Leading article: Responsibility and power

The invitation of the Business Secretary, Vince Cable, to speak to the TUC conference this year was withdrawn. And Downing Street turned down a request for the Prime Minister to appear. But in the end trade unionists in Manchester got to hear from someone just as powerful: Mervyn King, the Governor of the Bank of England.

The concentration of power in Threadneedle Street in recent years has been remarkable. Today the central bank not only sets interest rates and monetary policy, it administers the Special Liquidity Scheme (a covert bail-out for the banks) and will, in future, regulate the financial sector. What is more, the Governor himself appears to have appropriated some influence over fiscal policy.

Mr King denies the suggestion that that he persuaded senior Liberal Democrats to change their mind on the necessary timing of deficit reduction in the wake of the general election. But Mr King once again made it perfectly clear yesterday that he supports George Osborne's emergency Budget, which will attempt to cram a fiscal consolidation of 8 per cent of GDP into the next five years. If the Governor did not seal the Coalition deal on the economy, he certainly blessed it.

In many ways, Mr King was admirably straightforward in his speech. He admitted that policymakers failed in their responsibility to maintain high employment and that ordinary workers are suffering because of a recession that was born in the financial sector. The Governor conceded that the unions are "entitled to be angry" about higher joblessness and the bail-out of banks. He made clear his view that bankers' bonuses "encouraged excessive risk-taking".

And Mr King cannot be accused of merely telling his audience what they wanted to hear. He has a record of being scathingly critical of the financial sector. The Governor even came up with one of the most effective soundbites of the financial crisis earlier this year when he remarked of the rescued bankers that "never has so much money been owed by so few to so many". Mr King's vision of a more balanced economy, less reliant on financial services, seems sincerely held. He has been happy to allow the pound to fall in value on the grounds that this should be beneficial to exporters.

On the deficit, Mr King argued that the greater risk to the UK economy lies in a sudden loss of confidence in sovereign debt from bond market investors, rather than in the Coalition Government's spending cuts derailing recovery. But the problem is that the Governor is neither omniscient nor infallible, as his refusal to vote for interest rate cuts in the Bank's Monetary Policy Committee in early 2008 (distracted by temporarily high inflation) shows. Mr King says he stands ready to use monetary policy if the economy runs into trouble. Yet monetary stimulus has its limitations. If confidence evaporates, cutting interest rates and pumping money into the private sector can be, as John Maynard Keynes put it, as ineffective as "pushing on a string".

This might soon be more than a mere academic argument. Yesterday's employment figures give little indication that the private sector job market is growing fast enough to absorb the tens of thousands of workers who are poised to be made redundant when the Coalition Government's cuts begin to be felt from next year. A return to recession is still a very real danger.

Mr King's credibility and effectiveness as a steward of monetary policy rest on his political independence. But the manner in which Britain deals with its large budget deficit is inescapably a political matter. Mr King has of late strayed uncomfortably close to political terrain. With greater power comes greater responsibility. The Governor would be well advised to tread more carefully.