The announcement by my right hon. Friend the Chancellor of the Exchequer about the independence of the Bank of England on interest rates had such a rapturous welcome that it is with some diffidence that I rise to attempt to put a reasoned case against that independence.
The universal acclaim from pundits, commentators and the rest of the chattering classes with which independence for the Bank was greeted reminded me of nothing so much as the universal acclaim that greeted our entry into the exchange rate mechanism some years ago—and we all know what happened to that.
I must begin by saying that, of course, everybody on both sides of in the House is in favour of the lowest possible inflation. There can be no dispute about that. Yet I shall argue against independence, for the following reasons.
First, we cannot decouple economic management from politics. Secondly, the academic arguments for an independent central bank are built on sand, intellectually. Thirdly, the idea is fundamentally undemocratic. Finally, it would mean taking risks with growth and jobs. I represent one of the poorest constituencies in the country, with one of the highest levels of unemployment, so the House will understand that, ultimately, my concern is about growth and jobs.
There can be no doubt that independent central banks are the fashionable thing, not only with British commentators and pundits but internationally. Since the late 1980s, more than 25 countries, from France to Kazakhstan and from New Zealand to Pakistan, have opted for independent central banks, so there is no doubt that the Chancellor is in the vanguard of fashion.
However, with some reluctance, I must tell the House that there is a gaping chasm between what economic theory suggests central bank independence might do and what the empirical evidence shows it can do. Despite the universal assumption among journalists and some of my hon. Friends that an independent central bank necessarily leads to low inflation, the academic research suggests that, although there may be a statistical relationship between central bank independence and low inflation, no causal relationship can be established.
That point is so important that the House will forgive me if I linger for a few minutes on the academic arguments. In 1993, the Treasury Select Committee conducted a major inquiry into the idea of independence for the Bank of England. Our report records that our then specialist adviser, Andrew Wood, reviewing the academic literature, concluded:
Some general conclusions can be drawn from this review of the literature:—there is a statistical relationship showing that on average countries with independent central banks achieve lower inflation than countries with dependent central banks. There is no conclusive statistical evidence of a causal relationship between the status of the central bank and the inflation performance".
My hon. Friend has mentioned the Select Committee report. Would it not be fair to point out that the Committee came out in favour of the model proposed by the Chancellor? There was a Conservative majority on the Committee, but all Labour members—with the exception of my hon. Friend—also voted in favour.
I am grateful to my hon. Friend—with whom I have served with pleasure on the Select Committee for years—for reminding the House that my opposition to bank independence is not short term, but a long-standing position.
Let us look briefly at some of the academic evidence, at the risk of wearying some hon. Members. A major study—which is always quoted by the proponents of independence—was carried out in 1996 by Sylvester Eijffinger and Jacob de Haan, who looked at 20 different studies of bank independence. Out of 20, 18 showed a link between independence and low inflation. There is no doubt that some of my hon. Friends will call this in aid, as always.
Furthermore, another major study in 1991 by Grilli, Macciandaro and Tabellini showed that the three most independent central banks had the lowest inflation. But that is not the sum total of academic work, although one might believe it is from listening to some of the Eddie George groupies in the House.
There is other and more recent academic work on the subject. I draw the House's attention to the studies of Adam Posen, an economist from the New York Federal Reserve, who said that central bank independence was a consequence of pressure from the financial sector. He said:
Central Bank independence arises from the desires of an interest group—
the financial sector—
that is more committed to price stability than the average voter.
Michael Jenkins of Hull university said in his research on the subject that, if one factors out other structural factors tending to low inflation—for instance, the corporatist wage bargaining of West Germany—there is no statistically significant relationship between higher central bank independence and low inflation. Gerard Lyons, chief economist of the Japanese bank DKB, has said that the evidence that bank independence guarantees low inflation is slim. In 1993, Blake and Westway said that a central bank pursuing its own goals with no regard for the social welfare function is frequently harmful.
The first point I am anxious to make is that, just because central bank independence is associated with low inflation—I do not deny that—does not mean that it causes low inflation. That is the weakness of the argument used by my hon. Friends who are in favour of independence. I maintain something different—that, contrary to popular belief, an independent central bank does not create a culture of low inflation, but is a reflection of a culture of low inflation. The distinction may seem pedantic or trifling to some of my hon. Friends, but it is the key distinction.
When people come to argue for an independent central bank, they always pray in aid the Bundesbank and Germany's economic record, and there is no doubt that the Bundesbank is the Arnold Schwarzenegger of monetarism. The Bundesbank has practised a form of macro-monetarism for longer than any of us here can remember. The classic statement of the Bundesbank's position was given by Karl Blessing, its president, in 1966, when he said:
There can be no hard currency without hard measures.
Let us linger on the German case, which proponents of independence always cite. The belief that the fact that Germany has an independent central bank and also has low inflation is an argument for independent central banks elsewhere is a simple case of reverse causality. I put to the House the following proposition—the reasons for Germany having low inflation are much more fundamental, and partly rooted in its history.
I remind the House that, twice in a generation, Germany experienced hyper-inflation—in 1923 and again after the war. In 1922, inflation in Germany was running at 1,300 per cent. No other G7 country has had that experience this century. The mark ended up in 1923 at one trillionth of its 1913 level. It is at the height of this hyper-inflation that we see historically the Nazis' rise to power.
Immediately after the war—and in the ruins of a defeated Germany—the country once again experienced hyper-inflation. Otmar Issing, chief economist of the Bundesbank, has said:
It is no coincidence that it is the Germans with their experience of two hyperinflations in the 20th century who have opted for an independent central bank which is committed to price stability.
There are other structural reasons why Germany has low inflation, one of which is the underlying strength of the German economy this century. Germany has had a strong manufacturing sector, a high savings ratio and strong export performance. That is the real economy of Germany, not some short-term monetary fix leading to a low-inflation environment. I would argue that the academic evidence for an independent central bank is simply not soundly based, and I urge my hon. Friends to go back and review the academic evidence.
One of the problems is that central banks have a history of being deflationary. I shall quote from Labour's 1945 manifesto. I do not want to embarrass colleagues who believe that the party has no history, but the 1945 manifesto reflected this country's experiences of the 1930s. In the 1930s, we had an independent central bank, and its name was Montagu Norman. I sometimes think that my colleagues who favour an independent central bank should get T-shirts saying, "Come back, Montagu Norman—all is forgiven."
In the 1945 manifesto, Labour said about the 1930s:
Great economic blizzards swept the world in these years. The great inter-war slumps were not acts of God or of blind forces. They were the sure and certain result of the concentration of too much economic power in the hands of too few men. These men had only learned how to act in the interest of their own bureaucratically-run private monopolies which may be likened to totalitarian oligarchies within our democratic state. They had and they felt no responsibility to the nation.
