Bank of England (Economic Affairs Committee Report)

Its sprawling remit risks drawing the Bank into the Government’s wider policy agenda, raising questions about accountability, which I will come on to.

Another reason we need reform is to address the blurring of monetary and fiscal policy thanks to quantitative easing. A powerful tool to combat the monetary contraction after the 2008 financial crisis, QE’s continued deployment since then swelled the Bank’s balance sheet to a record high of just under 50% of GDP and shortened the overall duration of the Government’s liabilities, increasing the vulnerability of the Government’s overall debt stock to movements in short-term rates.

Although the quantum of quantitative easing is a monetary policy decision, decisions on debt duration have consequences for debt management. Furthermore, and crucially, the taxpayer is on the hook for any losses incurred by the Bank thanks to QE. But the deed of indemnity—the contractual document between the Bank’s asset purchase facility and the Treasury—is secret. That all needs addressing.

That brings me to another reason we need reform: accountability. The growth in the Bank’s remit and QE have not been met with a commensurate increase in accountability and parliamentary scrutiny. A democratic deficit has emerged which risks undermining confidence in the Bank and its operational independence.

Given those reasons, we proposed a number of what I consider to be very reasonable steps to address all this. I shall not read out a long laundry list, but they included: pruning the Bank’s remit; reviewing hiring and appointments; a memorandum of understanding which clarifies how the interaction between monetary policy and debt management should operate; publishing the deed of indemnity; and a parliamentary review of the Bank’s remit and operations every five years. Our overarching point was simple: the framework for independence and the operations of the Bank need reform.

What was the response from the Bank and the Treasury? Let me start with our concerns around forecasting and the big issue of groupthink. As many Lords will know, the Court of the Bank of England commissioned the Bernanke review into its forecasting. That review, in itself, shows the benefit of challenge. The review’s findings were pretty scathing of the Bank’s approach to forecasting and recommended changes on which I am sure a number of noble Lords will want to comment. But the review did not go into any depth on the key issue of diversity of thought, for the simple reason that it was not included in the review’s remit. To my mind, this is odd. As the governor himself told us, the models are not like a “sausage machine”, in his words, but reflect people’s judgment. I agree with that; in fact, I would go further: the output of models are not tablets of stone. They might shape decisions, but they should not determine them. What is more, the Bernanke review’s tight remit specifically excluded looking at any past decisions or events, so it was really not set up to ask the basic question: what went wrong, and why?

What is being done to improve challenge and tackle groupthink? In the responses, we are pointed to dissenting votes on the MPC. This is obviously true, but it rather ignores the fact that, between March 2020 and September 2021, when inflation was rising, the MPC was, month after month, unanimous in its view that this rise was transitory. Next, we are told that no review of Bank appointments is necessary, as the Treasury is committed to diversity in public services in its appointments. But what kind of diversity? Is diversity reflected in the recent appointments to the Bank’s most senior positions? Might they suggest that the Treasury is the primary school for the Bank?

We are told that the MPC monitors monetary aggregates, so our recommendation, that there should be an analysis of their relevance to the Bank’s inflation outlook, was rejected. I am conscious that we might fall into the trap of groupthink that there is groupthink. However, having mulled over the evidence that we received, I think that our recommendations are measured, and that the response to them was—to be polite—somewhat defensive.

What of the other reasonable proposals we made, that the remits of the MPC and the FPC should be pruned? The Treasury’s written response states that:

“As both Committees have complex roles, it is right that their remit reflects this complexity”.

But the next paragraph says that it agrees that there is benefit in improving the clarity and focus of the remit letters—something the Chancellor confirmed to us a few weeks ago, when he told our committee that the Treasury “could probably do better” at simplification. However, he then pointed out that, despite his slimming down the remit as regards climate change, climate change objectives

“are bedded into what the Bank of England has to do anyway”.

I find all this slightly confusing, so I have a simple question for my noble friend the Minister: does the Treasury think that the remits are still too complex? Are we at the beginning, not the end, of the process of simplification?

Let me now turn to QE and QT. Both the Bank and the Treasury argue that we do not need a memorandum of understanding to clarify how the interaction between monetary policy and debt management should operate. I beg to differ. The taxpayer is ultimately bearing the risk of QE and the costs incurred, and decisions are being taken concerning huge sums of public money without regard to the usual value-for-money requirements—a position that the Treasury Select Committee in the other place concluded is “highly anomalous”. More clarity is needed.

