I thank the Chancellor for his decision to publish the minutes of his meetings with the Governor of the Bank of England. May I refer him to references in the January and February minutes? In January, he said that the rate of growth had clearly not picked up and in February, he said that the advice that he was receiving from the Bank of England was excessively cautious or at least erred on the side of caution. May I assure him that his instincts on that matter are right, and suggest to him that he should back those instincts and take further measures to increase the present inadequate rate of growth, rather than continuing to compromise on the basis of the poor advice that he is receiving?
I am glad that the hon. Gentleman is studying the minutes that I have published; he will be greatly enlightened by them, I am sure. I certainly published minutes which show the genuine discussion, at the end of which I reached agreement with the Governor. However, I naturally took my decision on interest rates because that is the responsibility of the Chancellor of the Exchequer.
The hon. Gentleman asks about the discussions in January and February—two months and three months ago. It is right to say that the Governor tends to start the discussions by taking a cautious view of the outlook for the inflation rate. That is what one would expect the Governor of the central bank to do. I was taking a cautious view of the outlook for growth and not relying solely on anecdote, which I think is sensible in the present circumstances. Since that time, an ever-increasing flow of information has shown that we are on course for low inflation and that the recovery is steadily strengthening. It is quite clear that I took the right judgment in the Budget in November and quite clear that I took the right decision on interest rates in February. We are well set to be the fastest growing economy in western Europe this year and the year after.
As the main forum between those who want increased growth and those who want to contain the future rate of inflation is the monthly meeting between the Chancellor and the Governor of the Bank of England, may I warmly congratulate my right hon. and learned Friend on publishing the minutes of the meetings? May I suggest that the way in which he has achieved that—by slow, steady, incremental change—is probably better than the statute that some of us proposed earlier in the year and certainly better than the move towards an independent central European bank which he has so often advocated?
I am glad that I am in total agreement with my hon. Friend on the desirability of greater transparency of decisions on monetary policy. I am glad, too, that I am carrying his consent in the cautious, step-by-step approach that we have taken towards that transparency. However, I would take up his suggestion that there is a conflict between those who want low inflation and those who want lasting recovery. What is interesting about the discussions is that they confirm what ought to be reassuring to anybody with any common sense. Both the Governor and are talking about that essential balance between being safe on inflation and getting the right pace of recovery that will last. I hope that when people study these minutes and future minutes, we shall have a better quality of debate on these issues in the country.
Does the Chancellor still believe, as he believed at the time of the February meeting, that there is a significant risk that his fiscal measures will slow the rate of recovery? What will minutes look like in about a year's time if there are significant inflationary pressures, if growth is not great enough to meet the Government's targets and if the Chancellor is arguing for a greater reduction in interest rates than the Government believe will be safe?
The February minutes go back to the time when someone took me up on a phrase that I used about the possibility of the fiscal squeeze checking the growth in consumer expenditure. At that time, there was a lot of debate about whether consumer expenditure was picking up or falling down. Those things move on. I have had a meeting since then and we are all making our judgments now about the outlook for consumer expenditure, given the tax increases coming in. By the end of the year, I shall be making judgments and trying to perform the same balancing acts in the way that I have just described.
I accept that it will be interesting about 12 months ahead to see how often the Governor of the Bank of England got it right and how often he got it wrong, how often the Chancellor got it right and how often he got it wrong and how often, occasionally, absolutely everybody got it wrong. By that time, we shall be moving into the necessary steps to keep us on course for steady recovery and low inflation.
Does my right hon. and learned Friend agree that the recent output figures were very encouraging indeed? Does he also agree that various socialist measures such as the social chapter would damage growth? Will he make that point time and again in the run-up to the Euro-elections?
I entirely agree with my hon. Friend. In addition to the major economic policy decisions that I have just described, it is essential that we do everything to keep down British industry's costs and help our employers and businesses to make themselves competitive. At present, we have lower costs on top of wage costs than other European countries. By fighting away the social chapter, we ensure that we keep that competitive advantage. That is an absolutely key issue in the European elections.
Given that in January the Chancellor said in public that recovery was becoming robust, whereas we now know that in private he was telling the Governor of the Bank of England that it was feeble; given that in February the Chancellor was telling us that a 0.25 per cent. interest rate cut was sufficient, whereas we now know that he was telling the Governor that twice as much was necessary; and given that by March the Chancellor was telling us that tax rises would not have a substantial impact on the recovery, whereas we now know that he expressed the fear in his words with the Governor that it would be substantial, how can the country ever trust the Chancellor, not only on tax but in anything he ever says about management of the economy?
That bizarre use of the minutes explains why in the past people have been so cautious about openness in these matters. As the hon. Gentleman well knows, that is a total misuse of all the accounts of the discussions that he has read. I have always spoken cautiously about the recovery. I have always stressed the need for it to be sustained. I have also always stressed the need to keep low inflation as a target. All the hon. Gentleman has ever said is, "Cut interest rates", "Cut interest rates" and "Cut interest rates." At times of boom and at times of recession, he would have caused recurrent financial crisis. He says nothing on tax, he says nothing on borrowing and he says nothing on supply-side measures. The possibility of the hon. Gentleman's taking responsibility in these matters would cause a serious crisis of confidence in the country and set back all the hopes of recovery that we are nurturing.