24
Examination of Witnesses
Howard Davies and Roger Bootle.
Q120 The Chair: Good afternoon and welcome to this hearing of the Economic Affairs Committee. Could you both introduce yourselves briefly, although neither of you needs any introduction?
Howard Davies: I am chair of the NatWest Group and Inigo Insurance, which is a Lloyd’s agency. I am also a professor in practice at Sciences Po, where I teach courses on central banking and financial regulation.
Roger Bootle: I am associated with Capital Economics, a firm that I founded. I have had various titles over the years. I notice that I am described here as chairman, but I gave up that position just a few days ago and I am now a senior independent adviser, although still very much involved with it.
Q121 The Chair: Thank you. I will ask a scene-setting question to start off with. I ask it of all our witnesses, so that we can put your further remarks into context. Could you give an overview of how you think the Bank of England has performed operationally, both strengths and weaknesses? What main themes do you think it has performed well and not so well on? Maybe you could start, Howard.
Howard Davies: I presume you are talking about the period since 1997, not from 1694.
The Chair: Absolutely.
Howard Davies: That is around the time when Mervyn King joined the Bank. Overall I would give it high marks for its performance since 1997. The inflation performance until recently—the last 18 months—was good and significantly better than we had had before. The advantages of independent interest-rate setting were very clear. I was unfortunate enough to be a participant in the famous “Ken and Eddie show” for a period, where we tried to operate a kind of hybrid model, but I do not think that that was successful. Overall, I think that the operations of the Bank have been good during that period.
If we move from inflation on to financial regulation, I have more questions about the structure. I was involved in setting up a different structure, for which I still retain some affection. On financial regulation there are some questions to answer, especially in the insurance area, which I notice has not featured particularly in your evidence sessions. The Bank oversees the insurance industry, which employs 300,000 people and is a huge industry. To ignore its work there is a mistake. There are some issues in that territory that I would wish to take issue with.
Overall, on financial stability, I think that from the banking perspective we would generally be comfortable with many of the decisions that the Bank has made in recent years, but the Bank is currently more of what I would call a gone-concern regulator, as opposed to a going-concern regulator. It focuses heavily on what would happen if things went wrong, such as how you resolve a bank, and less on the operations, profitability and viability of the banking system, which it seems to me is the best guarantor of a stable system in the long run—a banking system that makes reasonable returns and can raise new capital if it needs it. So I have some quarrels on the financial regulation side with the Bank’s approach. I do not think that it is just the Bank of England; I would probably say the same thing about the European Central Bank. I have some questions there, but I think that operational independence for monetary policy was a successful reform. It was one for which the Bank had quietly argued for some time before it happened and I do not think that there is a case for reversing it.
The Chair: Brilliant. That was a very good tour d’horizon.
Roger Bootle: I too give the Bank pretty high marks overall. Obviously, one has certain suggestions for things to be done differently and criticisms and cavils, to which I will give some vent in a moment, but overall I think that the record has been pretty good. However, for the initial period of the Bank’s independence, the global conditions were very favourable to its remit in getting inflation to the target. Conditions more recently, of course, have become unfavourable. It is therefore worthy of note that the Bank has done relatively badly in precisely that period when global conditions have become much less favourable than they were.
Whatever remarks one makes in criticism of the Bank have to be seen in the context of the regime that we had before. Immediately before, there was the “Ken and Eddie show”, which Howard referred to. That was not too bad, it seemed to me, but I remember the previous era of complete political control over interest rates, when there were some utterly bizarre decisions. For a start, there was a tendency for the bank rate or base rate to be cut in the week of the Conservative Party conference. There was an episode when a Conservative MP died in very odd circumstances. It was not clear whether it was suicide or some sort of strange activity that he had been involved in. There was a great scandal, so what did the Prime Minister do? He ordered an interest rate cut. Happily, we are a long way from that sort of era and so much the better for it.
With regard to the recent period, where one can be critical, as I think we are going to be, although the Bank has not done extremely well, it is noticeable that its performance is pretty much in the same ballpark as that of other central banks. If one is going to accuse the Bank of groupthink—and I am—there is also pretty clear evidence of groupthink between central banks. Although there are different degrees in different countries, they have all made similar mistakes.
The Chair: Excellent. That is a brilliant segue into the question from Lord Blackwell, who wants to pick up on that.
Q122 Lord Blackwell: Yes, I want to ask about groupthink. Roger, you have written about this. Do you think that there is a problem with groupthink in the way that the committees in the Bank operate and the appointments to them? Some people have made the point to us that the Bank should have been aware, following QE, that inflation would not be as transitory as it had thought. People have pointed out that there are not people of the traditional monetarist viewpoint on the MPC. Do you think that is an issue? If so, what can be done about it?
Roger Bootle: I do think it is an issue. I am conscious that it is extremely easy to judge things looking backwards and one has to be aware of that. Having said that, quite a few voices outside the Bank were making worrying noises about the inflationary dangers. Larry Summers—no one can accuse him of being a card-carrying monetarist—was issuing warnings about the inflation dangers ahead in the United States. A number of people in this country were issuing similar warnings.
The Bank made a big mistake with regard to the money supply, underestimating its importance—I will say a bit more about that in a moment—but that was not the only error and not necessarily even the biggest. Its biggest error was to have misjudged the state of the labour market and the productive capacity of the economy. In other words, a misreading of the real economy led to many of its mistakes.
On the point about money and monetarism, I am not a card-carrying monetarist myself. In fact, I spent much of the 1980s very strongly opposing monetarist doctrine, and I thought we paid a very heavy price for the Government of the day being absolutely obsessed with controlling sterling M3, until they saw the light. So I would not want to go back to a regime of rigid monetary targets.
Having said that, it has struck me as incredible over the past few years that we have gone from a situation in which economic policy in general, and certainly monetary policy, was governed entirely according to what was happening to a certain definition of the broad money supply to one in which, apparently, the Bank took no notice of monetary aggregates at all. Both those extreme positions are wrong.
I would have wanted to see some attention to monetary aggregates. At the very least, when you have broad money growing at 10% or 15%—or, at times on shorter measures, at 20%; this is true of the United States as well—you would think that someone in the Bank ought to have been asking the serious question, “Why is this time different? Can we explain why this is not going to be inflationary?” Even if you do not necessarily want to push the button or pull the trigger on the basis of what the money supply is saying, at least pay it some regard. The evidence is that the Bank paid it virtually no regard.
