My Lords, the independent Monetary Policy Committee of the Bank of England, the MPC, is responsible for maintaining price stability. It sets policy to meet the inflation target in the medium term. The MPC continues to judge that inflation is likely to fall back through 2012 and 2013. Petrol retailing is a competitive market. It is that competition which should see reductions in oil prices passed on to consumers.
I thank the noble Lord for his Answer. I am conscious of the fact that he has a propensity to quote what I said some 40 years ago. I thought of checking this time, but on reflection I realised that the Government have inherited a different policy from that of my time. In 1997, the then Chancellor Gordon Brown, as the noble Lord has pointed out, introduced a new policy involving the transfer of power from the Chancellor to the Governor of the Bank of England and the Monetary Policy Committee. The Government do not particularly like the then Chancellor but I assume that they are happy with the inheritance. Perhaps the noble Lord will confirm that. I know that he does not like talking about interest rates but will he also confirm the extreme national and international importance of interest rates and that the Chancellor still has absolute confidence in the governor and his policy for dealing with inflation?
My Lords, I am very happy to confirm that this Government are entirely comfortable with the structure around the MPC and have complete confidence in the governor. I could go on. I have quotes from 40 years ago. I was going to use quotes from 30 years ago but if the noble Lord would prefer me not to use them on this occasion I will not do so. However, his words of wisdom are always my guide.
My Lords, I agree with the Bank of England in keeping interest rates low to support the economy but on the other hand we have rampant inflation: food inflation is 5 per cent; wheat has gone to 70 per cent; corn is 100 per cent. The consumer is being squeezed because we have wage deflation. Does the Minister agree that the Government are between a rock and a hard place? In that situation, should not the Government consider reducing taxes to help the consumer and encourage growth?
My Lords, I completely agree with the figures given by the noble Lord for the very considerable increases in commodity prices over the past year. Those are, of course, driven by global factors, but they impact very severely on consumers and businesses in this country. That much I agree with. He referred to low interest rates. This is absolutely critical. We have almost record low interest rates on our 10-year gilts at the moment—3.33 per cent, I think, last night. That is a recognition of the confidence that the Government have in the underlying fiscal policy but it also reinforces that the Government’s contribution is to make sure that we continue to have a prudent view on public finances and do not deviate from the course that we set for reducing the fiscal deficit that we inherited.
My Lords, is it not clear that the mechanism set up by Mr Gordon Brown for controlling inflation is not working and that the Monetary Policy Committee of the Bank of England is taking a number of other factors into account in addition to inflation? That being so, would it not be appropriate to revise and improve the remit given to the MPC rather than the Governor of the Bank of England having to write letter after letter after letter to the Chancellor of the Exchequer explaining why inflation is above target?
Well, I am always reluctant to disagree with the analysis of my noble friend who has considered these matters for many years, but I do disagree because I think that the medium-term target that the Bank of England has been given and the framework within which the MPC operates continue to be entirely appropriate. Of course, it is a medium-term target, and the latest Office for Budget Responsibility forecast from March shows inflation coming down to 2.5 per cent in 2012 and 2 per cent in 2013.The comparison of independent forecasters shows a very similar picture—2.3 per cent next year and 2.1 per cent in 2013. This shows that the Bank of England has the confidence of the commentators and the forecasters to continue to work to its mandate successfully.
Is it not the case that inflation is never going to reach the benign figures that the Minister says? Yesterday we were warned of a gas price increase of 19 per cent, an electricity price increase of 10 per cent, and all the other companies will do the same. How can the noble Lord possibly think that inflation is under control? Is he simply going to let the spiral continue until we land in bankruptcy?
My Lords, of course we would not wish to see inflation at the 4.5 per cent it is now. As has been explained, this is very largely driven by global factors with regard to commodity prices. We are not only keeping to our tight fiscal policy, which underpins the ability of the Bank of England to stick to its mandate, but giving help to the most vulnerable—whether that is the Budget announcement that gave a £630 increase in cash in personal allowances for the under-65s, whether it is in the arrangements that we made to cut fuel duty effectively by 6p per litre from what the plans of the previous Government had been, or whether it is increasing the state pension by 4.6 per cent. What the Government must do, and are doing, is to protect the most vulnerable in our society.
My Lords, with the Chinese economy, the Indian economy and many other economies still growing strongly, is it not likely that the price of oil and other fossil fuels will remain high for the foreseeable future? In those circumstances, does the Minister agree that the Government’s carbon reduction strategy assumes an even greater importance? In that context, can he tell us when the Government plan to bring forward the Bill formally establishing the green investment bank?
My Lords, we will bring forward the Bill in due course when it is in good shape. I take my noble friend's point about commodity prices. It reinforces the fact that we need to ensure that all energy users get advice to use energy efficiently in order to reduce their household bills. That is part of where we are targeting government help.
I have no idea what the noble Lord’s evidence for that is. The most recent intervention taken by the Government was to cut fuel duty, as I explained, by 1p per litre on Budget day. The price at the pump over the following few days fell by 0.8p per litre, despite rising oil prices over those same days. The market was investigated by Ofgem or the OFT. The competition authorities looked at the market for oil prices in 1998 and have not sought to look at it again. If the noble Lord or anyone else has evidence about prices, Ofgem, which looks at the market, has dealt with them recently and I am sure that the OFT will as well.