Some of my hon. Friends may say, "That was 1945. We are new Labour. What possible relevance does this have to us today?" I would argue that the issue of political accountability and responsibility to the nation is as relevant to the Labour party now as it was in 1945.
In looking at the tendency of central bankers to be deflationary and to overestimate the dangers of inflation, we do not have to look in a crystal ball. I was in the City, talking to some economists with a Japanese bank. They reminded me of the joke that the governor of the Japanese central bank between 1989 and 1995, Mr. Mieno, was voted central bank governor of the year by the Americans for ruining the Japanese economy. He jacked up interest rates relentlessly, and did not reverse the policy quickly enough in a recession. Ultimately, the Japanese Ministry of Finance had to step in in 1992. I hope that it does not come to that in this country.
I do not need to talk about 1945 or about the Japanese in making my case. Sadly, because I am a tremendous admirer of Eddie George—a great and distinguished public servant—I need only talk about the recent history of monetary policy in this country.
In May 1995, the Governor of the Bank of England, Eddie George, recommended that interest rates be raised by 0.5 per cent. to meet the inflation target. This view was based in part on the Bank's notorious inflation forecasts, which Mervyn King—who is in charge of these matters—admitted to the Committee had a poor track record, producing overly pessimistic forecasts of inflation. The then Chancellor refused to accept the Governor's advice, because, in his judgment, the economy was slowing sufficiently for the inflation target to be met.
Two years later, we know that the former Chancellor's judgment was correct. I am well aware that he needs no endorsement from me. Whatever we think of the contestants for the Conservative party leadership, he consistently called the economy right more times than Eddie George.
I do not want Eddie George to be hurt by these remarks. There is nothing wrong with central bankers having a deflationary bias—that is what they are for; it is the culture in which they are bred—but history teaches us that they should be under democratic control.
The downside of a central bank is that it is hard to achieve co-ordination of policy, and there are risks to jobs and to growth and the danger of an overvalued pound. It is also almost irreversible. Of the 20 frequently cited studies on central bank independence, only one associates it with growth. Guy Debelle and Stanley Fischer said:
Since 1962, countries with independent central banks have suffered deeper recessions on average than those without.
Mark Hutchison and Carl Walsh found the same in a study of New Zealand. Robert Chote, economics editor of the Financial Times, writing in a personal capacity, said:
People may lose their jobs unnecessarily because Mr. Brown is abdicating responsibility for achieving his inflation to the Bank.
I am sure that my hon. Friend will be interested in the response from industry since the Chancellor declared the independence of the Bank of England. In my part of the world, the largest industrial region in the north-west, the bosses are backing Labour: in the latest poll of industrialists, 88 per cent. responded in support of the Chancellor. Business confidence has been restored for the first time in many years. That is an independent response to an independent bank system.
I am sure that my hon. Friend would not doubt that that response is to be acclaimed. Our fiscal and industrial policy is helping our domestic economy to take off, and I am sure that she would wish it every success.
Of course industry and business are backing Labour—even some Tories are backing Labour—but did my hon. Friend notice the squeals from industry when Eddie George slapped in his first interest rate rise a few days ago? It is one thing to back a policy in principle, but another to back it when the consequences for the pound and for exports become clear.
One of the arguments urged by the proponents of independence is that monetary policy is in some sense different from fiscal policy and public spending. They say that politicians have always played politics with interest rates, so monetary policy should be taken out of their hands. In what way is monetary policy different from and more important than fiscal policy and public spending? In fact, politicians have been more apt to play politics with taxation and public spending decisions than with monetary policy.
I think that I had better get on, as some of my hon. Friends want to speak.
On the basis of the argument that monetary policy is too important to leave to politicians, why do not we simply sub-contract the entire economy to Goldman Sachs? Sir Bryan Hopkin and Sir Douglas Wass, in evidence to the Treasury and Civil Service Select Committee in 1993, said:
It is not desirable, or indeed even possible, to earmark particular instruments to particular objectives as if they had no wider repercussions.
One of the most important arguments against an independent central bank concerns accountability. I do not accept the argument that monetary policy is a neutral instrument outside politics that is too difficult and arcane to be handled by politicians.
Sir Bryan Hopkin and Sir Douglas Wass went on:
It is not the job of central bankers to judge how far it is right to go in damaging the standard of living of some members of the community or destroying the jobs of others … These are broad matters as much of social welfare as of economics. The decisions of Ministers may not escape criticism; they rarely do. But, that it is and should be their responsibility to make the decisions seems to us to follow from the nature of the decisions and the way they work.
My right hon. Friend the Chancellor would argue that his proposals for a Monetary Policy Committee and for oversight by the Treasury Select Committee ensure accountability for the Bank's actions in future. I think it extremely unlikely that members of the Monetary Policy Committee will line up and vote against the Governor; his influence will be decisive. The Treasury Select
Committee can bring an element of transparency to the process, but it cannot make the Bank genuinely accountable, because it has no sanctions.
If the Treasury Select Committee is seriously to be given oversight, it will need a budget to commission outside research. I would argue that it will also need the power to hold confirmatory hearings with the Governor and with members of the Monetary Policy Committee. Oversight without sanctions is a dead letter.
It is with great reluctance that I debate this issue. The country, business, industry, the professions, the people of Hackney and the people of Dunfermline are solidly united behind the Labour Government and look forward to their continuing for at least a decade of triumphant rule.
If we forget the siren voices of fashion—nothing is more pernicious in economic management than fashionable ideas—the academic basis for independence is not as sound as people say. The examples should give us pause, and there are serious implications for democracy.
Thank you, Madam Speaker, for giving me the opportunity to make my maiden speech. As this is a debate of substance, I shall try to keep the maiden speech formalities to a minimum. That should be easy, as I represent Twickenham, which I hope that most hon. Members will have heard of, so I need not make an extensive Cook's tour of the constituency.
My predecessor, Mr. Jessel, served on the Back Benches for 27 years. It was never entirely clear to his constituents whether that was conscious career planning or merely the result of oversight by a succession of Conservative leaders. Whatever the reason, he applied himself assiduously to the duties of a constituency Member. He worked hard on his constituents' behalf, and many people have spoken warmly of his contribution in solving their individual problems.
Mr. Jessel fought hard on particular constituency issues. Hon. Members of long standing will remember the case of the Kneller Hall Royal Military school of music, which he fought hard to save. It was said in the 1980s that Ministers and officials in the Ministry of Defence were spending more time worrying about the problem of military music than about the future of the North Atlantic Treaty Organisation, largely at his insistence. His campaign was successful, but if officials in the MOD are relieved at his passing, I must tell them that I intend to fight equally hard for that institution and others, if they are threatened by the Government.
