I beg to move,
That this House calls on the Bank of England to provide a detailed analysis of the effect of its quantitative easing programme on the financial markets and the wider economy which includes an assessment of the future development of the quantitative easing programme and other monetary policy measures it may consider appropriate to achieve its objectives.
I draw the attention of the House to my entry in the Register of Members’ Financial Interests.
I understand the motivation to introduce the quantitative easing programme back in March 2009. The need to restore confidence and take action to stimulate lending and growth after the financial crisis was well understood. As QE was put in place, many commentators were worried about unfounded risks of inflation, which betrayed an ignorance of what the effects of QE would be.
My primary concern about the Bank of England’s QE programme, the asset purchase scheme, was not that it might lead to some kind of hyperinflation, but instead that it would not necessarily lead to an increase in lending. That was the evidence from Japan, where for a significant period after the introduction of its unconventional monetary policy, lending actually fell. Of course, that outcome has been mirrored here. If we look at M4—also referred to as broad money—its value in January 2010 was £2,220 billion. The figure for July 2016 was £2,210 billion—a slight fall in the value of broad money. Now, the improbable counter-factual is that lending might have been lower without QE; the inescapable fact, though, is that engaging in quantitative easing to the extent we have has not resulted in an increase in the money supply in the UK. It does seem that the asset purchase scheme has predominantly enhanced the balance sheets of financial institutions, without a commensurate increase in lending.
We understand the difference between QE and simply printing money, which is that QE should eventually be unwound, although the mechanisms and timings are the great unknowns of today. Just to put this into context, the Bank of England now owns an eye-watering quarter of all outstanding Government debt—in effect, we have borrowed against ourselves.
When I sought the agreement of the Backbench Business Committee for this debate, it was ahead of the Bank of England announcing further measures in August to add to its QE programme. That means that this is a very timely, much-needed debate, and it is right that, seven and a half years into the QE programme, we in this House take stock of what has been achieved and, indeed, what the interaction between monetary and fiscal policy should be to deliver confidence and growth for our economy.
With the measures announced in August, the Bank of England has authorised a QE programme of £445 billion. The desire to drive down interest rates, coupled with the effect of the QE programme, has seen investors seek other, higher-yielding assets, with a commensurate increase in asset prices and a decline in yields. Given those circumstances, the financial markets have seen a great bull run. The FTSE 100 was at a level of 3,529 on 6 March 2009, ahead of the launch of the QE programme. Last night, the index closed at 6,673, representing a gain in value of 89% over the last seven and a half years. The QE programme has helped to deliver an outcome that means that those owning financial and property assets have done well—that was perhaps an unintended consequence of QE—while, on the face of it, there has been no net positive impact on growth in the money supply.
I note what the hon. Gentleman says on the money supply. The Bank of England reports do indicate an increase in growth in the economy as a result, certainly, of the first round of QE immediately post the first financial crisis, so it may yet have had a positive impact on the level of inflation in the economy and GDP growth—clearly of benefit to us all.
My contention would be that we have actually had very limited reporting from the Bank of England on the actual effect of the QE programme, and we need a much more detailed analysis. I accept, of course, that there would have been some limited impact on the economy from the QE programme. I will go on to discuss whether we need to balance some of these monetary measures by taking additional fiscal measures, which may have done more to boost sustainable economic growth. That marriage of our responsibilities for monetary and fiscal policies has to be relevant to the point the hon. Gentleman made.
As the Prime Minister herself said:
“Monetary policy—in the form of super-low interest rates and quantitative easing—has helped those on the property ladder at the expense of those who can’t afford to own their own home.”
On this occasion, I agree with the Prime Minister—I do not intend to make a habit of that though.
There has to be a policy response from the Government that recognises that fiscal measures must be taken as part of a balanced approach to deliver the circumstances of sustainable growth. If we look at the growth in financial wealth, we can see the contrasting experience of those who have benefited from this wealth effect at a time that real wage growth has stagnated. We know from an analysis published by the Bank of England in 2013 that QE had boosted asset prices and that the top 5% of households owned 40% of those assets. The analysis from the Bank of England at that time estimated that the top 5% of households had become richer to the tune of £128,000 on average. QE has demonstrably exacerbated wealth disparity between rich and poor.
I would have to agree with elements of what the hon. Gentleman is saying. We have had these ultra-low interest rates and quantitative easing in place for a hell of a long time, and they have had a distorting effect along the lines that he has suggested. Does he not recognise, though, that when, in March 2009, we entered a phase of emergency interest rates and started down the road to quantitative easing, no one would have envisaged that this far down the line the British economy—indeed, more importantly, the world economy and the European economy—would be in such a state that it would be difficult for us to raise interest rates? In other words, the policy in 2009 and for the next year or two afterwards was entirely acceptable and understandable, but it was not envisaged that it would carry on for so long.
I find myself agreeing with the right hon. Gentleman. As I said, we all recognise that it was a necessary step to take in 2009. I am really grateful that the Backbench Business Committee has granted this debate, because it is important to reflect on how the monetary policy initiatives that have been taken need to be balanced by other measures to make sure that we can deliver the sustainable economic growth that he mentions. We need a detailed analysis of what has happened to the £445 billion that has been invested in the asset purchase programme. As he says, given the economic circumstances we have no idea at this stage when we are likely to see that begin to unwind. Indeed, it is likely to be some years into the future.
We need to reflect on the experiences that I have discussed and be prepared to consider what we need to change in both monetary and fiscal policy in order to foster inclusiveness and fairness. We have not created circumstances where there has been a material enhancement to business confidence that has led to an increase in business investment that is necessary to drive up productivity and enhance living standards for society as a whole. Post-Brexit, much is talked about those who have been left behind. In this context, there must be an examination of QE and an assessment of alternative measures both monetary and fiscal. In my opinion, there has been a disconnect between growth in financial assets and growth in the wider economy.
There is also the issue of the impact on savers of lower interest rates, and the impact on pensions and pension savings. The difficulties experienced by the BHS pension scheme and the desire to change the arrangements for the British Steel pension scheme are just two examples of situations where there are risks to members of defined-benefit pension schemes. Today in the UK, there are about 11 million citizens in about 6,000 defined-benefit pension schemes. Figures that I obtained earlier this year suggested that the then combined deficit in defined-benefit schemes was about £384 billion, with about 600 schemes in a danger zone in terms of meeting their long-term obligations.
