Monetary policy risks provoking political backlash, campaign group tells MPs

The Bank of England’s quantitative easing programme risks prompting a catastrophic loss of public trust in how the UK economy is managed, Positive Money warns. The campaign group’s director said that the public will “rapidly run out of patience”, as QE drives up inequality and effectively provides a subsidy to foreign-owned corporations.

The group’s intervention comes on the morning of the first House of Commons debate on QE since it began. The Bank of England’s monetary policy committee is also meeting a month after it announced the new £70bn programme, which involves using newly-created money to buy bonds from the financial markets.

A growing number of economists are warning that QE drives inequality.[1] Theresa May recently joined the ranks of experts who have argued that by artificially inflating asset prices, QE has helped homeowners at the expense of those not yet on the property ladder. This was confirmed by the Bank of England’s own research, which found that QE has made the top 5% of households richer by an average of £128k each.[2]

As the Bank of England reveals details of its plans to purchase £10bn of corporate bonds as part of QE, investors and NGOs have also expressed unease over the nature of the companies that will benefit. The list of eligible bonds, published this week, includes the tobacco giant, Imperial, as well as foreign-owned companies with limited operations in the UK, and companies that have been accused of tax-dodging.

Other critics of QE have argued that when new money is created, it should be for the government to decide where it is allocated. One former MPC member described the Bank’s corporate bond purchases as ‘unmandated fiscal policy’.[3]

Positive Money’s director Fran Boait said,

“We believe that when the Bank of England creates new money, the allocation of that money should be a matter for the Treasury, and subject to full and proper parliamentary scrutiny.

It’s time for the government to adopt a new relationship between fiscal and monetary policy. An independent Bank of England should continue to decide when to stimulate the economy, but it’s no longer acceptable for unaccountable Bank officials to channel billions of pounds of new money into the financial markets.

The public will rapidly run out of patience with monetary policy that exacerbates inequality and subsidises tax-dodging foreign-owned companies. The current policy risks prompting a catastrophic loss of public trust in how the UK economy is managed. Money should be created for people, not financial markets.”

Positive Money is leading a campaign calling on the Chancellor to end QE in its current form, and create the framework for alternative monetary policy tools which stimulate the economy without the negative side-effects. 35 leading economists signed a joint letter to Philip Hammond, and the group’s petition has been signed by 6,000 people.

The House of Commons debate

MPs will debate the QE programme as part of a backbench debate today (Thursday 15th Sep 2016). Please find details here.

Watch the debate and read the transcript:

Watch Parliament TV: Debate on quantitative easing

Follow this link to see the briefing that Positive Money has circulated to MPs.