Examination of witness (Questions 1-19)|
TUESDAY 1 MAY 2001
MS KATE BARKER
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".
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 handand 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
Now which of those two rather conflicting statements do you believe
(Ms Barker) I think I would say I do
not think they are conflicting.
(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 businessand clearly in that
case I was referring to Dr Juliusis 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 needgiven the feeling
there is that you will be representing business interests, they
are counting on youto be proactive or to take any particular
line of argument which will indicate your independence of your
(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.
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 researchI have already talked about onebecause,
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.
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.
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.
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
(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 Committeeand
indeed it may be a benefit that we are experiencing at the moment
in what people widely suppose to be a pre-election periodis
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.
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
House of Lords Select Committee on the Monetary Policy Committee,
Report, Session 2000-01, HL Paper 34-II, Q258. Back