We all know that our economy isn’t working for most people. A big reason is that the government and the Bank of England have a dysfunctional relationship that stops either institution from taking responsibility.
Instead of working with the Bank to boost demand, the Treasury’s policies have been undermining it. Austerity has sucked demand out of the economy, and forced the Bank to adopt even more unconventional policies.

Following the financial crisis, the Bank created £445 billion and used it to buy financial assets from private investors like pension funds and insurance companies. This is known as ‘quantitative easing’, or QE.
QE was supposed to help boost an economic recovery. But while the Bank was pouring money into financial markets, the Treasury imposed austerity, stripping money from households, businesses, and public services.
The money created through QE ends up in property and financial markets, and does little to support investment in businesses which create jobs. So even though the Bank has been creating billions of pounds, wages have remained low, and ordinary people don’t see the benefit.
Instead, new money has pushed up the value of assets across the economy, delivering a knock-on boost to property prices. The idea is that because the people who own assets will feel wealthier, they’ll be encouraged to spend more.
But because assets are disproportionately owned by the rich, monetary policy since the crisis has benefited the top 10% of people by as much as £350,000 each. Higher asset prices mean more financial instability, persistent inequality, and less affordable housing.

The idea that the Bank and the Treasury should work in total isolation from one another is misguided. The Bank of England is unable to get money to the real economy without the Treasury’s cooperation.
But there are alternatives: policy tools the two could use to guide the country towards a stronger and fairer economy.
Instead of pumping money into financial markets, newly created public money could be spent by the government on infrastructure, green technology, or as a direct boost to household finances. This idea is known as ‘QE for People’.
Another policy, known as ‘credit guidance’, would see central bankers nudge banks to lend to parts of the economy where money is needed most – instead of speculating on financial and property markets.
Together, the Treasury and the Bank of England have the power to rebalance our economy away from property and financial markets and to boost jobs, wages, infrastructure and green technology. A new approach to make that happen is long overdue.
RESEARCH
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