Bank of England (Economic Affairs Committee Report)

Lord Moynihan of Chelsea Excerpts

Thursday 2nd May 2024 Lords Chamber

[Lord Moynihan of Chelsea (Con) (Maiden Speech)]

My Lords, I stand in this House to make my maiden speech, aware of the great honour that membership of this House entails—surely undeserved in my case. With each week that I am here, I get to understand more of the extraordinary nature of this House, of the wonderful and supportive help that is given to us Peers by the doormen, the clerks and the many talented and experienced officials. I am so grateful to the many who helped me be introduced to this House: Garter, my noble friends Lord Kamall and Lord Moore of Etchingham, noble Lords on all sides of the House, my excellent mentor and noble friend Lord Borwick, the Clerk of the Parliaments, Black Rod and many others.

I am told that it is customary to offer brief details of one’s life to noble Lords before commencing upon the body of one’s speech. Perusing other maiden speeches, I was glad to note that at least a few noble Lords had chequered early lives, which is something I share with them. But in my mid-20s, I managed to get myself to America, first studying finance and economics at MIT and then staying in the US for almost two decades, advising banks around the country and on Wall Street, which gave me knowledge and experience of relevance to this debate. Happily married in New York, I had not planned to return to the UK but, in 1992, was offered an opportunity to run a large British company that at that point was on the verge of bankruptcy, which fortunately for me meant that no one more competent than me had any interest in taking it on. The company survived its encounter with me; I was happy to be back in Britain. I later branched out into the field of venture capital and have founded a score or more of new companies, mostly of a scientific or technological nature—at least some of which did not go bankrupt.

Moving on to my attempted contribution this afternoon, I heartily recommend the excellent report of my noble friend Lord Bridges’s committee to this House. I had been warned not to say anything controversial in a maiden speech; however, Ben Bernanke’s report has thoroughly beaten me to the punch on that. For my own effort here, I offer noble Lords what I hope are three less controversial conclusions that can be drawn from the report.

First, it is welcome that money is now to be taken into consideration. We all know that inflation, as the noble Lord, Lord Macpherson of Earl’s Court, has just said, is devastating—particularly for the old, the poor and those living on fixed income. The cost of living rises for everyone. For retiring savers who do not have a defined benefit pension arrangement, buying annuities during a time of quantitative easing means very low future lifetime incomes. Yet excessive QE creates excess money, which then creates inflation, which then destroys the small value of the retiring savers’ income even further. On the other hand, for borrowers, QE offers attractively low initial interest rates—but that causes asset inflation, so you have to borrow to the hilt to buy your house, and then inflation arrives. Interest rates double, as do your now unaffordable mortgage payments, so both savers and borrowers suffer from QE. Is a QE-inflation-recession cycle a better option than letting markets decide interest rates and letting economies recover more naturally than with intervention?

Some would argue that the QE approach has proved worse, so it was welcome that the Bank’s governor stated in evidence that he believes that money plays a part in inflation. The Bank of England’s chief economist, less reassuringly, stated that the elevated level of UK inflation stems largely from the impact of external shocks rather than excess money growth. Yet Tim Congdon, with the moral advantage of having predicted the arrival of 10% inflation, disagreed in his evidence. He said that the “globalisation idea” is very wrong and that

“this three-equation new Keynesianism … is a catastrophic set of ideas”.

The noble Lord, Lord King of Lothbury—I add my congratulations to those of the House on his election yesterday as president of the MCC—hit the nail on the head when he said in the evidence sessions that we looked in vain for references for money and lending in the reports of the Bank. Inflation did not happen everywhere around the world: it happened neither in Switzerland nor Japan, for example. The difference was in their monetary policies, so it is good news that the Bank will pay greater attention to money volumes. We look forward to hearing in further detail on how it proposes to take account of money volumes in future.

Secondly, the report offered valuable recommendations for enhancing the Bank’s risk management. The committee’s report was thoughtful and valuable. It asked the right questions and came to good conclusions, which I hope will be implemented. The committee called, as did my noble friend Lord Bridges this morning, for diversity of viewpoints so that more scenarios would be offered to the Bank. It suggested that better fallback plans could be created. An example would be creating a plan to deal with the risk that the Bank had apparently identified some years earlier: that the leveraged LDI funds would fall over. My noble friend Lord Wolfson of Aspley Guise had warned the Bank about this back in 2017.

It is also arguable that the Bank might take into consideration the dangers of oversharing information with the market: for example, by communicating up front a hard end date to a stabilisation programme, which in itself would destabilise the markets. The Bank could also consider stepping forward to communicate to the Government any concerns that were raised by both the Bank and the committee in evidence regarding the inherent risk that has been created by the Bank being required by the Government to attend to what my noble friend Lord Bridges called in the evidence sessions the “rambling rose” of no fewer than 25 government-imposed “have regards”.

Finally, on the value of the Government and the Bank aligning and co-ordinating better, most of us agree that the Bank of England must be independent. But, as a former Chancellor pointed out during evidence, it also has a further requirement, which is to support the Government’s economic policy. How to reconcile these two requirements? It is easy when the Government and the Bank are agreed on a proper economic approach, but more difficult when they differ. That is a conundrum whose answer may lie in the Bank not seeking to be too doctrinaire—for example, in deciding to embark on an aggressive QT programme. If the Bank is opposed to a Government’s policy or thinks that its actions might upset that policy, then arguably it should take great care to discuss with that Government any honest and honourable differences in economic viewpoint as soon as possible. In particular, it should consider possible changes in its timing of any planned major announcement which might otherwise accidentally coincide with any equally major but opposing government announcement.

I am close to overrunning, so I bring my remarks to a close. I thank your Lordships for their forbearance and attention. I hope my words might have some impact in reinforcing some of the poignant thrusts of the committee’s report.