The Labour party has laid out plans to expand the Bank of England’s remit by targeting productivity as well as inflation in a bid to ‘reboot’ the economy.
If the opposition party wins power at the next election it will recommend the central bank takes on the task of hitting a productivity growth target of 3% a year, the most radical change to its remit since former Labour chancellor Gordon Brown made it independent 21 years ago.
Since that first radical shake-up the Bank’s major responsibility has been solely to keep inflation as close to a 2% target as it can but shadow chancellor John McDonnell is to confirm today that Labour now believes it should also be to help ‘rebuild Britain’.
A report commissioned by Labour, will state that the UK is ‘falling behind’ in terms of productivity, and that economic output per hour worked has grown slowly because banks have allowed billions of pounds to be invested in property rather than technology and manufacturing.
Productivity in the UK has grown by just 0.2% a year over the last decade despite unemployment falling to record lows, far lower than the 2% a year seen before the financial crisis, a trend the Bank's governor Mark Carney (pictured) has frequently commented on.
In a speech later today, McDonnell is expected to say that commercial banking and the financial system have prevented investment in growth sectors and hampered productivity in the process.
McDonnell will say the party wants ‘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 purpose,’ McDonnell will say. ‘We need one that helps to deliver enough investment in the high-technology industries and firms so that we can reboot and rebuild Britain.’
In doing so McDonnell would move the UK closer to the US where the Federal Reserve has held a dual remit of increasing employment while ensuring price stability since the Second World War. This was in response to the 1930s Great Depresssion whose severity was induced by the central bank's ineffective response to the recession that started in 1929.