One of the challenges that pension schemes face is the impact of QE particularly with regard to the declining yields on Government gilts. Let me put that into context for the House. A movement in UK gilts of 50 basis points equates to an approximate increase in defined-benefits pension schemes deficit of £120 billion. When we consider that the 10-year Government bond yield was at 3.1% in March 2009 and we are at 0.5% today, we can see the scale of the challenge that pension funds have faced from the decline in yields. We have invested, if I can use that term, £445 billion in driving down yields and creating a pensions black hole, undermining in the process the attractions of savings and, in particular, pensions savings.
It is not just the impact on future income streams for pension funds, but the effect on declining annuity rates, which is of considerable concern. This effect was identified by the Treasury Committee in a report of 2012 which stated:
“Loose monetary policy, achieved through quantitative easing and low interest rates, has redistributional effects, particularly penalising savers, those with ‘draw-down pensions’, and those retiring now.”
We need to reflect on such statements and consider how to adapt our approach. Standard & Poor’s stated in a report this year that QE has exacerbated wealth inequality.
I welcome this debate. I wonder whether the hon. Gentleman saw the editorial in The Daily Telegraph of 13 September headed, “A pension scandal at the Bank of England”, which discussed the fact that senior staff had been given massive increases in their pension contributions in order to fight the phenomenon he mentions. I am afraid that what is sauce for the goose in the case of the Bank of England is not sauce for the gander. Does he agree that the Bank of England is in danger of being accused of hypocrisy again and again as this proceeds?
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.
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?
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.
I am delighted to participate in this debate and congratulate the hon. Member for Ross, Skye and Lochaber (Ian Blackford) on securing it. I certainly support him. Like him, I am pleased to agree with my right hon. Friend the Prime Minister’s comments on monetary policy. That is certainly a first for me, and I hope to explore more with her how we should move forward.
I pay tribute to the journalist Tim Price of MoneyWeek for bringing forward a petition on the parliamentary website against QE, which has so far secured more than 4,700 signatures. I hope that by the end of this debate, with the enormous audience it is bound to draw, there will be a few more signatures.
One of the great tragedies of this subject is that, although we might think it is one of the most important issues of our time, it is not well understood, as can be seen from the attendance in the Chamber. Although the public feel the effects of it widely, their representatives are not as well equipped to participate in debates on the subject as they might be.
I will talk about the two areas mentioned in the motion: the effects of QE and the future development of policy. It might be helpful first to turn to page iv of the last inflation report, which sets out the channels through which monetary policy works. The first is by bringing forward spending by lowering the “real interest rate”. The next is by lowering debt servicing costs, which is the “cash-flow channel”. There is the lowering of funding costs, which is the “credit channel”. It also mentions the “wealth channel”, which is people selling assets to the Bank, so that they can
“reinvest the money received in other assets”,
thereby supporting asset prices. The “exchange rate channel” bears consideration, given that our exchange rate has just dropped. That is an object of Bank policy. There is also the “confidence and expectations channel”, which demonstrates that the Governor, the Bank and the Monetary Policy Committee are aware of the importance of their role in the markets of creating expectations and the effect that that has on the real economy.
The hon. Member for Ross, Skye and Lochaber made some good points about wealth inequality—a matter on which I will dwell. In 2012, the Bank of England wrote a report on the distributional effects of asset purchases. It states:
“By pushing up a range of asset prices, asset purchases have boosted the value of households’ financial wealth held outside pension funds, but holdings are heavily skewed with the top 5% of households holding 40% of these assets.”
After the MPC’s last inflation report, the Treasury Committee picked up on wealth inequality and the extent to which it is promoted by what I would call “easy money” and by QE specifically. The Committee is increasing its focus on the issue. I am glad to see present the hon. Member for Bishop Auckland (Helen Goodman), who serves with me on the Committee, and I look forward to hearing what she has to say. I think that hon. Members on both sides of the House are converging on a genuine concern that the processes of the market are being undermined in their justice by the current set of monetary policies.
If anything, QE has an upside: it has made explicit a phenomenon that has been going on for a long time. The hon. Member for Ross, Skye and Lochaber mentioned the quantities of M4 outstanding. If we look back a bit further, we will see that M4 outstanding in 1997 was about £700 billion. If we plot the quantity of M4 outstanding, we will see an accelerating rush through that supposed moderation and in the quantity of M4 outstanding. Is it any wonder that we seemed to have abolished boom and bust, and seemed to be getting better off, when actually there was an enormous acceleration in the supply of credit, leading to a crisis, broadly a stagnation in the creation of money, and the categorically different economic environment in which we find ourselves today?
This has gone on for a long time. The Office for National Statistics and the Library published a paper looking at price inflation back to 1750. It has an instructive chart—I regret that I cannot put it on the record—which shows, on a linear scale, that the value of money was broadly flat until about 1914-18. There was some inflation during the wars and then, from 1971, the value of money collapsed. What happened in 1971? The final link to gold was severed and money became inflationary. As ever, Governments’ third means of financing themselves after tax and borrowing has been currency debasement, and it is that continuous, chronic expansion of credit that has brought us to the position we are in. Although we are now increasingly concerned about the wealth equality effects—the justice effects—of QE, the point is that the money supply has been chronically expansionary since 1971, and therefore those effects have been going on throughout my lifetime.
I will not read out the whole passage, but in “The Economic Consequences of the Peace”, Keynes wrote:
“By a continuing process of inflation”—
that is, increasing the money supply—
“governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.”
What has changed? Nothing much. That was, of course, only Keynes; I am not quoting some wild-eyed libertarian monetary scholar.
Is it any wonder—I have given advance notice of this—that we see reported in The Daily Telegraph today a speech by the hon. Member for Hayes and Harlington (John McDonnell), in which he said:
“We’ve got to demand systemic change. Look, I’m straight, I’m honest with people: I’m a Marxist… This is a classic crisis of the economy—a classic capitalist crisis. I’ve been waiting for this for a generation!”?
