Leader: Don’t bet the bank on Mark Carney

Until the government marries monetary activism with fiscal activism, Britain will not have a recovery worthy of the name.

We live in the age of the cult of the central banker. As governments of both left and right have retreated from economic interventionism, it is Ben Bernanke in the United States, Mario Draghi in Europe and Haruhiko Kuroda in Japan who have led the fightback against recession. Few of the new masters of the universe are more feted than the Canadian Mark Carney, who takes office as governor of the Bank of England on 1 July. Since being named as Mervyn King’s successor six months ago, he has been continually hailed as a saviour for the British economy. When it was pointed out to George Osborne that the Office for Budget Responsibility had forecast that the measures included in his most recent Budget would have “no impact on the level of GDP”, he replied that the estimate did not take into account the changes that Mr Carney would make. The Chancellor is a self-described “fiscal conservative” and “monetary activist”. He is banking on Threadneedle Street to deliver the recovery that he has not.

The appointment of Mr Carney (who is profiled by Alex Brummer on page 20) was a shrewd one. As our economics editor, David Blanchflower, a former member of the Bank’s Monetary Policy Committee (MPC), has written, he was “the best person available” for the job. Untainted by any of the recent banking scandals, he performed admirably as governor of the Bank of Canada, cutting interest rates aggressively in March 2008, a year before the Bank of England and the European Central Bank did. Mr Osborne was right to prefer him to the City’s candidate of choice, the deputy governor Paul Tucker, who ignored early warnings of the manipulation of LIBOR by Barclays and responded sluggishly to the financial crisis.

But if Mr Carney, in the words of one of his defeated rivals, has been “launched on the nation as a messiah”, there are good reasons to believe he will be a false one. The base rate is already at a record low of 0.5 per cent, where it has been for more than four years, and the Bank has already performed £375bn of quantitative easing (QE), the equivalent of nearly a quarter of annual GDP. With growth still anaemic and inflation at just 2.4 per cent, there is a strong case for further loosening but Mr Carney will need to overcome the resistance of the MPC, which has voted against additional QE for 11 consecutive months. Unlike in Canada, where the governor has sole responsibility for policy, he will require the support of a majority of the other eight committee members, six of whom have consistently opposed new stimulus.

Where Mr Carney is more likely to prevail is in following the example of the US Federal Reserve and offering “forward guidance” on interest rates. This would entail a commitment to keep rates low until a certain economic threshold has been met (the Federal Reserve has adopted an unemployment target of 6.5 per cent). Although the markets already expect the base rate to remain at 0.5 per cent until 2016, this would have the beneficial effect of dampening expectations of a rise should growth exceed current forecasts. The principal reason to remain sceptical of Mr Carney’s potential is the inherent limits of monetary policy. When consumers are unwilling to borrow and banks unwilling to lend, it is the state that must act as a spender of last resort and stimulate growth through measures such as temporary tax cuts, housebuilding programmes and infrastructure spending. It is Mr Osborne’s reluctance to accept this truth that does much to explain the parlous performance of the British economy, which has grown just 1.1 per cent since 2010 and remains 2.6 percentage points below its pre-recession peak. The Chancellor is fond of citing the example of Mr Carney’s native Canada, which eliminated its deficit in just three years in the mid-1990s, but it was the concurrent boom in the US, not an “expansionary contraction”, that enabled it to do so.

As even the new governor has said, “Some people may be expecting central banks to do too much” – and none more so than Mr Osborne. Until the government marries monetary activism with fiscal activism, Britain will not have a recovery worthy of the name.

Incoming governor of the Bank of England Mark Carney arrives at the G7 finance ministers and central bank governors meeting in Aylesbury on 10 May, 2013. Photograph: Getty Images.
Getty
Show Hide image

Richmond is a victory for hope - now let's bring change across the country

The regressives are building their armies. 

Last night a regressive alliance was toppled. Despite being backed by both Ukip and the Conservative Party, Zac Goldsmith was rejected by the voters of Richmond Park.

Make no mistake, this result will rock the Conservative party – and in particularly dent their plans for a hard and painful Brexit. They may shrug off this vote in public, but their majority is thin and their management of the post-referendum process is becoming more chaotic by the day. This is a real moment, and those of us opposing their post-truth plans must seize it.

I’m really proud of the role that the Green party played in this election. Our local parties decided to show leadership by not standing this time and urging supporters to vote instead for the candidate that stood the best chance of winning for those of us that oppose Brexit. Greens’ votes could very well be "what made the difference" in this election (we received just over 3,500 votes in 2015 and Sarah Olney’s majority is 1,872) - though we’ll never know exactly where they went. Just as importantly though, I believe that the brave decision by the local Green party fundamentally changed the tone of the election.

When I went to Richmond last weekend, I met scores of people motivated to campaign for a "progressive alliance" because they recognised that something bigger than just one by election is at stake. We made a decision to demonstrate you can do politics differently, and I think we can fairly say that was vindicated. 

There are some already attacking me for helping get one more Liberal Democrat into Parliament. Let me be very clear: the Lib Dems' role in the Coalition was appalling – propping up a Conservative government hell bent on attacking our public services and overseeing a hike in child poverty. But Labour’s record of their last time in office isn't immune from criticism either – not just because of the illegal war in Iraq but also their introduction of tuition fees, privatisation of our health service and slavish worship of the City of London. They, like the Liberal Democrats, stood at the last election on an austerity manifesto. There is a reason that we remain different parties, but that doesn’t mean we shouldn't also seize opportunities like this to unite behind what we have in common. Olney is no perfect candidate but she has pledged to fight a hard Brexit, campaign against airport expansion and push for a fair voting system – surely progressives can agree that her win takes us forward rather than backwards?

Ultimately, last night was not just defeat of a regressive alliance but a victory for hope - a victory that's sorely needed on the back of of the division, loss and insecurity that seems to have marked much of the rest of this year. The truth is that getting to this point hasn’t been an easy process – and some people, including local Green party members have had criticisms which, as a democrat, I certainly take seriously. The old politics dies hard, and a new politics is not easy to forge in the short time we have. But standing still is not an option, nor is repeating the same mistakes of the past. The regressives are building their armies and we either make our alternative work or risk the left being out of power for a generation. 

With our NHS under sustained attack, our climate change laws threatened and the increasing risk of us becoming a tax haven floating on the edge of the Atlantic, the urgent need to think differently about how we win has never been greater. 

An anti-establishment wave is washing over Britain. History teaches us that can go one of two ways. For the many people who are utterly sick of politics as usual, perhaps the idea of politicians occasionally putting aside their differences for the good of the country is likely to appeal, and might help us rebuild trust among those who feel abandoned. So it's vital that we use this moment not just to talk among ourselves about how to work together but also as another spark to start doing things differently, in every community in Britain. That means listening to people, especially those who voted for Britain to leave the EU, hearing what they’re saying and working with them to affect change. Giving people real power, not just the illusion of it.

It means looking at ways to redistribute power and money in this country like never before, and knowing that a by-election in a leafy London suburb changes nothing for the vast majority of our country.

Today let us celebrate that the government's majority is smaller, and that people have voted for a candidate who used her victory speech to say that she would "stand up for an open, tolerant, united Britain".  But tomorrow let’s get started on something far bigger - because the new politics is not just about moments it's about movements, and it will only work if nobody is left behind.

 

Caroline Lucas is the MP for Brighton Pavilion.