Monetary Policy Committee.

Orders of the Day — Bank of England Bill – in the House of Commons at 4:53 pm on 20th April 1998.

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Lords amendment: No. 5, in page 6, line 8, at end insert—

("() Of the four members appointed under subsection (2)(c) one shall be appointed on the advice of the First Minister of the Scottish Executive.")

Photo of Alistair Darling Alistair Darling The Chief Secretary to the Treasury 5:15 pm, 20th April 1998

I beg to move, That this House doth disagree with the Lords in the said amendment.

The Bill sets up the Monetary Policy Committee, whose job it is to set interest rates in order to meet the Government's inflation target. It is worth noting that our long-term interest rates are the lowest that they have been for some 33 years.

During the Bill's passage through the other place, an amendment was moved by Lord MacKay of Ardbrecknish to the effect that one of the four members of the Monetary Policy Committee appointed by the Chancellor of the Exchequer should be appointed only after receiving the advice of the First Minister of the Scottish Parliament.

When the Government expressed their intention to set up the Monetary Policy Committee, we said that the members of that committee would be chosen because of their skill, because of their reputation and because of their ability to reach decisions as to the appropriate levels of interest rates for the whole of the United Kingdom.

We recognised that there was anxiety—which has continuedx2014;that the Bank of England should have regard to the, sometimes varying, economic conditions in different parts of the United Kingdom. As I shall explain shortly, we have drawn the Bill in such a way as to ensure that the court of the Bank of England has a specific duty to monitor the way in which the Monetary Policy Committee discharges that duty and, in making our most recent group of appointments to the court, we have responded to many of the legitimate concerns reflected by Lord MacKay and others who spoke in support of his amendment. Indeed, those concerns were acknowledged by Lord McIntosh of Haringey in another place.

I have taken the trouble of reading what Lord MacKay and others said. Some of the arguments were advanced tongue in cheek, and the Government defeat by a majority in the other place was something of a tea-time raid. Interestingly, the Conservatives in the House of Commons, and presumably the nationalists—I see one member of the Scottish National party in his place—are jumping on a bandwagon being pushed by an odd group of Conservatives and hereditary peers, who, as I understand it, oppose the Monetary Policy Committee in principle.

I am bound to say, with due respect to Lord MacKay, that, excellent man though he is, I do not recall that, when he was a member of the previous Government, he ever advanced the view that conditions in Scotland were different from those anywhere else in the United Kingdom, and that any regard should be had to what Scots opinion might be on that or any other issue. However, I recognise that politics is what it is; the Conservative hereditary peers took the opportunity to put one over on the Government. I do not think that the arguments that they advanced for the amendment have any merit whatever.

Photo of Nick Gibb Nick Gibb Conservative, Bognor Regis and Littlehampton

The right hon. Gentleman has said that the Government defeat was the result of Conservative hereditary peers voting against them, but the actual results—93 contents against 90 not contents—show that the Government lost by only 3 votes. As The Times said today, the laziness of the working peers appointed by the Labour party was responsible for the Government's defeat.

Photo of Alistair Darling Alistair Darling The Chief Secretary to the Treasury

I dare say that in we shall soon have plenty of time to debate the workings of the other place. The fact remains that more than half of those who voted against the Government were hereditary peers. On practically every occasion when the Government have been defeated in the other place, it has happened only because of the voting strength of the hereditary peers—who tend to support the Conservative party.

The scheme of devolution that we have proposed and that will result in a Scottish Parliament proceeds on the principle that power will be devolved unless it can be more effectively discharged by the United Kingdom Parliament. Economic matters, particularly monetary policy, are not devolved, for the simple reason that there is only one currency in the United Kingdom, and it is difficult to see how monetary policy could be conducted on anything other than a UK-wide basis.

Although there are undoubted regional variations in economic performance, the fact is that it would be very difficult to operate monetary policy in any other way. That is why economic matters and monetary policy have not been devolved. Scotland will remain part of the UK. We do not propose a separatist solution, or a federalist solution of the type that the Liberal Democrats would like at some stage.

We believe that the monetary policy committee must reach its policy decisions having regard to what is good for the whole of the UK economy. Indeed, it would be very difficult to do otherwise. Economic conditions in different parts of Scotland differ greatly. There is evidence of significant overheating in the Edinburgh housing market, but the same cannot be said of Wick. Economic conditions are also quite different in Edinburgh and Glasgow, only 40 miles apart.

Photo of Alistair Darling Alistair Darling The Chief Secretary to the Treasury

Clearly the hon. Gentleman anticipates that my arguments will not agree with his view—which is that Scotland is completely different from England, and that economic conditions everywhere in Scotland are exactly the same. That view of the modern economy is economically illiterate.

Photo of John Swinney John Swinney Scottish National Party, North Tayside

The Chief Secretary is entitled to his definition of economic illiteracy. Does he accept that interest rate policy in the United Kingdom should be influenced by the fact that house prices in the south of England have in the past 12 months increased by more than 12 per cent., while in Scotland they have fallen by 1 per cent? Should that not have some bearing on any decisions taken by the Monetary Policy Committee?

Photo of Alistair Darling Alistair Darling The Chief Secretary to the Treasury

I can speak with some feeling when I tell the hon. Gentleman that that is certainly not true of Edinburgh, where house prices are rising dramatically.

I recognise that the hon. Gentleman's constituency is not the same as Edinburgh; nor is the constituency of his hon. Friend the Member for Angus (Mr. Welsh), who has just joined us. While there is undoubtedly pressure on house prices in the south-east of England, the same cannot be said of parts of the north-east of England. The point is that inflationary pressures are, and will be, different in different parts of the UK, but it is necessary to take an overall view. Not even the nationalists would argue for a different monetary policy for each county or district. Interest rates need to be set to achieve inflation targets for the whole of the United Kingdom.

