Gordon Brown, the shadow Chancellor, took another cautious step towards a policy of semi-independence for the Bank of England in an important speech yesterday.
In a careful balancing act, he signalled his willingness to hand over decisions on interest rates to the Bank of England, provided it were reformed and showed a "successful track record in its advice".
Talking about "operational" decisions on the timing and size of interest rate changes, Mr Brown said that he wanted to consider "whether the operational role of the Bank of England should be extended beyond its current advisory role".
But he emphasised: "The Government will continue to set the inflation target and the framework for exchange rate policy, as well as to control fiscal policy."
Greater independence for the Bank of England is a controversial issue inside the Labour Party, and Mr Brown's speech was condemned yesterday as "quite wrong and illogical" by Roger Berry, MP for Kingswood and chairman of the party's Full Employment Forum.
"I feel very strongly that monetary policy has to be the responsibility of government. Effectively privatising the Bank of England is absurd," Mr Berry said.
Mr Brown's speech significantly skirted the directly-related issue of a single European currency. Under the Maastricht treaty, the single currency comes into effect in qualifying countries in 1999, supervised by a European Central Bank. Independence for the Bank of England is seen as paving the way for it to be absorbed into the European Central Bank, which is modelled on Germany's independent Bundesbank.
Mr Brown repeated Labour's support for "progress towards economic and monetary union", but also insisted that "convergence of the real economic performance of member states is a vital precondition" - which in effect reserves Labour's position until the next election. His speech instead set out detailed reforms of the Bank, and general principles governing public spending and borrowing - all in the context of a "medium-term growth strategy" designed to "raise the trend rate of growth" while maintaining low unemployment and low inflation.
He said he would not reverse the changes made by Norman Lamont when he was Chancellor, after Britain left the European exchange rate mechanism in 1992, setting an inflation target and publishing the minutes of monthly meetings between the Chancellor and the Governor of the Bank of England.
Although Mr Brown accepted that there would be an inflation target under a Labour government, sources close to him refused to say whether Labour agreed with the Government's present target of 1 to 2.5 per cent.
He proposed that interest-rate advice - and possibly decisions - should be agreed by an eight- person monetary policy committee appointed by the Government, which would include the Bank's governor, deputy governor and chief economist. At present, the governor alone has the final say on the Bank's advice.
The speech also set out what the shadow Chancellor called "Brown's Law" on controlling public spending and borrowing.
"The Government will only borrow to invest, public debt will remain stable and the cost-effectiveness of public spending must be proved," he said. "Nobody should doubt my iron resolve for stability and fiscal prudence."
Leading article, page 20