Debt Management Office

Lord Higgins Excerpts

Tuesday 20th July 2010 Lords Chamber

Asked By

[Lord Higgins]

To ask Her Majesty’s Government whether they will transfer responsibility for the Debt Management Office to the Bank of England.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

There are no current plans to transfer responsibility for the Debt Management Office to the Bank of England.

[Lord Higgins]

My Lords, I thank the Minister for that reply, but I urge him to reconsider it since it effectively endorses the mistaken decision of Mr Gordon Brown, when he first became Chancellor of the Exchequer, to give responsibility for monetary policy to the Bank of England but to take away its responsibility for debt management, which is clearly a major influence in deciding what is likely to be the money supply. The problem has become even clearer with the introduction of quantitative easing because the Bank has been buying assets while at the same time the Debt Management Office has been selling them. It has been an entirely circular arrangement, and there has been virtually no increase in the money supply as a result of the quantitative easing. Would my noble friend not agree that in the present circumstances, it is crucial that we have an effective monetary policy and that can happen only if the Bank of England is given the powers it used to have?

[Lord Sassoon]

My noble friend Lord Higgins raises an important question. I think that it is part of a wider debate at the moment about the responsibilities and levers which central banks have, including, among others, the linkages between the conduct of monetary and financial stability policy. As noble Lords are aware, we are not shy of making structural changes where they appear to be justified, as we are doing by moving banking supervision back into the Bank of England.

That said, I believe that the arguments for minimising conflicts of interest by separating debt management and monetary policy objectives and accountabilities are persuasive. The IMF has maintained the position that countries should have such separation and it has become international best practice among our peer-group countries, including France and Germany.