Ed Balls has called for the Bank of England’s independence to restricted in the “brave new world” following the banking crisis.
The star of Strictly Come Dancing and former shadow chancellor warned that without a rethink then “popular discontent” could lead to government support for central bank autonomy over “core” monetary policy being damaged.
Balls, who was chief economic advisor to the Treasury in the early years of Gordon Brown’s chancellorship, said the pre-crisis academic consensus was too “absolutist” in its approach to central bank independence, and that there now needs to be a rethink for today’s world.
In the paper, written for Harvard University’s Kennedy school of government alongside James Howat and Anna Stansbury, a separation between political and monetary aspects of central banks is made. The paper argues that some sacrifices on political independence need to be made to ensure that operational independence is maintained in “monetary and financial stability functions”.
As a Treasury advisor in the 1990s Balls was instrumental in the landmark decision to give the Bank of England freedom to set interest rates soon after Labour’s huge win in 1997.
Today Balls told the BBC there needs to be a “better dialogue” between government and the Bank of England. The Bank has done its job whilst being “left to their own devices” and is “unfair” for them to now be criticised, a reference to Theresa May, who criticised the Bank at Tory conference.
He attacked the austerity policy delivered by the Conservatives, saying “if the Government had done a bit more work to support the economy through infrastructure spending” it would have been far easier for the Bank to meet its targets.
He was scathing of May’s complaints about the Bank’s low interest rates, which she described as simply helping the wealthy and harming savers. He said: “The low interest policy over the last few years has been the only thing which has stopped our economy from sliding back into depression”.