Quantitative Easing — House of Commons, 2016-09-15
Topic: Macroeconomics
Ian Blackford (Scottish National Party, Centre-left): I find myself agreeing with the right hon. Gentleman. As I said, we all recognise that it was a necessary step to take in 2009. I am really grateful that the Backbench Business Committee has granted this debate, because it is important to reflect on how the monetary policy initiatives that have been taken need to be balanced by other measures to make sure that we can deliver the sustainable economic growth that he mentions. We need a detailed analysis of what has happened to the £445 billion that has been invested in the asset purchase programme. As he says, given the economic circumstances we have no idea at this stage when we are likely to see that begin to unwind. Indeed, it is likely to be some years into the future We need to reflect on the experiences that I have discussed and be prepared to consider what we need to change in both monetary and fiscal policy in order to foster inclusiveness and fairness. We have not created circumstances where there has been a material enhancement to business confidence that has led to an increase in business investment that is necessary to drive up productivity and enhance living standards for society as a whole. Post-Brexit, much is talked about those who have been left behind. In this context, there must be an examination of QE and an assessment of alternative measures both monetary and fiscal. In my opinion, there has been a disconnect between growth in financial assets and growth in the wider economy There is also the issue of the impact on savers of lower interest rates, and the impact on pensions and pension savings. The difficulties experienced by the BHS pension scheme and the desire to change the arrangements for the British Steel pension scheme are just two examples of situations where there are risks to members of defined-benefit pension schemes. Today in the UK, there are about 11 million citizens in about 6,000 defined-benefit pension schemes. Figures that I obtained earlier this year suggested that the then combined deficit in defined-benefit schemes was about £384 billion, with about 600 schemes in a danger zone in terms of meeting their long-term obligations One of the challenges that pension schemes face is the impact of QE particularly with regard to the declining yields on Government gilts. Let me put that into context for the House. A movement in UK gilts of 50 basis points equates to an approximate increase in defined-benefits pension schemes deficit of £120 billion. When we consider that the 10-year Government bond yield was at 3.1% in March 2009 and we are at 0.5% today, we can see the scale of the challenge that pension funds have faced from the decline in yields. We have invested, if I can use that term, £445 billion in driving down yields and creating a pensions black hole, undermining in the process the attractions of savings and, in particular, pensions savings It is not just the impact on future income streams for pension funds, but the effect on declining annuity rates, which is of considerable concern. This effect was identified by the Treasury Committee in a report of 2012 which stated: "Loose monetary policy, achieved through quantitative easing and low interest rates, has redistributional effects, particularly penalising savers, those with ‘draw-down pensions’, and those retiring now." We need to reflect on such statements and consider how to adapt our approach. Standard & Poor’s stated in a report this year that QE has exacerbated wealth inequality.