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A foxy Chancellor knows many things, but a hedgehog learns the hard way

A foxy Chancellor knows many things, but a hedgehog learns the hard way

28 January 2006

12:00 AM

28 January 2006

12:00 AM

Tutti possono sbagliare: we can all make mistakes, as the hedgehog observed, getting down from the hearth-brush. Whether our prickly Chancellor is a student of Italian proverbs, I cannot say, but he could learn from this one. In the five and half years since he auctioned half the nation’s gold reserves, the price of gold has doubled. He was bid rather less than $280 an ounce, the hammer fell, and he put the proceeds into dollars, yen and euros — but none of them has been as good as gold. Looking on as the price soared above $560, I could only reflect on the timing that caused him to sell at the lowest price on offer for two decades. He was, after all, under no pressure. Did he want to take a clever initiative, to cut a dash and to overshadow his neighbour in Downing Street? Did he just think that gold was old-fashioned? It has certainly been around for long enough. This new surge in its price was set off by the Iranians, who can remember when President Carter froze their assets in the New York banks, and now want to have more of their reserves at home where they can keep their hands on them. In the Shah’s day these reserves used to include the crown jewels, which were kept in the central bank’s vaults, as backing for the currency. When I went to see them, I thought that they looked like boiled sweets. Perhaps they were. The moral, for Gordon Brown’s benefit, is that all that glisters is not gold, just as everything that bristles is not necessarily a hedgehog.

Where the money goes

No doubt the Chancellor would rather tell us all how good his credit is. Why, the Treasury can borrow on the finest terms available for half a century, and in the process earn its longest-dated stock an entry in my Bad Investment Guide. How does he get away with it — or, to put the question more objectively, why are long-term interest rates so low? There are two explanations on offer, or so Mervyn King, the Governor of the Bank of England, has been telling us. One simply says that the world is saving more and is less eager to invest. The second one says that there is more money about. In 2003 and 2004 (we won’t yet have last year’s figures) the world’s stock of money was growing at its fastest rate since the late 1980s. It seems to have found its way into the prices of assets — government stocks, equity shares, houses, commodities and, of course, gold. There would, of course, be a name for this process: inflation. It just does not show up in the indices.

Compulsory purchase

Still, when the Treasury sets to peddle its stock, it knows that it can depend on tied customers, who are left with no choice by the rules that the Treasury makes. These are the people with pension plans, who, if they make it to 75, have to buy an annuity, whether they want to or not. Annuities will be largely invested in government stock, which is why they now yield such a meagre return. That will not go far if inflation rises and the pound in the pensioner’s pocket buys less — but if not, or so the Governor warns us, we must expect the overblown prices of assets to fall back into line, and that would include the prices of government stocks. So the annuitants would find that they had been forced to buy at the top of the market. The rule that now penalises these pensioners has long been under attack, and the Treasury stoutly digs in to defend it: we musn’t let all these old fools blow the money and become charges on the state. Note that the mandarins can retire at 60, on inflation-proofed pensions, and become charges on the state. Oh, well, that’s different. We make the rules.


Do as my papers say, not as I do. No one doubts that Rupert Murdoch is a staunch republican, but when it comes to his own empire, he believes in the dynastic principle. He has been telling us this week that if he ever reaches retirement age, he hopes that his son, James Murdoch, will succeed him. After all, he himself got his break because his father was Sir Keith Murdoch, the newspaper magnate. All the same, he seems cast against type in this re-run of the Wall Street Wasp joke: ‘What does a Wasp call his company’s president? Daddy.’

New faces needed

There was a time when the design of our banknotes varied only when the Chief Cashier retired and a new signature had to be engraved on the printing-plate. In our own time, though, the pace has speeded up. The printers must struggle to stay ahead of the forgers, and to have a new face staring out from the note’s flip side is just the way to steal a march on the competition. The process then has to repeat itself, though, and we seem to be on something like an eight-year cycle. That was Dickens’s life-span on the £10 note and Faraday’s on the £20. Their successors, Elgar and Darwin, have been here for as long as the century. George Stephenson kept up steam for 12 years on the fiver before Elizabeth Fry — oh, yes, you remember, the prison reformer — took over. Sir John Houblon, the Bank’s first Governor, still presides in crimson majesty on the back of the £50 note, and is now in his third decade. No one, presumably, has had the nerve to forge him. All the same, the search must now be on for new faces, and the choice of national heroes and heroines has narrowed. Wellington used to appear on the fiver, but nowadays it would be thought incorrect to celebrate a general who fought against our European partners. Indeed, if our luck is right out, the new notes will have symbolic bridges on them and be issued by the European Central Bank.

To be called for

What we need now is a good anniversary. This year (as my railway correspondent, I.K. Gricer, constantly reminds me) we celebrate Isambard Kingdom Brunel’s 200th birthday. It will have to count as an opportunity missed, but no doubt the engravers would have had to eliminate Brunel’s cigar. No doubt, too, the Bank’s designers are looking ahead to 2009, which brings the bicentenary of Gladstone — but would the Old Lady curtsey to a Chancellor, even the greatest? — and the tercentenary of Samuel Johnson. The note would reproduce his Dictionary’s definition of a bank: ‘A place where money is laid up, to be called for occasionally.’ Better still, it would remind us of his maxim: ‘No man but a blockhead ever wrote, except for money.’

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