Reform UK: Treasury should intervene on Bank interest rates decisions
Reform UK has suggested the Treasury should be allowed to contribute to the Bank of England’s interest rates decision in what would represent an intervention on its independence for the first time in nearly 30 years.
Deputy leader Richard Tice told The Times ministers should have greater power over the Bank’s key decisions while it should also drive growth in addition to ensuring financial stability and targeting an inflation rate of two per cent inflation.
Tice, the second most senior figure at Reform after Nigel Farage, has previously argued the Bank should stop paying interest on central bank reserves to commercial lenders, which was agreed after the central bank began selling government bonds during its quantitative easing (QE) programmes in response to the financial crash and pandemic.
The letter to Governor Andrew Bailey, first reported in the Telegraph, claimed the Bank of England was “unnecessarily wasting tens of billions of pounds of taxpayers’ money while enriching City institutions” with quantitative tightening – the unwinding of QE – was responsible for keeping gilt yields higher.
In his latest statement on the Bank, Tice suggested “one or two” Treasury officials should sit on the monetary policy committee (MPC), ending the Bank of England’s independence on monetary policy.
“Just because the current model has been in place for 30 years, it doesn’t mean it’s working as well as it could be,” he told The Times.
Reform would want say on interest rates
Bank officials have warned that an end on interest payments to City banks could risk undermining trust but – given the precarious state of public finances as the Treasury has to fund the losses from interest payments – others including Sir Charlie Bean have called for a new lower interest rate on QE below Bank Rate of 4.25 per cent.
“Scrutiny committees monitor every £10,000 of council spending but where’s the scrutiny committee for errors of this magnitude by a central bank?” Tice said.
“This could be the greatest, most expensive failure of scrutiny in any parliament in my lifetime — and there’s been zero discussion, zero debate and zero challenge to the governor. Over £100 billion of taxpayers’ cash has been voluntarily given to enrich City institutions and bankers. It’s an outrage.”
Think tanks have argued for the inflation rate mandate to be revised, with a recent paper by the Institute of Economic Affairs (IEA) claiming the Bank should target nominal GDP growth, which otherwise accounts for both growth and inflation.
“Targeting the growth path of nominal GDP would provide a more stable and predictable macroeconomic environment by focusing on total nominal spending rather than a rigid inflation target,” the economist Damian Pudner wrote in the paper.
The MPC, which is set to meet on Thursday to vote on a new interest rates decision, is made up of nine members, including Governor Andrew Bailey, a set of Bank officials and four external economists to the Bank of England who are appointed by the Chancellor.
The government itself has none of its own representatives on the MPC but civil servants observe meetings.
Some Labour backbenchers have previously spoken in favour of government intervention in the Bank of England.
Tice said “everything should be up for debate” given the UK’s poor economic record in recent years.