The former boss of the UK’s competition watchdog has called for a parliamentary group to scrutinise the Bank of England amid concerns over threats to its independence.
Lord Andrew Tyrie, who was chairman of the Competition and Markets Authority (CMA) until June last year, said a new group of experts should be created to examine the Bank’s decision and policies.
It comes amid a House of Lords Economic Affairs Committee inquiry into the Bank’s mammoth quantitative easing (QE) money printing programme.
The Bank has pumped hundreds of billions of pounds into buying bonds under QE since the start of the pandemic to shore up the economy, boosting the programme to £895 billion.
This is equivalent to more than 40% of UK annual gross domestic product (GDP).
In a written submission to the Lords committee, Lord Tyrie – who also previously chaired the influential Treasury Select Committee – raised worries over threats to the Bank’s independence, in particular through the design of QE.
He wrote that the scale of QE makes a “compromise of independence much more likely”.
“The more that fiscal and monetary policy are seen to come together in QE, the more the sense is created that the Treasury has a role, possibly a major role, in monetary policy.
“Allegations of ‘nods and winks’ by the Treasury will grow,” according to Lord Tyrie.
Central banks worldwide have used QE to bolster economies since the 2009 financial crisis began as an additional tool to interest rate cuts.
Not only does it increase the supply of money and cut lending rates, but it also has the added benefit of reducing borrowing costs for governments – seen as crucial during the recent huge support efforts during the pandemic.
But it has been controversial for boosting asset prices and widening the gap between rich and poor, while also calling into question the independence of central banks given the direct benefit to governments.
Lord Tyrie has urged the Bank to release minutes of its emergency meeting last March, at the start of the Covid crisis in the UK, to enable greater parliamentary scrutiny of its decision making over QE.
He believes a new parliamentary group would help hold the Bank to account for its decisions, as well as other regulators such as the Financial Conduct Authority.
“Not only is the work of a number of these regulatory bodies extremely complex, and their decision making processes impenetrable; the extent to which a number increasingly appear captured by vested interests, and the apparent remoteness of their executives from adequate challenge and scrutiny, both point to the need for a much more vigorous response from parliament,” he wrote.
