MPs are debating the detail of the Budget today, and will doubtless pick over some of the lines from George Osborne’s round of interviews this morning, particularly the confusion over whether Help to Buy is available for those buying second homes. There are plenty of queries about whether the government’s new mortgage plans are actually very wise at all. The debate will inevitably focus on the doorstep issues on taxes and cuts. But will MPs talk about one of the most important elements of yesterday’s announcement? It wasn’t on petrol, and it wasn’t beer duty. It actually concerned monetary policy.
The first was that finally the Chancellor wants the Bank of England’s Monetary Policy Committee to be open about flexible inflation targeting: up to now the Bank has been missing its 2 per cent target but without any formal blessing from politicians. Inflation has been above 3 per cent in 13 of 24 quarters in the last four years. Announcing a new remit for the Bank of England, Osborne said yesterday:
‘The updated remit reaffirms the inflation target as two per cent as measured by the twelve-month increase in the Consumer Prices Index. The target will apply at all times. But as we’ve seen over the last five years, low and stable inflation is a necessary but not sufficient condition for prosperity. The new remit explicitly tasks the MPC with setting out clearly the tradeoffs it has made in deciding how long it will be before inflation returns to target.’
The Bank will be able to let inflation rise above the two per cent target for longer, and to be clear about its plans for inflation targeting in advance so that borrowers have more certainty. And Osborne also told MPs yesterday that the ‘new remit recognises that the Monetary Policy Committee may need to use unconventional monetary instruments to support the economy while keeping inflation stable’. That includes quantitative easing.
All of this sounds rather abstract, and indeed the section in Osborne’s statement on monetary policy was the most jargon-heavy. It will be easy for MPs today to talk about fuel duty and the impact of fiscal policy on women, and all the usual topics in a post-Budget debate. But monetary policy has winners and losers in the same way: quantitative easing hits savers and pensioners and favours borrowers and those with assets.
This is George Osborne’s last resort in a Budget which gave him very little room for manoeuvre: so many of yesterday’s announcements were purely political ones to cheer up Sun readers and please Tory backbenchers. It’s why Number 10 believes the arrival of Mark Carney at the Bank of England will be so much more significant than yesterday’s Budget. So the real action was on the monetary policy front, but it’s unlikely that we’ll hear many detailed expositions of that in the Chamber today.
Subscribe to The Spectator today for a quality of argument not found in any other publication. Get more Spectator for less – just £12 for 12 issues.