The furtive habits of centuries are only now beginning to break down. In this year's Mansion House speech, the Chancellor announced that he intends to eliminate the 'excessive secrecy which has up to now shrouded the policy-making process in Britain'. This, he promised, will be done in two main ways.
First, there will be greater openness in the setting of monetary policy, with new publications by the Treasury on monetary conditions and the reasons for base rate changes, and by the Bank of England on the outlook for inflation. Second, the Treasury will establish a Panel of Independent Forecasters to offer advice on economic prospects and the formulation of policy.
It is still debatable whether the Treasury genuinely intends to open up the policy process, or whether it is merely designing an elaborate new escape route for when policy next goes wrong. Certainly, the first fruits of glasnost on monetary policy have disappointed most observers. Last week, for example, the Treasury published the Monthly Monetary Report which, it says, is 'as presented' to the Chancellor and Governor for their regular discussion on monetary policy.
This document is an impressive collection of factual information, but it is almost entirely devoid of any form of judgement about what is going on in the economy. In fact, the same information could be gleaned only slightly less readily by reading a collection of press releases from the Central Statistical Office, the CBI and other sources.
Furthermore, the document may be 'as presented' to the Chancellor, but it is certainly not all that is presented. The section on policy advice, which must surely accompany the internal version of the document, remains as invisible as ever to the outside world. Even more importantly, the verbal advice that is offered to the Chancellor at the meeting itself will stay secret for the usual 30 years (or until the longest-dated gilt in issue has been redeemed])
If there were any serious intention of making Treasury officials or the Bank genuinely accountable for the advice they tender, the minutes of the monthly meeting would be published, probably with a lag of about six weeks. This is what is done in the United States, where the minutes of the equivalent body (the Federal Open Market Committee) are published on a regular basis - without, as far as one can tell, the roof having yet fallen in on the economy.
Clearly, as the Treasury has argued, there are important constitutional differences between our system, where the Chancellor casts the only actual vote on interest rate policy, and the more formal system of democratic voting in the Federal Reserve. But is this really enough to explain the difference in attitude towards the publication of minutes? I rather doubt it.
There is one further hope for serious reform in the area of monetary policy: the Bank of England's new quarterly report on inflation prospects. If the Governor wishes to use this opportunity boldly, it could greatly increase the influence of the Bank over policy. Traditionally, the Bank's Quarterly Bulletin has been 'cleared' by the Treasury before publication, but it would make no sense to ask the Governor to prepare a report on inflation prospects if this were not, in future, to contain the Bank's genuine and unvarnished view, without pre-clearance by the Treasury.
This could conceivably result in the Bank becoming a public 'referee' on the Treasury's conduct of monetary policy. In 1986-88, for example, when the Bank was clearly more worried than the Treasury about the inflationary consequences of the boom, such a report could have flashed a red light that might - via the response in the markets - have forced the Treasury to tighten monetary policy earlier than it did. But old habits die hard; senior Bank officials are already worried that fear of rocking the boat will prevent the inflation report from saying anything interesting. If it simply recites recent inflation data, and then parrots the Treasury's latest RPI forecast, it will have no value.
What about the Forecasting Panel? Since I have been invited to serve on this panel, I am obviously hopeful that it may play a useful role. The panel has clearly been modelled on the Council of Economic Experts in Germany, which consists of five independent economists (the 'five wise men') and a small standing staff. The German council is constitutionally required to reflect the full spectrum of German society (which in practice means that it includes 'representatives' of business and the unions); but it is usually chaired by a senior economist who is broadly sympathetic to the government.
Its main purpose is to prepare a detailed assessment of the economy in the autumn of each year; and its report receives massive publicity, with the details of the economic debates of the day exploding on to the front pages. If the government does not agree with the recommendations in the report, it had better be prepared to say why.
Who knows whether any of this could apply in the UK? The consensus-driven approach to economics at the top of German society means that any group of randomly selected professional economists would probably be able to produce a report that agrees on at least some of the 'technical' questions of economics. This is why the five wise men in Germany are usually able to produce a consensus report, admittedly with one or two dissenting notes on politically sensitive issues.
In Britain, by contrast, the warring nature of our political establishment is fully reflected in the so-called 'professional' debate conducted among economists. In fact, I suspect that the petty personal hostilities that exist among British macro-economists are greater than those between politicians of different political parties (though they are of course as nothing compared with the vendettas that exist within any party).
Under normal circumstances, it will not be possible for all seven members of the new panel to reach agreement on any significant issue. Therefore, the reports of the panel - which will apparently be drafted by Dr Alan Budd, the Government's chief economic adviser, following the thrice-yearly meetings of the new body - will inevitably reflect a widespread divergence of view most of the time.
Nevertheless, the panel's deliberations may have some use in focusing the public gaze on a slightly more structured policy debate than is commonly visible in the media of this country. Furthermore, the four 'centrist' members of the panel are quite likely to agree on most issues most of the time, so some form of consensus view may well emerge. It is even possible that when the Government is about to make an egregious policy mistake for political reasons, the vast majority of the panel members may find themselves able to disapprove. If so, the panel will earn its keep.Reuse content