reluctant to criticise Treasury Ministers, but for a Government who pride themselves on openness and transparency it is astonishing that they are so reluctant to give reasons or to explain why they disagree with the committee's recommendations. I hope that we will receive a response that is a little more reasoned.

I seek to distinguish between the issues that are the clear responsibility of the Treasury and those that fall to the Bank of England. The Treasury's responsibilities include legislative arrangements, the letter from the Chancellor to the MPC setting out its remit for the following year and the appointment of members of the MPC.

On this occasion the committee did not make any recommendations about legislative arrangements. There is general agreement that the Bank of England Act has worked well and that the separation of roles between the Treasury and the Bank of England has been a success. The setting of interest rates has been depoliticised, but the Government are still seen as being accountable for the broad sweep of economic policy and the institutional arrangements that are in place, which is a good balance.

The issue that keeps coming up in this context—it has already arisen in this debate—is whether it is right for the focus of monetary policy to be so firmly on inflation rather than giving more weight to other considerations. I believe that everyone agrees that there was recently a degree of misalignment in the exchange rate and we are increasingly seeing structural imbalances in the economy, with a high level of domestic demand and an emerging balance of payments deficit. We also have the ongoing divergence between the performance of manufacturing and that of non-manufacturing.

That is a long-standing problem for economic management and the number of ambitions that policymakers have in that regard far exceeds the instruments that are at their disposal. So far my view is that the concentration on inflation has worked well. We state in the report that on the basis of our evidence there is greater agreement about the fact that that approach is correct. However, I doubt whether the debate is over for good. It is not difficult to imagine circumstances that would return the argument to the forefront—a balance of payments deficit could spark a sequence of events, including a sharp correction of sterling. In his excellent maiden speech, the noble Lord, Lord Sheldon, raised some aspects of that debate. I say that as someone who has for a long time supported the notion that monetary policy should concentrate on the inflation rate; however, the current level of agreement on that may turn out to be a temporary phenomenon.

The committee made some suggestions about the annual letter from the Chancellor to the Governor in respect of the inflation target. At the outset, however, we make it clear that there is widespread support for the symmetrical target, which I believe has been a great success, and for sticking to the RPIX measure, although in some respects that is not ideal for our purpose. The committee did, however, raise the possibility of considering a lower target if we continue to undershoot the 2.5 per cent target. That was one of the recommendations that received a very curt response from the Treasury.

Personally, I see no great urgency for changing the target but I get alarmed by the suggestion that moving from 2.5 per cent to 2 per cent will be an enormous blow in relation to growth, unemployment and stability in the period ahead. There are of course short-term trade-offs but we would not be in the business of trying to control inflation if we did not believe that low inflation was a goal worth striving for and which brought longer-term benefits to the economy.

The next area of Treasury responsibility that I want to discuss is the making of appointments to the MPC. It seems clear that there is scope for improvement in that regard and, again, I am very disappointed by the Treasury's response. There is widespread agreement outside the Treasury that members' terms should be longer and that there should be renewal only very rarely. As I pointed out the previous time we discussed this matter, political influence comes much more through the process of reappointment than through the initial appointment. The present three-year term for members sits very unhappily in a process in which we expect changes in interest rates to have their full effect in two years. In practice we are seeing a very rapid turnover among members of the MPC either because they have not been invited to stay on or because they do not wish to stay on. The degree of turnover is probably higher than one would like. If we want stability of membership and we really want members to be independent, we must have the courage to give them sensible terms of appointment—to give the committee's recommendation, it could be for five years—and to rotate membership at that point. I cannot understand why the Government are not prepared to engage in some discussion on that issue.

