Select Committee on Treasury First Report


Annex 1: Monitoring of recommendations on selected subjects

Note: These tables generally exclude conclusions where the Committee has merely expressed an opinion or said that it is content with existing arrangements. Recommendations and replies have necessarily been abbreviated; the reports and replies should be consulted for the full text and the context.

A. MONETARY POLICY COMMITTEE

First Report, Session 1997-98, Accountability of the Bank of England (HC 282), published 23 October 1997.
(Government reply: Third Special Report, Session 1997-98 (HC 502), published 22 January 1998.)

Recommendation
Government Response
Bank of England Response
Committee Response/Follow-up
Further Government or Bank Action
1. Committee on Modernisation to consider how it can enable more Committee reports to be debated in the House in Government time and annual debate on Treasury Committee reports on the Bank of England.        Still under review.
2. Bank of England to reply directly to any reports which touch on its activities within two months of publication of the report. The Government agrees that it is entirely appropriate for the Bank to reply directly to the Committee's recommendations which touch on monetary policy activities. Bank responded on 25 November 1997.     
3. Treasury Committee to hold MPC accountable both ex post and ex ante.      Committee has held ten hearings with the Governor and members of the MPC to date and has published two reports assessing their performance.   
4. Bank to clarify the key assumptions which the MPC makes in its economic forecasts.   Detailed list of assumptions used outlined in the Bank's response to the Report.   Assumptions used by MPC in assessment of economic outlook are clearly detailed in the Inflation Reports.
5. MPC required to produce a statement of its view of the transmission mechanism.   Bank propose to provide the Committee in due course with a paper which would describe the MPC's view of the transmission mechanism.   Paper on transmission mechanism published in May 1999.
6. Treasury Committee to take evidence from Chancellor and the Governor on the inflation target, around the time of the next Budget. The Government agrees that it would be appropriate for the Committee to take evidence on the inflation report from both the Chancellor and the Governor and that the appropriate time would be following the Budget. The Bank stand ready to give evidence to the Committee whenever invited to do so. Chancellor answered questions on the inflation target as part of 1998 Budget hearings and in evidence to Committee on "MPC 2 years on" in June 1999. The Governor has answered questions on the inflation target on a number of occasions during hearings held following the publication of the Bank's Inflation Reports.   
7. Treasury Committee to be given power under the new Bank of England Act to confirm nominations of the Governor, Deputy Governors and all other members of the MPC. Government has an open mind on the matter and will keep it under review. Such hearings would raise important constitutional issues which go far wider than the Bank of England. The Government does not therefore think it would be appropriate to include such provisions within the Bank of England Bill without the House having an opportunity to consider the broader implications.   Committee reiterated recommendation in its 7th Report of 1997-98 session and its 8th Report of the 1998-99 session.   
8. Treasury Committee to hold such confirmation hearings, testing the candidates competence and personal independence and make reports to Parliament (even in absence of statutory provision). The Government notes with interest the Committee's intention to instigate hearings for newly appointed members of the MPC. Issue is a matter for Parliament and the Government. In event of such hearings being held, the focus should be on assessing the professional competence of the nominated candidates as it relates to monetary policy and their objectivity in this respect. Treasury Committee held confirmation hearings for all the members of the MPC, assessing professional competence and personal independence from Government, following the Bank of England Act coming into force in June 1998. Hearings also conducted in 1999 and 2000 (four confirmation and one re-confirmation). In evidence to the Committee on the confirmation hearings the Chancellor noted that the Committee were "asking the right questions ... the fact that people have come before you preparing in great detail for their appearances shows the extent to which those people who have been ... appointed to the Monetary Policy Committee take this hearing very seriously ... we all benefit from this open exchange of views."
9. Duration of the terms of appointment of external members of MPC be increased. The Government believes that a period of appointment of three years strikes the right balance between accountability and independence in the appointment of members. As each member is eligible for re-appointment the Government's proposals do not rule out individuals serving as members of the MPC for extended periods of time. The issue is a matter for Parliament and the Government. Bank would see an advantage whatever the length of term in serving more than one three year term to ensure at all times that members have considerable experience of policy making process. A longer tenure would also allow members on the MPC greater insight into the consequences of their actions.   Government reply re-iterated in Appendix 1, p 1. The terms of office of two members of the MPC came up for renewal at the end of May 1999. One member (Sir Alan Budd) stood down; a second member (Mr Ian Plenderleith) had his contract renewed for 3 years. Both MPC members whose terms expired in May 2000 were replaced with new appointments.
10. Re-establishment of four year appointment terms for members of the Court. The Government remains of the view that three years is the appropriate term of office for non-executive Court members. Issue is a matter for Parliament and the Government. Members of the Court up to now serve generally served two terms which has the advantage of allowing members time to learn the job and then have a number of years on Court when they are most effective.   Government reply reiterated in Appendix 1, p 1.
11. Treasury Committee to monitor evolution of Court's role, taking account of the assessment of the non-Executive members. The Government welcomes the Committee's decision to take evidence from the non-executive members of the Court, since they will play an important role in monitoring the procedures if the MPC and reviewing the Bank's performance more generally.   Treasury Committee held a hearing with non-executive members of the Court in June 1999, and analysed their role in the Bank and their report on the performance of the MPC in its 8th Report, "The MPC—2 years on" of the 1998-99 session. Second such hearing held December 2000.   



