This time last year, the all-party Lords economic affairs committee, which I chaired and which includes Mervyn King, the former governor, published a comprehensive report questioning whether the Bank of England was addicted to quantitative easing. The chancellor declined to appear before the committee, arguing in a letter to me on 5 May 2021 that “given the importance of an operationally independent monetary policy it is vital that I do not comment on such matters”. Three weeks later, on 26 May, Dominic Cummings was telling the health and social care and science and technology committees that the chancellor, prime minister and cabinet secretary had discussed taking emergency powers to force the Bank of England to buy government debt to finance the lockdown. Our report warned that further quantitative easing would be inflationary if it coincided with a growing economy, substantial government spending, high levels of personal savings and a recovery in demand following the Covid-19 pandemic. If the Bank did not act to contain inflation, it would be more difficult to contain it later, and combined with the slowdown in economic growth it would risk a significant increase in the cost of servicing the public debt. QE artificially inflated asset prices and exacerbated wealth inequalities and the Bank had to explain why it needed a further £450bn of QE to meet its mandate to keep inflation around 2% and why it believed the already rising inflation was a temporary phenomenon. The Chancellor’s response in September last year was perfunctory and said “the issues you raise in the report are complex and deal with a wide range of issues relating to QE and your recommendations have been recognized and carefully considered”. Evidence given to the committee by monetary economists such as Tim Congdon and Liam Halligan was ignored. Tim Congdon told us on February 9 last year “that in 2020 the growth rate of money was 14 percent, while the trend growth rate of the economy was not much more than 1 percent. There is a huge imbalance and it will come through in inflation.” He added: “I think what is happening at the moment in Britain, even more so in the United States, is very irresponsible.” Unfortunately, he turned out to be absolutely right. The same tendency to be driven by Treasury orthodoxy was evident in the Chancellor’s refusal to accept the disastrous consequences for the self-employed from the implementation of IR35 and the findings of our Finance Bill subcommittee. The chancellor has created employees with zero entitlements without any of the benefits of being an employee or the tax advantages of being self-employed. Its IR35 rules are fraught with problems, unfairness and unintended consequences. The committee warned that the impact of the rules on the wider labor market, particularly the gig economy, had been ignored by the government. According to the Office for National Statistics, the number of self-employed people after two decades of growth fell from five million at the end of 2019 to 4.2 million earlier this year. When Sunak appeared on our panel he was always well informed and gave an impressive and polished technical performance. It is the lack of empathy, foresight and vision that worries me. Prime Ministers must be able to see round corners and challenge orthodoxy. Margaret Thatcher, whom I knew well, had it in spades. Sunak’s decision to cut Universal Credit by £20 a week at a time of rising prices and then devise new ways to help the same people was strange. He seems content with the lowest paid workers facing an effective marginal tax rate of more than 55 percent, while the highest paid in the land pay 45 percent. Conservatives believe in sound money, encouraging small business, and lower, fairer, simpler taxes. I’m not sure Sunak understands this. Lord Forsyth of Drumlean was chairman of the Lords finance committee from 2017-22 and served as a minister under Margaret Thatcher and Sir John Major.
