The House of Lords Economic Affairs Committee, in its report ‘Making an independent Bank of England work better’, emphasises the necessity of reforms in the Bank of England.
The report acknowledges the need to preserve the Bank’s operational independence but identifies essential improvements to enhance its performance and accountability to Parliament.
The backdrop of the report is the recent surge in inflation and the resultant decline in public trust in the Bank.
It highlights the errors made in monetary policy and suggests a lack of intellectual diversity as a possible contributor.
The Committee is concerned that the Bank’s broadening remit over the years has diluted its focus on primary objectives and has inadvertently entangled it in the government’s wider policy agenda.
Lord Bridges of Headley, Chair of the Committee, underscored the urgency of these reforms: “25 years after the Bank of England was made operationally independent, it is time to take stock. While we are of the strong view that independence should be preserved, reforms are needed to improve the Bank’s performance and to strengthen its accountability to Parliament.”
Among the key recommendations, the report suggests that the Treasury should streamline the Bank’s remit to ensure a focus on its core objectives of controlling inflation and maintaining financial stability.
The report also advocates for enhancing diversity of thought within the Bank, particularly within the Monetary Policy Committee, and calls for parliamentary reviews of the Bank’s remit and operations every five years to bolster accountability.
Additionally, the report discusses the complexities surrounding quantitative easing and the prospective implications of introducing a Central Bank Digital Currency (CBDC).
It proposes that the Bank and the Treasury should define their collaborative approach clearly, especially in terms of maintaining operational independence while ensuring accountability.
Reaction
Samuel Mather-Holgate, independent financial advisor at Mather and Murray Financial:
“Not only has Bailey done a woeful job, but he was the wrong appointment to the position. Given the importance the bank played before his coronation, other candidates should have been seriously considered.
“The Bank acted too late on inflation, and as a result had to go too far too quickly. It’s also too early to really understand the consequences of such steep rate hikes, but we will see significant repossessions and homelessness. Bailey has caused a winter of discontent for so many.”
Gary Bush, financial adviser at MortgageShop.com:
“I think the Bank of England needs independent oversight to have the authority to nudge them into action at times when they appear to be failing/or too slow to act.
“From our side we have been screaming (see our X, formerly Twitterm feed), since the Brexit vote result, for some slow and steady stabilising increases in the base rate to allow for some adjustments to be made.
“To have gone into the Brexit storm that ensued and taken no proactive action then left us with little leverage when the subsequent Covid storm raised its head.
“With the cost-of-living crisis, energy price rises, and Ukraine war coming in close order have created the impression of weakness and lack of proactive action from the BOE, it could have been so different.”
Craig Fish, director at Lodestone Mortgages & Protection:
“The current MPC committee is way beyond its sell-by date, and whilst it is refreshing to see a governor who doesn’t feel the need to keep the media sweet, sadly I feel that he also needs to be changed.
“The mess that the UK currently finds itself in, could have been averted by more prompt action at the outset.
“This has been a case of too little too late. We need a refresh from top to bottom, and the current crowd replaced with those that have real-life experience and are more diverse in age and background.”
