A former Conservative finance minister rounded out the government’s economic policy on Monday, calling interest rates “ridiculous” and budget management “nuts.”
Lord Jim O’Neill, who was introduced to the government by David Cameron and George Osborne in 2015, argued that the government should spend much more on education, health care and the transfer of power and should limit any inflationary pressures by much more. high interest rates.
But while O’Neill, a former chief economist at Goldman Sachs, was highly critical of the government’s monetary and fiscal policies, he backed Boris Johnson’s balancing white paper, saying it was “one of the most important things.” who have to leave the government for a long time. ”
However, O’Neill spent almost no time in equalization talks and instead criticized the government’s economic policies.
He told MPs in the Municipal Finance Committee that the Bank of England had made a mistake in failing to see the danger of inflation, saying that rising spending, which pushed prices higher after the coronavirus crisis eased, was “One of the most predictable recoveries we’ve ever had.”
O’Neill said he would vote to raise interest rates and end quantitative easing last year because the recovery was so strong. “It’s not just the bank that seems very clear [of England] but other central banks did not have to behave as they have in the last two years, “he added.
In a candid session, O’Neill made it clear that he believed that the UK’s economic policy needed to be balanced so that public loans and public investment were higher and additional demand was offset by higher interest rates. to keep common costs and inflation under control.
“I personally believe that the whole inflation targeting framework has outlived its selling date,” O’Neill said. Calling instead for a “change of mindset” and much higher public investment and a “mass transfer of functions”, he asked: “why is there such confidence in the need to reduce the deficit?”
“If [government] the debt reached 100 percent [of national income] as a result of having an appropriate structural approach to education spending so that we do not have a large number of people who cannot do what they need to do [be able to] do [coming] from our primary and secondary schools. . . I would welcome him. ”
In addition to calling for much bigger deficits and higher government investment, he told lawmakers that interest rates, which rose to 0.5% last week, were “at an absurd level” and the BoE should think “on target”. for interest rates of 4 percent ”.
“The government needs to get out of the prisoner of circumstances and make sure that the growth trend does not continue to fall,” O’Neill added.
The former finance minister also said there must be a better way to formulate the budget than to rely on the Office of Budget Accountability to forecast the deficit and then respond with either unforeseen costs or austerity.
“This is a crazy situation where the biggest change in next year’s budget result is simply because three people in OBR have changed the economic forecast,” he said. “It’s completely crazy.”
Other economists who share evidence with O’Neill disagree about the causes of inflation and the BoE’s guilt, but all suggest that larger government investments in education and infrastructure have the best chance of increasing the underlying growth rate. productivity in the United Kingdom.
Roger Bootle, chairman of Capital Economics, said the BoE has been too slow to deal with inflation, which is expected to rise to 7 percent, and people will naturally look for wage increases to match.
Jagjit Chadha, director of the National Institute for Economic and Social Research, said it was “crucial” for BoE’s law to cut inflation at higher interest rates without causing a recession.
Anne Pettifor, director of Prime Economics, disagreed, saying that high inflation was mainly caused by rising freight, energy and fuel prices and that “the BoE cannot be held responsible.”