BoE needs more political support and accountability, says Ed Balls

In order to protect the Bank of England’s independence, the central bank needs more political support and accountability, Ed Balls said on Thursday.

The former shadow Chancellor had written a report on central banks for the Harvard Kennedy Business Centre, and said that there should be a closer relationship between the BoE and the government.

Balls told BBC Radio 4’s Today programme: “I think the case for independent central banks is as strong as it’s ever been. At a time of economic uncertainty but also great political risk, we need the Fed and the Bank of England to play these roles, and we don't want them to be politically criticised.

“But the reforms we’ve seen over the last few years have hugely concentrated power in central banks. I think it’s unfinished business.”

Balls previously wrote a report which led to the BoE's independence by then Labour Chancellor Gordon Brown in 1998.

He said that the country has relied on the central bank to sustain growth for the past five years, and that its low interest policy was the only thing which had stopped the economy sliding back into a depression.

“They have being trying meet a target for low inflation, they’ve been under-shooting because of the deflationary forces in the economy, they‘ve been doing their job.”

Balls said there needs to be “better dialogue between central banks and governments. If government had done a bit more work to support the economy through infrastructure spending, that would have made it even easier for the Bank of England.”

He called for a body to be chaired by the Chancellor, which would oversee the whole system and set a mandate for the bank, so if a crisis does build the bank would be supported.

“There’s not sufficient accountability, not a clear target. They are making decisions that are quite distributionally politically sensitive; if things go wrong then politicians would have to step in.”

The independence of central banks has recently been called into question on both sides of the Atlantic.

During his campaign, president-elect Donald Trump criticised US Federal Reserve chair Janet Yellen for being political.

Theresa May, the Prime Minister, appeared to criticise the bank in her speech at the Conservative party conference when she said savers were being affected by low interest rates, a view which was supported by former foreign secretary William Hague.

Leading Brexiteers during the EU referendum campaign railed against BoE governor Mark Carney, when he warned that leaving the trading block would likely harm the economy and increase the risk of a recession.

Carney has said that politicians who criticised the bank were engaged in a “massive blame deflection exercise”.

Balls said he agreed with Carney and that it was worrying to see him attacked. He also said that Chancellor Philip Hammond and the Treasury need more support as they are an important voice on Brexit.