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The Spectator's notes

Charles Moore

Wednesday, 19th September 2007

For ten years, it has been said that Gordon Brown gave independence to the Bank of England.

For ten years, it has been said that Gordon Brown gave independence to the Bank of England. He never did, and this week dramatically reminds us of that fact. What he did was to give the Monetary Policy Committee of the Bank the freedom to set interest rates. What he also did, however — and this nearly caused the then Governor, Eddie George, to resign — was to take away from the Bank its regulatory function. Since 1997, matters have been run by the ‘tripartite’ arrangement in which the Financial Services Authority makes the rules, the Bank handles the money and the government sticks its oar in. Some of the trouble surrounding the collapse of the Northern Rock has been to do with this. The FSA, being a regulator, is not suited to crisis management. The Bank, also hamstrung by current rules about disclosure for quoted companies, now lacks the powers to sort everything out quickly, privately and unilaterally. So indecision results and government panic fills the gap. It would be interesting to know who leaked the Bank’s offer of extra liquidity to Northern Rock to Robert Peston of the BBC on the Thursday night, before the formal announcement was made the following morning. Watching the FSA’s officials suddenly popping up on television on Monday and Tuesday, I wondered if I was witnessing the beginning of a coup against Mervyn King, the Governor — the financial equivalent of that moment in banana republics when they start playing martial music on the state radio. The Bank has suddenly got a lot less independent: the economy will suffer.

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