§ 3.7 p.m.
§ Report received.
§ Clause 1 [Court of directors]:
Lord Mackay of Drumadoon moved Amendment No. 1:
Page 1, line 8, at beginning insert—
("() The Bank of England shall henceforth be known as the Central Bank of the United Kingdom ("the Bank").").
§ The noble and learned Lord said: My Lords, in speaking to this amendment I shall, with the leave of the House, speak also to Amendments Nos. 16, 18 and 24 which appear on the Marshalled List in my name. Those noble Lords who have been following the progress of the Bill will be aware that amendments in fairly similar terms were debated in Committee in the Moses Room. At that time, those amendments were moved by my noble friend Lord Mackay of Ardbrecknish. I regret that I was not able to be present on that occasion because I was in fact in the Chamber debating the Crime and Disorder Bill. Your Lordships may feel that the two subjects are not easily mixed. It has been suggested to me that the amendments merit further consideration by your Lordships—a view with which I completely agree—because they raise an important issue which is symptomatic of the fact that this House is increasingly being required to consider a number of very important constitutional matters.
§ This Bill has been presented to Parliament after the Government have carried out a thorough and detailed review of the operations of the Bank of England. Although the Bill is by no means lengthy as regards the number of pages and clauses, it includes—as I read it—a number of important and indeed radical changes to the constitution of the Bank of England, the manner in which it is to be regulated and, most important of all, the role with which it is to be charged vis-à-vis the monetary policy of the United Kingdom.
§ When major institutions—whether they are public institutions or companies in private ownership—carry out a radical review of their operations, structure, constitution, and management, it is not uncommon for the institution concerned at the same time to consider whether the role which it now has, and the manner in which it is to proceed in the future, is best served by retaining the name under which it has operated or traded, in some instances for many hundreds of years. Undoubtedly that exercise ought to be carried out during this Bill's passage through Parliament.
§ As I believe was observed when the Bill was in Committee, the Bank of England was founded by Royal Charter in 1694. As my noble friend Lord Mackay of Ardbrecknish helpfully informed your Lordships, like many valuable institutions in the United Kingdom it was founded by a Scotsman, William Paterson. In the same year a number of London-based Scots thought that Scotland should also have a national bank. The following year by Act of Parliament—at that stage it was the Scottish Parliament—the necessary Act was passed and the Bank of Scotland came into being. 962 However, from the outset the two banks differed fundamentally in their role. Ever since its creation the Bank of England has been closely associated with the government. One reason it was set up was to make a loan available to the King to enable him to conduct a war. The Scots were much more practically oriented. They set up the Bank of Scotland to meet the needs of commerce. It has continued to play a major role in the commercial life of Scotland ever since.
§ It is becoming increasingly obvious to those of us who follow the constitutional changes which are taking place at the moment that the review of major institutions, such as the Bank of Scotland, and the creation of new institutions, such as the new Scottish parliament, will have major ramifications which are not immediately obvious. I suggest that what we are discussing is a good example of that phenomenon. When the Scotland Bill reaches your Lordships' House, noble Lords will have to discuss the procedures by which the voice of Scotland and the voice of the new Scottish parliament are to be heard in the corridors of power in Brussels, Strasbourg and elsewhere. I anticipate that when we debate that Bill we shall have many interesting discussions on the best way forward. Your Lordships may be interested to learn that already some civil servants in the Scottish Office have been despatched to Brussels to set up an office to further the hearing of the Scottish voice. That office has already been nicknamed "SCOT.REP" to mirror "UK.REP" which is the colloquial way of referring to our ambassador there.
§ When the single currency is established—as many in this House anticipate it will be, if the present Government remain in office long enough to achieve their objective—that same issue will arise as regards the Bank of England. If the Bank of England is to represent the United Kingdom on the committee which is to be set up in Frankfurt, and in other discussions which will take place throughout the European Union, I believe there is great scope for confusion and for potential conflict between the new Scottish parliament on the one hand and the United Kingdom Government and the Bank of England on the other. It is important that those who will have to deal with the Bank of England, in the future—assuming that the single currency is adopted—should be well aware that it does not represent England, but rather the whole of the United Kingdom.
§ Those of us who are Scots are sometimes irritated and sometimes amused by the confusion that arises over where Scotland fits in to the United Kingdom. Every time I take a taxi from King's Cross station to your Lordships' House and present a Scottish banknote to pay my taxi fare, I await with a measure of anticipation the reaction of the taxi driver who holds up my banknote and examines it on both sides to check that it is genuine. That, of course, is amusing. So, too, was an experience to which I was subjected many years ago when I went to study at the University of Virginia. Having been there some six weeks I attended a football game with an attractive lady student from North Carolina who inquired where I came from. I told her I came from Edinburgh, Scotland. She asked how long I had been in the United States. When I replied, "six weeks", she said 963 without pausing, "If I may say so, your English is remarkably good". These are whimsical examples, but they serve to illustrate the confusion which undoubtedly exists in the outside world as to where Scotland fits into the general picture of the United Kingdom, and where the Bank of England, which is, of course, a public body, fits into the United Kingdom.
§ This Government pride themselves on being prepared to think the unthinkable and to change the names of government departments if that serves to get their message across better. We know, of course, that they sought to change the name of their party. I hope that I have spoken with an element of humour in moving this amendment, but I trust that will not disguise the fact that I believe this is an important issue. When the Minister responds to the amendment I hope he can inform your Lordships what the senior officials in the Bank of England think about this measure which was, of course, debated previously. There is anxiety that unless this historical nettle is grasped, confusion may arise in the future. I beg to move.
§ 3.15 p.m.
§ Lord Newby
My Lords, I speak in favour of this group of amendments. The current title of the Bank of England is clearly illogical given its role vis-à-vis the United Kingdom as a whole. We would hardly introduce a Bill simply to change the title of the Bank of England, but within this Bill we can try to adopt a more logical title. It is also an appropriate time to do this given the changing nature of the Bank and of the constitutional arrangements within the United Kingdom. The new title that is proposed in the amendment would help to reflect that.
I certainly believe that the way in which those in Scotland view the monetary policy committee might be enhanced if it was seen to represent a bank that clearly represented the United Kingdom as a whole. Later we shall discuss other measures which might improve the credibility of this new institution with those north of the Border. I shall not detain the House further. I believe that the arguments are clear and self-evident. As I said, we support this group of amendments.
§ Lord Boardman
My Lords, I cannot dispute any of the points made by my noble friend. I agree with them. However, I remind the House of arguments that I put forward in Committee as to retaining the name of the Bank of England. Over centuries it has acquired a reputation for integrity, straightforwardness and competence which is unequalled throughout the world. I have travelled to many international conferences for bankers. The Bank of England stood out supreme by name and reputation. I shall be very sorry to see that lost for something which, although logical, would be misunderstood. Much as I support what my noble and learned friend said, I find it difficult to support the amendment.
§ Lord Mackay of Ardbrecknish
My Lords, perhaps I may say a few words before the Minister responds. I fully understand the point made by my noble friend Lord Boardman. A number of people have made it over 964 the past few weeks. The issue was before the Committee and now, thanks to my noble and learned friend Lord Mackay of Drumadoon, it is before this Report stage.
Of course the Bank of England has a long history and in financial circles I hope that most people understand that it is the central bank of the United Kingdom. But, frankly, I am not sure that that hope would be realised if I quizzed many people in the financial sector, especially abroad. Like the noble Lord, Lord Newby, I would not have suggested this point on its own, but two things are happening. First, this Bill changes the policy nature of what the Bank of England does; we shall come to the substance of that later. Secondly, and at the same time, a Bill is going through another place, shortly to come before your Lordships' House, which will change the way in which the United Kingdom is governed. For the first time in 300 years there will be a government of Scotland as well as of the United Kingdom. As my noble and learned friend said, that government of Scotland will set up an office in Brussels. It will not be, of course, a member state, but it will be there. If the Government pluck up enough courage to move to a European central bank, with each central bank of a member state having a representative on it, it will become increasingly odd that the representative from the United Kingdom will come from the Bank of England. That is a difficulty.
I sometimes think that the Government have not realised the considerable change to the geography of the United Kingdom that they are making with the passage of the Scotland Bill and the Welsh Bill. My noble and learned friend Lord Fraser of Carmyllie drew the Committee's attention to wording in the Bill relating to the principle of what one calls the Bank. Is it the Bank of England or the "Central Bank of the United Kingdom"? He pointed out the phrase in Clause 16 which states that the Monetary Policy Committee will collect,the regional, sectoral and other information".My noble and learned friend Lord Fraser of Carmyllie asked where the Scottish information will be collected. Is Scotland a region? I should not need to say this to the Treasury, considering that—I am not sure what percentage of "Scottishness" the noble Lord, Lord McIntosh brings to the Treasury team—there are three and a bit Scots in the Treasury team. They will understand exactly what I mean when I say that the one way to irritate a Scotsman (aside from beating him soundly at rugby as happened yesterday) is to call him English or to call Her Majesty the Queen of England, or to call Scotland a region.
The noble Lord, Lord McIntosh of Haringey, said that a new phrase had been devised: "the home countries". Interestingly, the noble Lord has not come forward with an amendment to the clause to which my noble and learned friend drew attention to get round the problem as regards how Scotland is included in the phrase,regional, sectoral and other information necessary".The two issues—the perceptions we must now have of the United Kingdom and the roles of the member countries in the United Kingdom—are linked. My noble and learned friend has done us a service in bringing 965 forward this amendment at Report stage so that we can discuss the matter in this House rather than in the Moses Room.
There is a difficult balance between the considerable history of the name of the Bank of England and its status in Britain and around the world, to which my noble friend Lord Boardman referred, and the reality of the new way in which we shall run our country, with governments in Scotland and in Wales. A government in Scotland will have considerable powers. One wonders whether "the Bank of England" is the right name.
A journalist on the Herald, Mr. Ben Brogan, rang the Bank of England after we discussed the matter in Committee. Paraphrasing from memory, he asked, "What do you think of this?" The spokeswoman, I think, of the Bank of England said that she saw the logic of it. If even a spokeswoman from the Bank of England sees the logic of it, I wonder whether the Government will see the logic of it.
§ Lord McIntosh of Haringey
My Lords, the noble and learned Lord, Lord Mackay of Drumadoon, questioned what position Scotland takes in relation to the United Kingdom. The noble Lord, Lord Mackay of Ardbrecknish, talked about us changing the geography of the United Kingdom. I look at a map with the south at the bottom and the north at the top. Therefore my answer to the noble and learned Lord is that Scotland is where it has always been, on top; and I do not expect any change in that. I do not think that any change in wording is necessary in that respect.
If the noble Lord, Lord Mackay of Ardbrecknish, will forgive me, I do not know whether I am another half Scot on top of those others in the Treasury team. I am only half-Scots. However, I recognise that it was the McIntoshes at the Battle of Culloden who were in the centre of the line who were perhaps the bravest. But they were also foolhardy in that they advanced before the order was given and contributed substantially to the rout of Charles's army. I do not propose to follow noble Lords in the direction of the foolhardiness on which they have embarked.
I am grateful, as I was in Committee, to the noble Lord, Lord Boardman. He said today that the Bank of England is a byword for integrity, straightforwardness and competence. I took care to record what the noble Lord said at Committee stage. He said that the Bank of England was the hallmark of respectability and responsibility throughout the world and he would be sorry to see the disappearance of that name. That is exactly the Government's position. Of course we understand the theoretical correctness of the amendments which have been moved. Of course we understand that there is an illogicality in calling the Bank, which in Europe will represent the United Kingdom, the Bank of England. But it would mean effectively abandoning a reputation built up over more than 300 years. It would mean an irrevocable break with the past.
The risk that I see is that such a change would send the wrong signals and damage the Bank's credibility as an institution. I note that when the European Monetary 966 Institute considered the role of the Bank of England under the new arrangements it made no reference to the name. I seriously wonder whether we are not anticipating difficulties which are not likely to occur.
Although I could have done so, I made no investigation of the cost of such a change. I did not go to see whether the old lady of Threadneedle Street had her name carved in stone above the portals of the Bank. I suspect that throughout the United Kingdom there must be many representations of the Bank of England which would have to be changed if the name were changed. Enough is enough. Let us deal with the serious issues in the Bill. Let us not create a new name for a bank which would be an unknown entity on the world stage. I hope that the noble and learned Lord will not press his amendments.
§ Lord Mackay of Drumadoon
My Lords, I am grateful to the Minister for responding to the amendment in his characteristically friendly and open manner. While I fully confess to injecting an element of humour into what I said, I believe that underlying this issue there are certain practical difficulties. I hope that once the Bill becomes law, and once the Bank of England seeks to implement its provisions, it will do its best not only to educate the citizens of this country as to its new role, but also to make it clear that it is a different institution altogether from the Bank of Scotland and the Bank of Wales. I thank noble Lords who have contributed to this short debate. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
§ Clause 3 [Functions to be carried out by non-executive members]:
§ 3.30 p.m.
Lord Mackay of Ardbrecknish moved Amendment No. 2:
Page 2, line 25, leave out subsection (4) and insert—
("(4) The sub-committee shall elect one of its members to be its Chairman.").
§ The noble Lord said: My Lords, as a brief postscript to the remark made by the Minister in the previous debate as to the amount of "Scottishness" he brings to the Treasury team in reminding us about Culloden, perhaps I may tell him that such is the importance of his clan that the chief of that clan is in fact called "The McIntosh". So we now have two "The McIntoshes", and we shall have to be very careful about the one we face in this House. If the noble Lord moves too far forward of the rest of his troops, I assure him that we shall be on the lookout to cut him down in the way his ancestors were cut down at Culloden.
§ In Committee we examined on a number of occasions the question of who appoints people to either the court of the Bank of England or to the monetary policy committee. A number of us asked questions at various stages as to why it always seemed to be the Chancellor of the Exchequer—either directly or following consultation. I suggested that the Bank appeared not so much an independent Bank, as the Chancellor of the Exchequer's Bank.967
§ The Minister defended the position of the Chancellor of the Exchequer by pointing out to us that the Chancellor was, on behalf of the people of this country, the shareholder in the Bank of England, and for that reason it was appropriate that he should make the appointments. We shall discuss later a variation in the method of appointment. However, it seems to me that the Minister had a good argument when he asked us who else would make the appointment if not the Chancellor of the Exchequer, given the Chancellor of the Exchequer's position. As a result of the arguments we had in Committee, this is the only amendment that calls into question one of the Chancellor's direct appointments.
§ I bring this matter before the House because I believe that this is a different kind of appointment from the appointment of members of the court or members of the monetary policy committee. In Clause 3 we are discussing a sub-committee of the court of directors of the Bank, which will have certain tasks delegated to it as outlined in subsection (2). The sub-committee will have a quorum of seven and will be, in a way, the non-executive directors of the bank. One of the things its members will do, for example, is decide the pay of the Governor.
As the Bill stands, the Chancellor, having appointed every member of the court, rather than leave the court or the sub-committee to decide on its own chairman, will designate one of the directors—or rather, he "may" designate one of the directors. We had an interesting discussion on that matter too. I asked a question during the course of discussion on the major amendment as to why the wording was "may" and not "shall". The Minister said that,
if he [the Chancellor] does not designate somebody as chairman, then the sub-committee of the court itself will have to make that designation, because Clause 3(7) says that the sub-committee shall he responsible for its own procedures. I hope this answers that question".—[Official Report, 3/3/98; col. CWH29.]
§ That reply answered the question as to why the wording was "may" and not "shall". However, it raised the possibility that the Chancellor and the Treasury conceived of a situation in which the Chancellor would not appoint the chairman of the sub-committee but would leave it to the sub-committee itself. That led me to wonder: as the Chancellor has appointed all the men and women to the court, and may actually allow the sub-committee to appoint its own chairman, why do we not say that the sub-committee should always appoint its own chairman, and at least take one of the appointments inside the Bank's system out of the hands of the Chancellor?
§ The Minister said that he would reflect on the matter, since a number of other noble Lords joined in the debate on the issue. As he has not tabled any amendments of his own, I can only conclude that, on reflection, he prefers the matter the way it is. Ministers always prefer it the way it is—that is what they are advised to think. However, I would advocate a little independence for the members of the court. They are appointed by the Chancellor, and therefore one assumes that all of them are men and women in whom the Chancellor has confidence. Surely he can leave them to decide who should be chairman of the sub-committee.968
§ I hope that the Minister will accept this amendment. I shall even be content if he tells me that it is not very well worded and that he will return to the matter at Third Reading. However, I feel that the hand of the Chancellor ought to be removed from this very small inside appointment in the Bank, and the sub-committee itself ought to be able to appoint its own chairman. That, after all, is what happens in many outside organisations. I beg to move.
