Quantitative Easing

Debate between Helen Goodman and Ian Blackford

Thursday 15th September 2016 Commons Chamber

[Ian Blackford]

The hon. Gentleman makes a very good point. I have not read the article, but I have seen the press headlines about it. That is exactly the point I have tried to make in painting a picture of the inequality. Those at the top or in the vanguard of society, if one wants to put it that way, are seen as benefiting from the quantitative easing programme—it benefits the pension schemes of those in the Bank of England—while ordinary workers and savers have been penalised. He is absolutely right, and one therefore recognises why we have the disconnect in society.

[Helen Goodman (Bishop Auckland) (Lab)]

One of the problems caused is obviously inflation in house prices, which I will say a little more about later. In response to the hon. Member for Wycombe (Mr Baker), is it not also the case that the Bank of England is still subsidising the mortgages of its staff and helping them up the very steep property ladder?

[Ian Blackford]

I must say that I have no particular knowledge of that, but if it is the case, I agree with the hon. Lady that it is not helpful. I did not specifically mention house prices when I was talking about the rise in financial markets, but quantitative easing has clearly led to an increase in property prices, and we know the problems that people suffer from, particularly in the south-east of England, as a consequence. That is one of the unintended consequences I mentioned.

I hope that the Minister will reflect on all this and, when he responds, tell us how the Government can bring forward measures that will address specifically the issue of rising wealth inequality, which concerns Members right across the House. While I recognise the desire of the Bank of England proactively to take action to support confidence in the financial markets and the wider economy, the Treasury has been almost completely absent in the deployment of fiscal policy tools to grow the economy and counter the negative impact of Brexit. One cannot divorce monetary and fiscal policy; they have to work in tandem. There is a particular challenge in encouraging companies to invest through their seeing a growth opportunity in the wider economy. We all have responsibility for creating the circumstances in which there is a realisation of such growth opportunities.

I appreciate that the illogical desire of the previous Chancellor to achieve a fiscal surplus in the current Parliament has now, thankfully, been abandoned. We should all share in a desire to cut the deficit and debt, but the question of how to get there requires a much deeper debate. I am pleased that voices across the Chamber now seem to recognise that we have to accept our full fiscal responsibilities, as well as our monetary responsibilities, to strengthen confidence and growth.

In particular, we need to consider infrastructure investment, as a counterpart to our monetary measures, to build capacity, improve efficiency and create an environment that will encourage business investment to allow us to improve productivity, competitiveness and, as a result, living standards. It is about making sure that we move away from a situation in which QE has been beneficial to those owning financial assets to one in which wider society sees a greater benefit from a more balanced approach.

My party, the SNP, has long advocated ending and reversing the Tory Government’s programme of austerity, which has failed our economy and harmed our social fabric, and using fiscal tools to create a fair, resilient and balanced economy. The productivity and inclusive growth Bill proposed in the SNP’s alternative Queen’s Speech would bring about an inclusive, prosperous economy through a modest investment in infrastructure and vital public services. Such a balanced approach would return the public finances to a sustainable path while continuing to invest. The Bill would boost investment, halting the austerity programme that has strangled economic progress. It would oversee increased spending on public services by a modest 0.5% a year in real terms between 2016-17 and 2019-20, which would release over £150 billion during that period for investment in public services, while ensuring that public sector debt and borrowing fell over the current Parliament. In doing so, the Bill would stimulate GDP growth, and support wage growth and tax receipts. By transforming productivity and innovation, it would act as a major signal of confidence in our economy. Such a modest increase in expenditure would stop the cutbacks that disproportionately burden the most disadvantaged groups, cause widespread suffering and inequality, and deny opportunities to so many.

The International Monetary Fund, in its latest “World Economic Outlook”, has revised growth projections down, signalling the headwinds ahead, and urged policy makers to engage in more active policy responses to tackle the underlying challenges. It called for advanced economies to “strengthen growth” by engaging in

“structural reforms, continued monetary policy accommodation, and fiscal support—in the form of growth-friendly fiscal policies where adjustment is needed and fiscal stimulus where space allows.”

Furthermore, in an article entitled “Neoliberalism: Oversold?”, the IMF revisited the effectiveness of austerity and concluded that these policies increased inequality and jeopardised long-term economic growth.

