Former Bank official blasts QE as an undemocratic and unfair tax on savers
FORMER Bank of England deputy governor Rachel Lomax hit out at quantitative easing (QE) and the Vickers banking reforms yesterday, calling the asset purchase programme “a stealth tax on savers.”
Speaking at Fathom Consulting’s monetary policy forum, Lomax was joined by another ex-policy maker Andrew Sentance, who warned persistently above-target inflation risked destroying the MPC’s reputation.
He also urged the government to boost economic growth by cutting red tape and reforming taxes and the labour market.
Lomax said QE punishes savers by pushing down interest rates in a way that is “convenient for politicians” but “opaque” and “undemocratic.”
She also argued that cleaning up banks’ balance sheets is a major step which would take the UK economy back toward prosperity. She said banks are “weighed down by impaired debts … whatever Vince Cable, George Osborne or Adam Posen say [about other barriers to lending]”.
The Vickers report and proposed reforms “will impose costs on banks that did not fail, and not sort out those that did,” she said – a critique the Treasury rejected, claiming instead that the government’s plans “give the UK a more stable banking system that removes the implicit taxpayer subsidy” and avoid “harming the ability of UK banks to lend, invest and compete.”
Meanwhile Sentance pointed to raised inflation expectations identified by Bank of England surveys, arguing that the Bank’s credibility risks being undermined by consistent failure to keep inflation on target – credibility which “could be hard to re-establish if it has been eroded”.
Insurer Saga joined the assault on QE, saying it does “dreadful damage” to the incomes of anyone coming up to 65 years old and buying an annuity.