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Lord Mackay of Ardbrecknish moved Amendment No. 4


Page 2, line 15, at end insert ("except in relation to monetary policy,").

The noble Lord said: I beg to move Amendment No. 4, with which we have Amendment No. 35. Before the noble Lord, Lord McIntosh, rushes to tell me that they are contradictory, in some ways they are contradictory! Diametrically opposed is indeed what the officials wrote--or what the noble Lord wrote--and they are

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diametrically opposed. I decided, however, that we would take them together because they are an attempt, which is easier to do here where we have agreed that nothing will be pressed to a Division, to tease out the relationship between the court and the Monetary Policy Committee, if there is one, which is the important thing.

When I read the Bill, I understood, on reaching Clause 2(1), the position. It is very clear:


    "The court of directors of the Bank shall manage the Bank's affairs, other than the formulation of monetary policy".

That seemed fair enough. However, it seemed at variance with a letter which the Chancellor of the Exchequer wrote to the Governor on 6th May. At paragraph 13 of that letter he said:


    "The non-executive members will review the performance of the Bank as a whole, including the MPC".

So there we have, in the letter, the possibility of the court reviewing, yet in the legislation it states that the court shall not play any part in the formulation of monetary policy and the work of the Monetary Policy Committee.

In Schedule 3, paragraph 14, it says:


    "The Committee [that is, the Monetary Policy Committee] shall submit a monthly report on its activities to the court of the directors of the Bank".

I have no problem with the Monetary Policy Committee submitting a monthly report, nor indeed with the court discussing these reports, including the decisions which the Monetary Policy Committee has reached regarding the state of the economy, the position on monetary policy it is pursuing and the need to raise, lower or leave interest rates as they are.

I wonder, however, and this is why I put down the second amendment in my name, whether there will be any flow of information in the other direction. Can the court say to the Monetary Policy Committee, "We have indeed"--in the words of the Chancellor's letter--"reviewed what you are up to. We have been looking at your monthly reports and I am afraid we disagree with your analysis. We do not agree with your analysis about the health of the economy and the way it is going, nor with your conclusions. We suggest"--if I may go one step further--"that at your next meeting you should lower, or increase, interest rates", or whatever it may be. In other words, will there be a flow of information in the opposite direction from the one laid out?

That is why I have suggested in Amendment No. 4 in Clause 3(2)(a) that we add to the sentence,


    "keeping under review the Bank's performance in relation to the objectives and strategy for the time being determined by the court of directors of the Bank",

and I have put in,


    "except in relation to monetary policy",

to ask whether the objectives and strategy of the Bank include what the monetary policy does or does not do. Amendment No. 35 asks whether the court will be able to send a minute back to the Monetary Policy Committee when it reviews what the Monetary Policy Committee is doing and when it receives the monthly

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report from the Monetary Policy Committee. I hope I have explained why I have moved two such diametrically opposed amendments.

Lord Peston: I am a bit lost. Is my copy of the Marshalled List a misprint? Amendment No. 35 is in the name of my noble friend Lord Montague.

Lord Mackay of Ardbrecknish: I am indeed sorry. That means that I have fallen into the trap of not really looking. I have been on my feet for an hour-and-a-half on every amendment that was mine. I apologise to the noble Lord, Lord Montague. He can explain now why he has a diametrically opposed amendment to mine, and the Minister can remove that criticism from his speech.

Lord Montague of Oxford: I am not sure that I am diametrically opposed, but I will explain what is in my mind and the way I am trying to flush out, as the noble Lord is trying to flush out, this relationship between the Monetary Policy Committee and the court.

It seems to me that in terms of the image that is attempting to be conveyed in the country by presenting this court of diversified experience as encompassing the wisdom one would hope to make available, the implication is that that will have some input into the policy decisions of the Monetary Policy Committee. As I read the Bill, what it is proposing is that the court will provide information: no views, just information.

I am suggesting that it should go a little further:


    "and shall provide advice to the Committee on monetary policy".

I would not object to that reading "shall be among those who provide advice to the Monetary Policy Committee". Providing information seems to me to be a little lacking, particularly until we get to that part of the Bill where we come to look at the composition of the Monetary Policy Committee. As we know, at the present time it consists almost exclusively of economists. I have heard those economists, and I will turn to having heard them in a moment. I am not sure that they have quite the rounded view of the economy that one might expect of them.

I said at Second Reading that I had noted in the minutes that it was recorded that it was believed that an increase in interest rates automatically led to a moderation in requests for wage increases. That has not been my practical experience from running factories up and down the land. The moment there is an interest rate rise, within seconds the unions have arrived saying that in order to meet the cost of increased mortgages they must immediately have an increase in wages.

