The Old Lady breaks free

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The Independent Online
Gordon Brown yesterday freed the Old Lady of Threadneedle Street, the Bank of England, from effective political control in the most dramatic possible illustration of the new Labour government's cracking pace.

The Chancellor of the Exchequer said it was the most radical action that had been taken on the Bank in 300 years.

Loan rates were increased by a quarter-point to 6.25 per cent after Mr Brown's first and last monetary meeting with Eddie George, Governor of the Bank of England.

Some of the biggest lenders, including the Halifax and Cheltenham & Gloucester, raised mortgage rates immediately, adding pounds 13 a month to the cost of a typical pounds 50,000 loan. Most commentators expect further increases in the next few months, with the decision resting fully with the Bank from now on.

On the first full day of the new administration after the bank holiday weekend, the Chancellor brought forward his regular meeting with Mr George and agreed the interest-rate rise and the Bank's freedom from Treasury control before announcing the decisions at an 11am press conference.

With Tony Blair set to address the first televised meeting of the new 419-strong Parliamentary Labour Party this morning, amid a demand that MPs maintain the discipline which won them their seats, a deluge of decisions poured out of Whitehall departments.

On top of the Chancellor's announcement, the department of David Blunkett, Secretary of State for Education, signalled action to dismantle the nursery voucher scheme. Jack Straw, the Home Secretary, ordered an audit of prisons, Jack Cunningham, the Minister of Agriculture, made the first move towards creating a Food Agency and Robin Cook, the Foreign Secretary, said a conference would be held on Bank of England holdings of Nazi gold.

While Mr Brown's announcement of Bank freedom united Labour MPs from the left and right of the party, Tory divisions continued. Former chancellor Norman Lamont congratulated Mr Brown on a move that was "thoroughly to be welcomed", while former home secretary and Tory leadership contender Michael Howard deplored it. The move got a rapturous welcome in the financial markets, which sent shares soaring to a new record.

Mr Brown told The Independent it was the Government's responsibility to set the economic framework, monetary policy and the inflation target. He added: "What has bedevilled the British economy is that we have had repeated cycles of boom and bust - stop-go economics that have been responsible for a great deal of instability that has bedevilled businesses and families.

"I am now putting in place, however, what I believe is a long-term framework that will demand most confidence, that will give credibility to monetary policy decisions and will also enhance the reputation of the Government and the Bank of England for getting the decisions right."

Mr Brown insisted that the Government would reduce Value Added Tax on domestic fuel and heating bills to 5 per cent in the July Budget and hinted at making a start on a new 10p tax band.

The City broadly welcomed the interest rate rise and the Bank's independence, with slight reservations about the risk of political appointments to the new committee. The reaction from industry was more cautious.

The Confederation of British Industry welcomed the Bank's independence, but said it was looking for tax increases in the first Budget.

The Bank opened on 27 July 1694 with pounds 1.2m capital to finance William III's war with France. The idea came from a Scotsman.

It began business in a single rented room in the Mercers' Hall in the City of London, with a staff of 19. It moved to Threadneedle Street in 1734.

The name 'The Old Lady of Threadneedle Street' is thought to originate from a wooden sign of Britannia displayed outside the bank. The image was quickly picked up by cartoonists like Gillray.

The first Governor was Sir John Houblon, whose portrait now appears on a commemorative pounds 50 note, and whose livery - red waistcoat and pink coats - is still worn by the Bank's doormen and messengers.

The Bank was nationalised by Labour in 1945. It was given real freedom yesterday ... by another Scotsman.

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