With regard to appointments, which you raised, I do not know whether we will look into this in more detail later, but it is striking—I think I am right in saying—that all four deputy governors of the Bank used to work at HM Treasury. I know they have been appointed on merit. Nevertheless, it is not a very good thing from the point of view of avoiding groupthink or even avoiding criticisms of full independence. You briefly referred to this, Lord Blackwell.
It would have been helpful, I think, if there had been an economist of the monetarist persuasion on the committee at some point or other to ask the questions I just gave voice to. The word “diversity” is extremely important these days. Probably the most important sort of diversity there ought to be on the committee is diversity of intellectual tradition and outlook, and I do not think there has been.
Lord Blackwell: Is part of the problem that the whole committee is using the same economic models—the Keynesian dynamic stochastic?
Roger Bootle: To some extent, yes, but I would think that quite a few members of the committee would not be using models at all. They do not need to use a model. It is more a matter of their general outlook and approach. You do not need a model, it seems to me, to evaluate the importance of the money supply. You either have some regard to its past relevance or you do not. It is a matter of assessing the current circumstances in relation to the monetary aggregates, which did not properly happen.
Howard Davies: I largely agree with my esteemed friend. I hope we are not going to get boring on that front. I should point out that Roger and I have not performed in public together since the summer of 1970, when we were in the same play at Merton College, Oxford. We can still remember some of the lines, I think.
The Chair: What was the play?
Howard Davies: “A Penny for a Song”, by John Whiting. It was in the garden. It was rained off mainly, if I recall.
Let me add a couple of points on top of what Roger said. One is on the appointments process. We might come on to talk about the potential role of the Court in the appointments process, a role that it does not play at the moment. At the moment, it is all in the hands of the Treasury. Indeed, there has been the same external adviser on all these appointments throughout the last five years or so, which is a bit strange and needs a bit of refreshment, although the number of macroeconomists who are interested in this kind of public policy is relatively limited, and surprisingly so.
I found, when I was the director of the LSE, that most of the professors in the economics department were not interested at all in current issues of monetary policy, and certainly not in the UK. Most of them, as Mervyn King will know, were physicists or game theorists, and they did not think terribly much about it. So the pool in which you are fishing is not as deep as you might imagine, given the number of economics professors there are.
I will not delve into the monetary and the models side, which I am not professionally competent to talk about. Roger is much better able to talk about that.
As for the judgments that were made, particularly in 2021, I got a bit of criticism around that time because in July 2021 I argued that interest rates should go up, not because I was gazing at monetary aggregates, I have to say, but because the evidence the bank got from corporate lenders when I talked to them—we are just about the largest lender to UK corporates—was that the company sector was extremely liquid, as you would imagine given the amount of money that was being pumped out. Also, the labour problems were starting to emerge in quite a big way. We were getting quite extensively from companies at the time that a lot of people had left the labour force and did not seem to be coming back. Those in the personal sector were fine, because they had largely been paid the same amount of money as they were paid before Covid and had been denied the opportunity to spend it, so there was a lot of pent-up spending power.
We at the bank added all this together and said that it could end in increasing prices; I was coming at it from a very practical banking perspective. But that did not seem to enter into the considerations of the Monetary Policy Committee. Indeed, most of the members of the Monetary Policy Committee do not talk to the banks at all. I would exempt Andrew Bailey from this, because he talks to the banks quite a lot. Jon Cunliffe talks to the banks on his issues—financial stability and things such as digital currencies, which are obviously very relevant to the banking system. The others I have never met.
The Chair: To tie up what you have just said with what Roger said, this is also the case in other central banks. As Stephen King makes clear in his book, there has been global groupthink. Do you agree, and how come we have had this global groupthink not just here but elsewhere?
Howard Davies: To some extent that is true. Some of the factors that led to our inflationary boom look as though they mean that our inflation will persist for longer than elsewhere, which I think is likely, and were specific to the UK. I do not think that all my European bank colleagues, who I meet quite frequently, would have said the same thing. Well, they did not say the same thing about what was going on in their corporate sectors; of course, other countries operated rather differently in supporting their economies on Covid. We did it in a particular way. So I do not think it was all the same everywhere.
The Fed famously said that it thought this was all transitory until Powell eventually retired the word “transitory” explicitly, which was rather nice. So, yes, there was some groupthink among central banks, but our specific situation was a bit worse than the others and I think we will still pay the penalty for that.
Lord Turnbull: Roger, when did you think the errors of policy were made? Could you locate that more precisely in time? Unless you disagree that 2021 was the turning point, I think Howard has given us the answer.
Roger Bootle: I think I would agree that it was around that point. I had no disagreement with the general thrust of policy before then with regard to either interest rates or QE. There was a failure to realise early enough what was going on in the economy, which I would pinpoint at around that point in 2021.
The second error, which may in the end be more important, is that once it was realised that things were much looser than the Bank had originally thought and that the inflationary danger was greater, it did not proceed fast enough. I would have put rates up much faster.
Q123 Lord Blackwell: The other point that has been made to us about groupthink is the risk of trying to form a consensus around forward guidance and declare a common viewpoint being something that, in a sense, encourages everyone on the MPC to have a similar viewpoint. With four members from the executive, it is maybe difficult for them to disagree with the governor. Is there an argument in favour of what the Fed does with its Open Market Committee, where it has dot points and everyone puts their spot on so that it has not a consensus but a scatter?
Roger Bootle: There is an argument in favour of it. I am not sure that, in and of itself, it would achieve very much. I suppose it would be interesting to do the exercise. One suspects that, recently, the dot points would have been remarkably close together on the MPC, in which case you would not have got very far with having dot points. I think I am right in saying that in the States they do not reveal the author of each dot point. There is a mini-industry on Wall Street guessing which dot is down to which voter.
Can I just comment on this international groupthink question? I referred to this earlier on. It is quite extraordinary, when you think about it. I would argue that the one major banking institution that stands outside that groupthink is the BIS, which all along took a much more critical line. It was worried about the financial stability consequences of the policy and stood out against everybody else.
One of the reasons why there is a large amount of international groupthink is because of the banks’ common experience. There was a long period of very low inflation, which I partly attribute to favourable global conditions shared by more or less everybody. There was a similar experience at the time of the financial crisis in 2007 to 2009. They went through the period of money being pumped into the system then and various people making alarming forecasts as to what might happen, and it did not happen. This is part of the explanation: they have lived through similar experiences.