That brings me to the need to publish the deed of indemnity. The governor told us:

“I could not see anything in it … that I think would excite people if it were published, but it is not my decision—it is the Treasury’s”.

Yet the Treasury’s response says that the document should not be published because it contains “market sensitivities” and

“operationally sensitive information relating to QE”,

which risks

“undermining the transparency of the APF”.

The Bank and the Treasury appear to be at odds on this. In my simple mind, either this document will not excite people, or it contains market-sensitive information which will. Can the Minister tell us who is right—the Governor or the Chancellor? But the bigger point is this: given that the taxpayer is bearing the cost of QE, Parliament should surely be told how the relationship between the Treasury and the Bank works and who is responsible for taking what decisions and on what grounds.

That brings me to the final issue: parliamentary accountability. Operational independence should mean just that: politicians stay out of the Bank’s day-to-day decisions. But how often does Parliament debate the Bank’s overall performance, its remit letters or issues such as QE and QT? The answer is: not much. Our focus here in Parliament is largely on fiscal policy, not monetary policy—the Treasury in the City of Westminster, not the Bank in the City of London. We need to address that democratic deficit. An overarching review of the Bank’s remit every five years, as our committee recommended, would not undermine independence but strengthen it. Such a review could look at one of the other big issues: the inflation target itself, on which we heard conflicting views as to whether 2% is the right target.

Another question a parliamentary review could consider is whether we have the right balance between accountability and independence with regard to the appointments of the most senior Bank officials and their tenure and reappointment. As I said at the start, when things go wrong, does Parliament really have sufficient means to hold the Bank’s leadership to account?

The Bank and the Treasury are staffed by many professional, committed public servants. I certainly do not want to trash either institution, but I fear that the tone of the Bank’s and the Treasury’s responses to our report and its reasonable recommendations reminded me of a policeman at the scene of a crash. Concerned onlookers want to know what has happened and why, but the policeman politely shuffles them off, saying, “Nothing to see here. Just an unfortunate incident. Move along, please”. Well, I am staying put. Yes, operational independence should be preserved, but reforms are needed.

I will focus on two issues: transparency and governance. In doing so I will comment on more specific policy issues and performance. I profoundly believe that transparency should be at the heart of public bodes generally; even the intelligence services are now significantly more open, if in a limited and carefully controlled way. Rather nostalgically, this made me think of my maiden speech, a frightening 42 years ago, on the subject of a European directive on bank accounting. Back then, although the clearing banks did report their true profits, merchant banks still disclosed profits only after transfer to or from a hidden reserve. As a middle-rank employee of one such bank, I questioned whether this really added to the stability of the financial system, faced by innumerable chairmen of banks in the same debate—I think the management of banks has become a little more diverse—arguing for the maintenance of the status quo.

Transparency should be at the core of the financial markets, and of the Bank of England’s role in them. For that reason, I regret that, in the otherwise sensible review of the Bank’s forecasting, Ben Bernanke did not advocate the adoption of forward guidance or the use of a so-called dot plot to provide markets with more data on which to base their interest rate expectations. The central bank is not there to provide the framework for traders to maximise the opportunity for trading games; it is there to create a stable and predictable environment for the benefit of the economy as a whole.

Likewise, as the noble Lord has already touched on, I am baffled by the Treasury’s refusal to publish in full the indemnity under which the Bank of England makes whole any losses from the QE and QT programme. The reasons given by the Government are as opaque as the policy itself. In what way would the publication of the deed of indemnity jeopardise the Government’s cash management operations? Would the Minister be kind enough to answer that when she comes to wind up, and explain why the protection of the Debt Management Office’s operation is not unfairly at the expense of other market participants?

After the nearly three years since the committee’s report on QE was published, it is still hard to come to any definitive conclusions, but this latest report provides an important update. I believe that the QE programme, in its three phases, was right in principle but wrong in degree. Its efficacy in bringing stability to the financial markets at times of maximum stress was clear, but it was of indeterminate impact in more general macroeconomic management. As a result, the scale of the purchases was almost certainly too great, and the speed of subsequent sales too slow. This has arguably exacerbated the problems of responding to a rising interest rate environment, and increased the cost to the Exchequer of the intervention. Can the Minister say what the net realised gain or loss currently is since the start of the programme, and what the mark to market unrealised loss is on the assets still held by the Bank, all of which are for the Treasury’s account under the deed of indemnity, as -far as we know?

