Leading Article: A Bank safe from the politicians
Your support helps us to tell the story
From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.
At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.
The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.
Your support makes all the difference.THE CHANCELLOR, having at first implied that he was open-minded about giving the Bank of England independence to set interest rates, is now trying to head off a campaign. 'I don't remember,' Kenneth Clarke said this week, 'any previous Chancellor who has ever made an announcement on the subject while in office, and I doubt whether this one will.'
The case, though, cannot be shrugged off. The backbench Treasury committee is expected to produce a valuable cross-party endorsement of reform next month. Just as important, the intellectual running is still being made by reformers, who rightly point out that politicians tend to use interest rates as much in the battle for votes as in the battle against inflation.
Yesterday a distinguished panel, chaired by Lord Roll, tackled some of the remaining worries about central bank independence, and proposed a form of independence for the Bank that would fit happily with British traditions*. In reply to the Prime Minister's concerns about accountability, the Roll report retorts that monetary policy is one of the least accountable areas of public administration, since interest rate changes are determined by the Chancellor and Prime Minister alone. There is no need to explain change to the Cabinet, let alone Parliament. The report recommends that the Bank of England should set both an inflation target and the interest rates needed to achieve it. It would report to the Treasury committee on its success. It would also be subject to an override by Parliament that would be temporary and overt (to take account, for example, of shocks to the economy such as the 1973-4 and 1979 oil price rises).
This formula is preferable to the German or New Zealand models. Although the Bundesbank council has a regional structure, it is unaccountable to the Bundestag or other elected bodies. The New Zealand model suffers from the disadvantage that the government may simply raise the inflation target that the central bank is contracted to meet. The markets are likely to remain sceptical, negating the cheaper financing costs for government borrowing that are one of the advantages of independence.
Yesterday's unexpected fall in inflation is excellent news, but it has been won at the price of a deep and damaging recession. If we are not to repeat the unhappy experience of Eighties boom and Nineties bust, we must alter our institutions. We have much to lose if we do not now lock in low inflation.
*Independent and Accountable: a new mandate for the Bank of England; Centre for Economic Policy Research
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies
Comments