The Economic Secretary to the Treasury (Andrew Griffith)
I congratulate my hon. Friend the Member for Poole (Sir Robert Syms) on securing this debate. Notwithstanding the fact that he may have accurately predicted my reticence in some areas, this is an important matter. It was the House that originally decided on the current monetary arrangements, and it is a matter for the House to continue to scrutinise how they are conducted. I also thank the hon. Member for Strangford (Jim Shannon) for his contribution.
As my hon. Friend the Member for Poole knows, the Monetary Policy Committee has operational independence. That covers all monetary policy, including both the Bank rate and the relatively novel feature of quantitative tightening, which we have seen for the first time in recent months. It is not entirely an independent actor; the Chancellor annually writes to the Governor and the Monetary Policy Committee with a remit letter, which has remained unchanged in its most substantive term, which is the inflation target of 2%. I think everyone in the House understands the clear position of the Government, the Chancellor and the Prime Minister on the desirability of bearing down on inflation to try to remove what is a hidden tax on everybody in society and get us as quickly as possible to the point where not just inflation is falling, but interest rates are falling on the back of that.
My hon. Friend knows that financial markets are determined by a wide range of factors. It is of note that many of those factors are international: across most western economies, we are seeing some combination of them. He talked about the gilt market, which I reassure him remains deep and liquid. It has traded throughout the past 12 months; it has a good track record and is one of the deepest markets in the world. Underlying demand for the UK’s debt remains strong, and we have a well-diversified investor base.
The Debt Management Office co-ordinates closely with the Bank on the new phenomenon of quantitative tightening, whereby the Bank itself is selling gilts. Clearly it is not desirable for anybody that both the Bank and the Government are in the market at the same time. There is a high degree of operational co-ordination between the Bank of England and the Debt Management Office. In the Treasury, we pay close attention to the operation of markets and—as we did in the autumn of last year and in the case of Silicon Valley Bank UK Ltd —will take whatever action is necessary.
I want to state the Government’s position very clearly for my hon. Friend and for the House. I listened very carefully to his points and comments about each of the money supply measures that are published, and I will take them back to Treasury colleagues and the Chancellor. I spent some time yesterday with the House of Lords Economic Affairs Committee, and I conceded to it that my view is that money does matter. We should not be indifferent: it is a factor. The level of money supply, which my hon. Friend raised, is a feature.
We have been through an unprecedented period. None of us forecasted the global covid pandemic and none of us foresaw Russia’s illegal invasion of Ukraine. Nevertheless, my hon. Friend raises an important point that I will take back to colleagues. I am reassured that he is paying close attention to it, as I know are other colleagues in the House.
My hon. Friend will also know that the MPC, in deciding to pursue quantitative tightening, has set out its ambitions for the 12 months ahead, so there is a clear road map. It voted in September 2022 to reduce the stock of asset purchases by £80 billion over the following 12 months through redemptions and active sales, and that is coming through. Just as the Treasury receives the benefit, it is also picking up some of the cost of those sales as the transaction concludes.
The Government will ensure that in fiscal policy—that for which we are responsible—we continue to make tough choices to bear down on inflation, and that it is aligned with monetary policy. My hon. Friend was kind enough to acknowledge the level of interaction and dialogue that happens at multiple levels between the Bank and the Treasury. Each has its respective role, but he can be reassured that policy is co-ordinated.
On that note, I thank my hon. Friend again for his thoughtful contribution this evening. I also thank the hon. Member for Strangford for joining this important debate. I suspect it will not be the last time this House debates the matter and, given the magnitude and significance of the impact of monetary policy, that is probably appropriate, but it is for the House to decide. I look forward to continuing to engage with my hon. Friend and other hon. Members on this and other important issues relating to financial policy.
Question put and agreed to.