The origins of the Bank’s “independence” are, in fact, political, not economic. This “independence” was granted in 1997; done in large part to mitigate fears of an incoming Labour government acting financially irresponsibly.
While it was very successful in that regard, there is no indication that its decisions have been any better since then compared with the period before Labour came into power. Margaret Thatcher and Nigel Lawson made better decisions than every government since the “independence” of the Bank was established.
The OBR, in conjunction with the Bank of England, effectively hems in our government, making it impossible for the economy to escape the debt trap it faces due to the ever-increasing cost of servicing its current debt.
The only solution is to dramatically boost productivity. Paradoxically that might involve some short-term deficit financing. The only way to do this is by increasing public investment to ensure businesses have the environment and infrastructure to thrive.
The Bank of England’s purpose should be rebalanced to support economic growth. We should go back to the period in our history when forecasters were greeted with healthy scepticism rather than a final sign-off on the direction of our government’s economic policy.
Nigel Lawson famously disbelieved all forecasts. Today there is a strong argument that the institutional structure of our decision-making is flawed, and it is time to finesse and, in some cases, abandon these rules. We should abolish the OBR, bring the Bank within the Government’s policy framework, and liberate the Chancellor to deliver the best policies he can for Britain.