The committee also made several suggestions about improving the handling of appointments, which have also been rejected. I understand some of the Treasury's concerns and, having had some experience of trying to find people to fill the slots, I confess that I am not a great fan of "Nolan procedures" for this type of post. At a minimum there should be an announcement of a forthcoming vacancy and an invitation for candidates to put themselves forward if they wish. That would not prevent the tap on the shoulder or the telephone call out of the blue asking for an immediate response. We learnt that that is the standard procedure and that it is designed in such a way as to surprise everyone, so there is no opportunity to discuss who might be a possible candidate. Changing the system would give others a chance to advance their own case and would reduce the suspicion that one was simply chasing after the "usual suspects". As the noble Lord, Lord Peston, said, the argument about the market sensitivity of appointments is at the very least a huge exaggeration and will not persuade many.

I turn to the responsibilities of the Bank of England, which include setting interest rates and the working of the MPC, including the publication of minutes. I join with other noble Lords in acknowledging the continued success in carrying out those responsibilities. The average inflation rate over the period was very close to the target and we have seen the close tracking of the inflation rate to the target over the whole period that the MPC has been in place. That was combined with relative stability of output growth. Taken together, it is right to acknowledge that that has been really impressive by any standards. There is a high degree of confidence about the way in which the MPC is discharging its job and everyone involved should be congratulated.

It has become usual for commentators to qualify their praise for the MPC by suggesting that conditions have been very benign. That seems to upset some members of the MPC, who like to point out that they have been dealing with an enormously difficult set of circumstances and who are prepared to give one a very long list. I agree with the noble Lord, Lord Sheldon, that the real comparison is with the situation in other industrial countries. I, too, note that output stability and low inflation have also been present elsewhere. Without doubt, that makes life easier for this country and for the MPC. As a result, my concern, if anything, is that the MPC has actually been too successful over the period. It has got us used to the standard of meeting the inflation target, which it will be enormously difficult to continue to meet. When we return to a situation that is more like a normal level of tracking error I worry that that will be wrongly seen as a great failure. However, we will have to deal with that problem when we meet it.

I would like to pick up one point from our report so far as the Bank is concerned relating to the issuing of minutes. The committee made some suggestions for improvement, although it welcomed the prompt publication and clarity of minutes. Our suggestion was that individual members might write a short paragraph of their own explaining their vote. The Bank's response is that most members are not enthusiastic about the suggestion. The implication, however, is that some members are enthusiastic—that was confirmed by the noble Baroness, Lady Noakes.

However, the MPC seems to suggest in its reply that individuals can explain their points of view better in personal speeches and interviews. So we have a rather elaborate parlour game. The minutes contain a variety of views, which are not attributed to individual members, although members are encouraged to make speeches and to give interviews. Commentators then scour those speeches and interviews. They try to marry up comments in the minutes with particular individuals. That may be very good for employment in the City, but I have grave doubts about the transparency of it all. We agreed in the committee that we do not want to see a blow-by-blow account of what happens or to pry into the intricate nature of the decision making. I hope that soon we can move beyond these games. I am disappointed by the comments of the noble Baroness, Lady Noakes, that we should not hold our breath on this particular issue.

I was also disappointed by the rejection of our suggestion to provide an executive summary to the minutes. The MPC suggests in its response that, instead, the busy reader might turn, first, to the section headed "immediate policy decision" in order to see the essence of the argument. I confess that that is exactly what I do. I go straight to that part of the minutes and then, if I have time left, I go to the front and start skimming the detail. I suspect that a very large proportion of readers do exactly the same thing. Some of them may not be as willing as I am to confess this weakness. This action tells us something about the weakness of the structure of the minutes; at least there is some suggestion that there is a need to re-think. It is disappointing that there is no willingness to do that.

My comments distract me from the fundamental conclusion that the process has been a success. The design has stood the test of time so far, and I think that the execution has been first rate. The main job now is to maintain the standard of performance. The committee set about its recommendations very much in the spirit of trying to find ways in which one can take a good performance and make it better, and also to give us a better chance that it may be sustained in the future.

5.12 p.m.

Lord Haskel

My Lords, I congratulate the committee on its work. I am also surprised at the response of the Government especially as the first and second reports from your Lordships' committees have generally been supportive of the work of the Monetary Policy Committee. The recommendations have generally been helpful rather than destructive and friendly rather than antagonistic. However, this was not always so.