I remind the hon. Member for North Tayside (Mr. Swinney) that his party is in favour of Scotland, or the United Kingdom, joining the European single currency. Interest rates will then have to be set for the whole of Europe, never mind the United Kingdom. It is therefore somewhat inconsistent to maintain that Scotland should opt out.

In any case, that is not what the amendment would do. It acknowledges that there is concern, and that the Monetary Policy Committee should have regard to the differing economic conditions in different parts of the country, but we had anticipated that. Under the old system, the criticism was that the Bank of England sometimes gave the impression that it did not acknowledge the problems experienced by different parts of the UK.

That is why the Bill makes it clear that one of the duties of the reformed court of the Bank of England will be to keep under review the way in which the Monetary Policy Committee reaches its decisions and collects the regional, sectoral and other information on which it is necessary to base them. Clause 16 lays that down; I am sure that if hon. Members have not read it, they will do so now. The Lords amendment is not necessary, because of the safeguard that we have inserted in the Bill.

We said before the election that we thought that the court ought to be more reflective of the differing interests of the whole of the UK. We made the latest group of appointments in February; hon. Members will be aware that, for the first time ever, there are now individuals on the court representing interests in Scotland, Wales and Northern Ireland. Jim Stretton, chief executive of the Standard Life assurance company and well respected in Scotland, has been put on the board. In anticipation of his appointment, he has already taken steps to ensure that conditions in Scotland are made known to the Monetary Policy Committee and to other members of the court.

Graham Hawker, chief executive of Hyder, has also been put on the court. He has been a director of Welsh Water for more than a year, and is well known in Wales. We have also appointed Roy Bailie from Northern Ireland, who is not only a former chairman of the Northern Ireland tourist board but was chairman of the CBI in Northern Ireland between 1992 and 1994. Another appointment is Bill Morris of the Transport and General Workers Union—unlike the former Government, we have no aversion to including people from the trade union movement on the court of the Bank of England. He will lend his experience, and that of people involved in manufacturing industry, to the process. There is also Sheila McKechnie from the Consumers Association.

All those people are examples of the Government's willingness to broaden the base of the court of the Bank of England. As we make further appointments over the next few years, we shall ensure that the court has a wide base throughout the whole country. Under the terms of clause 16, the Monetary Policy Committee will thus be enabled to reach decisions that will be good for the whole UK.

The Lords amendment was an attempt to make mischief. Their Lordships are of course entitled to take advantage of their opportunities. The matter was never raised in Committee or on Report, which suggests that Opposition Members did not feel strongly about it at the time.

Above all, the amendment is not necessary. The Chancellor of the Exchequer appoints members of the Monetary Policy Committee on the basis of what he believes best for the whole of the country, not just one part of it. The reforms that we have made to the court, and the people whom we have put on it, will ensure that the interests of Scotland and other parts of the UK are taken into account. The amendment should be rejected. It was an unnecessary bit of mischief making, which adds nothing to the Bill.

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

Although the amendment comes from another place, it fits well with the concerns expressed about the Bill in the House and in Standing Committee, and particularly with worries expressed on both sides of the House on occasion about the powers and composition of the Monetary Policy Committee. The Chief Secretary has just reminded us that the court of directors of the Bank of England is drawn from a wide spectrum of experience and backgrounds, but that is not the point.

We are discussing the Monetary Policy Committee, which is the decision-making committee that determines interest rates, and therefore affects mortgage holders, businesses and anyone who borrows or lends money. It affects people and businesses not just directly, but through its effect on the exchange rate and its influence on economic policy generally. The importance of the amendment reflects the central importance of the Monetary Policy Committee.

Anyone who doubts that has only to look at what has been happening in the past few months, when the committee has been setting interest rates. There is an almost even split on the committee between those who want to leave interest rates where they are and those who want to put them up. It has been the job of the Governor of the bank to cast his vote, in those cases against a rise.

5.30 pm

That is not an altogether happy situation. It has not brought certainty and stability, because of the widespread view that another rise in interest rates is inevitable at some point. That is what the markets anticipate, and it has contributed to the strength of sterling and the consequential damage to industry and exporters. The Chancellor of the Exchequer says that the matter is nothing to do with him. He has washed his hands of the whole affair and says that it is now the job of the Monetary Policy Committee.

It is beyond dispute that the committee is extremely important. The issue of who is appointed and how members are appointed is equally important. In Standing Committee and on Report, we examined the case for confirmatory hearings, which would be one way of giving the House and hon. Members an input into appointments to the committee. The idea of confirmatory hearings came from the Treasury Select Committee, which of course has a Labour majority and a Labour Chairman. The House divided on Report on the Committee's suggestion to implement confirmatory hearings, although, mysteriously and regrettably, the Labour members of the Committee, having proposed the amendment, all disappeared when the House divided. We lost the vote, but we won the argument.

Confirmatory hearings would have been a good idea. The powers of patronage enjoyed by the Chancellor of the Exchequer are very great—possibly too great. He directly or indirectly appoints all the members of the Monetary Policy Committee. Not only do the appointments give him that power, but the term of appointment is short. Members are appointed for only three years. In comparison with other central banks, that is a very short term. Members of the Bundesbank are appointed for eight years, and those serving on the Federal Reserve bank of the United States serve for 14 years. That is done deliberately to give them a degree of independence from the Executive, which gives members and their committees credibility in the markets.

