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Lord Barnett writes for ePolitix.com ahead of his oral question on the Bank of England Act.
It is not appreciated that the 'independence' of the Bank of England is heavily constrained under the Bank of England Act which gave it the power to set interest rates.
First, the level of inflation, which is the main criterion deciding the level of interest rates, is given to the Bank by the Chancellor of the Exchequer. Then, in three famous words, 'subject to that', i.e. subject to achieving the target level of inflation, it should take into account the government's economic policies.
In practice, there is ample evidence that the governor and the monetary policy committee [MPC] never discuss the government's economic policy! I would therefore like to delete those three words; even then, there is no guarantee the Bank would not simply continue on its merry way, ignoring the government's economic policy.
The governor has regular discussions with the Treasury, and indeed, a senior Treasury official sits in at the regular monthly meetings of the MPC, but I remain convinced that the governor has taken the so-called 'independence' too literally.
That 'independence' has become even more important this year, with the power the Bank has taken of introducing, very sensibly, what has become known as 'quantitative easing', to the tune of £200bn. Whether, or when, it should be increased, reduced or ended, are crucial decisions and clearly should be guided by the government's economic policies.
I fear an unelected governor of the Bank of England will have the last word.
Dods Parliamentary Communications Ltd