He went on to say, if the House will forgive me for repeating this:
“For Christ’s sake don’t waste it, you know; let’s use this to explain to people this system based on greed and profit does not work.”
I have covered this theme before. The point is that, if this is capitalism, I am not a capitalist. It is not capitalism when money, under the centrally planned and directed policy of a committee of wise men and women at the central Bank, creates a chronically expansionary environment, which we are now beginning to realise has real wealth effects. That is not capitalism. If the outcome is unjust, that is because of our monetary arrangements, in my view. There will be other factors, but I think that that is potentially a profound cause of wealth inequality and injustice in the market economy.
I am interested in my hon. Friend’s speech; as is so often the case, he is sharing interesting ideas with the House. I totally get a lot of what he is saying about the inflationary trajectory, but, as a monetarist, would he have supported QE when the policy was launched in 2009—I know that I am going back a bit—given the circumstances at the time? He seems to think that it has run its course and ceased to be effective, but would he have supported it initially?
My hon. Friend asks a magnificent question, one that is discussed on the website of the Cobden Centre—a think-tank that I co-founded. [Interruption.] There, I said it. The question is, “Would Hayek have supported QE?” The consensus of Hayek scholars is that, given all the circumstances at the time, he would have supported it, to prevent the money supply collapsing and the horrific humanitarian consequences that that would have involved. But would he have supported it now to try to stimulate the economy, creating patterns of economic activity sustained only by that expansion of the money supply? Flatly, no. I was not in Parliament at the time, and I am happy to tell my hon. Friend that I did not have to make that decision. We are where we are.
My second point is that I believe policy is now ineffective and counter-productive. The Governor told the Treasury Committee that we have “extraordinary, if not emergency” monetary policy; we have had it since 2009. I believe that if, during that seven-year period, productive investments could have been made, brought forward and induced by these low interest rates, they would have been made by now. When it comes to real productive investment, I think we are into the law of diminishing returns. We therefore run the risk of inducing firms to engage in activities that will not have a return—in other words, banks will make non-performing loans. That is, of course, the problem afflicting the Italian banking system, as we sit here.
The question is whether this monetary policy can produce a self-sustaining recovery and do it in a non-inflationary way. One of my advisers wrote to me before this debate to say that if we
“remove the base effects from the collapse in oil prices—as will happen over the coming months—and then just let the underlying ‘core’ inflation trends continue as they are, CPI would be 4%+ by mid-2017.”
That is something I shall ask the Governor about next time we see him.
Further to what the hon. Member for Ross, Skye and Lochaber said, Andrew Lilico, an economist at Europe Economics, has pointed out:
“In the three months to July 2016…the UK’s broad money supply (on the Bank of England’s preferred ‘M4ex’ measure) grew at an annualised rate of 14.7%”.
When I raised this with the Governor at the last Treasury Committee meeting—I used the monthly figures; it is far starker if we look at it quarterly—I asked whether, if the money supply is currently growing by 14.7% annualised over three months, we should expect more or less inflation next year. I think that I know the answer, but when I put it to the Governor, his answer was that aggregates had moved away from the whole problem of inflation targeting. I encourage the hon. Member for Ross, Skye and Lochaber to have a look at exactly what he said. I shall return to some of the Governor’s remarks in a few moments.
I certainly agree with the hon. Gentleman. Indeed, the Bank of England’s Andy Haldane said that the Bank had deliberately inflated the biggest bond market bubble in history. That is not a literal quote because I do not have it before me, but that is broadly what he said. If we look at the period 1997 to 2010, the period before the crisis, and look at the regional distribution of house prices, we find an eerie correlation between it and the increase in the money supply. That distribution of changes correlates with what one might expect of Cantillon effects—in other words, in London and the south-east, house prices rocket away quicker and earlier, while in the north-east and Scotland, house prices increase more slowly as the money spreads out. My point is that there is a good case for saying that Cantillon effects and the increase of the money supply have a profound effect not only on particular assets, but on the regional distribution of prices. It is something that the Bank should consider in its report. It should speak to and address the issue. Speaking as a humble aerospace and software engineer who has only read a few books, it is not within my gift to produce the research.
My next point is that this is a deliberate policy of manipulating asset prices, disrupting the price mechanism in the capital markets. Therefore, there will be a misallocation of capital. The Governor made a speech in New York at a monetary policy conference in which he acknowledged this phenomenon. I have tried to raise it further with him, but he is very good at moving the subject on. His speech was in defence of inflation targeting, and he dealt with four criticisms of it. The first was that price stability does not guarantee financial stability. He went on:
“Second, the stronger critique of the Austrian school is that inflation targeting can actively feed the creation of financial vulnerabilities, especially in the presence of positive supply shocks… From the Austrian perspective, this misguided response”—
the response of the central bank—
“stokes excess money and credit creation, resulting in an intertemporal misallocation of capital and the accumulation of imbalances over time. These imbalances eventually implode, leading to crisis and ‘bad’ deflation.”
It cannot be said that the Governor of the Bank of England is unaware of the somewhat unfortunately titled Austrian school of economics, which I believe in and which tells us that money creation has real structural effects on the economy that affect people’s everyday lives. I was going to challenge the Bank to include in its report an assessment of these things, to demonstrate whether or not it was aware of these effects, but the Governor’s speech has shown us that the Bank is aware. It should not only show in its report that it is aware, but justify what the Governor went on to imply, which is that, by using other instruments, it could deal with these structural consequences. That is one of the big questions of our time: whether or not the structural consequences of easy monetary policy can be dealt with using its other instruments. I am absolutely convinced they cannot be dealt with, and therefore we will have a worse crisis later than the one in 2008.
I sense that Mr Deputy Speaker would like me to wrap up, so I will just make the following point. This has gone from an exercise in saving the financial system to an exercise in kicking the can down the road. How will it develop in future? We have gone from low rates to QE, and I think we will go to negative rates. There has already been talk of banning cash. There have been discussions of helicopter money, too, and at the recent inflation report meeting, out of four people, only the Governor would rule out helicopter money. It is encouraging a misguided belief that if only we printed money and gave it to everybody, there would be justice. This kind of naive inflationism is madness.
