Should the Bank of England control UK interest rates, or should that power return to elected government? In this video, I argue that the Bank of England's independence was never a neutral, technocratic decision. It was a deliberate political project, rooted in far-right Public Choice Theory, designed to strip democratic control away from ordinary people and hand it to unelected bankers.

Since 1997, the Bank of England has been given a single tool, control of the base interest rate, to chase a single target of a 2% inflation rate that no economist can convincingly justify. There are no targets for growth, employment, living standards or climate change. There is just a number pulled from thin air, enforced at enormous cost to people in this county.

The result is near 5% unemployment, 10% youth unemployment, soaring mortgage costs, and excessive rents. We have a Treasury with its foot on the accelerator while the Bank of England slams the brake, both pulling the economic steering wheel in opposite directions. No wonder the country is not performing. The rot starts in this dysfunctional relationship

This video explains why Bank of England independence was always a neoliberal political experiment that was designed to undermine democracy and the people of this country.

Now, the neoliberal era is over. The Bank of England's independence has delivered incoherence, crisis, and a democratic deficit that the UK can no longer afford. It is time to bring interest rate policy back to the Treasury, where elected politicians should be accountable for their decisions.

This is the audio version:

This is the transcript:

In this video, I'm going to challenge one of the core neoliberal economic ideas. I'm going to suggest that we do not need an independent central bank in the UK. In other words, what I'm going to say is that the Bank of England should be brought back under state control in this country, and it should cease to have any role in setting economic policy.

As I will explain, central bank independence was never a neutral economic choice. It was a deliberate political project designed to remove democratic control over our economic policy, and the project has failed, and the time to end it has arrived. This video sets out why and what needs to change as a result.

Let's be clear. Central banks like the Bank of England perform functions that are essential to any modern economy. They are the government's own bank. They help it manage the state finances. They organise all payments flowing from the government into the economy, and that can run to trillions of pounds a year. They create the government's own currency as a result, and they issue the notes and coins that represent it.

They also act as banker to all other banks, clearing transactions between them in a way that makes the entire banking system work, and they regulate those banks and other major financial institutions, such as pension and insurance companies.

These are vital functions. They need to be done, but central banks do not need to run government economic policy. That is my point. I'm not against central banks; I'm against central banks running economic policy.

The fact is that central banks cannot exist outside the state sector. That is true, and it's not a statement of preference. Our central bank, the Bank of England, has been owned by the UK government since 1946. If anybody tells you otherwise, they're lying to you, and however they are constituted, central banks are always effectively a government department. That means that any claim for independence from central government control now made for them is a pure political act of writing fiction designed to deceive and to undermine your democratic rights. That fiction has been deliberately constructed, and at enormous cost. To pretend otherwise is to misrepresent the nature of the institution entirely.

Central bank independence grew directly out of something called Public Choice Theory. Public Choice Theory was created by somebody called Professor James Buchanan, working from the mid-1970s to create this idea, which has been promoted through a global network of far-right think-tanks. It is fundamentally anti-democratic. Buchanan did not believe in democracy, a point that has been highlighted by somebody called Nancy MacLean in her highly readable book, Democracy in Chains, which I would recommend to anyone who is watching this video.

In the UK, the think-tanks who are promoting the idea of Public Choice Theory have operated from Tufton Street in Westminster, where many of the notorious right-wing think-tanks which have tried to influence government policy in this country have been located, and in this case, that influence has been far too great.

Public Choice Theory is not about the public, and it's not about choice. This makes the claim inherent in the title typical of everything to do with Public Choice Theory. Everything that Public Choice Theory says is the opposite of what it means. The real purpose of Public Choice Theory is to remove democratic control over economic decisions from the public. In other words, it is to deny the public the choice that they are entitled to have.

The point is that Public Choice Theory is about controlling the choices that ordinary people might be able to make because it doesn't trust the public to vote in ways that might allocate resources in the way that the wealthy in society want. In fact, its specific claim is that voters will always choose to tax wealth and high incomes more heavily than they will charge tax on themselves, and that, they claim, represents an economic injustice inflicted upon the wealthy who become the victims in this narrative. And they say as a consequence that democracy cannot be trusted.

The entire logic of Public Choice Theory is designed to protect the interests of those with money and power, and one of the mechanisms that they chose to do this was to argue that central banks and monetary policy should be removed from the control of democratically elected governments by the creation of independent central banks. Elected politicians, it was argued, could not be trusted with interest rate decisions. Central banks did therefore have to become independent of them because only in that way, it was said, could we get reliable interest rate policy; reliable in the sense that this would deliver what bankers and the wealthy desire and not what people need.

Fiscal policy, about spending and taxation, was left nominally within the control of government, but tightly constrained by this decision to outsource control of monetary policy to the banks. The entire economic management of the economy by the government was, in effect, therefore disabled. The object was very clear. It was to undermine democratic control of economic management.

The proponents of Public Choice Theory won the argument on central banks. Let's be clear about it. In the 1990s, they got their way. This became the core idea within neoliberal economic thinking at that point in time. It was promoted by the International Monetary Fund. It was promoted by the World Bank. It was promoted by the European Union. And a Labour government here in the UK, Tony Blair's government in 1997, followed along and created independence for the Bank of England; so-called independence for the Bank of England in 1997, and it was operational from 1998.

