Lord Forsyth Fears UK Economy May Have Come Full Circle As Problems Of The 1970s Hang Over The Country
Lord Forsyth has raise concerns about "insufficient" parliamentary accountability of the Bank of England
4 min read
Conservative peer Lord Forsyth has criticised the Bank of England's "utterly complacent" approach to tackling inflation.
Having started his political career more than 40 years ago, Lord Forsyth is concerned the spectre of the 1970s is once again hanging over the economy. Disrupted supply chains, surging energy prices and the pandemic have pushed inflation rates higher than most had expected – and while the Bank of England has claimed the issue is transitory, the Conservative peer views its approach as “utterly complacent”.
As chair of the Lords Economic Affairs Committee, Forsyth launched a report in July which accused the BoE of having a “dangerous addiction” to quantitative easing (QE), the process through which central banks attempt to pump money into an economy by purchasing government bonds. The comments provoked a rebuke from governor Andrew Bailey, who said the reference was “very damaging” to those suffering from addiction; he rejected the committee’s warning about inflation.
But Forsyth told The House the continued reliance on QE and the “insufficient” parliamentary accountability of the central bank continued to be a “really serious issue” facing the economy.
“When Mervyn King was governor, this was an extraordinary novel new policy, limited in scope. It was about addressing a particular problem after the [2008] financial crisis. The banks had run out of money, and it was providing liquidity to keep the show on the road,” he says.
“Since then, it has grown enormously. Now, whenever there is a financial problem, the answer is QE; whatever the diagnosis, the answer is QE.”
While Forsyth has welcomed the economic response to the pandemic led by Chancellor Rishi Sunak and expressed support for the Prime Minister’s ambitions for a high skill, high wage economy, he believes the next big question is about how that is achieved.
“I absolutely do not agree with those Conservatives who are saying the answer is just to borrow money to support this part of the economy. That is not sustainable. What we need to do is actually generate wealth, and that means creating the conditions in which we can see the economy growing again.
“It was a completely different situation in the 70s, but when we were hit by the oil price shock, the response was to try and control prices and it was a disaster.
“The lesson of history is that governments that try to control prices and incomes end up in great difficulty.
“Even the Emperor Diocletian who introduced the death penalty for raising prices failed with his prices and incomes policy.”
Having served in several ministerial posts, including as secretary of state for Scotland before joining the Lords, Forsyth warns that what he sees as a current culture of side-lining the work of peers puts the government at a disadvantage. Partly he blames this on a lack of press coverage, saying that an article written in The Guardian or The Telegraph is more likely to pique a senior politician’s interest than a select committee report. But he points to recent work on Universal Credit, student loans and Afghanistan as evidence that ministers had been given ample warning about the crises which have hit the government in recent years.
“Increasingly I find, and it’s also true in the Commons, that frankly the responses from the government are not good enough.
“These are evidence-based reports that are unanimously agreed, and they really need to be taken more seriously. They tend to be looking well ahead to the opportunities and the pitfalls. Parliament needs to reassert itself a bit more strongly.”
He adds: “[The Lords] are bringing in people who know what they are talking about to look at the evidence.
“In the Lords, it is much less partisan; they are a really important resource and all one can do is continue to plug away.”
Forsyth urges both Houses to exert more control over the legislative process, highlighting how the historically “rare and controversial” practice of “guillotining” bills had become common place, leading to poorly drafted legislation coming before the Lords.
“I see it in the operations of [the Commons]; if they don’t take themselves seriously then they can hardly expect others to do so.”
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