§ Lord Stewartby
My Lords, I, too, hope that the Minister will welcome this amendment for the reasons that my noble friend gave. I cannot think of any other organisation that I have ever come across where a sub-committee of a board or a court does not have control over its own procedures. For the Chancellor of the Exchequer to have authority in that way, penetrating down into the affairs of the Bank of England, seems a perverse form of governance. I hope, if the noble Lord has not yet arrived at the view that this change needs to be made to the Bill, that he has not yet completed his process of reflection.
Will the Minister also place on record a definitive answer to the point that I raised in Committee as to whether or not the Governor and deputy governors are directors of the Bank? From the way in which Clause 3 is framed it seems that the only directors of the Bank are the non-executive members of the court: whereas Clause 1 states that the Governor and the two deputy governors are among those who comprise the court of directors. The natural interpretation would therefore be that they are directors. If they are not directors, there are problems.
In Committee the Minister said that it was intended that the Bank of England should be run as far as possible in the format of a company subject to the Companies Act. If the Governor was not a director of the Bank of England, he would not be able to sign the accounts; he would not be responsible for all the normal duties that a director is liable to perform under the Companies Act. On the other hand, if the Governor and the two deputy governors are directors of the Bank, then the wording at the beginning of Clause 3 is misleading. The rubric refers only to the:Functions to be carried out by non-executive members",yet the text refers to the sub-committee consisting of the directors of the bank and under those circumstances would include the executive members in the form of the Governor and the two deputy governors. I hope that the noble Lord can clarify that point on this occasion.
§ Lord Boardman
My Lords, I too support the amendment. It seems to me that the Government are trying to have it both ways. Under the Bill the Chancellor retains all the appointments. It is as though the committee is purely a subsidiary of the Government, to respond to and do what the Chancellor says. When challenged about events that happened last week in regard to the conflict between interest rates and taxation, which have been a constant source of debate in the past few days in the press, the Chancellor takes the view that "The Bank of England has nothing to do with me". Yet he makes quite sure that it has everything to do with 969 him under this Bill. He will have complete control of every appointment and whatever happens. For him to turn round and say, "It has nothing to do with me", is unfortunate.
I hope that this small concession which would result from the amendment would achieve the logical sequence of a committee appointing its own chairman and not having him imposed on it. As my noble friend said, and as was said throughout the debate, that is what would follow. The Chancellor would not impose his appointment upon the committee. That would go one step towards making the Bank appear to have some independence from the Treasury.
§ Lord McIntosh of Haringey
My Lords, first I wish to deal with the point raised by the noble Lord, Lord Stewartby. I indicated to him informally between the Committee stage and today that I might have been wrong in the advice I gave the Committee. I was not wrong. The Governor and the two deputy governors are not directors of the Bank. If I carried the analogy with the Companies Act far enough to convince the noble Lord that it was a good idea that they should be directors of the Bank, then I carried it too far.
The Bank of England is established under a Royal Charter of 1694, as we have already heard. There is no need for the Governor and deputy governors to be called directors of the Bank because the role of directors is different from that which applies under the Companies Act. Therefore, the wording of the Bill is consistent throughout in Clauses 1, 2 and wherever else the issue occurs.
There may be some possibility of confusion in understanding the role of the chairman of the sub-committee of non-executive directors. The chairman of the sub-committee not only chairs the sub-committee but also the court when the Governor is not present. So the responsibilities of the chairman of the sub-committee go beyond that sub-committee itself and cover the court as a whole.
In effect, the senior non-executive member is acting as a deputy chairman of the board and in the discussion it has been seen and should be seen as an important appointment. It is in that light that I invite noble Lords to adhere to the view which I adhere to, that it is right for such a person to be appointed by the Chancellor of the Exchequer rather than by the members themselves. The non-executive members of the court will have important review functions with respect to the performance of the Bank, including the procedures of the Monetary Policy Committee and the Bank's internal financial controls. They will also set the remuneration of the Governor and deputy governors.
The senior non-executive, as the representative of this group, has an important role in safeguarding the interests of the shareholder—that is the Government and ultimately the taxpayer—in the management of the Bank. I am sorry to repeat myself, but it is important to remember that the Bank is not a private company; it is a public corporation carrying out public policy functions. Its sole shareholder is the Government. It is 970 sensible for the Chancellor, who represents the shareholder interests of the Bank, to designate the senior non-executive member because the Chancellor can be held fully accountable for his choice.
The noble Lord, Lord Mackay of Ardbrecknish, made a point about the word "may". The value of the choice being made by the Chancellor is particularly strong at this time because immediately after the Bill comes into force, the initial selection of the senior member could be difficult. There could be non-executive members who do not know each other well. Under those circumstances, the Chancellor, having recommended their appointment, is well placed to choose a senior member to head the sub-committee. Indeed, he has done so.
Noble Lords have not referred to the appointment of Dame Sheila Masters as the senior non-executive member. I remind the House that she is a partner at KPMG and vice president of the Institute of Chartered Accountants of England and Wales. She has been a director of the Bank since 1994. She has had a distinguished public service career as well, having been seconded to the Department of Health as director of finance of the NHS management executive for the period 1988 to 1991. She has been a member of the Inland Revenue Board since 1992, a member of the Chancellor's Private Finance Panel since 1993 and a commissioner of the Public Works Loan Board since 1995. So she has substantial experience, in both the public and the private sectors. In case there may be some fears about control on the part of the noble Lord, Lord Mackay of Ardbrecknish, her experience has not been predominantly in the Treasury or the Bank itself. So we have a good precedent for a sensible choice by the Chancellor of the Exchequer, being the shareholder representing the taxpayer and being accountable to that extent.
I do not recognise the statement that some noble Lords made that it is normal for sub-committees to decide on their own procedures. If I am involved in an organisation, whether it is in the private or the public sector, and I am involved in setting up a sub-committee, I make sure before it is set up that its objectives, procedures and timescale are set out and that its chairman is appointed in advance. Otherwise it will not perform the function that the main committee requires. I think the analogy is sound and I invite the noble Lord not to press his amendment.
§ 3.45 p.m.
§ Lord Barnett
My Lords, before my noble friend sits down, will he reflect on something else that was said? The words now in subsection (4) are:The Chancellor of the Exchequer may designate one of the directors to chair the sub-committee".I understood that to mean that he may also not designate one of them. Is that what the Bill says?
§ Lord McIntosh of Haringey
Yes, my Lords, I said that at Committee. I repeat that "may" allows the possibility of "may not". If a future Chancellor of the Exchequer wishes to delegate that power, because 971 he knows that he has a team of non-executive directors who know each other well and work well together, he can do so.
§ Lord Mackay of Ardbrecknish
My Lords, the intervention by the noble Lord, Lord Barnett, brought us back to the real puzzle. It is that if the defence put up by the Minister today of the position that the Chancellor appoints the chairman of the sub-committee has validity, the subsection ought to read "The Chancellor of the Exchequer shall designate". We were told how important it was that it should be done at the hands of the Chancellor of the Exchequer. He will chair the court when the Governor is not present. I will wager that there are not too many occasions on which the Governor is not present. He will act as a deputy chairman of the board. But there are two deputy governors who will do much of the work of the Governor. So I do not think it can be quite likened, as the Minister said, to any other kind of company. It is a special organisation.
It seems to me that if the Minister's argument were valid, this subsection would say "shall appoint". The Minister told us whom the Chancellor has appointed. I have no problems with that and would expect the Chancellor to appoint someone first-rate to the post. I would expect him to appoint someone first-rate to every position in the court of directors of the Bank. So I am still less than satisfied with the answer. I should be more satisfied if the Minister were to tell me that the case was that on all occasions, because of the importance of the job, the Chancellor "should appoint". There would be no "may" about it.
However, given what the Minister said at Committee and again today, when he did not detract in any way from what he said at Committee, I am still bemused as to why the Chancellor is not taking the power, without any qualification; or alternatively why the sub-committee itself is not allowed to do so. In fact, I am so unconvinced by his argument that I shall seek the opinion of the House.
§ 3.50 p.m.
§ On Question, Whether the said amendment (No. 2) shall be agreed to?
§ Their Lordships divided: Contents, 48; Not-Contents, 78.972
|Division No. 1|
|Ailesbury, M.||Gainsborough, E.|
|Archer of Weston-Super-Mare, L.||Gilmour of Craigmillar, L.|
|Belstead, L.||Gray of Contin, L.|
|Biffen, L.||Halsbury, E.|
|Boardman, L.||HolmPatrick, L.|
|Bruntisfield, L.||Home, E.|
|Butterworth, L.||Hylton-Foster, B.|
|Cadman, L.||Kimball, L.|
|Cavendish of Fumess, L.||Kinloss, Ly.|
|Chesham, L.||Kitchener, E.|
|Clanwilliam, E.||Knollys, V.|
|Courtown, E. [Teller.]||Layton, L.|
|Cullen of Ashbourne, L.||Leigh, L.|
|Davidson, V.||Long, V.|
|Dean of Harptree, L.||Mackay of Ardbrecknish, L.|
|Ellenborough, L.||Mackay of Drumadoon, L.|
|Macleod of Borve, B.||Palmer, L.|
|Milverton, L.||Rankeillour, L.|
|Monro of Langholm, L.||Stewartby, L.|
|Naseby, L.||Strathclyde, L. [Teller]|
|Newall, L.||Strathcona and Mount Royal, L|
|Noel-Buxton, L.||Swinfen, L.|
|Northesk, E.||Teviot, L.|
|Oppenheim-Barnes, B.||Weatherill, L.|
|Acton, L.||Jenkins of Putney, L.|
|Annan, L.||Kilbracken, L.|
|Archer of Sandwell, L.||Lockwood, B.|
|Barnett, L.||Lofthouse of Pontefract, L.|
|Bassam of Brighton, L.||McIntosh of Haringey, L. [Teller.]|
|Blackstone, B.||Marsh, L.|
|Blease, L.||Mason of Barnsley, L.|
|Brooks of Tremorfa, L.||Merlyn-Rees, L.|
|Bruce of Donington, L.||Merrivale, L.|
|Burlison, L.||Milner of Leeds, L.|
|Carmichael of Kelvingrove, L.||Monkswell, L.|
|Carter, L. [Teller.]||Murray of Epping Forest, L.|
|Cledwyn of Penrhos, L.||Nicol, B.|
|Clinton-Davis, L.||Northbourne, L.|
|David, B.||Orme, L.|
|Davies of Coity, L.||Paul, L.|
|Dean of Thornton-le-Fylde, B.||Pitkeathley, B.|
|Dixon, L.||Plant of Highfield, L.|
|Donoughue, L.||Prys-Davies, L.|
|Dormand of Easington, L.||Puttnam,L.|
|Evans of Parkside, L.||Ramsay of Cartvale, B.|
|Farrington of Ribbleton, B.||Randall of St. Budeaux, L.|
|Gallacher, L.||Rea, L.|
|Gladwin of Clee, L.||Rendell of Babergh, B.|
|Glenamara, L.||Richard, L. [Lord Privy Seal]|
|Gould of Potternewton, B.||St. John of Bletso, L.|
|Graham of Edmonton, L.||Shepherd, L.|
|Greene of Harrow Weald, L.||Simon, V.|
|Gregson, L.||Stallard, L.|
|Hardy of Wath, L.||Stoddart of Swindon, L.|
|Haskel, L.||Stone of Blackheath, L.|
|Hogg of Cumbernauld, L.||Strabolgi, L.|
|Howie of Troon, L.||Symons of Vernham Dean, B.|
|Hoyle, L.||Taylor of Blackburn, L.|
|Hunt of Kings Heath, L.||Thomas of Macclesfield, L.|
|Hylton-Foster, B.||Turner of Camden, B.|
|Irvine of Lairg, L. [Lord Chancellor.]||Wedderburn of Charlton, L.|
|Janner of Braunstone, L.||Williams of Elvel, L.|
§ Resolved in the negative, and amendment disagreed to accordingly.
§ Clause 4 [Annual report by the Bank]:
§ 3.57 p.m.
Lord Barnett moved Amendment No. 3:
Page 3, line 5, at end insert—
("() The report mentioned in subsection (2)(a) shall, in particular, include a review of the Bank's performance in relation to its objectives and strategy, as determined by the court of directors of the Bank, in the financial year to which the report under this section relates.").
§ The noble Lord said: My Lords, I shall move Amendment No. 3 on behalf of my noble friend Lord Peston and myself, my noble friend having been delayed for a short while. I am hoping that the amendment will not take long because it is sensible, intelligent and so obvious that the Government are bound to accept it.973
Amendment No. 3 seeks to add the words,
The report mentioned in subsection (2)(a) shall, in particular, include a review of the Bank's performance in relation to its objectives and strategy, as determined by the court of directors of the Bank, in the financial year to which the report under this section relates".
As I indicated, it is clearly a sensible amendment and the other two amendments grouped with it are consequential. For example, Amendment No. 5 seeks to insert the words,
a statement of the Bank's objectives and strategy, as determined by the court of directors of the Bank, for the financial year in which the report is made".
§ In other words, that should be included in the report. I know that my noble friend will recognise how sensible the amendments are and I therefore need not take up any more of the time of the House. I beg to move.
§ Lord Mackay of Ardbrecknish
My Lords, I am intrigued at the confidence of the noble Lord, Lord Barnett. I noted his words, that his noble friend was "bound" to accept the amendment. I am not sure from where he gets his confidence. Unfortunately, his noble friend Lord Peston is not present; he will not be here for some time and the debate cannot go on long enough to await his arrival.
The noble Lords, Lord Peston, and Lord Barnett, made some important points in Committee in relation to the objectives and strategy of the Bank and what they were in relation to the court of directors. Later on we shall come to the objectives and strategy of the Monetary Policy Committee, which will not at all be related to what the court of directors does. The one thing we clearly obtained from the Minister in Committee was that the Monetary Policy Committee was totally independent and would not take instructions from the court of directors or anyone else. Perhaps I shall have a question mark on the "or anyone else" later in the proceedings, but at the moment I shall take it at its face value. Therefore, we wondered in Committee what the objectives and strategy of the court could be if it was not to be at all involved in the objectives and strategy of the monetary policy committee.
We had an interesting discussion in Committee and I hope the Minister will accept that he is, to quote his noble friend, bound to accept these amendments. If he is, he could perhaps explain them to us; and if he is not, perhaps he can say a few words about the objectives and strategy of the court.
§ Lord McIntosh of Haringey
My Lords, my noble friend Lord Barnett is half right. Certainly, the speeches that were made in Committee in support of similar amendments were sensible and intelligent. I did have some problems with the wording of the amendment and I am glad to see that the problems I had are now resolved in the wording that is before us.
The particular difficulty I had was that it was not clear whether my noble friends, in moving the amendments, wanted a review of the Bank's performance in the year to which the report related—that is, the previous year—or the current and future year—the year in which the report is made. Amendment No. 3 now provides that 974 there should be a report for the previous year and Amendment No. 5 complements it by saying that there should also be a statement of the Bank's objectives and strategy for the financial year in which the report is made.
In answer to the noble Lord, Lord Mackay of Ardbrecknish, it is of course for the court to decide what the content of its statement of objectives and strategy should be, but I should say to him that it goes very much beyond the monetary policy aspects which are the responsibility of the Monetary Policy Committee. As I made clear in Committee, the Bank has very many other responsibilities which are properly the subject of the report referred to in the amendments and the court of directors is also responsible for the management of the Bank.
The amendments, as they are now re-presented to the House, seem to us to be a useful clarification of the reporting responsibilities of the court and its sub-committee, and the Government are happy to accept them.
§ Lord Barnett
My Lords, I am most grateful to my noble friend. I always knew that he was a very sensible fellow, but he is particularly so now. I beg to move.
On Question, amendment agreed to.
Lord Barnett moved Amendment No. 4:
Page 3, line 7, leave out ("period") and insert ("financial year").
§ On Question, amendment agreed to.
Lord Barnett moved Amendment No. 5:
Page 3, line 8, at end insert (", and
("(b) a statement of the Bank's objectives and strategy, as determined by the court of directors of the Bank, for the financial year in which the report is made.").
§ On Question, amendment agreed to.
§ Clause 6 [Cash ratio deposits]:
The Earl of Home moved Amendment No. 6:
Page 3, line 25, after ("with") insert (", and the payment of fees in lieu of such deposits to,").