I referred a moment ago to listening to the members of the Monetary Policy Committee, and I did. Some three weeks ago the members of the Monetary Policy Committee went before the Treasury Select Committee and were cross-examined. One heard those economists responding to everyday life as perhaps all of us in this room understand it. And they did it yet again--not this time about wages. This time it was about something called asset values--the inflationary effect of asset values and how we must keep asset values under control. I sat there thinking all the time that this must be housing, but it was not. When asked to clarify, it was

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share values and the extraordinary inflationary effect of an increase in share values. I almost thought the economists were waiting for the collapse of the Stock Exchange to bring inflation under control. Once more, I had the feeling that they were a little out of touch. That is why, later on, I am among those who are suggesting that the composition of the Monetary Policy Committee be looked at more tightly.

Perhaps I may say in passing that I was a little surprised that, when I asked for the minutes of this particular meeting of the Treasury Committee, I was told they would not be available for another three weeks. I am new to this House, and I find this House remarkably efficient, but it seems extraordinary that when these committees sit the minutes of their meetings are not available for some six weeks since last they met. This seems to be a deficiency which should be looked at elsewhere.

One other question was asked of the committee, which I draw to noble Lords' attention because it was a very interesting meeting. One member asked the Governor--and I was enormously impressed by the openness of the Governor--"Tell me, Governor, there are four representatives of the Bank of England. Are you always going to vote as a block?". And the Governor replied, "No, no way. It is absolutely inevitable that at some time we shall disagree". I thought that was quite interesting. If it might be argued that the Governor is the chairman of the court, and he is the chairman of the Monetary Policy Committee, and therefore he is conveying the view of the court on monetary policy, that does not really hold up if we have been told by the Governor that it is inevitable that the four representatives will at some time disagree. That is why I have put my amendment down.

5 p.m.

Lord Boardman: I am afraid I fail to understand the run of the amendment of the noble Lord, Lord Montague of Oxford. It suggests that the monetary committee should provide advice to the Committee on Monetary Policy--that the court of directors should keep the procedure followed by the monetary committee under review and provide advice to the Committee on Monetary Policy. The whole of this has isolated it: the Monetary Policy Committee has its own remit, not to be interfered with by the directors of the Bank, and nor is the Bank involved in the monetary policy. It is running completely contrary to that. I very strongly support the amendment by my noble friend, which puts the matter perfectly clearly, excluding from the directors of the Bank anything in relation to monetary policy. So I support this amendment, and I find it difficult to go along with the other one.

Lord McIntosh of Haringey: First, I congratulate the noble Lord, Lord Mackay, on a bravura performance. The noble Lord spent a whole speech, like Houdini, extricating himself from the contradiction into which he had not actually fallen. I know that this will be recorded in Hansard but I think it should be engraved in stone--it is worthy of the greatest of all conjurers!

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Despite that, I have to say that the Bill is perfectly clear. The role of the court of directors vis-a-vis the Monetary Policy Committee is entirely clear. The job of a court of directors is to review the performance of the Bank in all of its functions, except monetary policy. That is laid down in Clause 2(1):


    "The court of directors of the Bank shall manage the Bank's affairs, other than the formulation of monetary policy".

In every other respect, it is managing the Bank's affairs. The only way in which it relates to the Monetary Policy Committee is in its responsibility for reviewing the procedures of the Monetary Policy Committee, and that is laid down in Clause 16(1):


    "The court of directors of the Bank shall keep the procedures followed by the Monetary Policy Committee under review".

The purpose of that is that it should be concerned, as the management body of the Bank, that the Monetary Policy Committee has had before it the regional, sectoral and other information necessary for the formulation of monetary policy. It is quite clear from the Bill that the court of directors is reviewing the Bank's performance in relation to objectives of strategy as determined by the court, but that does not in turn relate to monetary policy. The formulation of monetary policy is the statutory responsibility of the Monetary Policy Committee alone. Hence the formulation of monetary policy is already a matter excluded from the review of the sub-committee of non-executive directors of the Bank specified in this particular clause of the Bill.

It is important that we should recognise that and that there should be no confusion, otherwise we would have two separate bodies making decisions in public about the monetary policy of this country and that would not be acceptable. The amendment of the noble Lord, Lord Mackay of Ardbrecknish, would not overturn that because it is formed in such a way that his insert would be overruled by Clause 2(1). Therefore his amendment is strictly unnecessary.

The amendment of my noble friend Lord Montague is rather different. It would undermine the autonomy of the Monetary Policy Committee by confusing responsibilities in the way I set out. The monetary policy framework gives the MPC operational autonomy. It has statutory responsibility and therefore it can be held to be properly accountable. The role which the wider court and non-executives have is enormously important, but it must not duplicate or conflict with the role of the Monetary Policy Committee. I invite the noble Lord, Lord Mackay of Ardbrecknish, in the first instance to withdraw his amendment.


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