Coffee House

Forget beer and petrol: will MPs debate monetary policy today?

21 March 2013

MPs are debating the detail of the Budget today, and will doubtless pick over some of the lines from George Osborne’s round of interviews this morning, particularly the confusion over whether Help to Buy is available for those buying second homes. There are plenty of queries about whether the government’s new mortgage plans are actually very wise at all. The debate will inevitably focus on the doorstep issues on taxes and cuts. But will MPs talk about one of the most important elements of yesterday’s announcement? It wasn’t on petrol, and it wasn’t beer duty. It actually concerned monetary policy.

The first was that finally the Chancellor wants the Bank of England’s Monetary Policy Committee to be open about flexible inflation targeting: up to now the Bank has been missing its 2 per cent target but without any formal blessing from politicians. Inflation has been above 3 per cent in 13 of 24 quarters in the last four years. Announcing a new remit for the Bank of England, Osborne said yesterday:

‘The updated remit reaffirms the inflation target as two per cent as measured by the twelve-month increase in the Consumer Prices Index. The target will apply at all times. But as we’ve seen over the last five years, low and stable inflation is a necessary but not sufficient condition for prosperity. The new remit explicitly tasks the MPC with setting out clearly the tradeoffs it has made in deciding how long it will be before inflation returns to target.’


The Bank will be able to let inflation rise above the two per cent target for longer, and to be clear about its plans for inflation targeting in advance so that borrowers have more certainty. And Osborne also told MPs yesterday that the ‘new remit recognises that the Monetary Policy Committee may need to use unconventional monetary instruments to support the economy while keeping inflation stable’. That includes quantitative easing.

All of this sounds rather abstract, and indeed the section in Osborne’s statement on monetary policy was the most jargon-heavy. It will be easy for MPs today to talk about fuel duty and the impact of fiscal policy on women, and all the usual topics in a post-Budget debate. But monetary policy has winners and losers in the same way: quantitative easing hits savers and pensioners and favours borrowers and those with assets.

This is George Osborne’s last resort in a Budget which gave him very little room for manoeuvre: so many of yesterday’s announcements were purely political ones to cheer up Sun readers and please Tory backbenchers. It’s why Number 10 believes the arrival of Mark Carney at the Bank of England will be so much more significant than yesterday’s Budget. So the real action was on the monetary policy front, but it’s unlikely that we’ll hear many detailed expositions of that in the Chamber today.

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  • paulus

    The details need to be worked out but the majority of the money should be reserved for first time buyers to buy new builds, moreover, how many people buy a first home for £600,000.

    Is the money a transfer that banks can use for capital to ratio of loans ?

  • Russell

    Balls, Milliband and even backbench Labour MP’s today in the budget debate are saying that the increase in VAT by 2.5% has been disastrous and should be cut by 2.5% to get growth going!
    These idiots seem to believe that people will rush out to buy goods costing £10 if they were reduced to £9.75 or if a tv costing £400 was reduced in price to ££390.!!!!
    No wonder Labour screwed up the UK economy with labour halfwits in charge.

  • HookesLaw

    In terms of politics and ‘Sun readers’, it is only now that new tax forms are arriving which reflect the tax cuts from last years budget. Its only now that grannies will realise they are not being taxed.
    Its only now that those tax cuts will feed back into the economy. It will only be in April 2014 that this years increase in the tax allowance will feed through.

  • HookesLaw

    We have come out of a shocking and deep recession. 7% has been wiped off the country’s economic capacity (say the BoE).
    Interest rates are non existent (virtually negative with the advent of QE)
    I would have thought some lax monetary policy would not go amiss.
    World commodity prices have been the cause of much of our inflation.

    Meantime BMW have had its best ever year. More MINIs than ever were built in Oxford and record numbers of Rolls Royces.
    Further more record numbers of BMWs and MINIs were sold in the UK. BMW sales alone increased by 9%. Yet Balls says we need a U-turn…!

    BTW of the 301,000 MINIs produced 250,000 went to export. We must wonder why this can onbly be achieved under German management. Cr@p British ownership and bigoted trade unions have a lot to answer for.

    • Makroon

      Errrr, aren’t you forgetting the increasing numbers of ‘Minis’ being built in Austria and Nedcar in Holland (you can’t get more undignified than being made in Neddycar).