The three-year term for which the Chancellor has opted means that committee members can be sacked or reappointed within the term of one Parliament. If they are politically inconvenient or defy the Government's monetary policy, it is possible to get rid of them in short order. That concerned hon. Members on both sides in Committee and on Report. We tackled the issue in various ways. Amendments were moved not just to institute confirmatory hearings in line with the Treasury Select Committee's proposal, but to give members of the committee longer terms of appointment, and to require fuller minutes, which would give the views of the members of the committee to the public and to the markets.

We also thought that the pay of at least some committee members should be related to performance, and we proposed an amendment to require the Monetary Policy Committee to report on any developing split between monetary and fiscal policy, which was rather a perceptive amendment in view of what has happened since then, as there is now a clear divergence between monetary and fiscal policy, which is one reason why interest rates have had to go up five times since the election, with consequential damage—

Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

Order. The right hon. Gentleman is straying outside the precise terms of the Lords amendment before us, which is about Scotland.

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

I never wish to defy you, Mr. Deputy Speaker, so I shall return briskly to the amendment. I wanted to remind the House of the importance of the Monetary Policy Committee, the way in which it is appointed and who serves on it, and the measures whereby we tried to improve that.

It took the other place successfully to pass an amendment, which was moved by my noble Friend Lord MacKay. The amendment would give the First Minister of the Scottish Executive, when he is in place, the right to advise on one of the external appointments. It arose from what was by any standard a good debate in another place. I was disappointed by the way in which the Chief Secretary dismissed the amendment on the ground that it was simply voted through by hereditary peers. If he studied the debate, as he said he had, he would agree that it was the quality of debate that was important.

The amendment tackles many of the points on which I have been digressing. First, it widens the appointment procedure. By making one of the appointments dependent on the advice of the First Minister, it takes at least some of the monopoly of patronage away from the Chancellor of the Exchequer, although it still gives him considerable latitude. The First Minister might suggest a number of candidates, from whom the Chancellor could choose. In any case, the person appointed in this way to the Monetary Policy Committee is not required to be resident in Scotland or even to be a Scot. It could be someone temporarily working in Scotland with experience elsewhere, or a Scot who might have an appointment or be working in a business south of the border.

The amendment allows complete discretion, but gives another input into the selection procedure. It therefore introduces—this is the second point—an element of devolution. The present appointees on the Monetary Policy Committee come exclusively from the south-east of England, or at least the southern part of the country. They are all splendid people with a great deal of experience. There is no criticism of them but, as has been noted, they all come from a triangle that links Oxford, Cambridge and London. It would strengthen the Monetary Policy Committee and its credibility in the markets if one of its members came from another part of the country or was appointed by someone from another part of the United Kingdom, and had a different perspective on the decisions to be taken.

In resisting the amendment, the Chief Secretary suggested that Scotland would be treated differently from England. That is not the case: it is not the decision that would be devolved to Scotland, but the appointment of one of the people on the committee that takes the decisions. I can think of no better place to devolve that appointment. Scotland is the birthplace of perhaps the greatest ever economist, Adam Smith, and I am sure that there are other people in the present day of similar calibre. Edinburgh has a very large financial sector and its banking system is distinct from that of England.

For those reasons, I believe that the amendment deserves support. Anticipating the Liberal Democrats' contribution, let me say that I cannot support their idea of widening the measure to allow for an appointment from each constituent country of the United Kingdom. I think that the Liberal Democrats wish to see one appointment from Wales, one from Northern Ireland and one from Scotland, which would leave only one appointment from England. That would introduce a wholly unnecessary degree of federalism and is perhaps another example of the Liberal Democrats' adopting someone else's idea and making it unworkable. I note in passing that the idea of a Scottish appointment is supported by the Scottish Trades Union Congress

Photo of Professor Ross Cranston Professor Ross Cranston Labour, Dudley North

If this is such a great idea, why did the right hon. Gentleman not mention it before in the House or in Committee when we discussed the matter at great length?

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

The hon. Gentleman has attended the debate for only the past few minutes, but he will have heard me list the alternative amendments that we pressed upon the House. I regret that the hon. Gentleman apparently took no interest in them at the time, because they would have had an effect similar to that of this amendment. For instance, they would have given the hon. Gentleman an input—if he desired it—into the decision making through the Treasury Select Committee and confirmatory hearings.

One of our regrets in Committee was that Labour Members were carefully chosen to serve on the Standing Committee in such a way as to filter out anyone with independent views or powers of scrutiny. No Labour Member who spoke critically or showed that he had something to contribute in the Second Reading debate was included in the Standing Committee membership. For instance, the hon. Member for Great Grimsby (Mr. Mitchell) made an extremely penetrating speech on Second Reading, and we regretted that he was not a member of the Committee and we could not discuss his views at greater length. Perhaps he does not regret that fact, but we did occasionally.

A range of Labour Members who did not have a great deal to contribute served on the Committee. Therefore, although we persistently won the argument, we always lost the vote, and it was left to the other place to devise the amendment that we are now discussing. It sweeps up many of our ideas and amendments. It may not be perfect—in fact, I prefer some of our amendments—but it is a valid and constructive contribution to the question of how members of the Monetary Policy Committee should be appointed, how that committee should operate and how it might gain enhanced credibility from that method of appointment.

In summary, the Lords amendment places a modest constraint on the untrammelled powers of patronage enjoyed by the Chancellor of the Exchequer. It is a modest element of devolution, and it could improve the decision making and standing of the Monetary Policy Committee. For those reasons, I urge the House to accept the Lords amendment.

Photo of Austin Mitchell Austin Mitchell Labour, Great Grimsby

I rise to speak in favour of this intriguing little amendment which has been proposed by that well-known defender of Scottish interests, the House of Lords. I moved a similar amendment before the Bill left this place which sought to ensure a wider geographical representation on both the court of directors and the Monetary Policy Committee. I would like to see representatives from Scotland appointed by the First Minister for Scotland as well as a representative from the north of England.