I disagreed with almost everything that the hon. Member for Hackney, North and Stoke Newington (Ms Abbott) said, but she deserves credit for having brought an important issue—probably the most important decision that the Government have yet made—to the attention of the House.
I shall briefly rehearse the central arguments why central bank independence is important and why so many Governments have followed that policy. The first is the need for an institution that is clearly and unambiguously committed to low and stable inflation. We take low inflation for granted, but we forget the corrosive effect of cumulatively high rates of inflation.
If I can revert briefly to the game with the round ball rather than the oval one, back in 1966, German football supporters visiting this country for the world cup required DM12 for every £l. Those who came back last year for the European cup required less than DM3, despite some appreciation of the pound in previous months. That is a measure of the experience of monetary incontinence under Governments of both major parties.
Inflation is a corrosive phenomenon that has continually undermined the competitiveness of British industry and has required endless and often humiliating devaluations to recoup the loss of competitiveness. I have never understood why people on the left feel that inflation is unimportant, because all the evidence suggests that the main victims of inflation are the poor. They do not have the resources or capacity to hedge against inflation, they do not have people to bargain on their behalf and they suffer more than anyone else.
That is not only a British experience: the countries of south America, such as Argentina and Brazil, that have reverted from high inflation to low inflation with the help of independent banks had previously suffered high levels of inequality produced by inflation. It is now universally accepted, in Europe and the Anglo-Saxon world, including New Zealand and the United States, and in south America and Russia, that Governments need a bulwark against inflation. Independent central banks provide that.
The reason why it is important for central banks not to suffer day-to-day political intervention is that it is difficult for such intervention to be successful, because of the long lags in economic policy. It is usually necessary to raise interest rates long before inflation appears. We know that politicians can be courageous in making difficult decisions about monetary austerity. Lord Jenkins and Lord Healey have, in the past, forced through many painful decisions to bring down inflation, but they always acted too late. They—or, rather, their predecessors—should have acted in advance of inflation appearing. That is what a technically based, independent central bank can do.
The second basic reason why independence is important relates to interest rates. We know from long experience that markets always discount inflation. Long-term interest rates in Britain are consistently higher than those in other European countries, notably in Germany, and people pay a price for that. Companies pay a higher price for long-term capital. Individuals suffer, and the national debt is inflated unnecessarily by high interest rates. An independent central bank should get those down, as we saw from the market reaction to the Chancellor's announcement a few weeks ago.
We need to achieve a climate of long-termism in British industry. I am sure that that is an issue that is close to the heart of the Minister who will reply to the debate. It is important.
I have left British industry from a company that engaged in 25-year planning. Industry often has a long-term outlook, but I was fortunate to work for a company, Shell, that was in a strong financial position, with very little debt, and that was internationally diversified so that it did not have to worry about exchange rate fluctuations. However, British companies that are highly dependent on bank debt and the value of sterling can be destabilised by erratic monetary policy. British industry's outlook has been so short-term because of the way that monetary policy has been conducted. It is not in the nature of capitalism to be short-term: it is the way that our policy has been conducted.
Independent central banks have a general problem with accountability, which was the core of the argument by the hon. Member for Hackney, North and Stoke Newington. How do Governments ensure democratic control over one of the core elements of economic policy? That is a genuine dilemma, and different countries have struggled with it in different ways. The analogy I choose is with the military. Clearly, the military have to be under political control, but no Government in their right mind would insist that battlefield commanders should be directed in their tactics in the field. We have to separate broad political control from day-to-day management.
The model that the Government have chosen, which is based on American experience rather than German, is correct, and the Liberal Democrats fully support it. Although we agree with the Government's broad approach and the model that they have chosen, we are critical of some aspects of the Government's approach.
The Government have not consulted much, and the decision was sprung on the country, industry and the City. The decision could have been taken with more consultation. My hon. Friend the Member for Gordon (Mr. Bruce) has shown how that could be done. Some time ago, he prepared a statement of the possibilities for a UK reserve bank. He discussed his proposals with the City and the Governor of the Bank of England, and received feedback. That is the model that the Government should have followed. They will have time to do so when the legislation is considered, but the decision was taken very peremptorily.
Another of my criticisms relates to the way in which the members of what is now called the Interim Monetary Committee are chosen. The people who have been chosen are undoubtedly of high quality, and congratulations are due on that. I can vouch for at least one, who was a predecessor of mine at Shell as chief economist. That person is technically competent and, to the best of my knowledge, politically independent. She is able to draw on the experience of the United States and British industry.
My predecessor, Charles Goodhart and Willem Buiter have high technical standards, but the way they were chosen could be improved. For example, members of the monetary committee could be interviewed by the Treasury Select Committee, as they would be in the United States, their views exposed, and their experiences examined and approved by the House. That would add to the democratic content of accountability.
Another measure that could, and probably should, be taken is to extend the members' periods of office. They are presently vulnerable to political interference. Their contracts will expire before the life of this Government, but extending their contracts to five or six years would give them the necessary security and political independence.
I have another criticism, which is apparently trivial, but has important substance—the name of the Bank of England, which sends the wrong signals. I spent the early part of my political career in Scotland, and I have some sensitivity to the fact that we are a United Kingdom. We are a country of differing regions. Scotland has a different level of house ownership from England, and levels of unemployment differ greatly from one part of the country to another. Those regional experiences should be reflected by the people who make decisions on monetary policy. We would like a regional system of directors, as well as those with outside academic expertise.
The Liberal Democrats strongly support the Government's decision, both its principle and the model that they have chosen. However, it is important to stress that it is a necessary rather than a sufficient condition for good economic policy. If the Government were to allow the Bank of England to operate independently and to pursue an austere approach to the management of money while not disciplining their fiscal policy, we would quickly experience high interest rates, appreciating sterling and considerable damaging side effects. A necessary corollary of the Government's actions on the monetary front is a similar discipline on fiscal policy. We shall see in the Budget whether that commitment is there.
I congratulate my hon. Friend the Member for Hackney, North and Stoke Newington (Ms Abbott) on securing an important debate this morning. I also congratulate the hon. Member for Twickenham (Dr. Cable) on an excellent and well-argued speech. He is an economist by training and, until recently, by occupation, and the House will look forward to hearing more from him in the years ahead.
As my hon. Friend the Member for Hackney, North and Stoke Newington said, few—if any—decisions taken by the Chancellor of the Exchequer have been greeted with quite such acclaim as the decision to hand control of interest rates to the Bank of England. Press comment was enthusiastic. Will Hutton in The Guardian said that it was part of a process of modernising the British state. I noticed that he also said:
Advocate Bank of England independence, and it's never long before
Norman … is being used to scare us witless of the perils and dangers ahead.
As my hon. Friend demonstrated, Will Hutton was at least right about that. The Financial Times described the decision as "unequivocal good news"; The Economist said that it was "welcome and long overdue" and described it as a "political masterstroke".
