That Toby Nangle is a clever chap, I have been trying to work out what he is going on about in the FT all day and think I’ve got the hang of it.
To paraphrase and precis..
While the Federal Reserve has been issuing credit notes to the US Treasury, the Bank of England has been demanding cash from our Treasury for the debt it is calling in as part of Quantitative Tightening.
Does the Bank Governor’s really need our money? Toby thinks not. He thinks the Bank is being politically correct and operating at an arms length from those who would rather be giving the money back to us by way of tax cuts.
You can read the argument properly here (free link to a lucky few – mail me if it’s run out).
I was fairly sanguine about all this until I read that Andrew Bailey had winkled £44bn out of the Treasury last year, more than it spent on long-term care. Then it dawned on me that all the nursing homes and libraries and sports centres that have closed down of late might well be still serving their communities were it not for Mr Bailey’s demands.
So what does he want to do with this money? My guess he is sitting there right now , rifling his fingers through bundles of £50 notes , burning a few to light his big cigars and smiling gently to himself – as bankers do.
Mr Toby Nangle – good fellow that he is – points out that Mr Bailey’s covetous desire for his money back is not typical of other central bankers. Indeed it’s not just the Fed but most of the Central Banks who are rescheduling loan repayment periods to give Governments a little headroom in their spending (and relief from taxation).
Rachel Reeves, who is an alumni of the Bank of England and current CFO of UK PLC, has firm ideas about setting up a National Wealth Fund. I don’t suppose this involves keeping the nation’s wealth under the bed nor paying down the national debt like a Grantham shopkeeper. I’d like to think she is looking to seed such a fund with public money. Perhaps she can have a word with her arms length banker.
My hope is that the Bank of England will accept the challenge thrown down in the Mansion House reforms and adopted by both Conservative and Labour parties in pre-manifesto statements. The challenge is to follow America and others and loosen QT, releasing money to bankrupt councils and seeding the National Wealth Fund. There is of course risk in abandoning prudence, but the risk of pursuing an austere approach to the recall of money lent to the Treasury is surely greater.
For what we are lacking, and have been lacking for most of this century, is the capital to invest in ourselves and grow through smart innovation. In a recent blog, Frances Copolla points out that after the Great Financial Crisis of 2008, Britain swapped GDP Growth per Capita for growth through increased man/woman power.
But we don’t have a counterfactual. We don’t know what GDP growth would have been if immigration had been lower during the post-crisis years
Nor do we know what Britain would look like if capital had flowed into British industry rather than subsidising debt to get Britain back on its feet. I suspect the very real concern we have about immigration and more widely about our relationship with the European Union has and had been that Britain was and is becoming over reliant on full employment rather than smart employment.
People worked out that rather than pursuing a progressive path to growth, we stopped investing, reduced labour costs and outsourced value – especially to the US.
I speak as a layman in these things but one who after fifteen years of being told our country’s finances are in trouble, believes that controlled growth is not just needed – but wanted.
Sure, we do not want the shit-or-bust irresponsibility of Liz Truss, but nor do we want the gentle decline into a second-world economy where growth is fuelled by cheap labour and a focus on cost reduction.
Sustained growth comes from sustained investment and we will need more than a raid on our pension funds to realise the ambition of a National Wealth Fund. We need all the levers of Government to be working together, which includes a Bank of England aligned to the Treasury’s Growth Agenda.