This is an approximate transcript of the second meeting of the Progressive Economics Working Group, held in Parliament on 10 February 2026 to launch a new report on Rewiring for Success: Reconfiguring our key Institutions to enable National Renewal.

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Introduction by Neil Duncan-Jordan MP

Good afternoon and thank you for coming to today’s event: the second meeting of the Working Group on Progressive Economics. This group is important because, of course, if we do not deliver economic renewal, we will not see any of the national renewal we were elected to deliver. And right now, it looks as if we are not on track to turbo-charge the economy in the way that is desperately needed.

This is a big and complex subject, and it can seem extremely technical, so I felt we needed to give MPs and Peers a regular opportunity to explore these issues in a round-table setting with experts who have worked in and researched the field and who can help parliamentarians with the difficult challenge of distinguishing fact from rhetoric in discussions about the economy.

Welcome to the Working Group!

At the last session, we discussed the current set of fiscal rules, and whether they were compatible with the national renewal we were elected to deliver. We concluded that they were not – and can never be. That was a very important discussion, which we cannot completely revisit today, but I have a few copies of the working paper from that last session, if anyone needs them.

But if we get rid of the fiscal rules, we need to be clear how we will aim to run the economy – and that means taking responsibility in a way the government has not done for decades. So this session is about Rewiring for Success: How We Should Reconfigure Our Key Institutions to Enable National Renewal.

I am delighted that we have such a strong expert panel with us today to help us explore this question.

Many of you will know Ann Pettifor. Ann is Director of PRIME (Policy Research in Macro-Economics) and was one of the few economists who predicted the global financial crisis. Ann is perhaps best known for her work on The Green New Deal. She wrote the book, The Case for the Green New Deal in 2019. Ann’s new book is just out: The Global Casino.

Chris Banks is an accountant by background and has been – among other things – Chief Executive of the Northwest Anglia NHS Foundation Trust, Chief Executive of NHS Cambridgeshire and Chief Executive of Tower Hamlets GP care group. He has 30 years’ experience of financial management in the public sector.

Vince Gomez is a former bond trader and a member of the Bank of England’s citizen forum. Vince had a very successful career in the city—and when the Global Financial Crisis struck, he realised that it was not only economists who had failed to predict it: hardly anyone in the City fully understood what had just happened either. Since then, Vince has been assiduously studying, speaking and writing about the myths we all believed about the economy, and specifically about money. An informed bond-market perspective will be vital for today’s discussion.

Mark E Thomas is the Founder of the 99% Organisation, His background is mathematics and business strategy. His book 99%: Mass Impoverishment and How We Can End It was one of the FT’s Best Books of 2019, and he is also the lead author of the working paper.

The bulk of today’s session will consist of an opportunity for you to ask questions of the expert panel, but before that I will ask Mark to give you a quick summary of the working paper.

Summary of the Working Paper

Thank you very much Neil, and good afternoon, everybody. Thank you for coming.

As Neil said, I’m going to give a quick introduction to the topic to set the scene for our roundtable discussion with the expert panel.

I’m going to look at 3 questions:

1. What is the risk of not rewiring?
2. Which institutions must we rewire, and how?
3. What practical steps can we take now?

So let’s start by thinking about what will happen if we don’t rewire.

What will happen if we don’t rewire?

This chart shows that our economy has, for at least the last quarter of a century, been decreasingly able to bounce back from shocks. And unfortunately, shocks appear to be becoming more rather than less frequent.

After the early 1990s recession –  which was quite serious – the economy regained its previous growth rate and by the time the dot.com bubble burst, we were quite close to the previous trajectory. The bursting of the dot.com bubble did not itself cause a recession, but it caused our growth rate to decline so that by the time of the Global Financial Crisis, we were already far below our previous trajectory.

And, thanks in large measure to the policy of austerity, we did not bounce back from the Global Financial Crisis, and we grew further and further away from our previous trajectory.

Then 2020 brought the twin shocks of Brexit implementation and the pandemic. Once the initial recovery had happened, our trajectory has been almost flat. Our per capita GDP is around £37,000 – it should be over £60,000. Imagine how much difference that could make.

But perhaps the past is no guide to the future. Perhaps we have turned the corner and should expect far more robust economic growth from now on? Not according to the International Monetary Fund. Their latest forecasts suggest we are on track for the 2020s to be the worst decade since the 1920s –  the worst for a century.

Looking at this longer-term picture shows a stark contrast between how well we used to be able to manage our economy in the post war period and how well we can manage it today.

Over the more recent period, our economic institutions – the Treasury, the Bank of England, the Office for Budget Responsibility – have all become increasingly powerful, and all other departments – and our elected politicians – have become less powerful.

If we measure the performance of these economic institutions by the performance of our economy, we have to conclude that they are failing institutions. And how else should we measure them?

When we look at their remits and beliefs, we can see that their behaviour is almost guaranteed to be harmful to the economy.

