Wednesday, 19 February 2020
Former Bank of England governor decries government budgets in "lost decade"
Lord Hewes, former governor of the Bank of England, surprised many by writing a forceful column in
The Times decrying what he referred to as the "counterproductive" and "harmful" continuation of austerity budgets that largely have been in place since the Conservatives came to power in 2011. Although agreeing that the sweeping spending cuts and lowering of tax rates was necessary in the immediate aftermath of the late-2000s recession, Hewes says that their continuation has led to a "lost decade" of British economic growth.
In his column, Hewes, who led the Bank of England from 1993 to 2003 and is a retired professor at the London School of Economics, laid at the feet of the government's policy the slowest increase in labour productivity "since the 19th century", and the "glacial pace of income growth" over inflation. The policy of sweeping tax cuts in the first few budgets proposed under Andrew Carter's government "had no discernable impact" on the nation's economic recovery from the recession, Hewes writes, and had the added effect of "further insulating those at the top of the socioeconomic hierarchy from the effects of the social spending cuts", as studies showed that most of the tax savings incurred by those making £75,000 or more annually was largely put into personal savings, while the tax saved by those making under £75,000 annually was virtually all used for expenses such as rent, housing or groceries. He obliquely referenced a 2018 report by a United Nations rapporteur who blamed the austerity policies for the use of food banks doubling between 2013 and 2017 and the near-complete reversal of the decrease in childhood poverty that both Labour and Conservative governments brought about from 1998 to 2012.
The crossbencher did say that the statements by the prime minister and Chancellor of the Exchequer Kevin Grimes that "the age of austerity is over" were heartening, and did say that the two most recent budgets, which have slowly increased the tax on most income brackets, are "steps in the right direction". But he recommended an immediate increase in government spending to pre-2011 levels relative to inflation, among other items such as keeping interest rates low.
Government supporters labelled the column "hyperbolic", with Conservative backbencher Marshall Weatherly (Hove) calling for Hewes to "check [his] figures". But the nonpartisan London-based Institute for Fiscal Studies backed up Lord Hewes' facts on many key points, such as the increase in childhood poverty, slow labour productivity and income growth over the past decade. Labour leader Jack Coll said that Hewes' column was "an excellent analysis of the governments' economic mismanagement", while leader of the Liberal Democrats Logan Ross used the occasion to urge the government to "reinvest in communities" who had seen their budgets cut since the Conservatives came to power.
Lord Hewes (picture by Sir Patrick Stewart)