Having said that, they talk to each other all the time and attend the same gatherings. It is a shame that more of them did not listen to the BIS at Jackson Hole, for instance. Whoever puts forward the agenda for Jackson Hole, including its membership and attendance, ought to ensure that there are a fair few free thinkers at it as well. We have not had that; we have had people singing from the same hymn sheet.
Q124 Lord Griffiths of Fforestfach: Following on from that, I wonder whether you have a view on this. Let us assume that there is an economic department and a model that it is constructing. The model gives certain predictions. The department now meets as a monetary committee and, in that committee, people have brought their own judgments. How much of the decision-making is done in relation to the model and how much in the committee? I ask because, when I went into No. 10—occasionally there were meetings with the head of the Treasury, the Chancellor and so on; it was just a few of us but Andrew was there—what amazed me was the sophistication of the models. But you felt that the real decisions depended on particular judgments made by individuals with a tenuous connection, in a way, to exactly what the model was putting out. I wonder whether you feel that this is what really happens in the Bank.
Roger Bootle: I am sure that it is what happens in the Bank. What is more, I am pretty sure that it ought to happen in the Bank. I am not the greatest fan of macroeconomic models. We have to have them, but the idea that you leave your thinking and reasoning powers on the doormat and just submit to whatever the model says is baloney. It is “garbage in, garbage out” and all that stuff.
This is true in the forecasting world as well as in the policy-making world. I have operated with macro models on a number of occasions, and it is amazing the number of times that you actually have to impose a judgment on the model to get any sense out of it at the end of the day. I hope that they were not overly dominated by models. They probably were not; it is just that the way in which they approached the issue in terms of their judgment was too similar, I suspect.
Howard Davies: Can I just comment on the dot plot and on decision-making? I have to say, I am not particularly a fan of the dot plot. It is driven by the Fed’s structure, with its regional banks. Indeed, the dots include people who do not vote on the FOMC, which is rather peculiar; you have 19 dots but only 12 people voting in the end. The predictive power of the dot plot has been modest, shall we say. Indeed, in a survey in the Economist, about a third said they thought it was useful, a third said they thought it definitely was not useful and a third did not know. If that is your answer, there is no meaning in it, really. So I am not sure I would particularly favour the dot plot.
One thing I just observe—this links back to what Roger said about going more quickly once it was evident that inflation was moving, a point with which I agree—is that the Bank should have started a little earlier and gone somewhat faster. But one of the reasons why that is more difficult is because of the structure that we have on the MPC, with nine people all making speeches—that is another point that we might come on to—explaining their positions. If you get a discontinuity where things change quite quickly, as they did in late 2021, it can be quite difficult to turn the tanker around because everybody on the committee has gone out and made a speech explaining why they said what they did. Many of them then seem to feel that they have to go and make another speech before they can change they minds to explain why they have changed their minds, if you see what I mean. It means that you get a rather slow change.
Most of the time, in normal circumstances where, ideally, you want predictable financial conditions with a touch on the tiller here and there, that may make quite a lot of sense. But in the circumstances of late 2021 and early 2022, it was a handicap.
The Chair: What would you do on that point around speeches and communication?
Howard Davies: I think there is too much noise in the market now. If you look at the number of communications, speeches, interviews et cetera from members of the Monetary Policy Committee, it is more than anywhere else in the world. It is more than the Fed. There is too much of it.
The Chair: Roger, do you agree on that?
Roger Bootle: I think I probably do. I just want to comment briefly on the point I made when I said that I thought the Bank ought to have gone faster, with which Howard agreed. From what I have seen, I do not think there is much evidence that there was a real discussion in the Bank on how fast it should go. I do not see any evidence that, having decided that rates had to go up, someone there was saying, “Let’s put them up by 1% or 2%”, or whatever. This was a major failing.
It ties up with what we said before: all along, there was an underestimation of the virulence of inflation and the idea that, once the cat gets out of the bag, it is extremely difficult to get it back in. On the notion of things being transitory, in principle, the oil price rises of 1973-74 and 1979-80 could have been transitory as well. The trouble with these things is that the first round gets passed on and the extent to which it gets passed on is affected by monetary policy. I presume that, at some point or other, we will reflect on independence and how effective it has been.
Briefly, I make the point that, when the Bank was not independent, in 1979, interest rates went up in a few months from 12% to 17%. That was when interest rates were politically controlled. They went up again, I think by four percentage points, in two stages from September 1981. Then, there was a clear understanding that vigorous action had to be taken to get this thing under control. I think there was no serious debate in the Bank about how strong the response should be. Having said that, I understand the notion that this is not easy and that, clearly, if you act more boldly you are taking a risk with a number of things—including financial stability, potentially.
Howard Davies: In that second episode, I was in the monetary policy division of the Treasury and working directly with Lord Turnbull.
Q125 Lord Londesborough: Can we turn to the trend of expanding remits for the Bank of England and, indeed, for central banks in general? I think especially of the growing list of secondary objectives, including climate change and biodiversity. To illustrate this, the Chancellor’s letter outlining the FPC’s remit has grown in length from just over 2,000 words back in 2013 to almost 4,000 words, and includes such directives as supporting economic growth and international competitiveness; supporting innovation in the financial sector; supporting first-time buyers; and supporting access to the mortgage market. Do you think that the Bank is being asked to do too much? Is it being distracted from its primary objectives? Is there a danger of it becoming overstretched or, indeed, politicised?
Roger Bootle: I think the short answer is yes. I would argue that, although the various things you referred to are worthy objectives, most of them are better catered for by government in some form of fiscal policy intervention, either spending or tax measures. Monetary policy is both extremely powerful and very blunt. Sometimes it is not powerful at all, actually; you have to be very careful with it. The Bank, like other central banks, does not have that many instruments to play with. As we have seen, it has not done extremely well at getting on top of inflation in the last couple of years, so I think it is a mistake to lumber central banks, including ours, with too many of these extra objectives.
Lord Londesborough: Including climate change?
Roger Bootle: I am including climate change, yes.
Howard Davies: After the last major financial crisis in 2008-09, there was a lot of discussion in central banking circles about the famous Tinbergen principle that if you have one instrument you can really have only one objective. That led to macroprudential supervision, so that the Bank has two tools in relation to the banking system. When you start to add other objectives, you start to hit up against the Tinbergen principle in what you are trying to achieve.