This weekend’s FT ran an article headlined, “Starmer allies in economy warning” saying that if Starmer is pushed aside, we risk a Liz Truss style crisis. They are right but not for the reasons they claim. If we do nothing, leaving the institutions with their existing remits, we risk any progressive move experiencing a ‘Liz Truss-style crisis.’

To see how this could happen, consider this hypothetical scenario: the government wants to engineer a green transition involving the large-scale thermal insulation of Britain’s leaky houses. They ear-mark a considerable sum to drive a boost for the economy, a reduction in household bills and a reduction in the UK’s carbon emissions. A simple, powerful idea.

But now let us consider the potential impact of the UK’s institutions on this plan. A far more complex picture emerges.

In this scenario:

• HMT shapes the stimulus, ensuring that it is not for government to act on the supply-side – that is to be left to the market;
• The stimulus does drive demand, initially up to the level of capacity – which means that businesses happily meet that demand – and then beyond existing capacity. CEOs will hire already-skilled people for demand they can see, but after 16 years of false dawns, will be reluctant to make a major investment in training and developing new capacity for the future. They raise prices while they wait to be convinced that the demand will be sustained;
• The Home Office does not allow immigration of ‘semi-skilled’ people, only those whose salary exceeds the threshold;
• So inflation takes hold, and the BoE raises interest rates;
• The OBR notes the combination of higher stimulus spending and higher interest rates and warns of ‘serious risks’ to the nation’s debt sustainability;
• The media react hysterically, talking of the government ‘bankrupting the country’ and ‘economic Armageddon.’

If the scenario plays out this way, the government will, at best, suffer a huge loss of public confidence and at worst be forced to abandon its plan for green transition before it has made a significant impact.

On the face of it, that does not sound like what happened to Liz Truss. But that is largely because the usual version of those events is highly distorted.

The accepted story is simple: Truss ignored the advice she received from HM Treasury, ignored the OBR and the Bank of England and, most importantly, proceeded to borrow too much, too quickly. The credibility of the UK as a borrower was damaged by this and the bond markets took fright and moved against both bonds and sterling – and an inevitable crisis ensued.

If that story were true, there would be evidence in the data. We would see that when borrowing rises, bond ratings decline and the cost of borrowing rises. We would see that a very rapid increase in debt causes an immediate crisis in the bond markets. We would see in other words that if British politicians borrow too quickly, they are punished by the markets.

Instead, this is what we see.

The red line is the ratio of Debt:GDP – the thing which is supposed to drive the market reaction. It starts to rise sharply after the Global Financial Crisis, so we should expect to see the blue line (the interest rate demanded by the market for holding government bonds) rise with it. We do not see that: we see it fall. Even when the bond rating agencies started to reduce the UK’s rating from triple-A to lower  levels, we saw the yield continue to fall.

And in 2020, when Debt:GDP was already at around 80% and the government suddenly found that it needed to find an additional £70 billion to fund the COVID furlough scheme – money it had previously insisted it did not have – and debt shot up to over 100%, bond rates still did not even reach 2%.

This is because the government made good use of its institutions – the UK became the first country in the world to use direct monetary financing to pay for the spending. In this case, the Treasury instructed the Bank of England (BoE) to create the money, and the Debt Management Office turned it into bonds which the BoE then purchased directly without troubling the bond markets at all.

But when Truss launched her Budget, without getting the institutions on board, we were in an inflationary environment. The BoE had already started to raise interest rates. And so when Truss’s inflationary Budget came out, with no institutional support, we finally saw a rapid rise in bond rates. After just a few days, this began to cause dangerous problems in the pensions industry and the Bank of England stepped in. As soon as they did that, bond rates stabilised, and with the BoE now backing gilts and a reversal of the Budget provisions, the problems started to subside.

The data above flatly contradict the conventional story of Truss’s failure. Failure to control the BoE and ensure its backing, not excessive borrowing, was the fatal flaw in Truss’s approach. As the former President of the Federal Reserve Bank of Minneapolis wrote, “Markets didn’t oust Truss; the Bank of England did.”

There is a vitally important lesson for the UK government in the Truss debacle, but it is about inflation and coordination of the UK’s institutions, not about the pace and scale of borrowing.

So that is the lesson we should learn: if we do not rewire, then any attempt at national renewal would be at risk of recreating the Truss experience.

So, how should we rewire these institutions?

The first step is to get rid of the idea that we should constrain government spending by static fiscal rules, which cannot possibly adjust to meet our real-world challenges. That is a huge subject on its own, which we covered in our previous session – but if anyone wants more detail, we have a few copies of that working paper, too. In brief the argument is simple: that kind of fiscal rule has not worked, and never will work.

The horizontal axis shows gross debt:GDP. Generally speaking we would be happier to see that declining over time. The vertical axis shows real per capita GDP – the size of the economy adjusted for inflation and population growth. We would want to see that growing over time. So, ideally, we would see the line moving diagonally upwards from the bottom right.

The line is colour-coded to show the period before we had fiscal rules and the period since.

