Budget Statement

Lord King of Lothbury Excerpts

Friday 12th March 2021 Lords Chamber

[Lord King of Lothbury (CB) [V]]

My Lords, none of us envies the Chancellor, who faces bigger challenges than those confronted by many of his predecessors. However, Budgets should be judged by their contribution to economic stability, not their political gimmicks.

I am concerned about the change to the remit of the Bank of England. Independence of the Bank was accompanied by a clear mandate expressed by the inflation target. When asset purchases commenced in 2009, the framework was established to ensure that the Bank did not become the arbiter of credit allocation among different sectors and different companies. But the new remit requires the bank to do just that, and to

“reflect the importance of environmental sustainability and the transition to net zero”—[Official Report, Commons, 3/3/21; col. 259.]

in its purchases of corporate bonds.

Some may argue that this is a harmless gesture; after all, given the inflation outlook, it is far from obvious that there will be new asset purchases by the Bank. But what seems a harmless gesture today may prove damaging tomorrow. I know that climate change arouses passions, but that is no reason to embroil the Bank of England in what should be the responsibility of government. Climate change and declining biodiversity are serious issues that merit proper debate. Fiddling with the Bank of England’s remit, while at the same time taking no action on a carbon tax and freezing fuel duty again, are gestures, not a coherent policy. More importantly, they are the first steps on a slippery slope to undermining the independence of the Bank, and we cannot afford to lose that.

EU-UK Trade and Cooperation Agreement

Lord King of Lothbury Excerpts

Friday 8th January 2021 Lords Chamber

[Lord King of Lothbury (CB) [V]]

My Lords, for five years, many claims have been made about the economic consequences of Brexit. Unfortunately, I fear that hyperbole has outrun reason. Although none of us can be certain, my own judgment is that the long-run economic effects of Brexit are likely to be small. Just as joining the Common Market did not transform the British economy, nor will leaving the EU significantly change the path of the economy as a whole. The passions aroused by the Brexit debate have been out of all proportion to the likely economic consequences. As a result, for five years we have ignored the real economic challenges facing our country.

Just one example is the need to invest more. In the decade after the financial crisis, the UK invested 16% of our GDP—well below the average for other advanced economies. If we are to invest more, we have to finance that investment, either at home, or from abroad. We are already borrowing heavily from overseas, as reflected in the substantial current account deficit, which has been running at almost 4.5% of GDP. We will therefore need to save more. But in recent years, as a proportion of our national income, Britain has saved less than any other country in the G20—less than Argentina and less than Brazil.

Brexit is not the cause of our economic problems, nor is it the answer to them. With the agreement in place, now is the time to turn our attention to the real problems of the UK economy, and that should be a role for this House in the coming year.