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
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Theresa May is paying the price for mismanaging Boris Johnson

The Foreign Secretary's bruised ego may end up destroying Theresa May. 

And to think that Theresa May scheduled her big speech for this Friday to make sure that Conservative party conference wouldn’t be dominated by the matter of Brexit. Now, thanks to Boris Johnson, it won’t just be her conference, but Labour’s, which is overshadowed by Brexit in general and Tory in-fighting in particular. (One imagines that the Labour leadership will find a way to cope somehow.)

May is paying the price for mismanaging Johnson during her period of political hegemony after she became leader. After he was betrayed by Michael Gove and lacking any particular faction in the parliamentary party, she brought him back from the brink of political death by making him Foreign Secretary, but also used her strength and his weakness to shrink his empire.

The Foreign Office had its responsibility for negotiating Brexit hived off to the newly-created Department for Exiting the European Union (Dexeu) and for navigating post-Brexit trade deals to the Department of International Trade. Johnson was given control of one of the great offices of state, but with no responsibility at all for the greatest foreign policy challenge since the Second World War.

Adding to his discomfort, the new Foreign Secretary was regularly the subject of jokes from the Prime Minister and cabinet colleagues. May likened him to a dog that had to be put down. Philip Hammond quipped about him during his joke-fuelled 2017 Budget. All of which gave Johnson’s allies the impression that Johnson-hunting was a licensed sport as far as Downing Street was concerned. He was then shut out of the election campaign and has continued to be a marginalised figure even as the disappointing election result forced May to involve the wider cabinet in policymaking.

His sense of exclusion from the discussions around May’s Florence speech only added to his sense of isolation. May forgot that if you aren’t going to kill, don’t wound: now, thanks to her lost majority, she can’t afford to put any of the Brexiteers out in the cold, and Johnson is once again where he wants to be: centre-stage. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.