The Bank of England has had to deal with numerous instances where Gordon Brown or one of his advisers undermined its operational independence by getting very close to calling for a specific change to monetary policy. The prime minister, who granted independence to the Bank as chancellor, always made his views known with none-too-subtle references to things like a consensus on the need for a monetary loosening when he wanted lower rates, or the need for “pre-emptive monetary policy” when he wanted rates to go up.
Sometimes an acerbic Mervyn King would slap him or his advisers down, advising “people in sensitive positions that [silence] is not a bad practice”.
What will he make of David Cameron, Conservative leader and likely next prime minister? In his speech to the Conservative Party conference yesterday, he went much further to undermine the Bank of England’s independence than Gordon Brown ever did. This is what he said:
“Our national debt has doubled in the last five years and our annual deficit next year will be over £170 billion.
“That’s twice as big as when we nearly went bankrupt in the 1970s. It is a massive risk to our economy. If we spend more than we earn, we have to get the money from somewhere.
“Right now, the Government is simply printing it. Sometime soon that will have to stop, because in the end, printing money leads to inflation. Then the Government will have to borrow it.”
Not only does Mr Cameron misunderstand who is doing the “money printing” or quantitative easing (it is the Bank which takes the decision indemnified by a government guarantee) but he has made the most direct assault on Bank independence I have come across ever since the Conservatives dropped their opposition many years ago.
So it’s over to you, Mr King. I expect a sharp slap on the Mr Cameron’s wrist. Has the governor got the guts? I am waiting for a call from the Bank.