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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

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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.

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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".

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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.


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