Quantitative Easing is back on the global economic and political agenda. The growing threat of deflation has meant that Japan has just reintroduced QE, and the European Central Bank has begun its own programme to deal with the serious economic problems of the Eurozone. The UK is also facing economic difficulties, including inadequate tax revenues, a deficit that is perceived as stubbornly high and the spectre of deflation. This means that it is time for political parties to consider the introduction a new, revised QE that would fund infrastructure programmes for this country and that would stimulate the economy, boost employment and tackle climate change.
The Green New Deal group has proposed that what is needed is ‘Green Infrastructure QE’[i]. This would contribute to funding a carefully costed, nationwide programme to make the UK’s 30 million buildings energy efficient, which would dramatically reduce energy bills and fuel poverty whilst cutting greenhouse gas emissions. The programme would also help solve the housing crisis by building highly insulated new homes, predominantly on brown field sites. Finally it would pay for improving regional public transport networks to help revitalise local and regional economies.
This programme would require finance of the order of £50 billion a year over the next ten years. If this seems ambitious, it is important to recall that between 2009 and 2012 the Bank of England e-printed £375 billion of QE, an average of £125 billion per year. This was the equivalent of over £6,000 for every man woman and child in the UK. Yet this huge sum mostly benefitted the banks and investors by inflating house prices, the stock market and commodities. It had very little impact in terms of generating real economic activity on the ground, whereas Green Infrastructure QE is designed to achieve exactly that.
The actual mechanism for making this work would be that the Bank of England would e- print tens of billions of pounds annually and a considerably enlarged Green Investment Bank (GIB) would issue investment bonds that would then be bought by this QE programme and the money used to fund the green infrastructure programme. New energy tight social housing could be paid for by local authorities issuing their own bonds to be purchased by the Bank of England under QE. This money would be used to allow for the roll out of a realistically timed and accurately priced, hence non-inflationary, project across the country.
Such a decade long initiative would provide an increase in job security and local business opportunities which are at present lacking in much of the country. It would contribute to the much needed rebalancing of the economy, since essential infrastructure improvements would take place in every city, town, village and hamlet in the UK. Making this happen on the scale, complexity and timetable required will require the involvement of a wide range of organisations, including national and local government, business and trade unions. It will also be important to involve community groups and activists from the social sector in designing and implementing these schemes. Of course, all major parties agree that more infrastructure, energy efficiency and housing is vital, but all are limited in the scale of their commitments to these investments because of concerns about controlling public debt.
Green Infrastructure QE is economically feasible and would not need to be repaid
Such an approach is technically feasible since Mark Carney, the Governor of the Bank of England is on record as saying that if the government requested it, then the next round of QE could be used to buy assets other than government debt.[ii] Since QE involves the central bank putting new money into circulation by creating e-money and using it to buy assets, this will not increase the UK’s debt levels according to the originator of the term ‘quantitative easing’, Professor Werner, Director of the Centre for Banking, Finance and Sustainable Development at the University of Southampton. He states that since the central bank can simply keep the assets on its balance sheet then there is no need for taxpayers to pay or to expand public debt. The assets should simply stay on the central bank balance sheet.(iii) The fact that this debt, which would be owed by the government to the Bank of England, would not have to be repaid, has also been confirmed by Adair Turner, the former Chairman of the Financial Services Authority.[iv]
The UK Needs Green Infrastructure QE Now
Conventional wisdom has it that the UK economy is doing well enough not to need further QE. But were it designed to enable essential infrastructure improvements across the country, it would have a much needed galvanising effect on the real economy. The increased employment and business opportunities would also match the policy priorities of political parties, the private sector, trade unions, community groups and NGOs. This new QE would help finance the necessary public investment for this approach. It could also provide a financial mechanism to help counter the adverse affects of any serious global economic downturn in the future.
This variant of the Bank of England’s original QE should kick-start the essential transition to a revitalised and greener UK economy and provide a huge stimulus for local economies. Crucially it would increase the tax take because of the number of people it would get back into well-paid employment in the UK. It could, in turn, provide the confidence needed to unlock additional private funding from pension and insurance companies through to individual savers. Taken together, these would provide the scale of long term investment required. Finally, the fact that this approach would benefit every constituency in the country should make it a political imperative for all parties in the run up to next May’s election.
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i The term ‘Green Quantitative Easing’ was first explicitly used in 2010 in http://www.financeforthefuture.com/GreenQuEasing.pdf
This concept of directing quantitative easing to fund the greening of the UK’s infrastructure was included in the Green New Deal Group’s 2013 report ‘A National Plan for the UK’ http://www.greennewdealgroup.org/wp-content/uploads/2013/09/Green-New-Deal-5thAnniversary.pdf and in the new economic foundation’s 2013 report ‘Strategic quantitative easing’ http://b.3cdn.net/nefoundation/e79789e1e31f261e95_ypm6b49z7.pdf
ii ‘Mark Carney boosts green investment hopes’ Financial Times, March 18th, 2014 http://www.ft.com/cms/s/0/812f3388-aeaf-11e3-8e41-00144feab7de.html#axzz30ATJUiZ2
iii https://greennewdealgroup.org/wp-content/uploads/2012/03/Green-QE-report-CBFSD-Policy-News-2012-No-1.pdf
iv http://www.ft.com/cms/s/0/8e3ec518-68cf-11e4-9eeb-00144feabdc0.html#ixzz3IjZNT6bq
