Why I'm so annoyed by unaccountable, out-of-control central bankers

Perhaps I should be clear. I am sure that it is possible to have socially motivated, empathic and even compassionate central bankers who have some comprehension of fairness, and even justice. The trouble is that it seems that they are in short supply. So, in that case the central bankers we’ve got are on my list of those who supposedly serve society by managing the economy and who deeply annoy me right now.

I should explain myself. What we learned from the Bank of England’s latest Fiscal Stability Report, which was published this week, were three things.

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The first is that the UK’s banks are in rude good health. This should be no surprise to anyone. They are literally coining it in right now with extra income from mortgage borrowers, others who are in hock to them and our government, which is paying them more than £40bn extra a year in interest that they have done literally nothing to earn. Of course the banks are in good health.

Then we learned that smaller companies, in particular, are struggling to pay those extra loan interest charges to our banks. Recession and rising unemployment looks likely as a result.

Last, and most especially galling, is the data on additional mortgage costs that some, but by no means all people, with mortgage loans in this country will be paying soon.

The headline figures are staggering. One million UK households, some of whom are bound to be in Scotland, are likely to be paying more than £500 extra on their mortgages each month by 2026. About half of all people with mortgages will be paying more by then. So too will most people in private rented accommodation, where the outlook looks to be bleak. But the bank says all these people can afford these costs because the overall cost of mortgages and debt within the economy are lower than they used to be.

Why?

They come up with this absurd claim by ignoring some basic facts. The first is that coming on for 10% fewer people have mortgage loans now then before 2008 because affording a property is moving beyond the reach of many people.

Then they ignore the fact that around half of all owner-occupied households in the UK do not have a mortgage. They do, however, include all these households in their debt affordability calculation, ignoring the fact that of course all of them can afford their mortgages because they do not have one.

Third, they also ignore the impact of student debt when calculating debt ratios. Scotland is lucky in avoiding the worst of this issue. In the rest of the UK those most likely to have mortgages also pay the 10% extra tax that student loan repayment now requires. Pretending that is not an issue is absurd.

But most of all the Bank of England ignores the sheer randomness of the imposition of the additional interest charges that some households are now going to have to pay. In an era when most mortgages are fixed rate for fixed periods whether or not you have to pay additional interest depends very largely on the chance timing of a person’s mortgage renewal date. It is just bad luck if that happens to be now.

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The Adam Smith connection

The world’s first recognised economist was Scot, Adam Smith, a long-term resident of both Kirkcaldy and Edinburgh, with the odd stint in Glasgow along the way. Much of what he wrote now belongs in the 18th century, when he penned it. However, what he said on taxes are relevant in the context of these mortgage interest rate rises.

Smith said that taxes should have four characteristics. These were that they should be fair, certain, convenient and efficient. Given that the current interest rate rises are being imposed as an additional charge by a government and so are akin to a tax I would argue that they totally fail Smith’s tests.

It is blatantly unfair that mortgage holders should bear the brunt of the government’s anti-inflation policy, leaving large parts of the (wealthier) population untouched.

It is even more unfair that it is random chance that determines which mortgage account holders suffers most when others do not at all.

There is, then, nothing certain about this charge. It is even being imposed at the whim of an unelected committee.

Nor is there anything efficient about this gross unfairness. There is significant dispute as to whether these interest rate rises have any impact at all on inflation. In that case the last thing that they are is efficient.

So who does it work for?

The only convenience about this injustice is that it lets the government blame the Bank of England for imposing it.

Which leaves us with just two certain things. One of them is that some will suffer disproportionately. The other is that the Bank of England will cry crocodile tears for them.

Let me be clear that we need central bankers. Someone has to manage the Government’s banking, be the banker to banks and also regulate the banking sector.

But what an independent Scotland will never need are unaccountable and out of control central bankers who are able to impose untold and randomly charged misery on some households in pursuit of their unproven and wholly dogmatic economic theories, which is what England is doing right now. Why in earth is Scotland putting up with this?