As you can see, in the period before we had fiscal rules (1945-97), the line was moving in the right direction: debt to GDP was falling, and real per capita GDP rose from around £6,000 to around £26,000. More than a four-fold increase. Not bad. The first set of fiscal rules also saw acceptable performance up until the Global Financial Crisis. But they would clearly not work now.

And every subsequent set of fiscal rules – and we are now on the 10th set – has corresponded with very poor performance.

The rules have not prevented debt:GDP from rising significantly; they have corresponded with almost zero growth. They have failed on their own terms. And they have not been immutable. There is no evidence in our history to support this kind of fiscal rule.

And the OBR has not helped. Even on their own terms – reducing debt:GDP – they have failed.

So we need a different framework for thinking about government spending.

The government has repeatedly promised to deliver national renewal – and the need for it to do so is clear. A responsible government must deliver on that promise, and that means addressing three dimensions of responsibility which are largely unaddressed today:

1. Economic responsibility – has the government taken the steps necessary to create robust, sustainable economic growth? For the last 40 years, the answer to that question has been ‘no’;

2. Social responsibility – has the government provided the services and support a wealthy, civilised society should expect? Since 2010, the answer has been, ‘decreasingly’; and

3. Financial responsibility – have we met the private sector’s need for risk-free savings? In general, the answer has been ‘yes’.

So that new definition of responsibility would transform the role of the OBR to being helpful to economic renewal, rather than an obstacle.

But success needs a strategy, so we need a more radical rewiring.

The first change is the creation of a Department for National Strategy. China and Singapore have created long-term plans for their countries, using a range of systems thinking and other techniques to assess the trade-offs involved. They have been remarkably successful in achieving their aims. And virtually every significant business has a strategy department for the same purpose. The UK, however, does not have a department with the attitudes, instincts, and skills to produce such a plan. The result is a lack of joined-up thinking and a naïve reliance on ‘the magic of markets’ to solve every problem.

As the Institute for Government put it:

“An imbalance of power at the centre, due to No.10’s comparative lack of firepower and ability to drive strategy, allows a dominant Treasury to fill the vacuum and take ‘ownership’ of whole-government strategy. This leads to bad outcomes in policy and spending, with Treasury spending staff too inexperienced and unable to draw on adequate expertise to make the spending decisions asked of them.”  

The need for more strategic thinking is clear.

But, as a saying attributed to Sun-Tzu points out, “Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.” If we don’t want to take the slowest route to victory,  there also needs to be a powerful Department capable of ensuring that the tactics are consistent with the strategy: i.e. that the national strategy is translated into operational plans, that these plans are resourced and coordinated and that they deliver. That would be an expanded role for the Cabinet Office, working with the other Departments of state.

The role of HM Treasury would be reduced to those areas where it can make a major positive contribution: revenue maximisation and ‘leakage’ prevention.

And the Bank of England would lose its inflation remit to a new body, the Inflation Control Office which would have a full range of inflation control tools: not only interest rates (which place the burden of inflation reduction on those least able to bear it) but also taxes, price controls and, in extremis, rationing. It would also recognise that while inflation is undesirable, often the cure can be worse than the disease.

The OBR, in contrast, would see its remit expand beyond debt to consider all aspects of responsibility. If it sees that the government is moving towards failure on any important dimension, it should call it out. And, if the warning is found to be correct, the strategy should be modified.

Finally, we need proper regulation of our major industries. Currently everything from Energy and Water to the Press is regulated in ways which satisfy the shareholders of the companies involved but do not meet the needs of the British people. A new and powerful Office of Regulation should ensure that regulators are protected from capture by those they should be regulating.

By focussing the Treasury on its core area of expertise, financial control, there would be enormous potential gains to the Exchequer. And it would be possible to measure the success of the Treasury in achieving control over leakage from the public purse.

They could not realistically get all of the  roughly £250 billion that is leaking out today, but they could certainly be expected to deliver many £10 billions – that alone would be a major contribution to national renewal.

A serious rewiring of our economic institutions is overdue.

What can we do today?

All of that sounds like a huge task – and it is. Rebuilding the capabilities for progressive government could not be done overnight.

But some things could be:

• The Bank of England’s remit could be tweaked so that when it knows that raising interest rates would be harmful, it can say so and decline to do so. The Governor told MPs in 2022, “It’s a very, very difficult place to be. To forecast 10 per cent inflation and to say there isn’t a lot we can do about it is an extremely difficult place to be.” He nevertheless felt obliged to raise rates. A new remit would enable him to make a rational recommendation to the Chancellor in such circumstances. Had he done so in 2022, the economy today would be far stronger;
• The OBR could start tomorrow to work with a progressive definition of responsibility as we set out;
• And the Treasury could be instructed to use its powers to control interest rates and to cancel our so-called debt to the Bank of England immediately.

So there is an enormous upside from starting the process immediately.

This is clearly a time when politics can change fast. A moment when things could pivot, if we make them. And, looking back at some of the data we started with, we have to ask, “how much more evidence do we want to see before we act?”

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This blog was first posted by the 99% Organisation.

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