§ The noble Earl said: My Lords, in moving this amendment, I wish to speak also to Amendment No. 19. In Committee we discussed which institutions should produce cash ratio deposits for the Bank. This amendment specifically allows for the payment of fees in lieu of deposits for other categories of institutions for which the provision of cash ratio deposits is not appropriate. When I moved the amendment on fees and charges in Committee, the Minister gave us an interesting insight into the Government's thinking on CRDs, but he did not give any answer to the amendment. So, in effect, I am asking the same question today in a rather different form.
§ In Schedule 2 to the Bill the Government admit that they have no idea who might, at some stage in the future, be called upon to put up cash ratio deposits with the Bank. If they had a clue as to who these people might be, they would not have proposed paragraph 1(2) in that schedule. They have therefore given themselves carte blanche to require anyone they like to put up 975 CRDs with the Bank. Extending this argument further, they cannot therefore know whether requiring a group of institutions, as yet unknown, to put down CRDs is an even remotely appropriate way for the Bank to be repaid for whatever services it is supplying to this, as yet, still mythical group of institutions.
§ The Minister also said in Committee that they did consult but that it was difficult to publish the responses for confidentiality reasons. I accept that full responses may not be able to be published, but I would be surprised if any of the institutions which did respond would object to the Government publishing the number of institutions that approved the proposal and the number which came up with alternative proposals and what they were, albeit on an unattributable basis. I personally am aware that some institutions proposed "turnover" as an appropriate yardstick and some thought that it would be better to pay fees based on the number of transactions.
§ At no stage in Committee did the noble Lord tell us why fees based on turnover or the number of transactions were unacceptable to him. Institutions which do very little lending but have other businesses which benefit greatly from stability, which is one of the responsibilities of the Bank, will get away with paying very little, while others whose business is predominantly lending will bear an undue proportion of the burden. That is obviously inequitable, so I hope he will now tell us why these other methods have been rejected.
Further, the noble Lord said in Committee that careful consideration had,
been given to alternative methods of funding, such as fees and charges".—[Official Report, 3/3/98; col. CWH 39.]
§ But what is he actually funding: the Bank's balance sheet or its profit and loss account? Fees contribute to the Bank's p and 1, and only ultimately to the balance sheet through reserves. So what the noble Lord is actually saying is that he believes that the Bank really needs the deposits. On that basis, I am beginning to wonder who is providing liquidity for whom.
§ The noble Lord, Lord Peston, said in Committee that he had always assumed that the Bank has an extraordinarily good deal in terms of cash ratio deposits. He is absolutely right. At the moment the Bank is receiving more than £2.5 billion in interest-free deposits. But it will now get an even better deal for doing less and the institutions providing CRDs will get an even worse deal.
§ When we talked about this previously the Minister set great store by the fact that banks and building societies benefit from the Bank's vital function as a provider of liquidity to the financial system. If this is such an important function of the Bank, meriting the Bank receiving, at a conservative estimate, some £180 million on an annualised basis as a result of CRDs, why is it not even mentioned in the memorandum of understanding? The MOU talks about stability, the infrastructure, an overview of the system, efficiency, effectiveness and even promoting the City of London. Sadly, no mention is made of Edinburgh. But it likewise makes no mention of the two functions for which it could be of some real worth to banks and building societies; namely, as a provider of liquidity and as a 976 lender of last resort. Nor are these functions deemed to be worthy of inclusion in the Bank's latest annual report under the heading of the Bank's core purposes.
§ If providing liquidity into the system is such an insignificant part of the Bank's rationale, not to be mentioned in these two places, one can only assume that the banks and building societies are being asked to fund other functions of the Bank of England. The Treasury justification that banks and building societies uniquely benefit from the Bank's provision of liquidity clearly ignores all the other responsibilities discharged by the Bank for which banks and building societies will be paying, but others not, under this proposal.
§ Limiting the categories of institutions required to fund the Bank in this way goes totally against trends in the financial services sector as well as the other government policy initiatives in this area. Barriers between different types of institutions are indeed breaking down as the Government know: for instance, banks offering insurance; insurance companies offering banking services; and supermarkets selling mortgages.
§ The integration of financial services companies was one of the reasons behind the establishment in the first place of the Financial Services Authority. It seems odd that in this era of integration the way the Government have chosen to fund the Bank of England goes totally against that.
§ The noble Lord tried to justify singling out these two types of institutions by saying that they typically borrow short and lend long. If the Minister had looked at the actual experience of these institutions he would have seen, as regards building societies, that while the majority of their liabilities, for instance, are repayable at short or even no notice, in practice these funds have proved over the long term to be extremely stable. These liabilities are backed, by and large, by mortgage assets bearing extremely flexible interest rates. For banks and building societies in particular, withdrawals of deposits can usually be countered by increases in interest rates rather than by the use of liquidity.
§ The noble Lord also said that CRDs are used very commonly in other countries as a way of approximating the benefit of liquidity. That is the weakest excuse I have heard for a long time for justifying any course of action. By all means look at what others have done, but are the Government really not prepared to look at other ideas? What is good for others is by no means necessarily good for us. I know that other ideas have been put forward.
§ In this amendment we have tried to help the noble Lord by specifying some of the categories of institutions most likely to benefit from the revised role of the Bank. The noble Lord will no doubt have seen that we have actually tried to help him because we have left in his catch-all subsection. A mix between cash-ratio deposits and fees payable by other institutions is a much fairer way of paying for the Bank's role in the future. I beg to move.977
§ 4.15 p.m.
§ Lord McIntosh of Haringey
My Lords, the noble Earl rightly reminded us of the debate we had in Committee and I am grateful to him for raising the matter again. But I am afraid that my answer will be very similar to that made in Committee because, despite the changes in his approach and in the speech he has just made, the fundamental objections still apply. As the noble Earl recognised, the Bank of England has been funded for a very long time by a system of voluntary cash-ratio deposits. This Bill replaces the voluntary scheme with a statutory basis which makes the income secure.
If we adopt a prudent, step-by-step approach and complement that by consultation, as we have done, the most obvious first step is to say, "The system of voluntary cash-ratio deposits has survived without serious criticism. If our objective is to make the income secure then the first step is to keep the cash-ratio deposits system and make it statutory." The amendment widens the population of institutions that fund the Bank to include all institutions authorised under the Financial Services Act 1986.
The noble Earl says that the Bill makes it possible for us to extend the institutions obliged to pay under the cash-ratio deposits system. In Schedule 2, paragraph 1, we specify that the,eligible institutions for the purposes of this Schedule [are](a) an institution authorised under the Banking Act 1987and(b) a European authorised institution".It is true that sub-paragraph (2) says:The Treasury may by order amend sub-paragraph (1) as they think fitbut in order to do so it would have to consult and have the approval of Parliament. I remind the House that the Committee on Delegated Powers and Deregulation was satisfied with the order-making procedures proposed here.
So in practice there is a restriction on the Government widening the population of institutions who fund the Bank. The current voluntary scheme applies only to banks authorised in the UK. The proposed statutory scheme also applies to building societies. The noble Earl made a point about the difference between building societies and banks. The point we are making is that both typically borrow short and lend long. Their balance sheets contain loans and other assets of long maturity and deposit liabilities, many of which can be recalled at short or no notice.
The noble Earl reminds us that building societies—and although he did not say so, some banks—are backed by mortgage assets. But the important point is the potential need for access to liquidity. That is measured by the potential maturity proposed in the CRD scheme in the consultation document.
Other financial institutions brought under the fee system proposed by the amendment include security firms and insurance companies who typically match the maturity of their assets and liabilities much more closely. As I made clear in Committee, the Government believe 978 that it is appropriate for deposit-taking institutions to place CRDs to provide income for the Bank because they clearly benefit from the Bank's function as a provider of liquidity to the financial system.
Only a few banks actually have accounts with the Bank of England to settle obligations with each other but the other deposit-taking institutions manage their liquidity through deposits and credit facilities with the settlement banks, which in turn ultimately depend on their access to liquidity from the central bank. In effect this insures deposit-taking institutions against the risk they run from having liabilities at call but assets which are less liquid. So there is a dividing line between deposit-taking institutions which depend on access to central bank liquidity and the other institutions, referred to in the amendment, which do not.
I wonder whether there is some confusion between the more narrow issue of the funding of the Bank, with which this part of the Bill and the amendment are concerned, and the regulatory and supervisory aspects. The FSA is the institution which will have responsibility for ensuring that individual institutions operate prudently. It is already a requirement under existing legislation that banks and building societies conduct their business in a prudent manner. We do not want to use the cash-ratio deposit scheme, which is a funding scheme, to try to do the FSA's job for it.
On reflection, I wonder whether it is that confusion which to some extent lies behind this amendment. In the interests of prudence in the drafting of the Bill and keeping to the least possible change as we introduce a statutory scheme rather than a voluntary one, I hope the House will agree that what we have proposed is the most sensible solution and that the noble Earl will not press his amendment.
The Earl of Home
My Lords, what the noble Lord has said about it being on a voluntary basis is certainly true. I shall reserve judgment to see what the level of those deposits turns out to be because if they continue to be required at anything like their present level, producing some £2.6 billion in deposits and £180 million for the Bank's profit and loss account, that is way beyond what the costs to the Bank might be of providing the particular liquidity to which the Minister referred.
§ Lord McIntosh of Haringey
My Lords, I am grateful to the noble Earl for giving way. I neglected to say something to him. In his opening speech he made a perfectly legitimate point about the amount of money required to fund the Bank. I gave assurances in Committee that the amount would be closely scrutinised and kept to a minimum. I assure him that in so far as money has been raised to fund the Bank's supervisory functions, which are now being transferred, that will no longer be subject to cash ratio deposits. I am sorry that I did not repeat those assurances earlier this afternoon.
The Earl of Home
My Lords, I thank the noble Lord for that. It will be at least some comfort to the institutions involved. However, I am still concerned about the enormous importance which the noble Lord gives to liquidity. No bank runs itself assuming that if times get 979 difficult the Bank of England will provide liquidity for it at any particular moment. No sensible bank can rely on the Bank of England to do that. The Bank of England has no legal or, indeed, moral obligation to put money into any bank or group of banks which happen to need it at a particular moment. Any bank running its business sensibly will have its own stand-by alliance with other banks. As the Treasury knows all too well, the internationalisation of money means that it can now come from an enormous number of different places. I really do not believe that nowadays any bank in the City of London or elsewhere runs its business on the assumption that the Bank of England will pump money into the system. All banks have their own prudential limits. We all have our own methods of calculating our own liquidity.
I accept what the noble Lord said about matching maturities. The fact is that unless the figures drop dramatically, the banks and the building societies will be funding an awful lot more than what the Bill states that they should fund. They are paying for all kinds of other functions of the Bank from which they do not benefit any more than anybody else. When the noble Lord rethinks this, I hope that he will recognise that the amounts of money which the banks and the building societies are being asked to put up is totally disproportionate to the cost of the benefit that they might get from liquidity. In the hope that the noble Lord will look at this again, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
§ Clause 11 [Objectives]:
Lord Barnett moved Amendment No. 7:
Page 5, line 14, leave out from ("stability") to ("the") in line 15 and insert ("as a precondition of supporting").
§ The noble Lord said: My Lords, this amendment stands in the names of my noble friend Lord Peston and myself. I apologise once again on behalf of my noble friend because I had hoped that he might be here for this amendment, which deals with one of the most important parts of the Bill, Part II on monetary policy. Our amendment seeks to deal with the whole question of whether price stability should be pursued at the expense of the Government's own economic policy. That is what the Bill says as it now stands. It states that price stability should be the No. 1 priority and that the Government's economic policy will come second if and when they achieve price stability. I make it clear that I am strongly in favour of achieving price stability.
I hope that the noble Lord, Lord Mackay of Ardbrecknish, will not mind my saying that his amendments, Amendments Nos. 8 and 9, which are grouped with this amendment, seem somewhat contradictory. I hope that the noble Lord will pardon my saying that. He knows that I generally have enormous regard for him. Amendment No. 8 seeks to delete the words "subject to that" but then seems to say that those words should stand because Amendment No. 9 states,
but only insofar as it can do so without prejudice to paragraph (a)".
To put it mildly, to say that Amendment No. 9 contradicts Amendment No. 8 is my customarily respectful way of saying that in his two amendments the noble Lord, Lord Mackay, is talking somewhat nonsensically. I am being polite to the noble Lord—as he knows, I always am.
As I have said, this is an extremely important matter because we return to the question of how price stability should fit together with the Government's own economic policy. I hope that my noble friend the Minister will not mind me saying that we have heard some contradictory remarks from him both at Second Reading and in Committee. I refer first to Second Reading, when he said:
Price stability—low inflation—is an essential precondition of achieving the Government's objectives of high and sustainable levels of economic growth and employment".—[Official Report, 13/2/98; col. 1383.]
My noble friend and I have accepted what the Minister meant by that and we have sought to include those words in the Bill. As it now stands, the clause does not refer to preconditions. It states that price stability comes first and that only when that has been achieved does the Government's economic policy have to be considered. That does not make any sense to us. We believe that price stability and the Government's economic policy should come together. The Bill, therefore, does not say what the Government are minded for it to say. In Committee, my noble friend the Minister quoted what he said at Second Reading:
I quoted Alan Greenspan in his Humphrey-Hawkins testimony last year. That sets out the position very clearly. He said"—
My noble friend was quoting Alan Greenspan, so I am quoting my noble friend quoting Alan Greenspan. I am sure that it is clear—
'Our objective has never been to contain inflation as an end in itself, but rather as a precondition for the highest possible long-run growth of output and income—the ultimate goal of macroeconomic policy'".—[Official Report, 3/3/98; col. CWH58.]
Fine, I agree entirely. I would not be so rude as to say that I disagree with Alan Greenspan because he is much more intelligent on these matters than I would dare to suggest for myself or even for my noble friend Lord Peston who is, as we all know, a very bright and intelligent economist. However, I am not sure whether even my noble friend would compare himself with Alan Greenspan who has been doing a practical job, if that is not too insulting of economists generally, in the Federal Reserve Bank.
Therefore, if Alan Greenspan is right and if my noble friend the Minister was right to quote him, he should accept our amendment. It is quite straightforward. There is nothing difficult about it. It is very simple. We are saying that price stability should not be "and … subject to that", but we are not saying that price stability should override the Government's economic policy. I am sure that my noble friend, being the sensible man that he is—as I stated on a previous amendment which he was kind enough to accept—recognises that what I and my noble friend propose this time is equally sensible. On 3rd March my noble friend said:
Price stability and high employment go hand in hand. Achieving price stability will help to achieve high employment, and achieving high employment will help to achieve price stability".
I agree with him entirely. He went on to say:
If I may anticipate my noble friend's question, I am sure he will then ask me, as he did, quite reasonably, why we do not give them equal status".
That is precisely what I seek to do today. I thought that I was right then and I believe that I am right today. My noble friend went on to say:
Why do we not say 'price stability and the Government's economic objectives'? I think we do so, and I am surprised to be able to call in aid the noble Lord, Lord Stewartby".
He was surprised but nevertheless called him in aid. He added:
If we are to give targets to the Bank of England, we have to give it targets which are explicit and which do not involve internal contradictions, otherwise they will simply be warm words. Somebody used the term 'weasel words".—[Official Report, 3/3/98; col. CWH 58.]
§ I hope my noble friend agrees that I do not often use weasel words and that I have not done so on these amendments. I have used the Government's own words, or at least my noble friend's words. I am sure that my noble friend would never use weasel words. I believe that what is proposed in Amendment No. 7 makes good sense and that therefore my noble friend will feel able to accept it.
§ Amendment No. 10 is also grouped with Amendment No. 7. I do not know whether I am supposed to speak also to that. I see my noble friend nodding. The amendment is quite simple. It deals with the regions. In Committee noble Lords debated membership of the monetary committee which should include someone from the regions, but that is another matter with which this amendment does not deal. The amendment deals with the Bank's objectives which should take account of regional policy and the problems in the regions. This is a big issue. I and other noble Lords who are members of the Select Committee upstairs have been to Europe to examine the European central bank. We are aware that the European central bank will have to take account of even bigger regions. However, the Bank of England (as I understand it will still be called) must take account of the Government's economic policies, but that will be a secondary objective to price stability under Amendment No. 7. If the Government accepted Amendment No. 10 they would simply be doing what the Bank would sensibly do anyway, knowing the members of the monetary committee; namely, they would take account of the problems of the regions.
