Occupy the Bank

The surprising new radicalism on Threadneedle Street.

At last we are getting some hard-hitting ideas about how to reign in and reform free-booting finance capitalism. From those camped outside St Paul's? A new left wing think-tank? Perhaps a leading financier gone-rogue in the manner of Soros or Buffett?

No, nothing so predictable. The new ideas are flowing from that well known citadel of radicalism in Threadneedle Street. It's not just the Bank of England's now familiar, yet still striking, use of aggressive and unorthodox monetary policy that best captures this new disposition. Nor is it the fact that Mervyn King led the way in calling for far-reaching structural reform of the banking system, making it more difficult for the government to recoil from the proposals in the recent Vickers report. In fact, the new radicalism isn't really about the Bank Governor -- rather it's coming from other senior figures working for him.

This week Andrew Haldane who leads on Financial Stability -- a name you may not have heard before, but certainly one you should watch out for -- made a powerful proposal about containing the pay of the overlords of finance. His argument is that both short-term investors and bank executives have extracted huge rents from the finance sector, at the expense of other groups like tax-payers and long-term investors. His suggestion is that rather than link bankers' pay to share value (return on equity) it should be tied instead to the return made on assets (for example, bank loans). A technocratic tweak? Well, it's one that bites. Haldane points out that if this approach had been followed in the US over recent decades then CEOs of top banks would have had to scrape by with salaries a mere 68 times the typical household income rather than their current ones which are 500 times that of the ordinary family.

And this comes hot on the heels of Mr Haldane's historically rooted and empirically robust critique of City short-termism -- "mounting myopia" as he terms it -- as well as his hard-headed assessment of the still unfolding consequences of the personal debt tsunami and its implications for the real economy and households.

None of this is to suggest that Mervyn King himself is becoming a force for radicalism. The Governor's widely reported opposition to the Bank getting involved in direct lending to businesses, reiterated yesterday at the Treasury Select Committee, reflects a deep rooted institutional conservatism on this front. His recent remarks about how until the recent eurozone crisis things were "on track" with the UK economy look a bit detached, and have already attracted the ire of some commentators. And that's leaving to one side his hawkish views on fiscal stimulus and controversial role at the time the coalition was formed.

But this doesn't change the fact that the Bank is becoming one of the most interesting homes for fresh and original thinking about the nature of serious economic and financial reform that we desperately need. That's not a sentence you could have written before.

So what's changed? Part of it is doubtless the Bank flexing its intellectual muscle in advance of it reclaiming regulatory powers that it no doubt feels it should never have lost to the FSA in the first place. Another explanation is that the genuine and laudable desire among its leading lights to get ahead of the systemic risks facing economic stability in Britain (and contemporary capitalism more generally). Which in part, at least, will be spurred by the widely shared belief that the Bank fell badly behind events in the recent past: both in failing to see the crisis coming, and then in reacting too slowly in its early days. On top of this, it may also be that Mervyn King, the career academic, may have become comfortable playing the role of "department head", allowing his leading lights at the Bank to think aloud.

Whatever the reason, it's a welcome development. Let's hope the free-thinking in Threadneedle St continues -- and that both the Chancellor and his Labour counterpart are listening. They need to be.

Gavin Kelly is a former adviser to Downing Street and the Treasury. He tweets @GavinJKelly1.

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Lord Empey: Northern Ireland likely to be without government for a year

The former UUP leader says Gerry Adams is now in "complete control" of Sinn Fein and no longer wants to be "trapped" by the Good Friday Agreement

The death of Martin McGuinness has made a devolution settlement in Northern Ireland even more unlikely and has left Gerry Adams in "complete control" of Sinn Fein, the former Ulster Unionist leader Reg Empey has said.

In a wide-ranging interview with the New Statesman on the day of McGuinness’ death, the UUP peer claimed his absence would leave a vacuum that would allow Adams, the Sinn Fein president, to consolidate his hold over the party and dictate the trajectory of the crucial negotiations to come. Sinn Fein have since pulled out of power-sharing talks, leaving Northern Ireland facing the prospect of direct rule from Westminster or a third election in the space of a year. 

Empey, who led the UUP between and 2005 and 2010 and was briefly acting first minister in 2001, went on to suggest that, “as things stand”, Northern Ireland is unlikely to see a return to fully devolved government before the inquiry into the Renewable Heat Incentive scheme is complete -  a process which could take up to a year to complete.