It is vital that the committee reflects a wide spread of interests. The Minister said, quite rightly, that the committee is the custodian of the national interest. However, the national interest comprises regional interests and the interests of different sections of our society. That includes manufacturing interests in the north and in Scotland, as well as the interests of finance and financial services in London. Therefore, I would like to see specific geographically based representatives serving on the committee. That is the only way in which we shall reach some consensus about the national interest.

Committee members are not Olympians who give a detached opinion about what is in the national interest: they are all pushing a particular barrow. If their interest is not geographical, the committee will reflect the interests of finance. I do not wish to see finance dominate the interests of manufacturing in this country.

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This is an interesting and important little amendment. I understand why the Government intend to oppose it, but it is a little sad to see a Scottish party rejecting this Lords amendment. It is not a happy spectacle. The amendment also allows us to mention some concerns that a Scottish representative on the Monetary Policy Committee might have raised during that committee's deliberations. There is no doubt that the experience of that committee—lwhich is at work even before the legislation is passed—has not been happy, to say the least. Its operations have been very messy indeed.

It is not as though the committee comprises a body of independent monetary experts who, in light of their academic knowledge about the workings of inflation, can read the dials and pull the appropriate levers, which results in the inevitable inflationary effect in 18 months. The economy does not work like that, and the myths of monetarism have been exploded. The monetary target towards which the committee has worked is undoubtedly far too tight. That has led to deflation, and consequently to high interest rates in this country. It has pushed up the value of the pound, making it attractive to the money pouring out of Europe as a result of instability caused by pursuit of the monetary union farce. That money goes into sterling, which pushes up the value of the pound.

At the same time, the deutschmark has been deliberately and steadily depreciated, and far eastern currencies have also been devalued substantially. As a result, the Monetary Policy Committee—which does not include a Scottish representative—is not able to do its job properly. It is becoming the instrument of over-valuation, which will lead to a major recession this time next year.

I am afraid that we have appointed the wrong people to the Monetary Policy Committee. They are eminent academics: almighty, invisible academics only wise, like light inaccessible hid from our eyes—at least for six weeks until they have taken their decisions. That brings me to another point: the decisions should be known immediately. Why are the committee's minutes not published immediately, so that they may be subject to lobbying?

Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

Order. I think that the hon. Gentleman has enough parliamentary experience to know that he is moving into a general debate about the role of the committee. That is not the intention of the amendment under discussion.

Photo of Austin Mitchell Austin Mitchell Labour, Great Grimsby

A Scottish representative would introduce a note of canny common sense which does not seem to have operated in the committee thus far. I think that it is important to strengthen the representation of the interests of manufacturing in the way that this Lords amendment would do. When the Monetary Policy Committee was first constituted, I thought that Bank of England officials, because of their long desire for high interest rates—the first reflex of the Bank of England is: when in doubt, put up interest rates—would act as agents for deflation. I thought that the Government's appointees would work in a different way and serve the people's interests, which lie in growth, expansion, jobs and full employment. However, the exact opposite has occurred.

Of the appointments made by my right hon. Friend the Chancellor of the Exchequer, only Dee Ann Julius has been voting for sense. That is incredible. We have appointed experts to advance the interests of the people and the Government's views, yet they are voting consistently and persistently for higher interest rates. 1 hoped that Scottish representation would be a weight against such an automatic bias in favour of deflation, which my right hon. Friend the Chancellor has imposed on us.

When the Organisation for Economic Co-operation and Development, the World bank and the International Monetary Fund are saying that there is no need further to increase British interest rates—there is a case for them being reduced—it is incredible that our appointees are still urging a further increase in interest rates. Let the members of the committee be accessible, and let them be Scottish. Let them speak for the interests of the people.

The members of the committee are subject to lobbying, and lobbying should take place. We need to know what they have said immediately they have said it. The experiment has begun badly, with a messy procedure that is creating not stability but endless speculation, argument and pleas that the committee should make a final statement to the effect, "That is the end of increases in interest rates and we shall now start on the way to reducing them." There are constant calls for that action to be taken, but that cannot be, because the committee is divided. As I have said, it is not giving us stability or sense. Instead, it is creating a scenario of deflation. If outside interests were appointed, the committee might be led to sense.

My right hon. Friend the Chancellor of the Exchequer must do something to stop the remorseless rise of the pound, which is so damaging to our manufacturing base. I have sent him various solutions, and I hope that he accepts them. I hope also that he will consider the arguments that I have advanced this evening. Certainly something must be done.

Photo of Edward Davey Edward Davey Opposition Whip (Commons), Shadow Spokesperson (Treasury), Liberal Democrat Spokesperson (Treasury), Liberal Democrat Whip

I oppose the Government's motion to disagree with the amendment. I support the amendment for some, if not all, of the reasons advanced by the hon. Member for Great Grimsby (Mr. Mitchell). Although the amendment is far from perfect, it would give Scotland at least some say on appointments to the powerful Monetary Policy Committee. Liberal Democrats believe that such a small but significant element of guaranteed representation, or a voice in appointments to the MPC, would give Scotland an extra dimension, and would be useful in ensuring more effective policy making within the Bank.

My party's position needs a little explanation because my colleagues in the other place voted with the Government on the amendment. They did so for reasons that we understand and share. Indeed, my hon. Friends and I tabled amendments whose thrust met the criticisms of our colleagues in the other place. Criticisms of the original amendment were limited to scope. Unfortunately, despite our best endeavours, we failed to produce an amendment that you and your colleagues, Mr. Deputy Speaker, could deem to be in order.

