Quantitative Easing

Debate between Jeremy Quin and Helen Goodman

Thursday 15th September 2016 Commons Chamber

[Helen Goodman (Bishop Auckland) (Lab)]

I congratulate the hon. Member for Ross, Skye and Lochaber (Ian Blackford) on securing this important debate, and I am pleased to follow the hon. Member for Wycombe (Mr Baker), with whom I have discussed these issues on several occasions.

Inequality is one of the most profound problems facing this country and it is getting worse. The problem of inequality is exacerbating differences between different social groups, dividing families, because there are big intergenerational gaps, and also dividing this country geographically, with very significant regional inequalities. So to learn that the Bank of England’s quantitative easing is expanding these gaps between rich and poor is extremely alarming.

As the hon. Member for Ross, Skye and Lochaber said, the Bank undertook its own analysis of the impact of QE in 2012. I think that what it found was that the top 5% had seen an increase in their wealth of £185,000 and the bottom 50% got no increase in their wealth because they did not have assets.

Unlike the hon. Member for Wycombe, I am not critical of QE in principle or of the package the Bank of England unveiled in the early summer, because I think Brexit is a real shock to the economy and we do need to take action to stabilise it and avert the reductions in growth that would otherwise occur. None the less, I am not satisfied that the Bank had demonstrated that the way in which it was carrying out quantitative easing was the best way, which is why I think it worthwhile for us to examine the issue in more detail.

Just to set in context the increase in the asset holdings of the top 5%—a considerable part of it being in the housing market and property prices—it is worth observing that the average house price in Britain is now £212,000. What we are saying is that, in practice, the Bank of England has given the top 5% enough money to buy another house. Were the Chancellor of the Exchequer to stand up at the Dispatch Box and say, in the Budget or the autumn statement, “I am giving £85,000 to the richest people in the country”, I think that even Conservative Members would be alarmed and concerned, and perhaps even slightly rebellious. But because it is being done by the Bank of England and is rather hidden, we are not seeing the same level of concern, and we need to see the same level of concern.

Moreover, it is a problem when the ratio of average earnings to average house prices is eight to one. That puts the possibility of home ownership way beyond many millions of people, which is why home ownership is falling. Of course we need to address the housing market, and of course we need an increase in the supply of housing, but we are not seeing that at the moment, and QE is making the situation worse.

[Jeremy Quin]

I entirely understand the point that the hon. Lady is making, and I accept what she said about the Chancellor of the Exchequer coming to the Dispatch Box and so forth, but I would not wish the message to go from the House to a broader audience that that was an intended aspect of the policy. When QE was introduced by the last Labour Administration, it was introduced with the perfectly admirable intention of ensuring that GDP growth was improved and inflation targeted. I would not wish the wrong message to go out on the intention of the policy; we are debating potential side-effects that may or may not have occurred.

[Helen Goodman]

What the hon. Gentleman says is absolutely fair, and I agree with him. I would not go so far as to say, “Labour QE good, Tory QE bad”—I think that would be slightly Orwellian—and, as I said initially, I was not saying that I did not think there should have been another package this summer. My questions are about the way in which that is done.

Along with the hon. Member for Wycombe, I have quizzed the Bank of England about the matter on three separate occasions. On the first occasion, when I asked the Governor about the distribution impact, he said that taking account of distribution would be political. I cannot see how giving wealthy people more assets is not political. However, we have questioned the Bank more recently, and it seems to me that people in different parts of it say different things. I think it would be unfair to say that they speak with forked tongues. However, on one hand the chief economist, Andy Haldane, has said that monetary policy

“cannot close other structural faultlines across the UK economy – for example, regional, socio-economic, inter-generational… Monetary policy cannot set different interest rates for different regions”,

and also that UK recovery has been

“for the few rather than the many”.

That seems to be a criticism of an unequal society. Andy Haldane seems to be saying that this is not good socially and it is not good economically.

On the other hand, when the Treasury Committee questioned Sir Jon Cunliffe on the matter, he said:

“I would only point out that we have the tools we have.”

That is a bit like “Brexit means Brexit”. It is a rather gnomic and unhelpful approach. I think it is stalling; I think that the Bank does not want to look at different ways of carrying out QE, and I do not think it is being sufficiently imaginative.

In January I visited the European Central Bank in Frankfurt and asked how it does QE. It does it in different ways, and it is able to do so in part because the financial infrastructure is different in other countries. For example, it does not just buy Government bonds and gilts; it buys bonds in KfW and CADES—the German and French infrastructure banks—and it has a special strand that aims to get more money into the small and medium-sized enterprise sector. So I do not accept the Bank of England saying, “We have the tools that we have and there is nothing different we can do.”

I commend to the Bank some work that the New Economics Foundation has done on this. It seems to me that the Bank could be buying investments in housing associations, for example. In fact, that would be a much better way of dealing with our housing crisis than giving a lot of money to rich people, thereby pulling up property prices. I do not think that the Bank has a very good understanding of the housing market—we have quizzed its officials on that as well. For example, the Governor told us last week:

“Housing finance in this economy is quite sophisticated”.

I do not think that it is sophisticated; I think that it is quite dysfunctional, because we are seeing more and more money going into people exchanging properties, rather than going into more building, which is what would actually make a difference to the housing crisis.

I really hope that the Bank will not only better analyse what it is doing, as the motion suggests—it did commit to come back in September 2018 with renewed analysis of the impact on assets and wealth distribution of this further round of QE—