When the Chancellor first announced the independence of the Bank of England and that interest rates would be set outside Government, the criticisms came thick and fast, not just from political opponents but also from some sections of business and industry. Some in the City were critical and, to be fair, some in our own party were critical and unhappy about the arrangement. They told us that the British economy was too diverse for an independent committee to take such a decision: that the interests of rural fanning and urban industry could not be reconciled; the interests of the growing services sector were in conflict with those of the manufacturing sector; and the incidence of home ownership meant that mortgage rates had an important social and political implication. We were told that these differences meant that setting interests rates was as much a political as an economic matter and must be retained within the Government.

Now, four years on, we can judge who was right. The strategy of making the Bank of England independent, insisting on some tough fiscal rules and sticking to an inflation target has produced a stability in the economy from which we all benefit. Generally, things have gone better. Some sectoral interests claim to have suffered but, generally, the economy is in better shape than if the Monetary Policy Committee had not existed. Unemployment is low; inflation is low; and people feel more confident.

My noble friend, Lord Sheldon, and others have spoken of the inflation rate. I am not sure that I agree with your Lordships' committee that the inflation target of 2.5 per cent should be reduced. I think that sticking to the same target gives a sense of continuity. The 2.5 per cent target provides some flexibility to accommodate these diverse pressures on which people remarked at an earlier stage. These diverse pressures within our economy are important. The figure of 2.5 per cent seems to be working.

In the debate as to whether the Monetary Policy Committee could reconcile all the different interests of our economy and geography, it is interesting to note that this argument is being repeated again over the single European currency. My noble friend, Lord Barnett, referred to it. Exactly the same arguments about diversity and geography are being presented to explain why the euro will not work and is unsuitable for us. Excepting that joining the euro is virtually irreversible—but the Bank of England Act 1998 can presumably be repealed—the economic and geographical arguments are much the same, as though Britain were a microcosm of Europe, which it could well be.

Like the European Central Bank, the Bank of England does try to take care of these regional concerns. The Bank has 12 regional agents, whose task it is to brief the Monetary Policy Committee about what is going on throughout the country, and all these diverse branches of the economy have had their say. The Bank of England strongly emphasises this point in its Annual Report 2001. It does seem to work. I think that those in favour of Britain joining the euro can gain some comfort from this.

There seem to be some other lessons that the European Central Bank can learn from the MPC—for instance, the advantages of more open and accountable decision making. My noble friend, Lord Peston, and the noble Lord, Lord Saatchi, made this point. There is a meeting of minds!

The clarity of the minutes giving the views of individuals rather than the committee also finds the approval of your Lordships' committee, but the noble Baroness, Lady Noakes, seemed to put a question mark over that. My noble friend, Lord Peston, told us that the working of the Monetary Policy Committee has been subjected to a kind of peer review by Mr Kohn from the Federal Reserve Board in Washington. Does the European Central Bank have the benefit of a peer review?

I agree with my noble friend, Lord Peston, that the European bank could benefit from the kind of scrutiny of the Monetary Policy Committee provided by the Treasury Select Committees in another place and by your Lordships' committees. I am not sure that the scrutiny provided by the European Parliament is as effective, detailed, well-informed or non-partisan.

I thank the committee for its report. It reinforces our understanding of the requirement to distinguish between the needs of current consumption on the one hand and the importance of long-term investment on the other in creating the stability which benefits us all. As a result, there is a shared consensus now for building the wider and deeper enterprise and business culture which we need to hold our position in today's more competitive world.

The noble Lord, Lord Burns, suggested that the Monetary Policy Committee had been perhaps too successful. The real test of the Monetary Policy Committee is yet to come. Its real test will be when something totally unexpected happens. Economists have become quite good at projecting economic trends but they are put to the test when those trends make a sharp change in direction because something totally unexpected happens. The bursting of the dot.com bubble was expected but no one knew when it would happen. But Britain's withdrawal from the ERM was not and this caused an important change of direction in economic trends. It is when the totally unexpected happens—as it will—that the Monetary Policy Committee will be put to the test.

