This is the fourth in a series of essays from the Rt Hon Kit Malthouse MP on how to fix the British economy. You can read the other instalments in the series here:
- Growth is the Child of Capital
- Ownership and Nationhood: The Fight for Economic Belonging
- We need a competition revolution – here’s how we do it
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The Unchecked and the Unaccountable: Seizing the Economic Levers
For years, the economic establishment has insisted that central banks and fiscal watchdogs must operate free from political influence, arguing that these institutions are too complex and delicate to be left to elected representatives. Instead, they have been placed in the hands of unelected technocrats who claim to act in the national interest, insulated from political pressures.
But after more than a decade of failure, this illusion must be challenged. The past 15 years have shown that those in charge of the most significant economic decisions are neither neutral nor infallible. They have made major miscalculations, failed to foresee crises and allowed economic policy to drift away from the real needs of businesses and households. Worse still, they remain largely beyond meaningful scrutiny, accountable to no one but themselves.
Two institutions stand out as the most glaring examples of this democratic deficit: the Bank of England and the Office for Budget Responsibility. Between them, they exert more control over Britain’s economic direction than any elected government, yet they are rarely questioned by parliament, their leaders seldom held to account for their mistakes.
Economics is not a precise science, but a field shaped by ideology, assumptions and personal beliefs. And yet, the philosophical leanings of those running these institutions are barely examined. This has resulted in policies detached from reality, crafted by a closed circle of career economists who operate in an echo chamber rather than in the real economy.
The Bank of England, granted independence in 1997, was intended to ensure economic stability and manage inflation responsibly. Instead, it has presided over boom-and-bust cycles, soaring inflation and long-term stagnation. It failed to predict or prevent the 2008 financial crisis, doubled down on flawed monetary policies and when inflation finally surged, it was caught entirely off guard.
In response to the crash, the Bank embarked on an unprecedented and reckless experiment in quantitative easing, pumping £895 billion into the economy by 2022. As I have pointed out in my previous essays, rather than stimulating real growth, this tidal wave of easy money inflated asset bubbles, widened the wealth gap and created a world where the rich got richer as real wages stagnated. While financial markets feasted on cheap credit, ordinary people were left to pick up the bill. And for what? Economic dynamism? A manufacturing revival? No. Just a debt-fuelled mirage that has now come crashing down. In the meantime, savers and pensioners were hung out to dry, punished for years by artificially low interest rates.
When inflation finally roared back in the wake of Covid-19 and the energy crisis, the Bank was caught flat-footed. After years of fretting about deflation, it failed to react when prices surged. The result? Inflation hit a 40-year high of over 11% in 2022, hammering businesses and households alike. The Bank’s response? Empty reassurances that inflation was ‘transitory’, an embarrassing misjudgement that cost ordinary people dearly.
But this wasn’t an isolated mistake. The Bank’s economic forecasting has been a catalogue of failures. Time and again, it predicted that inflation would fall, only to be forced into yet another humiliating U-turn. While real-world data screamed danger, the Bank clung to outdated economic models, refusing to acknowledge what was right in front of it. This stubbornness meant rate hikes were delayed, allowing inflation to bed itself deeper into the economy. The cost? Families struggling with rising bills, businesses crushed under spiralling costs and a stagnating economy.
One of the most egregious failures linked to the Bank of England was the Liability-Driven Investment (LDI) scandal, which nearly triggered a financial crisis in 2022. These complex financial instruments, designed to help funds manage risk, instead created a ticking time bomb. When market conditions shifted, pension funds were forced into a fire sale of government bonds, causing a liquidity crisis that required an emergency intervention from the Bank. The irony is staggering: the very institution meant to safeguard financial stability had, after years of flawed policymaking, helped to create one of the biggest market shocks in recent history. The fallout landed squarely on pensioners, businesses, and taxpayers.
Mark Carney’s tenure as Governor of the Bank of England was also marked by a stubborn refusal to acknowledge the risks of inflation and any connection with a surging money supply. For years, he and his successors maintained that inflation was under control, despite clear warning signs that it was not. Instead of addressing the fundamental risks, the Bank relied on the deflationary effects of globalisation, particularly cheap imports from China, and technological advancements that drove down production costs. These factors masked the underlying inflationary pressures, creating an illusion of stability. By the time the reality of rising prices finally became undeniable, the Bank’s complacency had left Britain dangerously exposed. Interest rates had been kept too low for too long, asset bubbles had been allowed to grow unchecked and policymakers were left scrambling when the system they had built began to collapse.