Very briefly, on governance and appointments there are serious doubts about, among other factors, intellectual diversity and political independence in relation to the court, the MPC and senior management. Some of this is visible; more lurks below the surface. I very much hope that the next Government—no complacency, on today of all days, but I hope a Labour one—will conduct a thorough review of the governance arrangements and appointment rules for every part of the Bank of England, and in addition look at the whistleblowing and independent process for resolving problems as and when they occur.

I very much hope that the Economic Affairs Committee will continue to bring its laser-like focus on the workings of the Bank of England, with many aspects of its operations not covered in this report. As the noble Lord, Lord Bridges, has also advocated, I hope that your Lordships’ House will have much more time than in the past to debate these issues.

I do not want to be too harsh on the Bank. As Bernanke observes, other central banks made similar mistakes, and the build-up of excess demand was as much the Treasury’s responsibility, through an excessively loose fiscal policy, as it was the Bank’s, but I hope the Bank will pay just a little more attention to monetary and liquidity indicators in the future.

That brings me to my second point. The Bank is doing a good job in unwinding QE, and it underlined its independence in pressing on in the autumn of 2022, despite potential political pressure from the Government. But, as QE unwinds, we are going to hear a lot about the losses sustained by the Bank. We hear rather less about the gains from the early years of QE, when interest rates were falling. Of course, had the ring-fence that the late Alistair Darling wisely put in place in 2009 remained there this would have been less of a problem, but the coalition Government chose to, in effect, draw down the gains as a way of meeting their fiscal rules. We are now paying the price.

I anticipate that future Governments, faced with even more challenging public finances, will want to put a stop to the fiscal leakage caused by QE. The key thing here is that the Government should not interfere in monetary policy: the remuneration of reserves must be a matter for the Bank. In taking any tax decisions, the Treasury needs to take into account the impact on the efficiency of the banking system as a whole.

The committee’s report is right to draw attention to the ever-increasing breadth of the Bank’s remit. It is always tempting for the Government to leave it to independent institutions to take the difficult decisions, but that carries big reputational risks since it draws the Bank further into debates best left to democratically elected politicians. It also fails to recognise that the Bank has limited instruments at its disposal. I fear the Government sometimes ignore Tinbergen’s law that you need as many policy instruments as you have independent objectives.

The committee has also made some good points on appointments. Noble Lords will not be surprised that I am more relaxed than most about the Treasury’s colonisation of senior policy positions at the Bank, and I welcome the appointment of Clare Lombardelli as a new deputy governor, who has experience working at the Bank and the OECD as well as the Treasury, but I agree with the committee that the Government need to find the right balance when it comes to appointments. I would welcome more interchange with the private sector.

I wonder whether we need quite so many deputy governors as we have. I recall advertising for one vacancy and conducting a process. The Chancellor ended up appointing two candidates, simply because both were very well qualified and he and the then governor could not decide who was the best.

Recent events have underlined the importance of external members of the MPC. It has been good to see, on the one hand, Swati Dhingra ploughing her lone furrow arguing for looser policy and, on the other, Catherine Mann and Jonathan Haskel making the case for tighter policy. I was struck by a recent report from an external member of the MPC that mentioned staffing shortages constraining external engagement. I wonder whether the Bank executive should provide a liaison person at a more senior level to ensure that the externals’ needs are met. Independent thought matters, and the Bank should continue to find ways of supporting external MPC members.

Finally, I should briefly mention the vexed issue of the publication of the deed of indemnity relating to the asset purchase facility. This puts me in mind of the Schleswig-Holstein question. There were probably three people who understood it: Alistair Darling, who is, very sadly, dead; me, who cannot remember; and my noble friend Lord King, who, as luck would have it, is not mad. Fortunately, he is the sanest man I know. He is also a man to be reckoned with, not least because yesterday he was appointed president of the MCC, on which I congratulate him. That the committee—and, by implication, my noble friend Lord King—has recommended that the deed be published is good enough for me. I can conclude only that the reason the Chancellor has not published the deed is that he did not understand the question. I would therefore like to ask the Minister under what, if any, circumstances the Government would publish the deed of indemnity.

To come back to where I started, this is a good report by the Economic Affairs Committee and I support its recommendations. The guiding principles of monetary policy put in place in the 1990s, not least by the noble Lord, Lord Lamont, of an inflation target of 2%, maximum transparency and an operationally independent central bank still hold good. Bank independence works and Governments interfere with it at their peril.

The governor, Mr Bailey, pointed out that the Bank has not one model but several, but that invites the aphorism: all models fail but some are useful. Dr Bernanke makes this very point: a forecast can be inaccurate and still be useful in enabling us to understand why the policy was wrong. Forecasts make a central bank more transparent and accountable, particularly if a policy has been consistently applied but the outcome is not as forecast.

