If you had to choose a person from the following list, and only this list, to be Chancellor of the Exchequer, would you choose James May, Jeremy Clarkson or Richard Hammond? Tough choice, but go on: indulge me!
The last time I wrote here, I predicted that the Quad had reached a turning point on monetary policy. I did this not on the evidence of Vince Cable’s New Statesman article, but on a report in the Financial Times that Osborne was set to change the regime imposed on the Bank of England.
Well, the ‘turn’ came two thirds of the way through the budget speech and it was easily the most significant moment: “The remit for the MPC set at Budget 2013 has been updated to clarify the trade-offs that are involved in setting monetary policy to meet a forward-looking inflation target. For clarity, the target “applies at all times”, as distinct from a requirement to be met at all times, because the latter could be mis-interpreted as strict inflation targeting with zero weight on the secondary objective, contradicting the flexibility to respond efficiently to shocks and disturbances that move inflation away from target. The MPC’s forward-looking policy decisions must be consistent with ensuring price stability in the medium term. The appropriate policy horizon is subject to the operational independence of the MPC.” *
Wake up there at the back. Our boys in the Quad have bet the farm – that is to say the future of the Liberal Democrats – on this change. At the very least we need to understand it. Which is why for those who haven’t the time or the inclination to delve into the obscurities of monetary policy (when rates are close to zero), I asked for your choice of driver as we make this historic turn.
I hope none of you chose the tear-away Hammond who brings a new meaning to off-road driving. I bet a lot of you chose James May in the well sprung Roller with the turning ark of a No83 bus. Well that’s who Clegg and Alexander, with Laws whispering in their ears, chose.
The change is cautious, unbelievably obscure and highly discretionary. Read this again, “the target ‘applies at all times’, as distinct from a requirement to be met at all times.” Get it? “because the latter could be mis-interpreted as strict inflation targeting with zero weight on the secondary objective” – clear as mud, then. And the “second objective”? Why not say “Growth!”
The MPC can steer where it wants, stay off-road for as long as it likes, provided that at some time in the future it finishes back on the road. For how long can we go ‘off road’? “The appropriate policy horizon is subject to the operational independence of the MPC.” viz James May. Hammond would have been a disastrous choice!
So, why does the author (for the first time in his life) want a Clarkson in the driving seat?
We are going to have some monetary stimulus, but we are going to have to wait until July at the earliest when the new Governor of the Bank of England (whose policy we must assume this is) arrives. Clarkson wouldn’t wait before applying the metal to the floor. It’s very important if this stimulus is to work for the passengers (investors, employees and purchasers) to know the route and the theory, so that their expectations are properly informed. Otherwise it won’t work. Clarkson would communicate this loud and clear, leaving us in no doubt that along ‘his way’ growth was round the corner. As for discretion, there would be no confusion over his intention. We’d all know what to expect. Clarkson rules OK.
And finally Clarkson wouldn’t tolerate a dozen back seat drivers (the MPC), trying to get their foot on the break and hands on the wheel.
So, on monetary policy, HMG and HMT are nearly there, but not quite. Mr Carney needs to be given the Clarkson rule; ‘no braking at Gambon”.
* The Haynes Manual for this vehicle can be found here.
* Bill le Breton is a former Chair and President of ALDC and a member of the 1997 and 2001 General Election teams