It is perhaps not surprising that the economic great and good welcomed the decision. However, not only Fleet street journalists were pleased. My hon. Friend the Member for Leigh (Mr. Cunliffe) mentioned industrialists in his area. I have lost count of the number of constituents in East Ham—very close to the constituency of my hon. Friend the Member for Hackney, North and Stoke Newington—who have expressed their delight at the new Government's performance. When I have asked what changes they have been pleased about, most have mentioned the decision on the Bank of England.
The decision has sparked enthusiasm across the country, because the message it sends is completely of a piece with the new Government's approach—characterised by boldness, implementing solutions that work in practice, and rejecting dogma.
The Government want to work in partnership with the nation's institutions, not go to war with them. They are committed to stability in place of the pursuit of short-lived booms that marked the previous Government's period of office. That is the popular view of my right hon. Friend the Chancellor's decision, and one of the key reasons why the immediate euphoria that followed the election has not yet started to recede. As we understand it, we have the most popular Government since polling records began, and this decision and the way in which it was made go a long way to explaining why.
Of course some have criticised the decision—not only my hon. Friend the Member for Hackney, North and Stoke Newington—but nobody should underestimate the importance to the Government of the wave of enthusiasm that we are enjoying, which is due in no small part to the one decision, and how it is helping them to achieve the programme on which we were all elected.
I am an avid reader of Tribune. An article in the current issue written by one of my hon. Friends describes the decision as
delivering policy to the enemy
a gesture which … conciliates only our enemies".
The decision also conciliates many people who are not our enemies; many who wanted a new Labour Government who would be radical and trustworthy, and who feel that that is what they have got. The new Government will not play fast and loose with people's money, and it would be a fatal error to believe that only our enemies would be anxious if it were otherwise.
To be successful, do not the new Government have to consign to the dustbin the idea that large parts of the economy constitute our enemy? Such an idea can only be a recipe for the disastrous and debilitating strife that has so damaged Labour Governments in the past. We would fail if we went down that road again. We are on a different road now, and we shall succeed. We want partnership, not warfare. That is another reason why the nation is in such good heart.
The Commission on Public Policy and British Business, whose report "Promoting Prosperity: A Business Agenda for Britain" so enraged the then Deputy Prime Minister when it was launched in January, devotes one of its 10 chapters to macro-economic stability, which it describes as
probably the most important aspect of the economic framework for most companies".
The article in the Tribune said that "stability is dead easy". Perhaps it is, but the previous Government conspicuously failed to achieve it, and the consequences were catastrophic: two disastrous recessions, consistently higher levels of inflation than our competitors. The pound in 1979 would be worth only 37p today. As the report on promoting prosperity pointed out, inflation has been not only high but, almost as bad, much more volatile than elsewhere. All that explains why we have been so conspicuously unsuccessful in attracting the investment we need for our factories, infrastructure and public services.
The view that an omnipotent Chancellor could outplay the markets and, through fancy footwork on interest rates, produce consistently better results for the economy than the Bank of England, has surely been absolutely
discredited by history. What examples back that up? In her excellent speech—I pay tribute to her very effective work on the Treasury Committee over a long period—my hon. Friend the Member for Hackney, North and Stoke Newington pointed to the previous Chancellor. What is his legacy?
London homes in biggest price rise for ten years
said the Evening Standard on 11 April.
Gazumping is back and estate agents are driving Porsches again
said the same newspaper last week.
We all know where that is leading, because we have been there before: boom and bust. We do not need that; we need stability instead. That is why the Commission on Public Policy and British Business proposed that the Government should
give independence to the Bank of England to achieve the target through the control of interest rates"—
quite rightly making the point that the dangers of instability are particularly acute for a Labour Chancellor.
Instability has crippled Labour Governments in the past, so that all their energy has been consumed in fighting one economic crisis after another. This Labour Government will be different. They will be able to concentrate on delivering our programme—the reason why we were elected—of putting young people back to work, and tackling the scourge of long-term unemployment head on.
On a practical level, my right hon. Friend the Chancellor's decision has brought us an immediate windfall, with long-term interest rates down by half of 1 per cent. in May compared with April, when, in Germany and the USA, they fell by only one tenth of 1 per cent. That is the kind of improvement in our performance that, when pursued consistently, systematically and with determination, can transform the prospects of our economy, of securing the investment that we need and of our constituents in Hackney, East Ham and across the country.
My right hon. Friend the Chancellor's decision on the new role of the Bank of England has set the economy on a new track for stability. On both sides of the House, as already throughout Britain, that should be welcomed and applauded.
I am grateful for the opportunity to make my maiden speech. The House may be pleased to note that I did my apprenticeship on Monday, when I sat in the Chamber for six hours without being called. I had plenty of exercise jumping up and down.
This is a proud moment for me, and I thank the people of Hove and Portslade for giving me the great opportunity to serve as the town's first ever Labour Member of Parliament. I think that I am right in saying that, since the seat of Hove was created in 1950, I am the first new Member of Parliament to be elected at a general election rather than a by-election.
I thank my predecessor, Sir Timothy Sainsbury, for his hard work on behalf of people in my constituency. There is a remarkable coincidence concerning myself and Sir Tim—and it is not that we are both grocers. He was elected on 8 November 1973 in a by-election following the unexpected death of Martin Maddan. At that by-election, the Liberal candidate was Des Wilson, who may be known to some hon. Members. The coincidence is that 8 November 1973 was my 15th birthday, which gives away my age.
After his retirement from the House, Sir Tim made a significant private donation to Hove museum, which will allow a collection of rare films to be made available to local people. In 1896, Hove was the birthplace of modern cinema, and the collection will be significant for the museum. Before Sir Tim's election, he had a career with a well-known supermarket. During his parliamentary career, he worked in many Departments. Indeed, I believe that he went on to deputise for the right hon. Member for Henley (Mr. Heseltine) during his illness. I place on record my thanks to Sir Tim Sainsbury.
My constituency epitomises the dramatic political change that has taken place. Such change occurred nowhere more so than in the south-east, where the economic and political complacency of the previous Government, coupled with new Labour's positive promise of new politics and a new start, had an enormous impact. I won in Hove because of the dramatic failure of the previous Government to deliver their promises on tax, crime and the economy. But the first sign of things to come was when Labour won the local elections in Hove in 1995. That election was significant, because it gave Hove and Portslade residents a new Labour council which had a two-year opportunity to prove that Labour could deliver what it promised. I was delighted to be the leader of that council until it merged with Brighton on 1 April 1997.
During those two years, we put in place plans to rehouse the residents of a decaying block of flats called Portland Gate. In partnership with others, we produced a new scheme for community housing in its place. The Minister of State, Departments of the Environment, Transport and the Regions, my hon. Friend the Member for North-West Durham (Ms Armstrong) helped me to start the demolition of Portland Gate recently, thus beginning a new era for social housing in that part of my constituency.
