Peers demand more interest rate scrutiny

Rates are set by a powerful committee

The men and women who set the Bank of England's interest rates should face greater scrutiny before and after their appointment, according to a House of Lords committee.

The committee said Chancellor Gordon Brown should consider involving the Commissioner for Public Appointments in vetting new members.

Lords want more scrutiny of Brown's appointments

The public should also be told more about how the bank's monetary policy committee (MPC) made its monthly decisions on rates, with a published summary containing comments by individual members explaining their votes, said the peers.

Committee chairman Lord Peston said: "I hope that both our report and the evidence that goes with it will be a contribution to openness, transparency and accountability in this important area."

The power of nine

With such huge financial power wielded by just nine people, the make-up of the MPC is crucial.

The Bank of England appoints five members, with four more positions in the gift of the chancellor.

In theory the Commons treasury select committee "confirms" the candidates after an interview.

But its lack of power was demonstrated last year when it rejected the nomination of Oxford academic Christopher Allsopp as an MPC member.

The chancellor appointed him anyway.

The commissioner for public appointments was set up by former Conservative prime minister John Major to ensure appointments to quangos and other public bodies were "meritorious".

Lengthy interviews

The Lords' report was produced after lengthy hearings including evidence from Mr Brown, shadow chancellor Michael Portillo, the governor of the Bank of England, Sir Edward George, and other members of the MPC.

Its other recommendations include a formal commitment for the MPC to explain its work to the press and public, a review of the Bank of England's forecasting methods and greater openness in fiscal policy.

Labour peer Lord Peston also welcomed the Lords' agreement to appoint a new economic affairs committee.

Earlier this month the MPC cut the bank's base rate by a quarter point to 5.75 per cent amid mounting concern about the impact of the US economic slowdown.

It was the first cut for borrowers since June 1999 and has led to reductions in mortgage rates.