§ Madam Speaker
Order. The right hon. and learned Gentleman understands that points of order come after statements.
§ Mr. Clarke
The point of order is relevant to the timing of the statement. I ask for your ruling on the procedure that will cover the delivery of statements to the House in this Parliament. This will be the first statement in the present Parliament. In the past, the convention has been that advance copies of statements are made available to the Opposition about half an hour before their delivery. It has also been the convention that the annunciator shows a clear description of the contents of a statement. [HON. MEMBERS: "No."] Oh, yes.
On this occasion, I am sure that my opposite numbers in the Liberal Democrat party and in the nationalist parties have had the experience that I had. At 16 minutes past 3, an extremely lengthy statement was delivered to the Opposition Whips Office. The scope of the statement extends far beyond the "Bank of England", which is how it is described on the annunciator, and covers reform of the entire Financial Services Act 1986 and the regulatory system for insurance and financial services as well as banking.
May we have your ruling, Madam Speaker, or perhaps a statement from the Government, about the way in which Parliament is to be treated in future on these matters, and whether this is to be typical of the way that the House is to be informed of decisions?
§ Madam Speaker
Order. I am capable of answering the point of order.
I can tell the right hon. and learned Gentleman that, since I have been Speaker, descriptions of statements have been extremely vague much of the time. I have not always understood them unless I made inquiries about them. Perhaps matters can be made rather clearer in the next few years.
Secondly, the right hon. and learned Gentleman certainly deserves an apology. I am sure that what he says is absolutely correct, that he has not had the statement in advance as he should have done. I saw it at about 2.15 pm. It is a long statement, and the right hon. and learned Gentleman and members of other parties should have had the statement well in advance to see what it was all about.
§ Madam Speaker
I shall take no further points of order on that matter, because I have cleared it up.
§ The Chancellor of the Exchequer (Mr. Gordon Brown)
With permission, Madam Speaker, I should like to make a statement. The Government's central economic objective is high and stable levels of growth and employment. That can happen only if we build on the solid foundation of monetary and fiscal stability. I am determined to set the British economy on a new, long-term course by taking the correct long-term decisions. The previous arrangements for monetary policy were too short-termist, encouraging short but unsustainable booms and bust and higher inflation, which was inevitably followed by recession. That is why we promised in our election manifesto to reform the Bank of England, to ensure that decision making on monetary policy was more effective, open, accountable and free from short-term political manipulation.
On 6 May, I announced the means by which we would achieve that promise: by giving the Bank operational responsibility for setting interest rates. On the first economic day in the new Parliament, I have sought the opportunity to explain my proposals for legislation, which will be introduced to, and fully debated in, the House. The House will understand that the length of the statement reflects the significance of the changes that I propose. May I say to the shadow Chancellor that I made arrangements for him to receive a copy of the statement earlier than he did, and I apologise if that did not happen.
In undertaking the reforms, I have taken account of the recommendations of the Treasury and Civil Service Committee's report on the role of the Bank of England, which stressed the need for clear lines of accountability and answerability for monetary policy to Parliament. In 1993, the Committee stated:The present system for determining monetary policy does not, in practice, allow for clear Parliamentary accountability.The reforms that I propose represent a British solution to meet British needs. Their main elements are as follows. The Bank's monetary policy objective will be to deliver price stability and, without prejudice to that objective, to support the Government's economic policy, including their objectives for growth and employment. The Government will set the inflation target for the Bank. The target will be reviewed annually and announced in the Budget. The Bank will have operational responsibility to achieve the inflation target.
Decisions on what actions need to be taken to achieve the target will be taken by a Monetary Policy Committee, on the basis of a majority vote. The committee will include the Governor and two deputy Governors nominated by the Government, and two senior Bank officials with management responsibility for monetary policy and market operations. However, it will also include four other expert members appointed from outside the Bank by the Government. The committee will be responsible for taking full account of regional and sectoral information in its monetary policy decisions.
The Monetary Policy Committee will meet on a monthly basis. All decisions on interest rates will be announced immediately after the meeting. The proceedings of the meetings, including votes, will be minuted and published within six weeks.
The Monetary Policy Committee's performance will be reviewed by the Court of the Bank. The Court will be substantially reformed, so that it is able to take account 509 of the full range of industrial and business views in this country, and for the first time it will be fully representative of the whole of the United Kingdom.
The Bank will be expected to report to the Treasury Select Committee and to the House. I shall write to the Chairman suggesting that the Bank's annual report be debated in the House, and that the Bank appear four times a year before the Committee to give evidence and answer questions on each of its inflation reports, so that the Bank's performance will be able to be judged by Parliament.
There will be a review of the Bank's financial arrangements, to ensure that the Bank meets the highest standards of accountability and transparency in the light of its new responsibilities. The Bank's role in debt management will be transferred to the Treasury.
The Government will retain the right to override the Bank's operational independence in extreme economic circumstances for a limited period only, and subject to ratification by the House. I would expect that right to be exercised rarely, if at all. Those requirements mean that, while the Government retain clear responsibility to Parliament for the goals of monetary policy, the Bank will be clearly accountable for the operation of monetary policy and will be required to report to Parliament regularly.
In addition, through the regular publication of the minutes of the Monetary Policy Committee's meetings and the Bank's inflation report, the public will have sufficient information to judge the Bank's performance against the target it is set.
