The unelected King
So much for the governor of the independent Bank of England not straying into party politics.
Perhaps I owe Nick Clegg an apology. I was one of those commentators who mocked the Deputy Prime Minister when he insisted in June that his Damascene conversion to the need for deeper and faster cuts in public expenditure had been prompted in part by a post-election conversation with the governor of the Bank of England, Mervyn King. "He couldn't have been more emphatic," Clegg told the Observer. "He said, 'If you don't do this, then because of the deterioration of market conditions it will be even more painful to do it later.'"
The Bank of England governor, however, played down the significance of his phone call to the Lib Dem leader at a Treasury select committee hearing in July. "There was nothing I said in that conversation that was different from what I had said in public," he stated. "When I am needed to give advice, I try to make sure the advice I give is full square in private and in public."
Case closed, then. Or maybe not. The treasure trove of US diplomatic cables released by the whistle-blowing website WikiLeaks has revealed that, in private, King had been pushing the Tories to formulate a much tougher deficit- reduction programme in the run-up to the general election. "In recent meetings with [Cameron and Osborne], he has pressed for details about how they plan to tackle the debt," the US ambassador to the UK, Louis Susman, noted in a classified cable to the US secretary of state, Hillary Clinton, after a meeting with the governor in February. According to King, wrote the ambassador, cutting the deficit would be the "greatest challenge" facing whichever party won the general election.
So much for the governor of the independent Bank of England not straying into party politics, staying out of macroeconomic policy-making and ensuring his advice is "full square in private and in public". I suppose we should not be too surprised. He may have been one of the 364 Keynesian economists who signed a letter to the Times in 1981, condemning Geoffrey Howe's "austerity" budget, but King has since become a deficit hawk and senior Labour figures have long suspected that he leans towards the Conservatives. In April 2009, on the eve of the G20 summit in London, he enraged Gordon Brown by warning against "significant fiscal expansion"; in June 2009, he attacked Alistair Darling over the "extraordinary" size of the deficit, telling MPs that the Budget should be returned to balance faster than the Treasury had planned.
Last month, a member of the Bank of England's Monetary Policy Committee (MPC) claimed that King's post-election support for the coalition government's programme of austerity had been "excessively political". Speaking in front of the Treasury select committee, Adam Posen said: "There was a difference of opinion at the MPC, in particular in the main meeting, over a particular paragraph in the [May inflation] report that was talking about the need for a particular speed with which to deal with the fiscal deficit." Kate Barker, another MPC member at the time, said she was also "extremely unhappy" at the level of support expressed by the Bank for the coalition's policy of "significant fiscal consolidation".
Hasn't King's position as governor of the Bank of England, on a £300,000 salary funded by the taxpayer, become untenable? In my view, his credibility as an economist and forecaster had already been undermined in 2007 and 2008 when he failed to recognise the scale of the financial crisis and allowed, in Northern Rock, the first run on a British bank since 1866. Now he has been exposed as an "excessively political" and interfering figure - both by WikiLeaks and by his own colleagues on the MPC. How can he continue as head of the nation's central bank, a role that demands political independence and impartiality?
It isn't just the Bank of England governor who seems to have overstepped the constitutional mark. A BBC documentary in June revealed that the cabinet secretary, Gus O'Donnell - nicknamed "God" by his civil service colleagues - advised Conservative and Liberal Democrat negotiators in their first meeting at the Cabinet Office to go for a "more comprehensive agreement" than a Tory minority government, in order to introduce "tough measures" that would reassure the financial markets "on the Monday morning". (In fact, the FTSE was up on the morning of Monday 10 May, despite the ongoing and unfinished negotiations between the two parties.)
It seems the conservative British establishment - so memorably identified and critiqued by the late Anthony Sampson in his 1962 book, Anatomy of Britain - is very much alive and well, in the form of overmighty and politicised civil servants such as the cabinet secretary and the governor of the Bank of England, despite 13 years of Labour rule. But I don't remember the British public voting for Mervyn King or Gus O'Donnell.
Nor, for that matter, do I remember the public voting for the biggest cuts to government spending since the Second World War. There is simply no democratic mandate for the coalition's austerity measures. On 6 May, voters were offered a clear choice between the Conservatives' pledge to eliminate the deficit over the course of the parliament, and the Labour and Lib Dem strategy to delay cuts in spending until the recovery was secure, with Labour pledging to cut the deficit in half by 2014. The Tories won 36 per cent of the vote; the more moderate Labour and Lib Dem position on deficit reduction had the backing of 52 per cent of voters. Little has changed in recent months: a Populus poll in September showed that just one in five voters (22 per cent) supported the coalition's plan to deal with the deficit by the next election, in just five years' time.
During the last election campaign, in April, Nick Clegg warned of "Greek-style unrest" on the streets of Britain if the Tories tried to "slash and burn" public services without a proper mandate. In recent weeks, his words have proved prophetic - and I suspect the student protests over tuition fees are just the beginning. There will be protests, strikes and sit-ins galore come 2011 and 2012. Perhaps the Deputy Prime Minister should have taken his own advice, rather than that of the unelected Mervyn King.
Mehdi Hasan is senior editor (politics) of the New Statesman.