During the council's short term of office, we also cut the price of bus passes for Hove pensioners, as we pledged we would. My council was supportive of those pensioners, and they welcomed that support only to find that they then had to pay VAT on their heating and for cooking. That is a matter to which the pensioners in my constituency objected strongly, and they voted accordingly on 1 May.
Hove is a very special place, in which I live and have lived all my life. At the election, I pledged to continue to live in the constituency with my family, and that is what I intend to do.
Hove could be described as a good-looking town, with some fine buildings and open spaces. Indeed, I am sure that, were she in the Chair, Madam Speaker would agree, because she visited the town in the summer to commemorate one of our famous residents, the suffragette Victoria Liddiard. In Hove and Portslade, we also have many good businesses and local employers. It is also a commuter town, with many people, like me, travelling up and down to London each day.
Behind that facade, however, Hove suffers from high youth unemployment, and it has an elderly population who need to be supported. We also have our share of low-paid and low-skilled jobs. I am pleased that the new council is working hard in partnership with business to attract new employers to the area.
Although I am the Member for Hove, colleagues may have noticed that I have referred occasionally to my constituency as Hove and Portslade. Portslade is a unique area of my constituency, with an attractive village centre and a thriving street of shops. At the sea end lies the entrance to Shoreham port, the scene of angry protests just two years ago when the port took the ill-advised decision to export live animals.
Under the Labour Government, I look forward to working with our European partners to stamp out that cruel practice. I and my constituents are pleased to note that the strong leadership that Britain needs to show in Europe is already evident from the work of my right hon. Friend the Prime Minister and the Foreign Secretary.
I should like to follow the new convention apparent in other maiden speeches by mentioning the constituency football team. I have supported Brighton and Hove Albion since I was a boy. Many hon. Members may be aware of the problems that the club has faced and is still facing, largely as a result of the actions of the previous owner, Mr. Bill Archer, and his chief executive and a former Member, David Bellotti. Having said that, I offer my commiserations to the hon. Member for Hereford (Mr. Keetch), because our final day draw meant that the Albion stayed in the football league at Hereford's expense. If I were asked to choose between the last 20 minutes of that game and the tension of election night, there would be no contest.
I thank my hon. Friend the Member for Hackney, North and Stoke Newington (Ms Abbott) for initiating this morning's debate. Before 1 May, I had worked in the private sector for nearly 20 years. Indeed, for all that time I was employed by a financial services company, so I would like to think that I am able to say what businesses would like from Government to help them in their endeavours.
The most important factor for any business, large or small, is stability. I support without reservation the decision of my right hon. Friend the Chancellor of the Exchequer. I know from my postbag that many businesses in my constituency are solidly behind his decision. In my view, it will stop politicians such as the former Chancellor cutting interest rates just before a party conference so that he could go on stage to brag, and then putting them back up according to political whim. That is why the Bank of England's independence to set interest rates is important.
That decision has generated confidence in the business community. We have already noted in the six weeks since polling day that if there is confidence and stability, the market grows. That has happened because new Labour has shown that we can run the economy in the long term for all the people.
As my hon. Friend the Member for East Ham (Mr. Timms) said, a new mood is sweeping the country. I congratulate my right hon. Friend the Chancellor and his colleagues at the Treasury on helping to create that mood by their decision to give the Bank of England the freedom to set interest rates. History will show that that decision was widely supported.
I should like to thank you, Mr. Deputy Speaker, for the opportunity to make my maiden speech. As one of my hon. Friends said to me yesterday, I now feel like a real Member of Parliament.
I should also like to congratulate my hon. Friend the Member for Hackney, North and Stoke Newington (Ms Abbott) on her courage to stand up against the latest fashion or fetish to hand power over monetary policy to the Bank of England. I also congratulate the hon. Member for Twickenham (Dr. Cable) and my hon. Friend the Member for Hove (Mr. Caplin) on their excellent maiden speeches. Their predecessors will be remembered with affection by colleagues on both sides of the House. Those of us who have been in the House for some time knew them both, and will remember them with such affection.
I admire the confidence with which those maiden speakers contributed to a debate on a rather arcane and complicated subject. In particular, I admire the certainty, I will not say absolutism, of the hon. Member for Twickenham. He offered us a clear exposition of how central bank independence would solve so many of our problems. At the end of his speech, however, a note of doubt crept in. Perhaps when he was a high-powered executive with Shell he was not allowed to show such a feeling, but now we are in the business of politics. That doubt stemmed from his belief that the Government's decision was a necessary but not a sufficient condition of economic policy.
I note my hon. Friend's comment.
The hon. Member for Twickenham then asked about fiscal policy, responsibility for which is still left with politicians, whom we cannot trust. What really concerned me was the implication in his speech that my right hon. Friend the Chancellor will play fast and loose with the country's money.
That is not a good message to send out. It appears to say," I, the Chancellor, am not a man you can trust. You have just elected me, but you cannot trust me with your money. I may be the Chancellor, but I will do terrible things to your interest rates. I will play fast and loose with your money. You will still allow me to increase taxes, or not, as the case might be. You have still put me in charge of public expenditure, but presumably I'm not to be trusted with that, either."
That is a quite extraordinary message for us politicians to send out. The idea is that, when it comes to the Bank of England and other quangoes, we politicians can no longer be trusted. Because of that, we must transfer power to the Bank of England. Then we wonder why the public do not trust us very much and feel alienated from us. But if we tell them that they cannot trust us with their money, of all things, we cannot expect them to take us seriously.
I was saddened by the hon. Gentleman's implication about the Chancellor, whom I have known for a long time. I have a high regard for him and I would trust him with my money, but, apparently, colleagues on both sides of the House are not prepared to do so.
As I have said, the hon. Member for Twickenham referred to my right hon. Friend's decision as a necessary but not sufficient condition of economic policy. The Government still have power over fiscal budgetary policy. The hon. Gentleman said that we had to be careful to do something about that to stop those terrible bankers putting interest rates too high.
It is no good for the hon. Gentleman denying it, because that is exactly what he said. If interest rates are set too high, the value of the pound might go up. The hon. Gentleman may say that that is right, but I understood from reading Mr. Gavyn Davies and other people who write in the newspapers that the sole criterion for fixing interest rates would be domestic. I understood that the sole criterion would be hitting the inflation target—it is an odd sort of target of "2.5 per cent. or less", and I am not sure how one hits a target that is not precise, but there we are. Perhaps we shall be told about such things when my right hon. Friend the Chancellor of the Exchequer makes a speech at the Mansion House or somewhere.
