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Mervyn King is a tyrant, but who will succeed him at the Bank?

It’s time for a heavyweight at the Old Lady of Threadneedle Street.

It’s never easy replacing a tyrant but there are huge benefits from doing so. The pain is usually worth it. A tyrant looks to his own advantage rather than that of his subjects and uses extreme and cruel tactics – which pretty much sums up how I feel Mervyn King has run the Bank of England in his role as governor since 2003. His second five-year term is up at the end of June 2013 and, at long last, a replacement is being sought. The Labour government reappointed him for a second term in 2008 and subsequently regretted it. Then there were no obvious candidates to replace him but there are now.

The terms of both Charlie Bean, deputy governor for monetary policy, and Spencer Dale, chief economist, are coming to an end as well. They have been in charge of forecasting, which has been pretty hopeless these many years. It’s time to start again on the forecasting front, so this is a great opportunity to put them both out to pasture. A great opportunity, then, to clean the house and bring in new blood.

Moral hazards

King has controlled the Bank with an iron fist, slaying any dissenters in his path. He follows in the  tradition established by Montagu Norman, who was governor from 1920 to 1944: it’s his way or the highway. I recall a meeting in which King told the Treasury representative to tell the then prime minister to shut up. I have never worked at a place that had such low morale. I clashed with King many times when I was a member of the Monetary Policy Committee (MPC) but I had an endowed professorship to go back to at Dartmouth College. Fortunately, my career didn’t depend on him.

King made it clear to everyone at the Bank that I was not his choice and that they should stay clear. He was especially unhappy, apparently, that I was to be an international commuter, even though Gordon Brown had approved it. One reliable source told me people at the Bank were briefing against me. It was hard to find staff and I was always the outsider. This was nothing new. There was a very public fight when the external members were added to the MPC about providing them with staff. External mem­bers were not told about the emergency loans to HBOS or the Royal Bank of Scotland in 2008. Surely they needed to know, given they were voting on interest rates and quantitative easing (QE)? I read about what was happening years later in the newspapers. This was all about power and control.

No wonder King, the economic theorist, has resisted calls for an investigation of the Bank’s performance before, during and after the financial crisis. He has given short shrift to the Treasury select committee’s requests for a full inquiry into the Bank’s failures, presumably because of what it might uncover. In my view, King was unprepared for the crisis and, even as late as the summer of 2008, did not even see it coming. In my early years at the Bank, I expressed concerns about the crisis developing in the US housing market. He wasn’t interested and argued that what I was saying was irrelevant because the UK had decoupled from the US. It hadn’t.

For many months, even through 2008 and 2009, he kept expecting a wage explosion in the UK that was never going to happen, given that globalisation had weakened workers’ bargaining power. King was also unprepared for the bank run on Northern Rock in August 2007, even though there were obvious signs that banks that depended on wholesale money markets were in trouble. All the academic talk of “moral hazard” seriously damaged King. The concern with moral hazard is that investors should not be protected from the consequences of their own risky actions but it was too late for that and King should have acted sooner. Moreover, his dalliance with fiscal policy, as revealed by WikiLeaks, was a major mistake. The governor of the Bank of England is responsible for monetary policy, not fiscal policy, and King crossed the line by endorsing the coalition’s failed austerity programme.

I have a number of criteria for determining his replacement. It is crucial that he or she is NOT MERVYN and has practical skills of leading organisations, preferably but (not necessarily) banks, and isn’t tainted by the crisis. An outsider, not a Bank insider, is needed. It would help if he or she has some understanding of economics but that isn’t essential – a deputy governor and chief economist can be hired to do that.

Out with the old

The bookies’ favourite is Adair Turner, who has been chairman of the Financial Services Authority (FSA), the financial regulator, since September 2008. But he is implicated to some extent because of the FSA’s many failings during the crisis – and his claim that the financial system is “socially useless” probably rules him out.

Another contender is Paul Tucker, deputy governor for financial stability at the Bank and the favoured insider, but he failed to spot the crisis until he fell over it. He seems to have little leadership skills and, in my view, is intellectually not up to the task. In the days when he and I were on the MPC, I kept a “Tucker brown-nose score”, whereby I awarded him a point if he said any of the following: “I couldn’t agree with you more, Governor”; “Absolutely right, Governor”; “I agree with you completely Governor” or some such sycophantic nonsense. At some meetings, he would get into double figures. Above all, the Bank needs a change in the culture that Tucker could never deliver.

It’s time for a heavyweight at the Old Lady of Threadneedle Street. My preference is for a banker, such as Stephen Green, the current minister of state for trade and investment and former group chairman of HSBC, or John Varley, former chief executive of Barclays. I certainly would not rule out Gus O’Donnell, the recently retired cabinet secretary, if he wanted the job. All three have proven credentials in running huge organisations and would be able to lift morale, because that’s what they have had to do before. Most importantly, it would not be about them. I don’t know any of them personally and so couldn’t pick one. A crucial test would be whether the new governor would be prepared to purchase private-sector assets as part of QE, especially to small firms. This was ruled out by King. A new broom needs to sweep the Bank clean.

