Bank of England (Economic Affairs Committee Report)

Baroness Liddell of Coatdyke Excerpts

Thursday 2nd May 2024 Lords Chamber

[Baroness Liddell of Coatdyke (Lab)]

My Lords, I compliment the noble Lord, Lord Moynihan of Chelsea, for a very interesting maiden speech. I am sure that we will hear an awful lot more from him in the months and years that lie ahead.

I must start with a confession: I took the Bank of England Bill through the Commons in 1998 and now, more than 25 years later, I sit on the Economic Affairs Committee. It is good to be able to look and see how the Bank has performed such a dramatic change of role, but particularly at a time when, as the report says, there is a real opportunity for change and to ensure that issues are dealt with in a more modern and inclusive manner.

The decision to give the Bank operational independence had not been announced during the general election campaign. I, as the brand new Economic Secretary to the Treasury—a job that I had not been shadowing, given that I was a comparatively new MP, having come in in a by-election—heard of it for the first time when the Chancellor announced it to the governor and his Treasury civil servants. I overheard one of them say, “This is what it feels like to be governed”. It was quite a dramatic turnaround. Fortunately, I had a background as an economist and economic reporter for the BBC, so I knew a little bit about it, but I had to get up to speed—so I convinced my old friend Alistair Darling to go for a Thai curry that night. The advice that he gave me was, “Watch the DMO—setting up the Debt Management Office is probably the most difficult thing that you will have to do”. I think that he was proved right. I think that I and some of the civil servants who worked on it made mistakes, because we did not fully understand how the market worked. That is my confession.

We nevertheless took the legislation through, and the independence of the Back of England has been a very good success. There have been areas that have not worked out because of changing circumstances but, overall, it has ensured that political interference has more or less gone away—I will come back to that later. The Economic Affairs Committee is united in support for the preservation of that independence. There is, however, a recognition—as our chair, the noble Lord, Lord Bridges, pointed out—that public confidence in the Bank has fallen in the face of global and domestic instability, which has seen the Bank not meet the 2% target for inflation over the past two years. Errors in monetary policy have added to the shocks brought about by Covid, Ukraine and international instability, although the Bank is not the only central bank that is having to deal with these issues.

There are a number of issues that are needed to restore confidence in the Bank, and we outlined some of them, but I want to concentrate on the relationship between the Bank and the Treasury, which the noble Lord, Lord Bridges, mentioned in his opening speech. There are challenges of groupthink. At various stages of my career, I have been part of the groupthink, and sometimes you have to find mechanisms to break out of it. I also want to look at the work of Dr Bernanke, who was commissioned to look at forecasting and whose report was published, as we know, a few weeks ago. I was very interested in what the noble Baroness, Lady Lane-Fox, said about the concentration he put on computers. I am more or less technologically illiterate, but even I knew that any big, world famous institution really had to look at modernising its computer systems, and I am shocked that that did not happen at the Bank and that Bernanke found that the Bank was behind the rest of the world.

When the noble Lord, Lord Macpherson, gave evidence to the committee, he brought along the letter sent to the Bank of England setting out the responsibilities of the Bank by Gordon Brown, as Chancellor of the Exchequer. The letter was one page and about four short paragraphs long; enough to make it clear that, in return for operational independence, the Bank had to meet the inflation target. He then produced the current letter from Chancellor Hunt, which was many pages long and added a list of issues the Bank had to “have regard to”, as we heard earlier. I could be unkind and say that this is virtue signalling, but, frankly, it did look more like a press release than a commitment to monetary and fiscal stability. George Osborne likened the “have regard” issues to a Christmas tree, and he has a point. One of our witnesses pointed out that the structure of DNA is fewer than 900 words—much shorter than the Bank of England letter.

I contend that the “have regard” issue is a diversion from the core work of the Bank. The chair of the Court, David Roberts, when he gave evidence, drew attention to 31 “have regards” that the Bank had to take account of. It is the job of the Treasury to develop fiscal policy and the job of the Bank to concentrate on monetary policy. They should not be jammed together as if it is an unsatisfactory mix and the Treasury is the boss. There has to be an atmosphere, first, of challenge, and, secondly, of putting to the people who know what they are doing one side of the job, and the people who know what they are doing, the other side of the job. That way will give a sense of reality.