§ The Minister has made clear that the objectives of the Bank shall be explicit and not involve internal contradictions. That is quite right. To add that the Bank should take account of the problems of the regions does not involve an internal contradiction; nor is it other than explicit. Knowing its own good sense it will do that anyway. One is not using weasel words but explicit words. I am quite confident in this matter. I am not so confident now that I see my noble friend smiling. However, I hope that, if he recognises these as sensible amendments, he will accept them. I beg to move.
§ 4.30 p.m.
§ The Deputy Speaker (Baroness Lockwood)
My Lords, I must point out that if this amendment is agreed to I cannot call Amendment No. 8.
§ Lord Mackay of Ardbrecknish
My Lords, as the noble Lord, Lord Barnett, has kindly pointed out, 982 Amendments Nos. 8 and 9, which form part of this grouping, are my amendments. The noble Lord, Lord Barnett, is correct that Amendment No. 10 is separate from the other three and I shall deal with that at the end of my contribution. Clause 11 is central to the Bill. The clause gives the Bank of England operational independence over monetary policy and spells out how it should carry that out. In Committee and in the other place there was considerable discussion about the relationship between the maintenance of price stability and, subject to that, support of the economic policy of Her Majesty's Government, including their objectives for growth and employment. Neither in the other place nor in Committee here were participants in the debate entirely satisfied with what the Government said. The noble Lord, Lord Barnett, put the case well. Is price stability the principal objective? Are the objectives in paragraph (b) secondary objectives? As I understand the amendment moved by the noble Lord, Lord Barnett, it seeks to give those objectives the same status. I shall come to that matter in a moment. I do not believe that my amendment does so.
In the other place there was an interesting Second Reading exchange to which I drew the attention of the Committee. To be precise, I must quote some of the interventions by Mr. Dafydd Wigley because the key points that I wish to make are those of the Chief Secretary to the Treasury, Mr. Alistair Darling. The exchange was concerned solely with Clause 11. Mr. Wigley asked the Chief Secretary:The Bill gives overriding priority to maintaining price stability. Growth and employment are subject to that".
§ Lord Mackay of Ardbrecknish
I shall quote the Minister. Mr. Wigley's point was that the Government should not make employment secondary to the control of inflation. Mr. Darling gave the following answer:The right hon. Gentleman is mistaken. Clause 11 shows that the Government's objectives are high levels of growth and employment".Mr. Wigley intervened again to say that the Bill said "subject to that". Mr. Darling replied:The right hon. Gentleman is reading it the wrong way round. The Bank's objective is to maintain price stability, but that is in support of the Government's objectives of growth and employment".—[Official Report, Commons, 11/11/97; col. 712.]I am still puzzled, despite what the noble Lord, Lord McIntosh of Haringey, told me in Committee, because if I read it correctly "price stability subject to that" means that the primary objective is price stability. Once I have made sure that that is all right I can look at the other matters referred to under paragraph (b), growth and employment and other matters not specified.
In Committee the Minister tried, at col. CWH 57, to clarify the situation:As the Bill says, the monetary policy objective of the Government is to maintain price stability and, subject to that, to support the Government's objectives for growth in employment. But in turn high levels of growth in employment will also create the conditions for price stability on a sustainable basis".983 That may or may not be correct. If it is correct the wording in the Bill does not reflect it. The present wording of the Bill clearly states that the relationship between price stability and growth and employment is such that price stability is on top and growth and employment are to be considered after that has been assured.
I understand that in the world of economists there is considerable argument about the relationship between price stability and employment. I do not believe that I can do much better than quote the evidence given by the noble Lord, Lord Eatwell, to the Treasury Select Committee of another place. He said:One group of theorists believes that there is no particular medium-term relationship between the level of unemployment and the rate of inflation. Another group believes that the key relationship runs from the level of unemployment to the rate of inflation, and from this group monetary policy is a means of controlling the level of output and so controlling the level of inflation".Clearly there is disagreement among economists on how those factors relate to one another.
The noble Lord, Lord Barnett, has tried to rephrase the clause so that the point made by the Financial Secretary is clearer. I have tried to rephrase the clause so that the clause itself and the meaning of the words "subject to that" are clearer. In answering my points in Committee, the Minister referred me to the Bundesbank. I read afterwards with interest what I had heard from him:The Bundesbank is required to regulate the quantity of money in circulation and of credit supplied to the economy, with the aim of safeguarding the currency".The Minister pointed out that that was comparable to price stability. It was also required by law to support the general economic policy of the federal government, but only insofar as it can do so without prejudice to the performance of its own function of safeguarding the currency.
That is where I got my wording. The words are not exactly the same, because they are different in the Bundesbank Act from those in the Bill. So that instead of "subject to that", I have rephrased the provision to maintain price stability and:to support the economic policy of Her Majesty's Government, including its objectives for growth and employment but only insofar as it can do so without prejudice to paragraph (a).That is pretty close to the Bundesbank Act which the Minister quoted with approval. It also makes it clear that it is price stability that is the primary concern of the MPC. Does the noble Lord, Lord Bruce of Donington, wish to intervene, as I have mentioned Europe? Perhaps he does.
The Minister went on in Committee and said:If we started to bring in all sorts of other targets—a later amendment is a target on exchange rates—this would be a target on growth and employment. The members of the Monetary Policy Committee would scratch their heads and say, 'We have a choice. We can either protect one or the other. Which should we do? The Government have not told us which we should do'."—[Official Report, 3/3/98; CWH58.]As I understand it, the noble Lord, Lord Barnett, will probably say to them, "You must look at them all. You must not make one of them your primary concern". On the other hand, I have made it clear to them in my 984 amendment that it is price stability with which they are concerned. That is their principle concern. I am therefore clarifying the position.
I read Clause 11 as doing that also, but as there is clearly doubt, even in the mind of the Financial Secretary to the Treasury, I felt, in a helpful way, that I should come to the Government's aid in writing down in the Bill what the Financial Secretary said he wished to achieve.
If we are uncertain over these matters, we should not be too worried about it, because I noticed in the MPC meeting on 4th and 5th February an interesting quote at paragraph 28 which said that uncertainty was a normal state of affairs in economic policy making, so it obviously agrees with the uncertainty caused in this debate. The noble Lord, Lord Barnett, and I, from different points of view, wish to make Clause 11 clearer than it is. The noble Lord is saying that the MPC must look at those other issues, because he is one of the theorists who believe that they are tied closely together. I suggest, as per the Bundesbank, that the MPC should look principally at price stability.
I have a great deal of sympathy with Amendment No. 10. I shall talk, perhaps at length, on this general area later. My only point is the one that I made in the first debate, relating to national and regional aspects. Is Scotland among the national aspects, or are Scotland and Wales among the regional aspects? Having brought us devolution, the Government will have to sort out their terminology. The draftsmen will have to sort out their terminology. I am content with Amendment No. 10. If the Minister accepts that, I shall cheer because it will go some way towards addressing the problems which the noble Lords, Lord Montague, Lord Barnett, Lord Peston and I aired in Committee. I fear that the Government will not accept it. I do so on the rule of thumb that when the amendments moved by the noble Lord, Lord Barnett, were accepted a few minutes ago, his speech was brief. As he spoke for longer on this occasion, I suspect that the Government are not going to accept them.
§ 4.45 p.m.
Lord Bruce of Donington
My Lords, I am most grateful to my noble friend Lord Barnett for having introduced the amendment and for the interesting participation of the noble Lord, Lord Mackay of Ardbrecknish. In general, after listening to the debate, I am more than ever convinced of the undesirability of endeavouring to incorporate what must be the generalities of economic argument into an Act of Parliament, because, of course, Acts of Parliament cannot possibly encapsulate economic theories which are the subject of considerable debate. They are not always even in nature among economists themselves.
I look, for example, at the term "price stability". What does it mean? I do not see anything that might have been incorporated as a definition of the words used. What do they mean? What do the Government mean, and what do the Opposition mean, by "price stability"?
I have been studying these matters for some time. I have always been given to understand that in a competitive society stability is not what one requires. In 985 fact, price competition among firms and nations, possibly even among banks, is just trying to freeze something that cannot be frozen without abolishing the nature of competitive society. Competitive society thrives, not on stability but on instability. To endeavour to put that into an Act of Parliament seems to me to be highly dangerous.
I was first given the opportunity to express those views in the debate on the Maastricht Treaty. I still think that it was extreme folly to put an economic formula or a series of formulae into a treaty, because they would be bound, sooner or later, to be falsified by events. I have the utmost sympathy with the Chancellor of the Exchequer and my noble friend Lord Barnett, who are trying to freeze these things into a frame and lay them down as a policy for eternity. I can sympathise deeply with that, but human nature is somewhat more fragile. Even the commercial and banking sectors of world and national economies have been known to be a little fragile also, and not least the banking professions themselves.
Therefore, I wonder how the Governor of the Bank, to whom has now been entrusted the fixing of interest rates—I observe that they have gone up six times since he has been appointed and the Chancellor of the Exchequer has been relieved of the responsibility—will interpret "price stability". I fear, and I hope that I am not being unduly prophetic, that the whole thing will fall to pieces very quickly if the definitions of "price stability" and "growth and employment" are to be kept within their ordinary meaning. Apart from that, I have nothing more to say on the matter.
§ Lord Howell of Guildford
My Lords, I hesitate to intervene in the debate as I did not have the privilege of taking part in the Committee. However, I am moved by the shrewd and perceptive scepticism of the noble Lord, Lord Bruce of Donington, to remark on the amendments. I have great sympathy with the thoughts behind the amendment tabled by the noble Lord, Lord Barnett. Indeed, I have great sympathy with many of his views on subjects in economic and other fields. However, from outside the Committee, I must offer the view that there is a fatal flaw in the intention.
I understand that the noble Lord, Lord Barnett, is trying to introduce an element of balance into an utterly unscientific area where many economists claim all kinds of precision which does not exist. The noble Lord seeks to avoid the kind of zealotry and pursuit of one particular branch of objective policy which in the end turns to dust and proves to the outside world what it knew already—that economists do not understand much about the relationship between the economy and the real world.
The flaw is that government objectives are never clear. I am not making a party point—I refer to any government. Their objectives are never clear and, what is more, they change rapidly, even from day to day and certainly from week to week and month to month. In this case, one is asking for a link with something that is broadly identifiable; price stability. However, as was said by the noble Lord, Lord Bruce, nowadays even that 986 is an amorphous subject. In America, the CPI is revised frequently in radical ways and no one knows precisely what prices are doing. One is seeking to link a vaguely identifiable objective with something which is much more amorphous and ephemeral; that is, the set of government objectives.
If your Lordships think I am speaking in too many generalities, let us take today, this moment, now, when there is total confusion about whether the British economy is growing or shrinking. No one knows which sectors, in so far as one can divide the modern economy into sectors, are performing in which ways. It is believed that there is something called the "service sector", which is growing rapidly and may be promoting a degree of inflation. It is believed that there is something called the "manufacturing sector", which is alleged to be shrinking in the face of the high pound. But as no one understands how nowadays one can dissect and disaggregate services from manufacturing, or what a service is, or what a manufacturer is—they are sectors and concepts which belong to a past age and not to the age of the information intensive economy—it is hard to conclude from such general observations what is happening.
No doubt the distinguished members of the monetary policy committee are in the same dilemma as the rest of us. Indeed, it appears that recently they were at sixes and sevens about which way to go. Some say, "We must look at what we believe to be the monetary conditions. They lead us to the view that the monetary situation is loose. Heaven knows, if it is the Government's objective—and we have no idea whether it is or not—one day to put us into the EMU the pound will drop like a stone and inflation will go through the roof. We have been taught by the Bundesbank to think two years ahead in setting monetary targets and in thinking about short-term interest rates and therefore we must put interest rates up". That is one line of thought.
The other group apparently say, "Wait a minute, we don't know that the pound is going to fall. All we see is increasing difficulties in the manufacturing sector, increasing pressures on the economy and definite signs that overheating has finished and that the economy should be going into a downturn. We will look very silly, won't we, if we are found to be putting up short-term interest rates when we should be putting them down." Presumably, that is the kind of debate that has occurred among the price stability gurus who comprise the monetary policy committee.
If they were asked to link such considerations to the Government's policy they would be not less confused but even more confused because they would not have the slightest idea what the Government's policies are at this moment either in relation to growth or employment. In the longer term, it is like motherhood and apple pie. We are all in favour of people being employed, although even the concept of employment is dissolving because we do not know what the nature of work is in a modern society. In many societies, including this one, many people in future will not be in the old-fashioned sense employed. Therefore, it may not be that the objective of policy should be employment; it should be gainful, 987 dignified work and status and usefulness. Many people are writing books saying that the whole idea of employment belongs to an industrial age that has passed.
To return from that diversion, even if we knew what employment was, and even if we knew how to define growth,—indeed, only in the past fortnight the Office for National Statistics has issued elaborate new details of how to measure GNP and GDP because it is beginning to believe that the old-fashioned measures do not reflect what is happening in the economy—to ask the monetary authority, the independent Bank of England experts, to link their struggle with the vagaries of monetary policy to the even more amorphous and uncertain tasks of trying to define government policy and objectives in relation to growth, which we are not sure about, and employment, which turns out to be an outdated concept, is asking a hell of a lot. In fact, it is asking them to do something which turns a very difficult task, and one which is currently dividing them and leaving them uncertain, into an impossible task.
I hate to part from the noble Lord, Lord Barnett, on these matters, so great is his wisdom and experience but, with great reluctance, I am driven to the view that what is in the Bill is about as good as one can get. It does not mean much in modern conditions. The monetary policy people are in a great state of confusion. That would be added to if they were asked to take more account of these ever-changing and vague concepts of government national economic objectives in a world where national economic objectives as opposed to the broader macro-objectives of the global economy, which is something different, are becoming much more difficult to define. We would be setting our monetary experts an even more difficult task. Therefore, in this case I support the Government against the amendment of the noble Lord, Lord Barnett.
As regards the amendment in the name of my noble friend Lord Mackay, I see what he is trying to do. I understand that in an uncertain and fog-filled world he is trying to distinguish more clearly price stability and to give the independent monetary authority some chance of sticking to that without becoming too diverted by all the other economic policy debates which over the years have excited us and filled us with passion, but in respect of which, thanks to the ill advice of the economic profession, now at its low point in terms of incompetence and failure to interpret the modern world, we have been misled. Only recently has this country begun to escape from the clutches of the national macro-economic policymakers with commendable results which are at last putting us ahead in the world rather than being a passenger and a humiliating laggard.
§ Lord Newby
My Lords, we are in danger of talking ourselves into a state of complete depression on this subject. The members of the monetary policy committee are portrayed as mariners on a boat in a thick fog with no charts. While nobody in debates off or on the Floor have argued that these matters are easy, I suspect that while they are difficult and complex people dealing with monetary policy and so forth are capable of getting to grips with them.
988 I am not sure that I support the thrust of Amendment No. 9; I am even less sure that the wording strengthens the clarity of the Bill. One can argue either that the amendment is stronger than the existing wording of the Bill or vice versa. I believe that the form of words in the amendment does little to advance the cause of the noble Lord, Lord Mackay.
I welcome the amendment of the noble Lords, Lord Peston and Lord Barnett, for its attempt to tilt the balance in terms of consideration of monetary policy towards growth and employment, I wonder whether the word "precondition" has such a different meaning from the concept of "subject to". It seems to me as a layman in these matters that the difference is extremely slight. The clarity which has been sought does not flow from the wording. However, as I agree with the sentiment behind Amendment No. 7, I hope that the Government will be sympathetic towards it. To the extent that it differs from what is in the Bill, it differs in a direction which I support.
I support also Amendment No. 10 in terms of strengthening the degree to which the Monetary Policy Committee is required to look at the national and regional aspects of the consequences of what it does. That thought arose in Committee and on other amendments to the Bill and I hope that the Government will feel able to accept that amendment.
§ 5 p.m.
§ Lord Davies of Coity
My Lords, I rise primarily to ask the noble Lord, Lord Mackay, for some clarification regarding Amendments Nos. 8 and 9 and the way in which he presented them from the Dispatch Box.
However, before dealing with that I should say that I believe that there will be tremendous problems in evaluating growth, unemployment and questions of price stability. But in establishing an economic policy, that has to be carried out and it seems that the Bill is doing precisely that.
