George has a friend in Merv
By Peter Hoskin
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It has to be hoped that the memoirs of the Coalition years, when they are eventually published, will dwell on George Osborne’s professional relationship with Mervyn King. After all, it is surely one of the most important in British politics. The current Governor of the Bank of England is not only affording the Chancellor some economic covering fire — in the form of the most radical economic policy around (quantitative easing) and perpetually low base rates — but also, whether it’s intentional or not, some political covering fire too.
There are two particular instances in the past when Mr King has supported Mr Osborne’s political cause. First, around the birth of the Coalition — when, at the very least*, the Governor backed the cause of deficit reduction in a press conference just after the election, describing the fiscal deficit as “the single most pressing problem facing the United Kingdom.” And then there was the press conference he gave earlier this year, just after Moody’s had put the UK’s triple-A credit rating on a negative outlook, during which he was even more explicit:
“I think [the Moody's news is] a reminder that we are facing a very challenging path to reduce the scale of our deficit so that at some point the ratio of national debt to GDP can start to fall back again, which has to be the objective. And it's an objective which for example Ben Bernanke and the Federal Reserve have stressed as crucial for the United States. They don't have a long term plan to achieve that and he's been urging that on Congress for quite a long time. We do, and I think it's very important that we keep to that, we have that plan.”
The reason I mention this now is because we may now have a third particularly significant entry on the list. In his much-heralded live interview with Channel 4 last night, Mr King suggested that it would be “acceptable” for George Osborne to miss his debt target — provided that this was the result of an unforgiving global economy, not uniquely British weakness. Of course, this follows on from speculation that Mr Osborne may do exactly that, as we’ve discussed on ConservativeHome.
Labour MPs like to claim this sort of thing as evidence that the Mr King is subverting the independence of his role. But there’s another way to look at it: at a time of deep economic malaise, when the Bank’s printing presses are on full power, it is almost impossible for the Governor to avoid overlap with politics. And this will probably apply even more so in future, when he gains more powers for regulating the financial system. Rightly or wrongly, the role is becoming more activist.
This is not something that Mr Osborne should be complacent about, however. If the Bank of England is to have an increasingly significant political dimension, then its leader should also be made more accountable. More television interviews, such as that last night, would be a start.
* Some folk suspect him of doing more before then, too.