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Jim O'Neill criticizes the UK government's economic policies

Ex-Treasury minister calls for higher investment and'massive devolution' to reduce interest rates

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Jim O'Neill criticizes the UK government's economic policies

On Monday, a former Conservative Treasury minister spoke out against the government's economic policies. He called the government's interest rate levels "ridiculous" as well as its handling of the Budget "nuts." David Cameron and George Osborne brought Lord Jim O'Neill into government in 2015. He argued that the government should spend more on education, health, and devolution, and that inflationary pressures should be controlled with higher interest rates. O'Neill was a former chief economist at Goldman Sachs and was critical of the government's monetary, fiscal, and economic policies. However, he supported Boris Johnson's Levelling-up whitepaper, calling it "one of most important things to come out government for a long period". O'Neill, however, did not spend much time discussing levelling-up. Instead, he criticized general government economic policies. O'Neill told the Commons Treasury committee that it was a mistake for the Bank of England to not have seen the danger of inflation sooner. He said that the increase in spending after the coronavirus crisis had eased had been "one of our most predictable recoveries". O'Neil stated that he would vote for increasing interest rates and ending quantitative ease during the past year, as the recovery was so strong. He said, "It seems quite obvious that not only the Bank [of England], but also other central banks shouldn't have behaved the way they have in the past two year." O'Neill made it clear in a candid session that he believed the UK's economic policy needed to be rebalanced so government borrowing and public investments were higher, and that additional demand was offset with higher interest rates to control inflation and overall spending. O'Neill stated that he believes the entire framework for inflation targeting is beyond its sell-by date. Instead, he called for "a shift of mindset", much more government investment, and "massive delegation". He asked: "Why is there such confidence in need to reduce the deficit?" "If [government] default went to 100 percent [of national income], it was because we had a proper structural approach towards education spending so that they don't have the severe shortage of people who can do what they should be able to do [coming out of our primary and second schools]. . . It would be a great pleasure to have it."

He also called for a larger deficit and more government investment. O'Neill told MPs that the current interest rates, which reached 0.5 percent last week, were "ridiculous" and that the BoE should aim to have interest rates of 4%. O'Neill said that the government must get out of its prison-like situation and ensure that the trend rate for growth does not continue to fall. O'Neill, a former Treasury minister, also stated that there was a better way of formulating the Budget than to rely solely on the Office for Budget Responsibility to forecast and respond to the deficit with either austerity or spending. He said, "It's an absurd situation where the greatest change in the next Year's Budget outcome simply because three people from the OBR changed the economic forecast." It's totally nuts," O'Neill said. While O'Neill and other economists disagreed on the causes of inflation, they all agreed that more government investment in infrastructure and education would be the best way to increase the UK's underlying productivity growth rate. Roger Bootle, chairman of Capital Economics, stated that the BoE was too slow to address inflation. This is expected to increase to 7% and people will naturally demand pay increases. Jagjit Chadha (director of the National Institute of Economic and Social Research) stated that it was crucial for the BoE to reduce inflation with higher interest rates and not cause a recession. Ann Pettifor (director of Prime Economics) disagreed. She said that high inflation was caused primarily by an increase in fuel, freight and energy prices and that the BoE cannot be held accountable for it.

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