When Sir Mervyn King steps down as Bank of England Governor next June, even his most loyal supporters will struggle to describe his tenure as a success. He failed to spot the massive asset bubble which burst so spectacularly. His job was to keep inflation down, and Britain has instead suffered the worst inflation in Europe. He has injected £375 billion of digitally created money into the economy, to no apparent benefit whatsoever. The Governor has many qualities: he is learned, amiable and resolute. But he has not proven to be much good at running a central bank.
The hunt for his successor will begin in the autumn, when the Chancellor will advertise for the job. It will be the most important vacancy in Britain. The job may be tough, but it comes with several perks. There are men in pink tailcoats and top hats to bring you coffee, bright staff, a cunningly inflation-proofed pension, a salary of around £400,000 a year, with the possibility of lots more once you retire. There is also now the security of an eight-year term of office, a blessing in this job-hopping economy.
So far, however, there is an alarming absence of good contenders. Paul Tucker, one of the Bank’s deputy governors, was a front-runner until he was drawn into the Libor fixing scandal. The bookmakers have a list of a dozen likely candidates, and to read it is to fear for our country’s financial future. The hour has come, but not the man.
It is astonishing that Gus O’Donnell, who ran the civil service under the Labour government, is now the bookmakers’ favourite to succeed Sir Mervyn. He is the British equivalent of a European-style technocrat and has had nothing sensible to say about either the economic crisis or our failure to recover from it. Aside from a stint as an economics lecturer in the 1970s, his claim to the job seems to be based on his ability to cosy up to the right politicians.
No less alarming is the candidature of Adair Turner, who has chaired the Confederation of British Industry, the government’s Committee on Climate Change and the Financial Services Authority. The idea that he should now shuffle off to the Bank of England, as if it were an honorary position for grandees, belittles the job. He is already on the Bank of England’s board (or the ‘court’, as it is called), so he has already tiptoed his way onto Threadneedle Street. Let us set aside his role as director of Standard Chartered, at a time when it was cheerily laundering sanctioned Iranian cash. The greater question is: do we really want the ultimate Davos man running the Bank?
There is talk in Whitehall of Nick Clegg being handed the role of Governor-maker. On no account should this be permitted. The Deputy Prime Minister recently told a group of factory workers that his government was ‘wiping the slate clean’ of debt. This is the opposite of the truth. His government is increasing its national debt faster than any eurozone country, saddling the next generation with a burden that will perhaps never be fully repaid. If Mr Clegg has not yet worked this out, he should have no say over the Bank of England’s future.
Each candidate should be brought before the House of Commons Treasury select committee and grilled. The job is too important to be stitched-up. In addition to maintaining price stability through setting interest rates and controlling inflation, the Governor will now also try to ensure financial stability by supervising the financial sector. It is a job as big as that of any major office of state, and requires a rare blend of economic literacy, financial scepticism and political nous.
If the search is global, as it would be for any bank, then the right candidate could certainly be found. Glenn Stevens, current Governor of the Reserve Bank of Australia, has done an exceptional job of keeping the country out of trouble through the last five years. Martin Vander Weyer, our business editor, has suggested Alan Bollard, who will soon step down from a strikingly successful term as New Zealand’s central banker. He spent his early career in London, and is (like Stevens) a subject of the Queen. Non-subjects, including US ex-Federal Reserve Board members like Vincent Reinhart or Don Kohn, ought to be approached too.
When the BBC was looking for a new director-general, it spent £150,000 on international headhunters only to promote an internal candidate. The search for a new Governor is vastly more important, given the outsourcing by the Treasury of so much British economic policymaking. George Osborne should scour the globe, and double the salary if need be. He badly needs help, and the right Bank of England governor could provide it. To find the right man or woman will perhaps be the single most important act of his chancellorship.