Select Committee on Treasury Minutes of Evidence

Examination of witness (Questions 1-19)




  1. Good morning. I think I would just like to read out a couple of extracts from our latest report, our end of term report on the Monetary Policy Committee and what we have to say about confirmation hearings. We said "We think that confirmation hearings, even on a non-statutory basis, act as a stimulus to the Chancellor to choose candidates who are competent and independent. We also believe that our questionnaire and hearings provide essential information about the background of the appointees which is not otherwise readily available. Above all, the hearings underline the fact that MPC members are accountable to Parliament and to the public." We also noted that "We think it is vitally important that MPC members are able to express themselves well in public and withstand robust questioning, as they will undoubtedly face this both from within the MPC and from the general public . . . . Any candidate who is worth a place on the MPC should have the expertise and ability to withstand responsible questioning from our Committee".[1] Do you think that the process of appointment could be made more open and transparent?

  (Ms Barker) You have just read out a piece that refers to the process that you carry out here, which I have always supported and I would agree with pretty much everything that you read out. In terms of the process of appointment before that, I have said that the process could be perhaps made more open and transparent and indeed that one of the benefits of having a more open and transparent process would be that when the individual comes to talk to the Committee, as I have come to talk to you today, they actually start off from a basis of perhaps better credibility. However, that is not to say in any previous case, that I feel that any of the appointments which have been made have been wanting in any way.

Sir Michael Spicer

  2. Ms Barker, on 9 May you told the House of Lords Select Committee on Monetary Policy two things. You said on the one hand—and this was in the context of membership of the MPC—"If somebody has . . . experience of working outside an academic economic environment in business and therefore a sense of how things affect business, it is useful to have somebody of that type on that committee", that was the first thing you said. Then two sentences later you said "I would have thought that the idea of a committee is not people who represent particular groups."[2] Now which of those two rather conflicting statements do you believe in?

  (Ms Barker) I think I would say I do not think they are conflicting.

  3. Right.
  (Ms Barker) I would like to have the opportunity to clarify it. I do think it is important when setting up something like the MPC that you look for people from a range of experiences and, therefore, to have somebody on the committee who has had a background of working in business—and clearly in that case I was referring to Dr Julius—is very useful. I believe she has brought considerable strength to the committee from her background of direct involvement in business. However, she has never been in any sense a business representative. She has drawn on that experience in order to help her to make better informed decisions and bring new perspectives to the members of the committee as a whole. She was never representative of business. Equally, once I am on the MPC I will not, in any sense, be a representative of business. I will be operating in just that sense. I will, on the MPC, of course, that is absolutely right, represent nobody but myself and my own views.

  4. If, as has been widely suggested, you are not going to be a representative of business in your own view, what do you think are the reasons why you have been chosen to be on the MPC, if it is not to represent industry?
  (Ms Barker) I imagine that I was chosen to join the MPC because of the background I have had working as an economist over a considerable period of time. One of the reasons was because I have had an experience of working directly for a company. I worked for nine years at Ford of Europe where, in a number of relevant ways, I gained an experience which I think will be useful to the MPC. In particular, I was very involved with their treasury activity, exchange rate hedging which obviously brought me into contact with the financial markets. I was involved in a whole range of decisions which the company took on investment, pricing and supply. All that I would regard as valuable experience. More recently at the CBI I have had the opportunity to acquire other experience which I also think is directly relevant, for example knowledge of how business surveys are put together and their correct interpretation, I should say here both their strengths and their weaknesses. Perhaps to the disadvantage of some of the business community, I am sharply aware of some of the weaknesses in business survey data. I have, of course, also spent 18 months during the previous government as an adviser to Kenneth Clarke with the Treasury so the Treasury have a good knowledge of my ability to be on a committee, to contribute to debates and to consider policy matters seriously and properly.

  5. You seem to be conceding that your background, recently anyway, in recent times, which has largely been in business is going to be relevant to the type of decisions that you are likely to take on the MPC. You seem to be suggesting that background will be relevant?
  (Ms Barker) I am certainly arguing that a background and experience and knowledge you gain from it is relevant but I am certainly not conceding that means I am going to be a representative of the business community.

  6. Would you accept that in the short term, at least, there may be direct conflicts between the interests of industry and the interests of the wider economy? For instance, it is always going to be in the interests of industry, presumably, short term interest at least, to have low borrowing costs whereas in terms of the economy it might be of great interest to the economy that the interest rate should be kept high in terms of inflation?
  (Ms Barker) To some extent I would dispute that. I do not think it is the case that it is always in the interests of industry, since you have asked me that question, that borrowing costs should always be lower. It is perhaps a feature of business lobbying that there is sometimes felt to be a slight difficulty in arguing interest rates should be higher, that I think is perhaps true. I should make it absolutely clear I do not see myself here as a representative of the CBI today but since you have asked me these questions I feel I do need to go back in history a bit. There have certainly been occasions when if you looked at our reactions to interest rate rises, for example, it is perfectly clear that the business community has seen a need for them. Most people in business are just as committed to the requirements of low inflation and understand the role it has to play in the economy perfectly well. There are occasions I think when the interest of a particular business may be to have lower interest rates when the interests of the economy are not, but for business as a whole I am not so sure that I think the divergence is so very great. However, if, as I think to some extent is more likely, an occasion arose where I believe, in my personal capacity on the MPC, the interests of the economy demanded one decision but I noticed that the business lobby groups, not just the CBI but the BCC or whatever, were looking for something else, I can absolutely assure you today I would have no hesitation in deciding in the interests of the whole economy. That is the job I have been asked to do and the job I have accepted. I would be very glad to come, of course, back to this Committee to explain to you in six months or a year's time, or whenever it may be, how I had done that and account for myself to you.