Dr Bernanke’s comments on the Bank’s forecasts are, interestingly, somewhat milder than the newspaper headlines. He points out that the Bank was in the middle of the pack of central banks when it came to inflation and output. Its belief that inflation was transitory was one shared by many central banks, but that merely poses another important question: why did so many central banks get it so wrong? Was it a case of groupthink? Interestingly, Dr Bernanke defends the Bank of England against accusations of a lack of diversity in the MPC. Surprisingly, his view is that there is more diversity than in other central banks, and some of the witnesses, including Charles Goodhart, agreed, so it will be interesting to have the Minister’s comments.

Too much diversity of thought for the sake of diversity itself can push a committee towards artificial consensus in which no one believes. This is where the fan charts, so loved by the Bank of England, have been so convenient. Who can disagree with a fan chart covering so many possible outcomes? As in an oriental dance, a fan can be used to conceal as well as to reveal. For that reason, Dr Bernanke recommends getting rid of the fan charts and substituting conditional forecasts, which he terms “scenarios”. This might help to deal with the problem of exceptional events, but will it contribute at all to forward guidance?

What about groupthink between central bankers themselves? There may be value in forecasts that are wrong, but there is a difference between predicting the right trajectory with errors and predicting a completely wrong trajectory. Many central banks thought the pandemic would continue to be deflationary, hence the resort to a huge injection of quantitative easing. At the time, a number of commentators, including Paul Tucker, the former deputy governor of the Bank, questioned why central banks wanted to stimulate aggregate demand just as aggregate supply was closing down. It was almost as though there was an assumption that QE ought to be the default response to every crisis. That would surely be a mistake.

Dr Bernanke is a disciple of Milton Friedman. I was therefore surprised that he did not address the point made in conclusion 11 of the report that the MPC did not seem to have had any detailed discussions about the money supply or made any analysis of monetary aggregates and their effect on inflation. To be fair, the governor denied that this was the case, but Roger Bootle said in his evidence:

“Over the past few years … we have gone from a situation in which economic policy … was governed entirely according to … a certain definition of the broad money supply”—

that was the policy in the early 1980s—

“to one in which, apparently, the Bank took no notice of monetary aggregates at all”.

I was particularly interested in this, for the very reason that the noble Lord, Lord Macpherson, kindly mentioned: in 1992, when we introduced a new framework for policy, namely inflation targeting, the target was accompanied by target ranges for monetary aggregates. The regime of inflation targeting was continued and carried through to Bank of England independence by Gordon Brown, but the ranges for monetary aggregates were discontinued. Inflation targeting is not a perfect policy. It can be criticised for being backward-looking and a rear-mirror policy. But monetary policy, as Dr Bernanke reminds us, operates with time lags and therefore enables policymakers to focus on not just the current rate of inflation but what we expect inflation might be in two years’ time.

The report makes the point that the Bank has too many secondary objectives to which it is asked to have regard. Many of these objectives are not really affected by the instruments available to the Bank. This must be true of climate change. The Government ought to be clear that tackling climate change is a matter for the Government. To expect the Bank to lead on that makes no sense. I quote the governor himself, who said that climate change

“is not really an issue of monetary policy”.

In addition to the inflation target, the Bank is also charged with supporting the Government’s objectives on growth and employment. A major change was introduced in 2013, when George Osborne gave the Bank a new remit in which the MPC was tasked with setting out the trade-off when deciding how long it would be before an above-target inflation rate came back to target. As the governor said, these changes gave the Bank much more flexibility over how quickly it could bring inflation back to target. This considerable latitude, which is welcome in one sense, may be another reason why the Bank was so slow to raise interest rates and get inflation back towards target—and we are not there yet. As things have demonstrated in the United States, the last furlong may still prove difficult. Indeed, one former central banker said to me that, if we get inflation back to target without positive real rates of interest, it will be the first time this has ever happened. Let us hope that the optimists are right and that we are heading back towards target.

As my noble friend Lord Bridges said, the Bank is very different from the one made independent in 1997-98. It has expanded its discretion and the tools it uses. Its credibility matters. So it is important that it is robustly scrutinised and challenged, precisely as this report and this debate are doing.

The core conclusion of the report on the effectiveness of independence is not only reassuring but a timely reminder of the underlying rationale for removing political involvement from day-to-day monetary policy decisions. During this election year, we can be confident that, if and when interest rates start to come down, they will do so for economic and not political reasons.

