Will George Osborne dare to be radical when he appoints the next Governor of the Bank of England?

The sheer power of modern Governors makes the Chancellor's decision momentous - which is why senior Liberal Democrats are so determined to have a say in it

Related Topics

The most important domestic contest before the general election reaches its climax. Soon George Osborne will announce the next Governor of the Bank of England. Only two candidates are thought to have a chance and the outcome of their discreet campaign is far more important than those political battles that attract such feverish attention. Whether or not a near powerless Chief Whip survives is trivial compared with who becomes the next Governor, a position that is often more powerful than that of Chancellor. As Osborne prepares to make his decision some of his Cabinet colleagues plan to be more than passive onlookers. Nick Clegg in particular is taking an active interest. He does so with good cause. The stakes are extremely high.

Sometimes it is extremely difficult to measure where power lies, but in the case of the Governor it is fairly straightforward. Take the case of the current occupant, Sir Mervyn King. When his first term was drawing to a close in the midst of the tumultuous financial crisis, Gordon Brown and Alistair Darling, Prime Minister and Chancellor at the time, contemplated briefly not offering him a second term. They had disagreed with some early responses to the emergency, regarded some of his public statements as deliberately or naively provocative and were wary of his apparent closeness to Osborne, the then shadow Chancellor.


But they felt too weak to remove him. Brown was being subjected to various attempted internal coups. The two of them had fallen out on other matters. The economic crisis was too frighteningly unpredictable. They gave King a second term, after which he was more powerful than both of them, utterly secure for another four years. In contrast a mere Prime Minister and Chancellor wondered whether they would still be in office by the end of each week.

The duo also faced a general election which they were expected to lose while, once appointed, King could act without worrying about justifying his exalted position. Now, fleetingly, the Chancellor is the one with the power. Osborne will choose King’s successor. Meanwhile King’s mighty authority fades as his rule draws to a close.

The appointment matters so much because his successor will acquire extraordinary power over economic policy. Very quickly he will become more secure than the Chancellor, partly because, like Brown and Darling previously, Osborne soon faces an election he might lose. More immediately the Coalition has chosen to give the Bank of England the task of stimulating the economy and regulating the banks. Senior ministers are, or have become, fiscal conservatives and monetarist activists. They pull few levers in relation to tax and public spending, but look to the Bank to do so, most recently by printing money in the form of Quantitative Easing.

No wonder senior Liberal Democrats keep a keen eye on the appointment. Remarkably, Clegg has kept his party more or less united in favour of the Coalition’s austerity programme, an underestimated success in terms of his leadership. The unity is not forced but genuine, spanning the so-called Orange Book Liberals and social democrats such as Vince Cable and the party’s president, Tim Farron. But this support is dependent on more radical activism from the Bank of England. Farron has explicitly called for more ambition from the Bank while, as senior Cabinet ministers, Cable and Clegg are more discreet but equally keen.

Daring Adair

They have a candidate for the next Governor, although they would not put it as crudely as that. The current head of the Financial Services Authority, Adair Turner, has made a series of speeches expressing doubt on the effectiveness of Quantitative Easing and put forward some more daring options. He has urged “still more innovative and unconventional policies” that include direct lending to businesses and, it was implied, using money created by the Bank to finance government borrowing.

As a candidate Turner has his critics, including the current Governor. Part of the critique is unfair. As the FSA’s head he is associated with a failed regulatory regime in relation to the banks. But the transfer of FSA powers to the Bank of England is largely a political move, giving Osborne more ammunition to blame the last government for failing to control the banks. The regulatory structure established soon after 1997 was never the cause of the financial crisis. More valid criticism comes partly from some who have worked with Turner in the past.

They doubt whether he can be the titanic policy maker and team builder the post now demands. Indeed some wonder whether anyone has the heroic qualities for the job as newly defined. But I have heard some outside the Conservative Party, who suggest that the safer, less radical alternative of Paul Tucker, a deputy of King’s, is the more appropriate choice.

What the appointment will tell us is how bold Osborne dares to be in seeking economic recovery and whether the Lib Dems can persuade him that his and their monetary activism would be assisted by the appointment of a more radical Governor.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Qualified Primary Teaching Assistant

£64 - £73 per day + Competitive rates based on experience : Randstad Education...

Primary KS2 NQTs required in Lambeth

£117 - £157 per day + Competitive London rates: Randstad Education Group: * Pr...

Primary NQTs required in Lambeth

£117 - £157 per day + Competitive London rates: Randstad Education Group: * Pr...

Primary NQTs required in Lambeth

£117 - £157 per day + Competitive London rates: Randstad Education Group: * Pr...

Day In a Page

Read Next
Piper Ryan Randall leads a pro-Scottish independence rally in the suburbs of Edinburgh  

i Editor's Letter: Britain survives, but change is afoot

Oliver Duff Oliver Duff
Some believe that David Cameron is to blame for allowing Alex Salmond a referendum  

Scottish referendum: So how about the English now being given a chance to split from England?

Mark Steel
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam