Comment: How independent is the Bank of England?

It was always an obvious criticism of Gordon Brown's "made in Britain" approach to an independently determined monetary policy that cronyism alone would in practice continue to give him a big say over interest rate decisions. Of the Bank of England's nine-member monetary policy committee, four are appointed directly by the Chancellor from outside the Bank. Of the Bank's five appointments, three are in effect Brown nominees since the Bank's Governor and two deputy Governors, all of whom automatically sit on the committee, are all chosen by the Government. It might be argued that even the remaining two members of the committee are tainted, since they are appointed by the Governor, who in turn is appointed by the Chancellor. Though Mr Brown would presumably never attempt to influence any of these people directly on the day-to-day conduct of policy, nor could he be expected to appoint anyone who was overtly on the other side of the fence politically, or who didn't broadly share his economic and social views.

In summary, how independent is the newly independent Bank of England likely to be? To work successfully, any anti-inflation policy requires a large degree of consensus between central bank and the politicians who ultimately control it. Any central bank which over a prolonged period of time pursues a policy which the elected Government of the country doesn't want must be doomed to oblivion. So these criticisms of Labour's approach to Bank of England independence might seem nit-picking.

Even so, perception is all in the establishment of a credible monetary policy and if there is any question of compromise or a political agenda in the way interest rates are set, then the battle is lost. The suggestion, then, that all appointments should be "positive vetted" by the cross-party Treasury Select Committee is a good one which the Government ought to welcome. The system already plainly works well in the US, where the mere threat that Congress might veto an appointment to the Federal Reserve prevents the Administration opting for obviously biased candidates.

Raising the life time of these appointments from three to six years also seems a reasonable thing, since this would establish continuity and limit the Government's ability to change committee members that don't suit its political purposes. It is to be hoped that both these measures might be incorporated into the new Bank of England Bill, due to be published in about three weeks' time.