Home Business NewsBusiness Bank of England must target productivity to better help drive economic growth

Bank of England must target productivity to better help drive economic growth

20th Jun 18 7:19 am

Says Labour

The Shadow Chancellor will launch Labour’s final report into the UK’s financial system, led by economist Graham Turner of GFC Economics, at an event today at the Royal Institute of British Architects in London.

The report “Financing Investment” will set out proposals for consideration as part of Labour’s policy review ahead of the next General Election.

Investment in new technology is concentrated overwhelmingly in London and the South East, with Britain’s overall investment rate the lowest in the G7. In addition, the UK’s output from high-tech industries has fallen on average over the last ten years, with only one other EU member having a worse performance, with investment in manufacturing, ICT and other critical sectors lagging £28 billion behind investment in real estate companies.

The result of weak investment, particularly in leading sectors, is a low rate of productivity growth overall, which impacts directly on wages and living standards. Too much capital is flowing into fundamentally speculative activities rather than productive investment.

This report makes a series of recommendations for major institutional reform to focus the British finance system towards delivering long-term, patient investment that will lift the rate of productivity growth in the UK.

Key recommendations from the report:

·         The Bank of England should preserve its operational independence, and the mandate should be expanded to include a 3% productivity growth target;

·         The Bank of England and government should sign an accord at the start of the next government, detailing how each will work towards achieving this 3% target.

·         The Bank of England will be required to report, after each Budget, on the government’s plans in light of this 3% target.

·         The Bank of England’s policy toolkit should be expanded to include credit guidance and greater use of macro prudential policy, alongside existing monetary policy.

Other institutional reforms include:

·         Establishing a Strategic Investment Board (SIB) to deliver productive investment and the government’s industrial strategy;

·         Establishing a Bank of England office in Birmingham, alongside the SIB and the National Investment Bank (NIB) to help focus institutional priorities on regions outside of London;

·         Using publicly-owned RBS to concentrate on delivering SME lending across the country;

·         Establishing an Applied Sciences Investment Fund to deliver public sector financing to R&D, aligned to the priorities of the Strategic Investment Board and the government’s overall industrial strategy.

John McDonnell MP, Labour’s Shadow Chancellor, will say:

“The last 8 years of Tory economic failure has led to real wages being lower today than they were in 2010, and the slowest decade of productivity growth since the Napoleonic Wars.

“These last few days of unfunded NHS spending commitments from Theresa May has shown that Labour is the real credible party of government.

“But we also want to build the economy of the future, and to do that we will need to reform the economic architecture of our country so that it is prepared to meet the challenges of this century.

“Our financial system right now isn’t fit for this purpose. We need one that helps to deliver enough investment in the high-technology industries and firms so that we can reboot and rebuild Britain. This report is a vital part in making this happen.

“Under the Tories, we’ve seen more and more investment flowing into property speculation whilst high-tech firms have been starved of the money they need, and research spending has lagged far behind.

“The next Labour government will work in partnership with our financial institutions to help deliver the investment that is needed to ensure the UK doesn’t fall behind in the global innovation race of the fourth industrial revolution, as part of our ambitious plans to help build a high-tech, high-wage economy that works for the many, not the few.”

Leave a Comment


Sign up to our daily news alerts

[ms-form id=1]