David Blanchflower announced yesterday that he intends to wind up his review of the Bank of England, which was commissioned by the Shadow Chancellor John McDonnell last year. Blanchflower is a former member of the Bank of England’s Monetary Policy Committee, and had sat on Labour’s economic advisory council.
Positive Money welcomed the review because we believe that after seven years of low interest rates and ultra-loose monetary policy, there is a need to reassess whether the Bank has the right policy instruments to meet its mandates on price and financial stability.
Positive Money advocates the use of new monetary policy tools, including public money creation, which allow new money to be spent directly into the real economy. We believe that recent policies like QE, Funding for Lending and Help to Buy, have exacerbated inequality and the housing crisis, and that alternative tools could do a better job of stimulating demand without causing adverse side-effects.
The review had been in its early stages, and had yet to publish a terms of reference or hold public evidence sessions. But we were hopeful that once it had got underway, it would have represented a landmark piece of work and the most comprehensive review of monetary policy since the financial crisis. We are disappointed that the review will no longer take place.
We very much hope that this project can be resurrected. The implications of the Brexit vote, and the possibility of further quantitative easing in the coming months, make it even more urgent that we establish whether or not the Bank is operating within the best possible framework.
We would ideally like to see an investigation of the Bank of England’s role start as soon as possible, which can operate independently of the rapidly-changing context of party politics. For this reason, we are calling for the government to set up a Money Commission, formed of a panel independent experts with a mandate to recommend new legislation.
Under our suggested terms of reference, a commission would:
- consider and report on the impact upon social, economic and environmental outcomes of monetary policy, including the adjustment of Bank Rate and quantitative easing
- consider and report on the contribution of monetary policy to growing inequality
consider and report on the social, economic and environmental outcomes of the current structure and business models of the banking system, which acts as the main transmission mechanism of monetary policy
- make recommendations for changes to the monetary policy tools available to the Bank of England, to report by 31 December 2016
Politicians in all parties need to know that there is public appetite for a reassessment of the Bank of England’s role in the UK economy. You can support the campaign here.