The retreat of the Bank from regional economies has further exacerbated this disconnect. While it still maintains a network of agents, one has to ask who they are really talking to when they get things so consistently wrong. If the Bank’s data and understanding of economic conditions outside London were robust, we would not see this repeated cycle of mistaken forecasts and misjudged policies. All the evidence points to the Bank failing to engage meaningfully with businesses and workers across the country, making it a remote institution that dictates policy from the ivory towers of Threadneedle Street, oblivious to the economic realities on the ground.
Yet despite all these failures, those leading the Bank of England are rarely held to account. The Governor and the Monetary Policy Committee operate with minimal parliamentary oversight, and their assumptions and decision-making frameworks are rarely scrutinised. Who takes them to task when they fail? The answer, too often, is no one.
Alongside the failures of the Bank of England, the Office for Budget Responsibility has entrenched itself as an unelected gatekeeper of fiscal policy, wielding more influence over government spending than many elected officials. Created by George Osborne to provide independent economic forecasts, it has instead become an active participant in shaping government budgets. No major tax cut, investment plan or spending proposal is announced without first being vetted by the OBR. In essence, the Treasury has outsourced its own economic analysis, relying entirely on OBR assessments rather than producing its own forecasts. Ministers are now forced to negotiate behind closed doors, adjusting policies to fit OBR projections before they can be publicly announced.
This is not transparency; it is policymaking by unelected bureaucrats. Instead of simply evaluating government proposals, the OBR now effectively dictates what is and isn’t fiscally acceptable. This process must end. If the OBR is to retain its role, it must do so with full transparency. Its forecasts should be published openly, without behind-the-scenes revisions or pre-publication negotiations. If it has concerns about government policy, it should express them publicly, not act as an unofficial veto power over elected ministers.
The big lesson of the last 15 years should be clear for the Conservative Party: Milton Friedman was right all along. Inflation is always and everywhere a monetary phenomenon, yet successive policymakers have ignored this fundamental truth, embracing interventionist policies that have distorted markets and fuelled economic instability. The reckless expansion of the money supply, unchecked government borrowing and a central bank detached from fiscal realities have combined to create the conditions that Friedman warned against: high inflation, stagnating growth and worsening inequality.
If the Conservative Party is to restore economic stability, it must abandon the failed orthodoxies of Keynesian tinkering and return to monetarism. A Conservative government must restore democratic accountability to monetary and fiscal policy. The Bank of England must be subject to clearer and more stringent oversight by parliament. It should be given precise, detailed targets, including money supply controls to prevent reckless credit expansion. The era of cheap money, artificial stimulus, and central bank overreach must end if Britain is to regain control of its economic future.
The Monetary Policy Committee must also be reformed. Instead of being dominated by academic economists, it should include individuals with direct experience in business and industry, and not just from London and the South East – people who understand how monetary policy affects real-world decisions across the whole of the UK.
Similarly, the OBR’s role must be fundamentally reconsidered. It should be an independent assessor of policy, not an unelected body with de facto control over government decision-making. The Chancellor must be free to present a Budget without needing prior approval from an unaccountable bureaucracy. If the OBR is to exist, its assessments must be fully public, and its influence must be limited to providing analysis, not shaping policy. The back-room deals must stop, and the Treasury must resume its own forecasting.
The next Conservative government must take back control of the levers of economic power. This is not about politicising monetary and fiscal policy; it is about ensuring that those who control interest rates and government spending are accountable to the public. Elected representatives must shape Britain’s economic future, not a self-referential elite of economists and civil servants.
When we return to office, as I outlined in my first three essays, our economic strategy must be radical and speak to the needs and desires of the British people, but it will mean little if Britain’s monetary and fiscal strategy remains in the hands of institutions that have failed repeatedly and demonstrably. Our first priority must be a fundamental rethink of this structure. Anything less would be a dereliction of democracy.
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