Government Economic and Social Policy

Part of Orders of the Day — Opposition Day – in the House of Commons at 8:44 pm on 9th June 1993.

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Photo of David Willetts David Willetts , Havant 8:44 pm, 9th June 1993

I find myself next to the former Chancellor of the Exchequer, my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont), who made a significant personal statement earlier and reminded the House of his historic achievement in bringing inflation below 2 per cent. The main policy issue that he raised as a point of disagreement between himself and my right hon. Friend the Prime Minister was the case for an independent central bank. He argued for it on the ground that there was a need to bring extra credibility to monetary policy.

I take this opportunity, as my right hon. Friend the Member for Kingston upon Thames is fortuitously in the Chamber, of commenting on that proposal. I believe that my right hon. Friend did his own record a disservice, because credibility is gained not by legal change and statutory measures but above all by showing the markets that Governments are prepared to take the tough measures necessary to bring inflation down.

This Government have gained precisely that credibility as a result of standing by policies that brought inflation below 2 per cent. My right hon. Friend the Member for Kingston upon Thames referred to the improvement in the yield curve. That was achieved because credibility was gained without having a new, legally independent central bank.

It is also possible to gain greater operational independence for the Bank of England without putting it on a new statutory footing. Indeed, significant progress was made under my right hon. Friend's Chancellorship. I think back with some embarrassment to my own experiences 10 years ago as a Treasury official working on monetary policy.

In those days, the Bank of England used to send the Treasury a draft of its report on the conduct of monetary policy which was to appear in the Bank's Quarterly Bulletin. We used to sit around working out whether the sentence was correct, and whether this or that paragraph was entirely consistent with the Treasury view. We used to send long letters back to the Bank of England explaining why it should not say X or ought to formulate a point rather differently. That no longer happens.

Instead, in a welcome policy innovation, the Bank of England produces an independent report on the Government's inflation performance and on prospects for inflation. Neither Ministers nor officials would wish or dare to tamper with that. It has brought significant credibility to Government policy.

The irony in my right hon. Friend's remarks this afternoon was therefore that the objective which he seeks —gaining greater credibility for monetary policy by operational independence for the Bank of England—is one towards which significant progress was actually made during his Chancellorship.

My right hon. Friend's statement was in striking contrast to the speech of the leader of the Opposition, which contained nothing of substance. No one has a clearer idea now than at the beginning of the debate of where the right hon. and learned Member for Monklands, East (Mr. Smith) stands on the big questions of fiscal policy. The right hon. and learned Gentleman calls a Supply day debate on taxing and spending but tells the House nothing of Labour's policies. Does he believe that the PSBR is too big, that public spending is too high or too low, that tax increases are necessary or not? For any leader of the Opposition with pretensions to government to devote a 30-minute speech to spending and taxing without answering any of those questions was an intellectual and political failure of considerable proportions.

The debate was simply an attempt by the Opposition to exploit the ritual of the annual public expenditure round. The well-known stories appear, like the first cuckoos of spring, with speculative press reports as to what might happen in the Public Expenditure Survey Committee. One would have thought that, after years of such stories circulating, people would learn to take them with more of a pinch of salt than they appear to be doing this year.