A FORMER senior Bank of England employee who had also served on its Monetary Policy Committee, which is the body that sets interest rates, has claimed in the last week that the bank has a moral duty to impose a recession on the UK so that inflation can be beaten.

Economists are not, as a profession, especially noted for their warm-heated empathy, but this was a quite extraordinary claim for three reasons. The first is that the only weapon that the Bank of England has to create a recession is changing the base interest rate, which is then used to establish the interest rates charged in the rest of the economy.

Creating a recession will require a significant increase in interest rates in the UK. That will crush new investment in the economy, threatening jobs. It will also significantly increase the household living costs of borrowers, who are almost by definition amongst the less well off in society. And third, it will of course make the best off better off as their investments will earn more. Any recession now will massively increase inequality in society. There is nothing moral about that.

Secondly, the policy will not work. You only crush the incomes of people by increasing the cost of their borrowing if they have an excess of money to spend in the first place. However, as is widely acknowledged, those who are likely to be borrowing tend to be those on lower incomes. They are also the people now facing a cost of living crisis in the UK. Those who this policy attacks don’t have the income to survive that attack. That means the policy is deeply immoral.

The National:

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The other reason for saying this policy will not work is that a policy of interest rate increases assumes that if inflation is due to cost increases then the cost in question that is increasing is likely to be wages. The policy of increasing interest rates is intended to persuade those demanding wage increases not to do so, but to accept that they must constrain those wage demands to keep inflation under control.

This, though, is an inappropriate assumption in this case. Costs have increased, but the costs in question are not wages. The costs that have increased are energy, which mainly comes from outside the UK. Or it is food, again mainly bought from outside the UK. Or they are goods from outside the UK where supply chains have been disrupted by Brexit, Covid and war. In that case none of the suppliers of those goods whose prices have increased will in any way be influenced in their pricing decisions by a change in interest rates decided upon by the Bank of England. So those living off wages crushed by this policy will be faced by cost increases wholly unaffected by it. There is nothing moral about that.

Thirdly, it is extraordinary that anyone associated with the Bank of England can think there is anything remotely moral about creating a recession when millions of people are already facing real poverty. If a banker thinks that pushing a pensioner into a situation where they have to choose between the risk of dying from cold or hunger is moral they have lost touch with ethics, and reality.

No-one disputes that we face economic difficulties at present. But anyone who thinks that problem is best addressed by punishing those already least well off whilst rewarding those most well off is promoting an economic policy that looks as if it was designed as an instrument of old-fashioned class warfare. When that policy also cannot work it looks as if it is about something worse than that: it is instead about deliberately crushing people.

If this is the politics London wants to impose on the UK there is one lesson for Scotland. It is that it has to quit the Union and build a country where people and not finance is at the core of every politician’s concern. Nothing else will do in the face of policy demands as unreasonable as this.