I wish to place on record again our view, as advanced by me and my hon. Friend the Member for Twickenham (Dr. Cable) in Committee and on Report, which is contrary to what the Chief Secretary alleged. We believe that the newly independent Bank of England should represent fully all the nations and regions of the United Kingdom. In the spirit of our amendments, we shall support the Lords amendment, which provides the only element of additional representation on offer.

Speaking in the other place, Lord Newby explained why Liberal Democrats felt that the interests of Wales, Northern Ireland and the regions of Britain should all be captured in the deliberations of the MPC. Such representation is not uncommon on the management and decision-making boards—

Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

Order. The hon. Gentleman is seeking to speak to amendments that were not selected. He must not do that.

Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

Order. I allowed the hon. Gentleman to make that connection. He must not now develop an argument.

Photo of Edward Davey Edward Davey Opposition Whip (Commons), Shadow Spokesperson (Treasury), Liberal Democrat Spokesperson (Treasury), Liberal Democrat Whip

My argument, Mr. Deputy Speaker, is that representation such as the amendment would grant is not uncommon in other independent banks. The comments that I shall proceed to make are directly relevant and I hope that you will find them in order.

The Federal Reserve Bank of the United States and the Bundesbank in Germany have representation that goes beyond the central area. Against that background, the amendment does not represent a madcap invention. Instead, it focuses on a tried-and-tested way in which to operate decision making on monetary policy. It would ensure that a region's voice could be heard and that differing economic conditions could be taken account of in setting interest rates.

The Chief Secretary has argued that clause 16(2) meets the regional representation issue. The clause requires the court to ensure that the MPC has collected the necessary regional and sectoral data and examined them. The right hon. Gentleman said that, by appointing people to the court of the Bank who are clearly identified with Scotland, Wales and Northern Ireland, the Government have demonstrated that they believe that the regions will be fully represented.

Such measures are superficial; the data requirement would have been met in any event. Before the Bill was introduced, the monetary-policy-making authorities examined similar data to that which will come before the MPC. The problem with the Government's approach, as the right hon. Member for Wells (Mr. Heathcoat-Amory) said, is that no one who takes decisions on interest rates will represent the nations and regions of our country.

As the Bill stands, no one on the MPC need be from Scotland, Wales or Northern Ireland. Although the members of the committee are all eminent people, no one would suggest that they spent, or have spent, the bulk of their working lives outside what the right hon. Member for Wells described as the triangle of Oxford, Cambridge and London. The Government's approach to recognising nationhood and regionalism in the Bill is insufficient. The amendment is intended to put that right, albeit only partially.

It has been argued that such representation is not necessary because Britain is not a federal state, yet, as we are passing the Bill, the United Kingdom is fast down the track of becoming such a state. Perhaps it is not yet in name a federal state, but it is very much so in practice, with a Scottish Parliament and a Welsh assembly, and now an assembly in Northern Ireland. There is to be a council of the British Isles.

The institutions of UK federalism are being formed. These institutions need to be nourished and further developed. Options such as government in the English regions or national government for England alone are now being actively discussed in all parties. Recognising the regions and nations more explicitly in the Bank's new decision-making body would help to nourish federalism in the UK.

The Chief Secretary argued that the MPC should be made up solely of the best available people and should not be restricted to representatives from Scotland or elsewhere. Indeed, it should have the best people. However, the suggestion that Scotland could not supply such people shows an amazing lack of confidence in the right hon. Gentleman's countrymen. Given the number of successful Scottish business men and economists, going back to Adam Smith, as the right hon. Member for Wells said, I am surprised that the Chief Secretary does not have more confidence in his countrymen. As he sits on the Treasury Bench, which is stuffed full of Scots, I am surprised that he takes a rather weak and indecisive approach.

At this late stage, I urge the Government to think again and to give Scotland a voice in appointments to the MPC, as a first step to allowing wider national and regional involvement.

Photo of Dr Lewis Moonie Dr Lewis Moonie Chair, Finance and Services Committee, Chair, Finance and Services Committee

I was delighted to hear a Liberal Democrat Member, the hon. Member for Kingston and Surbiton (Mr. Davey), advancing the opposite case to that which his party supported in the other place. I have often heard that Liberal Democrats have a habit of doing that. However, this evening is the first time that I have heard a Liberal Democrat Member indulge in the practice. It was impressive.

It is with some trepidation that I support my right hon. Friend the Chief Secretary. That is not because of lack of conviction about the arguments which he advanced, but because of my friendship with Lord MacKay, who argued the opposite case in another place. As I am likely to sit in a small boat fishing with him at some time over the next few weeks, I shall tread carefully. If one thing is sure, the Tay is running deep at this time of year. I suspect that I would sink like a stone.

There is only one key argument, but it has two parts. First, should there be regional representation in the Bank of England? I think that it is agreed that there should be. Secondly, should that representation be on the Monetary Policy Committee? That is a different kettle of fish.

I am absolutely convinced that there is—as there should be—adequate representation of regional interests on the court of the Bank of England through our policy, and that will be more so in future. It is highly illogical to say that the membership of a small, tight committee such as the Monetary Policy Committee should be gradually expanded to encompass whatever form of federal or regional government we decide on over the next few years: we are talking about a Scot today, but it may be an Irishman tomorrow, then a Welshman, then a Yorkshireman and then someone from the north of England. We would have the sort of committee that used to be set up in certain parts of the Labour party not long ago: the way in which to make absolutely certain that a decision was not reached was to put everyone with a point of view on the committee.

The amendment is nonsense. The MPC should be small, tightly focused and appointed in the way it is at the moment, so that there is no dubiety about who is on it and why. There is adequate provision for regional points of view to be considered by the court, and that is where they should stay.

