Bank of England and Financial Services Bill [Lords]

Debate between Jonathan Edwards and George Kerevan

3rd reading: House of Commons & Report stage: House of Commons
Tuesday 19th April 2016 Commons Chamber

[George Kerevan]

Is the hon. Gentleman aware that in the United States, the central bank is called the Federal Reserve for the very simple reason that it is appointed federally, and the interest rate setting committee is a federal committee? The principle is therefore well established in other jurisdictions.

[Jonathan Edwards]

I fully agree with my hon. Friend on that point. I also agree with the points he made earlier about the north-south divide and the impact that monetary policy has had on that reality. It is no surprise that the UK is the most grotesquely unequal state in the EU in terms of geographical wealth, and one of the main reasons for that is that for far too long monetary policy has been determined in the interests of a very small part of it—namely, the square mile just down the Thames.

All current MPC members are either Bank staff or in one of the four positions nominated by the Treasury. Fittingly, there are four countries in the UK, which makes the MPC ripe for modification to ensure that all nations are represented when it comes to the highly important task of deciding interest rates. I am also interested in the emerging debate on changing the MPC’s remit with regard to setting interest rates. New clause 7 seeks to expand the mandated objectives of the MPC to include maximum employment. It is already specifically charged with keeping to an inflation target of 2%. Other central banks, such as the US Federal Reserve, to which reference was made in my exchange with the hon. Member for East Lothian, have a dual mandate that goes beyond inflation. In 1977, the US Congress amended the Federal Reserve Act 1913 and mandated the Federal Reserve to target long-term moderate interest rates and, critically, maximum employment. I heard with interest the Minister’s point that the Bank does consider the Government’s employment target, but there is a difference between that and a mandate for maximum or full employment.

New clause 8 seeks to improve the Bank’s accountability to Wales and the other devolved Governments. The British state is changing rapidly as powers and responsibility flow from Westminster to the devolved Administrations, although the pace is perhaps not as quick as those like me would want. We are not privy to the meetings between Treasury Ministers and the Governor and his senior team, but we can safely assume that they are frequent. On top of that, the Governor and his team meet the Treasury Committee at least five times a year. As I mentioned a moment ago, fiscal powers already exist in the devolved nations, with more planned, so I hope that the Bank and the Treasury agree that it is in their interests to strengthen relations with the devolved Governments and Parliaments. I am not aware of any formal structures for meetings between the Governor and Ministers of the devolved Governments, or for scrutiny of the Bank by the devolved Parliaments. In the interest of mutual respect, those structures need to be formalised.