Banking Bill

Part of Orders of the Day – in the House of Commons at 5:09 pm on 14 October 2008.

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Photo of George Osborne George Osborne Shadow Chancellor of the Exchequer 5:09, 14 October 2008

Again, I come back to the point that if the Chancellor of the Exchequer changes the target in the middle of a crisis, and basically mandates the Bank to pursue another course, we cannot properly call it an independent central bank. While the hon. Member for Twickenham has said some sensible things in the past year, I do not think that that was one of them. I am sure he is reconsidering his position, or is at least glad that his course of action was not pursued and that the Governor was able, within his existing remit, to act in the way that the hon. Gentleman wanted. By the way, I do not think that it is particular sensible either for politicians speaking from the Front Bench to call on the Bank to cut or increase interest rates. Indeed, I make it a practice not to comment on them.

Finally, let me turn from the structure of the Bank of England to something that is not in the Bill but should be—this addresses a point that my right hon. Friend Mr. Redwood made to me: the central issue of how we prevent problems from arising, as well as how we deal with them once they have arisen. We should use this opportunity to make some more far-reaching changes to our system for regulating banks and controlling debt levels in the economy. We have learnt the hard way that we cannot build an economy on excessive debt. We have also discovered that no one has the power in our system to call time when debt levels become unsustainable.

The Bank of England used to have that power, but unfortunately the previous Chancellor took it away in 1998. Most people can see now that that was a mistake, for the result was that, despite the warnings from the IMF and the Bank of England itself that growing levels of debt in the economy were not sustainable, nothing was done to stop them. That needs to change. We need to give the Bank of England the power to call time on excessive debt. The Bill does not do that. For all its references to the Bank's role in financial stability, it contains no formal system for the Bank to implement its concerns about market-wide risk. That is a surprising omission, given the events of last week.