DO YOU want another house-price boom before the next general election? The last two were very popular. The years may have clouded recollections of the boom of 1972-74, but we can all remember the years 1986-88, when house prices rose by 20 per cent, 20 per cent and 30 per cent respectively. While it lasted no one was more popular than the then chancellor, Nigel Lawson. The (too) low interest rates of the time also had the effect of making inflation appear lower than it was.
It was only later that we saw monetary policy had been too lax; and after the normal lag of 18 months to 2 1/2 years, inflation started to rise. It rose to nearly 11 per cent and had to be checked by interest rates, which were at 15 per cent for a long time. The agony of the squeeze has made many wonder whether the pleasure of the boom was worthwhile.
It is a curiosity of British public life that we discuss the details of taxation and public expenditure at great length. But monetary policy may be far more important in its effect upon the country and on individuals. It is said, for instance, that the increases in taxation in the last Budget will leave many families with an increased tax burden of pounds 9 a week. On the other hand, the average householder with a mortgage is pounds 170 per month better off as a result of lower interest rates.
In recent years there have been long periods in which relations between the Treasury and the Bank of England were clouded in obscurity. If the House of Commons and the media are to be able to criticise monetary policy and thus to anticipate its effects, it is important that the instructions given by the Treasury to the Bank are open and known.
On 28 January, I shall ask the House of Commons to give a second reading to a Bill amending the Bank of England Act 1946. Under that Act, the Treasury has a general power to issue directions to the Bank. I propose amending that power so that the instructions given by the Treasury to the Bank should be written, open and published. If the Government decides to change the instructions to take account of considerations other than the achievement of price stability, then under my proposals it would have the right to issue further open instructions to the Bank.
The opportunities for considering and scrutinising monetary policy have been improved of late, but still leave much to be desired. Since 'White' Wednesday, the Bank of England has published its own quarterly inflation report. The Treasury no longer exercises the right to approve the contents of the report. The Inflation Report considers what has been done and gives the Bank's view of the most likely out-turn on future inflation.
This is a significant change. Moreover, the Bank has been given greater operational freedom to make changes in interest rates. It now decides when within a month changes are to be made. My proposals build upon conventions that are already being created.
The idea of an independent bank has been derided by the Chancellor as being fashionable. I assume he means it is ephemeral and insubstantial. My proposals have the support of all the House of Commons Treasury Select Committee - bar one member. I hope that will be seen not as a fashionable body but as an indication of wide consensus for these narrow but significant proposals.
The consensus was for one small step towards further openness. This step, it is true, might lead towards an independent European central bank, but that is the last thing I want. All I seek is to allow the House of Commons and the public to be better informed.
An overriding objective of the Government is to fund properly its very large borrowing requirement. Many of the foreign financiers who will lend pounds to the Bank of England come from countries with a written constitution and an independent central bank. These financiers will be bemused if the Chancellor prevents my Bill from gaining a second reading. Indeed, many may regard an independent bank as an indispensable part of their country's constitution. That is not my own argument, but it is clear that democratic control can be based only on knowledge.