It is clear that there is a spectrum of opinion among the major central banks about what they should do in the area of climate change. The Fed, at one end, is saying that it is not going to be a climate policymaker and is doing quite little. The ECB, at the other end, is making something of a mission of acting on climate change and has talked quite positively about using capital requirements in banking to influence the cost of credit for particular emitting industries. The Bank of England is somewhere in the middle.
Although I accept in principle the point about different objectives and confusion, I am actually quite supportive of where the Bank is on this. It is quite difficult to argue how monetary policy could be used for climate change purposes. I find it a struggle, with perhaps one exception—if you say that this is monetary policy—being the nature of QE and what kinds of bonds you are buying and selling. You could probably bias that in favour of green bonds, although the definition of that is complicated. Otherwise, I honestly think there is not much you can do with monetary policy.
Where the Bank has done a good job, which as a chairman of a bank I can genuinely say has been quite useful to us, is the climate stress test that it does. That requires banks to look at the ways in which they are exposed to transition risks in climate change. It has been quite an instructive exercise. It was quite a costly and time-consuming exercise, but it was useful. To take it at its simplest, are you lending to fossil fuel companies, where your effective collateral is stuff in the ground that they will not be allowed to get out? You would therefore be fooling yourself about what your security is. That is a simple case, but this has helped banks to understand how they are exposed to climate change. That encouragement of banks to think about their exposures has been quite positive.
The Bank has then asked whether it should use capital requirements to influence that and to influence the cost of credit for high-emitting versus low-emitting companies, but the Bank has set its face against that and I think correctly. The capital regime is not suitable for that. You would have to do such violence to the capital requirements to produce an effective increase in the cost of capital for high carbon-emitting companies that you would distort the whole regime beyond its usefulness. That is a slightly long-winded way of saying that the Bank has taken this remit, which it has but the ECB does not have—the Chancellor wrote to the Bank to ask it to that this into account—in quite a sensible way. Where we are at the moment is quite good but, in principle, I do not disagree that it is dangerous to load the Bank with lots of different objectives.
As someone who is rather concerned about climate change, I think there is a risk that Governments say, “Well, we’ve handed that responsibility to the central bank now. The central bank can manipulate capital requirements to change the cost of credit and we don’t have to increase diesel prices, so we can disapply the fuel duty accelerator quite cheerfully”. There is a risk that this distorts decision-making away from where it would be effective, through the tax system, into areas where it would not be very effective but that are politically less sensitive.
The number of people in the country who understand the impact of diesel price rises is extremely high—approaching 100%—much higher than the number of people who understand reweighting capital requirements to change the pillar 1 charge for a high-emitting company. I have probably lost even members of this committee at this point. I have a sense that politicians would like to push this on to the central bank because it is in the “too difficult” box, politically. That is a positive danger from getting the Bank of England to look after it.
The Chair: I will just jump in on that point about accountability and scrutiny of the remit. Do you feel that Parliament has had enough scrutiny of the expansion of its remit and, as you rightly say, is it aware of what the Bank is doing on climate change or other things?
Howard Davies: Probably not. I am not aware that that debate with the Bank, which I have tried to summarise in a rather rapid and perhaps slightly confusing way, has taken place in the Treasury Select Committee or wherever and whether Parliament is calibrating its approach to climate change. I would personally support the Bank’s current position, but I am not sure whether it has been argued through.
Lord Turnbull: Paying particular attention to the stranded assets of the fossil fuel sector, I can see that it made sense to say, “You must look at this”, but I do not understand why it was applied to oil and gas companies in particular. There are all sorts of stranded assets, many of which are very large and more immediate. The whole aviation sector is a huge stranded asset and has to be looked at very carefully. High streets and shops need to be looked at very carefully, as well as the number of buildings built for office purposes that are not being used as offices. What I do not understand is why we are not looking at stranded assets dispassionately. Why are we choosing this particular thing? The previous governor, in particular, chose to campaign on this issue. Instead, these stress tests should be more generalised and include climate risks, but not to the exclusion of a whole series of other risks.
Howard Davies: We do cover a lot of other risks, and climate risks cover some of the other issues that you talk about. In our case, we will lend to people who have a credible transition plan on the Government’s net-zero horizon because, without that, your business model is risky and you are a riskier borrower than you would otherwise be. We take this well beyond stranded assets into whether the business is viable.
We now look differently at a haulage company that has an aged diesel fleet and no plans to replace it and one that has a plan to evolve towards an electric fleet over the next five to 10 years. We look on them and the security of our loan differently. The net-zero framework is broader and encompasses more than stranded assets.
Q126 Lord Davies of Brixton: Following on from this area, there are clearly additional objectives that link monetary and financial stability. You might think that they are inextricably interlinked, but does that in itself create problems when you are trying to run a monetary policy and/or maintain financial stability? How do those two work together? Do they work together or are there problems? If there are, what is the solution?
Howard Davies: There is something that some central bankers refer to as the separation principle. You can look at these two things separately: one conditions the other but, none the less, your instruments may be different. Your instrument on price stability is the interest rate and on financial stability it is largely a combination of capital requirements, whether microprudential or macroprudential. That is a helpful distinction, and it is made flesh in the Bank of England by the Monetary Policy Committee and the Financial Policy Committee.
The last few years have created a number of challenging situations that have somewhat threatened this separation principle. An obvious one is the LDI episode last September, when it was clear that the Bank’s interventions, from a financial stability perspective, looked at face value to be somewhat contrary to its policy direction on monetary stability. The Bank went through quite a lot of intellectual gymnastics to try to justify the two by saying that it would be time-limited and that it would sterilise. It was criticised a lot for that, but somewhat unfairly because, in the end, the Bank’s response to that episode was quite effective.
In the long term, the separation principle is helpful, as is thinking about these two things in a distinct way. But you have to recognise that, from time to time, the Monetary Policy Committee and the Financial Policy Committee need to put their heads together. They have quite a bit of cross-membership, which allows them to do that in particular circumstances and to ask whether they need to think about the two together, from time to time. On the whole, I favour some kind of institutional separation of the two.
Q127 Lord Davies of Brixton: You have just answered my follow-up question. Some central banks have both functions in their organisations, but you would advocate distinct areas for those two functions.
Howard Davies: The decision-making process is somewhat different in the two, so I am happy with the MPC/FPC division of labour. It might help to have a structure in which the MPC and the FPC came together from time to time, which I do not think happens at the moment except in a very ad hoc way, but I would not advocate merging the two.
