Why the Bank of England should move to Birmingham

Regional Bank of England offices should also be set up in Glasgow, Cardiff and Belfast.

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UK banks have helped to create a distorted economy. Banks are diverting resources away from industries vital to the future of this country, towards unproductive sectors such as speculative real estate.

Financial stability is being compromised by an economy that is insufficiently geared towards productive lending and investment. As a central bank sitting at the heart of the financial system, the Bank of England needs to be playing a leading role in ensuring banks are helping UK companies to innovate.

There is a clear need to re-establish the link between the real economy and the banking sector. Creating a strategic investment board that co-ordinates the actions of the Treasury, the Bank of England and the Department for Business, Energy and Industrial Strategy can help ensure that productive sectors are being adequately funded. The strategic investment board would bring together scientists, engineers, entrepreneurs and representatives of industry and trade unions. This new structure would improve the flow of information and funding for research and development.

Indeed, the UK’s productivity performance is extremely poor by international standards, while it runs the risk of being left behind by technological developments. This has longer-term consequences for wages and living standards. Research and development spending is too low. 

In critical sectors, the UK is lagging its competitors. Robotics is an obvious example. Japanese industrial production of robots surged 55.3 per cent in October compared to the previous year. China is fast developing its own domestic capabilities too.

A detailed analysis of UK trade data will be an important starting point to understanding the structural problems that need to be addressed. The UK is running record trade deficits in technology-related industries, such as computer, electronic and optical products (£22.9bn in the year to Q2 2017). The shortfall in manufactured goods was £128bn.

The UK maintains a comparative advantage in some services sectors, for now. Nevertheless, these tend to be concentrated in a small part of the country. The disproportionate number of technology companies in London and the South East will increase, exacerbating regional inequality. It could also impede economic growth: according to some estimates, London is now the most expensive tech city in the world. Governments have a critical role to play in addressing these weaknesses, but that will require determined, strategic action.

A National Investment Bank – proposed by Labour in its latest manifesto – should be established in Birmingham. The strategic investment board would sit alongside it. As we recommend in a report commissioned by Shadow Chancellor John McDonnell, some Bank of England functions could move to Birmingham too.

In addition, regional Bank of England offices should be set up in Glasgow, Cardiff and Belfast, alongside two smaller regional offices in Newcastle and Plymouth. The regional offices of the Bank of England and the strategic investment board would ensure that productive lending is geared towards the needs of local businesses.

Relocating core economic institutions would provide a clear, visible example of any new government’s determination to promote economic growth and a rebalancing of the economy. Birmingham is an obvious candidate, but there are other options too. This is just the start of a broader debate that must be had.

It should be stressed: this is not a token nod to devolution. The idea of moving control of economic policy, and some functions of the Bank of England, away from London is to create an alternative “cluster”. Control over finance has allowed London to dominate the rest of the country. Since the financial crisis of 2007-2008, the regional divide has widened. As we show in the report, unless we take radical action, this gap will continue to grow, to the detriment of everyone.

Graham Turner is the founder of GFC Economics, which was commissioned by the Shadow Chancellor to report on financing investment.