However, I understood from the noble Lord, Lord Mackay, that he wants to remove from line 15 "subject to that". When he moved his amendment, I understood him to say that he wanted to add the words,but only insofar as it can do so without prejudice to paragraph (a)".The written word refers also to the removal of,including its objectives for growth and employment".I did not understand the noble Lord, Lord Mackay, to say precisely that. I am sure that he wants that to be removed. If that is the case and he has inserted into the Billbut only insofar as it can do so without prejudice to paragraph (a)",and he is supporting the economic policy of Her Majesty's Government, what value is there in removing the words, "including its objectives for growth and employment"?
§ Lord Mackay of Ardbrecknish
My Lords, I agree that I did not address that. In Committee we discussed other matters such as exchange rates and, by removing "growth and employment", just referring to the economic policy of the Government. I include all 989 aspects of the Government's economic policy and not just those listed here. I rather hope that the noble Lord might support that as an idea.
§ Lord Boardman
My Lords, this debate shows the fallacy in the Government's thinking in separating monetary policy from general economic policy and handing over monetary policy to the Bank of England, leaving the Bank of England to operate quite independently and without any safeguards except those in the Bill to which we shall come in due course. We are leaving the Monetary Policy Committee to make its own assessment of monetary policy without regard to any detailed knowledge of the economy. Indeed, before this was thought about last year, the Chancellor did that in his assessments of economic and monetary policy by weighing one matter against the other. That was standard practice. He is now handing over the monetary policy to the independent monetary committee and saying, "It has nothing to do with me. I will get on with the economic policy".
That has led to this confusion which we have here where it is "subject to" certain economic factors. Indeed, according to my noble friend, in the other place the words "subject to" seem to have been omitted altogether from its thinking. It is quite impossible to deal with monetary policy divorced from economic policy. The two factors must be borne in mind together.
The amendment of the noble Lord, Lord Barnett, is perfectly sensible, but I prefer that of my noble friend Lord Mackay. However, they both have the same purpose in mind; that is, to separate economic policy from monetary policy, which is to have priority. If the Government's intention is that the Bank of England will manage monetary policy and the Chancellor of the Exchequer will manage economic policy, so be it, but let that be clear on the face of the Bill. That is what the amendments in the name of my noble friend Lord Mackay aim to achieve and I support the purpose of those amendments.
It is extremely unfortunate that that confusion has arisen. I am perhaps digressing slightly, but it will be far worse if there is a European central bank. I hate the thought of what would happen in those circumstances. However, that is a different subject which I shall not develop. I support the amendments of my noble friend Lord Mackay.
§ Lord Stewartby
My Lords, at the risk of being called in aid again by the noble Lord, Lord McIntosh, I must say that I do not believe that the Government's wording of Clause 11 is too bad. The task which the members of the Monetary Policy Committee will have to discharge is extremely difficult. The foggier the criteria that they must follow, the more difficult it will be for them to do it. You cannot follow two birds at the same time without the risk of missing both of them. After all, those chaps do not have two barrels; they have only one. They must be very closely focused on the target which they are trying to hit.
I should have preferred this clause to stop at the end of Clause 11(a)—"to maintain price stability", because any respectable monetary economists who are likely to 990 be appointed to the committee are bound to take into account the surrounding economic circumstances. It goes without saying that they would do that.
To the extent that the Government have felt, perhaps with a bow in the direction of some of their supporters, that they should include a direct reference to the economic policy of Her Majesty's Government and growth and employment, then I would find it least difficult to accept the wording which the Government have chosen; namely, that that should be subject to the principal objective of maintaining price stability. I would prefer the version of my noble friend Lord Mackay, because it is rather more explicit. In setting a task for the Monetary Policy Committee, the Government need to be as explicit as possible. Its members have a very difficult task. As my noble friend Lord Howell said, there are widely divergent views about the nature of economic growth and performance at present with one sector apparently advancing very strongly and the manufacturing sector finding extreme difficulty as a result of the strength of sterling.
The problem that arises if one introduces any reference to supporting economic policy is that the relationship between price stability and economic policy in the short run is so difficult to establish. If the members of the Monetary Policy Committee are to have to look over their shoulders all the time at the precise implications of movements in interest rates, growth and employment and other aspects of economic policy, they may be side-tracked from their principal and overriding objective; namely, the maintenance of price stability. That is something which will be specified.
In answer to the noble Lord, Lord Bruce of Donington, I should say that the way in which price stability is to be understood by the Monetary Policy Committee will be by way of a missive from the Treasury by notice in writing. At this stage, even that is not established. But assuming that the Treasury, by notice in writing, will give sensible instructions to the Bank, then those instructions need to be as simple, straightforward and comprehensible as possible. The members of the committee will have regard to those wider issues but it is essential to have the clarifying phrase in Clause 11(b), either "subject to that" or, as I prefer, the wording of my noble friend Lord Mackay. However, it must be made quite clear that the committee has a primary objective of price stability and not a more vague, generalised economic objective.
§ Lord McIntosh of Haringey
My Lords, I have a problem; namely, whether to speak to the debate or the amendments. They are rather different. I believe that I owe it to your Lordships to do both. Therefore, perhaps I may start by speaking to the amendments. Clause 11 says:In relation to monetary policy, the objectives of the Bank of England shall be—991 The effect of the amendment tabled in the names of my noble friends Lord Barnett and Lord Peston would be to make the clause read:
- (a) to maintain price stability, and
- (b) subject to that, to support the economic policy of Her Majesty's Government, including its objectives for growth and employment".The objectives of the Bank of England shall be to maintain price stability as a pre-condition of supporting the economic policy of Her Majesty's Government, including its objectives for growth and employment".Amendment No. 10 follows on from that, and I will deal with it separately. On the other hand, the amendment of the noble Lord, Lord Mackay, would make the clause refer to the objectives as being,to maintain price stability and to support the economic policy of Her Majesty's Government",but only in so far as it can do so without prejudice to paragraph (a). I want to suggest to the House that those three are all virtually the same; there is no significant difference between them. Although there have been differences in debate, I am delighted that, from one side, my noble friend Lord Barnett and, from the other, the noble Lord, Lord Mackay, have come round to the Government's position in the wording of their amendments.
What is the Government's position and what possible disagreements are involved? The key to it lies in the remarks made by the noble Lord, Lord Boardman. I do not agree with him. He suggested that you cannot make a distinction between economic policy in general and monetary policy in particular. I believe that you can and you have to, if you are doing so in the context of setting monetary policy targets for the Monetary Policy Committee of the Bank of England. That is the key to the difficulties which the noble Lord, Lord Mackay, had about the Chief Secretary's remarks in response to Mr. Dafydd Wigley on Second Reading on 11th November last year in another place.
The Chief Secretary meant that the Government's central economic objective is,to achieve high and stable levels of growth and employment".That quote comes from the Pre-Budget Report of November 1997. What we are saying in Clause 11, when talking about the objectives of the Bank of England in relation to monetary policy, is that price stability is the most appropriate contribution that monetary policy can make towards sustaining high and stable levels of growth and employment.
Of course, there are other aspects of economic policy which are not being devolved to the Monetary Policy Committee of the Bank of England. The Budget is evidence of that fact. That committee was not invited to write the Budget. But, in the limited sense of monetary policy and the role of the Bank of England, it is correct to say, as we have said, that price stability is the most appropriate contribution that monetary policy can make to sustaining high and stable levels of growth and employment. Therefore, monetary policy must come first in the statement of objectives and the statement of general economic principle has to be set out after that, following the words "subject to that" in the clause.
My noble friend Lord Bruce said there is much doubt as to what price stability is. Clause 12 spells out that price stability is, as Humpty-Dumpty would say, "what I intend it to mean"; in other words, the Government 992 actually spell out in Clause 12 what price stability is to be taken to consist of—namely, 2.5 per cent. inflation, neither much more nor much less.
§ 5.15 p.m.
§ Lord Mackay of Ardbrecknish
My Lords, I apologise to the Minister for intervening. I listened to an economics professor say quite clearly that price stability had to mean zero inflation; but 2.5 per cent. inflation is not price stability. Inflation may be more stable than it has been at some time in the past, but it is not price stability. I recommend the professor of economics.
Lord Mackintosh of Haringey
My Lords, with due respect to my noble friend Lord Peston, we are not dealing with professors of economics; we are dealing with the instructions which the Government give to the Bank of England. We say, as Humpty-Dumpty says, "When I say a word, it means what I state it to mean". It means 2.5 per cent. and not too much more and not too much less. If we want to change that, we will change it in accordance with the wording of Clause 12.
After that, I take comfort from the words of the noble Lord, Lord Howell of Guildford, who said that the wording we have is the best that we can do. I loved the grouse moor metaphors of the noble Lord, Lord Stewartby: you cannot follow two birds without the risk of missing them both. When I made my maiden speech many years ago, a noble Lord said later in the debate,"The noble Lord has shot my fox". It is an equally unfamiliar metaphor to me as that of shooting birds. However, I recognise it for what it is; namely, support for the Government and support for our wording. It would not make very much difference which amendments we were to adopt. The amendments on the Marshalled List do not express the more radical views which have been expressed, especially by my noble friends. On the basis that the Government have done the best that they can, I invite the House to reject the amendments and hope that my noble friends and the noble Lord will not insist upon them.
§ Lord Barnett
My Lords, we have had a most interesting, if brief, debate. I know that the noble Lord, Lord Mackay, loves to bring in a little party politics. Once again, he tried to bring in one of my many successes as Chief Secretary to the Treasury to show that he agreed with the noble Lord. To be honest, I do not care whether or not he does. I believe he said that he was being rather contradictory. However, I shall not comment on his quote about my noble friend Lord Eatwell. There are many economists around, including, among the best of them, my noble friend Lord Peston who attached his name to the amendment.
However, the plain fact is that the noble Lord's amendments agree with the Government. I am glad to see that my noble friend Lord McIntosh agrees with me in that respect. Of course, my noble friend had to call in aid two noble Lords opposite. Indeed, the noble Lord, Lord Howell of Guildford—I nearly called him "my noble friend" because, very often, we tend to agree—said that government objectives can never be clear. But then he was prepared to leave the Government's 993 objectives as set out in the Bill. My noble friend Lord Peston and I are seeking to make the Government's objectives even clearer. Indeed, calling in aid what my noble friend said both on Second Reading and in Committee, we used his words to make it clearer.
My noble friend Lord Bruce also did not know the meaning of the term "price stability". I hope that he will forgive me, because I do not intend to go into that. I deliberately avoided referring to Maastricht because I did not wish to provoke my noble friend. I know how easily provoked he is.
The noble Lord, Lord Mackay of Ardbrecknish, prefers price stability to mean zero inflation. There is no use his pointing—the plain fact is that is what he said. He prefers to quote economists and others who believe that price stability has to mean zero inflation. Perhaps my noble friend Lord Peston agrees with that. I see him nodding. That is where my noble friend and I disagree. I do not believe for a minute that one needs to have zero inflation to have price stability. Incidentally, the noble Lord, Lord Howell of Guildford, prefers to leave the Bill as it is. I believe he called the Bundesbank in aid—or rather I believe some of his noble friends did so. The plain fact is that the Bundesbank may not be able to define price stability or economic objectives, but it may be said that it "ain't done too bad" over recent years without being able to define that. If that is what the noble Lord is saying, I tend to disagree with him.
Our amendment makes the matter simpler, not more complicated. We do not propose to give a definition of price stability. I return briefly to what my noble friend said on price stability. He referred to Clause 12(1), which states, that,what price stability is to be taken to consist of, or(b) what the economic policy of Her Majesty's Government is to be taken to be".All we seek to do in our amendment is to do just that. We propose that the Government's objectives on price stability or their economic objectives should be as one. We propose nothing more complicated than that. I know that my noble friend the Minister does not always agree with his brief.
§ Lord Barnett
My Lords, I do not refer to my noble friend Lord Bruce of Donington. Does he agree on this occasion?
§ Lord Barnett
My Lords, I would never dream of it. I think my noble friend should be promoted, although I would be the last person in the world to recommend it because my recommendations may not necessarily be productive. I would not dream of saying that. All I mean to say is that my noble friend can be flexible in his interpretation of his brief. I had better say for the benefit of the record that he shakes his head. He never disagrees with his brief. However, he can be flexible at times. 994 I hope that he does not mind my saying that and going that far. My noble friend was not present when we discussed our previous three amendments—I apologise on his behalf—but I am happy to tell him that they were all totally accepted by the Minister. I hope that he will accept this amendment also because all we seek to do is to spell out exactly what is the Government's policy. Is my noble friend willing to speak again and say that he will accept the amendment?
§ Lord McIntosh of Haringey
My Lords, I have already indicated to the House that I cannot accept any of these amendments. I have invited my noble friend to withdraw the amendment.
§ Lord Barnett
My Lords, it is an interesting point that I should withdraw amendments with which I agree. But given that we shall have another opportunity—I hope—on Third Reading, or whenever, to consider these matters again, I accept my noble friend's request. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
§ [Amendments Nos. 8 and 9 not moved.]
Lord Barnett moved Amendment No. 10:
Page 5, line 16, at end insert ("in their national and regional aspects").
§ The noble Lord said: My Lords, I had hoped that my noble friend might reply to this amendment. I am sorry that it is grouped with other amendments. For the moment I shall move this amendment to give my noble friend an opportunity to respond to this whole question of regional objectives. I beg to move.
§ Lord McIntosh of Haringey
My Lords, my noble friend is being perfectly fair. I neglected to address Amendment No. 10 when I responded to this group. It is right that I should discuss it. I understand his concerns but I have already made it clear that Clause 16(2) states that the Bank's Court will keep the procedures of the Monetary Policy Committee under review to ensure that it collects the necessary regional and sectoral information in order to meet its monetary policy objectives. The Bank has a well-established network of regional agents and has a wealth of distinguished regional contacts represented in its Court, enhanced by recently announced appointments. Therefore my first answer to my noble friend is that the amendment is not necessary; its aim is covered.
I am duty bound to respond to the noble Lord, Lord Mackay of Ardbrecknish, who said that the word "regional" would offend the Scots. In Committee I undertook to consult the draftsman again on whether it is appropriate to use the word "regional" to describe information relating to Scotland. The noble Lord will not be too surprised to hear that the draftsman said that it is appropriate. In this context it is clear that the word "regional" is simply being used to describe geographic areas. So in this sense "regional" would encompass Scotland, or the lowlands of Scotland, or it could encompass the lowlands of Scotland and Cumbria as an economic region. There is no offence of any kind 995 intended or, I believe, would be taken by the people of Scotland and Wales from the use of the word "regional". I think the noble Lord will find that the word is used in this broader sense throughout legislation and throughout government. On that basis, I invite my noble friend to withdraw Amendment No. 10.
§ Lord Barnett
My Lords, I am obliged to my noble friend. I did not understand why my noble friend said that he rejects the amendment because it is not necessary. One could equally argue that it will not do any harm to include it as all it does is to spell out what the Government have in mind anyway. My noble friend can hardly say that the amendment does any harm. All he said was that it is not necessary.
§ Lord McIntosh of Haringey
My Lords, I responded to that point in Committee. With the leave of the House, I said then that unnecessary words of themselves do harm. I believe that is the case.
§ Lord Barnett
My Lords, I warn my noble friend that I shall bear in mind for other occasions the comments that he has just uttered as regards unnecessary words. He said they were not necessary and in this case they could do harm. I doubt that. I should be surprised if they did harm. However, in view of what he has said, and because I am fond of him I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
§ Clause 12 [Specification of matters relevant to objectives]:
Lord Mackay of Ardbrecknish moved Amendment No. 11:
Page 5, line 17, leave out ("may") and insert ("shall").
The noble Lord said: My Lords, in moving Amendment No. 11, I speak also to Amendment No. 12. I have tabled these two amendments genuinely to be helpful to the Government. When we discussed Clause 12 previously both the noble Lord, Lord Peston, and I were puzzled about the first line of the clause, which states that,
The Treasury may by notice in writing".
We are puzzled about the word "may". The Minister pointed out that we had not read the entire clause properly and did not understand what it meant. However, the Minister said that he would seek the advice of draftsmen. Clause 12(1) refers to what one might call the "one-off situation"; namely, a measure that the Government may adopt if they feel that something has gone wrong. That is encapsulated in Clause 12(1) which states,
The Treasury may by notice in writing to the Bank".
§ Clause 12(2) refers to what I might call the normal annual position. Clause 12(3) refers to what will be done as regards the normal annual position. On reflection, I thought that it would be far better to refer to the normal position first and then stipulate the emergency position. However, the Bill refers first to the emergency position—the "may" position—and the "shall" provision 996 follows. I should prefer it to be the other way round. I do not claim to be a draftsman but I believe that my amendments achieve that.