Roger Bootle: I very much agree with Howard, but will just put a wrinkle on that. It is surely better to have two different sorts of instruments to address these two quite different objectives—maintaining financial stability and keeping to the inflation target. We are much stronger in that regard than we were 20 years ago, say, but the tension between these two things is great. I suspect there are occasions when, no matter how good your financial stability policies have been, the system becomes overexposed to a particular risk, which you have underestimated. At that point, monetary policy needs to be strongly influenced by financial stability considerations. I would not say that means that the inflation target must take a back seat, but the extent to which you can devote monetary policy to it is compromised.
For instance—I argue this but it is widely debated—in the run-up to the global financial crisis most central banks kept interest rates too low, from the point of view not of inflation control but of financial stability. This goes back to debates about Chairman Greenspan’s attitude to financial stability. If you recognise that and that interest rates sometimes have to play a role in restraining the financial sector more generally, you have to permit a certain degree of flexibility with the inflation target. There is a tension here that is not easy to reconcile or dispel.
The Chair: To pick up on the point that Howard touched on earlier, Roger, would you change the structure in any way? Would you bring the committees together in any form?
Roger Bootle: I would probably not. On the whole, it has worked reasonably well.
The Chair: Obviously, there are members of the MPC who are also on the FPC. How does that balance against this accusation of groupthink? They are doing separate things, but is that good or not? How should we view that?
Roger Bootle: It is a good thing from the point of view of co-ordination and mutual understanding. Just because one or two people are on both committees, it does not mean that there is the same groupthink on both committees. It is all about having enough people with diverse viewpoints.
The Chair: Howard, do you agree with that? Others have raised this as an issue, so I wanted to ask your view.
Howard Davies: Yes, I am not unhappy about it. Following what I said about the need for the two committees to come together from time to time, it is appropriate to have some cross-membership. It is more important to have people on the FPC who have fairly recent, current knowledge of the financial system. That is the biggest issue.
Lord Davies of Brixton: From the outside, it appears that the two committees operate in distinct ways. The Financial Policy Committee emphasises consensus, which is not emphasised as much in the Monetary Policy Committee. Is that important or is it just the way they have grown?
Howard Davies: As I read it, the Financial Policy Committee can influence things in a number of different ways—in other words, not just making the interest rate decision, which is 90% of what the MPC does. The FPC’s equivalent may be putting the countercyclical buffer up or down; that is an important signal, which people pay attention to. But it also does a lot of other things in crystallising its analysis of where there are risks in the financial system and publicising them. It is helpful for that to be a matter of consensus by the committee, because I am not sure it would be particularly useful if I received the latest FPC report and it said, “Five of us think there’s a bit of a problem with bank lending and four of us think it’s fine”. Unless their view is coherent, it would not be very interesting. The FPC could maybe vote on the countercyclical buffer, if it was felt necessary, but it is better to have a consensus view on the rest.
Q128 Lord Blackwell: I have a quick question. The MPC’s sole focus is on inflation as measured by CPI or RPI, but what it does also has an impact on asset values. Some people have raised the question of whether it should be asked to consider the impact of its policy on asset price inflation as opposed to simply on goods and services.
Roger Bootle: This is a long-running debate, which I briefly referred to a moment ago with regard to Chairman Greenspan. There are no easy answers here. My understanding is that the MPC, under the current remit and its understanding of that remit, looks at asset prices as one of the things that ultimately bears on the rate of inflation. It is a factor to take into account.
That is not quite the same as what you were referring to, which was to some extent directing monetary policy at the course of asset prices. I would lean in that direction and I think that Chairman Greenspan got this fundamentally wrong, with regard to the Fed’s policy in America. First, he was exercised by what was happening to the stock market and used the expression “irrational exuberance”, then he argued that you should not use monetary policy to address this but should instead clear up the mess afterwards. That was the idea, but it was some mess to clear up afterwards.
The better approach would have been to set monetary policy partly with regard to what was happening to asset prices in general. The trouble with that is that it compromises the extent to which you can closely follow the inflation target. There are no easy wins here. If you want to do that, you cannot set monetary policy wholly with regard to inflation. In those circumstances, given that inflation was pretty low more or less everywhere, the consequence of using monetary policy more to restrain asset prices would have been to end up with a period of even lower inflation. In the circumstances, I do not think that would have been a disaster.
Howard Davies: I will make three points about this. One is that this debate has started to be heard in central banking circles, because New Zealand’s central bank has been given a remit on asset prices. You might think that New Zealand is a long way away but, of course, it invented inflation targeting so people have paid some attention to what it has done.
Secondly, Roger referred to what is often known as the “leaners versus cleaners” debate, with Greenspan being a cleaner—that is, you just let things clear up afterwards. The centre of gravity in central banking now is more towards the leaners, meaning that you should be anticipating; I therefore do not think that the issue quite presents itself in the way it did in 2005-06 when asset prices were neglected.
The position where asset prices should be an important input into decision-making—because they can often tell you whether an imbalance is developing in the economy—is the right way to think about this. Personally, I am not convinced that a target for asset prices is a feasible proposition. It will be interesting to see how New Zealand manages it but I am not attracted by it.
Q129 Lord Verjee: It seems to me that we talk about asset prices generally when we are worried about inflation in asset prices and a boom in asset prices. Should we have more regard to stability when we are fearful of asset prices dropping, as we have seen recently in the banking system with bond prices dropping, et cetera?
Roger Bootle: In principle, it should be both. The criticism levelled against Chairman Greenspan was that he was worried about only one thing: he wanted to stop asset prices dropping so that monetary policy became asymmetric, but he was not prepared to use it enough to restrain asset prices when they got too high. I agree with Howard that a target for asset prices would not be a good idea.
Linking up with what we were debating earlier on with regard to inflation and the role of money supply in all this, what was happening to asset prices was, it seems to me, an interesting indicator of the influence of money supply at work in the economy. I am definitely leaning towards the “leaners” side of this debate—that is, I think that central banks have to take key account of asset prices in both directions.
Howard Davies: The logic points to that. The argument that you would have to produce would be to say, “Well, these falls in asset prices look as if they could generate a deflationary environment, which would also be inconsistent with our inflation rate targets because we would go below 1%, which is the band we are supposed to be in”. If you can develop that line of argument, yes, weakening asset prices are relevant.
