Wanted: a unique candidate for Britain’s biggest economics job. Must thrive in high-stress situations. Economics background preferable. Backstabbing and spinning skills helpful. Some job experience optional. Salary: £375,000 plus almost limitless spending money (£325bn or as much as you can print). Applications to 10 Downing Street; don’t call us, we’ll call you.
There is, of course, no official job advertisement for Governor of the Bank of England. But behind closed doors in Downing Street, a four-man team comprising the Prime Minister, Chancellor and two senior officials now has a shortlist of candidates for the most important appointment of their term in government. Replacing the most powerful man in the British economy would be tough at the best of times. When that man is Sir Mervyn King, the task is monumental.
It is difficult to think of anyone outside the Royal family whose reign at the pinnacle of the British establishment has been quite so sustained and stable. In his 15 years as Governor and, before that, as an unusually powerful deputy governor, Sir Mervyn has seen two governments come and go (some say he was kingmaker to both), has weathered the biggest financial crisis in history and has watched the reputations of many of his peers disintegrate. He will end his period in charge of the bank next July as perhaps the most powerful unelected policymaker in Britain — certainly the most powerful Bank governor of the modern era. It is all the more astonishing that he has managed this despite the first bank run in modern British history; the longest, most drawn-out, recession in well over a century; and the worst financial crisis in history. Not for nothing do many in Parliament view him, with some awe, as the most adept politician Britain has never elected.
He bequeaths to his successor a newly empowered Bank. For the first time since 1997 it has responsibility not merely for steering the economy through monetary policy (interest rates and, these days, quantitative easing), but also for regulating finance. It will, almost on a whim, be able to force banks to increase or decrease lending. Then there’s the balance sheet. Quantitative easing sounds abstract enough until you consider that the £325 billion the Bank has printed (electronically) would be enough to buy every single property in Scotland. Had it chosen to give the money away rather than spend it on government bonds, every household in Britain would have enjoyed a £10,000 windfall. It makes anything the Treasury has done to stimulate the economy look trivial.
Sir Mervyn has masterminded this while simultaneously streamlining (the most charitable way of putting it) the oversight committees designed to challenge him, leading some to compare him to Henry VIII or Cardinal Wolsey. But for the sake of comprehending the challenge of replacing the Governor, it is better still to compare him with someone else: Steve Jobs.
So concerned was the late Apple chief executive with the presentation of his products that he would demand to see every piece of advertising, every slip of packaging before anything was released. Threadneedle Street is clearly no Cupertino, the home of Apple; but, Sir Mervyn’s attitude towards detail is remarkably similar. Barely a press release or speech is allowed out the door until the Governor has given it the go-ahead. Even the Treasury is routinely kept out of the loop until the very last minute.
Media access is strictly rationed, and indeed monitored. Every major committee is chaired by Sir Mervyn. As was the case with Jobs, pretty much everything has to go through the Governor. In fairness, it is not as if his power is entirely untrammelled. Sir Mervyn is only one of nine members of the Monetary Policy Committee; he answers questions from the press and MPs more regularly than most other policymakers; he does at least have an oversight committee.
However, anyone who witnessed Sir Mervyn at the Inflation Report press conference or Treasury Select Committee hearings will know how easily he swats away awkward questions. All too often, such occasions are more akin to a university seminar than an interrogation, the audience set on impressing the professor rather than challenging him. He has been outvoted on the MPC, but former members talk with frustration of the overwhelming personal influence he wields over monetary policy. Others complain that he will rarely listen to competing views. Alistair Darling called him “stubborn and exasperating”, which is quite something for a man who put up with Gordon Brown for most of his time in office.
It was the early stages of the crisis that saw Sir Mervyn’s biggest blunder. As Britain’s banks teetered on the brink of collapse, he was slow to realise the scale of the threat for the economy. Rather than providing the banking system with the limitless liquidity it needed to prevent cash machines from shutting down, he lectured the bank chiefs about moral hazard. He reversed his position not long afterwards, but the experience left a scar. The Bank seemed out-of-touch with the financial system it was supposed to be safeguarding.
The first part of George Osborne’s remedy has been to bring financial regulation back from the Financial Services Authority to the Bank itself; the second part is, in the Autumn Statement later this year, to announce the appointment of a new governor more attuned to financial markets.
That’s why the shortlist drawn up by the Chancellor has only one internal candidate — Paul Tucker, the Bank’s Deputy Governor. He is widely regarded as the favourite: although a Bank insider, he has a far better rapport with the City than Sir Mervyn. And, behind the scenes at least, he has been positioning himself for the job. A speech in February read almost like a manifesto, and included the intriguing suggestion that quantitative easing could be a permanent part of the economic framework.
Then there are the bank bosses: John Varley and former HSBC chairman Stephen Green. Varley’s track record is impeccable, and he is extremely close to Treasury policymakers, but is severely undermined by the fact that he is former chief executive of Barclays, the bank everyone loves to hate. Green, who already sits in the House of Lords as Baron Green of Hurstpierpoint, had a good crisis, but will be 64 by the time Sir Mervyn stands down, and is a signed-up Tory — not ideal in what is supposed to be an apolitical job.
Peter Sands, chief executive of Standard Chartered, has ruled himself out after realising he would be unlikely to make the running (while close to Brown and the previous government, he is more distant from the current Treasury). There’s Lord Turner, whose redoubtable CV is still on the shortlist despite having presided over tough times at the FSA — and despite the Treasury finding him irritating (“God, not him,” says one senior Government official, “we’d spend the entire time getting lectured.”).
Then there are the outliers: Treasury minister Lord Sassoon (though he is taken less seriously within Number 11 than outside) and John Vickers, who wrote the well-received report on overhauling the banking system.
Perhaps the most intriguing name is Lord O’Donnell of Clapham, the former cabinet secretary. He has it all: an outstanding economic pedigree; a proven track record of negotiating with government; political independence and a decent reputation in the City. The only problem is that he’s yet to be convinced that he wants the job. With the level of ambition and, occasionally, desperation some of the candidates have evinced in their race for the governorship, the one scenario no one really anticipated was that one of the best candidates might not actually want the job. But as Sir Mervyn King has shown, it takes a particular mindset to carry out the most powerful unelected job in British government.
This article originally appeared in The Daily Telegraph