In its latest economic outlook from June 2016, the OECD encouraged policy makers around the world to

“break out of the low-growth trap”

and deliver economic prosperity by deploying fiscal policy “more extensively”, as well as by taking advantage of the low-interest rate environment created by monetary policy. It suggested the use of structural policies to enhance market competition, but also urged Governments to intervene to enhance labour market skills and invest in infrastructure that would deliver long-term productivity and economic growth.

Even the US has pressed other G20 countries for more fiscal policy activism to put growth ahead of austerity. Ahead of the September 2016 summit in China, the US Treasury Secretary, Jack Lew, said a “consensus” had formed around the US position on the need for countries to “use all policy tools”, including monetary, fiscal and structural reforms.

The UK Government’s failure to co-ordinate fiscal and monetary measures to rebalance the economy following the financial crisis has left a toxic legacy of stagnating growth. The SNP understood the use of quantitative easing by the Bank of England as a response to the financial crash and a temporary measure to regain stability. However, the effectiveness of monetary policy has been gravely undermined by the austerity agenda and it leaves a legacy of unintended consequences that will put an unprecedented burden on future generations. The Bank of England should evaluate the effectiveness of its QE programme and the wider consequences of its continuation after the UK’s decision to leave the EU. The UK Government should reflect on that and put in place effective fiscal measures.

--- Later in debate ---

[Ian Blackford]

Will the hon. Lady just confirm that the Bank of England said that it would come back in September 2018? I hope that it will come back before then, because otherwise it suggests a complacency and unwillingness to analyse the situation and give us the information that I think this House should be demanding.

[Helen Goodman]

Well, that is probably my fault, because I asked it to do so by September 2018. We could ask it for something here and now, but obviously the new package was only announced in August and its impact will be felt some way down the track. My thinking was that there will be no point trying to analyse the new package by Christmas, because we will just not see it.

In addition to having a better understanding of all the effects of its QE programme, the Bank needs to look at what other central banks do, including the European Central Bank because there could be some useful lessons. I think that we might get some better effects if we tweaked it a bit. I have to say that it has a bit of a blind spot when it comes to the issue of distribution. When we quizzed its officials about their purchase of corporate bonds, they said that they were distributionally blind. In other words, they wanted to be completely neutral and not take a position. When we asked them about the distribution of wealth among households, they seemed to confuse being politically neutral with not taking a view on the significance of distribution. I think that is a mistake. I also think that if we are piling lots of money towards richer and richer people, the monetary impact is likely to be much less, because the propensity of the wealthy to consume is much less than that of people on low incomes, so it is not even being done in the most effective way.

I will read what the Bank said:

“the Chairman made some points a little earlier about accountability and the Bank being involved in decisions that were the province of politicians, or some might think would be the province of politicians.”

It went on to say that the tools it has

“are not perfect…However, we have a clear objective, which Parliament has given us…and we have certain tools to implement it. It does have distributional effects, and if we were to be in the business then of deciding what the distributional effects should be, we would be straying even further into areas that are really the province of elected politicians.”

That is a fundamental misapprehension. The hon. Member for Horsham (Jeremy Quin) pointed out that QE was embarked upon in 2009 to speed up growth; the distributional impacts were not in mind. However, now we know that it is producing those wealth effects, it is disingenuous to ignore them. That is the position the Bank is trying to take and we need to push back. I am grateful that the hon. Member for Ross, Skye and Lochaber has given us the opportunity to do that in the House today.

--- Later in debate ---

[Ian Blackford]

I thank the Backbench Business Committee for granting this debate and all the Members who have participated. We have had a well-informed, fascinating debate. I hope that this the start of something whereby we have signalled to the Bank of England, which I am sure will be getting a report of our proceedings, that we wish to see a more fundamental analysis of the outcomes of the QE programme. There has been a very clear message to the Government—as shown by all the actions that we have seen internationally, with the words from the OECD and even from the US authorities—that there has to be a linkage between monetary and fiscal policy. A number of Members have delivered a very strong message that we really have to make sure that we deal with wealth inequality. I look forward to carrying on this debate, and look forward to the Government addressing the issue in the autumn statement.

[Helen Goodman]

On a point of order, Mr Deputy Speaker. Five minutes ago, the Minister said at the Dispatch Box that inequality in this country is lessening. On some measures of income inequality, that is true, but this afternoon we were debating wealth inequality.