There has been a lot of talk about quantitative easing. It has made the Bank and the Treasury much more dependent, blurring monetary and fiscal policy, and that leads to the need for a memorandum of understanding between the two organisations to move forward. Like other noble Lords, I have to ask why the Chancellor has refused to make the deed of indemnity public. It would be very valuable to see that deed of indemnity.

Underpinning this is the risk of groupthink. We know that there has to be a close relationship between HMT and the Bank, but it has to be an arm’s-length exchange of views, rather than a dictatorial one, and it is beginning to look a little like a dictatorial one. I am not necessarily criticising the Treasury: I loved working in the Treasury and I am in awe of some of the officials I worked with—one or two of whom ended up as deputy governors of the Bank—but it is so important that that separation is remembered.

Finally, let me say that there needs to be a diversity of thought and culture within the Bank. Stephen King said that the Bank may be independent, but the Treasury casts a shadow over it. There has to be an independent review of how that can be addressed, and there should be, as Bernanke’s report and our report point out, a look at how other public appointments are made, looking for best practice. I think the number of non-executive directors on the Court of the Bank needs to be expanded, because you need challenge. Anybody who has run a reasonably big organisation knows how important challenge is, and there seems to have been an environment that limited the extent to which there could be challenge. I look forward to the future of the Bank. I think the claim for independence that comes out in the report, and came out in our witness statements, make it clear that it was the right decision at the right time.

King’s Speech

Baroness Liddell of Coatdyke Excerpts

Monday 13th November 2023 Lords Chamber

[Baroness Liddell of Coatdyke (Lab)]

My Lords, this was a very lightweight gracious Speech, especially on critical aspects of the economy. I know we are in the run-up to the Chancellor’s Autumn Statement, but the Speech makes it look as if improving our economic performance is of secondary importance. My noble friend Lord Livermore was very precise on that. The Minister was very upbeat about the economy. He probably does not read the rebel magazine, the House, because the previous Chief Secretary to the Treasury pointed out in it how difficult the economic situation was. He said that the tax burden would rise to 37% next year and that debt interest spending in 2022-23 was £112 billion, more than 6% of GDP, which is higher than any other G7 nation. He stated:

“Those are the facts. They’re unpalatable facts, but they can’t be avoided”.


I think it was a missed opportunity not to have more in the King’s Speech, but I will move on and talk about energy now. I am sure the noble Baroness the Minister, who is to reply, wants this section to be about the annual licensing rounds in the North Sea. Well, it is—because it is a stunt, supposedly to trip up Labour. It fails to take into account that, just a fortnight ago, we had a major announcement on drilling for oil and gas in the North Sea. Labour will honour the licences that were granted at that time, but we will not issue any more, because of the climate change issues but also because it is a dwindling reserve.

I was a young economist for the trade union movement when it started, and the only claim to fame I have to put me with the Queen and Margaret Thatcher was that I could never go to a rig because they did not have any ladies’ toilets. I remember very well how difficult the environment is. But the way forward is about energy security. The new licences can achieve that, I suppose, but, as I pointed out, it is a dwindling reserve. The legislative stunt will do huge damage to the reputation of the UK in the run-up to the next COP. It is very unfortunate timing.

The noble Lord the Minister knows that I am president of the Carbon Capture and Storage Association. I will pay the Government a compliment: to thank them for the £20 billion that has been allocated to CCUS in the Spring Budget. It is much appreciated but, alongside the £20 billion, the industry has made a £1 billion capex investment and is ready to make substantial capex of £42 billion between now and 2035. My point to the Minister is that the Government need very rapidly to confirm the allocation of that funding as the funding envelope for future projects depends on it. The country’s future as a leader in the field is dependent on clarity. Without clarity, the project pipeline is at risk; so, if the Government want to ring-fence energy security, it is vital that these spending issues are addressed quickly. We have between six and 12 months to resolve these very difficult issues.

We have in the United Kingdom about one third of Europe’s storage capacity and we could develop a sector worth £30 billion in taxable revenues by 2050. Other countries are waiting in the wings. They are ready to move. A clear timetable of our own for driving the programme forward is absolutely essential if we are to realise this country’s true potential. Only today, the press was reporting on the progress being made in sustainable aviation fuel to protect developments such as this. The Government need to get a move on. CCUS will create 70,000 new jobs throughout the UK if the clusters model is realised and will protect 71,000 jobs in existing industry. There is no time to delay; this is an opportunity, and it would be a sin praying to heaven for vengeance if we did not get a move on and did something about it.