I intend to introduce legislation enacting those changes as soon as possible, for the House to consider. In the meantime, the Governor—for whose co-operation in this matter I am grateful—has agreed on a transitional basis to implement the new procedures for decision making, and I shall nominate the four new members of the Monetary Policy Committee.
The question of prudential supervision, of course, concerns not just the Bank of England but the reform of the Financial Services Act 1986. Financial services lie at the heart of a modern, dynamic economy. The effectiveness and competitiveness of all our industries depend on the availability and efficiency of the increasingly wide array of financial products and services, from pensions and insurance to securities and derivatives. Our standard of living depends on them, particularly in retirement. Financial services are often complex and long-term. Products, markets and advice must therefore be fair, honest and transparent, and command confidence.
It has long been apparent that the regulatory structure introduced by the Financial Services Act is not delivering the standard of supervision and investor protection that the industry and the public have a right to expect.
The current two-tier system splits responsibility between the Securities and Investments Board and the self-regulatory organisations, together with the recognised professional bodies. This division is inefficient and confusing for investors, and lacks accountability and a clear allocation of responsibilities. Reform is long overdue to simplify the delivery of financial services regulation, and this was a key commitment in our business manifesto. At the same time, it is important to preserve the beneficial aspects of the current Act, including practitioner involvement and differential levels of regulation for wholesale and retail business.
510 I can announce today that work is to start immediately on the legislation needed to simplify and reform the regulatory system at an early opportunity. I am announcing our intentions in advance to give the SIB and the self-regulating bodies the opportunity to work with us on the detailed implementation of our proposals to ensure the smoothest possible transition to the new regime. I am confident that the simpler system we are proposing will reduce compliance costs, and increase public confidence in the regulatory regime.
Simply reforming the Financial Services Act 1986 is not enough in itself. In today's world of integrated global financial markets, the financial services industry transcends geographical and political boundaries and the regulatory response must meet this challenge. The United Kingdom financial services industry needs a regulator which can deliver the most effective supervision in the world.
One cannot ensure the success of British financial services in the 21st century without modernising arrangements for the protection of investors. My reforms are essential to ensure the future confidence of investors small and large, and the future success of the increasingly integrated financial services industry on which so many British jobs now depend.
At the same time, it is clear that the distinctions between different types of financial institution—banks, securities firms and insurance companies—are becoming increasingly blurred. Many of today's financial institutions are regulated by a plethora of different supervisors. This increases the cost and reduces the effectiveness of the supervision.
There is therefore a strong case in principle for bringing the regulation of banking, securities and insurance together under one roof. Firms now organise and manage their businesses on a group-wide basis. Regulators need to look at them in a consistent way. That would bring the regulatory structure closer into line with today's increasingly integrated financial markets. It would deliver more effective and efficient supervision, giving both firms and customers better value for money, and would improve the competitiveness of the sector and create a regulatory regime to genuinely meet the challenges of the 21st century.
I have decided to take the opportunity presented by the Bank of England reform Bill that we will introduce to reform the regulatory system. Responsibility for banking supervision will be transferred, as soon as possible after passage of the Bill, from the Bank of England to a new and strengthened Securities and Investments Board, which will also, as a result of forthcoming legislation, take direct responsibility for the regulatory regime covered by the Financial Services Act.
The Securities and Investments Board will become the single regulator underpinned by statute. The current system of self-regulation will be replaced by a new and fully statutory system, which will put the public interest first, and increase public confidence in the system.
The Governor of the Bank of England will be fully involved in drawing up the detailed proposals. The Bank will remain responsible for the overall stability of the financial system as a whole. The enhanced Securities and Investments Board will be responsible for prudential supervision.
511 As the House will already be aware, Sir Andrew Large, the current chairman of the SIB, has decided to step down. I should like to take this opportunity to pay tribute to him, and thank him for his contribution to financial regulation over the past years.
It is crucial to the success of these reforms that we have a new chairman with the stature and calibre to implement them quickly and smoothly. Because of the importance I attach to drawing on the Bank of England's expertise in these areas, the Governor and I have asked Howard Davies, the deputy Governor of the Bank, to be the first chairman of the enhanced Securities and Investment Board, responsible for integrating the supervision of banking and financial services. I am pleased that he has agreed. He is, of course, already a member of the SIB, and he will take over as chairman when Sir Andrew Large steps down. Two new deputy Governors of the Bank will be appointed in due course.
I have today written to Sir Andrew Large with further details of my proposals. I have placed a copy of this letter, together with my earlier letter to the Governor on monetary policy, in the Library of the House.
I am confident that the new arrangements, taken together, will significantly enhance the credibility of UK monetary policy and improve the workings of the financial markets. The arrangements mean lower long-term interest rates and higher growth and investment. Since my announcement a fortnight ago, long-term interest rates have fallen already, reflecting the positive reaction to the new monetary framework.
The reforms are founded on sound economic principle, and are part of a long-term policy for long-term prosperity. They provide the building blocks for a new economic strategy for monetary and financial stability, aimed at enhancing longer-term growth and prosperity. I am confident that their success will be reflected in a stronger and more robust economy for the long-term. I commend the statement to the House.