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Photo of John Swinney John Swinney Scottish National Party, North Tayside

For a moment, Mr. Deputy Speaker, you may have thought that Lord MacKay of Ardbrecknish was still a Member of this House because of the way in which he is haunting the debate like a spectre. I appreciate the concern of the hon. Member for Kirkcaldy (Dr. Moonie) about his future in a boat on the deep River Tay; I shall alert the bailiffs in my constituency to his imminent presence with Lord MacKay to ensure his protection.

The remarks of the right hon. Member for Wells (Mr. Heathcoat-Amory) bore a startling resemblance to the Hansard report of Lord MacKay's contribution to the debate in the other place. Notwithstanding that, I welcome the debate. The heart of the argument is the question of how representative the MPC is of the component economies of the United Kingdom and of different economic conditions.

I want to comment on the component economy of Scotland in relation to the United Kingdom. I intervened on the Chief Secretary to point out that the latest Halifax survey shows that house prices in the south-east have increased by 12.4 per cent. in the past 12 months, but in Scotland, have fallen by just under 1 per cent. I accept that patterns of overheating and house price increases are not uniform, but there are substantial differences in the nature and pattern of economic activity between those two important parts of the United Kingdom.

According to the Scottish Council (Development and Industry), Scotland's manufacturing exports last year were valued at more than £20 billion and were higher per head than those of other parts of the United Kingdom. Today, there has been a further and welcome initiative from Scottish Trade International to boost the export performance of Scotland, but it is difficult to promote such an initiative when the value of sterling is so high and the relationship between interest rates and the value of sterling is creating difficulties for our exporters. Unemployment in Scotland is now consistently higher than in the rest of the United Kingdom, which is a disturbing change to the trend.

In response to my intervention, the Chief Secretary said that there was overheating in the economy in different parts of the country; he is obviously familiar with overheating in the Edinburgh house market. On how many occasions would he expect the Bank of England Monetary Policy Committee to turn a blind eye to overheating in the economy of the south-east of England? I suspect that it would never do so, because it observes such conditions primarily to guarantee that the economic policy of the United Kingdom is sustained. Under Labour and Conservative Governments, it has persistently been directed by the prevailing economic conditions in the south of England.

The Chief Secretary made a series of points about the way in which the composition of the court of the Bank of England had ensured that the different component factors of the economy of the United Kingdom could be borne in mind in its discussions and decisions. Everything that he said about the Bank of England court would be justifiable and valid about the MPC, which takes decisions that are of much greater significance to the economy of Scotland.

I welcome Jim Stretton's appointment to the court of the Bank of England. Having worked in the life insurance sector before being elected to the House, I am aware of his formidable reputation in the industry, but he is not on the MPC, which is where big decisions about interest rates, which affect the livelihoods of manufacturers and exporters within the Scottish economy and in the rest of the United Kingdom, are taken.

Will the Chief Secretary say what input is given to the MPC in relation to the divergent patterns of economic activity within the United Kingdom? There is scant reference to the economic conditions of Scotland in the minutes of the MPC, and I should welcome his guidance on whether there is a need to improve the amount and type of information that goes to the MPC to ensure that it hears a more representative account of the position of the United Kingdom economy.

The MPC is where the action is; it has increased interest rates five times since the general election, and there should be a voice for Scotland. For that reason, we shall support the Lords amendment.

Photo of Alistair Darling Alistair Darling The Chief Secretary to the Treasury

I cannot agree with the last argument.

Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

Order. The hon. Member for North Tayside (Mr. Swinney) has finished his remarks, so the Chief Secretary should seek the leave of the House to speak.

Photo of Alistair Darling Alistair Darling The Chief Secretary to the Treasury

With the leave of the House, Mr. Deputy Speaker, may I say that I do not agree with the Scottish National party's argument? It tends to view everything in terms of the difference between Scotland and England and, somehow, everything is the fault of the English. I represent a Scottish constituency, and I think that I represent the majority view of Scotland, which does not take that simplistic and sometimes nasty view of the way of things. We live in the United Kingdom and remain part of it.

We have heard two arguments. The first came from Conservative Members and my hon. Friend the Member for Great Grimsby (Mr. Mitchell). They were against the concept of independence for the Bank of England in the first place, and always have been against it. It is curious that the shadow Chief Secretary has embraced a Lords amendment that would give a voice to the First Minister of the Scottish Parliament on something in which the right hon. Gentleman does not believe.

Interest rates have had to go up; it would have been much better if the previous Government in their last months in office had taken the necessary steps to ensure that we achieved the long-term stability that this country needs rather than ducking decisions purely because the Conservative party might have been damaged even more in the run-up to the general election.

The second irony is that the shadow Chief Secretary and, for the first time in a generation, the Conservative party, seem to care what Scotland thinks. Conservatives say that they want to save us from the works of the Monetary Policy Committee by having a voice for Scotland on it. It is nice that the Conservative party has such confidence in Scotland.

The amendment has no merit whatever. It is unnecessary, and the court of the Bank of England is far more widely representative than ever—the previous Government did nothing about that in 18 years in power. Our reforms of the MPC are in the long-term interests of the United Kingdom, which is evidenced by the fact that long-term interest rates are the lowest for 33 years. On that basis, I urge the House to reject the amendment.

Photo of Michael Fallon Michael Fallon Shadow Spokesperson (Treasury)

The Government cannot have it both ways. On the one hand, the Economic Secretary commends previous Lords amendments as sensible revisions from the revising Chamber; on the other, the Chief Secretary whinges that this amendment is the result of a teatime ambush. If it is, whose fault is that? Perhaps it is that of the Government Whips in the other place, or of new Labour peers, who have been nominated to the other place but are too busy to attend. Perhaps they are spending more time with their money—who knows?

