13 October 2026 - 7:00am
If you judge the difficulty of a job by the quantity of advice it receives, Chancellor John Healey is neck and neck with Thomas Tuchel for the toughest gig in Britain. As the Budget approaches, Healey is being inundated with helpful suggestions. From the political advisors and pollsters telling him to focus on the cost of living, to Wes Streeting calling for immediate action to plug the hole in defence spending, or the Institute for Fiscal Studies warning that £35 billion in tax rises or spending cuts are needed to protect departmental budgets, unsolicited advice abounds.
All this speaks to the Budget on 28 October being one of the most precarious in years. The Chancellor must deal with the ongoing fallout of the Iran war and high expectations stoked by a new prime minister. All the while, he is hampered by his predecessor, Rachel Reeves, whose significant tax hikes left little room for easy revenue raisers. This Budget already feels make-or-break for the new government.
One place from which Healey does not need advice, however, is Threadneedle Street. In recent days, Bank of England Governor Andrew Bailey has popped up to say that Government budgets need to be “credible” to win back the confidence of bond markets. Beyond a statement of the obvious, Healey would be well within his rights to tell Bailey to get his own house in order.
It is approaching 30 years since the Bank of England became independent in 1997, and it’s fair to say that its performance since then has been mixed. During this period, inflation has been within target range for around 60% of the time — hardly a stellar track record. Infamously, BoE independence did not provide stability, and low interest rates helped to fuel the financial crisis. Independence also created new complexity in the governance of the banking system, as HM Treasury, the Financial Services Authority and the Bank all thought that someone else was watching the shop.
Supporters will say that higher than expected inflation is not really the Bank’s fault, and that it is instead driven by the financial crisis, Brexit, the pandemic and now war in Ukraine and Iran. There is some truth to this. However, it is also hardly a ringing endorsement of central bank independence to say that it only works when everything else works. What’s more, as Healey knows only too well, it is he, rather than the Bank’s governor, who is held responsible for inflation. Accountability and power are divided, which is never a recipe for success.
Britain has also suffered from a higher level of inflation than its peers because it has deindustrialised, underinvested in critical infrastructure, pursued short-termist energy policies, and allowed its trade to become heavily imbalanced. The Bank of England has no responsibility for these decisions, but that’s the point. Monetary policy, fiscal policy and economic strategy, rather than being independent from one another, have to work together effectively. Simply using interest rates to tame inflation has repeatedly raised the cost of investment for productive firms, hampering their competitiveness and exacerbating the country’s economic problems. The truth is that the Bank of England adds little in a crisis and actively hinders action on a solution.
Bank of England independence was created in an age when policymakers assumed that there would be no more financial instability or great power rivalry, and that it was just a question of tweaking the system every now and again. As Healey looks at his spreadsheets ahead of the Budget, he knows that age has passed. Britain faces overlapping challenges that require coordinated action between the Government, the financial system, business and the public. At present, the Bank of England is adding to the problem rather than helping. The Treasury Select Committee has just begun an inquiry into whether the Bank of England is still fit for purpose. The Chancellor should tell them it is not, and encourage them to be bold in reforming the system.
Andrew O’Brien is the former Director of Policy at the think tank Demos and currently Head of Secretariat of the Independent Commission on Neighbourhoods. He writes in a personal capacity.
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