Lord King of Lothbury: You have used the phrase “asset prices” as if all assets move in the same way. I remember that, on the Monetary Policy Committee, the only time when the leaners recommended a different monetary policy was to lower interest rates because they were worried that the exchange rate was too strong and the exchange rate was a very clear asset price. It is not obvious in which direction the policy would go; I take everything that you say, but one of the reasons for having an independent central bank is to try to limit the number of reasons that people come up with for having an easier monetary policy.
Howard Davies: I agree with that.
Q130 Lord Griffiths of Fforestfach: You have already touched on this, but the presence of the MPC and the Financial Policy Committee in public debate and their accountability to both Parliament and the general public seem rather different. The MPC gets an awful lot of attention; everyone is thinking about it, or one thing that it is concerned about. To what extent do you think the FPC is lacking in accountability to Parliament and, more generally, to the general public?
Howard Davies: There is a problem around financial stability. After the last big financial crisis, a new architecture to oversee financial stability was put in place globally. You have the Financial Stability Board in Basel. Then, in the main jurisdictions, in the Fed there is the Financial Stability Oversight Council, while in Europe there is the European Systemic Risk Board. Here, there is the Financial Policy Committee.
On the page—or on the slide when I teach this—it all looks quite tidy and as if someone has thought about this architecture, but the interfaces between them are not particularly good or well developed. As you say, the public exposure of the issues does not happen in the way that you might think it would. The Financial Stability Board’s vulnerabilities exercise gets almost no press even though it is quite an intensive exercise and a thoughtful process. I am one of the few readers of this stuff.
There is a problem with it. I am not quite sure how to resolve it, actually. Parliamentary scrutiny would help a bit with the FPC. If the FPC’s annual report were debated in Parliament or there were a Joint Committee of both Houses to discuss it, that could elevate these concerns; it would be quite helpful, actually. As I say, I am really an advocate of this because there is value and information in these reports that is not adequately considered by decision-makers, whether in the public or the private sector.
Lord Griffiths of Fforestfach: Do you think that the reports themselves could be more informative about the way in which they have come to a conclusion or, where there are potential disagreements, how they steered through them and so on? Would this help? If there was then more parliamentary scrutiny, there would obviously be more information to discuss.
Howard Davies: There is a problem around people looking back or, indeed, not looking back. The criticism of all this stuff is that people forecast five of the next two crises. If you are writing the financial stability report, there are no prizes for saying that everything is fine—so you forecast trouble. It would be good if there was some self-criticism about whether these bodies have been useful in identifying stresses and strains in the system at an appropriate time in such a way that something could have been done about them. I have not seen any retrospective analysis of the work of the FPC, to take the UK example specifically, to ask, “Was it right? When it was warned about this, that and the other thing, was it correct? Would it have helped if people, not just in the public sector but in the private sector as well, had paid attention to it?” Some analysis of that sort would be useful; I am not aware of any at the moment.
Lord Griffiths of Fforestfach: That is very helpful.
Roger Bootle: In your question you referred to both parliamentary scrutiny and public awareness of the issues. It is true that the public profile of the FPC is nothing like the equivalent of the MPC. I think that is pretty much inevitable, given the different nature of what is being debated and the simplicity of saying, “Oh, they’ve just raised rates by half a per cent” or whatever, compared with the sort of the analysis that the FPC does. I wonder: if more were made of the FPC’s deliberations, and they were communicated in a clearer and more impactful manner, would that actually be in the public interest? In what sense do we think that would influence the behaviour of the public? You could argue that it would be extremely good in a number of respects with regard to public attitudes to the share market, bitcoin, housing—a whole series of things. But is there not also a danger of stoking panic at various critical points? I am not sure that it is not a good thing that the FPC runs a little beneath the radar as far as public awareness is concerned.
Lord Griffiths of Fforestfach: Would you be in favour of regulating shorting a market? I throw that out there.
Howard Davies: Personally, no.
Lord Griffiths of Fforestfach: My fear is that it is so easy to go down that line if one is not careful, but I can see that careless talk costs lives. There is an argument there as well.
Q131 Lord King of Lothbury: Well, we have had no careless talk this afternoon. Thank you both for persuasively discussing monetary and financial stability. The Bank is now the guardian of price stability, monetary stability and financial stability, which always raises the question of who guards the guardians. The Court of the Bank clearly has a role in this. What do you see as the proper role of the Court, and do you have any suggestions for how it might be reformed, if at all?
Howard, you have experienced both the Court and the body overseeing the FSA. Can you talk about some of that experience and what you would do about the Court if you had the power to make any changes?
Howard Davies: The Court of the Bank, in international comparative terms, is rather unusual in a couple of respects. One is that it has a lot of executives on it because there are now four deputy governors. There is the governor and four executives, which makes it quite large, because it has, curiously and maybe slightly unfortunately, 13 members—something that most boards try to avoids. That is quite large. The IMF has produced recommendations for countries about how big their oversight boards should be, and 13 is way above what the IMF would recommend as an effective decision-making body. That is driven partly by the fact that it has, in my view, too many executives. In other countries there is a governor and a first deputy, and the others are not on the overall body. That is one thing you could consider.
The more important thing is what the Court does. It is also distinguished internationally by the fact that it does not have many powers. It obviously does not make monetary and financial policy decisions, whereas the governing body of the ECB clearly makes monetary decisions as well, and similarly with the Fed. In the Fed’s case it is the FOMC, but it is largely the same body.
The Court does not make any senior appointments, because they are made by the Treasury. I think the Court can technically appoint the COO, as long as the COO is not a deputy governor, but cannot otherwise make appointments. Technically it deals with pay, but in practice it does not because the governor’s and the deputies’ pay is determined effectively by the Treasury. So when you look at the Court you wonder what it does, because it looks like a hygiene body, really. In other words, it audits arrangements, monitors staff morale and stuff like that, so it is not useless but it does not do very much.
It is difficult to compare the Court with federal models, because they have a particular structure; the Fed and the ECB have individual member central banks, and all that. But Sweden, for example, has a council, which is politically balanced—some of its members are deputies but some are not—and appoints the key decision-makers: the governor, and the deputies below them. It can also make recommendations to other people. Other models do not have the formal power to make appointments, but the equivalent council of directors or whatever can make recommendations. In one case, I think in Norway, it puts forward three people, so it does the appointable stuff: “Who would be appointable to this position?”. Ultimately, the Government make that decision.
