Bank of England: Monetary Policy Committee

Lord Barnett Excerpts

Monday 14th October 2013 Lords Chamber

Asked by

[Lord Barnett]

To ask Her Majesty’s Government when the Chancellor of the Exchequer last met the Governor of the Bank of England in his capacity as chairman of the Monetary Policy Committee, and what they discussed.

[Noble Lords]

Hear, hear!

[Lord Newby (LD)]

My Lords, I am sure that the whole House will wish to join me in congratulating the noble Lord on his 90th birthday. There are clearly two Barnett formulae. There is first the public one that we regularly discuss in your Lordships’ House, but secondly there must be a secret elixir that enables the noble Lord to continue to play an energetic part in our deliberations undiminished by the passage of the years. We wish him many happy returns.

The UK’s Monetary Policy Framework, set out in the Bank of England Act 1998, gives operational responsibility for monetary policy to the independent Monetary Policy Committee. The Chancellor of the Exchequer has frequent discussions with the Governor of the Bank of England on a wide range of issues in the UK economy.

[Lord Barnett (Lab)]

My Lords, I thank the noble Lord for his initial comments. In the light of those, I had better be kind to him, but I am afraid that when he answered a similar question on 9 July, I believe that he misled the House on an important issue of the independence of the Monetary Policy Committee and the Governor of the Bank of England. I gather that he was depending on a command paper and on an exchange of letters between the Chancellor and the governor, but surely you cannot change a major Act of Parliament—the Bank of England Act 1998—by an exchange of letters and a command paper. That is clearly impossible. Can he explain how he has done that? The independence of the Monetary Policy Committee is important, as the new governor has told the country that he believes in long-term forecasts. He has forecast interest rates which clearly would be affected by QE, on which he is apparently being given unfettered power. Whether or not he has those powers, could the Minister explain and confirm that the Chancellor has agreed to allow the governor and the Monetary Policy Committee unfettered control over interest rates and QE?

[Lord Newby]

My Lords, that is what the Bank of England Act says. The Monetary Policy Committee is operationally independent. The remit of the Monetary Policy Committee has to be set by the Governor of the Bank of England. It has to be renewed every year. It was renewed this year. The difference between this year and previous years is that the Chancellor asked the governor to look at possible methods of forward guidance which would give greater certainty to the markets about the medium-term movement of interest rates and, indeed, QE. That is exactly what the governor did, in line with the request from the Chancellor which was in line with the provisions of the Bank of England Act.