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Thematic note

The critical gaps in the briefs of the OBR and BoE

Hector McNeill1

The recent exchanges between Bank of England representatives and the Treasury Committee contained a good deal of waffle. The BoE attempted to obscure any relationship between its policies and house prices when QE led to a massive speculative flow of funds into real estate as an asset causing significant price rises. Builders skewed builds towards investment properties for high income buyers leading to high prices and rents for houses, not to mention commercial and industrial real estate.

One frustrating sidestep of redirecting serious considerations was the suggestion that some questions relating to the effect of fiscal policies on inflation are a matter for the Office of Budget Responsibility. The assembled MPs meekly accepted this sort of response.

We are dealing with one economy and a significant rise in prices of land, real estate, energy resources and food commodities affecting the real incomes of 25%-30% of the wage-earning constituency.

Occasionally the topic of productivity was raised. This topic, for a country that was one of the first to industrialize should be part of our DNA but approaching 50 years of monetarism these genes appear to have become recessive. As a result a serious consideration of what increases real incomes or purchasing power and reduces unit prices at the corporate level is generally ignored. However, it is exactly this issue which can resolve Britain's economic woes across all sectors.

The critical gap between the brief of both the Bank of England and the Office of Budget and Fiscal Responsibility is a structured consideration of how to raise productivity with the dual aims of:
  • Reducing inflation
  • Stabilizing and raising real incomes
In fact an Office for Productivity and Real Incomes (OPRI) is well overdue. This organization should coordinate the efforts and priorities within the BoE and OBR in order to develop a policy blob able to address the practical issues of our current cost of living crisis and how to establish a future with sustainable real incomes growth.

1  Hector McNeill is director of SEEL-Systems Engineering Economics Lab

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