At noon this Thursday 9th December the Bank of England’s Monetary Policy Committee meeting’s decisions will be announced. A report released by members of the Green New Deal group and the consultancy ‚ÄòFinance for the Future’ today calls for the Committee’s discussions on when to introduce a further round of quantitative easing (the so called QE2) to include a different ‚Äògreen’ end goal for the expected electronic printing of more than a hundred billions pounds (QE1 ‚Äòprinted’ £200 Billion).
‚ÄòGreen Quantitative Easing: Paying for the Economy We Need’ states that the need to reflate the UK economy has not gone away and that there is an urgent need for action to stimulate the economy by investing in the new jobs, infrastructure, products and services we need. There is no sign that this will happen without government intervention, the report therefore proposes a new round of quantitative easing – a Green QE2.
Green QE2 would use the tens of billions of borrowing do three things,
a. The government would need to invest directly into new green infrastructure for the UK.
b.The government should work in partnership with the private sector, working through a new National Investment Bank, to create new opportunities – and especially green ones – for the UK;
c. The government must liberate local authorities to green their local economies for the benefit of their own communities, and it can do this by providing a capital fund for them to use when working with the private sector on joint venture projects. .
These proposals will together inject the money into the UK economy that can kick start economic activity in this country, reinvigorating government, local government, the private sector and household economies and in the process result in a truly greener country.
The final proposal of the report considers tackling the costly government debt incurred during the PFI process. This would be achieved by using the Green QE2 to cancel this £56 billion debt immediately and to pay off the money owed. Future generations of taxpayers would thus be rid of the need to have to pay for the past mistakes in government finances. The sums involved are estimated over the decades to total a staggering eventual cost of £252 billion. The around £200 billion ‚Äòsaved’ could then at least in part be allocated instead to continue to finance Green New Deal initiatives over the decades to come. There would be no further PFI projects, at present projected to initially cost £13 billion, as building and infrastructure programmes would in future be financed through the National Investment Bank proposed in the report.
‚ÄòGreen Quantitative Easing: Paying for the Economy We Need’ also notes that no one is sure for certain whether the first £200 Billion round quantitative easing worked and suggests that several things did happen:
1.The banks profited enormously from the programme, which is why they bounced back into profit so soon after the crash – and bankers’ bonuses never went away;
2.The entire government deficit in 2009/10 of £155 billion was basically paid for by the quantitative easing programme.
3.There was a shortage of gilts available for investment purposes as a result of the Bank of England buying so many in the market. Large quantities of funds were invested instead in other financial assets including the stock market and commodities such as food stuffs and metals. This has impacted on inflation, which has stayed above the Bank of England target rate;
4.Deflation has been avoided, although the relative role of quantitative easing in this versus the previous government’s reflation policies is unclear;
5.Interest rates have remained low.
However, one thing has not happened, and that is that the funds made available have not resulted in new bank lending. In fact bank lending has declined since the quantitative easing programme began.
The reports author Richard Murphy stated:
‚ÄòQuantitative easing programme might be considered a short term success, but the report notes that the benefit has been captured almost entirely by the financial services sector, whilst further asset boom and bust cycles are, at least potentially being recreated with resultant risk to the economy. These are undesirable long run outcomes when the real aim is to get the UK economy working again. For that reason the next round of quantitative easing needs to be green and to improve conditions in the wider economy.’