Debt Management (Bank of England)

Oral Answers to Questions — Treasury – in the House of Commons at 2:30 pm on 12 October 2010.

Alert me about debates like this

Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset 2:30, 12 October 2010

Whether he has assessed the merits of returning responsibility for debt management to the Bank of England.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

The current institutional framework separates operational responsibility for debt and monetary policy by the establishment of a debt management agency. This properly reflects the importance that we attach to having a clear institutional divide between responsibility for setting interest rates and for issuing Government debt. The Government have no plans to return responsibility for debt management to the Bank of England.

Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

With the return of banking supervision to the Bank of England, I wonder whether it is worth considering giving the Bank of England its debt management responsibilities back. An active participant in markets may well prove to be a better regulator than one that approaches regulation from a more intellectual sense.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

The Bank of England engages in market activities on a day-to-day basis, but before 1997 the same institutional separation existed, with the Chancellor setting interest rates and the Bank responsible for debt management. The separation of responsibilities improves transparency and confidence in debt management and helps to keep the cost of Government debt as low as possible. My hon. Friend will appreciate how important that is, given the size of the deficit that we inherited from Labour.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

But is it not clear that, as my hon. Friend Mr Love was saying, the raising of the spectre of a return to quantitative easing signalled by the Chancellor last week to the Bank of England is a clear sign that the anti-growth strategy pursued by the Government risks a major slow-down in our economy? Will the Minister take responsibility and stop playing ideological games with fiscal policy in the hope that monetary policy will miraculously pick up all the pieces?

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

I welcome the hon. Gentleman to his new position. He has been out of Parliament for the past five years and he should perhaps take this opportunity to reflect on the record of his predecessors and the deficit that they racked up in Government. Is he departing from the practice that the previous Chancellor of the Exchequer followed when it came to quantitative easing?

Photo of Peter Tapsell Peter Tapsell Father of the House of Commons

I am a strong supporter of quantitative easing as a form of management of the economy, but are Treasury Ministers aware that some hedge funds are making large profits by arbitraging between short and long interest rates when central banks give advance notice of their intention to intervene in foreign markets?

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

As my hon. Friend will be aware, the implementation of any policy on quantitative easing is the responsibility of the Bank of England, and it will take into account those factors.

Photo of Rachel Reeves Rachel Reeves Shadow Minister (Work and Pensions)

Does the Minister welcome the fact that the efforts of the Debt Management Office mean that the average duration of debt in the UK is around 13 years, several years longer than any other country in Europe? It is one of the many reasons why the UK is not in the position of Ireland or Greece.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

The hon. Lady, who follows these matters quite carefully, will reflect that before the election long-term yields on Government debt in the UK were moved in line with those in countries such as Portugal, Greece and Spain. After the election, the margin between UK gilts and the German Bund has narrowed rather than widened, as has been the case with other European bond rates.