The Bank of England has been operationally independent since Gordon Brown's 1997 reform. For a quarter-century, the arrangement was unremarkable: rates stayed below 1% for 13 years, and the Monetary Policy Committee's eight annual decisions barely registered with the public. That era is over. With rates stuck at 3.75% and predicted to rise again, every MPC announcement now lands directly on mortgage holders, jobseekers, and businesses. The Treasury select committee has launched a formal inquiry into whether the framework remains fit for purpose. The case for the status quo rests on the claim that independence depoliticised monetary policy and helped deliver low inflation after 1997. But the counter-evidence is accumulating: UK inflation averaged 2.5% post-independence versus 7.3% before, yet France, Germany, and the Netherlands achieved similar restraint without the same institutional design. During the 2022 crisis, the UK posted the highest inflation in the G7 — 11.1% — and has generally fared worse than European peers over the past five years. Three progressive economists — Costas Lapavitsas, James Meadway, and Ann Pettifor — have laid out overlapping critiques. Lapavitsas argues the Bank serves the City: £895bn in QE between 2009 and 2021 inflated asset prices while productive investment stagnated, and the subsequent bond-selling programme at a loss has funnelled more than £36bn from the Treasury to commercial banks. Meadway contends that post-1997 low inflation owed more to China's industrialisation keeping goods prices low than to central banker wisdom, and that climate and geopolitical shocks now demand coordinated fiscal-monetary responses, not institutional separation. Pettifor notes the Bank is already nationalised with government-appointed leadership, yet operates at cross-purposes with fiscal policy — Britain's fiscal and monetary institutions are, she says, at war with each other. The structural extraction is clear in the numbers. The Bank's QE programme created £895bn, much of which ended up as commercial bank reserves earning interest at elevated rates. When the Bank now sells those bonds at prices well below purchase — because rising rates cut bond values — the Treasury's guarantee kicks in. In 2024-25, that meant £36bn flowing from taxpayers to cover the gap, even as Starmer's government imposed tight spending budgets. The mechanism is a quiet fiscal transfer from households to the financial sector, laundered through operational independence. The reformers' proposals converge on a few structural changes: end the Bank's bond-selling programme that generates taxpayer losses; subordinate rate-setting to a broader mandate including full employment and climate considerations; establish coordinated fiscal-monetary policy rather than institutional separation; and create new institutions — Lapavitsas proposes a public investment bank, Pettifor an Inflation Control Office modelled on France — to direct credit toward productive investment rather than speculation. The defenders will argue that politicising rate decisions invites short-termism and inflation. That is a real risk. But the current arrangement has its own pathology: an institution that raised rates 14 times in response to inflation driven by energy prices and supply chains — factors Bank ratesetter Swathi Dingra herself admits are 'beyond the reach of monetary authorities' — while taxpayers absorb billions in QE losses. The question is not whether independence was a good idea in 1997, but whether the 2025 economy — facing climate shocks, geopolitical disruption, and chronic underinvestment — is served by an institutional design built for a different world. The IMF predicts the UK is on course for its worst decade since the 1920s. The private sector is too risk-averse to invest in a weakened economy, and the government is effectively constrained by both fiscal rules and the Bank's independence. Whether the Treasury committee inquiry produces reform or merely ventilation will depend on whether politicians are willing to absorb the market credibility risk of touching the arrangement — or whether they decide the credibility risk of not touching it is now greater.
