Why Tucker, not Adair Turner, is Bank of England favourite

Nov 1, 2012
Richard Ehrman

Lord Turner has the talent and the brainpower. The worry is he might make the job too political

ON 5 December, George Osborne will rise to his feet in the House of Commons to deliver his third Autumn Statement. Despite last week's unexpectedly good news on growth, the backdrop will not be promising.

We already know that the target the Chancellor set himself two years ago, to eliminate the structural deficit by the next election, will not be met. The current prediction is that balancing the government's books will take at least until 2017, meaning that more tax rises and spending cuts are likely to feature in next month's statement.

At the same time, however, Osborne is also expected to make another announcement. After months of speculation, we may finally hear who will be the next Governor of the Bank of England.

Over the two decades since Ken Clarke granted it joint control over interest rates, the Bank's significance to the British economy has increased by leaps and bounds. Today it not only has sole authority over rates, conceded by Gordon Brown in 1997; in January it is also due to assume overall responsibility for bank supervision. More crucially still, through its programme of quantitative easing it is the Bank that decides how much money to print to keep the economy afloat – and, effectively, the government as well.

At this rate, it has been suggested (only half in jest) that the Governor could soon become more important than the Chancellor himself. Yet candidates to succeed the retiring incumbent, Sir Mervyn King, have been surprisingly hard to find.

Over the summer the central bank chiefs of both Canada and Australia are said to have been approached and declined, leaving just two front runners in the race; Lord Turner, the former head of the Financial Services Authority, and Paul Tucker, the current deputy governor of the Bank.

At first sight, Turner and Tucker could be taken for two peas in a pod. In fact, apart from their backgrounds in financial regulation, they have little in common.

Despite being briefly implicated in the Libor scandal, Tucker is seen as the steady, predictable candidate. Having spent his entire career at the Bank, he is the ultimate insider. His politics, if he has any, are unknown. His views on policy, at least while Sir Mervyn remains on the scene, are assumed to be those of his boss.

Adair Turner, by contrast, was an oil man, banker, McKinsey consultant and director general of the CBI, not to mention head of a whole raft of quangoes, before pitching up at the FSA. Politically, too, he is a man of many parts. After starting out at Cambridge as a Conservative, he rapidly switched to the SDP, before being ennobled under Tony Blair in 2005.

But it is his opinions, even more than the jobs he has held, that have marked Lord Turner out recently. Having been an early and enthusiastic advocate of the euro, he now admits that has not gone according to plan. On other subjects, however, he has shown himself refreshingly unafraid of challenging the conventional wisdom. When, three years ago, he suggested that not all investment banking was "socially useful" the City rose as one to denounce him. Yet, today, even many investment bankers would agree with most of what he said.

Then, a fortnight ago, he wondered aloud whether the Treasury will ever repay the £375 billion of gilts the Bank has bought under quantitative easing. In private most in the City and Whitehall accept that this huge "debt", owed by one part of the public sector to another, will almost certainly be quietly written off a few years hence. But it is not something they have yet been prepared to say in public, and it provoked a magisterial rebuff from Sir Mervyn.

Turner's biggest problem, though, has never been that people doubt his talent or brainpower. It is more that, after all the twists and turns on his way to the top, they wonder whether he is dependable.

Among Tories his defection to the SDP still rankles, even though it happened more than 30 years ago. Most damaging of all is the suspicion that, if he did become Governor, he would make the job too political; that he really might try to set himself up as an alternative centre of power to the Chancellor.

For Osborne, this surely has to be a risk he could do without. Yesterday the bookies had Tucker the favourite for next Governor at 8/11, with Turner trailing him on 11/4. That sounds about right to me.

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What a circus. The FSA did not spot the recent financial crises which simple people might think is part of its job. Nor has it, under Lord Turner's watch propsosed any serious change to what is obviously a rotten banking system which bleeds government and borrowers alike. This Lord as learned economist as he is is now getting authority to print as much money as the government needs to pay all its debt which it is going to need. Diluting the money supply to keep the govenment afloat will not add a pinhead to the national wealth. It is the rotten commercial banks that "create " 95% of the money by digital entry to the books to feed house prices, the financial service industry and the like. These banks will know that if they stop lending, the money supply will dry up and the government will have to pump in more to stave off collapse. You might think that BoE would just print the money but they will not. More bonds will add it to the national debt and feed the banks at public expense. Our learned Lord Turner will carry on watching the circus which can carry on for a decade and more with the rich getting richer and the middle and working classes getting poorer until somebody in authority calls a halt. If anybody finds my comments misguided I would appreciate correction