First Report, Session 1997-98, Bank of England: Operation of Accountability—One Year On (HC 993), published 15 June 1998.
(Government reply, Seventh Special Report, Session 1997-98 (HC 1111), published 22 October 1998.)

Recommendation
Government Response
Bank of England Response
Committee Response/Follow-up
Further Government orBank Action
1. Committee to publish a Report in a year's time analysing how MPC has performed against its remit.      8th Report of 98-99 session "The MPC—Two Years On" published 20 July 1999.   
2. Committee to hold further confirmation hearings for new members and re-appointment of existing members. Such hearings should be put on a statutory basis. Government believes it is more appropriate for the House to consider first the issue of appointments and the role of Select Committees in general and not to legislate for confirmation hearings for the MPC in isolation.Government welcomes Committee's hearings which have contributed to making the monetary policy process more open and accountable.   Further confirmation hearings: June 1999 (Dr Wadhwani and Mr Plenderleith), May 2000 (Professor Nickell and Mr Allsopp) and October 2000 (Professor Bean).   
3. MPC give serious consideration to whether MPC minutes can be published earlier.   The MPC decided to reduce time delay in publication of minutes to 2 weeks in October 1998.    
4. MPC give close consideration to how the role of the Treasury representative is recorded in future minutes.   Comments of Treasury representative may occasionally contain confidential information (e.g. on fiscal stance of Budget) which would not be revealed in minutes. The fact that such a briefing had taken place would be minuted.     
5. The Bank, Treasury and ONS should give early attention to the deficiencies of private sector earnings data. ONS has generated and released additional data quantifying contribution of bonuses to earnings growth. However further changes to survey questionnaire may also be required and the ONS will consult data users before implementing any changes. Bank in conjunction with Treasury intend to pursue issues as a matter of urgency with ONS.   Following a joint Treasury Bank review and a subsequent updating of the methodology used the ONS published a revised average earnings index in October 1999.
6. MPC to justify how it has fulfilled its remit of supporting Government's objectives for growth and employment (subject to remit of maintaining price stability).   The MPC takes these factors into account in its economic analysis and decision making since they affect the outlook for inflation.     
7. MPC to explain extent to which it takes into account the impact of raising interest rates on capital flows into the UK with the consequent effect on exchange rates.   MPC's analysis and assumptions (concerning capital flows and the exchange rate) are explained in the August 1998 Inflation Report and discussions of these issues in the monthly meetings are detailed in the minutes.     
8. That the Government bears in mind the range of experience on the MPC when the tenures of the current external appointees come up for renewal. Government is committed to appointing recognised experts and will continue to appoint members with experience and abilities to carry out this task. People with a wide range of backgrounds are now members of the Court of the Bank.        
9. Bank should commission on a regular basis an opinion survey to get direct feedback on MPC's public impact.   MPC is considering ways in which it can communicate more effectively with the public in explaining its remit for maintaining price stability. MPC will consider the costs and benefits of a regular opinion survey along the lines recommended.   Bank announced in October 99 (in response to Committee's 8th Report) that it intended to commission quarterly opinion poll surveys about inflation, the way in which interest rates are set and the work of the MPC.