I am grateful to the hon. Gentleman for agreeing with me.
We have got to get to a point where we escape from easy monetary policies. That will come through one of three mechanisms: a self-sustaining recovery, which I emphasise I very much hope for—I hope that the Bank, and all the central banks, are right on that—or the next phase will be massive inflation, or there will be an abandonment of easy monetary policies before either of those things, at which point there will be an horrific correction.
The great question for society and us as representatives, and indeed for monetary economists, is going to be what went wrong. Will people blame the free market and vote for the policies of certain Opposition Members, which will lead to more statism and I would argue impoverishment and misery? Or will people blame central planning by central banks, which is deliberately dislocating our economy, manufacturing injustice and undermining faith in the market economy and has dropped us into a profound crisis of political economy?
I very much welcome this motion. I shall certainly support it, and I congratulate the hon. Member for Ross, Skye and Lochaber on moving it.
I congratulate the hon. Member for Ross, Skye and Lochaber (Ian Blackford) on securing this important debate, and I am pleased to follow the hon. Member for Wycombe (Mr Baker), with whom I have discussed these issues on several occasions.
Inequality is one of the most profound problems facing this country and it is getting worse. The problem of inequality is exacerbating differences between different social groups, dividing families, because there are big intergenerational gaps, and also dividing this country geographically, with very significant regional inequalities. So to learn that the Bank of England’s quantitative easing is expanding these gaps between rich and poor is extremely alarming.
As the hon. Member for Ross, Skye and Lochaber said, the Bank undertook its own analysis of the impact of QE in 2012. I think that what it found was that the top 5% had seen an increase in their wealth of £185,000 and the bottom 50% got no increase in their wealth because they did not have assets.
Unlike the hon. Member for Wycombe, I am not critical of QE in principle or of the package the Bank of England unveiled in the early summer, because I think Brexit is a real shock to the economy and we do need to take action to stabilise it and avert the reductions in growth that would otherwise occur. None the less, I am not satisfied that the Bank had demonstrated that the way in which it was carrying out quantitative easing was the best way, which is why I think it worthwhile for us to examine the issue in more detail.
Just to set in context the increase in the asset holdings of the top 5%—a considerable part of it being in the housing market and property prices—it is worth observing that the average house price in Britain is now £212,000. What we are saying is that, in practice, the Bank of England has given the top 5% enough money to buy another house. Were the Chancellor of the Exchequer to stand up at the Dispatch Box and say, in the Budget or the autumn statement, “I am giving £85,000 to the richest people in the country”, I think that even Conservative Members would be alarmed and concerned, and perhaps even slightly rebellious. But because it is being done by the Bank of England and is rather hidden, we are not seeing the same level of concern, and we need to see the same level of concern.
Moreover, it is a problem when the ratio of average earnings to average house prices is eight to one. That puts the possibility of home ownership way beyond many millions of people, which is why home ownership is falling. Of course we need to address the housing market, and of course we need an increase in the supply of housing, but we are not seeing that at the moment, and QE is making the situation worse.
I entirely understand the point that the hon. Lady is making, and I accept what she said about the Chancellor of the Exchequer coming to the Dispatch Box and so forth, but I would not wish the message to go from the House to a broader audience that that was an intended aspect of the policy. When QE was introduced by the last Labour Administration, it was introduced with the perfectly admirable intention of ensuring that GDP growth was improved and inflation targeted. I would not wish the wrong message to go out on the intention of the policy; we are debating potential side-effects that may or may not have occurred.
What the hon. Gentleman says is absolutely fair, and I agree with him. I would not go so far as to say, “Labour QE good, Tory QE bad”—I think that would be slightly Orwellian—and, as I said initially, I was not saying that I did not think there should have been another package this summer. My questions are about the way in which that is done.
Along with the hon. Member for Wycombe, I have quizzed the Bank of England about the matter on three separate occasions. On the first occasion, when I asked the Governor about the distribution impact, he said that taking account of distribution would be political. I cannot see how giving wealthy people more assets is not political. However, we have questioned the Bank more recently, and it seems to me that people in different parts of it say different things. I think it would be unfair to say that they speak with forked tongues. However, on one hand the chief economist, Andy Haldane, has said that monetary policy
“cannot close other structural faultlines across the UK economy – for example, regional, socio-economic, inter-generational… Monetary policy cannot set different interest rates for different regions”,
and also that UK recovery has been
“for the few rather than the many”.
That seems to be a criticism of an unequal society. Andy Haldane seems to be saying that this is not good socially and it is not good economically.
On the other hand, when the Treasury Committee questioned Sir Jon Cunliffe on the matter, he said:
“I would only point out that we have the tools we have.”
That is a bit like “Brexit means Brexit”. It is a rather gnomic and unhelpful approach. I think it is stalling; I think that the Bank does not want to look at different ways of carrying out QE, and I do not think it is being sufficiently imaginative.
In January I visited the European Central Bank in Frankfurt and asked how it does QE. It does it in different ways, and it is able to do so in part because the financial infrastructure is different in other countries. For example, it does not just buy Government bonds and gilts; it buys bonds in KfW and CADES—the German and French infrastructure banks—and it has a special strand that aims to get more money into the small and medium-sized enterprise sector. So I do not accept the Bank of England saying, “We have the tools that we have and there is nothing different we can do.”
I commend to the Bank some work that the New Economics Foundation has done on this. It seems to me that the Bank could be buying investments in housing associations, for example. In fact, that would be a much better way of dealing with our housing crisis than giving a lot of money to rich people, thereby pulling up property prices. I do not think that the Bank has a very good understanding of the housing market—we have quizzed its officials on that as well. For example, the Governor told us last week:
“Housing finance in this economy is quite sophisticated”.
I do not think that it is sophisticated; I think that it is quite dysfunctional, because we are seeing more and more money going into people exchanging properties, rather than going into more building, which is what would actually make a difference to the housing crisis.
I really hope that the Bank will not only better analyse what it is doing, as the motion suggests—it did commit to come back in September 2018 with renewed analysis of the impact on assets and wealth distribution of this further round of QE—
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.
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.
