The Bank must become more representative

"The nearest to a solution offered so far would be to give the Governor a smaller board, appointed after consultations with as wide a body of opinion as possible."

Let's assume that Eddie George will win his battle with the Chancellor, and that at the next monetary meeting he will get his way over base rates. The odds are probably better than evens, given the pressure markets are now putting on the Government. This may be a delayed-action victory for the Bank but it will be a victory none the less and will confirm that greater transparency in setting interest rates has genuinely shifted the guardianship of monetary policy further towards the Bank.

Whether or not you think this an advance, most would agree that if the Bank is to continue having a greater say in policy, it must also become more accountable and representative. Mr George is advised by a handful of Bank executives including Mervyn King, the Bank's increasingly influential economics director. It plainly would not be acceptable for such a small clique of London-based mandarins to determine the direction of interest rate policy as well as the timing of interest rate changes.

Reforming the Bank in a way that would make it more accountable is a far from easy thing, however. A report 18 months ago by the Centre for Economic Policy Research suggested an independent Bank should report to Parliament through the Treasury and Civil Service Select Committee. That might just make sense if the committee were given the clout of the Public Accounts Committee, which would mean giving it a secretariat comparable with the Comptroller and Auditor-General's office. In more than a quarter of a century of public hearings, however, select committees have failed to impress even their most enthusiastic constitutional supporters. The Treasury committee is not famed for its insights.

Another option would be to broaden the basis of decision making inside the bank. The German Bundesbank and the US Federal Reserve are run by powerful individuals, but there is a restraining influence on them from council or board members who have their own, mainly regional, power bases, in federal political systems. Neither model translates easily to the UK, with its centralised administration.

The nearest to a solution offered so far would be to give the Governor, whose present court of directors is barred from involvement in setting interest rates, a smaller board, appointed after consultations with as wide a body of opinion as possible. That board would take the decisions with him. Even that, however, might not be acceptable in a country with as complex and secretive system of patronage as ours.

Labour appears no nearer a solution than the Tories. Gordon Brown, the shadow Chancellor, is expected to confirm next week that he has no more intention than Kenneth Clarke of giving the Bank independence. He will talk of increased openness, stamping out political manipulation and the like but he will stop well short of a commitment to independence.

As things stand, the Treasury retains ultimate control, despite the cheerily misleading way Michael Heseltine in a radio interview yesterday equated openness with independence. But the more the Bank distances itself from the Chancellor and the Prime Minister the more urgent the need to introduce new checks and balances. Like the exchange rate mechanism, the present system of transparency with an uncertain degree of power sharing is deeply unstable. If they continue to disagree, at some point quite soon one side or the other will be obliged to take full control again or the markets will wreak havoc.

One reform the Government could however make more easily, as Mr George moves to the centre of the economic stage, is to relieve him of the need to worry about banking supervision, the area of the bank that keeps undermining the credibility of the rest. That should be split into a separate agency.

Start your day with The Independent, sign up for daily news emails
News
i100
Arts and Entertainment
Billie Piper as Brona in Penny Dreadful
tvReview: It’s business as usual in Victorian London. Let’s hope that changes as we get further into the new series spoiler alert
Life and Style
A nurse tends to a recovering patient on a general ward at The Queen Elizabeth Hospital in Birmingham
health
News
science
Arts and Entertainment
No Offence
tvReview: No Offence has characters who are larger than life and yet somehow completely true to life at the same time spoiler alert
News
Chuck Norris pictured in 1996
people
ebooks
ebooksA celebration of British elections
Arts and Entertainment
Sarah Lucas, I SCREAM DADDIO, Installation View, British Pavilion 2015
artWhy Sarah Lucas is the perfect choice to represent British art at the Venice Biennale
News
A voter placing a ballot paper in the box at a polling station
i100
News
people
Arts and Entertainment
The Queen (Kristin Scott Thomas) in The Audience
theatreReview: Stephen Daldry's direction is crisp in perfectly-timed revival
Sport
football
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant - Swiss Banking and Finance

£20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...

Ashdown Group: Marketing Executive - 6 month FTC - Central London

£25000 - £30000 per annum + benefits: Ashdown Group: An exciting opportunity f...

Ashdown Group: Junior Project Manager (website, web application) - Agile

£215 per day: Ashdown Group: Junior Project Manager (website, web application ...

Guru Careers: Software Engineer / Software Developer

£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...

Day In a Page

General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'
Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

Flesh in Venice

Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
11 best anti-ageing day creams

11 best anti-ageing day creams

Slow down the ageing process with one of these high-performance, hardworking anti-agers
Juventus 2 Real Madrid 1: Five things we learnt, including Iker Casillas is past it and Carlos Tevez remains effective

Juventus vs Real Madrid

Five things we learnt from the Italian's Champions League first leg win over the Spanish giants
Ashes 2015: Test series looks a lost cause for England... whoever takes over as ECB director of cricket

Ashes series looks a lost cause for England...

Whoever takes over as ECB director of cricket, says Stephen Brenkley
Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power