  7. One of my colleagues will ask, wearing your business hat, when you last pressed for higher interest rates. Could I just ask you: do you see the need—given the feeling there is that you will be representing business interests, they are counting on you—to be proactive or to take any particular line of argument which will indicate your independence of your former employer?
  (Ms Barker) I am not quite sure what the implication is of that question. Do you mean by that that I am concerned at some point, because I have been pressed by this Committee today, that I will feel, as it were, a need to vote against what the CBI has recommended to demonstrate my independence? Again, I would have to say to you no I would not feel that. I would always take absolutely every decision as it came up in accordance with the interests of the economy as a whole as I saw them. I certainly wish as a member of the committee to extend my interests in looking at the economy. Obviously over the last few years I have been very directed into things of particular interest to business. One of the opportunities I hope I will have is to widen out some of my areas of interest and demonstrate my independence. That is not just to demonstrate my independence, that is more because it is clearly right in the Monetary Policy Committee to be looking at things more in the round.

  8. You are obviously clear the statutory requirement on you will be that the primacy of your decisions should concern the rate of inflation and the rate of inflation target.
  (Ms Barker) Absolutely.

  9. What weight will you be putting on the subsidiary objectives? Are you likely to put more weight on this, given your previous experience, than other members of the committee?
  (Ms Barker) No, I would not have thought I would. I have obviously looked at the discussions you have had with other members of the committee about this and I feel that my own view on it is very much the same, that the role of the subsidiary objectives is very much about the question of when the inflation rate is a long way away from the target, about bearing the subsidiary objectives, about having employment in mind, when you are considering the speed at which it is right to move back towards the target. In that sense, clearly like the other members, I see them as being subsidiary, I do not think I would be inclined to put any more weight on it. As I indicated in one of my earlier answers, I have looked at the job of the MPC as it is set out, I understand what it is and what weight to put on the different objectives.

Judy Mallaber

  10. Sir Michael has been pressing you on your links with industry and you said that you would want to broaden your experience. What other interest group concerns will you take into account when setting monetary policy and how will you go about informing yourself on them?
  (Ms Barker) I did not mean to imply that I was interested in taking other interest groups into account. To be clear again, the only way it sets it is on the basis of what is going on in the whole economy. I simply meant that in terms of some of the areas of research that I might move into they might be slightly less related to industry than some of the things I have been looking at up to now. For example, I am quite interested in how different inflation rates in different regions, and the way different labour markets work in different regions, might affect the inflation rate. I would welcome the opportunity to have some time to look at that. It is much more about enriching the knowledge that I have to enable me to do the job of hitting the target better. I think there is perhaps a subsidiary to that which is about engaging groups other than business in the commitment to low inflation which I think is important and is, of course, a role that the Monetary Policy Committee is supposed to play.

  11. How do you see the job? What are you going to do in your days working for the MPC?
  (Ms Barker) I think it is always terribly hard before you go into a job to have an idea of how it is going to be and how it will work from day to day. However, I think unusually in being asked to go on the Monetary Policy Committee, because the remit is so well known and there is so much discussion about what goes on and how the Monetary Policy Committee goes about its task, I perhaps know rather more about it in advance than frankly I have about other jobs that I have gone into. There is a round of monthly meetings in which data is discussed and presented, I think that is all very well known, and a quarterly round of meetings in the run up to the forecast. I would naturally, as any other MPC member, be looking to participate in all of those. Obviously one of the things I would wish to do, as DeAnne has done, is to spend some time going directly myself to different regions, talking to people from, I hope, different backgrounds, not necessarily always from business backgrounds, to get some sense of how the economy is developing in different regions and to explain what the Monetary Policy Committee has been doing. I think the task of setting out what it is doing, explaining it, explaining the rationale for every decision, is a very important one. Beyond that, I will want to continue and establish some lines of research. I feel at the moment somewhat tentative in suggesting lines of research—I have already talked about one—because, I will be quite honest, it is not very long since I knew I was going to be taking up this position and I have not had the opportunity to spend a lot of time in the Bank talking to them about the lines of research that are already going on, as it were, thinking through what I might like to develop myself personally.