It is with some inevitable trepidation that I stand to speak in the debate, given the eloquence and experience of those who have spoken before me, not least the experience of a modest crofter from Skye, my hon. Friend the Member for Ross, Skye and Lochaber (Ian Blackford). I was taken not only by his great eloquence but by every contribution this afternoon in what, inevitably, is one of the most important debates that I have taken part in. It is also one of the most thoughtful. While others can wax eloquent given their experience in the financial sector over many years and their distinguished careers, I come to this issue trying perhaps to give voice to others who do not have that background.
The ordinary person in the street would recognise that we live in troubled times. There is increased uncertainty and the stability and certainties of the past seem to have flown past. For example, who could have foreseen at the outset of QE that today many economies would be experiencing weak growth, low business investment, collapsing prospects for pensions, near negative interest rates penalising savers and a huge increase, as the hon. Member for Bishop Auckland (Helen Goodman) said, in wealth inequality.
I would like to add something else to the equation. We need to recognise the political instability that has arisen. People are feeling that they are disfranchised, have no voice and are losing hope. That is one of the profound social and political consequences that deserves to be considered.
It was not supposed to be like this. It may be wise to cast a critical eye over what seemed to most people, myself included, an entirely logical response to the crisis some years ago. It is good that people are able to reflect. Although it comes hard for many politicians, it is good when we, too, are modest enough to recognise that we do not always get it right and that we need to learn from experience. For example, many people in recent years feel that the UK Government’s economic plan has been blind to some of the consequences of QE. That is seen in the poverty, in many cases, of the fiscal response to aid those who are not benefiting from the increasing wealth. The Treasury needs to think about doing more to achieve a better balance between the fiscal response and the monetary response. The time is surely right for it to mount a rigorous and open appraisal of the balance between monetary policy and fiscal measures, and of whether each of the rounds of QE has had the desired effect. The Bank could also look at that question.
Let us recall some of the antecedents of QE. I might not have worked in a bank at any time—the only time I go into the bank is when I receive a phone call from it—but in a past life, I used to read quite a lot about this subject. Everyone attending this debate will recall that it was back in 1969, in a paper by Milton Friedman entitled “The Optimum Quantity of Money”, that the idea of what we know today as QE was created. Friedman contended that if policy interest rates reached the lower bound of zero, it would be appropriate for a central bank to purchase assets—Government bonds in the first instance—to create a wealth effect that it was no longer possible to achieve through the conventional interest rate policy of the central bank. Friedman’s notion of quantitative easing was that asset prices would be boosted, leading to an increase in confidence and spending through the wealth effect. In turn, economic activity would be given a boost.
In more recent times, however, even that great monetarist Allan Meltzer—who has written widely on the development and application of monetary policy and on the history of central banking in the US—has questioned the efficacy of QE, arguing that it has not led to what Friedman expected. In particular, the key aim of creating an increase in confidence and therefore investment has not transpired as hoped. Today, too, central bankers seem content to see inflated asset prices. But who speaks for the millions of savers around the world? Who speaks for the ordinary men and women who have paid the price of banking failure? Where were the UK Government when our economy failed to diversify or balance in the aftermath of the global financial crisis? Where were the necessary fiscal measures when it transpired that the relatively poor were paying the price for the mistakes of the wealthy? The SNP and others understood the use of quantitative easing by the Bank of England as a response to the 2008 crisis to be a temporary measure to help to regain stability. How long, I now ask, is this temporary measure going to last?
I agree with my hon. Friend the crofter that the effects of monetary policy have to a great extent been undermined by the austerity agenda, which is now leaving a legacy of unintended consequences that is placing an unprecedented burden on future generations. Broadly speaking, the policies being followed by central banks around the world benefit a relatively narrow group of people—equity-rich individuals and investment banks, for example—but few others. It is the unintended consequences—I admit that they are unintended—of QE that must now be the focus of policymakers.
I agree with much of what the hon. Gentleman is saying. The Bank of England is not represented here, and I do not agree with it, but if it were here, I suspect that it would say that everybody benefited, given the reality that there would have been a worse recession if it had not acted. Does he agree that that argument is now wearing thin?
The hon. Gentleman must have read the next part of my speech. However, that allows me to haste along and agree precisely with what he has said.
A friend of mine, Dr Jim Walker, wrote to me recently and pointed out that
“interest rates throughout history have not only been the cost of capital (or the reward to thrift) but have also been a signalling mechanism about the future”.
We now know that zero interest rates and QE tell business owners and entrepreneurs that there is little or no growth coming. They therefore encourage businesses to hold cash and be extremely cautious about investment. The signalling mechanisms have had a different effect from those predicted by Friedman. It is again time to review the situation. It would be difficult to argue that QE has therefore led to the increase in confidence and investment that was the argument for it.
We can also see other consequences. Despite eight years of near zero interest rates, UK real gross fixed capital formation is 2.8% lower than its 2007 peak. Therefore, investment in the real economy has not been boosted in the way that was originally thought. A similar phenomenon has being going in other aspects of the economy on the demand side, such as in how households have been afflicted. Zero interest rates and asset purchases were supposed to convince ordinary people to borrow and spend more immediately, but some key groups have reacted to zero interest rates by saving more. Why? In order to provide for old age, they can no longer rely on the positive compounding effect of above zero interest rates; nor can they rely on getting the type of annuity for which they may have planned. Instead of encouraging that group to spend, policies have encouraged them to save more due to fear for the future. Such savers are understandably angry. After years of saving some of their income, many people have zero income from their savings.
I am not somebody who is disadvantaged—I have a well-paid job in this House—but I wonder how people who, like me, have a cash ISA are feeling. Before the crash, it was fairly common to get 6% interest, but I received a letter a few weeks ago to point out that from 1 December the interest rate is going to be reduced yet again to 0.1%. The time has come to undertake a critical review of the policies of recent years.
We are a small but enthusiastic band this afternoon, but it strikes me that there is something serious here. For the last eight years, the entire western world has been undertaking the most extraordinary monetary experiment in 100 years. If it goes wrong, as pointed out by the hon. Member for Wycombe (Mr Baker), the consequences will be devastating for the world economy. We may find that all we did in 2008 was delay the explosion of the world’s economy. It is that serious. I hope that the Bank of England and the regulatory authorities are watching via the camera lenses around the Chamber. This debate should not be seen as an attack on the Bank of England, however. There was an emergency in 2008 and the Federal Reserve and the Bank of England stepped in, and quantitative easing was an interesting device—an emergency brake on the banking crisis. As hon. Members have said, eight years on we should be looking at what else needs to be done.
