In its first report of the 2023-24 session, the House of Lords Economic Affairs Committee published a report yesterday titled “Making an independent Bank of England work better”. Interesting, perhaps, but what has that got to do with Cliscep? If you only read the BBC report headed “Bank boss concerned over UK growth outlook” you might still be wondering.

Of course, the BBC likes nothing better than a bad news story about the UK economy, and so it majors on concerns over economic growth, prospects of (relatively) high interest rates for the near future, and problematic inflation. It’s very diligent of the BBC to report on a report in the Newcastle Chronicle following its interview with Andrew Bailey, Governor of the Bank of England, in which he expressed these concerns. The BBC report went on to refer to the House of Lords Economic Committee report referred to above, in which it said (according to the BBC) that “the framework for the Bank’s independence had been tested by the rise in inflation and “the resulting loss of public confidence in the Bank””.

What else did the House of Lords Committee have to say (according to the BBC)?

The report said that a “democratic deficit” had emerged with “critically important” economic decisions being “delegated to unelected officials”. [I agree].

It suggested the Bank’s remit be “pruned”, in order to “ensure that the Bank is focused on its primary objectives of tackling inflation and ensuring financial stability”.

“The Bank must do more to foster a diversity of views and strengthen a culture that encourages challenge,” the report added.

Yes indeed, the Committee did suggest that the Bank’s remit be “pruned”. But it went on to talk about a specific part of the Bank’s remit that it found to be particularly problematic, and which – funnily enough – the BBC decided to gloss over. Or lying by omission, as I prefer to think of it. Let’s take a look, since the BBC chose not to enlighten us.

The report runs to 73 pages, including frontispiece, contents list, a summary of its main conclusions, and seven appendices. Fortunately, then, the meat of the report is fairly short, and quite a lot of that is devoted to being critical of the Bank’s climate change remit. Its summary deals with four main points, and the second is as follows:

Second, witnesses often expressed concern regarding the Bank’s expanding remit, especially with respect to the matters it is expected to have regard to or consider—climate change being the most cited example—to support the Government’s economic policy. We found that this widening of the Bank’s remit risks jeopardising the Bank’s ability to prioritise its primary objectives; risks drawing the Bank into the Government’s wider policy agenda; and increases the potential for conflict between its objectives. We recommend that the Bank’s remit should be pruned by HM Treasury, with a focus on the number of matters it is expected to have regard to and consider. The Bank’s management structure, which has expanded in line with its growing remit, should also be reviewed with a focus on whether it could be made more streamlined.

Interestingly, then, it isn’t simply the House of Lords Committee that is taking issue with the Bank’s climate change remit – rather, this was the example most cited by the witnesses who appeared before the Committee. No wonder the BBC didn’t want to talk about it.

The Committee’s report performs a useful function in explaining the Bank’s remit, duties, obligations etc, and the statutory background against which it performs its functions. At paragraph 67 we learn that the Financial Services Act 2012 established the Prudential Regulation Authority (PRA). At paragraph 68 we are told that the Financial Services and Markets Act 2023 added a new regulatory principle to the PRA’s remit: “the need to contribute towards achieving compliance with Section 1 of the Climate Change Act 2018 (UK net zero emissions target).” So the drive to embed net zero infiltrates all aspects of public life, and is still ongoing, this change having occurred earlier this year.

And in case the Bank of England Governor should be forgetful about climate change and net zero, the Chancellor of the Exchequer will remind him. As we are told at paragraph 69, the Chancellor sends remit and recommendation letters to the Governor for the Bank’s policy committees, and number of matters outlined in these letters has increased over the years. As an example, the FPC remit and recommendations letter of 2022 sets out that the Committee should act with a view to supporting the Government’s strategy for financial services, with particular focus on a range of matters including “Climate change and energy security”.

Paragraph 70 is very specific about how all this is affecting the Bank of England:

The general expansion of the Bank’s remit has included a particular focus on stipulations to support Government policy on climate change. The Bank of England has implemented a range of measures in this regard: from “greening” the corporate bonds purchase scheme (MPC) to incorporating climate-related risk metrics into credit risk methodologies (PRA) and a host of other measures. In 2021, the Bank unveiled its first ever stress test to scrutinise the resilience of Britain’s biggest banks and insurers against climate change risks over the next thirty years (FPC and PRA).

Paragraph 71 reminds us that all this is taking place against an international backdrop:

Central banks around the world are adopting different approaches with regard to climate change and sustainability generally. As of June 2023, the Network for Greening the Financial System—a network of central banks sharing best practice in the development of climate risk management—had 127 members.

Interestingly, even a leading light of the Labour movement, Ed Balls, takes issue with the Bank of England’s climate remit. In his evidence to the Committee he said the Government should be clear that tackling climate change is a matter for the Government and that to “start expecting the Bank to lead on that does not seem, to me, to make any sense.”

He was not alone in expressing that opinion. Professor Malherbe told the Committee that while he thought climate change is “extremely important”, it was hard to consider it a “natural mandate for a central bank.” Professor Goodhart had “considerable doubts about the value or worth of including other objectives, like green, hitting net zero or … inequality.” While he considered these issues important, he was of the view that they should be dealt with by another body and not the Bank of England. Chris Giles said: “This is a government responsibility primarily, and it would be much better for it to stay as such.”

Perhaps inevitably, given the establishment view with regard to climate change, witnesses to the Committee were keen to line up and stress its importance. However, there seemed to be a strong view (albeit with some witnesses dissenting from it) that this isn’t the Bank’s job, and that dumping all this stuff on the Bank has led it to take its eye off the ball, and to prevent it from doing the day job properly (I paraphrase).

For example (paragraph 76):

Although he was supportive of action on climate change and a limited role for the FPC in that regard, Andreas Dombret, former board member at the Deutsche Bundesbank, said that additional objectives make it more difficult for a central bank to pursue its price stability mandate. Sir Paul Tucker argued that when “senior staffers and senior policymakers are making speeches about other things there is a significant opportunity cost” and Sir John Vickers argued that it “dilutes the sense that they are focused on inflation control.”

Witnesses were also concerned about the implications for the Bank’s independence. Stephen D King told the Committee that “giving the central bank more objectives, when it is supposed to be independent, forces it to make changes or decisions that expose it to understandably greater political and media interest.” When asked whether the Bank of England was being politicised in such a way, Roger Bootle said: “I think the short answer is yes. I would argue that, although the various [secondary objectives] referred to are worthy objectives, most of them are better catered for by government”.

Even the Bank of England Governor conceded that secondary objectives are not without cost, saying:

[The growth in the Bank’s remit] certainly creates more work … To take the … PRC—whether it is 31 going to 25 “have regards”, the staff have to spend time on them and we, as policymakers, have to spend time … It makes policy-making more complicated.

Today I received an email from Net Zero Watch (I subscribe to them, and would encourage interested readers to do the same) telling me that Lord Frost has welcomed the Parliamentary report that called for the Bank of England to lose its remit to fight climate change. From this I also learned (which I hadn’t spotted) that last week Chancellor Jeremy Hunt deprioritised global warming in the Bank’s work programme.

For those who hope that Rishi Sunak might be about to see the light regarding the folly of the Government’s net zero policy, it’s worth bearing in mind that (as Net Zero watch tells me) “the climate-change role was added to the Bank’s remit in 2021 by the then Chancellor, Rishi Sunak.”

I thought I’d report in a little more detail regarding the House of Lord’s Committee’s report, since the BBC hasn’t mentioned the parts it doesn’t like. Perhaps overdosing on the COP28 run-up has left it short-staffed?