§ Mr. Kenneth Clarke
First, I welcome the Chancellor of the Exchequer to his new post, and I accept the first apology that he has so far had to give me in the current Session of Parliament. In the national interest, I wish him considerable success, so that he does not have to give too many apologies to the British public for the subsequent performance of the economy.
I should like to ask the Chancellor a few straightforward questions on his statement. What does he think he achieved, two weeks ago, by announcing the operational independence of the Bank of England, before he came to the House to make today's statement? What advantage was there in trailing by two weeks a dramatic change in accountability to the House of those who decide United Kingdom monetary policy? Does he agree that, if he had simply waited for two weeks, he would have succeeded—at least a little—in concealing the Government's triumphalism in their huge majority and the danger, which is already visible, of their becoming contemptuous of Parliament and its procedures?
Will the Chancellor also explain to us why, before the general election, he said that he would consider giving the Bank of England operational independence only after it had established a good track record of success in such 512 matters? He repeated that statement as recently as February 1997. What track record had the Bank achieved in the Government's first four days in office that caused him so rapidly to change his mind? During the general election, why did he conceal from the electorate his obviously settled determination to make that important change within a few days of taking office?
Why has the right hon. Gentleman so swiftly changed a system in which my decisions as Chancellor produced the United Kingdom's best performance on inflation for 50 years—[Interruption.] Yes, he is making dramatic changes to a system in which the previous Conservative Government produced the lowest mortgage rates, and in which—as we now know—in the last month before the general election, I hit my inflation target of 2.5 per cent. on the button. Does he now accept, as he must—[Horn. MEMBERS: "What a pile of paper."] No, this pile of paper is a copy of the Chancellor's statement. These papers are for my speech—[Hon. MEMBERS: "Speech."] No, the papers—the first pages only—are my questions.
On the Bank of England, does the Chancellor accept that the current inflation level, to which we both attach importance, is the result of decisions on monetary policy taken two years ago—when the Bank of England was wrong, I was right, and he was silent about his judgment on the subject? Does he accept that the timing of his decision on the independence of the Bank of England very nearly coincided with production of the Bank's most recent quarterly inflation report—which was wrong, by claiming that, later this year, inflation would fall to 2.5 per cent.? We now know that the inflation had fallen to 2.5 per cent. in April, while the report was being printed.
Does the Chancellor therefore accept that, within four days of taking office, he handed total control of those matters to an institution with a track record showing that it has been wrong, whereas the track record of a Chancellor pursuing the previous Government's economic polices has been shown to be right?
Does the Chancellor agree that, if this leads to the Bank being ultra-prudent, and striving, above all, to get below 2.5 per cent.—as it will in order to hit a flat-rate target—interest rates will be set at a higher rate than would otherwise be necessary? When interest rates are higher than necessary, they depress economic growth, investment, consumer demand and job creation—all of which will grow more slowly than they would otherwise. Does the right hon. Gentleman agree that the price for slowing our economic growth will be paid by the men and women who work in British industry and commerce, and by those on the dole queues who will see jobs being created more slowly?
Turning to the Financial Services Act 1986, a separate statement to the House might have been justified, as there is to be a huge change to the regulatory system—probably second only in importance to the monetary policy of the Bank in terms of the financial policy of this country and the City. Why has the Chancellor decided so suddenly to add dramatically to the legislative programme in the Queen's Speech, which we are still debating? The scope of the Bank of England Bill has been extended since the Prime Minister opened the debate five days ago. It has been dramatically enlarged by today's announcement.
The Chancellor talks vaguely about forthcoming legislation on financial services regulation and bringing all previous regulators under the scope of his new 513 appointment, Mr. Howard Davies, who has been given many such appointments under various Governments—[HON. MEMBERS: "And by youl And by me, and others—no doubt there will be other appointments under the Labour Government. He brings with him the full experience of about one year at the Bank of England, to which the Chancellor drew particular attention.
Does not the Chancellor accept that making this dramatic announcement with no details causes confusion? The details are contained in a letter to Sir Andrew Large, which, we are told, has been placed in the Library, although no one has had a chance to see it.
The regulation of insurance, of all financial services and of banking has hitherto been done by separate people with separate skills. The Chancellor now proposes that they should be brought together in a way that is still to be defined in a massive piece of legislation. When will that legislation—the new Financial Services Act—be forthcoming? Will it be in this Session of Parliament? If not, what will the Chancellor do about the uncertainty that he is creating by suddenly throwing this country's financial regulatory system into turmoil without giving detailed proposals?
Finally, will the right hon. Gentleman please stop acting like a Chancellor in a desperate hurry? Will he stop acting as if he were making policy on the hoof, as he and his colleagues did in opposition? Will he start placing the preservation of our present excellent economic prospects much higher on his agenda?
§ Mr. Brown
May I first welcome the shadow Chancellor to his new job, which he already seems to be enjoying? Secondly, although I suppose that he would not want me to say it, I wish him well in the future leadership contest of the Conservative party, and commend his views on Europe to Opposition Members. Thirdly, after the entertainment of yesterday, I thank him for getting back to the real business of the House: the Opposition attacking the Government instead of each other.