  12. When you met the House of Lords' Committee you referred to Dr Julius' role in visiting the regions. If you came to my region in the East Midlands which groups would you be wanting to meet? What kind of programme would you like to be set up for you?
  (Ms Barker) I think my understanding is that the groups set up on the whole are very often business groups but I am not necessarily anxious that it should be limited to that. If I thought it would be helpful to improving the understanding in the public at large to have meetings with other groups, there were other people that it would be helpful to talk to about their perception of the job of the MPC and to improve understanding more generally, I would be very happy to do it. But, of course, these meetings are there to serve two purposes. One, which I have talked about, is the purpose of improving understanding and commitment in the wider community for the work of the MPC. The other, of course, is for the MPC members themselves to become better informed about what is going on in different regions and sectors. Clearly one of the best and most direct ways to do that is through meeting the business community in that sector or, of course, through meeting people such as the RDAs, the local authorities. I do not think it is right to be too narrow in who you want to meet.

  13. Once you have been on your round of regional visits, how will you expect to take into account the problems of having to have a one solution fits all shapes policy? What would you learn from your visits to the regions? You will come to my area and discover that we have had massive job losses in the textile industry; how will that inform your decision making at the MPC?
  (Ms Barker) I am sure every other prospective MPC member who has come to talk to you about it has indicated clearly that at the end they have to set their policy dependent on what seems to be right for the economy as a whole. The advantage of regional visits is, firstly, to get a better sense than you can from the data that comes into you in London of where things are going, where people see different pressures coming from, how companies and regions are responding to those pressures. It is to try to get, as it were, a more lively sense of what is going on, a richer understanding, than you get from rather dull data as to how companies are responding, how areas are adjusting, what might be the case in that area 12 months down the line as a result of what is going on now. It is that kind of thing that you would bring back. That is not to say that you would then set the interest rate to suit that particular region because clearly other people will be bringing that information from other regions as well.

Mr Davey

  14. You have been asked by my colleagues about your independence from business and you have given your background but can I ask you about your political independence. Have you ever been a member of a political party?
  (Ms Barker) I think I am right in saying of two political parties. I hesitate slightly. I think when I was at university I was a member of the Liberal Party briefly.

  Mr Davey: Very wise.

Mr Fallon

  15. That did not last.
  (Ms Barker) I was subsequently, for some years, a member of the Labour Party but it is now several years since I was a member of any political party.

Mr Davey

  16. So, if you were faced with pressure from Government Ministers, either in public statements or in private or, indeed, not just from a Government but a political party who had a particular agenda which you thought might undermine the statutory objectives of the MPC, would you be prepared to speak out?
  (Ms Barker) I would regard such pressure, as I am sure any MPC member would, as being quite improper. It would certainly not influence my decision.

  17. Would you be prepared to speak out and criticise that political party or that Government Minister?
  (Ms Barker) Yes, I think I would. The reason I would is it seems to me one of the benefits of the Monetary Policy Committee—and indeed it may be a benefit that we are experiencing at the moment in what people widely suppose to be a pre-election period—is that the decisions that the MPC has announced in cutting interest rates early this year have not been linked with anybody saying "interest rates are being cut because the election is coming up". People recognise the committee's independence and, therefore, they believe that interest rates are being cut because the inflation prospects are such that that is the right thing to do. Personally I think that has been a huge improvement in the credibility of policy and in the credibility of the UK's standing.

  18. I would agree. Can I just push you a little bit more. Imagine a Government or, indeed, an Opposition Party penning an agenda before the election raising fiscal policy which would very much undermine the anti-inflationary monetary work of the MPC. Would you be prepared to go out publicly to say that you objected to that fiscal stance?
  (Ms Barker) It is quite a difficult question. Here you are moving on to a question about monetary and fiscal co-ordination. One of the things that is very important in thinking about the MPC is, is that it is there to deliver the inflation targets laid down by the Government. For me, personally, democratic accountability and the fact the inflation target is laid down by the Government is a very desirable feature of the system. The way I would understand the co-ordination between the two is that the Treasury sets fiscal policy according to what it sees to be right given the long-term goals of the public finances and what it believes is right in terms of tax and spending decisions, and the job for the MPC is then to achieve the inflation target given the fiscal policy that has been set out. It is true, of course, that some particular fiscal policy might be regarded in some sense as being a mistake because the balance of policy between monetary and fiscal is then not quite right and in that sense, perhaps, makes the MPC's job a bit harder. I think it is absolutely right that the MPC makes it clear to a range of politicians what impact a particular fiscal policy would have on their decisions. That is very important because it is important information they need to have. I would hesitate slightly in whether or not I think it is proper for MPC members to publicly criticise elected Ministers.

Mr Fallon

  19. Coming back to the process of appointment, were you interviewed by Treasury officials?
  (Ms Barker) I indicated in one of my earlier answers to Sir Michael Spicer that Treasury officials in some sense are very familiar with me. I was, as I say, for 18 months an adviser to Kenneth Clarke. I have been involved in quite a lot of Treasury work over the past few years. I go in to meet Ministers and officials at all levels very regularly. When I was asked to take on the job, I did go and meet with Treasury officials, yes.

1   Ninth Report, Session 2000-01, HC 42, paras 52, 54. Back

2   House of Lords Select Committee on the Monetary Policy Committee, Report, Session 2000-01, HL Paper 34-II, Q258. Back

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