The Bank of England was given just one instrument: control of the interest rate to control just one target, the 2% inflation target that someone created, although no one knows why, and no one can explain why 2% is better than 3% or is better than 4%, or is indeed better than 0% when it comes to inflation. This target is entirely irrational and without academic or economic support. But nonetheless, this is what happened, and no goals were set for growth, employment, or living standards. People were ignored inside this equation. There was an extraordinary surrender of democratic economic governance as a consequence, to the Bank of England, at direct cost to people.

We know that this was the case because the Bank of England was permitted to set interest rates which would result in the creation of unemployment within the UK economy, whatever the government thought. We can see the outcome. We now have nearly 5% unemployment in the UK and 10% amongst young people.

Why do we have that? Because the Bank of England has set interest rates too high. That is because it says it needs to do so to control inflation, although there is no indication that the current inflation we might be suffering is in any way influenced by the interest rate that the Bank of England sets. And as a consequence, this unemployment, this cost to society, and this cost to the people involved is all imposed as a result of the economic dogma behind Public Choice Theory and the neoliberal thinking that informs it, and we are suffering as a consequence.

The result is a totally incoherent economic policy. The Treasury has one foot on the accelerator in this economy, managing fiscal policy. The Bank of England has one foot on the brake, managing monetary policy. There's no coordination between the two, and you can imagine the outcome. Yes, it is chaos, and add to this, the problem that both these institutions have a hand on the steering wheel in the car that is the UK economy, but each of them are following a different map and trying to yank that wheel in different directions. That's what happened as a consequence of making the Bank of England independent, and the result was predictable. It was the 2008 financial crisis, which arose as a result of the failure of regulation in this country, the failure of regulation at the core of which was the Bank of England's independence.

We have economic policy that is officially beyond democratic government control in this country. Rachel Reeves always bows down and says, ‘I will follow whatever the Governor of the Bank of England says.' This is absurd, and this situation was created by deliberate political choice and not by economic necessity.

It means politicians can claim credit for good outcomes while refusing accountability for bad ones, and this is a situation that neoliberal politicians particularly like. Outsourcing of responsibility is something that they're very good at, as the whole of neoliberal thinking suggests to be right, because it accepts responsibility for nothing by outsourcing everything, wherever that is possible.

The point is, we're ending up with a permanent excuse for incompetence dressed up as institutional design. That is wholly unacceptable within any functioning democracy, and the point is, as I've already explained, this policy does not work.

We have had two incidents of major inflation since 2008, when we had the global financial crisis in the UK, and both of them, in 2022 and now, have been driven by external sources: in 2022 as a result of the war in Ukraine; now, as a result of the illegal war by the USA and Israel on Iran. And in both cases, we are getting inflation, but not because of overexuberance inside the UK economy. We have a situation where interest rates have been held too high as a consequence, and we saw the outcome after 2022. It was terrible economic performance.

We as a country are underperforming compared to most of the world. Why? Because we are suffering the consequences in the form of high interest rates. They come in the form of excessive rents and excessive mortgage interest payments imposed on ordinary people, and we're seeing the cost in the form of unemployment, which is imposing costs on government in turn, which is in turn inspiring ideas around austerity, also reinforced by the idea that the government has to pay too much interest as a direct consequence of what the Bank of England is doing and the cost it is imposing. All of this is a catastrophe, and all of it is unnecessary.

My point is this: the Bank already has a full and legitimate role without setting interest rates in the UK economy. It is the government's bank. It is the bank's bank. It is the currency creator, and it is the regulator of banking within our economy. That is more than enough for any institution to do well. It does not need to be the location to which the Treasury outsources its own accountability. The Bank should do its job, and the Treasury should do its job, and that is managing the economy. Both should be answerable to elected government and through it to the public. The fact is, that is not what is happening now.

So, what do I demand? This: I want interest rate policy to be returned to the Treasury where it belongs. The Treasury is the only body that can integrate monetary and fiscal policy coherently for the benefit of the UK. Joined-up economic policy requires a single strategic authority to manage it, and we do not have that now. No wonder we are doing badly.

So, the idea that politicians cannot be trusted with big decisions must be eliminated from our politics. We need competence, accountability, coherence, and democratic control of economic policy within the UK. We need that to be with elected politicians so that we can boot them out, and bringing the bank under central government authority would deliver that to meet our needs.

Central bank independence was a centrepiece of a 30-year neoliberal project. That project was designed to dismantle democratic control over the economy. That project has failed. We need to end Bank of England independence to indicate the fact that the government is moving on from this situation.

I know that many international institutions will be horrified by what I'm saying. The EU, the IMF and the World Bank will all throw their hands up and say, ‘You can't do this.' The requirement to be a member of these organisations is that you must have an independent central bank. Well, so what? The UK is an independent country. The system has failed us. If that's the requirement, we need to tell them one very simple thing: “You change, you follow our example. The neoliberal era is genuinely over, and we are going to give up on the rhetoric. We are going to give up on the form of it. We are going to make our politicians accountable for the economic decisions they actually make. We're going to create a Treasury that is responsible for both fiscal and monetary policy, whatever the world's institutions think, because that is what is necessary to deliver what the people of the UK require.”

The Bank of England's independence has delivered incoherence, crisis and democratic deficit. The courage to end it is what the UK economy now needs. It is time to bring economic governance back inside democracy, where it was always meant to be.

That's what I think. What do you think? There is, as ever, a poll down below. Please also leave us your comments, and if you like this video, please indicate that down below and share it with your friends or whoever else it might be who looks at your videos when you do that. And if you support this idea and the work that we are undertaking and want to leave us a donation, there is a link for that down below as well. Please do so because we'd be very grateful.

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