The next Governor of the Bank of England, Mark Carney, has been forced to defend his £800,000-a-year deal under questioning from MPs.
Mr Carney’s base salary of £480,000 is more than that of his US and European equivalents combined – and he will also receive a £250,000 housing allowance on top.
“I was offered these terms and I accepted them,” he said, pointing out that allowing for the fact that he will not receive a Bank of England pension means that his package is “equivalent” to that of his predecessor Sir Mervyn King.
Justifying the housing allowance, Mr Carney pointed out that London was a far more costly place to live than his present home city of Ottawa. “I am moving from one of the cheapest capitals in the world to one of the most expensive,” he said.
Mr Carney used his appearance before the Treasury Select Committee to call for a public debate over whether the central bank’s existing inflation should be overhauled, in order to drag the ailing UK economy out of its two-year stagnation.
In his first public appearance since he was named by George Osborne as Sir Mervyn’s successor, Mr Carney said he could see the advantage in discussing reforms of the central bank’s 2 per cent annual inflation mandate. “I think there is merit in debating the framework and coming to a relatively quick conclusion,” he said.
However, Mr Carney, who is presently the governor of the Canadian central bank, distanced himself from the speech he made in Toronto two months ago where he seemed to suggest that central banks could be given a growth objective known as an NGDP target.
“If there’s a debate it [NGDP targeting] wouldn’t be my contribution,” he said, dashing the hopes of those who wanted him to advocate a radical shake-up at the Bank.
It emerged during the hearing that the reform Mr Carney has in mind is a more relaxed version of the existing inflation targeting regime, whereby the central bank would commit to keep interest rates low until growth returns strongly, or until unemployment falls below a certain threshold.
Mr Carney added, however, that there was a “high bar” to be cleared by any reform proposal because the existing inflation targeting framework, in place since 1997, had performed well.
The Chancellor welcomed Mr Carney’s Toronto NGDP speech in December, but, along with the incoming Governor, the Treasury appears to have cooled on the idea of radical alterations to the Bank’s mandate in recent weeks, despite the fact the economy contracted again in the final three months of last year.
Despite the taut early exchanges over his pay deal, Mr Carney, who worked for 13 years at the US investment bank Goldman Sachs, soon relaxed and appeared to charm MPs on the committee. “All excellent questions,” he responded to Conservative MP Andrea Leadsom, who was probing his views on making customer bank accounts fully portable.
The session, which lasted three hours 40 minutes, left many members of the committee visibly flagging – their numbers had been whittled down from 11 to 9 by the end. But Mr Carney was still delivering detailed and fluent answers on details of bank accountancy right up until the point when chairman Andrew Tyrie called a halt to proceedings.