Eighth Report, Session 1997-98, The Monetary Policy Committee—Two Years On (HC 505), published 20 July 1999.
(Government reply: Eighth Special Report, Session 1998-99 (HC 850), published 26 October 1999.)

Recommendation
Government Response
Bank of England Response
Committee Response/Follow-up
Further Government orBank Action
1. The non-executive directors of the Court of the Bank give the issue of quality of data provided to the MPC a high priority in their oversight of the work of the MPC and monitor carefully the implementation agreement between the ONS and the Bank.   A service level agreement between the Bank and the ONS has been signed. The agreement provides a framework for exchanging ideas and views between the ONS and the Bank. The non-executive directors of the Court of the Bank have taken a close interest in progress towards signing and implementing the service level agreement and will continue to do so.     
2. The MPC consider whether announcing a policy bias after meetings would enhance the current system.   The MPC has considered the question carefully and decided that it does not wish to announce a bias. The Committee has a range of opinions about the future path of interest rates and does not reach a collective view. To try to summarise those views in a single statement about bias would not be helpful.     
3. Encourage Bank to continue to devise new and innovative ways of enhancing public awareness and understanding of the MPC's actions. The Government supports efforts by the MPC to increase awareness of its actions and to enhance recognition of the importance of low inflation for the long term performance of the economy. Bank to commission quarterly opinion poll surveys about inflation, the way in which interest rates are set and the work of the MPC. Bank planning a monetary policy competition for throughout the UK. Bank working on a project with outside contractors to design a virtual Bank of England.   The Bank is currently running a competition on the conduct of monetary policy, aimed at A level students.
4. Encourage members of the MPC to visit sectors of the economy and regions and nations of Britain.Encourage the MPC to hold meetings and hearings outside London.   MPC members have made many visits throughout the UK. But Committee's policy meetings take place during a 'purdah' period, so there would be little benefit to the Committee or the regions for the MPC to hold these meetings outside London as members would be unable to speak publicly. There is no comparable 'purdah' period for the Court of the Bank which has met outside London and intends to meet in Edinburgh in January 2000.     
5. Intend to continue to hold confirmation and re-confirmation hearings and request that this be put on a statutory basis. Government sees substantial difficulties with holding statutory confirmation hearings for members of the MPC. Proposal raised important constitutional issues which go far wider than the Bank of England. It would be more appropriate for the House to consider first the issue of official appointments and the role of Select Committees in general rather than legislate for confirmation hearings for the MPC in isolation.   See entry for previous report (recommendation 2). Government response reiterated in Appendix 1, p 5.
6. Request that the Bank publish a paper annually assessing its own forecasting record and, in order to ensure objectivity, gives greater emphasis in the Inflation Report to external inflation forecasts.   The MPC has published an assessment of its own forecasting record in the August Inflation Report this will be an annual exercise. Inflation Report does contain information on as many external inflation forecasts as is possible to obtain.   The Bank published a further assessment of its policy record in August 2000.
7. Request the Bank publish a paper to explain the effect on inflation of differential changes in asset prices.   A response will be produced in due course.     
8. Urge the non-executive directors of the Court of the Bank to play a stronger role in representing their sectors and regions within the Bank.   Given the wide range of their work the Court does not accept that the non-executive Directors are interpreting their role in a narrow way.     
9. Recommend that the Treasury and the Bank publish a fuller explanation of the role and practice of the Treasury representative. A comprehensive note on the role of the Treasury representative was sent to the Committee in June 99 (before Report was agreed to).        
10. Intend to raise the issue of current conditions in world markets with the World Bank and the IMF and then take up the issue with the Chancellor again.      Committee discussed issues with IMF and World Bank during visit to Washington in October 1999.   
11. Intend to hold regular hearings with the FSA and the Bank in order to ensure that banking regulation and management of risks to stability in financial markets is brought under scrutiny. Sub-committee also intends to hold short inquiry into DMO in the near future.      Hearings held with FSA in November 1999 and April and November 2000. Sub-committee inquiry into DMO as part of Cash and Debt inquiry, January to May 2000.   




 
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