Churchill’s urinal and a people’s bank

Ann Pettifor says low tax revenues hampered by a low investment Tory legacy mean Labour has an uphill climb to tackle economic renewal and the climate emergency. Will chancellor Reeves take back control?

It was not just the election result. No, it was the clumsy attempt by embarrassed Treasury officials to dismantle Churchill’s urinal in the new Chancellor’s office. That story sent me off on an odyssey: straight back to the 1979 election – and a significant societal shift.

Back then only eleven Labour women MPs entered parliament – fewer than in 1945 and fewer than any post-war parliament since. It was a number that drove me into the arms of the Campaign for Labour Party Democracy, and the Labour Women’s Action Committee (LWAC). Together we embarked on two decades of sustained campaigning – opposed by men on both the left and right – to increase the number of Labour women MPs. We began by mobilising grassroots support for changes to the rules, and then deployed the “one woman on the shortlist” tactic before the 1992 election, and “women-only shortlists” after 1993. In 1995 our campaign was successfully challenged by two men backed by Tony Blair; but soon after, the 1997 election showed how much progress LWAC had already made. 101 Labour women MPs entered parliament in that year. 27 years later, and 45 years after the 1979 debacle, 190 women entered parliament this July as Labour MPs – 47% of the Parliamentary Labour Party.

To top it all: Britain has its first-ever woman Chancellor in Rachel Reeves, who has refused to agree to the £8,000 cost of removing Churchill’s urinal.

That is some vindication of grassroots, feminist power.

Another, green societal shift

This election has revealed another societal shift: growing grassroots pressure for a green transformation. Will Labour’s economic conservatism match Ed Miliband’s commitment to clean energy systems? Can the country be liberated from an economic ideology that uses monetary policy to enrich the few, and “fiscal rules” to impoverish the many and limit public investment? Above all: will the new Chancellor liberate the power of the state to mobilise the finance needed for the transformation of the economy away from fossil fuels?

Right now that is doubtful. Chancellor Reeves has trodden very carefully, and given every sign of an approach based on outdated economic orthodoxy. But, like so many women thrust into top jobs, she faces major challenges inflicted by her male predecessors. First, the mess that is the public finances. Second, the urgent need to settle public sector pay negotiations – a settlement she quickly financed, and must be commended for. Third, a populist and racist uprising whose leaders fully intend to destabilise the new Labour government. Fourth, the instability and imbalances of the global economy and the potential for another great financial crisis.

However the greatest challenge she faces is on her doorstep and is twofold.

First, it’s the obsession of both the economics profession, the media and politicians with the public finances and fiscal policy. It’s as if the government’s finances are the be-all and end-all of economic policy. As if the British economy, and the international financial system that shapes much of it, are of much lesser significance. Above all, it’s as if fiscal policy is the only economic tool available to the new Chancellor. That monetary policy is not, and cannot be a powerful tool at the disposal of elected politicians governing the British state.

The obsession with fiscal policy, and the blind spot for monetary policy suits the governors of two powerful state institutions– the Debt Management Office (DMO) and the Bank of England. Not just in the UK, but in all OECD countries.

The CEO of the DMO – Sir Robert Steethman (succeeded this summer by Ms Jessica Pulay) – is barely known to economists, politicians and to the public. His, and now her institution plays a powerful and largely unaccountable role in setting the terms – rates and duration – at which the government borrows from both domestic and foreign capital markets.  During World War 2, when the government needed to finance a destructive war, politicians could not afford to hand over this power to a third party. Instead rates were set by the Chancellor/Treasury in tandem with the Bank of England.

The governor of the Bank of England and members of the Monetary Policy Committee (MPC) make decisions “independently” on the economy’s most important policy lever: the Bank rate of interest. Thanks to her predecessor Gordon Brown, that power is no longer available to the Chancellor.  

First, some clarity. The Bank rate is not set by “market forces”. Instead it is set and varied periodically by a committee of men and women, the MPC. To my mind, it is the most important lever in the economy as it influences the price both government and the private sector pays to borrow – in order to invest. It is a lever fundamental to Britain’s recovery, and to the health of both public and private sectors. Yet it is a lever wielded by the MPC largely in the interests of creditors and hedge and asset management funds active in global capital markets.

It is not a lever that can be used by an elected government to help finance the urgent investment needed for the economic transformation away from fossil fuels.

What to do?

Currently the Bank rate is unsustainably high in real terms – 5%. It is far too high to encourage both private and public borrowers to raise Britain’s uniquely low levels of private and public investment.

And for Britain’s private and public debtors, repayment at that rate can be considered extractive, or usurious. 

Finally, the brutal ratcheting up of rates has not brought down an inflation triggered by international supply constraints and commodity price speculation in global markets. Andrew Bailey, governor of the Bank showed his class war credentials when he wrongly blamed inflation on rising wages. Because of his institution’s flawed analysis, the Bank’s high, real rates will continue to stall “growth”.

Usurious lending

I follow the weekly announcements of the DMO, and if my calculations are correct, the institution raised about £26 billion from investors between the election on 4th July and its latest auction on 7th August. So the £20 billion ‘black hole’ in the public finances was quickly filled up.

So far, so good. However, the horror story is this: the loans issued by the DMO this last month were made at what can be considered an exorbitant rate – 4.1/4% – 4.1/38% – for debts repayable over periods ranging from one, to ten to thirty years. In other words, because of decisions taken by the BoE and DMO today, the British government will be repaying loans at those high rates for up to thirty years. 

So while the new Chancellor faces the prospect of low tax revenues generated by a weakened, low investment economy, her chances of borrowing at sustainable rates of interest in order to increase public investment are scuppered by an institution more concerned with the interests of global capital markets (i.e. the City and Wall St.) than with the interests of the British people, and the need to tackle climate breakdown.

While the Chancellor has her attention focussed on the interests of the domestic economy, the governor of the Bank has his sights fixed on the interests of financiers in global capital markets.

While the Chancellor is elected to serve the interests of labour, the Bank governor serves the interests of wealth.

The answer to this dilemma is straightforward. The Bank has to be re-oriented to serve the interests of those working and living in the domestic economy.

The best way to do that is to restore public, accountable authority over the Bank of England, and over the governors – all civil servants – on its payroll.

We’ve done it before. We can do it again.

It’s the sort of challenge a strong woman confident enough to live with Churchill’s urinal, could rise to.