5.19 p.m.

Lord Shore of Stepney

My Lords, I begin by joining others in congratulating my noble Lord, Lord Sheldon, on his maiden speech. I, too, have personal recollections of the noble Lord in another place. I have found, over some 30-odd years, that our interests often coincided although the conclusions we reached in terms of policy were not identical. Nevertheless, he always brought to the debate a seriousness and, more than that, both a penetration and an intellectual power which I think was a hallmark of his contribution in the House of Commons. It is a delight to see him at work here today.

I am not just saying that I am glad to see the noble Lord here because of our previous personal relationship; he made a marvellous speech. It was like a breath of fresh air. How long is it since we heard someone say that we ought to remove from our minds this obsession with inflation? Although we must not forget it as a problem, it should take its place in the queue of other economic objectives which are more important in the long term. I was delighted to hear those sentiments.

I am very pleased that the report we are discussing today extended its terms of reference from the consideration of monetary policy to economic policy as a whole. That is important; otherwise, if we simply concentrate on monetary policy as it is now framed in the terms of reference of the Bank of England, it is all about inflation, and it ought not to be. It ought to be about other, more important economic matters.

I believe this is a preliminary report and I look forward to further reports of the economic policy Select Committee. Over the years the House of Lords has lacked an extension of the experience and wisdom that it undoubtedly possesses on economic affairs, allowing for the long history of the past when it was very controversial to have the House of Lords involved in matters of expenditure, taxation and so forth. We are now able to put that behind us, following certain changes last year in the composition of the House, and can think seriously about what we can do. I look forward to the future reports of my noble friend Lord Peston and the committee.

The extension from worrying about inflation and the control of it to broader matters is almost at the heart of what I want to say tonight. Unfortunately, the major problem that has emerged is that the exchange rate has now been divorced from the Bank of England and its terms of reference. That is a serious matter because we have misalignment in our exchange rate, particularly with the euro.

The report contains the evidence of the Governor of the Bank of England. I was interested to see that at page 16, paragraph 17, he says, I do think that it is the sectors [of British industry] which were exposed to the weak euro which have really suffered". Nobody should doubt that there has been a considerable price to pay already for the misalignment of the pound, the euro and other exchanges. The effects of that, particularly on the North-South divide in the United Kingdom—it still exists although "North" is a bit crude to describe the areas of manufacturing, and includes Wales, the north of England and parts of Scotland—have accentuated the problem. We have had the booming South with its service economy and we have had the rather severe effects of an adverse exchange rate on our manufacturing industry mainly concentrated elsewhere in the country and indeed also affecting agriculture.

One of the results of that, as we know, has been an increase in imports, a falling off of exports and the widening of a trade gap which is now of a very serious order. I know things can be more easily managed in the world of the 21st century than was the case in the past century with trade deficits. But we are running the largest trade current account deficit in our history. It is bigger even than the appalling affliction that we had to cope with in 1975 when our oil prices quadrupled almost overnight and we faced the severe problems that flowed from that. So the situation is extremely serious. It is likely to be accentuated because the world economy is slowing down. All that reinforces the difficulties which I describe.

We come to what seems to me to be the crucial question: what can we do? The most obvious thing that comes to mind in terms of monetary policy is, of course, to lower interest rates. British interest rates are much higher than they are in euroland; they are much higher than in Japan and they are very much higher than in the United States, where the Fed has acted vigorously to reduce interest rates as a counter-recessionary measure.

