As the Conservatives propose enhanced powers for the Bank of England and its governor, Mervyn King, a fresh twist comes to light amid the flying mud of the credit-crunch blame game. The New Statesman has been told that King initially opposed the 1.5 per cent interest-rate cut in November last year, for which he later took credit.
Some see the episode, if it turns out to be true, as characteristic of King's tendency to obstruct behind the scenes. It is worth remembering that he opposed the controversial intervention over Northern Rock last year, repeatedly talking of "moral hazard" and the need to allow banks to fail. Similarly, it took several wasted months to persuade him to agree to the introduction of the special liquidity scheme, eventually introduced in April 2008. Such was King's reluctance that government officials started to draw up plans for a "separate operation" to implement the scheme, independent of the Bank. When King warned against "significant fiscal expansion" on the eve of the G20 in April it was not the first time that the conservative governor had attempted to obstruct the strategy of Brown and Darling for reinvigorating the economy through fiscal stimulus.
In recent times, King has been having private meetings with senior Tories - including, obviously, the shadow chancellor, George Osborne. After one such meeting last October, Osborne horrified Treasury officials by discussing the need for bank recapitalisation in a BBC interview. The timing was criticised because of its sensitivity to the markets.
At the same time, the governor, the New Statesman understands, is barely on speaking terms with Gordon Brown and Alistair Darling. King is keen to be portrayed as the hero of the recession, as he was - with some dutiful criticism - by Alex Brummer in our last issue. Over the past two years, King has repeatedly changed his positions, and all the while he has sought to claim that he has never put a foot wrong. James Macintyre now has more detail on one of those U-turns from someone who was present at the dramatic meeting of the Bank of England's Monetary Policy Committee last November.
Several members, led, the New Statesman understands, by Professor David "Danny" Blanchflower (who had been presciently pushing for interest-rate cuts throughout the year), threatened to resign at a press conference unless King changed his mind. King, having opposed rate cuts, was forced into a humiliating climbdown by agreeing to a 1.5 per cent reduction on 6 November.
A spokesman for King denies the claim, describing the resignation threat as "complete nonsense". The spokesman cites the minutes of the meeting, which show that King voted for the cut. The row that surrounded the vote, however, is not minuted.
Whatever the truth behind King's various positions during the credit crunch, one thing is certain: government insiders now rue the day they were forced, because of circumstances, to reappoint King to a second term as governor at the beginning of last year. "It is clear that having [King] as a personality has made life more difficult," says one. "The Treasury has had to spend a lot of time managing that difficult relationship." Treasury officials deny it, but Darling is said to have described King's reappointment as Brown's "biggest mistake". Brown, too, is believed to be "infuriated" by King's performance over the past two years.
To his supporters, King is indeed the "hero" of the recession. To many who have had to deal with him, in government and at the Bank, he has made the financial crash harder, not easier, to combat.
