View from City Road: Independence put into perspective

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Like Monty Python in pursuit of the Holy Grail, the British are enthusiasts for simple solutions to our economic problems, be they price, dividend and wage controls, management of sterling M3 or membership of the exchange rate mechanism. Too often, it turns into farce. When the latest nostrum fails to deliver, disillusion and a destructive cynicism set in.

It is important that the newest notion, independence for the Bank of England in setting monetary policy, does not suffer the same fate. This is an idea whose time has come, and whose merits will be spelled out on Thursday by the Commons Treasury committee.

As the Independent reported in September, the committee is to recommend that Britain adopts a modified version of the New Zealand model for central bank independence - an explicit agreement on inflation targets with the government and direct accountability of the Bank to Parliament.

But Professor Charles Goodhart of the London School of Economics, a member of the Roll Committee that last month foreshadowed the Commons proposals, warned in a recent speech that independence was 'not a panacea leading directly to price stability at little, or no, short-term cost . . . If people expect the world to alter greatly for the better immediately after such a change, they are likely to be gravely disappointed.'

He saw independence as an 'incremental step' in improving both the mechanics of economic policy and the public understanding of it. Independence will be more durable and effective if it is regarded in that sober academic light.