Lords Warn Bank of England’s Net Zero Focus Could Impact Inflation-Fighting Ability
A think tank has cautioned that the Bank Of England is at risk from ‘ESG mission creep,’ while concerns are raised about the impacts of quantitative easing.
A report by the Economic Affairs Committee (EAC) in the House of Lords highlights concerns about the Bank of England’s commitment to achieving net zero carbon emissions and its effectiveness in addressing inflation.
The EAC released a comprehensive report yesterday, addressing concerns over the Bank of England’s operational independence and a perceived “democratic deficit” in its leadership.
The report underscores challenges faced by the Bank of England due to the surge in inflation and a subsequent loss of public confidence. The report also raises concerns about the risks of a broad mandate, including oversight of climate-related risks, posing a risk of politicization and undermining the institution’s ability to combat inflation.
Chair of the House of Lords EAC Lord Bridges of Headley emphasized the need for reforms while preserving the bank’s independence.
‘Time To Take Stock’
“Twenty five years after the Bank of England was made operationally independent, it is time to take stock. While we are of the strong view that independence should be preserved, reforms are needed to improve the Bank’s performance and to strengthen its accountability to Parliament,” said Lord Bridges of Headley.
The report also stressed the need for a review of the bank’s remit, performance, and operations every five years, while also highlighting the importance of intellectual diversity within the bank as a means to challenge prevailing models and forecasts.
Economics Fellow Julian Jessop emphasized key considerations regarding the Bank of England’s operations and expressed agreement with the committee’s recommendation to prioritize money supply and credit in forecasts. Mr. Jessop also supported the call for more “intellectual diversity” on the Monetary Policy Committee and the need to avoid shifting focus away from the bank’s remit to control inflation.
The report raised concerns about the bank’s expanded remit and its potential to become entangled in the broader policy agenda of the government, particularly in the areas of environmental, social, and corporate governance (ESG).
BOE Under Attack From ‘ESG Mission Creep’
Emphasizing the potential distractions from broader agendas, Mr. Jessop cautioned against the ESG agenda’s mission creep and the Bank’s focus on climate change, urging it to avoid being distracted by other elements such as gender and ethnicity targets.
The report also highlighted concerns about the continued deployment of quantitative easing and recommended the establishment of a memorandum of understanding between the Bank and the Debt Management Office to clarify the interaction between monetary policy and debt management.
The report sets forth several key recommendations to address these challenges, including a pruning of the Bank’s expanded remit and a review of its management structure to enhance efficiency. It also called for attention to governance, hiring practices, and appointments to foster diversity of views within the Bank.
The ongoing review into forecasting, led by Dr. Ben Bernanke, is expected to contribute to a diversity of thought within the Bank.
The committee also recommended that Parliament conduct a review of the bank’s remit and operations every five years and cautioned about the potential impact of a Central Bank Digital Currency (CBDC) on the Bank’s operational independence and primary objectives.
CBDC Warning
The report called for the Bank and the Treasury to clarify the effects of a CBDC and establish corresponding accountability mechanisms.
Earlier this year, UK politicians and financial experts expressed concerns over the proposal to introduce a CBDC, fearing challenges to privacy and monetary stability.