The right hon. and learned Gentleman's remarks dealt with all sorts of things, but not the central question whether he supports my reforms of the Bank of England and the regulatory structure. He says, first, that the Government have broken the traditions of consultation in the House whereby Governments have consulted over major monetary decisions. May I remind him that the decision to create the new monetary policy framework and the new inflation target in 1992 was announced by the previous Chancellor to the Conservative party conference, not the House? The right hon. and learned Gentleman's decision to create the "Ken and Eddie show"—for which he showed some nostalgia—was announced in a written answer to the House, without full parliamentary debate. The Labour Government will take no lectures on consultation from the previous Government, who had the chance before the election to publish the Downey report, which would have been one way in which Parliament could have looked at the issues.
On the substantive issue of inflation, the shadow Chancellor seems to have changed his position from the one he held before and during the general election campaign. During the whole campaign, he said of Labour that we would be responsible for higher inflation, that we would return to the days of high inflation, and therefore boom and bust—new Labour, new inflation. Now, for the 514 leadership election into which he has entered, he has seems to have changed tack completely and accuses us of being, not inflationary, but deflationary.
The right hon. and learned Gentleman should look at the article he wrote on these matters for the Financial Times. I have to ask him, why is he criticising us for saying that our inflation target will be met? This Government will keep their promises, and will keep their promises throughout a Parliament.
I shall deal with the issue of regulation, before coming to that of the Bank. We have taken action that the Conservatives should have taken long ago to protect pensioners against the misspelling of pensions, to improve the co-ordination of the regime governing financial services products, and to end the situation in which a bank has five separate regulators to which it has to report and in which the costs of compliance—and, indeed, the compliance departments in those organisations—are now almost bigger than the marketing departments that produce the results for those organisations. I shall take no lectures. We have taken swift action on the misselling of pensions, the structure of the financial regime and the operational independence of the Bank of England.
It ill befits the shadow Chancellor to criticise the appointment of Mr. Howard Davies, whom he appointed as the deputy Governor of the Bank.
Let me now deal with the substantive issue that was left unaddressed. The shadow Chancellor's opposition to the reforms we have made at the Bank of England seems to be entirely about method, style and presentation—and, if I may say so, his opposition is recent. Did he not say in 1993 that he had an open mind on this issue, not a closed mind? Did he not say in an interview on "Breakfast With Frost" at the beginning of the year that right-wing parties throughout the world supported the independence of central banks? Does he not understand that his well-known enthusiasm for the European Community means that, if there was to be economic and monetary union, there would have to be an independent central bank?
Let me remind the right hon. and learned Gentleman also of the statements that have been made in the Centre for Policy Studies' Conservative agenda pamphlet, which recommends:Give the Bank of England its independence, and a statutory responsibility for meeting certain targets in terms of inflation and economic growth … remove the political risk premium on interest rates … the Bank will … need reform. The current autocratic structure gives the Government too much power … interest rate decisions should be taken by a Council".Those are the very arrangements that we have introduced. The author of that pamphlet was the ex-Chancellor's own former political adviser, Tessa Keswick.
There is widespread support for what we have done. The Confederation of British Industry has welcomed it; the Institute of Directors has welcomed it; and the chambers of commerce have welcomed it—just about everyone except the six contenders for the Conservative leadership, who are vying with each other for extremism, has welcomed it. I say to the shadow Chancellor: I have had the courage of his convictions.
§ Mr. Robert Sheldon (Ashton-under-Lyne)
I offer my good wishes to my right hon. Friend for being a most outstandingly reforming Chancellor of the Exchequer, with few equals in the post-war world.
515 There is no question but that the single regulator for financial institutions is greatly needed. Banks, insurance companies, pension funds and other financial services bodies are becoming increasingly amorphous, and, as a result, the distinctions between them are becoming increasingly blurred. That has been shown in particular by the building societies and the way in which they have transformed themselves. The single regulator is therefore especially welcome, and I look forward to seeing it implemented in legislation.
§ Mr. Brown
I am grateful to my right hon. Friend, who has had a distinguished role in previous Parliaments as Chairman of the Public Accounts Committee. He has rightly pointed to the overlap, the confusion and the extra costs, and I can assure him that there will be full consultation and a full chance for the House both to look at the details of the proposals before they reach legislative form, and to look at the Bill itself.
§ Mr. Malcolm Bruce (Gordon)
I congratulate the Chancellor on taking up his role and on making his mark in his first two weeks. I also congratulate him on adopting a policy that was a central component of the Liberal Democrat manifesto. May I extend an invitation to him and his colleagues to come round to my office for tea any time, to discover other aspects of policy that he might usefully implement?
The Chancellor has said that his new policy committee will have regional representation, but can he ensure that it will represent all sectors and all parts of the United Kingdom? We want to ensure that it encapsulates not only Gordon's view but perhaps the view from Gordon. We need to ensure that it is fully representative of the whole UK economy.
What measures, apart from the transfer of Howard Davies, will be taken to ensure that there are continuing links between the SIB and the Bank of England, so that the Bank does not lose the useful knowledge that it has acquired on the workings of the monetary system? Formal arrangements need to be made for the continuation of those links.
Given that the Chancellor has made a major step in proposing new statutory financial regulation, what consultation will take place with all interested parties, to ensure that the statutory proposals that emerge are workable and do not damage the functions of the financial markets, which, as he rightly points out, are important to jobs and to consumers of their services?
