Tory heading for U-turn on Bank

THE CONSERVATIVES paved the way for a major U-turn last night by announcing a review into whether they should accept Labour's decision to grant independence to the Bank of England.

Francis Maude, the shadow Chancellor, said all options remained open but it is widely expected that the Tories will allow the Bank to retain control of interest rates. The move, revealed by The Independent earlier this month, is part of a drive by William Hague to dump existing Tory policies before outlining the new agenda on which the party will fight the next general election.

The Tories condemned Labour for granting independence to the Bank just three days after coming to power in 1997. But privately the Opposition accepts the new system for setting interest rates has worked. In a speech at the London Business School last night, Mr Maude said that Labour's reforms were "bungled and flawed" and promised that the Tories would not leave them unchanged. "What we have is a hurriedly erected halfway house, neither properly independent, nor properly accountable, which has yet to be properly tested," he said.

Mr Maude, who will chair a panel of experts to draw up the Tories' approach, said there were several significant flaws in Labour's blueprint. Monetary Policy Committee members were appointed for three years, creating the only independent bank in the world where the directors served shorter terms than the government which appointed them.

The shadow Chancellor sought to allay the fears of Eurosceptic Tory MPs, who see independence for the Bank as a step towards joining the single currency and handing control of interest rates to the European Central Bank. Mr Maude insisted that any powers given to the Bank would be retrievable by Parliament, while a single currency was "for keeps", and said the bank could be made properly accountable to Parliament.

Alan Milburn, Chief Secretary to the Treasury, said it was "extraordinary that after two years, Francis Maude still doesn't support independence for the Bank of England and can't answer the most basic questions about it".

Yesterday, the handing ofpower to set interest rates to the Bank was hailed a success by a cross-party committee of MPs, the powerful Treasury Select Committee, which said Gordon Brown's move had been "vindicated by the quality of the process of decision making". It said the Monetary Policy Committee had helped ward off recession last year by its swift action in cutting rates in the face of a global crisis.

But it said the previous policy of raising rates had fuelled the rise in the strength of sterling that had in turn caused an imbalance between a weak manufacturing export sector and a booming domestic services industry.