When it comes to finance and monetary policy, the Plaid Cymru manifesto contains some sensible policies – and some less sensible.
Plaid makes a number of suggestions for monetary policy, including Welsh representation on the Monetary Policy Committee (MPC) and giving the Governor a statutory requirement to attend National Assembly for Wales scrutiny meetings. Also, the party seemingly wants to change the Bank of England’s remit by making it “responsible for considering the needs of the whole, wider economy, including regionally-balanced economic growth, unemployment and inflation amongst other indicators,” although precisely how it intends to change the remit is not clear.
A dose of scepticism
One should be sceptical of these proposals. If there is to be Welsh representation on the MPC, there would presumably need to be Northern Irish and Scottish representation as well (and possibly representation of the English regions). The committee might rapidly become too cumbersome. And the monetary policy framework introduced in 1997 has arguably been quite successful, particularly in ensuring a low rate of inflation.
There are undoubtedly changes that need to be made in the light of the financial crisis of 2007-8, but there does not seem to be a consensus on exactly how to change it. One recent CEPR publication contains some useful discussion. But would probably not be a good idea to change the remit of the MPC significantly in the near future; if expectations of a low rate of inflation are jeopardised, this would be quite costly to the economy.
It should also be pointed out that The Bank of England has a Welsh Agency, which reports on business conditions in Wales, so that they can be taken into account in monetary policy decisions. Perhaps a more modest policy suggestion would be to ensure that there is Welsh representation on the Treasury Select Committee, before which the Governor of the Bank of England testifies regularly.
Banking sector reforms
Plaid wants to see “full separation of investment and retail banks”. In this, it seems to go beyond the recommendations of the Vickers Commission, which suggested that banks ring fence their retail banking divisions from their investment banking arms. The government has accepted the main recommendations of the report (including the ring fencing provision) and is implementing them.
The Commission did consider, and reject, the more radical proposal of complete separation. The committee chairman outlined his reasons for preferring ring fencing as opposed to complete separation in his testimony to a parliamentary committee.
Plaid Cymru also intends to “introduce a Financial Transactions Tax”. More details of the proposal are needed in order to evaluate it. The idea of a global tax on currency conversion (the so-called Tobin tax) has been suggested. Although it has its merits, it would require a large amount of international agreement to implement, otherwise it would be easy to evade. It might be worth pursuing such agreements, but it is not something that can be introduced unilaterally.
Access to credit
Plaid also intends to introduce legislation similar to the US Communities Reinvestment Act. The act is intended to ensure that lower and moderate income borrowers, and minorities, have appropriate access to credit. There is some evidence that it has had some effects along these lines. There is a case for seriously considering introducing something similar, although much would depend on the details.
PC has “developed proposals for a business development bank for Wales”, and will “investigate the benefits of creating a Public Bank in Wales”. Plaid Cymru has since confirmed that these are two separate ideas. This is just as well: one might be sceptical of a public bank which lends to businesses, on the basis that it could be open to exploitation for political purposes. Nevertheless the idea of a business development bank is something that deserves serious consideration.
The Conversation’s Manifesto Check deploys academic expertise to scrutinise the parties’ plans.