Osborne's bank raid reconsidered

Was the "smash and grab" actually so bad?

When Osborne re-arranged the accounts between the Bank of England and the Treasury to put the £37bn profit of the QE programme on the nation's books, it was widely seen as a swindle, with our own David Blanchflower calling it a:

Smash-and-grab raid on the Bank of England to make his borrowing look lower.

But the FT's David Keohane (yes, second time today) wonders if the fading importance of central bank independence means that we should reconsider that assessment. Keohane writes:

We still find it hard to view the “raid” itself in any sort of harsh negative light.

We did and do acknowledge the timing was… awkward… but essentially it’s still accounting — the shifting of figures between a parent and a subsidiary. If anything, the “raid” has made the whole process far more transparent.

More generally, the idea that central bank independence might necessarily be eroded, and that it might be a good thing, was until recently taboo. But it is becoming more and more accepted that a central bank’s status is dependent on the economic realities it exists in.

The two big problems highlighted by Osborne's raid were that it blurred the lines between monetary and fiscal policy, and that it could come back to bite in the future. The former's looking like less of a concern in the current climate, but the latter actually might not be that bad. Even if it has already happened.

Keohane quotes Bank of America Merril Lynch's John Wraith:

As a result of the dramatic spike higher in yields that occurred over the first week or so of the New Year, the mark-to-market value of the BoE’s portfolio of Gilts acquired through QE over the past four years dropped by more than £7bn.

The Treasury/BoE is still earning £1bn a year month of positive carry — the value of holding the bonds — which ought to soften the blow. But ultimately, the fear sparked by an accounting change may prove to have been a storm in a teapot.

The Bank of England. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty Images
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Autumn Statement 2015: How should Labour respond?

The government always gets a boost out of big setpieces. But elections are won over months not days. 

Three days in the political calendar are utterly frustrating for Her Majesty’s Loyal Opposition – the Queen’s Speech, the Budget and the Autumn Statement. No matter how unpopular the government is – and however good you are as an opposition - this day is theirs. The government will dominate the headlines. And played well they will carry the preceding with pre-briefed good news too. You just have to accept that, but without giving in or giving up.

It is a cliche that politics is a marathon not a sprint, but like most cliches that observation is founded in truth. So, how best to respond on the days you can’t win? Go to the fundamentals. And do the thing that oddly is far too little done in responses to budgets or autumn statements – follow the money.

No choices in politics are perfect - they are always trade offs. The art is in balancing compromises not abolishing them. The politics and the values are expressed in the choices that you make in prioritising. This is particularly true in budgets where resources are allocated across geographies - between towns, cities and regions, across time - short term or long term, and across the generations - between young and old. To govern is to choose. And the choices reveal. They show the kind of country the government want to create - and that should be the starting point for the opposition. What kind of Britain will we be in five, ten, fifteen years as these decisions have their ultimate, cumulative impact?

Well we know, we are already living in the early days of it. The Conservative government is creating a country in which there are wealthy pensioners living in large homes they won, while young people who are burdened with debts cannot afford to buy a home. One in which health spending is protected - albeit to a level a third below that of France or Germany – while social care, in an ageing society, is becoming residualised. One where under-regulated private landlords have to fill the gap in the rented market caused by the destruction of the social housing sector.

But description, though, is not sufficient. It is only the foundation of a critique - one that will succeed only if it describes not only the Britain the Tories are building but also the better one that Labour would deliver. Not prosaically in the form of a Labour programme, but inspirationally as the Labour promise.

All criticism of the government – big and little – has to return to this foundational narrative. It should connect everything. And it is on this story that you can anchor an effective response to George Osborne. Whatever the sparklers on the day or the details in the accompanying budgetary documentation, the trajectory is set. The government know where they are going. So do informed commentators. A smart opposition should too. The only people in the dark are the voters. They feel a pinch point here, a cut there, an unease and unfairness everywhere – but they can’t sum it up in words. That is the job of the party that wants to form a government – describing in crisp, consistent and understandable terms what is happening.

There are two traps on the day. The first is narrowcasting - telling the story that pleases you and your closest supporters. In that one the buzzwords are "privatisation" and "austerity". It is the opposite of persuasion aimed, as it is, at insiders. The second is to be dazzled by the big announcements of the day. Labour has fallen down here badly recently. It was obvious on Budget Day that a rise in the minimum wage could not compensate for £12bn of tax credit cuts. The IFS and the Resolution Foundation knew that. So did any adult who could do arithmetic and understood the distributional impact of the National Minimum Wage. It could and should have been Labour that led the charge, but frontbenchers and backbenchers alike were transfixed by the apparent appropriation of the Living Wage. A spot of cynicism always comes in handy. In politics as in life, if something seems to be too good to be true then … it is too good to be true.

The devil may be in the detail, but the error is in the principle – that can be nailed on the day. Not defeated or discredited immediately, but the seeds planted.  

And, if in doubt, take the government at their word. There is no fiercer metric against which to measure the Tories than their own rhetoric. How can the party of working people cut the incomes of those who have done the right thing? How can the party who promised to protect the health service deliver a decade of the lowest ever increases in spending? How can the party of home ownership banish young people to renting? The power in holding a government to account is one wielded forensically and eloquently for it is in the gap between rhetoric and reality that ordinary people’s lives fall.

The key fact for an opposition is that it can afford to lose the day if it is able to win the argument. That is Labour’s task.