Ex-shadow chancellor and Strictly Come Dancing contestant calls for closer ties between central banks and government

This article is more than 3 years old

This article is more than 3 years old

The Bank of England has become too powerful in the aftermath of the financial crisis and must be reined in, according to the former shadow chancellor Ed Balls.

Balls, one of the masterminds behind the Bank’s independence in 1997, said the issue was “unfinished business” and called for closer ties between Threadneedle Street and government.

The former Labour MP and contestant on this year’s Strictly Come Dancing, said that while the Bank should retain operational independence – setting interest rates and targeting inflation – it should not have to shoulder the entire burden for maintaining Britain’s financial stability.

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Balls told BBC Radio 4’s Today programme: “I think the case for independent central banks is as strong as it’s ever been. At a time of economic uncertainty but also great political risk, we need the [US] Fed and the Bank of England to play these roles. But the reforms we’ve seen over the last few years have hugely concentrated power in central banks. I think it’s unfinished business.”

In the aftermath of the financial crisis the Bank of England was handed more powers by the government, assuming responsibility for financial stability as well as monetary policy.

Balls said that it had left a gap in accountability, and called for a new layer of oversight to be introduced, led by the chancellor.

“What we need is a systemic risk body chaired by the chancellor, which is overseeing the whole system and setting a mandate for the Bank of England and also there if a crisis starts to build, that’s a gap we need to fill,” he added.

He was speaking following the publication of a paper titled Central bank independence revisited, which Balls, as a senior fellow at the John F Kennedy School of Government at Harvard University, co-wrote with James Howat and Anna Stansbury.

The authors write: “In the wake of the financial crisis, central banks accumulated large numbers of new responsibilities, often in an ad hoc way. The old academic assumption that the more independent a central bank is, the better it is, should no longer hold.”

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Balls’s comments come at a time of intense debate about the role of central bankers, both in the UK and the US. Policymakers at the Bank of England and at the US Federal Reserve have come under heavy criticism in recent months for being over-politicised and for keeping interest rates too low for too long.



Theresa May appeared to criticise the Bank when she said savers were being hit by the low interest rate environment, while prominent Tories William Hague and Michael Gove were directly critical of Threadneedle Street and Carney.

In the US, President-elect Donald Trump accused the Fed of being political.

Earlier this week, Carney hit back at accusations by politicians that central bank policies were driving an increase in inequality, telling MPs on the Treasury select committee that it was a “massive blame-deflection exercise”.

The governor has persistently argued that the current ultra-low rate environment is a symptom of the economic backdrop, and not a driver of it.

Balls said it was wrong for central bankers to come under political attack.

“Over the last five years, we have hugely relied on central banks on both sides of the Atlantic to sustain growth, to keep our economies growing, and yet at the same time they’re under big attack. In Congress, the Fed is being heavily criticised,” he said. “We’ve seen not just MPs attacking [the governor] and the Bank of England, but even our prime minister a few weeks ago slapping Mark Carney down. It’s very worrying.”