What should be the future of monetary policy and financial regulation after Brexit? It’s set to be a fiercely contested battle over the coming months, with two competing visions of how our economic institutions should evolve.
On the one hand, a House of Lords report out this week advances the idea that UK regulators, including the Bank of England, should have their mandates modified to ensure the financial sector remains internationally competitive. This has prompted warnings of a deregulation agenda, and a return to the light-touch regulatory regime that existed before the 2008 crash. Some policymakers, backed by powerful industry lobbyists, see Brexit as an opportunity to free the City from ‘restrictive’ EU rulemaking. This group is represented at the heart of government, with Brexit secretary David Davis having signalled his support.
Others share the belief that a revamp of our public financial institutions is timely, but for different reasons. Instead of Brexit being a catalyst for deregulation, there are growing calls for the UK’s regulatory and monetary policy framework to take greater account of issues like fairness and sustainability. The referendum result has been linked – even by some in Number 10 – to public dissatisfaction with the inequitable policies deployed by the Bank of England, and an oversized financial system which concentrates wealth in a small part of the economy. Our research found that in the first few years of the Bank’s quantitative easing programme, the top five percent of households saw a net wealth gain of nearly 200 times that of the poorest. Meanwhile, research by the Grantham Institute has found that the Bank’s corporate bond purchases have been disproportionately concentrated in high-carbon sectors.
That’s why Positive Money is calling for the Treasury to undertake a review of the Bank of England’s mandate, and the tools at its disposal. If the Bank of England’s policies are having large-scale distributional side-effects, and potentially contributing to climate change, it’s up to government to alter the framework so it’s fit for purpose.
We should reject moves to use Brexit as an excuse for deregulation. Doing so risks repeating the mistakes that led to the crash. Instead, we should use this opportunity to ensure that monetary policy and financial regulation does a better job of serving society’s wider interests.