Keep Bank out of politics
THE enduring legacies of Gordon Brown and Ed Balls’ sojourn at the Treasury were the decisions to free the Bank of England from political control and to keep the UK out the euro.
Brown-Balls had the courage to do what a succession of chancellors from Nigel Lawson onwards failed to do and granted it operational independence. Those powers were enhanced after the financial crisis when banking supervision and financial stability were returned to Threadneedle Street.
Theresa may set the dogs of war loose on the Bank and governor mark Carney in her Tory conference speech, a theme embraced by former Foreign Secretary William Hague. He has listed ten reasons why the Bank of England has contaminated the currency and ruined the lives of savers. It is hard to believe that Hague came up with this detailed critique without political prompting.
This is especially the case given Carney’s robust defence of independence. He said at the weekend: ‘We are not going to take instruction on our policies from the political side.’
Hague needs to be put back in his box on two grounds. Firstly, taking the Bank of England out of politics worked with interest rates and setting monetary policy on the basis of economic data rather than seeking to massage political outcomes. No one could possibly want a return to the ‘Ken and Eddie’ show when then Chancellor Ken Clarke and the late Eddie George set policy over a good lunch and fine claret.
Secondly, while it is absolutely true that savers are getting a raw deal from the toxic combination of low interest rates, quantitative easing and the return of mild inflation, the alternative could have been much worse.
If the Bank had not acted in 2008-09 with its money creation programme and low interest rates, Britain – like the eurozone – would have turned into an economic basket case with weak banks unable to lend and largescale unemployment. Indeed, savings might have been wiped out rather than denuded.
Sure there have been distortions, such as the surge in pension fund deficits which are calculated on a mark-to-market (current) basis using gilt yields. But it is also worth noting that other financial assets, notably shares and property, have largely been a one-way bet in this period. And now that inflation is returning so are the yields on Government bonds.
Critics of the Bank are starting to sound like Donald Trump on a bad day.
Shifting blame
SIR Philip Green has decided to come out fighting ahead of Thursday’s non-binding Commons debate about his knighthood.
It is not in Green’s nature to sit on his hands, as the long-running tussle with The Pensions Regulator over efforts to strike a deal for 20,000 BHS pensioners shows.
Green always has sought to gird himself against criticism by deploying fancy advisers. Goldman Sachs was his choice as ‘informal’ adviser on the BHS sale. magic circle law firm Linklater handled the legal issues. PwC, the auditor of Green-related companies, has been drawn into a probe by the Financial Reporting Council. Nor should we forget that top QC Lord Grabiner was chairman of family holding company Taveta but missing from the meeting on which the sale of BHS to bankrupt Dominic Chappell was agreed.
Green’s latest gun for hire is Lord Pannick QC, who has produced an excoriating report on abuse of procedure by the select committees which investigated the BHS sale.
Pannick’s 82-page opinion criticises the Commons probe as ‘bizarre’ and ‘unsupportable.’ It argues that the committees used ‘abuse, insults, bullying and threats’ during interrogation. These are all techniques that Green has been known to use in dealings with the media and business associates.
We cannot be sure of the contents of the report because Green chose only to release selective but doubtless reliable passages.
What is troubling is the way in which not just Green, but public companies too, seek to use lawyers to plough the ground before the official agencies can get to key witnesses and documents. Clifford Chance was engaged by RBS after Department for Business adviser Lawrence Tomlinson made allegations that the bank’s Global Restructuring Group (GRG) engaged in a dash for cash by liquidating the businesses of clients post financial crisis and seizing property assets.
Companies paying for barristers and law firms are more likely to get the results they want. But internally commissioned inquiries can have a secondary negative effect. Key witnesses can claim a form of ‘qualified privilege’ which makes it harder for official investigators to get to the truth and vital documents can become a source of a tug of war.
Reports such as that produced by Lord Pannick require a degree of caveat emptor – buyer beware.
Checking out
STOCK markets can be a cruel judge. Despite a boost from a tumbling pound, Burberry shares tanked after revenue slipped 4pc to £1.1bn in the second quarter.
The big task for incoming chief executive marco Gobbetti will be sorting out the wholesale operation, particularly in the US.
Distribution through department stores means even the most upmarket brands can be cheapened by sales and special offers.
Gobbetti and chief designer Christopher Bailey should keep faith with innovative marketing, such as the direct-to-consumer catwalk collection and British manufacturing. Then there should be nothing to fear.