The Bank of England yesterday published plans for future transparency and accountability in setting interest rates.
When Tony Blair came to power in 1997, the price was the loss of the so-called independence of the Bank of England. Of course, even though the Bank of England was “nationalised”, it was always independent from the government, except in terms of setting interest rates.
So as soon as Blair became prime minister, his close friend and colleague, Gordon Brown, who just a decade later would become known as World Chancellor of the Exchequer, announced that the bank would become independent.
This was an issue that had never been mentioned before the election: changes to the state's relationship with the bank were merely announced, as was the 50-year defence agreement between Britain and France that was foisted on an unsuspecting public by Prime Minister David Cameron immediately after the 2010 election.
This change established the Monetary Policy Committee, which was given the role of setting interest rates to keep inflation within a target range.
Decisions about interest rates were made by the Minister of Finance, and although it was never revealed how interest rate decisions were made, there was at least some notion of accountability.
When the responsibility was handed over to the MPC, the great Global Prime Minister succumbed to slumping shoulders: “It's not about me.”
Accountability was shifted to the Bank Governor, and the nature of that accountability also changed: From that time on, if inflation was outside the target range, the Governor was required to write to the Minister of Finance explaining the reasons.
That's all.
Like current and former finance ministers, the Monetary Policy Committee has not felt the need to let anyone know how interest rate decisions were made. There was pressure for change.
Yesterday, the bank said:An independent report by former Federal Reserve Board Governor Kevin WarshAfter reviewing the transparency practices and procedures of the Monetary Policy Committee (MPC),
Given that the report was written by members of the Central Bankers Club, it is unclear how the report can remain independent, so it is perhaps not surprising that its publication has not resulted in any major changes.
The Monetary Policy Committee's “minutes” have traditionally been just a list of bullet points (the meeting records used to create the “minutes” have now been shredded and burned), and they will continue to be just that.
From now on (at least from August next year), the bullet point list will be published at the time of interest rate announcement rather than two weeks later, and meeting minutes will be made public after eight years rather than destroyed.
In other words, if members of the Monetary Policy Committee say something different in private to what they said in public, nothing really changes, except that we now know that it no longer matters.
Bank of England Governor Mark Carnage said:
The Bank now has huge responsibilities for monetary stability, financial stability and microprudential regulation. And with these responsibilities come effective transparency, real accountability and strong governance. Today, I am pleased to announce a set of the most significant changes to how interest rate decisions are presented and explained since the Monetary Policy Committee was established in 1997. In addition to these measures, I am also proposing some additional changes that will bring new changes to the governance of the institution. These changes will increase transparency and strengthen accountability to the UK public.
“More accountable to the British public”?
how?