We were told that we could not have bankers putting up interest rates too much, as that would affect the pound. That is totally irrelevant, as we have now given them independence. We are now saying, "Let us use budgetary policy and put up taxes, so that we can stop the bankers putting up interest rates." But this morning, hon. Members have said what a marvellous thing it is to split monetary policy from fiscal policy.
I am not an economist, and I cannot understand those long equations that always end in zero, but I can see that the United States of America has a splendid Federal Bank, and a high budget deficit. It has been struggling to reduce it ever since President Reagan was in office. Germany has a very high budget deficit.
My hon. Friend says that that is because of east Germany, and it probably is. But I have it on respected academic authority that there is considerable instability in the bond markets in the world. One reason, it is said—neither I nor anyone else can prove it—is that, over the past 10 or 15 years, we have begun to separate budgetary policy from fiscal policy. As a result, Governments will reflate the economy; because they cannot now touch interest rates, they will achieve the aim in a different way. The argument is not one-sided.
I do not believe that we should be slaves to every jot and comma in our manifesto—apparently that is the latest fashion these days, but I do not believe it. Obviously, economic crises arise and action has to be taken, but in this case there could have been consultation.
I shall give way in a moment.
The manifesto made it quite clear that we were to reform the Bank of England to create a monetary committee. I agree with that—the advice from the Governor always tended to be too narrowly based. We said the same thing in the business manifesto, which is important. It states:
We propose a new monetary policy committee"—
that is quite right—
to decide on the advice which the Bank of England should give to the chancellor.
It did not mention the other policy, and no form of casuistry or sophistry from the Treasury Bench can explain that away.
I have a little question to ask my hon. Friend the Economic Secretary. I am just a pedantic lawyer, but I should like to know on what authority the monetary committee of the Bank of England made its decision on interest rates last week. It decided to put them up, but that is irrelevant. The Queen's Speech states:
a Bill will be introduced to give the Bank of England operational responsibility for setting interest rates".
The Bill has not arrived yet, and I have tabled a question asking when it will. I have received no answer.
I then tabled a question asking on what authority the grand people—the brilliant economists—decided to put up people's interest rates by a quarter of 1 per cent. I thought that I might get an answer from my hon. Friend the Economic Secretary, but I did not. She merely answered:
Operational responsibility for setting official interest rates has been transferred to the Bank of England."—[Official Report, 10 June 1997; Vol. 295, c. 395.]
I know that. I was asking what the authority was.
We were told in the Queen's Speech that there would be a Bill—presumably it was thought at the time that a Bill was necessary—to transfer operational responsibility. I was a bit surprised, as I thought that, under the Bank of England Act 1946—the terrible nationalisation Act under which directives could be issued—a letter to the Governor telling him what he could do would have been sufficient. Perhaps I was wrong.
I know that this is a small, pedantic, legal point, but I hope that my hon. Friend can tell us on what authority those people in the Bank of England are deciding the interest rates that I would have to pay if I had an overdraft and that companies in my constituency are having to pay. Why has the Bill not been introduced? Is there a formal document? Has a letter been sent out, or what? I should like an answer.
Many people may be surprised to see me here today giving my maiden speech—none more so than David Congdon, my predecessor, who served for 16 years on Croydon council and was its deputy leader. I have served for 11 years on Croydon council and entered Parliament as its leader. Therefore, David Congdon and I are old sparring partners. I remember with fond affection looking across the chamber at him while making my contribution, and him shouting, "Rubbish" at me. Beyond the heat of political exchange, David Congdon is a mild-mannered person of considerable ability, devoted to the good of the town. I have no hesitation in stating my appreciation of him for his long record of service to the town.
Croydon—and Croydon, Central, which I represent—is more than just a town. It is an emerging European city that commands one fifth of the capital's economy, and the largest London borough. As leader of the council, I participated in the formation of a partnership that put Croydon at the centre of business investment in the south-east. The council has inspired the new tram link that will be London's flagship for environmentally friendly transport systems. It has brought about a renaissance in culture in the south of London—in terms of the new Warehouse theatre, the Fairfield halls redevelopment, and a planned new venue in east Croydon that we see as an international business and music centre for the south of London.
However, what makes Croydon Croydon is the rich diversity of people in it. I am a case in point: some hon. Members may be saying, "Who is this bloke? He is a Welshman in exile." But I am the second Geraint to represent Croydon. The first, Geraint Williams, represented Croydon for 17 years. Recent representatives of Croydon, from my hon. Friend the Member for Walsall, North (Mr. Winnick) to Lord Bernard Weatherill, have all understood the importance of supporting the rich tapestry of cultures in Croydon.
The constituency has about 80,000 electors, and extends from the north, from south Norwood, down through the Manhattan skyline of Croydon, to New Addington—I have been proud to represent that unique community for 11 years. The people of Croydon and New Addington are looking towards the new Government, not just to provide safer streets, smaller class sizes and a greater London authority, but to deliver prosperity and jobs for the future.
The ingredients for that success include the empowerment of the individual through training and education, partnership with industry and taking a leading approach in the future of our Europe. We must not lose sovereignty in the name of defending it; instead, we must robustly champion Britain's interests in a new Europe. That means putting jobs—whether in terms of youth employment, the long-term unemployed, small businesses or cutting bureaucracy—at the top of the agenda. It is about getting Europe back to work.
Central to that aim is the creation of conditions for long-term investment in Britain. That means that we need an environment in which short-term interest rates are not set according to political considerations, but in the best interests of our economy.
My right hon. Friend the Chancellor's decision to delegate operational responsibility for setting interest rates was a master stroke, which delivered overnight a reduction in the long-term borrowing costs of British industry. It was a master stroke which brought about a system of accountability enabling my right hon. Friend the Chancellor to intervene in a crisis. He will not intervene before polling day in order to keep interest rates artificially low—which we have seen—but will use the policy to enable us to pursue our long-term interests.
Some hon. Members may say, "What about Eddie George—he has just put up interest rates by another quarter per cent?"; but we have just seen £28 billion of consumer spending pushed into the economy through the flotation of building societies—that amount was forecast as £21 billion in February. At a time when the housing market is also taking off, that marginal increase was inevitable, irrespective of who was in charge.
As for exchange rates, the key to maintaining stable exchange rates for the future is low inflation, and the key to that is proper independent management of interest rates. The long-term borrowing rates are down, even though the short-term rates have gone up, which shows that what has been done is correct.
Others have said that, having got into power, we have given away power to the Bank of England. In reality, there is a system of accountability; in addition, responsibility for the supervision of high street banks has been taken away from the Bank of England and given to the Securities and Investments Board. Taken together, therefore, the reforms narrow the responsibility of the Bank of England to manage monetary policy.