To use a homely analogy that I hope the technical experts in the Chamber will not blanch at, in 2008 there was a fire in the financial system and we used a high-pressure hose called quantitative easing. Once the fire dampens down, if we keep on using the hose and hose everything in case the fire comes back up, we destroy everything in the house. If we look at the unintended consequences of QE, it is contributing to global deflation. There is inflation in parts, bubbling up through the system, but we have had deflation, which attacks the incentive to invest. We are destroying the propensity to save by bringing interest rates down to near zero. We are destroying bank profits. Has anyone looked at bank share prices over the past couple of years? We saved the banks in 2008 only to destroy their business model through the unintended consequences of QE. Who is going to do something about that?
If we do not do something about it, we will be into another banking crisis of a different kind. In the last two rounds of QE, in the EU and Japan, over the past 12 months, we have started a process of competitive devaluations. We are back to the 1930s; everyone’s response is, “Let’s devalue the currency. That will help our exports.” Once everyone does it, we are in the 1930s situation of beggar-my-neighbour, which inevitably leads to all sorts of political tensions. The Chinese Government are at the moment saying that they are not devaluing, but they are privately devaluing, as we can see if we look at what is happening in the international markets. Exchange rate competition is a dangerous, toxic thing, and it is a direct flow from what QE is now being used for.
As the hon. Member for Wycombe pointed out, the whole process has grossly distorted asset prices, so that when we unwind, it will be a case of, “Who knows what we have been investing in, and whether it has been the right thing or the wrong thing?” There has been discussion about house prices, but it is clear that a series of industrial investments and other kinds of investment could be seen to be the wrong ones once prices rebalance, which of course is making people nervous.
It is rare for me to do this, but I will disagree gently with the hon. Member for Bishop Auckland (Helen Goodman), because I do not think it is a question of using QE for something else in a better way. If we look at the Bank of England’s recent announcement of the £10 billion it is trying to put into company paper, we see that it has chosen 300 companies’ bonds in which it is considering investing this money over the next 18 months. What bonds was it choosing? The Bank of England said it was those of companies that had made
“a material contribution to the UK economy”.
Let me read out the names of some of the companies whose corporate paper the Bank of England is planning to put that £10 billion into. They include: Apple; AT&T; McDonald’s; Pepsi—not Coke, but Pepsi; Proctor & Gamble; UPS; Verizon; and Walmart. We are funding Wall Street. What about the EU? We are supposed to be pulling out of the EU, with Brexit. The Bank’s list includes BMW, Daimler, Deutsche Bahn, Deutsche Telekom, E.ON and Siemens. There are also some fabulous entrants: Moët Hennessy is on the Governor’s list, so the champagne is all right. Even EDF—
I agree with the hon. Gentleman that the Bank’s definition of “material contribution to the British economy” is inadequate. Like him, I do not think it is very helpful to be investing in fizzy drinks, but we do need to acknowledge that Siemens has a fantastic development in east Yorkshire and that that is good; that is a proper contribution. I do not think he is really arguing against me—
I take the hon. Lady’s point, but underlining what I am saying is the fact that only six British manufacturing export companies are on the list of those 300 bonds that the Bank of England thinks are quality enough to invest in. The whole thing that undermines the trajectory of QE is that it is concentrated on saving a banking system at the expense of our manufacturing system.
What do we do next? We have not said enough about that. We should consider shifting the Bank of England’s targets. The inflation target is the wrong one, and we have spent years ignoring it in any case, which means the Bank has no intellectual anchor, and that raises dangers in respect of the accountability of the Bank of England. We should be looking at nominal GDP targeting, in which case the Bank or the monetary authorities would have to be looking at automatic fiscal buffers, whether we are in a recession or in boom. That brings us back to the whole question of how we rehabilitate the fiscal intervention. At some stage, we are going to have to unwind QE. We have to do that in a controlled fashion, so one thing the Bank should be looking at in any evaluation is what timetable we use. If we have a timetable for the unwinding, that will help the markets to adjust in a better fashion. There is a danger, which we might find when we start to unwind, that the natural rate of interest has fallen so low that monetary policy has been undermined in a historic or generational sense, which again means we have to look seriously at how we combine fiscal policy with monetary policy. It would be unwise to unwind QE in the UK alone. What we should consider is a concerted international approach, which must involve some of the surplus countries such as Germany using their trade surpluses in a controlled fashion to boost consumption.
In the autumn statement, it is incumbent on the Government not to leave all the heavy lifting to the Bank of England. It is time that the Government made an intervention in a strong fiscal policy to allow the transition from QE.
It has been geek central in the House this afternoon. I thank the hon. Member for Ross, Skye and Lochaber (Ian Blackford) for bringing this debate to the Chamber. I agree that a marriage between fiscal policy and monetary policy, which works in a constructive fashion, is a fair point. I also agree with the hon. Member for Wycombe (Mr Baker) about the wealth inequality and wealth justice effects of QE, but that is probably as far as our agreement goes given that he is a member of the Austrian school.
As for my hon. Friend the Member for Bishop Auckland (Helen Goodman), she is always lively and insightful on these matters. She talked about inequality per se and the regional inequalities in particular, and how QE may be able to overcome them. The hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin) is modesty itself, and was as interesting as ever. Again, he talked about inequality and a better balance between fiscal and monetary policy. He said that the unintended consequences of QE must be a focus of attention. Finally, the hon. Member for East Lothian (George Kerevan) also talked about the unintended consequences of QE.
In response to a question about his confidence in the efficacy of quantitative easing, Ben Bernanke, the former chairman of the Federal Reserve, half-jokingly said that it worked in practice but not in theory. Such an off-the-cuff comment had some validity to it, but to an extent it is a moot point, and that is the very essence of today’s debate. Many Members will recall the former Labour Chancellor, Lord Darling, standing in this Chamber in 2009 talking about quantitative easing, or QE. Difficult times called for resourceful measures and the Labour Government had to consider all the potential policy responses to prevent or ameliorate a recession. This was not an isolated action; other countries have taken a similar path to some degree or other.
