For decades, the Bank of England had been at the heart of many a hard-Left conspiracy theory. Even though it was nationalised in 1946, and it embraced Keynesianism during that movement’s intellectual heyday, socialists saw it as a capitalist conspiracy dedicated to thwarting the Left. The public, meanwhile, was often desperately worried about entrusting sterling and interest rates to the Labour party, especially after the disastrous inflation of the 1970s.

So the decision by Gordon Brown, advised by Ed Balls, to grant the Bank independence over the setting of interest rates immediately after the 1997 general election, albeit within a framework defined by the Chancellor, was a masterstroke. In one fell swoop, the inflation risk premium collapsed and many financial market participants decided that they could live and even happily co-exist with what was then New Labour. They were wrong: Labour also stripped the Bank of its old role as a financial regulator, and the then Chancellor’s decision to order it to focus on a narrow inflation indicator helped fuel a house price, credit and asset bubble. But the public didn’t realise this at the time, and Brown’s decision came to symbolise Tony Blair’s embrace of capitalism with a social democratic hue.

Fast-forward 18 years, and John McDonnell, a radical socialist, has just been appointed by Jeremy Corbyn as his shadow chancellor. This is an extraordinary, appalling decision and one which will pit Labour against business, mainstream economists and ultimately reality.

It is certainly symbolic that McDonnell wants to remove the Bank’s independence: as he wrote three years ago, “in the first week of a Labour government … [we would end] the Bank’s control over interest rates”. In his view, independence has “simply meant democratic government decisions being replaced by the influence of shortsighted bankers” – as if, of course, vote-chasing politicians were not the most short-termist of creatures. All of this fits perfectly with Corbyn’s plan for a people’s quantitative easing: he wants to print money to directly finance infrastructure spending, in violation of the most basic tenets of public prudence. The Government’s budget constraint would be abolished; people’s QE, unlike the real thing, would be irreversible; and Labour would have an incentive to print itself to re-election.

It is hard to see how the Governor and his senior team would be willing to remain in situ: we would suffer a run on the pound, much higher interest rates, wasted expenditure and the destruction of Britain’s reputation for economic competence. As ever, the poor, the aspiring classes and those on fixed incomes would be hurt the most. McDonnell set out many of his views in Another World is Possible – a manifesto for 21st century socialism, published in 2007 by the Labour Representation Committee. I admit, dear reader, that I was previously unaware of the existence of such a magisterial work. But while depressing, the author’s views are far from a joke: he clearly loathes capitalism, and has dedicated his life to fighting for a strange cross of neo-Marxism and anti-consumerist environmentalism.

David Fuller's view

Here is a PDF of The Telegraph article.

This is one of the better serious articles that I have seen to date on the consequences of a Labour Government led by Corbyn.  Fortunately, this will remain a distant prospect, provided the Conservative Government does not alienate swing voters by showing arrogance and distain towards Corbyn and the Labour Party.  

Corbyn does not need to be pushed; he is more than likely to self-destruct if left alone.  Labour’s angst over Corbyn – only 10% of their MPs voted for him – is obvious for all to see. 

Conservatives will stay in government by governing sensibly.  However, schaudenfreuda over Corbyn and Labour’s turmoil would only revive the nasty Tory image and generate sympathy for Labour.