Some have asked, what about consultation? In reality, long periods of consultation and uncertainty would have whipped up the money markets, which would have sent up interest rates and resulted in lower investment and higher mortgage rates. It would have been an irresponsible thing to do. My right hon. Friend the Chancellor has made the right decision, with great courage. His decision allows us to set interest rates within the wider objectives of inflation and economic growth, and, in so doing, avoid creating damaging short-term swings in interest rates and investment.
The reform is an example of best practice taken from across the globe. We have replaced a system which places a risk premium on British jobs with one that is in the British interest—the economic gain is clear. Some say that the Chancellor's range of choices has been reduced, but the choices would have been made in any case—it was only a matter of timing. More fundamentally, the operational response of the Bank in setting interest rates is, of course, framed by the inflation bandings laid down by the Chancellor. Those, in turn, are set by our manifesto objectives of high and stable levels of economic growth and employment.
The reform is not about losing control; it is about creating the conditions to succeed in jobs, prosperity and growth. It is great news for Britain and for Croydon. I am proud to make my maiden speech today, and doubly proud because, in Labour's first month of government, my wife has given birth to our second daughter. It is time for a change, and I do not mean only of nappies. It is time for a new Britain, in a new Europe, in a new millennium.
This has been an extremely interesting debate, and one of the few opportunities we have had since the new Government took office to probe and question an important and fundamental change in the way in which economic policy is to be set in the United Kingdom. To that end, I welcome the new Economic Secretary to the Dispatch Box, and I wish her well at the Treasury.
I congratulate the hon. Members for Twickenham (Dr. Cable), for Hove (Mr. Caplin) and for Croydon, Central (Mr. Davies) on their maiden speeches. The hon. Member for Croydon, Central showed that he will be a real asset to the Labour Whips, because he performed well in a short time, and sat down when required. He will be doing a lot of that in future. I was also grateful to all three new Members for their kind words about my former colleagues, Toby Jesse', Tim Sainsbury and David Congdon, who will appreciate the remarks of their successors.
I also congratulate the hon. Member for Hackney, North and Stoke Newington (Ms Abbott) on having maintained her reputation for robustness and independence of thinking by challenging, in a wholly un-Mandelsonlike way, the accepted treatise followed by the Labour party. She must have read the article by Anatole Kaletsky in The Times, published shortly after the announcement was made. The headline was "A steel cage for the Iron Chancellor" and it said:
Brown is throwing away the key to policy".
I remember the hon. Member for Bolsover (Mr. Skinner) saying that Labour had waited 18 years to get control, but was now giving it all away. We have often seen in the new Government's policies the Pontius Pilate approach to politics—"Not me, guy. I'll give the decision to somebody else." The hon. Lady carefully probed the question of accountability.
I am lucky enough to be a former Treasury Minister and one who has sat where decisions on monetary policy are made, so I am one of the few people who can comment with a degree of authority on the former system, which led my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) to deliver this country's best inflation record for 50 years. The hon. Member for Hackney, North and Stoke Newington was kind to record my right hon. and learned Friend's achievements in that respect, and in those remarks she got to the heart of the matter.
The heart of the matter when setting interest rates—whether they are set by the Bank of England or any other body—is the degree of judgment that can be exercised in determining the decisions. The hon. Lady put her finger on it, saying that, when my right hon. and learned Friend had to make a decision of his own volition, he had to—in the nicest sense—out-guess the experts; and he got it right. No one group of people has a monopoly on wisdom and knowledge. Setting interest rate objectives requires feel, touch and sensitivity.
I asked the Economic Secretary to use her Treasury model and expertise to work out, given current levels of economic activity, what levels of interest rates would be required to achieve a series of parameters. Her response was remarkable, given the degree of expertise that still—believe it or not—abounds in the Treasury. She wrote:
it is not possible to be sure about the precise level of interest rates required to hit an exact inflation rate ten months ahead."—[Official Report, 3 June 1997; Vol. 295, c. 147.]
I agree that it is difficult, as is any element of economic forecasting; but the old scheme, whereby we had a mixture of politics, with its degree of flexibility, married with the comment and detail from the experts from the Bank of England and the world of commerce—no Treasury Minister, Bank of England or monetary committee is ever short of advice on what to do about interest rates; it comes in by the bucket load—meant that the feel and touch of a real human being, a politician who could sense factors that experts do not, made an important difference.
One of the sacrifices made by taking the present route is that interest rates will be set at a higher level than would otherwise be the case, because the Bank of England has to hit an inflationary target. In parliamentary questions, I probed the matter of the period over which the Bank was supposed to hit the target, what sanctions would be imposed if it did not do so, and how the Bank would be made accountable; however, I got no answers other than, "Watch this space for the Mansion House speech."
I hope that the Economic Secretary will convey to the Chancellor the message that we will watch that speech very carefully, because we want to see some numbers. So far, all we have had is great headlines and lots of chat, but no facts and figures.
I asked the Economic Secretary about the time scale over which the Bank of England would be required to achieve the new inflation target, and was told:
The Chancellor will set out the Government's approach to monetary policy in his Mansion House speech".—[Official Report, 4 June 1997; Vol. 295, c. 181.]
When I asked about the definitions of various elements of price stability, growth and so on, I was told that the Government would not set growth or employment targets. How are we to judge the setting of the inflation target? On what basis will that be done?
I challenge the Minister to put into the public domain her Department's monthly monetary forecast—or perhaps even that has been done away with. That was a jolly good Treasury document, which gave a really good assessment and enabled us to understand how the inflation target was to be set. The Government believe in openness, but there must be openness on both sides; it is no use having only the minutes from the newly independent Bank of England to look at—we want to know the Treasury's view, because it is also part of the monitoring process.
When I asked about how the Chancellor would resolve any difference of opinion between the Governor and Chancellor on the Government's objectives for growth and employment—both unspecified—and the achievement of price stability, I was again told, "Watch this space for the Mansion House speech." It will have to be a hell of a speech if it is to answer all those questions.
How are such differences to be resolved? In his article, Kaletsky asks:
what will happen when the Bank and the Government start to disagree about where the economy should be going?
It is all very well having that wonderful independence in the good times, but what will happen in the bad times? We have seen Germany, with its independent bank, trying to deal with the German economy and the strictures of inflation getting in the way of the sound of the unemployed crying for the economy to be expanded. We have yet to test the difficult decisions resulting from having an independent Bank of England.
When I asked how we will identify the numerical targets of the Government's economic policies, so that we can monitor what is happening, the reply again referred me to the Mansion House speech. When I asked how differences were to be resolved, I was given a restatement of what was in the Chancellor's statement to the House of Commons on 20 May.
We are owed much more information about how, for example, the inflation target is to be set. If the Chancellor of the day wants to manipulate the Bank of England—for all its independence—he can choose a lax inflation target and so give us low interest rates.
