Theresa May’s policies have 'echoes of the 1970s', says former Bank of England deputy Governor

Sir John Gieve was a civil servant under a Labour government in the 1970s, and sees similarities between some policies then and Theresa May's ideas now
Sir John Gieve was a civil servant under a Labour government in the 1970s, and sees similarities between some policies then and Theresa May's ideas now Credit: Chris Ratcliffe/Bloomberg

Theresa May’s industrial strategy has “echoes of the 1970s”, according to Sir John Gieve, the former deputy Governor of the Bank of England.

Britain’s new economic policies are a radical break from recent history and instead look more like Labour policies from the pre-Thatcher era, the former senior policymaker said.

“We’ve got a big shift in the style and nature of government – I thought Teresa May’s speech was quite an exceptional speech,” he said. "It was one of the first speeches I’ve heard from a Tory leader which scarcely made a nod towards lower taxation, a smaller state, deregulation, enterprise, incentives."

Prime Minister Theresa May told the Conservative party conference that she wants workers and customers to be represented on company boards
Prime Minister Theresa May told the Conservative party conference that she wants workers and customers to be represented on company boards Credit: DARREN STAPLES/REUTERS

“It was all about using government to promote social justice, entrenching workers’ rights, and an industrial strategy. There is a big change, not just in our relations with Europe but in the approach of the government towards economic policy.”

“I feel echoes of the 1970s. I was working in the Department of Employment writing papers for a Labour government about appointing worker directors, and I am dusting that down right now,” he said, in reference to Mrs May’s plans to resurrect the idea.

He warned that the combination of ultra-low interest rates and extra government spending is not what the economy needs in the long run – instead, Britain needs to learn to stop borrowing so much.

Speaking at the Lloyds Bank Sterling Conference, Sir John said that the government’s plan to boost the economy with more state spending can only provide a short-term boost, when in fact he believes the economy needs to be restructured.

“We are chronic over-spenders,” he said, noting Britain’s large and sustained current account and budget deficits.

“It does seem slightly odd that if that is our underlying problem and we need to produce more and to live more closely within our means, that our policy response in the short-term has been more borrowing, mega-borrowing.”

Such policies harm savers, prop up borrowers and enable unproductive businesses to stay afloat, providing a short-term balm to the economy but delaying supply-side reforms which will boost longer-term growth.

“At some point we have got to face up to those underlying issues of chronic overspending and very low productivity growth,” said Sir John, who served on the Bank of England’s Monetary Policy Committee from 2006 to 2009.

“The pound falling is extremely helpful on both of those, but classically, when you have a depreciation, to take full advantage of it you need to switch resources out of the domestic sector and into the overseas sector, and that requires some constraint on domestic demand, so that is another reason why you can certainly build an airport or two, but you have got to remember that more borrowing is not what we need in the long-term.”

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