There was much resentment among Labour at how Mervyn King leant greater credibility to the coalition's austerity programme by publicly endorsing it after the election. So when Mark Carney told the Treasury select committee on Wednesday that he was opposed to a "crude bonus cap" (as supported by Labour) and warned that caps on banks' market share (the policy announced by Ed Miliband in his speech today) in the US failed to prevent, and may have even encouraged, the financial crisis, some in the party worried that history was repeating itself.
Asked about this on The World At One, Ed Balls began by demonstrating his experience, revealing that he had known the Bank of England governor for "many years" (their paths will have crossed during Balls's time as Gordon Brown's chief adviser) and that he "spoke to him yesterday". He added: "I don’t think he’s suggesting that the thing that caused the subprime banking crisis, or the irresponsible lending to homeowners in southern America was too much competition and too much diversity in the US banking system. There was a massive regulatory failure in America, and in Britain too, and we need tougher regulation...we want more competition."
When pressed on Carney's obvious scepticism of the idea of limiting banks' size, Balls emphasised again, "As I’ve said, I’ve known Mark Carney for a decade and there’s no prospect of an unhappy relationship." But he went on to note one unbridgeable difference between the pair: on bank bonuses. Balls said: "On the issue which he raised on Wednesday, of bank bonuses, and our view that pay and bonuses, where the bonuses are more than 100% higher than the salary, he disagreed with that. On that one, I’m going to disagree with the governor of the Bank of England. I don’t think that is the right approach for bankers’ pay. " This explicit criticism contrasted with the more emollient tone adopted by Chuka Umunna on Today this morning, when he said: "I think it’s not healthy for us to involve governors of the Bank of England in big political debates and I don’t want to drag him into that."
While there is little political cost to Balls disagreeing with Carney on this issue, given the public's near universal hostility to bank bonuses, the Tories will hope that this is a hint of other differences to come. If the governor can help to encourage scepticism of Labour's plans for radical market reform, just as King did over fiscal stimulus, George Osborne will feel that he has earned every penny of his £874,000 salary.