The benefits of this policy credibility in anchoring expectations should not be underestimated. It is often difficult to prove a counterfactual or attribute cause and effect, but we saw the disastrous consequences when market confidence evaporated in autumn 2022. The emergence of the unfortunately named “moron premium” in UK gilts is a proxy for the type of cost that citizens would incur if political decision-making trumped economic reality.

Among the other key conclusions of the report were concerns about groupthink, mission creep and boundaries between fiscal and monetary policy. I shall touch on each. The Bernanke review demonstrated that the process of challenge is as much about the analytical tools available as the individuals. The court meets regularly with external members of the policy committees, who are a diverse and engaged group. They contribute positively to challenging the executive and each other, with little evidence of groupthink, as demonstrated by the historic voting record of the MPC. However, they require the necessary support and input. One significant gap in recent years has been deciphering post-pandemic changes in the labour market. That has probably been more significant in our understanding of inflation than monetary aggregates.

On the remit, the Bank is a rule taker, not a rule maker. The post-financial-crisis structure of the Bank, determined by Parliament and further embellished by the recent Financial Services and Markets Act, is a complex web of committees and mandates that hangs together and works largely as intended. In turn, it shapes the organisational structure of the Bank, which feels proportionate to the scale and responsibilities that it holds, but it places an almost superhuman requirement on the governor to be across a vast span of policy and organisation.

For the MPC specifically, given the limited policy instruments at its disposal, it is not clear how adding multiple secondary objectives achieves much more than a feelgood factor for politicians. Streamlining the remit letters would be welcome but remains a matter for the Chancellor of the day, subject of course to scrutiny from Parliament. I concur with my colleague David Roberts, chair of the court, that organisations work best when they have clarity and simplicity of objectives and goals.

It is entirely appropriate for fiscal policy to be asymmetric—namely, the MPC takes the Government’s fiscal policy as a given, and the onus is on the Chancellor to make tax-and-spend decisions that do not undermine price stability. It is right that this modus operandi is underpinned by close dialogue between the Bank and the Treasury but not by explicit co-ordination.

With regard to quantitative easing, I have sympathy with concerns about swapping out longer-duration gilts with short-term deposits. That makes the cost of servicing government debt more volatile, but it is something that the Treasury was fully aware of when it granted the deed of indemnity to the Bank to facilitate QE. In the context of quantitative tightening, as long as the Bank and the Debt Management Office are in appropriate dialogue, which they are, a memorandum, as suggested, would add very little.

The role of the court has evolved over time. It has modernised into a unitary corporate board responsible for everything up to, but not including, policy decisions. That includes resource allocation and budgets, investments, culture, capabilities, technology and delivery for a 5,000-strong organisation with an £800 billion balance sheet, which processes a similar amount in payments every day. The court is very much part of the accountability chain, as acknowledged in the committee’s report. Our ability to shape the organisational agenda and provide internal challenge is significant, and the current court is certainly up for shouldering that responsibility, as demonstrated by our commissioning of the Bernanke review.

However, there are limitations. Like a conventional private sector board, we do not possess hire-and-fire powers over senior management, unfettered rights to determine strategy, or absolute oversight. At times this is frustrating, but it is equally unrealistic to expect an elected Government to cede complete control. Instead, we exercise our mandate through influence, with much depending on the receptivity of the serving governor and deputies to receive the court’s input, as well as through collaboration with the Treasury. To make the court more effective and better use our expertise, I believe that closer involvement in making appointments and in setting budgets, especially with the introduction of the bank levy, would help to strengthen overall governance and accountability.

The Bank is a unique organisation that plays a crucial role in our nation’s economic life. We should certainly seek to improve its operations and hold it to proper account, something that I am personally committed to as a member of the court, but equally we shoot ourselves in the foot if we undermine the Bank’s credibility, standing and independence, which has largely served us well over the past 25 years and more.

The second hat that I wear is as a director of Peers for the Planet, an organising group in your Lordships’ House, as many noble Lords know. While I hate ever to disagree with my far more learned friend the noble Lord, Lord Lamont, I believe it is a risk that the Bank of England is not putting resources into climate change analysis. Of course the Bank is not responsible for the policies that will help us to combat the climate crisis but, even as recently as 2022, we saw a German drought directly impact small businesses because of issues related to our supply chains here into the UK, and that created a small inflationary peak. It is essential that we do not reduce the Bank’s capacity to analyse the effects of the climate crisis as they hit us. We know that the Bank has substantially fewer climate-based resources than other central banks of similar size and scale, and 54 experts wrote to the governor in March this year to say so.