  • anyfool

    will MPs debate monetary policy today.
    Only if you count Balls spouting nonsense that millionaires tax cuts could pay for everything that is wrong with the country, the donkeys behind him nodding in agreement appear to believe him.
    Or do you mean the monetary policy that all parties have, which is to keep printing money that will cure the debt only when the pound is worthless.
    Or do you mean a monetary policy that is based on a living within our means and just might end up producing growth that is based on earnings and not based on borrowing, that only puts off the day of reckoning.

    • Vrai Telemachus

      I think the monetary policy we need is Letting Carney have independent control of the MPC
      The way forward if continued attention to fiscal policies with Keynes as the rule book
      That way lies growth that we sorely need

  • Russell

    So Balls says that there is ‘good’ borrowing and ‘bad’ borrowing but that the only way to get growth is by increasing borrowing.
    Osborne says increased borrowing is bad, but wants businesses to borrow from Banks and wants individuals to borrow from Banks by getting mortgages and the taxpayer should stand as guarantors that if any of these borrowers defaults we the taxpayers will pay.
    What strange economic times.

    How about the government cut the services/benefits that the taxpayer cannot afford and the individual taxpayers cut their expenditure to suit what they can afford, and take it from there.

    • DWWolds

      On the Today programme this morning Balls sounded like a youngster churning out his wish list for Santa Claus. Perhaps, as he was growing up, his parents forgot to tell him that Santa Claus doesn’t exist. He is just a fairy story to keep young children happy.

      • DWWolds

        And to keep reality at bay!

      • 1965doc

        Borrowing to pay unemployment benefit is bad. Borrowing to invest is good.
        How about trying logic for a change, instead of repeating soundbites?

        • HookesLaw

          Governments do not borrow to invest – or should not. Governments should spend out of revenues to provide the services we need. So called ‘investment’ in roads and railways and hospitals and schools to not provide a financial return. They are services which we the public choose to pool together via the govt to provide for our benefit.

          Private companies ‘invest’ to get a return on that investment and earn a living.
          Borrowing over the economic cycle to pay for benefits like unemployment is exactly what government borrowing is for.
          The notion that governments can borrow to ‘invest’ and get more than its money back is absurd. A typical socialist absurdity. For all our peace of mind I will pretend you are a dim socialist rather than a lying one (a la Balls).

          • itdoesntaddup

            I don’t think you’d make much of a businessman. Roads produce revenues way in excess of the spending on them via taxes. Measured as a return on capital invested (the HA road network is valued at around £100bn, yet carries two thirds of all HGV mileage and a third of all mileage by road), it’s spectacular. Good schools also produce an excellent return, developing the talents of our children to contribute more to the economy in future, including to pay taxes that recompense the state for its investment handsomely.

            Meantime we have government dictating to private business and individuals that they should invest in projects with negative returns in the real economy, such as HS2, bubble price houses, and windmills. They have no care for sensible economics, and spend gaily on PFI schemes that enrich others.

        • DWWolds

          Just where is the repeated “soundbite” in my post? And I suppose Labour borrowed to invest when public spending sky-rocketed between 2002 and 2008. If so, it is hard to see where the investment went. Of course, one of the sound bites there is that they invested in the NHS. It’s a pity then that whilst investment may have doubled if we take the rise in the number of prescriptions out of the equation productivity dropped by 34%. And, even worse, there was the Mid Staff debacle.

    • HookesLaw

      Businesses borrow to build and expand their businesses. They make a profit and a return on their investment it grows the economy.
      There is no comparison with government borrowing which is a figleaf – these days a big one, to cover the economies inability to generate the income it needs.
      The govt – this govt – is already borrowing extra to smooth out the worst of the downturn. Eventually this money will have to be (unless its a Labour govt) paid back over the economic cycle.
      The govt IS cutting its discretionary spending to reduce its structural deficit. For instance one service it is cutting which some do not like is the numbers of police.

      • The Sage

        But overall government spending is up since 2010 not down. There may be some departments that have seen a decrease, but plenty of departments have experienced exactly the opposite – health, education and the dreaded DfID and as a result there has been no cut in government spending. If only that there were.

  • Dogsnob

    “Forget beer…”? Can we just stop things right there please?

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