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Labour says Bank of England remit should expand to target productivity
The Bank of England's remit should be expanded to target productivity growth, the Labour opposition said on Wednesday.
John McDonnell, the shadow chancellor, said the BoE should keep its operational independence but alongside its inflation target, currently 2%, it should set a 3% target for productivity growth.
Labour's plan is based on a report the party commissioned by Graham Turner of GFC Economics to be published on 20 June.
"The report also proposes that a new government should agree an accord with the Bank, showing how each will work towards achieving that productivity target," McDonnell wrote in the Guardian. "And the Bank, they suggest, should be charged with assessing such measures in an annual budget."
McDonnell said changes were needed to deal with the UK's underinvestment in infrastructure, innovation and manufacturing and falling real wages.
The report, Financing Investment, also calls for a strategic investment board, a state fund for science research, using state-controlled Royal Bank of Scotland to lend more to small companies, and moving the BoE to Birmingham.
George Magnus, former UBS chief economist and an associate at Oxford University's China Centre, said the productivity proposal was "madness". "It's not that Birmingham is such a bad idea, but what on earth is the monetary remit over productivity?" he tweeted.
Productivity growth has been persistently poor in the past decade, increasing on average by 0.2% a year. The BoE has blamed weak productivity growth for the UK's reduced "speed limit" which means the economy starts to overheat when growth exceeeds 1.5%.
But Governor Mark Carney has rejected the idea that the BoE should try to deal with problems such as productivity. Last year he said the BoE's job, under current rules, was not to "solve broader societal challenges".