I would look at whether you could strengthen the Court by giving it some more responsibility, even if it is of a nomination kind rather than a decisive kind in relation to appointments. Otherwise, the Court is a hygiene body. It is not useless but is not particularly decisive, and it does not attract a lot of attention as a result, because no one can quite see what decisions it is actually making.
Roger Bootle: Of course, Lord King and Howard have active experience of the Court, having been at the Bank. I was not and do not. All I can say is that, in my long time in the City, I cannot recall any occasion when the Court figured in anybody’s deliberations about anything. I am sure we got this wrong but, as I say, it had absolutely no impact on people and firms in the City, except in the elevation of certain individuals to a position on the Court that was regarded as a mark of high honour and esteem. Bagehot referred to the dignified parts of the constitution, and that is how I would regard the Court.
Yesterday I looked at the Court’s website, which mentions that members of the Court can attend meetings of the Monetary Policy Committee and the FPC even if they are not members—of course, some of them are. I wonder whether that actually happens.
Lord King of Lothbury: Yes, it does. It is in the minutes.
Roger Bootle: They are also entitled to commission so-called independent reports on the performance of the Bank. I do not know whether they have said anything about the recent episode, but that would be an interesting incidence where the Court could play a role.
The Chair: There is the Independent Evaluation Office in the Bank. What role do you think that plays, or should play?
Roger Bootle: I do not know, I am afraid.
Howard Davies: It was not there when I was there, and I do not recall seeing anything that has emerged from it. Perhaps there has been something, but I have not seen it.
Roger Bootle: I wonder whether the Court could play some sort of role in relation to appointments to the MPC. We touched on that a number of times today. That is one thing it could usefully do.
Lord King of Lothbury: If the Court were not to be involved in making appointments, would you suggest any other changes to the current system, in which the Treasury seems to produce all the appointments and it is not entirely clear how it has reached those decisions? Judicial appointments are made in a different way, for example.
Roger Bootle: I do not know exactly how you would put this together, but there ought to be some sort of committee of the great and the good with experience of monetary policy to make these appointments, outside the Treasury remit. It seems rather extraordinary that the Treasury has such a stranglehold over all this, but it is unsurprising, in a sense, that one has landed up with the appointments there have been.
Howard Davies: I rather agree. I think you could have a broader committee that made recommendations. In the end, Ministers have to appoint people; you cannot avoid that in our system.
There is also the question of whether there should be a formal approval process of the kind you have in the United States, where the Senate Banking Committee is the final arbiter. The Government have always resisted the idea that the Treasury Select Committee should be the ultimate approver or not. There are hearings, but they are not technically approval hearings.
Lord King of Lothbury: Correct.
Q132 Lord Turnbull: We seem to be getting to the conclusion that leaving the Court where it is, as a hygiene body, is probably the least bad, and that none of the other things has any great additional merit. Is that what you would do?
Howard Davies: That was not where I was, actually. I thought the Court could play some role in appointments. It might not be a decisive role, which would probably still have to rest with Ministers, but it could be involved in identifying candidates who would be appointable and in making recommendations.
Lord Turnbull: Are these executive or other Court appointments?
Howard Davies: I meant executive—members of the MPC or the FPC—but also external members of the FPC, which would be quite helpful.
Lord Turnbull: Another issue has suddenly appeared out of nowhere. Was the Bank of England leaning on the markets over Libor, for which some people have gone to jail, possibly unjustifiably? Is that something that the Bank itself should be looking at?
Howard Davies: I am slightly reluctant to get into that territory. I am not quite sure what authority the Court would have to do that. I struggle to see how it would be able to do that.
Roger Bootle: There is a problem with the Court, in regard to that issue and some others, in that it is so heavily stuffed with executives of the Bank that it is almost marking its own homework, it seems to me.
Q133 Baroness Kramer: Sir Howard, a few minutes ago you referred to the new international architecture after the last financial crisis. I think many of us assume that this architecture would be much more capable of identifying nascent systemic risk and then generating action to mitigate or even eliminate it. How confident are you that the regulatory frameworks that have emerged globally do indeed have that capacity to pick up systemic risk at very early stages?
Howard Davies: They are only as good as their last game, in a sense, but I think they have improved their technology of risk assessment quite a lot. A lot of work has been done to try to develop metrics of financial instability, which is tricky but it is better developed now. The different bodies have indices of stressed conditions et cetera that people look at. The St Louis Fed produces one that people look at quite a lot, and the ECB has one. There are now much better measures internationally of potential systemic risk.
The broader question is whether the system is really effective. Unfortunately, it is a best-endeavours construction. Basel produces these capital requirements. People go to Basel and argue the toss for ages about whether they approve of the latest Basel 3.1, or whatever it is, then go back home and agree to implement it on a best-endeavours basis. There is no treaty for this. It is not like the WTO. There is nothing at all to require you, so countries interpret it in different ways in different places. In the latest fuss in relation to Silicon Valley Bank et cetera, the Fed does not have a capital requirement for interest rate risk in the banking book in pillar 1 as other countries do—we have it in pillar 2, actually—so it did not implement that part of it.
From a purist point of view, it would be better if this was a treaty-based system whereby there was some kind of enforcement mechanism for these international standards. Currently there is not. It is interesting that Governments have been prepared to agree that in the WTO—the WTO has its imperfections but none the less is a treaty-based system—but they have not been prepared to agree it in relation to the financial sector. That is a striking weakness of the existing architecture.
Roger Bootle: You asked how confident we should be that the system works properly. With regard to the measurement and containment of financial risk, we should never be confident. We should always be questioning and wondering what we are missing. There is a great tendency among financial regulators to try to stop the last financial crisis, and although there are similarities across the ages, equally it is fair to say that nearly those crises have marked idiosyncrasies. They come out of almost nowhere. That was true of the American subprime phenomenon in the run-up to the 2007 to 2009 financial crisis.
Obviously, we have to cater for the sources of crises past, but we also have to be alive to new ones. A number of things come to mind at the moment. I raised, as did someone else, the subject of commercial property in America, where there is a possibly dangerous combination of very high valuations with a period of possibly enormous structural change, which could bring severe consequences: bitcoin, digital currencies, private equity, shadow banking—all sorts of areas where there could be hidden risks.
All these bodies, international and national, have to be extremely open-minded about where the big problems come from. Most of the time it will not be where they came from last time.
