My Lords, in view of the limited time to discuss the economy, I shall concentrate on inflation and, in particular, the role that the Bank of England has played in unleashing inflation in our country through failing to meet its proper mandate. The Bank has bought some £875 billion of government debt, half of that in the past two years. It has done so, including £50 billion in the last quarter of last year, against the advice of its own economist, Andy Haldane, who resigned, and, more importantly, of the Economic Affairs Committee of this House, which unanimously pointed to the stupidity of stimulating the economy when demand was increasing following the amounts that were saved as a result of Covid. We suggested that it might have inflationary consequences. The report was called Quantitative Easing: a Dangerous Addiction?. The Governor of the Bank of England’s first response to it was a rather trivial one. He said that we should not have used the word “addiction” because it would offend people who had illnesses. When we got the formal response—there are members of the committee here—it basically did not deal with the arguments, and the Treasury’s response was a two-page letter from the Chancellor of the Exchequer. The effect now is that the Governor is telling us that we can look forward to double-digit inflation, when less than a year ago he was telling us that it was a transitory phenomenon when it was at 3.6%.
Being a Lords committee, we were diplomatic and kind and suggested that perhaps the Government, in printing £450 billion, might have been doing it to finance the Government’s spending. But we were told that, no, that was not the case at all and that it was in order for them to meet their mandate to get inflation to 2%. Well, it does not seem to have worked out quite like that. To me it is pretty obvious that if it looks like a duck, it is a duck, and that what the Bank of England has been doing is printing money to fund government expenditure, which inevitably results in inflation.
In response to our committee report, the governor said he was going to unwind QE when interest rates got to 1%. They are at 1% now, so what is the Bank saying? It is saying, “Well, we’re going to wait until
August to take a view”—so the spirit of St Augustine is alive and well and living in Threadneedle Street: “O Lord, make me pure—but not just yet”.
Some people in the other place have said that we ought to question the independence of the Bank of England. I do not; the independence of the Bank of England is absolutely crucial. I do question whether the Bank of England is maintaining its independence and whether the Monetary Policy Committee is composed of people who will ensure that it does so. It seems to me quite extraordinary that, in the appointments made to the Monetary Policy Committee, there are very few people who actually know anything about monetary economics—and it shows. There is a dearth of experience that was not there when the Labour Government first set up the MPC following the 1997 election. It is not a healthy position when the Chancellor appoints the governor and the Treasury appoints the members of the Monetary Policy Committee. In these circumstances, we should not be surprised if we see the kind of groupthink that has led us into our current difficulties.
As I see that time is against me, I will just remind the House of something very sensible that the late Lord Callaghan told the Labour party conference: inflation is the father and mother of unemployment. The Bank may very well believe that inflation is transitory, and the governor may very well believe that with inflation running at 10% people will not ask for wage increases—but when they do, especially in the public sector, it will give a further crank to inflation. So it is high time that we held the governor and the Bank of England more to account for the important role—indeed, crucial role, given the size of its balance sheet—that it now has as a result of quantitative easing.
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