The Bill states that the Chancellor will every year,
before the end of the period of 7 days beginning with the day on which this Act comes into force, and at least once in every period of 12 months",
send a notice to the Bank to state what price stability will consist of; and what the economic policy of the Government should be; that he will publish the notice and lay a copy before Parliament. That should be first because that is what he will do every year. Then after that should be the provision that he may,
by notice in writing to the Bank",
at other times—I presume in emergencies—do the other thing. I believe that that would have been neater. It would have made my reading of the clause easier. I beg to move.
§ Lord Peston
My Lords, before the Minister replies, as my noble friend pointed out we have discussed this matter many times in the past. After all my years in your Lordships' House I should have learned my lesson by now. However, my problem is that the word "may" logically implies "may not". It is inconceivable that the Government mean "may or may not"; therefore, the clause means "shall". So for perhaps the last time in my career in your Lordships' House, I seek a convincing explanation of why, since "may" means "shall", we do not use the word "shall". I believe that my noble friend said in Committee that "may" means "shall"; he said that it has to happen. For the moment, I pause in the hope that the Minister can explain to me the point of "may" rather than "shall", and if "may" is used, why not "may not"?
§ 5.30 p.m.
My Lords, this is the first time I have intervened in debates on the Bill. I support the amendment. One of the things that worries me about the independence of the Bank of England from the Treasury is that it would be possible for the Treasury to fix a bank rate, for example, which was contrary to the economic interest of the country. If the Bank of England were to do that, there would be trouble. But if the Treasury is required to say by notice in writing to the Bank what price stability is to be taken to consist of, and what the economic policy of Her Majesty's Government is to be taken to be, it would not solve the problem I have mentioned but it might mitigate it.
§ Lord McIntosh of Haringey
My Lords, I hope that I did not say in Committee that "may" means "shall". It has always annoyed me when anyone has said that because it is patently not true. My noble friend is of course right to say that "may" allows the possibility of "may not". The explanation of the wording of Clause 12 is quite different. If I did not make it clear at Committee stage, I am grateful for the opportunity to try again.
Clause 12(1), which gives the Treasury the power to give notice to the Bank specifying what price stability and the Government's economic policy are, allows the 997 Treasury to give such notices whenever it thinks fit. But Clause 12(2) means that the Treasury must specify these matters at least once in every 12 months.
I have sought the draftsman's view on the wording of this clause in the light of our debate. He has confirmed that he is content that the clause is clear as drafted. You might say, "He would be, wouldn't he?", but, when one thinks about it, I believe that the logic is sound. Subsection (1) deals with the general; namely, the Treasury's power to give the notice. Subsection (2) deals with the specific; that is, the Treasury's duty to give notice at least once in every period of 12 months. I suggest that it is appropriate to go from the general to the specific in so far as the specific qualifies the general. I hope that the noble Lord will withdraw the amendment.
§ Lord Peston
My Lords, may I seek clarification from the Minister? Does he say that if "shall" replaces "may" the clause will be different? It would help me very much if my noble friend could tell me the answer to that.
§ Lord McIntosh of Haringey
My Lords, I am saying that we want a level of permissiveness, of allowing the Treasury to give notice when it thinks fit, but we wish to qualify that by saying that whatever the Treasury decides to do it must—that is the specific—do it at least once every 12 months.
§ Lord Mackay of Ardbrecknish
My Lords, I think we are in danger of coming close to splitting hairs. My suggestion is that one states as the principal clause one's normal position: that annually one will do it. Then one qualifies that by saying that if one feels obliged to do so, one can do it at other times as well. I should have thought that that was the logical way round. I appreciate that once the draftsman has made up his mind, it is often difficult to get him to change it: the very good reasons given become the position that one has to defend.
I believe that there was nothing wrong with my amendment. It is interesting to note that the Minister did not suggest it was defective. I believe that such drafting would have shown the casual reader—if there ever will be casual readers of the Bill—what the Treasury will do every year, and that if the Treasury thinks fit it could do this at other times.
Clearly I shall not succeed in having the clause changed. My career as a draftsman has been short but sweet. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
§ [Amendment No. 12 not moved.]
§ Clause 13 [Monetary Policy Committee]:
Lord Mackay of Ardbrecknish moved Amendment No. 13:
Page 5, line 39, at end insert ("in accordance with the procedures of the Commissioner for Public Appointments").
§ The noble Lord said: My Lords, in moving the amendment, I speak also to Amendment No. 14.998
§ The amendments are related only in so far as they deal with the method of appointment of the four members of the Monetary Policy Committee. They are not related in any other way. Amendment No. 13 is merely an additional probe to an amendment I put forward at Committee stage. But Amendment No. 14 is a serious amendment arising from the debates at Committee stage.
§ The four appointments we are discussing are what I might describe as the away team of the Monetary Policy Committee. The home team will be the Governor, the two deputy governors and two of the employees, as outlined in Clause 13(2). Currently there are only four of them, but once the Bill is enacted there will be five members of the home team, and four members of the away team.
§ Those people will decide monthly on the interest rates to be pursued in this country. From the last debate we had, it was perfectly clear, however one reads Clause 11, that the Monetary Policy Committee will be an extremely important body. It will be a body constructed by the Chancellor appointing people to it. We are looking now at the four members of the away team, the outsiders so to speak, who will be appointed to play a major part in making that decision. Arguably, this will be the most important public body in the land—far more important than many others.
§ At Committee stage, I posed the question of the method of appointment. The Minister gave me some reassurance. Perhaps he can do so again, although I would prefer him to put the reassurance on the face of the Bill. The Minister pointed out that appointments to nationalised industries and public corporations are under the remit of the Commissioner for Public Appointments. He told me that a review was going on; a consultation document was out; and the Government expected to respond in the course of the next few months. He also told me that any extension of the remit of the commissioners, for example, to include the Monetary Policy Committee, would not need primary legislation. It would be dealt with by an Order in Council.
§ Having reread what the Minister said, I was unsure whether the Government believed that these four appointments should be made in the same way as other appointments, through the Commissioner for Public Appointments: being advertised, applied for, and so on. I shall be grateful if the Minister can clarify that. If the Government believe that they should be appointed in the same way as members of nationalised industries and other public corporations, is it not time that these matters were on the face of important Bills such as this one, so that no one is in any doubt?
§ Amendment No. 14 refers back to Amendment No. 10, proposed by the noble Lord, Lord Barnett, and to one or two other points made earlier. Those four members will be extremely important. They must therefore understand the needs of the economy of the whole of the United Kingdom. In Committee, we had an interesting debate on the need for manufacturing industry to feel that it had someone on the monetary policy committee who understood it and its problems. We also discussed whether we needed to be sure that 999 there were people on the committee who had knowledge of the whole of the United Kingdom. Noble Lords who took part in that debate from both sides made valid points which concerned us all about manufacturing industry and, if I may so describe them, the regional aspects of economic policy.
§ The amendment I have tabled homes in on Scotland. For reasons I mentioned earlier, the Government have deliberately decided, as a matter of policy, to change the whole way in which the United Kingdom is governed. We are no longer to have one central government for all policy issues in the United Kingdom. We are to have three governments—and possibly four, if the talks in Northern Ireland reach a conclusion in reasonably short order.
§ The economies of the nations that make up the United Kingdom can be very different. I started out being mildly worried about this matter; however, I became more concerned when I read the CVs of the four excellent people who have been appointed to the monetary policy committee. It seemed to me that, apart from experience beyond this country, their working lives have been very much in a triangle consisting of Oxford, Cambridge and London. Indeed, the furthest north any of them seemed to think they should go in their professional careers—I hope I am not to be told that they spend a fortnight on holiday in Scotland once a year—is Oxford or Cambridge. I have still not worked out which of the two is further north—I keep hoping that somebody will tell me—but neither is terribly far north, considering the Midlands, the north of England, Scotland, Wales and Northern Ireland.
§ I shall not read the details at great length. Professor Goodhart is a professor of banking and finance at the London School of Economics. I shall turn to his past in relation to other matters. I do not think that he has ever in his career been north of Cambridge and the LSE—he taught in both. DeAnne Julius is the odd person out. Not only is she a woman; she is also not an academic economist. She works as the chief economist of British Airways. Nothing in her CV, unless Washington is north of Oxford and Cambridge, which it probably is—I am told it is not—suggests that she has worked outside that interesting triangle. Sir Alan Budd is the third. His appointments have all been very much within the triangle I mentioned. Professor Buiter is the last; he is professor of international macro-economics at Cambridge University. Prior to that, he was at the London School of Economics and Yale. To my knowledge, Yale is not in Scotland. Nor indeed is Bristol, where I note that he also worked, as he did at Princeton. He is obviously much travelled in his career; however, his travel does not include Scotland or any other part of the United Kingdom beyond Oxford, Cambridge and London.
§ My concern is this. Over my political lifetime there have been situations—not prevalent at present, but which did exist for many years—where the economies of Scotland and perhaps the north of England were quite different from the economy of the south-east of England. The economy of the south-east of England was often over-heating, and therefore in need of higher interest rates, when the economies further north were 1000 still in decline. Their old industries such as steel, coal and shipbuilding were declining, and there were serious problems. Frankly, higher interest rates were not part of the solution to those problems. They aggravated the problems. While, as I say, that is not happening currently, it has happened more often than not in the past. I am therefore very worried that the monetary policy committee will be looked upon from the north as merely a group of people meeting in London, largely drawn from London or close by, who have no knowledge and perhaps no interest (that would not be a fair accusation, but it will be the one that is levelled) in the economies of the other parts of the United Kingdom.
§ My argument is even stronger given the changes that are being made in the government of the United Kingdom by the Government this Session. While I fully accept that Treasury matters are reserved—indeed, the Minister gave that assurance in Committee—I must say to him that debate in the Scottish parliament will not be reserved. Its members will be allowed to debate anything they wish to debate. If they feel that the interest rates being pursued by the monetary policy committee are not in the best interests of Scotland, they will start debating the matter loud and long. They will be forced to do so, since they will have as their responsibility economic development, financial assistance to industry, inward investment and the promotion of trade and exports from Scotland.
§ That brings me directly to the question of the value of the pound, which is a matter that must concern members of that parliament. Tourism is also a factor, and the value of the pound plays an important part. Just as noble Lords are probably finding that the Easter Recess can be spent quite cheaply abroad. I suspect that people from abroad are finding this country, including Scotland, slightly more expensive than it once was because of the value of the pound. So although the Treasury's responsibilities are not devolved, there are many aspects which are devolved and which will be very much influenced by the decisions of the monetary policy committee.
§ My amendment is couched in the most sensible terms. Indeed, I even accept that the Chancellor of the Exchequer will continue to make the appointment, which I hope shows that I have listened to the Minister. What I am saying is that one of those members should be appointed on the advice of the First Minister of the Scottish Executive. I keep being told that the First Minister is to be Mr. Donald Dewar. Donald Dewar and I are friends; we go back a long time. I should be perfectly confident in the good advice that he would give the Chancellor. Indeed, I suspect that I should be perfectly confident in the good advice that any First Minister would give the Chancellor. So I do not think that I am being unreasonable in the way I have phrased this matter. I have changed the amendment quite markedly since Committee stage. I have thought about it, and I have tried to be practical. I have tried to give the Minister an amendment which he can accept, but which, if your Lordships decide to insist, would actually work, because the First Minister would exist and would be able to give advice. That would be very important.1001
I am not alone in believing this. The Law Society of Scotland thinks that there is merit in this case. Indeed, from my point of view support came from a very unlikely quarter—but support is coming from the most unlikely quarters these days. I now find that the National Union of Students considers that I am quite one of its heroes, having voted down one of the Government's proposals on fees. I suppose that the change of position in the Chamber brings new supporters. The supporter that I now pray in aid is the Scottish Trades Union Congress, which is very dominant in the Labour movement in Scotland. The Scottish Trades Union Congress made a submission to the Chancellor of the Exchequer ahead of the Budget in which it asked for Scotland to have a seat on the influential Bank of England committee which sets interest rates. It goes on to say, as I have, that there have been times over the past 50 years when interest rates did not seem quite right for Scotland. It also accuses the Bank of being "particularly insensitive" to the impact of interest rates on regional economies. It states:
The STUC believes that the latter"—
that is, an appreciation, an awareness, of the economic priorities of the different parts of the UK—
will only happen when seats on the monetary policy committee, and on the Bank's court, are allocated by region".
The Minister will tell us that, indeed, seats on the court are being given to people from a wide range of interests and places in the United Kingdom. I paid tribute to that in Committee and do not wish to take away from that. It is a plus, and is good for the Government on that basis. However, we also know that the court has no influence over the important issues the monetary policy committee will decide: namely, interest rates. So the Government cannot pray in aid that they have good regional or cross-sectional industry representation on the court and that that will do. The Government also say that the court and the monetary policy committee are quite separate when it comes to deciding interest rates. The STUC obviously understands it as well, as it goes on to say:
We therefore call on the Chancellor to review representation on the monetary policy committee to ensure that Scotland's circumstances are properly taken into account".
It may think that I am an unlikely ally in this regard, but the STUC is correct. If the Government will not listen to the Opposition I hope they will listen to their friends in the Scottish Trades Union Congress. It is an important amendment. I believe that I have couched it reasonably. The Chancellor will still make the appointment and it will be on the advice of the First Minister. I cannot believe that a good professor of economics cannot be found in any of the Scottish universities. It would be a real insult if that is the Government's answer. There will be a number of people in Scotland, in the universities, business and commerce, who would make excellent members of the monetary policy committee. One of them ought to be on it. I therefore commend my amendment to the Minister and to the House. I beg to move.
§ Lord Newby
My Lords, I wish to speak on the amendment relating to the appointments to the monetary 1002 policy committee. In Committee I argued that there was a strong and compelling reason for there to be regional representation among the four appointees. That remains the case. The difference between the growth of different sectors of the economy, which bears differently in different regions, only serves to underline the strength of that argument.
I also argued in Committee that the amendment put down at that stage by the noble Lord, Lord Mackay, was defective in that it unduly constrained appointments to the court. At that stage he argued that one representative should be from Scotland and one from Wales. I still believe that to state that a region or nation should have one of the four as a representative as of right and that Wales, Northern Ireland and—dare I say it—Yorkshire should have to scrabble around possibly for one other regional place seems an imbalance and an undue constraint. Therefore, I cannot bring myself to support the amendment today.
However, I would welcome any assurance that the Minister can give that it is an issue that the Government take seriously. Throughout our discussions on a number of amendments, whenever we have considered the way in which the monetary policy committee is to be viewed from the nations and regions of Britain, the Government have taken a rather cavalier view that as long as there are half a dozen or a dozen good men and women and true from a little charmed circle in the south east taking decisions, everyone will meekly agree that that is the way forward. That seems to me an unduly arrogant and "south-eastist"—if there is such a word—view of the world. It would strengthen the credibility of the committee if there were representatives of the nations and regions of Britain. I would welcome any assurance that the Minister can give that it is something to which the Government will give due consideration.
§ Lord Molyneaux of Killead
My Lords, I wish briefly to intervene to support the points made by the mover of the amendment. As one who has had experience, though not as a member of the devolved Parliament at Stormont, still less the government at Stormont, I can testify this. On every issue involving public expenditure the blame will land not at the door of the local representatives in Scotland, and not at the door of the First Minister, perhaps to be called a Taoiseach to line up with our friends south of the Border. The blame will be allocated to the Treasury and the Bank of England. The blame will not be attached, oddly enough, to this Parliament at Westminster but to the party in power at Westminster, with no respite. For that good reason, as a sympathiser with noble Lords on the Front Bench, I should not like to see them subjected to the kind of abuse that will be heaped on their heads, no matter what kind of case they try to make. I beg them to think seriously about the amendment.
§ Lord Peston
My Lords, as the noble Lord, Lord Mackay of Ardbrecknish, is aware, I am sympathetic to the contents of the amendment. But I am not persuaded, for rather general reasons, that what is proposed should be on the face of the Bill. I thought that my noble friend Lord McIntosh said in Committee that it was the 1003 Government's general view that appointments ought to be made in accordance with the procedures of the commissioner for public appointments. I understood him to say that and I hope he will say something similar now. I regard that as a general statement, nothing to do with appointments to the Bank of England's monetary policy committee. I hope it would be a general characteristic of legislation from now on. It seems a pity to single out the Bill for it because, in due course, with respect to other Bills, one would either have to propose it for every other Bill, rather than the Government saying: "We shall do this generally", or an occasion will arise where we shall say: "What is there about this set of appointments that they will not come under that rubric?"
