Bank of England should look beyond City to the regions, says Shadow Chancellor John McDonnell

Shadow Chancellor John McDonnell
Shadow Chancellor John McDonnell
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The Shadow Chancellor has raised the prospect of greater regional and female representation at the Bank of England committee that sets interest rates.

John McDonnell has asked former MPC member Danny Blanchflower to review the mandate of the MPC and consider whether it should look at objectives other than the inflation target.

The Labour MP said the committee consists mainly of BoE insiders with four external members appointed by the Chancellor and is less diverse than policymaking commitees at the US Federal Reserve and European Central Bank.

Writing in the Financial Times, he said: “There could be a case for regional or national representatives from Scotland or other parts of the UK; looking beyond the boardrooms of Lombard Street to the real economies of the UK.”

He added that the review will also look at the frequency of meetings and the size and gender balance of the committee, among other economic issues.

Dr Craig Berry, deputy director of the Sheffield Political Economy Research Institute, welcomed the idea of greater regional representation.

He told The Yorkshire Post: “The way that the Monetary Policy Committee currently works reflects the UK’s highly centralised and unbalanced economy.

“The assumption that London’s growth is good for growth everywhere in the UK is never challenged, and this means that monetary policy outcomes overwhelmingly favour the London property market, rather than supporting investment in industry elsewhere.

“Its supposedly independent status is undermined by the Chancellor’s power of appointment. Devolution of some economic powers from the centre to city-regions is a good thing, but it needs to be accompanied by stronger representation of northern regions within the manchinery of central government in policy areas like monetary policy where devolution is impossible.”

Richard Holt, an economist at Oxford Economics, was more sceptical of regional representation but did suggest the committee might benefit from a broader range of candidates.

He said: “If there is evidence that the MPC really is only looking at the City and not at the ‘real’ economy, then the MPC members are not doing their jobs properly and they should be required to do so.

“I am not convinced that regional representation, or representation from the devolved nations, would improve matters. But there is a case for proactively seeking to broaden the base for recruitment into top posts, such as the MPC. More recruits from the nations and regions would be a big part of that.”

Mr Holt added: “It’s an important principle that MPC members should be appointed for their individual merits, and not as representatives of groups. That said, London and Oxbridge are over-represented in a range of top jobs, and the MPC is an example of that, and more efforts to broaden the candidate pool for very senior appointments would probably raise the quality.”

Paul Hollingsworth, UK economist at Capital Economics, said the case for getting regional representatives on the MPC is not especially strong.

He added: “Of course, it is still important that developments in all parts of the UK are taken into consideration and inform the MPC’s decision-making process about the balance and pace of economic growth.

“And perhaps there is a question as to whether the regional element should occur at an early stage in the process, via discussions with the Bank’s regional agents, as is currently the case. Or whether it would be better to have regional representatives on the committee itself.

“The latter could prove difficult. As for all regions to be equally represented could require a significant increase in the number of members of the MPC – which could inhibit the decision-making process.

“It is important to note that the MPC sets policy for the UK as a whole. Accordingly, discussions on the MPC tend to be about the appropriate stance of monetary policy at the aggregate level.

“Things would get incredibly complicated if you started bringing a regional element into that too. For example, if Scotland thought that a looser policy setting would be best there, while the South East required higher interest rates. “But the regional representatives would still be voting on policy at the aggregate level, putting aside all regional bias.”