§ Mr. Brown
I am grateful to the hon. Gentleman. This is probably the only one of the central economic policies of the Labour party that he has supported. He has opposed the windfall tax and other measures, but I am grateful for his support in this area.
As far as the Bank of England is concerned, and the reform—
§ Mr. Brown
We said in our manifesto that we would reform the Bank of England to create a monetary policy decision-making system that was more effective, open and 516 accountable and free from short-term party political manipulation, and that we would reform the regulatory system. We have reformed the Bank of England, we have made it more effective, open and accountable, we have freed monetary policy decision making from political influence and manipulation, and at the same time we are reforming the regulatory structure.
On the subject of the Court of the Bank of England, I agree with the hon. Gentleman. When the Bank of England was nationalised in the 1940s, no real change was made in the organisation of the Court. It is time to ensure that it represents business and sectoral interests throughout the United Kingdom, and all sections of the United Kingdom. When I studied the composition of the Court of the Bank of England, I found that what Courts had in common was that they always included the chairman of a football club in the English league. I want industry to be properly represented, and I want every region, including Scotland and Wales, to be represented on the Court of the Bank of England.
On the hon. Gentleman's other points about the SIB, I can assure him that there will be full consultation, and that the existing good relationship between the SIB and the Bank of England will be maintained, not least by the appointment of the existing deputy Governor as the chairman of the SIB.
§ Mr. Giles Radice (North Durham)
Is my right hon. Friend aware that, following the collapse of the Bank of Credit and Commerce International and Baring's, the Treasury Select Committee, with a Conservative majority, said that there was a strong case for separating the supervisory functions from the Bank? Is it not the case that the Government's welcome proposal for operational independence for the Bank, again as first suggested by the Treasury Select Committee, makes the case for separating the supervisory functions stronger?
§ Mr. Brown
I am grateful to my hon. Friend, because he reminds me, not only that the Treasury Select Committee recommended those things, but that he was a prominent member of the Select Committee that made the recommendations.
We shall listen to the Select Committees as we discuss the issues of the Bank of England and of regulation, but my hon. Friend asked the right question—why did the previous Government not act when all the evidence was available?
§ Sir Peter Tapsell (Louth and Horncastle)
Does the Chancellor recall that, after every one of the five Labour Governments whom the country has had to endure, unemployment has always been higher when they left office than when they took office? Against that unhappy historical record, will he at least ensure that, under his new arrangements, the Bank of England is given published goals for economic growth and unemployment, as well as for inflation?
§ Mr. Brown
I am grateful to the hon. Gentleman. The real record is that the former Conservative Government left more Conservative Members unemployed than at any time in any century.
I agree that high levels of growth and employment are the stated aims and objectives of the Government. Our objective will be to raise the trend rate of growth in the 517 economy. Over the past 18 years—partly because of the recessions, the booms and busts, and the stop-go policies that characterised the performance of the Conservative Government—the average non-oil growth rate was only 1.7 per cent.: 30 per cent. below our performance in the 30 years following the war. We must do something about that. That is why monetary and fiscal stability are our platform on which to build. We shall introduce measures to encourage investment and growth in the economy.
§ Mr. Stuart Bell (Middles rough)
Will the Chancellor accept that the statement by the shadow Chancellor just now was entirely false? He talked about insecurity in the City of London arising from the changes being made to the financial services regime, but surely the rapidity of my right hon. Friend's decision will bring certainty to the City, because it has accepted independent statutory regulation.
The Chancellor did not specifically mention Lloyd's of London, although he did mention insurance. Will Lloyd's be covered by the new body, or will the prudential supervision of insurance stay with the Department of Trade and Industry?
§ Mr. Brown
I pay tribute to my hon. Friend's work over a long period in opposition building up good relations between the Government and the City. Lloyd's has asked to be recognised by the SIB. That issue will be pursued. Secondly, I believe that there will be a broad welcome throughout the financial community, not just for ending uncertainty in a situation in which action had to be taken, but for the specific details of the proposals and for the appointment that I have made today.
§ Mr. Michael Jack (Fylde)
Central to the Chancellor's new role for the Bank of England in operationally setting interest rates is the question of the inflation target. Will he undertake to publish the criteria that he will consider when setting the inflation target? Will he also publish details of the lead indicators that he will use in that exercise? Finally, will he agree, in the new spirit of audit which abounds in the Treasury, to have his work in this area audited by independent economists?
§ Mr. Brown
I am glad to see the right hon. Gentleman return to the House. As I understand it, apart from the shadow Chancellor, he is the only member of the former Treasury team to be re-elected—which may say something about the previous Government's record in financial matters.
I can assure the right hon. Gentleman not just that we will give full information about the inflation target in our Budget, as I promised, but that we will publish six months before normal Budgets a White Paper or a Green Paper so that there can be proper debate on the Government's position on inflation and on the growth rate and employment potential of the economy.
All these issues should be subject to more open and informed national debate, involving people from all sections of industry as well as this House. I pledge that there will be far more open government under this Government than there was under the last.
§ Mr. Dennis Skinner (Bolsover)
Over the past 18 years, a lot of people became anxious to see a new 518 Labour Government doing something to clean up the City of London, so most people will welcome what the Chancellor had to say today on that score—not least because of the excesses of Johnson Matthey under the Conservative Government, because of Nicky Leeson, and because, when the exchange rate mechanism collapsed, the former Government lost 10 times more money in one afternoon than Leeson managed to lose in six months. There was a crying need to do something about all that.