We have heard nothing from the Chancellor about what he thinks will be the potential for inflation in the British economy. Does he think it could be 2.3 per cent? Could it be 2.2 per cent? That will have a profound effect on what the Bank of England will do when setting future interest rates. We need to know the basis for those decisions, so that we can judge how well the Bank, in its new way of working, is doing.
On another occasion, I was told that the Government would retain the right to override the Bank's operational independence in extreme circumstances, for a limited period only. What on earth does that mean? I was told that further details would be made available when the draft Bill was introduced in the House. We have searched, but no answers are forthcoming.
There are a great number of unanswered questions about how the whole operation will be run. The Opposition will carefully probe those issues. I hope that the Chancellor's Mansion House speech will supply the details that will enable us to understand precisely what is going on in this new world.
I welcome the fact that my hon. Friend the Member for Hackney, North and Stoke Newington (Ms Abbott) was successful in securing this debate on such a significant issue. It is a key element of the Government's tone that we were not prepared to wait to get the grounding for stability into the economy; we wanted to do it as quickly as possible.
The Government recognise my hon. Friend's sterling work on the Treasury Select Committee. She has pursued a distinctive line on central bank independence and we acknowledge her commitment to that. When I was doing some background reading of the Select Committee's reports in preparation for the debate, I noticed that my hon. Friend has very little regard for economists. For example, on one occasion she said:
Economics is a happy hunting ground for charlatans.
As an economist who went into politics, I must be on a downward slide. Perhaps I should assure Arthur Daley that I have no intention of becoming a used car salesman. Perhaps my position is mitigated by the fact that my hon. Friend then said:
This is partly because it is dominated by men.
At least I am off the hook on that count.
We have had an interesting debate, with interesting and commendable maiden speeches from the hon. Member for Twickenham (Dr. Cable) and my hon. Friends the Members for Hove (Mr. Caplin) and for Croydon, Central (Mr. Davies). They were outstanding introductions to the House. As someone who only recently made her own maiden speech, I know what it feels like to stand up and speak in the Chamber for the first time. I had a great sense of déjà vu when the hon. Member for Twickenham spoke, because my formative days in economics were spent in debate with him in Glasgow. Indeed, in those days he had a very different political viewpoint.
Like all my right hon. and hon. Friends, I was delighted by the victories in Hove and in Croydon, Central. I am sure that we all wish to congratulate my hon. Friend the Member for Croydon, Central on the happy event for his family—new Labour, new baby. I am sure that his child will enjoy growing up under a Labour Government.
My hon. Friend the Member for Hackney, North and Stoke Newington referred to universal acclaim for my right hon. Friend the Chancellor's statement. I note the point made by my hon. Friend the Member for East Ham (Mr. Timms), that it was not just universal acclaim from the City and the financial institutions, but universal acclaim from the people. As recently as Saturday, at Shotts highland games—hardly the usual scenario for talking about monetary policy—I was assailed by people wanting to congratulate the Government on their decision on the Bank of England.
My hon. Friend the Member for Hackney, North and Stoke Newington made a number of points about the statistical background to the concept that a central independent bank and low levels of inflation are related. She mentioned the issue of causation. It is always difficult conclusively to prove cause and effect. However, there are a number of recent examples, such as New Zealand, where countries with a history of high inflation have moved to a central independent bank and benefited from a consequent fall in inflation. We must bear such important elements in mind.
A number of hon. Members said that setting and maintaining low levels of inflation is important for the economy, as well as for individual households. As a Labour Member, I am conscious that, as my hon. Friend the Member for East Ham said, it is the poorest in society who suffer from high inflation. A considerable amount of academic work has been done since the Treasury Select Committee report on an independent central bank. There is considerable evidence of a relationship between an independent central bank and low inflation.
My hon. Friend the Member for Hackney, North and Stoke Newington and the right hon. Member for Fylde (Mr. Jack) referred to removing political judgment from the setting of monetary policy. That is precisely what it is all about. My hon. Friend the Member for East Ham said that, under the previous Government, there were repeated beauty parades, with the then Chancellor setting an interest rate immediately before the Conservative party conference, getting a standing ovation, and then making another change. That is not sound economics. It will not lead to the stability that is important for long-term growth.
The setting of interest rates is not the only monetary policy lever. To suggest that there is reduced accountability and a removal of the political imperatives to secure growth and to take into account social inclusion, is to fail to understand that the Monetary Policy Committee must operate within the parameters set by the Government's strategy for growth and stability within the economy. That is vital.
The right hon. Member for Fylde deserves sympathy, as not one member of his party has been here to support him—probably because they have other things on their minds. I suspect that the right hon. Gentleman's speech in praise of the former Chancellor is now being distributed. He may be nervous about what position he will be given by whoever emerges as the Conservative party leader.
My right hon. Friend the Chancellor will be making a statement tomorrow night at the Mansion House, and the text will be available before that in the House. The targets for monetary policy will be laid out in my right hon. Friend's speech.
Accountability is important—we recognise the debate to which my hon. Friend the Member for Hackney, North and Stoke Newington and the hon. Member for Twickenham referred. My hon. Friend made some interesting proposals about the role of the Treasury Select Committee, especially in the appointment of members of the Monetary Policy Committee. When my right hon. Friend the Chancellor addressed the House, he made it clear that membership of that committee would be based on the need for recognisable expertise. The appointments that he has made so far have been universally recognised as taking that need into account.
It is, of course, possible for the Select Committee to summon before it not only members of the Monetary Policy Committee, but my right hon. Friend the Chancellor to account for those appointments. My hon. Friend the Member for Hackney, North and Stoke Newington has made suggestions about how the Select Committee might operate in future, and we will carefully consider them. Indeed, my right hon. Friend the Leader of the House is currently examining our procedures, so my hon. Friend the Member for Hackney, North and Stoke Newington might like to make representations to the new Select Committee on the Modernisation of the House of Commons.
My hon. Friend the Member for East Ham referred to Montagu Norman. Indeed, other members also referred to him. To try to compare the current position with that which existed pre-1945 is to ignore completely the fact that much of the economic debate in those days related to the gold standard. The world has moved on, and the climate within which we operate has moved on. We must take into account modern developments in economics, and the experience of best practice in other parts of the world.
My right hon. Friend the Member for Llanelli (Mr. Davies) asked on whose authority the Monetary Policy Committee met last week to set interest rates. It met on the authority of the Chancellor, who made it clear when he announced the changes to the Bank of England that he would expect it, as a signal of the Government's commitment to long-term stability in the economy, to begin its work immediately.
I am sorry. My right hon. Friend will appreciate that I am under time constraints.
In terms of the timing of legislation that will come before the House, the Bank of England Bill is currently in preparation. With a fair wind, we could anticipate it at the end of the summer. I am sure that hon. Members recognise the Government's commitment to governing this country and getting legislation under way as quickly as possible. There are tight time constraints on us in terms of the legislative programme.