It might not be as much fun as speculating over who will be the next England football manager – but rumours about the next governor of the Bank of England are becoming almost as intense. Over the last week, the papers have been full of speculation about who might take over from Sir Mervyn King next year.
According to leaks, Paul Tucker is the favoured internal candidate, alongside the ubiquitous Financial Services Authority chairman Adair Turner, the former cabinet secretary Sir Gus O’Donnell, and the chairman of the banking commission Sir John Vickers. What matters right now, however, is less who gets chosen than the way the vacancy gets filled.
The Treasury seems determined to keep the appointment process shrouded in secrecy. A shortlist is being drawn up somewhere in Whitehall. No doubt discreet approaches will be made. In time, a few quiet conversations will be held. Perhaps they won’t actually be in the corner of a St James’s Club – but that will be the flavour of the appointment.
That is a big mistake. Why? Because the governor of the Bank of England is no longer a minor, technocratic role. It is one of the most important jobs in Britain. It is a political one too. The governor will be making huge decisions about who gets what within the economy. So we have a right to know what their views are before they are given the keys to Threadneedle Street.
The governor used to be a fairly low-key figure, usually an experienced former banker. But in a world where banks routinely get bailed out, where close to 10% of GDP is simply printed by the Bank, and where quantitative easing (QE) constantly pushes up inflation and asset prices, it has become one of the most political roles in the country.
Indeed, the governor probably has more power to shape the state of the national finances than the chancellor. George Osborne can fiddle with a few taxes, handing out a pound here, and taking two away there, in ways that are mostly just irritating rather than effective. The really big issues – the inflation rate, the level of sterling – are determined by the decisions taken by the governor and the Monetary Policy Committee rather than the government.
In the last three years, for example, the Bank has quite clearly embarked on a policy of inflating away the country’s debt by monetising the deficit. It has constantly missed the inflation target – so consistently, in fact, that it is hard to believe it is not doing it on purpose.
It has held interest rates at a three-century low, while printing vast sums of money that it uses to buy government debt. You can argue for or against that policy, as many people do with a great deal of passion. And it is a perfectly legitimate thing to try and do – and at the moment the Bank seems to be getting away with it.
It does, however, have clear winners and losers. Savers get hammered and debtors rewarded, for example. It is good if you happen to have a big mortgage – your interest rate goes down and the price of your house stays high. But it is bad if you are about to retire – you’ll get a rotten deal on your pension.
It is good if you work in the public sector – the cuts to government spending are negligible compared to what they would be if the Bank wasn’t financing the deficit. But it is bad if you work in the private sector, because you face much higher inflation than you otherwise would.
Again, these may be reasonable choices to make. Any policy you decide on is going to have some winners and losers. But such choices are hugely political and deserve some open debate. Yet that hasn’t happened. Sir Mervyn King has simply imposed them, without any form of public discussion or defence offered.
We deserve better next time around. As a new governor is appointed, the candidates should be allowed to discuss the bigger issues far more openly and declare their views on them. They should be subjected to proper public scrutiny. The potential governors should be on Newsnight and the Today Programme, answering questions on whether they think savers deserved a better deal than borrowers, or whether protecting employment is more important than combating rising prices.
As the role becomes more political, then perhaps political candidates should be considered. Ken Clarke would be a good choice. He is widely trusted and knows his way around the subject. So does Alistair Darling. During his short time as chancellor, he established a reputation as being a safe and trustworthy pair of hands.
Whoever is chosen, this should be an open appointment preceded by an open debate. The big issues should be discussed. Lots of different voices should be heard – and different views should be put across. More QE or less? Higher inflation, or a quick return to meaningful interest rates? These are the questions that will determine the state of the British economy for years to come. The job is now too important to be filled in the back rooms of Whitehall.