The Ghosts of Governments Past
The current government’s "rebuild, rebuild, rebuild" campaign feels like a repetition of old ideas rather than a genuine attempt at renewal. As Karl Marx once said, people make history but not in circumstances of their own choosing; they do so haunted by dead ideas, dressing the future in secondhand costume. The Labour party, led by Keir Starmer, seems to be wearing what was fashionable in 1997 and 2010, with Gordon Brown’s technocratic reverence for central bank independence and George Osborne’s devotion to fiscal rectitude.
A Changing World
But we are no longer living in the world those policies were designed for. The global order that sustained Britain’s post-1979 model is cracking. International trade peaked in 2008, and the promise of seamless globalisation has faded. Donald Trump’s rise marked the terminal contradiction of neoliberalism, and Britain, which is dependent on capital inflows, asset bubbles, and open markets, faces a historic reckoning. It needs a new economic settlement, but Starmer and his chancellor, Rachel Reeves, remain stuck in a paradigm whose time has passed.
Fiscal Stance
Take Reeves’s fiscal stance, for example. Despite promises of transformation, departmental budgets will grow more slowly than under the last parliament. This isn’t mere prudence; it’s the codification of a false scarcity, engineered not by inflation or investor panic but by a Treasury framework that treats self-imposed constraints as natural laws. The most telling example is the silent havoc wrought by quantitative tightening (QT). While other G7 central banks tread cautiously, the Bank of England has embarked on the most aggressive QT programme in the developed world.
Quantitative Tightening
To understand what’s going on, you have to go back to the 2010s. When the economy crashed, the Bank of England created money out of thin air to buy government debt, known as quantitative easing (QE). This was done to pump money into the financial system and keep the City running. Now, the Bank is doing the reverse: QT, selling those bonds or letting them mature without replacing them. The goal is to shrink its balance sheet and "undo" QE. The problem is that the Bank is reversing course in a more dramatic way than any other major central bank, resulting in significant losses.
The Cost of QT
These losses are being covered by the Treasury, which means the state is handing over public money to cover bond losses and top up the profits of commercial banks. This is a quiet and alarming transfer of wealth to the financial sector, costing the Treasury around £40 billion per year. This money could have been used to pay for social care reform or scrap the two-child benefit cap. The justification for this policy isn’t even compelling, with the Bank of England governor, Andrew Bailey, claiming it keeps markets "efficient." Efficient for whom? Certainly not for the disabled person reliant on benefits or the underfunded headteacher.
A New Path
The British state is not broke; it is being deliberately starved, not by financial markets but by its own managers. A rerouting of QT cash would go a long way to restoring the state’s capacity to genuinely improve services, undoing some of the pandemic setbacks and austerity-era neglect. It would mark a first step toward coherent fiscal policy and honest political economics. Instead of intervening, Reeves prefers the script of necessary sacrifice, in which there is no money for transforming the public realm but seemingly unlimited room for interest transfers to the banking sector.
Learning from History
The original sin was granting the Bank of England operational independence in 1997. Gordon Brown sacrificed policy control over interest rates to reassure the City that New Labour’s monetary policy would be governed by unaccountable experts rather than political whims. But before New Labour turned central bank independence into holy writ, Tory chancellor Ken Clarke regularly overruled the Bank of England on interest rates. Monetary discretion wasn’t always heresy; it was governance.
Taking Control
The Treasury still indemnifies Bank losses, and the government could pause QT, rework reserve interest payments, or end the indemnity altogether. Other countries do. With a commanding Commons majority, ministers can easily force such a change. The Bank of England may be operationally independent, but ministers can take control of it in "extreme economic circumstances." If £150 billion of Treasury spending to needlessly cover central bank losses doesn’t qualify, what does?
Conclusion
In conclusion, Labour’s refusal to rewrite the rules that make transformation impossible is a form of austerity by amnesia. A government elected to change Britain instead parrots the scripts of decline. The party needs to break free from the ghosts of governments past and forge a new path, one that prioritizes the needs of the people over the interests of the financial sector. By doing so, Labour can create a brighter future for Britain, one that is not haunted by the dead ideas of the past.