The Chief Secretary has wholly misunderstood the amendment. Appointments to the Monetary Policy Committee would still be made by the Chancellor if it were accepted. He would simply be required to make one appointment on the advice of the First Minister. What is the Chief Secretary frightened of? He does not appear to have much confidence in the first First Minister, whoever he might be. I thought that it was supposed to be the current Secretary of State for Scotland. Under this amendment, why would he want to nominate someone of whom the Chancellor would not approve? That argument simply will not wash.

The Chief Secretary's argument that, because we opposed the Bill in the first place, we should not now support the amendment, will not wash either. We did not want an independent Bank of England of the nature that is set up by the Bill but, as we are getting one, we do not see why the Monetary Policy Committee should not better reflect all parts of the UK.

This is an amendment for openness. It widens the membership of the Monetary Policy Committee and helps to break up the Oxbridge-London mafia—[Interruption.] I certainly support its break-up. Above all, it is an amendment for Scotland, which all true Scots should be proud to support. I invite my right hon. and hon. Friends to oppose the Government's motion.

Question put, That this House doth disagree with the Lords in the said amendment:—

The House divided: Ayes 231, Noes 107.

Division No. 248][6.10 pm
Abbott, Ms DianeCohen, Harry
Ainger, NickColeman, Iain
Ainsworth, Robert (Cov'try NE)Connarty, Michael
Allen, GrahamCook, Frank (Stockton N)
Anderson, Janet (Rossendale)Cooper, Yvette
Atherton, Ms CandyCorbett, Robin
Austin, JohnCorston, Ms Jean
Barnes, HarryCousins, Jim
Bayley, HughCranston, Ross
Beard, NigelCrausby, David
Benn, Rt Hon TonyCryer, John (Hornchurch)
Bennett, Andrew FDalyell, Tam
Benton, JoeDarling, Rt Hon Alistair
Bermingham, GeraldDarvill, Keith
Berry, RogerDavey, Valerie (Bristol W)
Best, HaroldDavies, Rt Hon Denzil (Llanelli)
Blackman, LizDean, Mrs Janet
Blears, Ms HazelDenham, John
Blunkett, Rt Hon DavidDismore, Andrew
Boateng, PaulDoran, Frank
Bradley, Keith (Withington)Dowd, Jim
Bradley, Peter (The Wrekin)Dunwoody, Mrs Gwyneth
Brinton, Mrs HelenEagle, Maria (L'pool Garston)
Brown, Rt Hon Nick (Newcastle E)Edwards, Huw
Brown, Russell (Dumfries)Ennis, Jeff
Buck, Ms KarenField, Rt Hon Frank
Butler, Mrs ChristineFitzpatrick, Jim
Byers, StephenFitzsimons, Lorna
Campbell, Ronnie (Blyth V)Flint, Caroline
Campbell-Savours, DaleFollett, Barbara
Caton, MartinGalloway, George
Chisholm, MalcolmGapes, Mike
Clapham, MichaelGardiner, Barry
Clark, Dr LyndaGeorge, Bruce (Walsall S)
(Edinburgh Pentlands)Gibson, Dr Ian
Clarke, Charles (Norwich S)Gilroy, Mrs Linda
Clarke, Eric (Midlothian)Godman, Dr Norman A
Clarke, Rt Hon Tom (Coatbridge)Golding, Mrs Llin
Clelland, DavidGordon, Mrs Eileen
Clwyd, AnnGrant, Bernie
Coaker, VernonGriffiths, Jane (Reading E)
Grocott, BruceMudie, George
Grogan, JohnMullin, Chris
Hall, Mike (Weaver Vale)Murphy, Denis(Wansbeck)
Hall, Patrick (Bedford)Murphy, Jim (Eastwood)
Hanson, DavidMurphy, Paul (Torfaen)
Heal, Mrs SylviaNorris, Dan
Henderson, Ivan (Harwich)Olner, Bill
Hepburn, StephenPalmer, Dr Nick
Heppell, JohnPearson, Ian
Hill, KeithPike, Peter L
Hinchliffe, DavidPlaskitt, James
Hoey, KatePond, Chris
Home Robertson, JohnPope, Greg
Hood, JimmyPrentice, Ms Bridget (Lewisham E)
Hoon, GeoffreyPrentice, Gordon (Pendle)
Hope, PhilPrimarolo, Dawn
Howarth, George (Knowsley N)Purchase, Ken
Howells, Dr KimQuin, Ms Joyce
Hoyle, LindsayQuinn, Lawrie
Hughes, Ms Beverley (Stretford)Radice, Giles
Humble, Mrs JoanRapson, Syd
Hurst, AlanReid, Dr John (Hamilton N)
Hutton, JohnRogers, Allan
Iddon, Dr BrianRooker, Jeff
Illsley, EricRooney, Terry
Ingram, AdamRoss, Ernie(Dundee W)
Jackson, Ms Glenda (Hampstead)Rowlands, Ted
Jackson, Helen (Hillsborough)Ruane, Chris
Jamieson, DavidRussell, Ms Christine (Chester)
Johnson, Miss MelanieSalter, Martin
(Welwyn Hatfield)Savidge, Malcolm