As Members will know, the first round of QE resulted in several tranches of gilt purchases—that was referred to earlier. By the 2010 general election, around £200 billion had been added to the Bank of England’s balance sheet, which still remains there to date. The predictions of wild hyperinflation, which came from some quarters, have been long forgotten. As I will suggest later, the precise effects of this relatively new approach are still being hotly debated, but we should all acknowledge the willingness of the Labour Government to consider policy measures outside the usual range.
Not long after taking office, the then Chancellor, the right hon. Member for Tatton (Mr Osborne), restarted the QE programme, giving authority to the Bank of England to print almost another £200 billion for the purchase of Government bonds. However, unlike the QE process under the last Labour Government, the post-2010 QE incarnation took place at the same time as the coalition Government were budgeting, year after year, for more and deeper cuts to public spending. As alluded to earlier, opinion remains sharply divided about the effectiveness of QE, but to judge its effectiveness, we must first agree, if possible, on what its aims were. However, there is little consensus on even that matter.
First, if the goal was to support nominal demand and prevent a deflationary spiral, there would seem to be broad agreement that inflation should have been lower without QE. Academic studies have consistently indicated that inflation, some five years ago, was around 1 percentage point higher than it would have been without QE.
Secondly, if the aim of QE was to support real GDP growth, there is, unfortunately, little agreement. The Bank of England estimates that economic growth would have been at least 1.5% lower in the absence of the first round of QE. Other economic studies have ranged from close to zero—no real effects at all—to around 2 percentage points of extra growth. The debate is likely to continue for some time, and of course the Labour party will watch developments closely.
A third potential motivation for QE was to increase the supply of credit. There is still considerable uncertainty about the extent to which QE has achieved this aim—a point touched on today. Last July, a post on the Bank of England’s blog argued that there was little evidence of QE having boosted the supply of credit:
“we find no evidence to suggest that QE boosted bank lending in the UK through a bank lending channel”.
Of course, other opinions are available.
When we look at the success or otherwise of QE, we must of course take into account the circumstances in which it happened. The first round of QE took place under conditions of supportive fiscal policy, as was referred to. Unfortunately, the Chancellor of the Exchequer between 2010 and 2016 adopted a fiscal approach at odds with that of almost every respected macroeconomist; he repeatedly targeted a smaller deficit, even when austerity measures failed to achieve their stated aim. His record will not be looked on favourably by history.
The Labour party welcomed the statement by the new Prime Minister and her Chancellor that they would ignore the only remaining target of the latest charter for budget responsibility, which lies in tatters after less than a year. A dawning realisation that a surplus is unlikely to be achieved in 2020 may have finally put an end to the failed economic approach that has characterised the past six years, but we remain in the dark about what will replace it. Britain is on hold while we wait for another two months to find out even the most basic outline of the new Government’s fiscal policy. The Labour party, and millions more nationwide, will hope that the new Chancellor, who sat at the Cabinet table throughout the last Administration, does not repeat the mistakes of the past.
Until the Chancellor pulls his finger out and finally outlines his plans, the Bank of England has sole responsibility for ensuring that the economy gets through the post-Brexit uncertainty. Last month, the Monetary Policy Committee announced the restarting of QE, including further purchases of £60 billion of Government bonds and up to £10 billion of corporate bonds. It is obviously too early to say whether these actions, which the hon. Member for East Lothian referred to, have delivered against any of the criteria mentioned earlier. Indeed, the statement of the MPC today in essence indicates that the Bank continues to keep a watchful eye on the effects of QE in particular and, more generally, the broader macroeconomic environment.
Last year, the European Central Bank began its own full-speed QE programme, similar in many regards to our own; it, too, includes bonds issued by institutions and agencies, including the European Investment Bank and the Nordic Investment Bank. Of course, if we had a UK national investment bank, another possible policy tool would be made available to the Bank—a point alluded to by my hon. Friend the Member for Bishop Auckland. Any decision about the potential use of QE in the context of a national investment bank would be made by the MPC.
My hon. Friend the Member for Hayes and Harlington (John McDonnell), the shadow Chancellor, pointed out in a recent Financial Times article that
“The operational independence of the Monetary Policy Committee is sacrosanct.”
That would include any decisions about QE, conventional or otherwise. However, set against any benefits of QE, there must be a serious consideration of any distributional impacts. As early as 2012, the Bank of England released a report looking at potential outcomes. It raised questions about the effect on pension schemes, especially those already in deficit. It concluded that the QE that had already taken place amounted to an increase in wealth of £10,000 per person, if it was equally distributed. Of course, as was said today, few think that the benefits of that increase in wealth have been equally distributed.
The Bank’s research suggests that as the action increased the value of assets, those who already hold assets will have benefited disproportionately. It notes that the wealthiest 5% of the population hold 40% of non-pension assets, but no one should be surprised by that: one of the aims of QE has always been to push down interest rates, and one of its effects has unquestionably been to push up the value of shares and other assets, including housing, and ownership of shares and other financial assets is distributed unfairly.
We would welcome any further study, to be conducted by the Government or others, on the effectiveness of unconventional monetary policy, so we support the motion. Most importantly, however, the country needs a signal from the Chancellor about his intentions for future fiscal policy, and waiting till November is not good enough. We know that lowering assumptions about future interest rates will keep down public borrowing, but we need to know whether or not the investment that the country urgently needs is finally on the way. We cannot afford to rely on the Bank of England alone to take responsibility for managing the macro economy.
I thank the hon. Member for Ross, Skye and Lochaber (Ian Blackford) for securing the debate. The subject of quantitative easing attracts a wide range of opinions, as has been convincingly demonstrated in the Chamber today. This Back-Bench business debate has been an example of something that is small but perfectly formed. It has been a very interesting debate. The topic is extremely important to our economy and I know that Members across the House will join me in thanking the hon. Gentleman for giving us the opportunity to discuss it.
