Leading Article: A question of credibility

ONE assumption can, alas, be made with safety about the speech that the Chancellor of the Exchequer, Norman Lamont, will today deliver to the Conservative Party conference. It will not contain an announcement that the Bank of England is to be given its independence. As a result, the Government will have a continuing credibility problem with its economic policies.

Politicians would be less than human if they rushed to surrender power. Yet, even in the crudest of political terms, the Government would be wise to think further about the institutional lessons of the economic crisis. Never was there a more appropriate time for a shift of power from Whitehall to Threadneedle Street. The public is disillusioned with the effects of the politicians' attempts to bring down inflation, while the usually boundless self-confidence of the Treasury - a particularly secretive department - has been badly shaken.

The record shows that nations which have independent central banks - such as Germany and the United States - are better at achieving and maintaining low rates of inflation than are those in which politicians are expected to take the difficult, often politically damaging, decisions involved. How pleasant it would be for the Chancellor if he were able to rise in the House of Commons later this month and wash his hands of responsibility for tough measures imposed on the nation as an independent central bank struggled to defend the value of the currency. Critics of an independent central bank claim there is something inherently undemocratic about the idea of monetary policy no longer coming under political control. This is to confuse political control (which is undesirable) and political accountability (which is very desirable). The aim should be the maximum transparency in policy-making and in its execution.

The governor of an independent Bank of England could, for example, expect to be called regularly before the Commons select committee on the Treasury to be grilled on the basis of his policies and on their efficacy. Alan Greenspan, chairman of the US Federal Reserve Board (the nation's central bank), is regularly called to account for the board's actions by Congress.

The other lesson to be learnt from the US concerns the value of a multiplicity of analytic and executive bodies. In addition to the US Treasury, the Federal Reserve and the Office of Management and Budget - the body that controls public expenditure - there is an influential presidential Council of Economic Advisers and the Congressional Budget Office. Both the latter publish economic predictions and advice on policy. In addition, the Federal Reserve's open market committee, which has executive responsibility for monetary policy, publishes the minutes of its meetings within weeks.

If the Government remains obdurate in its refusal to liberate the Bank from political thraldom, the least Mr Lamont could do would be to create his own free-standing council of economic advisers and to formalise and publicise the decisions reached by that secretive circle of Treasury, Bank and Downing Street officals which is our equivalent of the Federal Reserve's open market committee. Decisions tested in open debate are ultimately more credible than those arrived at in secrecy and announced unexpectedly.