Baroness Kramer: Does the relationship between microprudential and macroprudential supervision play into this picture at all? In other words, people end up seeking a micro solution without recognising that there is a macro consequence. Subprime is an excellent example: you could have taken some micro steps, but the real consequences were macro and got completely overlooked by the macro regulators.
Howard Davies: I am not quite sure that I would see it in those terms exactly. “Macroprudential” is now a particular term of art that is really about whether the whole system should have more capital in it, even if each institution looks to be appropriately capitalised for its own risks but the whole system looks undercapitalised. That technique works, sort of. The FPC and the SRB consider that.
The bigger question—this is probably what Roger was alluding to—is not what I call macro but the “whack-a-mole” problem: that you can tighten up on the control of the bits you can see, because you have the regulatory purview to do that, and the credit expansion occurs somewhere else. At the moment, that is the issue. Credit expansion in the non-bank sector has been much more rapid than in the banking sector.
The big question is the regulatory frontier, if you like. I do not think that there is enough work on expanding or moving the regulatory frontier from time to time. At the moment, we have quite a lot of credit creation in effect outside the regulatory frontier, which is more difficult.
If that is what you mean by macro, I agree, but I would see it slightly differently.
Baroness Kramer: That is a very useful point, so thank you for making it.
Q134 Lord Layard: I suppose the basic theory behind central bank independence is that the Government set the fiscal framework periodically and the Bank moves frequently to achieve the inflation objective using its instrument to affect the level of employment. There is a sequence of moves there.
If you get to the zero bound, of course the power of the central bank through the interest rate mechanism is impaired. We have had evidence before—from Ed Balls, for example—suggesting that some fallback framework should be agreed beforehand for how you handle that problem, where you would expect more fiscal activism, from the macro point of view, than the situation where that is being left entirely to the central bank. What do you think of that idea?
Roger Bootle: Zero bound is undoubtedly a huge problem. I do not think we are likely to encounter that problem any time soon here. But it is problem, and in those circumstances one would look to fiscal policy to play a greater role. However, I do not think that is a strong argument for compromising central bank independence. I do not see why one could not have a system under which the central bank was independent, one reached the problem of the zero bound and fiscal policy was bound to come in support. We would have to rely on that emerging between the Bank and the fiscal authority. Otherwise, you would be compromising the validity of the whole system to try to protect against an eventuality that might never turn up.
Lord Layard: Sorry, I do not think I put that quite right. It is not that it would compromise independence but that it would involve explicit co-ordination of the short-term macro policy between the Bank and the fiscal authority.
Roger Bootle: Yes. In those circumstances that would be required, but I think that would be perfectly possible within the current framework. I do not see how one would need to revise the framework in order to make that possible.
Lord Layard: I think Ed Balls was implying that there had not been enough fiscal activism because there was not the framework within which that issue had to be discussed, and that the Government had to take more responsibility for the macroeconomic out-turn.
Howard Davies: Three or four years ago he co-authored a paper at Harvard in which he recommended a structure for it. I did not find hugely persuasive the argument that you needed a structure. Indeed, the structure could be quite dangerous.
If the circumstances arose, I assume that the Chancellor and the governor would discuss it. Making this a structural solution would give a more activist Chancellor a way into Bank decision-making on a continuous basis, which would not be particularly helpful. I do not disagree with the problem, but I am not sure that an institution or a framework is the right solution to it.
On the zero lower bound point, I have been quite persuaded by the work done by Olivier Blanchard and others on the fact that a 2% inflation target leaves you with quite long periods when you may be at the zero bound and that it might be better to centre the inflation target elsewhere. Intellectually, I find that quite a persuasive proposition. The difficulty, of course, is moving from where we are to that without creating expectations of higher inflation that you might not particularly want to create.
Roger Bootle: On that point, the more we move towards a system of digital money, the more it becomes possible to have negative interest rates. The problem of zero bounds is a problem of an economy with cash.
The Chair: Thank you for your very rich and insightful answers. Howard, you mentioned in your introductory remarks that you wanted to say something about insurance.
Howard Davies: If you look at the way in which the Bank is discussed, including in this committee, the fact that it oversees this hugely important industry is often rather neglected. You do not find insurance people among the membership of the committees much, if at all. Inevitably, banking is sexier because banks go bust more frequently and all that, but it is something that people should consider.
In structural terms, we do not want to refight the arguments of 1997, but one argument for having prudential regulation and conduct of business regulation looked at together was that, in relation to insurance companies, it was very difficult to separate them.
My personal marking experience in this circumstance was the failure of Equitable Life. Equitable Life was loved by the conduct regulators because it offered the most terrific deal to consumers, including guarantees and very generous terms. The only problem was that it overpromised on the fund. It had promised about 115% of the fund. That was never considered, because the capital regulation of the insurance company was done by the Government Actuary’s Department, which did not speak to the Personal Investment Authority at all.
In insurance, the separation between prudential regulation and conduct of business regulation is very hazardous. The links between the PRA and the FCA are, in my view, not close enough in that area. I would also go on to argue that there are potential problems in the banking area, such as the consumer duty, which could have significant consequences for banks. That is one part of the forest, and the central bank has no remit at all to oversee this or its implications. So I am concerned about the interface between prudential and conduct, particularly in the insurance industry.
Lord Davies of Brixton: You mention the insurance industry explicitly, but would that encompass pension funds as a particular form of insurance?
Howard Davies: Again, there is different regulation there, because pension funds are regulated slightly differently from insurance companies, although some Solvency II issues are relevant to both.
Q135 The Chair: Great. We have covered an enormous amount of ground very rapidly. If there is nothing, apart from insurance, that you feel we have not touched on and that we should have, I will ask you a quick question about CBDCs. If there were to be a digital pound, how would that, in any shape or form, affect the operational independence of the Bank? What questions might that raise?
Roger Bootle: I do not know.
Howard Davies: I am not quite sure how it would affect the independence of the Bank. I think it will affect a lot of things. It will certainly affect the liquidity regulation, because it will be very easy for people to move into those central bank currencies. Whether it will affect the stability of the Bank’s income is an interesting question. At the moment, the Bank has seigniorage income, essentially. Whether that will be a feature of central bank digital currencies is a question of whether it pays an interest rate.
There are a lot of issues. I am not sure I immediately see why it should change the operational independence on interest rates.
The Chair: Excellent. That gives clarity on that question. As I say, we have covered a lot. We have not gone back to 1694, but we have gone back to 1997 and we have done it in an hour and a half or so. Thank you both very much.