I cannot understand, however, in a world economy that offers very few financial levers to any incoming Government, why, after 18 years out of power, the first thing a Labour Government do—without a manifesto commitment in precise terms—is hand over one of the most important financial levers to the enemy. No one will convince me that Eddie George and the rest of them in the belly of the banking establishment are on the side of the workers. I know that my right hon. Friend will go to some lengths to explain it away—but he ain't going to convince me.
§ Mr. Brown
I should thank my hon. Friend for all his detailed research into these matters, financial and City, and ask him to read the detail of our manifesto commitment, which explains what we have done. It is important for a Government to set down a long-term framework. The idea that interest rate decisions should be the basis of short-term political party manipulation deprives people of the long-term certainty and confidence they need as businesses, as workers and as families to plan their future.
I have set down a long-term framework. The Government set out the objectives of economic policy—and, indeed, the inflation target—but no one can accuse the Government of trying to manipulate the setting of interest rates for political party ends. I was asked by the shadow Chancellor why I had made the decision now. I saw during the election campaign and before that a suspicion could arise that decisions were being made for party political ends. I believed that it was right to take action immediately to change the basis of the system.
On my hon. Friend's comments on regulation, he will applaud what the Economic Secretary to the Treasury has already done. She has called together all the pension institutions. She has said that it is a scandal that, of the 600,000 people who were missold personal pensions, only 7,000 people have been compensated, and she has rightly demanded that the companies come back with proposals for action immediately. All of us who have been Members of Parliament for years, and many of us who have been candidates and are now Members of Parliament, know at first hand the problems of people who have been missold pensions. It was urgent that she took that action, and I hope that the whole House will applaud her for it.
§ Mr. Alex Salmond (Banff and Buchan)
Does the Chancellor accept that, although of course there are advantages in having an operationally independent central bank, there are also dangers if the monetary policy objectives are set too tightly? Therefore, when he talks about the monetary policy objective being price stability, does he mean literally zero inflation or the 2.5 per cent. target inherited from the previous Chancellor? Why is that given primacy over the Government's targets for unemployment and for output? Is there not a danger of overshoot?
519 The Bundesbank has a statutory obligation to reflect the Länder—the regional interests in Germany. Is the Chancellor envisaging a statutory obligation on the Bank of England to reflect the Scottish-Welsh regions of interest? Will that obligation be just on the Court of the Bank, or will it be on the Monetary Policy Committee, which will actually take the decisions?
§ Mr. Brown
I hope that the hon. Gentleman will examine in more detail my statement and the proposals that I made a few days ago. I said that the Court of the Bank of England will reflect all the regional and national interests in the United Kingdom, and that is what we intend should happen.
On the hon. Gentleman's point about inflation, it will be the Government who set the inflation target, and I have already said that we will follow the inflation target that has been set by the previous Government. I will announce the inflation target Budget by Budget, and that matter will be debated in the House, but the hon. Gentleman should consider modern economics in more detail.
The causes of inflation and the causes—[Interruption.] The hon. Gentleman prides himself on economics, but I have always found that his figures on Scotland never add up. The causes of inflation, low growth and unemployment are exactly the same—a lack of capacity in the industrial economy. The important thing is that the Government must set the framework for monetary and fiscal stability and encourage dynamism in industry, which we will do by measures to encourage education, training and investment.
§ Mr. Tam Dalyell (Linlithgow)
May I tempt my right hon. Friend the Chancellor to go just a little further than he did with the hon. Member for Gordon (Mr. Bruce), and say that he will perhaps give pleasure to his constituents, and certainly to those of my right hon. Friend the Chief Secretary and to mine, by appointing a member of the Edinburgh financial community in the first tranche? Secondly, given the distinguished service of Sir Gavin Laird, is there a clear undertaking that someone from the industrial trade unions will be appointed?
§ Mr. Brown
I am grateful to my hon. Friend for his suggestions. I have always said that the Court of the Bank of England should represent all sides of industry, and I hope that he will agree with me on that. On his proposal for a representative of the Edinburgh financial community, I am not sure how that will go down in Gordon, Glasgow or other parts of Scotland. What I can say is that the regions and the nations of the United Kingdom should all be represented on the Court.
§ Mr. Quentin Davies (Grantham and Stamford)
May I congratulate the Chancellor sincerely on his new position, and wish him well? Many of us on these Benches intend to act in good faith in opposition, to oppose where we genuinely think it in the national interest that we should oppose, and to support where we genuinely think it in the national interest that we should support.
In the same spirit, will the Chancellor give credit where credit is so obviously due? Will he recognise that the previous Government did achieve, before the end of the 520 Parliament, 2.5 per cent. inflation, contrary to his own and the Bank of England's expectations, that the latest public sector borrowing requirement figures show a considerable improvement over the previous Government's expectations, and that he therefore inherits a sound financial base?
