Skip to main content

Monetary Policy Committee

Volume 448: debated on Thursday 13 July 2006

7. What plans he has to review the appointments procedure of the Monetary Policy Committee of the Bank of England. (84768)

Today I am appointing to the Monetary Policy Committee Mr. Andrew Sentance, chief economist at British Airways and previously chief economist of the CBI, and Professor Tim Besley of the London School of Economics. The whole House will also want to pay tribute to the work of the former MPC members—Richard Lambert, who is now director general of the CBI, and particularly David Walton, a brilliant economist who tragically passed away at the young age of just 43. Recognising the issues of market sensitivity, the procedure is that all appointments are made strictly in accordance with the legislation.

I start by echoing the Chancellor’s deep regret at the tragic early death of the brilliant David Walton, which is a great loss to this country. But does the Chancellor regard his answer as an adequate response to the growing criticism in the City, in which even the Governor of the Bank of England has partially joined, of what is perceived as his dilatory and over-secretive approach to the filling of vacancies as they occur on the Monetary Policy Committee? Why can the procedure not be more open and transparent? Is it appropriate, in a Bank of England that the Chancellor claims he has made independent, that those appointments should be made by him in such a personal way?

Let us remind the House that the hon. Gentleman was a vicious opponent of the independence of the Bank of England. He said that it would lead to deflationary policies and higher unemployment, and that the Bank of England’s reputation would be damaged. All those things proved to be untrue. On the appointments system for the Bank of England’s Monetary Policy Committee, the legislation requires that we seek people with experience and expertise. That has been achieved, and the proof is in the record. It would be wrong, when there is market sensitivity—which, unfortunately, the shadow Chancellor denies—if a rumour about a Monetary Policy Committee appointment meant that there was movement of the pound and the stock exchange. There is market sensitivity, so such appointments must be handled with care.

Well, if we had followed the Opposition’s policy, the Bank of England would not have been independent, we would not have had stability, we would not have had low inflation, and we would not have had the lowest interest rates for 30 years.

The effect of independence for the Bank of England and the accompany monetary and fiscal policy is that inflation, interest rates and mortgage rates have been half what they were in the previous 18 years. I have considered all kinds of proposals that have been put forward for reform of the Bank of England Monetary Policy Committee. I have considered the shadow Chancellor’s proposal that the House of Commons vote every year on the inflation target, which would be a recipe for the very instability that the Conservatives created in government. I have also considered his proposals for appointment to the Monetary Policy Committee—and it is remarkable that those proposals are intended to increase the external accountability of the Monetary Policy Committee. Even the Governor of the Bank of England would disagree with a proposal for the Governor to choose the two deputy Governors, the Governor to choose the other two internal members and the Governor also to have a role in the appointment of the remaining four members. That would mean the Governor having either a direct or an indirect role in the appointment of all eight members except himself. How would that secure accountability? The shadow Chancellor should go back to the drawing board and think again—about this and other issues.

I echo the sympathy expressed by the Chancellor over the sad death of David Walton. The independence of the Bank of England was called for and welcomed by the Liberal Democrats, but does the Chancellor agree that it is compromised by the direct control that he exercises in appointments? Is he prepared to give up that control and fall into line with the code relating to ministerial appointments? If not, why not?

I remind the hon. Lady that the Conservative party opposed the legislation for independence of the Bank of England. She says that she supported that legislation—

But the hon. Lady’s party supported it. The legislation that she supported provided for five internal members of the Bank of England and four external members. That was in the legislation. The Chancellor of the Exchequer was obliged to propose the appointment of people with experience and expertise to the Monetary Policy Committee. I ask the House whether the record of the Bank of England as a result of our decisions has been good or bad. In my view, the only answer that the House can give is that we have achieved a degree of stability that the Conservatives could never dream of.

I echo the Chancellor’s comments about the late David Walton, and the work that he and Richard Lambert did on the MPC—but Richard Lambert was appointed to the MPC by means of a telephone call, as was Andrew Large. The Governor said before the Treasury Committee that the current process was

“something that is very informal and seems to result in appointments being made very much at the last minute.”

Is it not time for a proper, open and robust process for MPC appointments, rather than their being made furtively behind closed doors, on the whim of the Chancellor?

The policy of the hon. Gentleman’s party favours greater accountability of the MPC to Parliament and the public, but the detail of the shadow Chancellor’s proposal is that the two deputy Governors should be chosen by the Governor, the two internal members should be chosen by the Governor, and the Governor should have a direct role in the choice of the four external members. That is not extending external accountability. The Conservatives are making a laughing stock of their own policies.