I hope my noble friend will be able to say either specifically, or in terms of where the Government hope to go, that in broad principle what is in the amendment is right and from now on it will apply to appointments made directly or indirectly by the Government. I hope that that is what my noble friend will say and therefore this is not an amendment to be pressed.
Similarly, on what I dare not call the "Scottish question"—I do not wish to raise the hackles of any Scots—the fact is that on any appointments made in connection with any Bill, someone is bound to say: "What about the Scots?" I take the cynical view that dawned on me in my earlier years here that we ought to pass a Motion at the beginning of every Parliament. Clause 1 would state, "What about the Scots?", and Clause 2 would state: "What about the Welsh?" That would save much of your Lordships' time and be in keeping with the spirit of the age of being highly efficient.
I believe strongly that governments, in making appointments to bodies of this kind, ought not to go for what are called charmed circles. I was a member of such a circle in my time and I am aware of its benefits, but it is quite wrong. One ought to be sensitive to the feelings of people away from central London. I cannot believe that my right honourable friend the Chancellor of the Exchequer is completely unaware of the existence of Scotland and the sensitivities of the Scots. I agree with the noble Lord, Lord Mackay of Ardbrecknish, that not merely was the greatest economist who ever lived a Scot, but that there are plenty of good Scots economists there. I cannot believe that when replacement appointments come up people will be unaware of such matters.
Where I take slight issue with the noble Lord, Lord Mackay of Ardbrecknish, is on the notion that if policy goes wrong—and I tend to feel that interest rates have gone high enough and sterling has gone high enough—it is not only Scotland that will suffer from that policy error but large parts of England will. Therefore, it is a pity if we simply bring up the Scots as the only possible sufferers. It seems to me that the noble Lord, Lord Mackay of Ardbrecknish, has made his points extremely well, but I am not persuaded that they require to be set out on the face of the Bill. If that happened, then every Bill should have such a clause in it, which we would not want to see.
1004 When my noble friend speaks, I am certain that he will not say, "Who cares about the Scots?" Quite the contrary. I am not convinced that we need the proposed wording in the Bill at this stage. Perhaps I may say directly to the noble Lord, Lord Mackay, that he and I will both see a Scot on the committee before long, in my judgment.
§ Lord Boardman
My Lords, I support my noble friend's amendment, Amendment No. 14. I wish to add one reason to those he gave why Scotland should be specially considered for a representative of some kind on the monetary policy committee. Banking forms an important part of the Bill. In banking, Scotland has always retained an independence and is somewhat jealous of its banking system which is not generally shared throughout the rest of the United Kingdom. It was necessary in my banking days to treat the Scots somewhat differently; they would insist on that. I believe that they have a powerful case for being represented, not necessarily in the banking sense, but so that they can look to somebody on the monetary committee who they believe will be able to understand the banking affairs of Scotland and represent their case.
§ 6 p.m.
§ Lord McIntosh of Haringey
My Lords, perhaps I can address each amendment in turn. I thank the noble Lord, Lord Mackay, for agreeing to group these amendments together, though he is right in saying that they are different subjects.
On the issue of the procedures relating to the Commissioner for Public Appointments, I do not intend and would never wish to back down on our manifesto commitment to implement the Nolan recommendations fully. We published a Cabinet Office Paper—Opening up Quangos—which proposed extending the remit of the Commissioner for Public Appointments to nationalised industries and public corporations. That paper was published for consultation in 1997 and the results should be available within the next few months. I can confirm that appointments to the Monetary Policy Committee come within the scope of that consultation.
Noble Lords will recognise that there are unique sensitivities in the Monetary Policy Committee appointments, given the degree of huge market interest in the committee's deliberations and decisions. We certainly need to take those into account. However, I cannot say that we will anticipate the consultation and our response to it only for the Monetary Policy Committee. I can only express our general determination to open up as many public appointments as possible and leave the decision on the Monetary Policy Committee, as for all other public appointments, until the consultation has been completed.
In regard to legislation, clearly it would not be appropriate to put individual references to the Commissioner for Public Appointments into each piece of legislation going through Parliament. If we did that, we would have to do it for all existing legislation on the statute book. Instead, having established the principle and debated it in Parliament, we will proceed to open up appointments to the regime of the Commissioner for 1005 Public Appointments by Order in Council rather than by what would otherwise be enormously complex primary legislation.
I turn to Amendment No. 14. I recognise the difficulties that noble Lords proposing these amendments face. When different versions were proposed in Committee I was able to say, "If you make appointments taking account of regional needs, the national needs for Scotland, the needs of manufacturing industry and so forth, you crowd out the scope for appointment to what are, after all, only four appointments, whereas the emphasis should be on obtaining the best people regardless of where they come from".
The noble Lord, Lord Mackay of Ardbrecknish, responded to that and fined down his objections to one single point; that is, the need for somebody to be appointed on the advice of the First Minister of the Scottish executive. In doing so, he is once again leapfrogging the Government. The way in which the noble Lord embraces Scottish devolution with a passion and almost an extremism that was not apparent at the time of the general election somewhat surprises me. He is also now accepting the embrace of the National Union of Students and the Scottish Trades Union Congress. That is fine. I leave him on his road to Damascus and simply stand back and admire.
In this case there would be considerable difficulty in selecting one interest, however important and valuable and however much the words,Of the four members appointed under subsection (2)(c) one shall be appointed on the advice of the First Minister of the Scottish Executive",should appear on the face of the Bill. I am not clear what the phrase "on the advice" means. Perhaps the noble Lord, Lord Mackay, can enlighten us. To me it means that one must take the advice once it has been offered. I assume that is what it means. In effect therefore it is a weasel word for nomination from the Scottish executive.
When talking of the Monetary Policy Committee, we must remember that this country has only one currency. I acknowledge to the noble Lord, Lord Boardman, that we have a somewhat separate banking system in Scotland. But monetary policy is concerned with one currency and the average of prices throughout the whole of the United Kingdom. The Monetary Policy Committee must consider developments in all regions of the United Kingdom. That is why we have a requirement in Clause 16 that the committee should collect and consider,the regional, sectoral and other information necessary for the purposes of formulating monetary policy".There is a network of regional agents to ensure that the committee is fully aware of development in the regions.
I understand the reason for picking out Scotland in order to avoid the arguments which I put against these amendments at Committee. But the noble Lord, Lord Newby, has the message. Once we start on that road, will we continue with Wales, with Yorkshire and then go back to the needs of manufacturing industry? 1006 All those are important, and Scotland no less and almost, in some ways, more important because of devolution. However, a requirement of this kind cannot be put on the face of the Bill, otherwise the fundamental objective of forming the Monetary Policy Committee from the best and most highly qualified people for the job would be frustrated. I therefore invite the noble Lord to withdraw his amendment.
§ Lord Mackay of Ardbrecknish
My Lords, I am grateful to the Minister for his response and to other noble Lords for taking part in this short debate. On the method of appointment, I am grateful to the Minister for his clarification. I felt in Committee, perhaps wrongly, that the Government were saying that appointments to the Bank of England Monetary Policy Committee should be conducted in the same way as with other bodies. However, I now hear better what he is saying: the Government have not actually made up their mind. I appreciate that the Monetary Policy Committee is important and is different. That is the point I was making when I prayed in aid that it should be appointed in the clearest and most open way. I am grateful to the noble Lord for that.
In relation to Amendment No. 14, which I clearly flagged up as being in my view the more important of the two, the Minister said that the Chancellor cannot be unmindful of the Scottish position. I fully agree that the current Chancellor cannot be unmindful of the Scottish position. However, I do not believe it is written into the constitution of our country that the Chancellor must always come from a Scottish constituency. In the future, therefore, we may well have Chancellors who are not so mindful of the needs of the Scottish position.
As the noble Lord, Lord Peston, said, it should not be difficult to find an economist from Scotland. I presume the noble Lord was referring to Adam Smith when he said that the greatest economist who ever lived was a Scotsman. There is therefore good precedent for that. We could easily find an economist and, as my noble friend Lord Boardman mentioned, Scotland has a significant banking and financial sector—the biggest outside London. It has its own aims and objectives which are extremely important.
§ Lord Peston
My Lords, perhaps the noble Lord will allow me to intervene, though I am slightly breaking the rules. I did not choose my words carefully when I spoke. I did not mean to imply that it should be an economist. It seems to me that it would be desirable for a Scottish businessman or even a Scottish trade unionist to be on the committee one day.
§ Lord Mackay of Ardbrecknish
My Lords, I was not implying that. I was simply discussing the economist's position. But the noble Lord, Lord Peston, is right.
In the normal run of things, I would be treating this as a probing amendment in order to get the kind of assurances I have had from the Government that, yes, they will take these points into account when 1007 they come to appoint and so on. However, this time next year my fellow Scots, including myself, thanks to the courtesy of the Government in allowing me a vote, will be electing a parliament for the first time in 300 years and they will have their own government. By the millennium Scotland will be operating on many major issues of policy very much on its own and quite separate from the Houses of Parliament here.
It is a very significant shift in the balance of power in this country. In many ways it is a far bigger shift than the one proposed for Wales, because all legislation regarding Wales will still start here at Westminster. In Scotland, the whole legislative programme, Scottish law, and so on, will be dealt with in Scotland. I see the Lord Advocate in his place. I am sure he can confirm that, except in some narrow reserved fields, most legislation about Scotland will no longer pass through your Lordships' House but will be taken in Scotland. As I said, that will not be the case for Wales and I suspect it will not be the case for Northern Ireland, although we do not know that yet. That is my reason for saying that Scotland—dare I say it to the noble Lord, Lord Newby?—is not the same as Wales and it certainly is not the same as Yorkshire. I do not think that his party north of the Border would thank him for that comparison.
The Government are making a huge change. Perhaps I may quote from an explanation of the change:Scotland is a proud, historic nation in the United Kingdom and the plans we put forward in this White Paper will give it an exciting new role within the United Kingdom".Those are the words of a certain Mr. Tony Blair in his preface to the White Paper. Clearly, this exciting new role does not include a member on the Monetary Policy Committee; and it is on the decisions of that monetary policy committee that a good deal of the economy of Scotland will rest.
Two or three weeks ago I moved against the Government and got into the good company of the National Union of Students. The temptation to say that I am not happy with the noble Lord's answer and get into the company of the Scottish Trades Union Congress is too great for me to resist. Therefore, I wish to seek the opinion of the House.
§ The Deputy Speaker (Lord Strabolgi)
My Lords, the amendment before the House is Amendment No. 13.I had an idea that the noble Lord wanted to withdraw it.
§ Amendment, by leave, withdrawn.
Lord Mackay of Ardbrecknish moved Amendment No. 14:
Page 6, line 8, at end insert—
("() Of the four members appointed under subsection (2)(c) one shall be appointed on the advice of the First Minister of the Scottish Executive.").
§ The noble Lord said: My Lords, I got carried away with myself and my new tartan guise. I beg to move.1008
§ 6.14 p.m.
§ On Question, Whether the said amendment (No. 14) shall be agreed to?
§ Their Lordships divided: Contents, 93; Not-Contents, 90.1009
|Division No. 2|
|Addison, V.||HolmPatrick, L.|
|Ailsa, M.||Home, E.|
|Alexander of Tunis, E.||Hooper, B.|
|Anelay of St. Johns, B.||Howe, E.|
|Ashbourne, L.||Jenkin of Roding, L.|
|Astor of Hever, L.||Jopling, L.|
|Baker of Dorking, L.||Keyes, L.|
|Belhaven and Stenton, L.||Kimball, L.|
|Belstead, L.||Kinnoull, E.|
|Blatch, B.||Lauderdale, E.|
|Boardman, L.||Leigh, L.|
|Brabazon of Tara, L.||Liverpool, E.|
|Bridgeman, V.||Long, V.|
|Brougham and Vaux, L.||Lucas of Chilworth, L.|
|Butterworth, L.||Luke, L.|
|Byford, B.||Lyell, L.|
|Cadman, L.||Mackay of Ardbrecknish, L.|
|Carlisle of Bucklow, L.||Mackay of Drumadoon, L.|
|Carnock, L.||Masham of Ilton, B.|
|Chalker of Wallasey, B.||Massereene and Ferrard, V.|
|Chesham, L.||Miller of Hendon, B.|
|Colwyn, L.||Molyneaux of Killead, L.|
|Cope of Berkeley, L.||Murton of Lindisfame, L.|
|Courtown, E. [Teller.]||Napier and Ettrick, L|
|Cranborne, V.||Newall, L|
|Crickhowell, L.||Northesk, E.|
|Cumberlege, B.||Oxfuird, V.|
|Denham, L.||Palmer, L.|
|Denton of Wakefield, B.||Park of Monmouth, B.|
|Dixon-Smith, L.||Pender, L.|
|Dunrossil, V.||Rawlings, B.|
|Eccles of Moulton, B.||Rees, L.|
|Elliott of Morpeth, L.||Rennell, L.|
|Fookes, B.||Renwick, L.|
|Fraser of Carmyllie, L.||Rotherwick, L.|
|Garel-Jones, L.||Seccombe, B.|
|Geddes, L.||Sharples, B.|
|Granard, E.||Stewartby, L.|
|Greenway, L.||Strathclyde, L. [Teller.]|
|Halsbury, E.||Strathcona and Mount Royal, L|
|Harding of Petherton, L.||Sudeley, L.|
|Harrowby, E.||Trefgarne, L.|
|Hayhoe, L.||Vivian, L.|
|Henley, L.||Waddington, L.|
|Higgins, L.||Wakeham, L.|
|Holderness, L.||Weatherill, L.|
|Acton, L.||Clinton-Davis, L.|
|Addington, L.||Cocks of Hartcliffe, L.|
|Amos, B.||David, B.|
|Archer of Sandwell, L.||Davies of Coity, L.|
|Bassam of Brighton, L.||Davies of Oldham, L.|
|Beaumont of Whitley, L.||Dixon, L.|
|Berkeley, L.||Donoughue, L.|
|Blease, L.||Dormand of Easington, L.|
|Borrie, L.||Evans of Parkside, L.|
|Brooke of Alverthorpe, L.||Falconer of Thoroton, L.|
|Burlison, L.||Falkland, V.|
|Carmichael of Kelvingrove, L.||Farrington of Ribbleton, B.|
|Carter, L. [Teller.]||Fitt, L.|
|Chandos, V.||Gallacher, L.|
|Geraint, L.||Milner of Leeds, L.|
|Gladwin of Clee, L.||Monkswell, L.|
|Glenamara, L.||Montague of Oxford, L.|
|Gordon of Strathblane, L.||Murray of Epping Forest, L.|
|Gould of Potternewton, B.||Newby, L.|
|Graham of Edmonton, L.||Nicol, B.|
|Greene of Harrow Weald, L.||Orme, L.|
|Grey, E.||Peston, L.|
|Hardie, L.||Pitkeathley, B.|
|Hardy of Wath, L.||Prys-Davies, L.|
|Haskel, L.||Puttnam, L|
|Hogg of Cumbernauld, L.||Ramsay of Cartvale, B.|
|Howie of Troon, L.||Randall of St. Budeaux, L.|
|Hoyle, L.||Razzall, L.|
|Hughes, L.||Rendell of Babergh, B.|
|Hunt of Kings Heath, L.||Renwick of Clifton, L.|
|Irvine of Lairg, L. [Lord||Richard, L. [Lord Privy Seal.]|
|Chancellor.]||Rodgers of Quarry Bank, L.|
|Jeffreys, L.||Shepherd, L.|
|Jeger, B.||Simon, V.|
|Jenkins of Putney, L.||Smith of Gilmorehill, B.|
|Kilbracken, L.||Stoddart of Swindon, L.|
|Lockwood, B.||Stone of Blackheath, L.|
|Lofthouse of Pontefract, L.||Strabolgi, L.|
|McCarthy, L.||Symons of Vemham Dean, B.|
|McIntosh of Haringey, L.||Taylor of Blackburn, L.|
|[Teller.]||Thomas of Macclesfield, L.|
|McNally, L.||Tordoff, L.|
|Maddock, B.||Turner of Camden, B.|
|Mallalieu, B.||Wedderburn of Charlton, L.|
|Mason of Barnsley, L||Whitty, L.|
|Merlyn-Rees, L.||Williams of Crosby, B.|
§ Resolved in the affirmative, and amendment agreed to accordingly.
§ 6.21 p.m.