Let me begin by setting out briefly the Bank of England’s role in the monetary policy of this country. The first thing to stress is that the Bank of England, and its Monetary Policy Committee, are rightly independent from the Government. The MPC holds responsibility for setting monetary policy to meet its clearly defined objectives, as set out in law. Its primary objective is to maintain price stability, defined by the Government’s inflation target of 2%, as measured under the consumer prices index. The MPC is empowered to deploy unconventional policy measures, such as quantitative easing, when necessary, to meet this objective. Wherever such instruments are used, the committee is expected to work with the Government to make sure that appropriate governance arrangements are in place to ensure its accountability.
Following the financial crisis in 2009, as Members are aware, the Bank of England was authorised to begin quantitative easing, establishing an asset purchase facility to improve liquidity in credit markets. This provided an additional tool by which the Bank’s committee could adjust our monetary policy. In August this year, the MPC judged that in the absence of monetary stimulus, there would be undesirable volatility in output and employment, and a sustainable return of inflation to the target in the medium term was less likely. As a result, the MPC expanded its programme of asset purchases and established the term funding scheme as a mechanism to ensure that banks passed on the benefits of low interest rates to our businesses and to the public as a whole.
Although financial markets have reacted positively to the latest round of quantitative easing, it will take several months before we know how the economy has responded, as is always the case. Time will need to pass before it is possible to make a full assessment of the latest round of asset purchases. Both the Government and the MPC place enormous weight on the need to research the wider impacts of our monetary policy across our society. In line with our determination to make sure that this is a country that works for everyone, we want to ensure that our businesses and the general public all benefit from the lower borrowing costs established through the Bank’s monetary policies.
Let me deal with some of the points raised. The hon. Gentleman, the modest crofter from Skye, mentioned the need for fiscal stimulus. Monetary policy tools are the first line of defence against a macroeconomic shock, and the Government will set out their fiscal plans in the usual way in the autumn statement. The hon. Gentleman suggested that there had been little growth in M4 in the past eight years since QE was introduced. However, the relationship between monetary aggregates and inflation is tenuous, and monetary aggregates are not systematically targeted by central banks. To target monetary aggregates, there would have to be a direct relationship between the monetary supply and inflation. For this to be the case, there would have to be a degree of stability in the velocity of money—the speed at which money circulates around the economy. I hope that is clear.
The hon. Gentleman mentioned the impact on savers. Building a strong economy is in everyone’s interests, and the MPC’s remit makes clear that ensuring price stability is the prerequisite for economic prosperity. He also mentioned pensions, and the best possible protection for pensions comes from strong, sustainable employers and a buoyant economy, so it is important that action is taken to support that economy.
My hon. Friend the Member for Wycombe (Mr Baker) speaks with passion on this subject, and it is obviously of great interest to him. I have looked at his excellent website, stevebaker.info, where he considers, among other matters, whether the whole economic system runs on funny money. He mentioned wealth inequality and wealth justice, and those are two very important areas. The Governor of the Bank of England has stated that this package will ensure a better economic outcome for all. Economic recovery will boost incomes and help all individuals, including those at the lowest end of the economic distribution. Inequality is lower—we should not forget this—than it was in 2010.
I would rather not give way, because I am genuinely trying to answer everyone’s points. I do not have a lot of time, because everyone has been so full in their contributions, but the hon. Lady can speak to me afterwards. If she wants to raise an additional point, I would be really pleased to deal with that.
The hon. Lady mentioned that QE is the responsibility of the MPC of the Bank of England. She questioned whether that was right, and she questioned the accountability of the Bank of England. I say to her that Members have the opportunity to engage with the MPC through, for example, the inflation report hearings of the Treasury Committee. The MPC is also accountable to the public. For instance, in October the Governor and the deputy governors will spend the day in the midlands meeting a wide cross-section of society to listen to the feedback and ideas of the public, and I am sure that they will take that feedback and those ideas very seriously.
The hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin) was very interesting—perhaps the most interesting point was the description of the crofter from Skye. He clearly feels passionately about this subject, and he made a useful contribution to the debate.
The hon. Member for East Lothian (George Kerevan) wanted to hear more about the autumn statement. I am very sad to tell him that he will be disappointed; he will just have to wait and see, as happens every year in the normal manner, no matter who is in government.
The hon. Member for Bootle (Peter Dowd) reminded us of what is now a dim and receding memory—the last Labour Government. He talked about how there was going to be hyperinflation and it did not happen, and about how the whole issue of QE was hotly debated at the time. I imagine that it is something that we will continue to hotly debate for some time.
To conclude, the independent MPC of the Bank of England has a hugely important role to play in these difficult times in maintaining monetary stability in this country. It has taken a range of steps to achieve this objective and will be closely monitoring the impact of this action. Let me remind the House once again that Members can take an interest; the MPC remains accountable to Parliament, and I would suggest that many more people take an interest in the inflation report hearings of the Treasury Committee.
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.
The hon. Lady has been here a long time, and she knows that is not a point of order. I cannot continue the debate because it is now past 5 o’clock. If she had not wasted time when she was trying to make the intervention, she could have got her point across.
Motion lapsed (Standing Order No. 9(3)).
On a point of order, Mr Deputy Speaker. I apologise for the late notice of my point of order, but it is about a situation that has been developing this afternoon. Dozens of my constituents have approached me this afternoon having had their tax credits withdrawn arbitrarily by Her Majesty’s Revenue and Customs through the Concentrix contract. HMRC has designated a team of people to deal with these issues, which are apparently UK-wide. It takes a 45-minute call to deal with one case. I have dozens of constituents this evening who literally have no money to feed themselves or get the kids out of the door tomorrow morning. I am very concerned that the House is rising at this point and I will not be able to bring these matters to the attention of the Department for Work and Pensions or the House today, tomorrow or on Monday, to cajole some action to get this fixed. There are people who are literally about to starve and the House is about to disappear on recess. Is there anything that you could offer me by way of advice?
One thing I would say is that you have got it on the record. I think that Ministers are listening and they have got the point. This issue has been debated this week on a couple of occasions; in fact, there was an urgent question on it yesterday. There are still Ministers here, and I would have thought that the message will be going straight back to HMRC. I think there has been an indication from the Minister to say, “Let’s have a conversation,” so if nothing else, at least you have made progress in making him aware now.