23.08.2012
By Simon Miller
Former member of the Bank of England (BoE) Monetary Policy Committee (MPC) Kate Barker has slammed the new powers about to be given to the UK's central bank.
In a report for Liberal Democrat-linked think tank Centre Forum, Barker said that the experience of the protracted financial crisis suggested that there are problems with a model in which too much -policy is left in the hands of an independent BoE.
She continued that her proposed changes in the report were not driven by concerns that the job of the governor was about to become too big for one person: "Rather, the concerns raised are about whether the dispersal of policy responsibilities is coherent, and about democratic legitimacy."
Barker warned that the introduction of the Financial Policy Committee (FPC) would lead to macroeconomic management being "further complicated".
She continued: "The institutional arrangements for the FPC are flawed and retain much of what proved to be a weakness of the regime introduced in 1997; the belief that responsibilities can be neatly divided up."
Barker questioned whether there would be any significant gain in financial market confidence as it would be operating with a leas clearly defined remit and with less proven tools.
She added: "The view taken by the FPC of the trade-off between financial stability and growth will not be that which would have been selected by politicians.
A better solution, according to Barker, would be for decisions on macro[prudential policy to be taken by the Chancellor, "on the basis of advice from a group on which the bank is strongly represented, and with the Bank able to publish its views and advice".
"Politicians should not too readily cede powers on the grounds that they themselves cannot be trusted with difficult decisions," she added.
Barker also said the MPC had focused to much on the two-year horizon for bringing inflation back to target - a distraction from looking hard at longer-term underlying imbalances in the economy.
"In addition to taking a longer-term view of risks to inflation, a more strategic approach to monetary policy would also be enabled if the point CPU inflation target were changed to a range, perhaps of 1-3%," Barker said.
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