My Lords, many noble Lords want to know what went wrong. Perhaps your Lordships would allow me to take them to the committee room in the US Congress a few days ago where the former chairman of the Federal Reserve was giving prepared testimony. He was asked how this economic debacle had started on his watch. His answer was that he had been following orders. As he put it:
"I'm here to uphold the laws of the land passed by Congress, not my own predilections".
In other words, the fault lay with the legislation which gave him his instructions.
The same might be said of the Bank of England Act 1998—the iconic Act of Parliament which gave the Bank of England its independence—which is why I was grateful to the usual channels of your Lordships' House for allowing me to introduce last week the Bank of England (Amendment) Bill. The Bank of England Act 1998 has a fatal flaw: it has three words too many, which this Bill aims to delete. Section 11 in Part II of the Act mis-defined the role of the bank in relation to monetary policy. It states:
"In relation to monetary policy, the objectives of the Bank of England shall be— a) to maintain price stability, andb) subject to that, to support the economic policy of Her Majesty's Government, including its objectives for growth and employment".
During the Committee stage of the Bill in your Lordships' House—I am most indebted to the noble Lord, Lord Barnett, for first drawing my attention to these debates many years ago—there was much discussion about the three words, "subject to that". Why could it not say, "having regard to" or "taking account of"? Why were all other considerations to be subordinate to controlling inflation?
As distinguished LSE alumni in the Chamber are aware, the economic orthodoxy which underpinned the Act was based on the seminal work of Professor Paish at LSE. The "Paish Curve" showed that high inflation was incompatible with high employment and high growth. The mechanism of the causal relationship between them was "wage push". Noting the expectation of higher prices, unions would press—