Reform UK MP Proposes Ban on Quantitative Easing, Sparking Debate on Economic Policy

Reform UK MP Proposes Ban on Quantitative Easing

Reform UK Member of Parliament Rupert Lowe is introducing a draft law this week to prevent the government from printing "billions and billions" of pounds to bail itself out. Lowe, the former chairman of Southampton Football Club, aims to combat "dishonesty on an industrial scale" by banning "quantitative easing" (QE). This measure, implemented by the Bank of England in the wake of the global financial crisis, involved purchasing nearly £900 billion worth of bonds.

Lowe argues for greater accountability of the state to the people, similar to the accountability citizens have towards the state. He highlights the vast sums printed during the COVID-19 pandemic to fund unsustainable policies and emphasizes the need for the state to live within its means, just as individuals are expected to do. He believes QE is the root cause of many problems, enabling "dishonesty on an industrial scale." He advocates for the state to spend only what it earns, rather than printing money to bail itself out.

The Bank of England began using QE in March 2009 in response to the financial crisis. Critics warn that flooding the market with cash can inflate prices, encourage reckless financial behavior, and depreciate the currency, leading to higher costs for importers and consumers. The Bank of England maintains that QE aims to increase bond prices and "bring down long-term interest rates."

Economist Shanker Singham expresses sympathy for efforts to control the fiscal market distortions caused by money printing. However, he questions the effectiveness of banning QE without addressing underlying fiscal issues. He suggests ensuring that all regulators consider the impact of market distortions before taking action, allowing for QE in genuine emergencies where the consequences of inaction would be catastrophic.

Julian Jessop of the Institute of Economic Affairs also expresses caution regarding a ban. He acknowledges the downsides of QE but recognizes its potential usefulness in supporting the economy when interest rates cannot be lowered further. He believes an outright ban would be disproportionate.