§ Mr. Brown
As the hon. Gentleman knows, interest rates are set to deal with inflation 18 months ahead. When I arrived at the Treasury and looked at the forecast, it became clear to me that inflation would rise substantially unless action was taken. If the shadow Chancellor wants to know why I announced the decisions immediately after I came into the Treasury, it was because, as a result of the mismanagement of previous months, I had to announce an interest rate rise to cope with a looming problem of inflation a year ahead. I felt it right to set down the long-term course of action simultaneously, and that is what I did.
The hon. Gentleman wants us to applaud the past Government's record on the economy. No Government could have kept us in recession for ever. We are bequeathed a situation in which manufacturing investment fell by 8 per cent. last year, and manufacturing output rose by only 0.5 per cent. At the same time, we have a public sector borrowing requirement that was £23 billion last year, which the hon. Gentleman would not identify with sound finance, and a considerable figure this year.
The hon. Gentleman cannot say that his Government, who were also responsible for imposing 22 tax rises on the British people, left us with sound public finances or with inflation properly under control for the long term. That is why we have taken action on interest rates. To avoid that situation in the future, we have put in place a long-term framework, which I believe will commend itself right across the country.
§ Mr. Campbell-Savours
Will my right hon. Friend reflect on the fact that, over a period of four consecutive Conservative Governments, we had almost the highest interest rates paid by any country in the industrialised world? Is it not true that that happened because interest rates were being manipulated, and markets had no confidence in the Government?
§ Mr. Brown
We inherited a situation in which long-term interest rates are less than 6 per cent. in Germany and France, less than 7 per cent. in America, but 7.6 per cent. in Britain. That can hardly be said to be a brilliant performance on the part of the Government. As a result of our announcements on monetary policy, long-term interest rates started to fall. The Opposition's position on the matter is not clear, but they should look at the figures and make a reasoned judgment when they receive in the House of Commons the Bill to give operational independence to the Bank of England.
Before the end of today's debate, which will take place after the statement, the shadow Chancellor should answer this question: would he repeal a Bank of England reform Act that gave operational independence to the Bank of England? If he cannot say he would, all his complaints are simply synthetic.
§ Mr. Nicholas Winterton (Macclesfield)
I congratulate the Chancellor of the Exchequer on the emphasis he 521 placed on the importance of long-termism. That is long overdue. Does he accept that manufacturing industry is the only genuine source of non-inflationary sustainable growth? Does he believe that what he announced today will genuinely help manufacturing industry, which is a critical and vital part of the UK economy?
§ Mr. Brown
I applaud the hon. Gentleman's campaign over a long period of years on behalf of manufacturing industry. I ask him to consider the fact that the percentage of total national investment in manufacturing stands at 1.7 per cent. at present—the worst figure since figures were first recorded. Whereas, in the 1970s and 1980s, investment rose significantly out of recession, in the 1990s manufacturing investment in particular has not risen. In real terms, it is still lower than it was in 1979, when the Conservative Government came to power.
It is therefore incumbent on us to see what more we can do to assist manufacturing industry, by helping it to invest for the long term and giving it the skills and education that are necessary for it to produce the value added products that are so important. I believe that the House will find this Government to be the true friend of manufacturing industry.
§ Dr. Lynne Jones (Birmingham, Selly Oak)
I welcome my right hon. Friend's comments this afternoon about the composition of the Court of the Bank of England. What criteria will he take into account when appointing the deputy Governors of the Bank of England and the four members of the Monetary Policy Committee? When will he name those appointees, and how long will they serve? At the risk of sounding churlish, how might they be dismissed, in line with their accountability to the Treasury Select Committee?
§ Mr. Brown
My hon. Friend asks what the deputy Governors will do. One deputy Governor will be responsible for monetary stability and the other for financial stability. That reflects the full range of responsibilities of the Bank of England for the stability of the financial system as a whole, and for operational decision making about interest rates.
As for the range of expertise that is necessary to form the Monetary Policy Committee, I shall look—in consultation with others—for a range of monetary expertise, but the critical condition for appointment must be expertise in this area. The term of appointment will be three years. It is important to recognise that these decisions broaden the base for monetary policy decision making in an unprecedented manner, and put us in line with many other countries that have far more successful arrangements than we have had in the past.
I believe that, once it is up and running, the system will be successful. It will take effect, de facto, immediately. I hope that we shall be able to announce appointments to the Monetary Policy Committee within the next few weeks.
§ Mr. Damian Green (Ashford)
Will the Chancellor acknowledge that Opposition Members are genuinely afraid that the Government are prepared to ride roughshod over the interests of Parliament? In light of that, will he consider giving the House some say in appointing the members of the Monetary Policy Committee and the two 522 deputy Governors? For instance, will he consider allowing the Treasury Select Committee to interview the candidates before they are appointed, and, if necessary, approve the appointments? Will he further acknowledge that, if he does not make such a gesture, the so-called operational independence of the Monetary Policy Committee will be seen as something of a sham?
§ Mr. Brown
The hon. Gentleman, whom I welcome to the House, talks about systems of consultation and proper accountability. He clearly was not present during the last Parliament. He was not here when the arms to Iraq and the Pergau dam incidents became known, or when suspicions surrounding the Downey report were raised by hon. Members on all sides.
First, through the Bank of England Bill and the discussions surrounding it; and secondly, through the Treasury Select Committee's ability to call the Governor of the Bank of England to account and our full debate on the Bank of England report in the House of Commons, we are putting in place far more accountability and reporting and a system of greater information flow than existed in any previous Parliament.