David Blanchflower was an external member of the MPC from 2006 to 2009

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

This article first appeared in the 23 April 2012 issue of the New Statesman, Islamophobia on trial

David Young
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The Tories are the zombie party: with an ageing, falling membership, still they stagger on to victory

One Labour MP in Brighton spotted a baby in a red Babygro and said to me: “There’s our next [Labour] prime minister.”

All football clubs have “ultras” – and, increasingly, political parties do, too: although, in the case of political parties, their loudest and angriest supporters are mostly found on the internet. The SNP got there first: in the early days of email, journalists at the Scotsman used to receive bilious missives complaining about its coverage – or, on occasion, lack of coverage – of what the Scottish National Party was up to. The rest soon followed, with Ukip, the Labour Party and even the crushed Liberal Democrats now boasting a furious electronic horde.

The exception is the Conservative Party. Britain’s table-topping team might have its first majority in 18 years and is widely expected in Westminster to remain in power for another decade. But it doesn’t have any fans. The party’s conference in Manchester, like Labour’s in Brighton, will be full to bursting. But where the Labour shindig is chock-full of members, trade unionists and hangers-on from the charitable sector, the Conservative gathering is a more corporate affair: at the fringes I attended last year, lobbyists outnumbered members by four to one. At one, the journalist Peter Oborne demanded to know how many people in the room were party members. It was standing room only – but just four people put their hands up.

During Grant Shapps’s stint at Conservative headquarters, serious attempts were made to revive membership. Shapps, a figure who is underrated because of his online blunders, and his co-chair Andrew Feldman were able to reverse some of the decline, but they were running just to stand still. Some of the biggest increases in membership came in urban centres where the Tories are not in contention to win a seat.

All this made the 2015 election win the triumph of a husk. A party with a membership in long-term and perhaps irreversible decline, which in many seats had no activists at all, delivered crushing defeats to its opponents across England and Wales.

Like José Mourinho’s sides, which, he once boasted, won “without the ball”, the Conservatives won without members. In Cumbria the party had no ground campaign and two paper candidates. But letters written by the Defence Secretary, Michael Fallon, were posted to every household where someone was employed making Trident submarines, warning that their jobs would be under threat under a Labour government. This helped the Tories come close to taking out both Labour MPs, John Woodcock in Barrow and Furness and Jamie Reed in Copeland. It was no small feat: Labour has held Barrow since 1992 and has won Copeland at every election it has fought.

The Tories have become the zombies of British politics: still moving though dead from the neck down. And not only moving, but thriving. One Labour MP in Brighton spotted a baby in a red Babygro and said to me: “There’s our next [Labour] prime minister.” His Conservative counterparts also believe that their rivals are out of power for at least a decade.

Yet there are more threats to the zombie Tories than commonly believed. The European referendum will cause endless trouble for their whips over the coming years. And for all there’s a spring in the Conservative step at the moment, the party has a majority of only 12 in the Commons. Parliamentary defeats could easily become commonplace. But now that Labour has elected Jeremy Corbyn – either a more consensual or a more chaotic leader than his predecessors, depending on your perspective – division within parties will become a feature, rather than a quirk, at Westminster. There will be “splits” aplenty on both sides of the House.

The bigger threat to Tory hegemony is the spending cuts to come, and the still vulnerable state of the British economy. In the last parliament, George Osborne’s cuts fell predominantly on the poorest and those working in the public sector. They were accompanied by an extravagant outlay to affluent retirees. As my colleague Helen Lewis wrote last week, over the next five years, cuts will fall on the sharp-elbowed middle classes, not just the vulnerable. Reductions in tax credits, so popular among voters in the abstract, may prove just as toxic as the poll tax and the abolition of the 10p bottom income-tax rate – both of which were popular until they were actually implemented.

Added to that, the British economy has what the economist Stephen King calls “the Titanic problem”: a surplus of icebergs, a deficit of lifeboats. Many of the levers used by Gordon Brown and Mervyn King in the last recession are not available to David Cameron and the chief of the Bank of England, Mark Carney: debt-funded fiscal stimulus is off the table because the public finances are already in the red. Interest rates are already at rock bottom.

Yet against that grim backdrop, the Conservatives retain the two trump cards that allowed them to win in May: questions about Labour’s economic competence, and the personal allure of David Cameron. The public is still convinced that the cuts are the result of “the mess” left by Labour, however unfair that charge may be. If a second crisis strikes, it could still be the Tories who feel the benefit, if they can convince voters that the poor state of the finances is still the result of New Labour excess rather than Cameroon failure.

As for Cameron, in 2015 it was his lead over Ed Miliband as Britons’ preferred prime minister that helped the Conservatives over the line. This time, it is his withdrawal from politics which could hand the Tories a victory even if the economy tanks or cuts become widely unpopular. He could absorb the hatred for the failures and the U-turns, and then hand over to a fresher face. Nicky Morgan or a Sajid Javid, say, could yet repeat John Major’s trick in 1992, breathing life into a seemingly doomed Conservative project. For Labour, the Tory zombie remains frustratingly lively. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.

This article first appeared in the 01 October 2015 issue of the New Statesman, The Tory tide