Interest rate switch floated

CONTROL over interest rates should be taken from the Chancellor of the Exchequer and handed to an independent Bank of England charged with eradicating inflation, the Treasury and Civil Service select committee urged yesterday.

Nicholas Budgen, Conservative MP for Wolverhampton South- West, has incorporated its recommendations in a Private Member's Bill which should be debated by the Commons on 26 January. The Government is thought likely to allow the Bill to reach its detailed committee stage.

Three Labour members of the committee who supported the report emphasised they were not proposing as independent a Bank as the German Bundesbank. In an attempt to gather support within their party they said an independent Bank might help prevent a destabilising assault on an incoming Labour government from the financial markets.

The committee said the 1946 Bank of England Act should be amended to specify the achievement of 'stability in the general level of prices' as the Bank's primary objective. The Bank currently changes interest rates on the instructions of the Chancellor.

The Government would agree publicly-stated inflation targets with the Bank, taking into account the strength of the economy, tax and public spending policy and the monetary indicators used to assess interest rates. The committee said transferring control over interest rates to the Bank did not necessarily reduce democratic accountability.