So why do we not cut our interest rates? What is to prevent us doing that? The answer is that, unfortunately, that decision no longer lies within the competence of the Governor of the Bank of England. It lies still with the Treasury; and the Treasury has shown an astonishing indifference to this problem. If it were to take some action on interest rates in order to have some effect on the exchange rate—it is not the perfect solution but it is one of the great tools of macro-economic policy—other problems in the economy would arise. Once again I turn to the wise words of the Governor of the Bank of England, Eddie George, in his evidence on 1st May. He was asked directly by my noble friend Lord Paul whether we should lower interest rates, and the reply was, I think the short answer, Lord Paul, is that we have certainly been, and I suspect still are, operating much closer to capacity in the UK economy than in some other economies". What he is really saying is that with the labour market tightening, with the gap between full capacity operation and actual output being very small, the effect of lowering the interest rate (and the increase in demand that would then follow) would be inflationary. There is no doubt about that. I am sure everyone agrees that it is likely to be inflationary. But what is to be done?

That is where I see the great problem revealed by the committee. There is a great gap between monetary policy on the one hand and fiscal policy on the other. The obvious answer to the question of what is to be done if inflation is to be brought in as a result of a sensible interest rate policy is that we have to operate either on public expenditure or on taxation, on fiscal policy or on the gap between them. That is a dilemma.

If my party, my colleagues and the Government are as wedded, as they are, to high totals of public expenditure which will grow—there is no doubt about that—they will have to look again at the fiscal instrument. Instead of dodging around and making rather dangerous promises about not increasing taxation, they had better think again.

Almost inevitably something has to be done if the ambition of my noble friend to join the euro is to become a possibility. The Government know very well that they cannot join at the present rate of exchange. They have to get it down. But they must not be surprised that the Bank of England and the ECB have as their first objective the containment of prices. Price restraint is built into the Maastricht Treaty, into the protocols about the exchange rate and the euro, and as noble Lords well know it is in the Bank of England Act as well. We must not be surprised about that.

That leads me to my conclusion. I asked what is needed. My noble friend, for whom I have the utmost admiration, as he well knows—his knowledge and experience in this field is truly admirable—unfortunately is not the master of macro-economic policy. That is in the hands of the Chancellor of the Exchequer. I belong to that small group of people—we are almost a unique club—that does not yet believe that the economic judgment of the Chancellor is wholly infallible. We think that he may have made a great mistake in separating fiscal from monetary policy, either by making the Bank of England independent or, at least, by giving the Bank of England such restricted terms of reference.

5.32 p.m.

Lord Skidelsky

My Lords, I want to add my name to those who have already congratulated the noble Lord, Lord Peston, and his colleagues on the Select Committee on this admirable report. It is an intellectual treat, a store of practical wisdom and a notable contribution to economic education.

It is also an example of what your Lordships' House does superbly well. We are constitutionally debarred from voting on supply, but that should not prevent us discussing the principles of economic policy. I hope that the two reports produced by the noble Lord, Lord Peston, and his committee, will embolden us to seize this opportunity more confidently than we have done in the past.

We are almost at the point of having a critical mass of economists in this House. While economic debates should not be monopolised by economists—as is well known economists are not much in favour of monopoly—it does help to have the principles of economic policy discussed by those who know and understand some economic theory. I hope that such a development will also improve the quality and confidence of our debates.

I welcome the decision to turn the Select Committee on the MPC into a Standing Committee on economic affairs. As the report notes, the new committee will have a wider remit than the previous one, although, happily, the same chairman and much the same membership. It will be able to look dispassionately at such matters as the balance between monetary and fiscal policy; problems of forecasting that were much discussed in the evidence; what account policy should take of regional variations in the economy; the causes of low inflation; globalisation; debt management and such like.

I would dearly like to engage with Paul Ormerod's view that the low inflation of recent years has nothing whatever to do with monetary policy, especially monetary policy in this country, but that must await another occasion.

I suggest to the new committee a further topic. At present the relationship between the level of taxation and economic growth, or more generally between economic growth and the size of the state, is a matter of intense political, even ideological, division. I would like some progress made towards de-politicising it. An inquiry into that relationship by the Select Committee on economic affairs would help to give the public debate a much firmer underpinning in economic theory and economic evidence, so I hope that they will consider that at some point in the future.

