Opinion: The Bank of England’s Independence – the Law

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Political RavishmentAccording to the Independent, Nick Clegg wants to take on the ‘left’ in his Party.

In doing so he accuses the Social Liberal Forum’s amendments to the economics motion as “ending the Bank of England’s independence by ordering it to do more to create jobs” and “tearing up the fiscal mandate.”

Let’s deal with the first accusation. The 1998 Bank of England Act granted the Bank independence to set interest rates. That is instrument independence. However, the remit for the Bank is set by the government and so The Bank does not have goal independence, it takes its goals each Spring from the Government.

That is why, this March, George Osborne, in clear view of the Deputy Prime Minister on the Front Bench changed the Bank of England’s monetary remit in pursuit of growth and jobs.

This is how the Daily Telegraph reported it: Budget 2013: Bank of England’s monetary policy remit changed.

Here are the two key sections of The Act:

Section 11 – the objectives of the Bank of England:

(a) to maintain price stability, and

(b) subject to that, to support the economic policy of Her Majesty’s Government, including its objectives for growth and employment.

And Section 12 specifies the matters relevant to objectives:

(1) The Treasury may by notice in writing to the Bank specify for the purposes of section 11—

(a) what price stability is to be taken to consist of, or

(b) what the economic policy of Her Majesty’s Government is to be taken to be.

(2) The Treasury shall specify under subsection (1) both of the matters mentioned there—

(b) at least once in every period of 12 months beginning on the anniversary of the day on which this Act comes into force.

Thus, the independence being threatened here is not that of the Bank of England – it is the absolute independence of the Liberal Democrats to set our own economic policy.

On the second issue: the fiscal mandate, the Independent interview goes on to say that the Leader is about to reassure Conference, “that it will fight the 2015 election on a distinctive Lib Dem economic policy – including a plan to free local authorities to build hundreds of thousands of new homes.”

Bravo! How is this not ‘tearing up the fiscal mandate’? How is this done except by increasing public debt? If this is what he wants, why is it not in his motion? As it isn’t in his motion, why doesn’t he accept the amendment?

When we win the next election and these amended policies become government economic policy, under the Bank of England Act, they automatically become the new goals of the country’s ‘independent’ central bank. And the housing initiative is made possible by altering the fiscal mandate.

Vote for the amendments to drive the recovery forward. Vote for an independent economic policy as befits an independent political party.

* Bill le Breton is a former Chair and President of ALDC and a member of the 1997 and 2001 General Election teams

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17 Comments

  • Tony Dawson 15th Sep '13 - 1:16pm

    @Simon Shaw

    “The article describes the Social Liberal Forum (SLF) as “a left-wing pressure group””

    I think that comment (Grice not Shaw!) simply exemplifies the general ignorance of the London-based political media and Mr Grice in particular who is, surely, not trying to create extra trouble within the Lib Dems? 🙁

  • Bill le Breton 15th Sep '13 - 1:26pm

    Simon, by article, I assume you mean the Independent’s article that I link to. In it The Independent refers to ‘clegg allies’ as calling SLF ‘left wing’. It is obvious that these allies are spinning this debate as a ‘clause four moment’ when the leader takes on and defeats the fictional ‘left’. That is a shame and reckless.

    The amendment only puts into precise words the goals that the leader has expressed over the last 48 hours. A million more jobs, a local authority lead housing programme and an increase in incomes across the board. Clearly he just overlooked these when drafting his motion and SLF is helping him to reinstate them.

    Like you Simon, I suggest the amendments are neither left nor right, but Liberal. I hope you will be voting for the amendments rather than trying to split the Party as those ‘clegg allies’ are endeavouring to. Pity such allies never allow the journalists to put their names to their words.

  • Paul in Twickenham 15th Sep '13 - 1:33pm

    Bill – surely the instrument to do this is already in place in the form of QE? The fact that the BoE has concentrated on the purchase of gilts does not alter the fact that they are at liberty to buy a broad range of paper including AA-rated bonds.

