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: Martin Whitfield
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Labour MP for East Lothian Martin Whitfield: "I started an argument and ended up winning an election"

The former primary school teacher still misses home. 

Two months ago, Martin Whitfield was a primary school teacher in Prestonpans, a small town along the coast from Edinburgh. Then he got into an argument. It was a Saturday morning shortly after the snap election had been called, and he and other members of the local Labour party began discussing a rumour that the candidate would be an outsider.

“I started an argument that this was ridiculous, we couldn’t have a candidate helicoptered in,” he recalls. He pointed out that one of the main issues with the Scottish National Party incumbent, the economist and journalist George Kerevan, was that he was seen as an outsider.

“I kept arguing for an hour and a half and people started gently moving away,” he jokes. “About two days later I was still going on, and I thought enough’s enough.” 

He called Iain Gray, the Scottish Labour veteran, who interrupted him. “He said, 'Right Martin, are you going to put up or shut up?’ So I filled in the forms.

"Then I had to have a very interesting conversation with my wife.”

One successful election campaign later, he is sitting in the airy, glass-roofed atrium of Westminster’s Portcullis House. Whitfield has silver hair, glasses, and wears a Labour-red tie with his shirt. He looks every bit the approachable primary school teacher, and sometimes he forgets he isn’t anymore. 

I ask how the school reacted to his election bid, and he begins “I have”, and then corrects himself: “There is a primary four class I had the pleasure to teach.” The children wanted to know everything from where parliament was, to his views on education and independence. He took unpaid leave to campaign. 

“Actually not teaching the children was the hardest thing,” he recalls. “During the campaign I kept bumping into them when I was door-knocking.”

Whitfield was born in Newcastle, in 1965, to Labour-supporting parents. “My entire youth was spent with people who were socialists.”

His father was involved in the Theatre Workshop, founded by the left-wing director Joan Littlewood. “We were part of a community which supported each other and found value in that support in art and in theatre,” he says. “That is hugely important to me.” 

He trained as a lawyer, but grew disillusioned with the profession and retrained as a teacher instead. He and his wife eventually settled in Prestonpans, where they started a family and he “fought like mad” to work at the local school. She works as the marketing manager for the local theatre.

He believes he won his seat – one of the first to be touted as a possible Labour win – thanks to a combination of his local profile, the party’s position on independence and its manifesto, which “played brilliantly everywhere we discussed it”. 

It offered hope, he says: “As far as my doorstep discussion in East Lothian went, some people were for and against Jeremy Corbyn, some people were for and against Kezia Dugdale, but I didn’t find anyone who was against the manifesto.”

Whitfield’s new job will mean long commutes on the East Coast line, but he considers representing the constituency a “massive, massive honour”. When I ask him about East Lothian, he can’t stop talking.

“MPs do tend to say ‘my constituency’s a microcosm’, but it really is Scotland in miniature. We have a fishing industry, crabs and lobsters, the agricultural areas – the agricultural soil is second to none.” The area was also historically home to heavy industry. 

After his first week in Westminster, Whitfield caught the train back to Scotland. “That bit when I got back into East Lothian was lovely moment,” he says. “I was home.”

Julia Rampen is the digital news editor of the New Statesman (previously editor of The Staggers, The New Statesman's online rolling politics blog). She has also been deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines. 

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