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Posts Tagged ‘Bank of England’

In a new television documentary to be screened next week, Tony Blair claims the credit for the historic decision to make the Bank of England independent, contrary to the received wisdom that it was Gordon Brown’s idea.  The truth is that neither had any choice in the matter.

In 1997 the UK was still on the fast track to Economic and Monetary Union (EMU) within the EU. As a consequence of the Maastricht treaty in 1992, EMU was programmed as a three phase operation. The Conservative Major government, in signing the treaty had recognised the significant problem associated with stage III, viz the requirement to adopt the euro as the currency of the UK. They calculated correctly that the vast majority of the British public would rail against this, and it would have become an electoral liability. 

Hence during the EMU negotiations they secured an opt out from stage III, but critically they, or any future government were duty bound by stages I and II. EU preparations for adopting stage II began on January 1st 1994, and one of the requirements was that all states were required to make their central banks independent. Hence when the Blair government came to power in 1997, the decision to give Bank of England independence was already set in stone and they were legally bound to do so. 

At that time the Labour government were good Europeans, and were even intending to adopt stage III and sign up to the euro despite having an opt out. Clearly it wasn’t politically acceptable for Brown’s, (or Blair’s if you believe the TV documentary) first act to be sold to the British public with the reason given that, “we’ve got to do this because the EU told us so”, so of course Brown cynically presented it as his own decision.It was anything but.

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Gordon Brown is apparently refusing to confirm whether Mervyn King, the governor of the Bank of England, will be re-appointed next year. See Daily Telegraph report

I note that the Bank of England Act 1998, which granted independence to the Bank of England, (ironically one of Brown’s first acts on becoming chancellor in 1997), lays down in Part 1, Constitution and Regulations, paragraph 1(2) that: Bank of England 1998 Act “The court shall consist of a Governor, 2 Deputy Governors and 16 directors of the Bank, all of whom shall be appointed by Her Majesty”.

Why, and where exactly does Gordon Brown come into this independent appointment process? Has he now usurped the Queen?

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