John McDonnell’s recently announced productivity target for the Bank of England could rebound badly, warns John Mann MP
At the start of this summer, John McDonnell has announced a three per cent productivity target for the Bank of England to be introduced by a Labour government. As the Trades Union Congress meets this week to discuss the future of our country, I would ask us all to think again.
Aside from the ‘productivity puzzle’ which has remained unanswered for a decade, the solutions to why productivity has failed to increase are well beyond the governor Mark Carney’s current reach.
The consequences of the Bank having to meet a productivity target are dire. In the long run, over a decade or so, skills and infrastructure could make a positive productivity difference. But over the life of a government the only option would be for the Bank to interfere in fiscal policy. This is not just the logical step, but is precisely what a McDonnell has proposed: asking for a statement on the impact of productivity after each budget.
This would hand the Bank its most wide-ranging suite of powers in its existence, but not powers it will welcome. Fiscal policy means decisions on how much is spent – and where. It would be relatively easy to boost productivity by diverting large amounts of government money from welfare to the productive economy, for example. It could subsidise technological investment, give grants and tax breaks – everything that George Osborne promised, but failed to deliver.
The governor knows that any major increase in budget deficit will impact on exchange rates, and consequently inflation. The Bank therefore, with its mandate, would require cuts in the welfare budget, which means pensioners in particular would be hit. A Labour government would be helpless to stop or condemned to failure on is stated aims for the British economy.
It seems unlikely that the people’s chancellor really wants for this for his first term Labour government, nor is it why so many were enthused by the leadership bid he ran in 2015 and 2016.
Considering that the Bank will be at the heart of post-Brexit stabilising of the economy and in charge of the ongoing negotiations for equivalence or similar in the financial services sector, the Bank would have an impossible mandate and be drawn directly into fiscal policy.
This announcement doesn’t just need a rethink, it needs a U-turn.
John Mann is the MP for Bassetlaw. He tweets @JohnMannMP
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