§ Clause 25 [Liability]:
The Earl of Home moved Amendment No. 15:
Page 10, line 37, at end insert ("or negligent"").
The noble Earl said: My Lords, this is a very short, but a quite important amendment. When we spoke about this in Committee the Minister rejected it on the basis that the regulator would not be able to operate effectively if he was,
constantly constrained by the fear of speculative or constructive litigation".—[Official Report, 4/3/98; col. CWH 127.]
The purpose of this amendment was not to restrict the FSA in any way from carrying out its functions, as set out in the Bill or in the memorandum of understanding between the Treasury, the Bank and the FSA, nor is it the intention to expose it to speculative litigation. Of course, we accept that the FSA must be able to request and receive information without fear of retribution.
§ However, if a member of the FSA, through negligence or carelessness, loses a document, the contents of which are subsequently made public, that is a different and a very serious matter. The institution which gave the FSA the information in the first place could itself be liable to be sued by the third party which gave it the information. If that institution has no redress against the FSA for the carelessness of an individual or of itself, the banks and the institutions will only give the scantiest information that they can get away with. As the whole object is to build up confidence between the 1010 institutions and the FSA, it seems reasonable to ask that the institutions should have some redress purely for carelessness.
§ We do not ask for anything more than the same sanctions that might apply to any person who does not take reasonable steps to ensure that confidential documents do not get lost or carelessly left behind in a public place. When we had finished our discussion the Minister was kind enough to say that he would reflect on the amendment and possibly come back to me on it. We shall be grateful to know the result of his reflections. I beg to move.
§ Lord McIntosh of Haringey
My Lords, I did reflect on the amendment and I have looked back at the record of our debate on this subject. But I came to the same conclusion that this is an amendment which would reduce the scope of immunity conferred on the FSA as regards its new functions. Clause 25 is not about putting immunity for banking supervision on a statutory basis. That is already achieved by Section 1(4) of the Banking Act. This clause extends statutory immunity to supervision of the listed wholesale money markets.
As I said in Committee, if the regulator is to operate effectively he cannot be constrained by the fear of speculative or obstructive litigation. It is right that people can seek damages if the regulator can be shown to have acted in bad faith, and that is provided for on the face of the Bill. We want a regulator who is free to act as necessary and not to be too frightened of litigation to act effectively. I remind the House of the enormous importance of these issues and of the failures of banks because of bad management. There is a need, therefore, for a regulatory regime which is going to protect effectively the needs of investors in the wholesale as well as the retail money markets.
Narrowing the immunity could result in the FSA being held back from urgent action for fear of litigation. At the same time we do not want to have too much regulation. We do not want the regulator to be afraid of a suit for negligence which would encourage the FSA to collect more information than it would otherwise need; or to set tougher minimum standards or to take longer to take decisions than would otherwise be the case.
Inevitably there is a trade-off between the complexity of the regulation; the tendency for regulators to protect themselves and also the degree to which they can be challenged. I do not believe that it is true to say that the exclusion of negligence from these provisions is a serious problem for regulation.
Of course, the FSA must be answerable and its officials must be responsible for their actions. If we change the immunity in this way it could fundamentally change the nature of regulation. The example was given in Committee of documents being left on a train or unauthorised disclosure. That would be a breach of Part V of the Banking Act and of Part VIII of the Financial Services Act. The FSA and the officer concerned would be potentially liable for criminal prosecution. So there is plenty of incentive in existing legislation for the FSA to act responsibly.
1011 The board of the FSA will be accountable to Ministers and Parliament for any pattern of negligence or serious failures. Ultimately, Ministers will have the ability to change the board. The FSA is generally subject to judicial review like any other public authority. It is a matter of balance. We have to balance the rights of the organisations being regulated against the wider public need for effective regulation. We believe that the balance is right as it stands in the Bill. I hope that the noble Earl will not press his amendment.
The Earl of Home
My Lords, I thank the Minister for that response. I do accept that there have to be trade-offs from time to time in some of these matters. Today the Minister has given us a very much fuller answer, particularly to the point about leaving documents in public places. I shall certainly look up Part V of the Banking Act to ensure that that point is covered. If not, we shall have to return to it at Third Reading. I thank the noble Lord for a much fuller explanation. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 41 [General interpretation]:
§ [Amendment No. 16 not moved.]
§ Clause 44 [Extent]:
Lord McIntosh of Haringey moved Amendment No. 17:
Page 16, line 30, at end insert—
("(1A) Section 33 extends to the Channel Islands and the Isle of Man.").
§ The noble Lord said: My Lords, this is a technical amendment to ensure that the transfer of the gilts-registration function of the National Savings stock register to the Bank of England's register also has legal effect in the Channel Islands and the Isle of Man. I apologise for bringing this amendment to the House so late in the passage of the Bill, but the Jersey, Guernsey and Manx authorities have all agreed to it.
§ On Question, amendment agreed to.
§ Clause 46 [Short title]:
§ [Amendment No. 18 not moved.]
§ Schedule 2 [Cash ratio deposits]:
§ [Amendment No. 19 not moved.]
§ 6.30 p.m.
§ Schedule 3 [Monetary Policy Committee]:
Lord Mackay of Ardbrecknish moved Amendment No. 20:
Page 21, line 32, leave out ("3") and insert ("5").
§ The noble Lord said: My Lords, in moving Amendment No. 20, I should like to speak also to Amendments Nos. 21 to 23. These amendments all deal with appointments to the monetary policy committee, not the important issue of who those members should be and where they should come from, which we discussed earlier but amendments none the less of some significance because they deal with the length of time that they may serve and, in the case of Amendment No. 23, with the question of who may or may not be 1012 considered for appointment. However, Amendment No. 23 is a little different and I leave it to one side for the moment.
§ Amendments Nos. 20 to 22 deal with the question of the length of appointment. In a way I am offering the Minister two alternative answers which perhaps he can discuss with us to see whether one or the other is attractive to him. Some of us still feel that a tenure of three years is too short. After all, the Government are appointed for five years. Three years is a pretty short time span. It is well within one Parliament and even within the chancellorship of one Chancellor. All four members could come up for reappointment, not just within the same Parliament, but within the same chancellorship, if I can put it in that way. If the Chancellor is displeased at the voting record or if theories on such matters have changed, in almost no time at all and certainly well within one economic cycle the whole composition of that important committee could be changed. We must add to that the fact that a Treasury official will also be on the committee. He can report back what is happening. If he signals one policy on behalf of the Treasury and the Chancellor and the members decide on another, will the members feel that their membership of the committee is, in farming terms, on a shoogly nail? I do not know, but I suspect that they will.
§ My first effort, Amendment No. 20, suggests that we change three years to five years. I believe that a member should be appointed for one term only, with the exception of those serving at the beginning who will be appointed for shorter periods in order to stagger the four appointments. The Minister and I entirely agree that that is fair and correct. If the Minister were to agree to the change from three to five, it is clear that if anyone who had been appointed for five years was then reappointed, that person would serve for 10 years. I know that the noble Lord does not like appointments of that length. He told me so. I pointed out that tenure at the Fed was for 14 years; at the Bank of France it was nine years; and at the Bundesbank, eight years. None of those figures seemed to find favour with the Minister. He thought that all those periods of tenure were far too long. That is why I appreciate that the noble Lord does not want long appointments and that is why my first suggestion is to change the tenure from three years to five years with no reappointments.
§ Just in case the noble Lord does not like that, I then thought, "Let's give him his three years because he is so keen on that", but if there is reappointment, three years could become six years and then even nine years. That began to worry me because it could be thought, "Be a good, reliable boy or girl; take careful heed of what the Treasury official says; read all the Chancellor's speeches; make sure your economic theories accord with his (even if they change) and reappointment will follow reappointment." Some noble Lords may well have experienced papers coming up from departments stating, "Professor Bloggs is a safe pair of hands, Minister, I think you should reappoint him." That is why I have tabled a limitation on three years. If the Minister is determined not to have a tenure of five years and wants to stick to three years, I suggest that a member may be 1013 reappointed only once, making a total of six years. I hope that the Minister will not have too much fun over the fact that I have approached this matter from two points of view. I have done so because I want to explore how we can specify a reasonable length of membership and how, if there are to be reappointments, we can determine the number. I hope that that is clear.
§ Amendment No. 23 is somewhat different. It is grouped with Amendment No. 20 for the convenience of the House and in order to make progress. Noble Lords will recall that I divided the monetary policy committee into the home team and the away team. I pointed out that five members will be the home team and four members will be the away team. We are now looking at the composition of the away team. I have already pointed out—your Lordships agreed with me—that it was not correct that all members of the away team should be drawn from the economic triangle of Oxford, Cambridge and London.
§ However, there is more to it once one has read the CVs of the very eminent people who have been appointed members of the away team, because one discovers that at one time they played for the home team in various roles. When I moved a similar amendment in Committee, the noble Lord, Lord Newby, rightly pointed out that if I excluded everyone who had ever worked in the Treasury or at the Bank of England, I would be excluding those who may have worked there for only a short time, perhaps at a low level. I took that point on board. The Minister knows what I am trying to prevent by this amendment.
§ Perhaps I may explain that of the four members of the committee, one of them, Professor Goodhart, worked at the Bank of England for 17 years as a monetary adviser and became the chief adviser in 1980. That is not an example of someone serving only a year or two on his way up the banking promotion tree. I repeat that he became the chief adviser in 1980. Furthermore, Sir Alan Budd has been the chief economic adviser at the Treasury since 1991. Indeed, the Treasury announced last year that his initial five-year contract has been extended until his retirement. Now, in retirement, he has been put on to the monetary policy committee. That led me to wonder whether an ex-governor could be put on the monetary policy committee or even an ex-deputy governor. If so, the whole meaning of the home and away teams would take on an entirely different complexion.
I know that the Minister will tell me that,
a senior employee of the Bank or the Treasury",
is not defined nearly closely enough. However, I hope that he will accept my concern and that he will not tell me that I can rely on the current Chancellor not to appoint those who have been senior at the Bank or at the Treasury because, first, he has already done so and, secondly, the right honourable gentleman will not be Chancellor forever. I am thinking about future Chancellors as well as this one.
§ If we are genuinely looking at four away players—four people who are there for their independence and expertise—we really should be considering those who 1014 have not held senior positions at the Bank or Treasury. When the Minister replies, perhaps he can clarify whether I am right in thinking that a former governor or former deputy-governor could be appointed as one of those four. I see no reason why they could not be appointed if a former chief adviser to the Bank and a former chief economic adviser to the Treasury can be.
§ I did not write it down, but I believe that the noble Lord, Lord McIntosh, said earlier that there were many expert people out there who could easily be appointed to carry out those tasks. I do not disagree. I am sure that there are. That is why I think that it would be right and proper for the Government to table an amendment for consideration next Monday because I fully appreciate that my phrase "a senior employee" is perhaps not adequately tight and I should like the Government at least to convince me that the away team could not be constructed in such a way that it was really the home team in another guise. I beg to move.
§ Lord McIntosh of Haringey
My Lords, I am grateful to the noble Lord for explaining his amendments, Amendments Nos. 20, 21 and 22. If I go into Woolworth's and see all the pick-and-mix sweeties, I never know quite where to start—and I did not know quite where to start with these amendments because, as the noble Lord rightly explained, they are alternatives rather than an expression of a coherent point of view. Therefore, I must ask the noble Lord what he would prefer. He is giving me all these alternatives, but what would he like me to do? But perhaps I should not ask the noble Lord that because I am not going to accept any of the amendments and I do not want to delay the House.
However, it is an interesting approach to the tabling of amendments. It may prove helpful in terms of debate. The difficulty is that there is no right answer to terms of appointment for renewal; it is a matter of judgment. As we made clear in Committee, a balance must be struck between a term that is long enough for members to gain experience and learn on the job while making it relatively easy not to renew the contracts of those who are not pulling their weight. I do not know whether there will ever be a perfect answer. Our solution is that the initial term of appointment should be relatively short in order to ensure that those who do not work out and who do not contribute can be removed by rather less violent means than those proposed by the noble Lord in Committee; namely, that their salaries should be docked. However, there should be a recognition that those who contribute to sensible debate, in terms of the monetary policy committee's own estimate of sensible debate, can have their appointments renewed. I have no fixed idea in my mind that 14 years or 10 years is too long or that three years is too short. I believe that it varies from one individual to another. We believe that the combination of three years and reappointment is the most flexible of the alternatives open to us.
In response to the noble Lord's last point, there is no Treasury appointment to the monetary policy committee. A Treasury official attends the committee as 1015 an observer. The noble Lord can build any suspicions he likes into that, but it is not quite the same as an appointment.
Amendment No. 23 is slightly different. It does not deny the appointment of an ex-senior employee of the Bank or Treasury but relates to the possibility of his removal; in other words, it is specifically an anti-Budd and anti-Goodhart amendment. It enables the Chancellor of the Exchequer to remove professors Budd and Goodhart simply on the grounds that they have been senior employees of the Bank or the Treasury. I cannot imagine that they would view it in any other way. I make no textual point about the phrase "senior employee of the Bank or Treasury". I simply believe that it is a mistake to insert a proposal for the removal of two highly respected people who are presently serving on the monetary policy committee by means of an amendment of this kind. I invite the noble Lord to withdraw the amendments.
§ 6.45 p.m.
§ Lord Mackay of Ardbrecknish
My Lords, I was reasonably satisfied with the noble Lord's reply until he came to the last amendment. To deal with the first amendment, I take the noble Lord's point. There is no right answer to the question of how long an individual should serve on the monetary policy committee. Certainly, I believe that three years is too short. I believe that even three years with reappointment is too short, for the reasons I gave in Committee; namely, for too much of that period perhaps the person concerned is looking to his or her reappointment. I do not believe that that would be wise. There is much merit in having one appointment for a reasonable length of time and no reappointment. But I knew that the noble Lord was keen on three years—I was aware of the arguments that he put forward—hence my suggestion that someone with three years should be reappointed only once, making six years. However, I see that I shall not make much progress.
I do not believe that it is a very good argument to allege that this is an anti-Goodhart and anti-Budd amendment. It is not. It so happens that they bring to my attention the fact that they are both ex-senior members of the Treasury and the Bank. I wondered whether we really wanted that situation to be replicated all the way down the line. I was making no attack on those two gentlemen.
§ Lord McIntosh of Haringey
My Lords, I would not dream of accusing the noble Lord of making a personal attack on those two gentlemen. However, if he wanted to ensure that it did not happen again surely he should have drawn the amendment so as to disqualify those gentlemen rather than add this as a ground for removal.
§ Lord Mackay of Ardbrecknish
My Lords, if it is a ground for removal that is not my intention. I apologise. I meant that when the Chancellor came to appoint people he should not appoint a senior employee of the Bank or the Treasury. I shall look at this matter carefully. I may have to revisit it if it does not mean what I intended it to mean.
1016 The noble Lord has not answered my point about the possible appointment of a former governor or deputy governor. Would the noble Lord care to respond to that point before I decide what to do with this amendment?
§ Lord McIntosh of Haringey
My Lords, with the leave of the House, there is no formal exclusion for a former governor or deputy governor. I insist that the noble Lord's amendment as drafted refers to removal rather than disqualification.
§ Lord Mackay of Ardbrecknish
My Lords, I shall check to ensure that it means what I intended it to mean. I believe that all noble Lords in the House are aware of my meaning. The noble Lord's last response gives me greater concern which perhaps is shared by other noble Lords. My noble friend Lord Henley has said that the description could easily be not so much "home and away" as "the school versus the old boys". I believe that that is a fairly accurate description. I suggest that the noble Lord, Lord McIntosh, asks his Treasury colleagues whether they want a position in which the four members of the away team can be a former governor, a former deputy governor and the two who are already there. Does he really believe that that will give the outside world a great deal of confidence in the monetary policy committee and its spread of membership? I know that with only four members it is difficult to get a spread of membership. However, I do not believe that any of the four members should have been in their time members of the home team, certainly not an ex-governor and ex-deputy governor.
I shall take to heart the noble Lord's strictures about what the amendment means and check the matter. I may return to it next week when I hope that he will be able to table an amendment to ensure that a future Chancellor of the Exchequer cannot make the four away appointments from four people who were once involved in the home team in the Bank. A seamless move from being a member of the home team to being a member of the away team is a lot worse than I envisaged in my original amendment. I hope that the Government will give that consideration. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
§ [Amendments Nos. 21 to 23 not moved.]
§ In the Title:
§ [Amendment No. 24 not moved.]