For my third point—because I can never resist an opportunity in your Lordships’ House to talk about digital transformation—I am wearing the hat of an ex-digital champion for the UK and creator of the Government Digital Service and GOV.UK. I realise it was not in the remit of this committee’s work, but I am much struck by the extremely harsh assessment in the Bernanke report of the Bank’s IT and digital systems. There is plenty of talk about collaboration with the fintech sector and I have seen the governor talking about the impact of AI in the world, but that is different from the investment needed in hardware and software to have an effective Bank. We know that across the institutions in this country there is a substantial deficit of understanding of what the digital world is now enabling, and the tools that we have in the modern age which will enable us to do a better job.

I am clearly not an expert in the Bank of England but I appreciate the scale and challenge that this would present to any institution. I urge the Government to keep up the pressure, advice and help in supporting the Bank to make those necessary transformations. Catching up with digital investment is very hard. It can be very expensive and can go very wrong, but it is also essential.

The committee’s report starts by saying that the Bank of England was established in 1694 for the “public Good and Benefit” of all people. I urge the Bank of England to make sure that it is still using the tools of and looking at the risks of the modern age, while thinking about the make-up of the economy for the modern age to fulfil that remit.

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

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

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

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

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

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

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

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

You cannot magic up that amount of currency without deleterious impacts on people’s lives, although people do not always join the dots. A number of the things that people complain about in this country have their root cause in excessively loose monetary policy—most obviously the squeeze on living standards, but also the rise in house prices, the divergence between haves and have-nots in terms of assets, and the public sector strikes that continue to plague us, as noble Lords will know if they travel here by train. They all have their roots in excessive inflation.

We heard about the malign consequences of inflation from the noble Lord, Lord Macpherson of Earl’s Court. I think I would go further than he did. He said that QE exacerbated but did not cause inflation. What else will cause inflation if not such a massive expansion of the money supply? Milton Friedman said that inflation is always and everywhere a monetary phenomenon; it is caused by too much money chasing too few goods—“Milton! thou shouldst be living at this hour: the Bank of England hath need of thee”.

It was quite extraordinary to hear Gertjan Vlieghe, then a member of the Monetary Policy Committee, say in April 2020 that the balance sheet of the Bank would be comparable to those of the central banks of the Weimar Republic or Zimbabwe—his words, not mine. How can we look at that and not consider the consequential impact on people’s lives in the real world?

I have little to add to the brilliant analyses of my noble friends Lord Bridges and Lord Lamont, but let me make a point about accountability. When people complain about rising prices, rising asset values and the difficulties of having to run to stand still, to whom should they direct their complaints if the root causes are independent authorities, which have been put deliberately beyond the reach of elected Ministers? If the vast majority of the decisions that impact on our lives are taken not just by the Bank of England but by a series of other quangos and agencies, from the Climate Change Committee to the European Court of Human Rights and the Office for Budget Responsibility, the act of casting a ballot is devalued.

That is something that this report takes some steps towards addressing. My noble friend Lord Bridges hinted at this, but he could have gone a little further. He talked about the mandates and appointment processes for governors and other senior staff at the Bank of England. If you are in for a couple of terms and then no one will bother you again, that strikes me as a fairly weak form of accountability.

I would also like to see Parliament taking some responsibility for the mandate of the Bank. Specifically, I would like to see its terms of reference tweaked so that this kind of unprecedented monetary expansion cannot happen without approval. I would like to see the terms of the Bank of England changed so that the maintenance of the value of the currency, sound money, is expressly recognised as one of its goals. Whether or not you agree with me, and whether or not you think that is a proportionate policy, surely we need stronger mechanisms of oversight.

Today is local election day. It is one of the few elections that your Lordships are allowed to participate in. The polls are still open, but I will go out on a limb here and say that the election result will be a massive win for the “Can’t be bothered” party. The number of people who took the trouble to register to vote but did not bother to cast a ballot today will be greater than the votes cast for all the other parties put together. Why is that? Is it sheer cynicism or apathy? Is it not that the decisions that most directly touch on people’s lives have been lifted out of the democratic process and placed in the hands of bodies that are invulnerable to public opinion? Changing the mandate of the Bank of England will not solve that problem on its own, but it is part of a process of restoring the supremacy of the elected representative and thereby restoring honour, meaning and purpose to the act of casting a ballot.