Reading through the report and the fascinating minutes of evidence accompanying it, I was driven to reflect on the differences and on the similarities as regards the way in which these kinds of issues are discussed today compared with the period that I know best, which was the time of Keynes and the Keynesian ascendancy.

I want to pick out two themes. Often it is claimed that Keynes is dead, that governments have given up the attempt to manage economies. Of course, that is nonsense. What is the Bank of England MPC doing? Let me quote Sir Eddie George: What we are trying to do all the time is to balance the aggregate demand with the aggregate underlying supply in the economy". That is true of all central banks, whatever their explicit mandate. Donald Brash, governor of the Reserve Bank of New Zealand said: Monetary policy should be aimed at regulating the level of demand … it is trying to keep demand in line with the economy's sustainable capacity … to minimise the booms and minimise the busts. So … we are fine-tuning". That is not what Montagu Norman, governor of the Bank of England before the Second World War, thought he was trying to do. He did not think in these conceptual categories of aggregate demand and aggregate supply. We owe that to the Keynesian revolution and to the associated development of national income accounts. Today no central bank would dream of pursuing a monetary policy, nor would a finance minister dream of pursuing a fiscal policy that would allow aggregate demand to become seriously out of line with what Sir Eddie George called "underlying supply". The fact that they now pay as much attention to excess demand as to deficient demand is a return to original Keynesian virtue, for a time neglected by his followers.

Of course, there has been a change in theory and I believe that it is necessary to understand that in order to understand why there is now an inflation target. That is indicated by the two governors' careful choice of the adjectives "underlying" and "sustainable" before the word "supply". Today we measure the balance between aggregate demand and aggregate supply not by the unemployment rate, but by the inflation rate. The economy is said to be in balance, with unemployment at its equilibrium rate, when there is no tendency in the price level to move up or down. That reflects the influence of Milton Friedman and particularly his theory of the natural rate of unemployment. That theory was put forward in the late 1960s as a critique of the existing methods of demand management, but not against the principle of demand management per se.

During the committee's hearings the question was frequently raised as to whether the Bank's mandate should include a specific requirement to pay attention to the level of unemployment. It seems to me that the Chancellor gave a convincing reply in his evidence when he stressed the symmetrical nature of the 2.5 per cent inflation target. That is the key point. It has been referred to glancingly in the debate but to me it appears to be absolutely crucial. Undershooting the target, which indicates the development of demand deficiency, would be of as much concern to the Bank as overshooting, which is an indication of the opposite. In endorsing that symmetrical target, the report rightly noted that the symmetry is in order to avoid too conservative a monetary policy. In the debate, members of the committee have regretted the feeble Treasury response to the committee's suggestion that the inflation target may be lowered. I agree that the response was a disgrace.

However, a more effective reply was given by Sir Andrew Turnbull of the Treasury at question 284 of his evidence. He said: Can I bring in my Sam Brittan quote, which I think is relevant here? Sam Brittan noted in the FT on April 13th. 'If made now such a change would only increase the impression that the British adopt a bewildering succession of monetary objectives only to drop them when the going gets rough'". That is an important argument for allowing a particular target to bed down before starting to fiddle around with it.

My Lords, I think that I should stop.

Lord McIntosh of Haringey

My Lords, I beg to move that the House do now adjourn during pleasure.

Moved accordingly, and, on Question, Motion agreed to.

[The Sitting was suspended at 5.41p.m.]

Lord McIntosh of Haringey

My Lords, it has been agreed that debate on the Motion moved by the noble Lord, Lord Peston, should be concluded at this point. When the Motion has been agreed to, I shall move that the House do adjourn during pleasure until 6.30 p.m., at which point debate will take place on the orders on the Order Paper.

Moved accordingly, and, on Question, Motion agreed to.

[The Sitting was suspended from 6.12 to 6.30 p.m.]