'INTEREST’ further identifies a number of other flaws in the “framework” set out in Brown’s two letters:

• The First was to set only one target or objective – inflation – and ignore all the other possible benchmarks – exchange rates, unemployment, GDP, capital inflation all of which featured prominently in the policies of previous Governments.
• The Second was the over complicated bureaucracy, imposed on the MPC, down to what letters should be sent, and when, if targets were missed.  But there was virtually no mention of how they should go about rate setting which is what they were there for.
• The Third is that it was a mistake to make CPI the measure of inflation.  To put it in simple terms, CPI merely measures consumer retail inflation whilst RPI also covers consumer capital inflation (i.e. house prices and mortgage interest rates).  Whilst there are arguments for and against both indices it is of note that most, if not all, of the slumps of the past 70 years have been, at least partially caused by uncontrolled house price inflation such as has happened recently.
• The Fourth is that the proof of the pudding is in the eating.  Whatever the reasons the current rate setting regime has not achieved its objective of eradicating boom and bust.  We have given Gordon’s policy 25 years and it’s time to change.

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