In a striking interpretation of recent British economic policy, financial consultant Bob Lyddon claims that from 2010 to 2024, the UK had a Labour-style government in all but name – the Bank of England.
Lyddon argues that the Bank exploited its independence to expand its influence over economic policy, relegating elected Conservative governments to mere administrators of tax policy.
This sidelining, he suggests, left the government working within strict parameters set by the Bank and overseen by a team of economic watchdogs.
While Conservative ministers may have been in power, it was, in Lyddon’s view, the Bank that pulled the strings, enabled by its partnership with the Office for Budget Responsibility (OBR), the Office for National Statistics, and the National Audit Office. Together, he asserts, these institutions served as referees, swiftly “disallowing any government measures that were not onside.” This close control, Lyddon contends, allowed the Bank’s financial policies to dominate, effectively rendering Conservative principles secondary.
Economic Controls That Stifled Conservative Fiscal Policy
According to Lyddon, it is absurd that successive Tory leaders — apart from the short-lived tenure of Truss and Kwarteng — allowed this imbalance to continue, thereby diluting Conservative principles that had won four elections. “These prime ministers and chancellors have acted as a John the Baptist to Reeves and co,” he says, referring to Shadow Chancellor Rachel Reeves and her fiscal agenda, which is set to be unveiled on Wednesday. He foresees it as a “Sunak/Hunt budget on steroids,” with echoes of the financial measures that marked Rishi Sunak’s and Jeremy Hunt’s tenures.
Lyddon notes that this fiscal regime forced Conservative chancellors to focus on taxing wealth derived from Bank-driven inflationary policies. He highlights taxes on second homes, buy-to-let properties, and capital gains as examples of the government’s limited room for manoeuvre. Instead of genuine tax reform or innovation, he suggests, these chancellors were boxed in, forced to tax what he sees as “aberrations caused by the Bank’s policies.”
The Bank of England’s Policy Failures and Systemic Events
The Bank’s loose monetary policies, characterised by low interest rates and bond-buying that flooded the market with liquidity, resulted in the creation of a risky financial instrument known as the Liability-Driven Investment (LDI). Lyddon claims these instruments were intended to stabilise pension funds in a low-interest environment but instead became a ticking time bomb. The LDI strategy, developed as a response to the Bank’s financial environment, was at the epicentre of the 2022 gilts market crash, an event that rattled the foundations of the UK’s financial system.
In Lyddon’s words, the irony is rich: “The regime that was supposed to reduce the risk of a systemic event actually caused one.” Yet, he argues, the Bank and its supporters were able to pin the blame on the Truss government’s “Mini-Budget,” deflecting attention from their own failings. The Bank, he says, “escaped responsibility by using the Mini-Budget as a convenient scapegoat.”
Predictions for Labour’s Upcoming Budget: “Sunak and Hunt’s Budget on Steroids”
Looking ahead to Rachel Reeves’s Budget announcement on Wednesday, Lyddon warns that tax rises targeting everything from capital gains to council tax could be in store. He is particularly sceptical about Labour’s assurances that they have “no plans” to raise council tax, noting that it is ultimately local authorities, not the central government, that set these rates. He suggests that Labour’s budgetary language is cleverly constructed to give the illusion of restraint while allowing councils ample room to raise taxes, especially on second homes.
He also highlights a predicted increase in Employer National Insurance Contributions, a move he argues is well within Labour’s pledge not to tax “working people” — technically, he says, because it’s a tax on employers, not employees. This, according to Lyddon, is yet another example of Labour’s promises being crafted to appear fiscally cautious while quietly setting the stage for broader tax hikes.
“We’re Heading for Financial Turmoil”
Lyddon is clear in his assessment: the UK’s finances are under pressure. “The slightly better GDP growth in Q2 2024 does not reflect a robust economy,” he argues. With rising public sector wages, a struggling retail sector, and the impact of new taxes and policies in sight, he anticipates economic strain. Adding to this, he notes the ongoing burden of pandemic-related debt and commitments to projects like Net Zero that he argues could further weaken the economy.
His final critique strikes at the core of Labour’s economic philosophy, which he sees as more focused on raising revenue than fostering growth. He anticipates that Reeves’s Budget may include measures to redefine the national debt, “as if that on its own makes our national debt more manageable.” According to him, such moves only highlight Labour’s preference for cosmetic fixes over substantive change.
Holding the Conservatives to Account
Despite his sharp criticism of Labour’s plans, Lyddon doesn’t spare the Conservatives. He contends that Tory leadership failed to counterbalance the Bank’s influence effectively and that this has left a “weak, over-taxed, and over-indebted economy.” He asserts that the Conservatives should not shy away from admitting this failure, as denying it would only bolster Labour’s narrative. Rather, he argues, they should focus on countering Labour’s fiscal direction with a coherent, long-term vision that reasserts Conservative values.
A System in Need of Reform
Lyddon’s comments shed light on what he sees as an urgent need for reform. He believes that Conservative policies should be aimed at countering the overreach of the Bank of England and restoring the government’s ability to govern independently of what he describes as the Bank’s “shadow cabinet.” In his view, restoring balance to the UK’s financial governance structure is essential to ensuring a robust, future-proof economy.
For Lyddon, the stakes couldn’t be higher. In his words, “The UK economy is fragile, and Labour’s approach risks pushing it into turmoil.” And as Wednesday’s Budget looms, he is urging Britons to take note: if Labour’s policies mirror what he calls “Sunak and Hunt’s measures on steroids,” the UK may soon face another financial crisis.
You can read Bob Lyddon’s full article in pdf format below:
Bob Lyddon is an Independent financial analyst and a specialist consultant in international banking. Follow Bob Lyddon on Twitter here or find out more about Lyddon Consulting here.
Photo credit: Bank of England. Photo taken by Alex Guibord in London, England, UK. Photo is licensed under the Creative Commons Attribution 2.0 Generic license