    There was a proposal to this effect floated by the former CEO of Greggs in The Daily Telegraph a few months ago: http://www.telegraph.co.uk/finance/financialcrisis/9923427/With-100bn-of-quantitative-easing-cash-we-could-rebuild-Britain-brick-by-brick.html

    Not only would this generate employment, reduce the social housing crisis and have a net cost of less than zero, but it would reduce pressure on the stock of privately-owned housing and help to ease property prices that are currently being inflated (you couldn’t make this up!) by “Help to Buy”.

  • Bill le Breton 15th Sep '13 - 1:41pm

    Totally agree, Paul. And it was a pity that QE did not do this from the outset. We would now have circa 300,000 more homes, direct employment in all those local economies from this construction work, a stronger economy and a fairer country.

  • Eddie Sammon 15th Sep '13 - 2:53pm

    Bill, you have been a consistent champion of QE, but can we at least agree that if we have any more QE it should be on a limited basis, in order to protect those that suffer from it? QE on a Japanese scale would do real damage do many pensioners and possibly push some over the edge.

    We wouldn’t have this problem if people didn’t sign fixed sterling contracts, but they have, so we should respect that and not just significantly devalue the pound on them.

  • Bill le Breton 15th Sep '13 - 3:05pm

    Personally, I would not use ‘left’ wing to describe the objectives of SLF nor of its thinking behind its amendments.

    I do not call wanting local authorities to have the devolved power to borrow to fund the social housing programme appropriate to its citizens as left wing. Surely as a Sefton councillor you support that?

    Nor is the desire to see the Bank of England provide the stimulation necessary to regain the long term trend rate of growth in nominal gross domestic product/national income. Or would you rather the country continued to underperform and waste its capacity?

    Nor for that matter is the new Governor of the Bank of England’s decision to use the reduction of unemployment as a target for his monetary policy left wing. Nor is the ambition of social Liberals to see that target at 6% rather than the Governor’s 7% by 2016.

    Or is the Leader’s ambition to create a million more jobs ‘left wing’?

  • Bill le Breton 15th Sep '13 - 4:16pm

    Not my amendment. But I support it. And I disapprove of the way the leadership, in gunning for the SLF, is willing to sacrifice a sensible commitment to increasing employment and income (and housing). It is the politics of the playground.

    Actually, I favoured that part of Liberal Reform’s motion that called for NGDP targeting which I have campaigned for at LDV for a long time – initially as a very lone voice. That is to say that I have been consistently opposed to an inflation target.

    The inflation target failed to discriminate between good and bad deflation* in the Noughties and hence produced over loose monetary policy and the boom. It then (because of commodity inflation) failed to detect the appalling 8% drop in NGDP around 2008 and since then has restrained the introduction of the appropriate monetary policy necessary to escape recession in a timely fashion. (*Good deflation from lower costs/Bad deflation from insufficient aggregate demand)

    An NGDP level target of 4-5% in 2008 would have seen us experience a typically mild and short running recession.

    The way that the economy is responding now demonstrates that the MPC and the OBR have their calculations wrong on the size of the output gap. The economy can get to 6% unemployment with the new remit’s medium term forecast figure for inflation of 2 -2.5% inflation. Which is ,I take it, why the writers of the amendment want us to ‘monitor’ closely the Bank’s progress in pursuing this new remit (set by the Chancellor in March) which is a kind of Evans Rule.

    You can have 6% unemployment and hit the new target. That’s a million jobs from where we are now. A danger (which we are already seeing) is that the hawks on the MPC will put on the monetary breaks at 7% consigning us to permanently low growth, an overly low inflation rate and an unnecessarily high level of unemployment.

    As Prateek says, it would have been better to have campaigned for an NGDPLT, but not even Liberal Reform could get the leadership to agree to that.

  • Vote for the amendments to drive the recovery forward. Vote for an independent economic policy as befits an independent political party.

    And vote to discourage the party leader from using Liberal Democrat conference debates to spin the media If the only way he can try to shore up his failing image is to “take on is party” it is time for a real change. Maybe he should follow Jo Grimond’s example and stay away from the conference until the last day.

  • Ah, the Orange Book canard. That’ll be the same Orane Book that has as key contributors those right-wing entryists Vince Cable, Steve Webb and Chris Huhne.

  • @Simon Titley: I think the Marshall-Laws Project has a much better ring to it than Laws/Marshall 😉

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