As to regulations and responsibilities in that regard, I have already said—if Conservative Members had followed my comments about the future of the Securities and Investments Board—that there will be full consultation before the legislation is finally put in Second Reading form to the House. The draft Bill will form the basis of consultation once it is drawn up. I assure all hon. Members that we intend to discharge our responsibilities to provide full information to the House.
Mr. David Win nick (Walsall, North)
While recognising that no lectures are required from the Conservatives about accountability or any other matter—especially in light of the high unemployment during the past 18 years—is my right hon. Friend aware that there is bound to be concern within the wider Labour movement about the amount of economic power that is being given to the Bank of England in the operation of monetary policy? Would it be unfair to say that, by and large, bankers have not been particularly sympathetic to what the Labour movement and the Labour party have stood for: full employment, policies that improve the lot of working people, and a decent welfare state?
§ Mr. Brown
I must tell my hon. Friend that the previous system left more than 1.5 million people unemployed by the time that the Conservative Government left office. Of those 1.5 million, 600,000 young people did not have a chance under the Conservative Government of receiving the jobs and opportunities that they will receive under a Labour Government.
My hon. Friend talks about bankers. The Monetary Policy Committee that I have described will include four economic experts appointed by the Government, who will not be traditional bankers as he understands that term. As for economic power, it will be the Government who set the objectives of economic policy. The Government will set the inflation target, and we shall appoint the four members of the Monetary Policy Committee and the main members of the Court of the Bank of England.
I assure my hon. Friend that I believe that we are setting a long-term framework for economic policy that has the right balance between the decisions that must be made by 523 politicians and the decisions that must be left for operational responsibility, to be held by the Bank of England.
§ Mr. Iain Duncan Smith (Chingford and Woodford Green)
I congratulate the Chancellor of the Exchequer on assuming his new position. I should be grateful if in future he would place his statement in the Vote Office so that Back-Bench Members might have it when he rises to speak in the Chamber. That is a point for the future.
Secondly, the Chancellor has announced a major change in the regulatory structure of the City, and has made comparisons with other countries. The right hon. Gentleman will be aware that the City has been a major success for the United Kingdom in producing export finance, and in producing jobs throughout the country. Will he therefore be extremely careful, in making the changes that he has announced, to ensure that he is not taking a sledgehammer to crack a nut, and to ensure also that in reality he does not crush the very vibrancy of wealth creation that takes place in the City merely in chasing to the last degree what might be considered at times the excessive pursuit of wealth in the City?
§ Mr. Brown
I think that the hon. Gentleman will find that there is a general welcome for my proposals for cleaning up the regulatory system and making it more co-ordinated. I am happy to pay tribute to the work that 2.5 million men and women undertake in the financial services industry. I believe that our proposals, which are about the long term in increasingly integrated financial markets, will do more to help to provide jobs than the hon. Gentleman is suggesting.
The hon. Gentleman proposes increased flows of information to Back-Bench Members. I am happy to consider, as my right hon. Friend the Leader of the House will be, any such proposals. Surely it is rather strange, however, that the hon. Gentleman never made such proposals when the Conservative party was in government.
§ Mr. Dennis Canavan (Falkirk, West)
I congratulate my right hon. Friend on his appointment, but may I put it to him that some of us would prefer to put trust in him as Chancellor of the Exchequer, being accountable to Parliament, instead of in a committee of bankers and so-called financial experts, especially when it comes to the setting of interest rates, which can have an effect on 524 people's savings, their housing costs, business viability, unemployment, and many other things that have an effect on the lives of those we represent?
§ Mr. Brown
I thought that my hon. Friend was going to make the case for Falkirk or Cowdenbeath being represented on the Court of the Bank of England. It is precisely because of our anxieties to protect the position of pensioners and of those who are saving for their pensions that we have introduced reforms in the structure of regulatory organisations. It is precisely for that reason that my hon. Friend the Economic Secretary has acted immediately to try to deal with the misselling of pensions.
As for the benefits that are available to people in and out of work, I know that what is needed in the economy is a platform of stability, and that is why we have put long-term arrangements in place. It is now the time to get away from the short-termism, the boom and bust and the stop-go years that prevailed under the previous Government. We have set in place a long-term framework, which means that the Government set the economic objectives. Operational responsibility for interest rates is with the Bank of England.
§ Mr. Tim Yeo (South Suffolk)
I congratulate the right hon. Gentleman on his appointment as Chancellor of the Exchequer. Will he confirm, given his party's commitment to ensuring that decision making on monetary policy becomes more open and more accountable, that he and other Treasury Ministers will continue to answer questions on the Floor of the House about the level of interest rates?
§ Ms Diane Abbott (Hackney, North and Stoke Newington)
Is my right hon. Friend aware that his proposals to clean up the financial services industry will be widely welcomed, not least by many of those who work within it? In his far-reaching examination of financial service regulations, has my right hon. Friend considered the Government's supervision of the London stock exchange?
§ Mr. Brown
I thank my hon. Friend for the work that she does on the Treasury Select Committee. Such a review is part of the work that we are undertaking. It is precisely because we recognise the importance that must be directed to the misselling of pensions and jobs in the financial services industry that we have taken the actions we have on coming into government.