Andy Burnham's administration is considering a significant overhaul of the Bank of England's mandate, potentially moving beyond its sole focus on price stability to include economic growth and better coordination with fiscal policy. This shift, championed by key ally Louise Haigh, aims to address the challenges of frequent supply-side shocks, such as those from Covid, the Ukraine war, and the Iran conflict.
Louise Haigh's Proposal for a Broader Mandate
Louise Haigh, who returned to frontline politics as a linchpin of Burnham's operation after resigning as transport secretary in 2024, wrote in May that the 30th anniversary of the Bank's independence is an opportune time to re-examine its mandate. She argued for better coordination and a greater focus on economic growth, moving beyond the singular target of stable prices set by the chancellor.
The Current Framework and Its Criticisms
The Bank's Monetary Policy Committee (MPC), comprising five senior Bank figures and four external members, sets interest rates to achieve price stability, defined as a 2% inflation target. The remit, reaffirmed annually in a letter from the chancellor to Governor Andrew Bailey, already allows for temporary inflation misses to avoid undesirable output volatility. However, critics argue that the current framework leads to higher rates during supply-side shocks, harming growth and investment.
Swati Dhingra, an independent MPC member, noted in a recent speech that leaving the Bank alone to fight inflation shocks results in higher rates, which slow the economy and raise borrowing costs for net-zero investments. Theo Harris of the New Economics Foundation described this as a "doom loop of economic self-harm," where rate hikes cause unemployment and stifle investment, reducing resilience to future shocks.
Proposed Solutions: Coordination and Dual Mandate
Economists propose better coordination between monetary and fiscal policy. A Fabian Society paper suggested a new Treasury-Bank coordinating committee to discuss trade-offs. Co-author Jo Michell, professor of economics at the University of the West of England, said: "The lines are blurred and I think we all really need to grow up and accept that. We’ve got to think of an institutional framework which is viable, isn’t too much of a big jump, doesn’t unsettle the markets – but does allow some form of coordination."
Another proposal is a dual mandate for the Bank, similar to the US Federal Reserve, which considers both inflation and unemployment. A more radical idea from climate economists at the London School of Economics' Grantham Institute is "adaptive inflation targeting," allowing the MPC to temporarily aim at higher inflation during climate-related shocks.
Quantitative Tightening Under Scrutiny
Team Burnham may also urge the Bank to rethink its approach to quantitative tightening (QT)—the gradual sale of £875bn in bonds accumulated during quantitative easing. Critics, including leftwing economists and Reform's Richard Tice, argue that QT costs the Treasury twice: first, the government indemnifies the Bank against losses, adding £6bn to the budget deficit in the current fiscal year according to the Office for Budget Responsibility; second, it drives up borrowing costs by increasing bond sales. Governor Bailey has defended the approach, but it contrasts with the Fed and the European Central Bank. The MPC is due to reconsider the programme in autumn, and a new chancellor could intervene.
Political Implications and Market Reactions
Burnham and his likely chancellor, Shabana Mahmood, would be cautious about compromising Bank independence—a legacy of the New Labour years—or rattling financial markets. However, taking a fresh look at the Bank's role would signal that a Burnham government is prepared to do things differently on economic policy.
