Inflation

Lord Myners Excerpts

Wednesday 19th January 2011 Lords Chamber

[Lord Sassoon]

My Lords, first, the recent relatively high levels of inflation reflect, among other things, the previous Government returning the rate of VAT to 17.5 per cent, so that number is included and it is one of the factors behind the rise in inflation in December. As to the effect on inflation of the increase of the standard rate from 17.5 to 20 per cent, that depends on how much of the increase is passed on to consumers, and we will wait to see on that. However, because the rise to 17.5 per cent will come out of the inflation numbers, it will partially offset the effect of the increase that comes in in January.

[Lord Myners]

My Lords, we fully accept the importance of the independence of the Monetary Policy Committee but the Government cannot wash their hands of any responsibility for inflation. The exchange of letters between the Chancellor of the Exchequer and the Governor of the Bank of England has now become very anodyne and routine—the same explanations are brought forward time after time. What are the Government going to do about the MPC’s inability to hit the target that the Government have set?

[Lord Sassoon]

My Lords, I know that it is customary for me to answer the questions and for noble Lords to ask them but five letters were written by the Governor of the Bank of England to the previous Government and I do not recall the previous Government having done anything about them in response. It is quite right that the Governor of the Bank of England explains the situation, but the previous Government put in place and supported the framework that exists, exactly as we are doing, and it is an important part of that framework that the governor writes letters.