Jones, Barry (Alyn & Deeside)Sedgemore, Brian
Jones, Helen (Warrington N)Shaw, Jonathan
Jones, Dr Lynne (Selly Oak)Sheldon, Rt Hon Robert
Jones, Martyn (Clwyd S)Shipley, Ms Debra
Keeble, Ms SallySimpson, Alan (Nottingham S)
Keen, Alan (Feltham & Heston)Skinner, Dennis
Kelly, Ms RuthSmith, John (Glamorgan)
Kemp, FraserSmith, Llew (Blaenau Gwent)
Kennedy, Jane (Wavertree)Soley, Clive
Khabra, Piara SSouthworth, Ms Helen
Kidney, DavidSpellar, John
Kilfoyle, PeterStarkey, Dr Phyllis
King, Ms Oona (Bethnal Green)Stevenson, George
Kumar, Dr AshokStewart, David (Inverness E)
Ladyman, Dr StephenStewart, Ian (Eccles)
Lawrence, Ms JackieStinchcombe, Paul
Laxton, BobStinchcombe, Paul
Leslie, ChristopherStoate, Dr Howard
Levitt, TomStrang, Rt Hon Dr Gavin
Liddell, Mrs HelenStraw, Rt Hon Jack
Linton, MartinStuart, Ms Gisela
Love, AndrewSutcliffe, Gerry
McAllion, JohnTaylor, Rt Hon Mrs Ann
McAvoy, Thomas(Dewsbury)
McCafferty, Ms ChrisTaylor, Ms Dari (Stockton S)
McFall, JohnTemple—Morris, Peter
McGuire, Mrs AnneThomas, Gareth (Clwyd W)
McIsaac, ShonaTipping, Paddy
Mackinlay, AndrewTouhig, Don
McNulty, TonyTruswell, Paul
Mactaggart, FionaTurner, Dennis (Wolverh'ton SE)
McWalter, TonyTwigg, Derek (Halton)
Mahon, Mrs AliceTwigg, Stephen (Enfield)
Marshall, David (Shettleston)Vaz, Keith
Marshall, Jim (Leicester S)Wareing, Robert N
Marshall—Andrews, RobertWatts, David
Martlew, EricWhite, Brian
Maxton, JohnWhitehead, Dr Alan
Michael, AlunWilliams, Rt Hon Alan
Miller, Andrew(Swansea W)
Moonie, Dr LewisWilliams, Alan W (E Carmarthen)
Moran, Ms MargaretWilliams, Mrs Betty (Conwy)
Morgan, Ms Julie (Cardiff N)Wills, Michael
Morgan, Rhodri (Cardiff W)Winnick, David
Morris, Ms Estelle (B'ham Yardley)
Woolas, PhilTellers for the Ayes:
Wright, Dr Tony (Cannock)Mr. Clive Betts and
Wyatt, DerekMr. Jon Owen Jones.
Ainsworth, Peter (E Surrey)Howard, Rt Hon Michael
Allan, RichardHowarth, Gerald (Aldershot)
Ancram, Rt Hon MichaelHunter, Andrew
Arbuthnot, JamesJack, Rt Hon Michael
Ashdown, Rt Hon PaddyJenkin, Bernard
Atkinson, Peter (Hexham)Johnson, Smith
Baker, NormanRt Hon Sir Geoffrey
Bercow, JohnKey, Robert
Blunt, CrispinKing, Rt Hon Tom (Bridgwater)
Boswell, TimKirkbride, Miss Julie
Bottomley, Rt Hon Mrs VirginiaLaing, Mrs Eleanor
Breed, ColinLetwin, Oliver
Brooke, Rt Hon PeterLewis, Dr Julian (New Forest E)
Browning, Mrs AngelaLidington, David
Bruce, Ian (S Dorset)Lilley, Rt Hon Peter
Bruce, Malcolm (Gordon)Lyell, Rt Hon Sir Nicholas
Burns, SimonMackay, Andrew
Cable, Dr VincentMaclean, Rt Hon David
Campbell, Menzies (NE Fife)McLoughlin, Patrick
Chidgey, DavidMajor, Rt Hon John
Clappison, JamesMaples, John
Clark, Dr Michael (Rayleigh)Maude, Rt Hon Francis
Clarke, Rt Hon KennethMawhinney, Rt Hon Sir Brian
(Rushcliffe)Michie, Mrs Ray (Argyll & Bute)
Clifton—Brown, GeoffreyMoss, Malcolm
Collins, TimOttaway, Richard
Cormack, Sir PatrickPaice, James
Cotter, BrianPaterson, Owen
Cran, JamesPrior, David
Davey, Edward (Kingston)Randall, John
Davies, Quentin (Grantham)Redwood, Rt Hon John
Davis, Rt Hon David (Haltemprice)Rendel, David
Dorrell, Rt Hon StephenRobathan, Andrew
Duncan, AlanRobertson, Laurence (Tewk'b'ry)
Duncan Smith, lainRussell, Bob (Colchester)
Evans, NigelSt Aubyn, Nick
Fallon, MichaelSanders, Adrian
Feam, RonnieShephard, Rt Hon Mrs Gillian
Forth, Rt Hon EricShepherd, Richard
Foster, Don (Bath)Spicer, Sir Michael
Fox, Dr LiamStreeter, Gary
Garnier, EdwardStunell, Andrew
Gibb, NickSwayne, Desmond
Gillan, Mrs CherylSwayne, Desmond
Goodlad, Rt Hon Sir AlastairSwinney, John
Gray, JamesTaylor, John M Solihull)
Green, DamianTonge, Dr Jenny
Greenway, JohnTrend, Michael
Grieve, DominicTyrie, Andrew
Hague, Rt Hon WilliamWalter, Robert
Hamilton, Rt Hon Sir ArchieWaterson, Nigel
Harvey, NickWeksg, Andrew
Wigley, Rt Hon Dafydd
Young,Rt Hon Sir George
Hawkins, Nick
Heald, OliverTellers for the Noes:
Heath, David (Somerton & Frame)Mr. Stephen Day and
Heathcoat—Amory, Rt Hon DavidMr. John Whittingdale.

Question accordingly agreed to.

Lords amendment disagreed to.