“Adams is now in complete control of Sinn Fein,” he said, adding that it remained unclear whether McGuinness’ successor Michelle O’Neill would be “allowed to plough an independent furrow”. “He has no equal within the organisation. He is in total command of Sinn Fein, and that is the way it is. I think he’s even more powerful today than he was before Martin died – by virtue of there just being nobody there.”

Asked what impact the passing of McGuinness, the former deputy first minister and leader of Sinn Fein in the north, would have on the chances of a devolution settlement, Empey, a member of the UUP’s Good Friday Agreement negotiating delegation, said: “I don’t think it’ll be positive – because, for all his faults, Martin was committed to making the institutions work. I don’t think Gerry Adams is as committed.

Empey added that he believed Adams did not want to work within the constitutional framework of the Good Friday Agreement. In a rebuke to nationalist claims that neither Northern Ireland secretary James Brokenshire nor Theresa May can act as honest or neutral brokers in power-sharing negotiations given their reliance on the DUP’s eight MPs, he said: “They’re not neutral. And they’re not supposed to be neutral.

“I don’t expect a prime minister or a secretary of state to be neutral. Brokenshire isn’t sitting wearing a hat with ostrich feathers – he’s not a governor, he’s a party politician who believes in the union. The language Sinn Fein uses makes it sound like they’re running a UN mandate... Gerry can go and shout at the British government all he likes. He doesn’t want to be trapped in the constitutional framework of the Belfast Agreement. He wants to move the debate outside those parameters, and he sees Brexit as a chance to mobilise opinion in the republic, and to be seen standing up for Irish interests.”

Empey went on to suggest that Adams, who he suggested exerted a “disruptive” influence on power-sharing talks, “might very well say” Sinn Fein were “’[taking a hard line] for Martin’s memory’” and added that he had been “hypocritical” in his approach.

“He’ll use all of that,” he said. “Republicans have always used people’s deaths to move the cause forward. The hunger strikers are the obvious example. They were effectively sacrificed to build up the base and energise people. But he still has to come to terms with the rest of us.”

Empey’s frank assessment of Sinn Fein’s likely approach to negotiations will cast yet more doubt on the prospect that devolved government might be salvaged before Monday’s deadline. Though he admitted Adams had demanded nothing unionists “should die in a ditch for”, he suggested neither party was likely to cede ground. “If Sinn Fein were to back down they would get hammered,” he said. “If Foster backs down the DUP would get hammered. So I think we’ve got ourselves a catch 22: they’ve both painted themselves into their respective corners.”

In addition, Empey accused DUP leader Arlene Foster of squandering the “dream scenario” unionist parties won at last year’s assembly election with a “disastrous” campaign, but added he did not believe she would resign despite repeated Sinn Fein demands for her to do so.

 “It’s very difficult to see how she’s turned that from being at the top of Mount Everest to being under five miles of water – because that’s where she is,” he said. “She no longer controls the institutions. Martin McGuinness effectively wrote her resignation letter for her. And it’s very difficult to see a way forward. The idea that she could stand down as first minister candidate and stay on as party leader is one option. But she could’ve done that for a few weeks before Christmas and we wouldn’t be here! She’s basically taken unionism from the top to the bottom – in less than a year”.

Though Foster has expressed regret over the tone of the DUP’s much-criticised election campaign and has been widely praised for her decision to attend Martin McGuinness’ funeral yesterday, she remains unlikely to step down, despite coded invitations for her to do so from several members of her own party.

The historically poor result for unionism she oversaw has led to calls from leading loyalists for the DUP and UUP – who lost 10 and eight seats respectively – to pursue a merger or electoral alliance, which Empey dismissed outright.

“The idea that you can weld all unionists together into a solid mass under a single leadership – I would struggle to see how that would actually work in practice. Can you cooperate at a certain level? I don’t doubt that that’s possible, especially with seats here. Trying to amalgamate everybody? I remain to be convinced that that should be the case.”

Accusing the DUP of having “led unionism into a valley”, and of “lashing out”, he added: “They’ll never absorb all of our votes. They can try as hard as they like, but they’d end up with fewer than they have now.”

Patrick Maguire writes about politics and is the 2016 winner of the Anthony Howard Award.