Bank autonomy bill fails: Dorrell pours cold water on interest rate independence

A TORY MP's bill to give the Bank of England autonomy in determining interest rates failed in the Commons yesterday after Stephen Dorrell, the Financial Secretary to the Treasury, poured cold water on early change.

Kenneth Clarke, the Chancellor, has declared himself 'agnostic' on calls for more independence for the Bank over monetary policy.

But Mr Dorrell's criticism veered towards atheism as he questioned whether MPs or the public would accept unpopular decisions taken by the Bank.

Under a bill introduced by Nicholas Budgen, MP for Wolverhampton South-west, establishing price stability would become the Bank's primary duty and Eddie George, the Governor, would be free to fix interest rates without direction from the Treasury.

But Mr Dorrell asked: 'How would people outside this place regard what was perceived as an independent central bank putting up interest rates? How, in particular, would they regard it if, when the issue was challenged in this place, the answer was 'that's not a matter for me, it's a matter for Eddie'?'

The former chancellors Norman Lamont and Lord Lawson have argued for an independent bank, as have the Liberal Democrats. Labour is examining the issue.

Mr Budgen's Bank of England (Amendment) Bill, which was 'talked-out' and failed to get a second reading, echoes some proposals by the Treasury Select Committee. The Government is due to respond to the committee in the next two months - probably with the same objections as Mr Dorrell.

'It is dangerous for us to allow ourselves to believe that any institution for managing monetary policy can be a panacea, could by itself guarantee the delivery of price stability,' he said.

With the Maastricht Treaty allowing for a European central bank, Mr Dorrell said it was not 'inconceivable' that there should be moves towards more independent conduct of monetary policy.

But he said he did not think that a more autonomous Bank of England on a statutory basis was 'a prospect in the foreseeable future'.

He stressed steps taken in the wake of the debacle over the exchange rate mechanism to ensure greater transparency in Treasury- Bank dealings, notably publication of the Bank's quarterly report on inflation and the Governor's ability to decide the precise timing of interest rate changes.

Mr Budgen said that the last thing he wanted was a British Bundesbank. His bill was designed 'to create openness and accountability', he said.