DeHavilland Briefing Bank of England Governor Speculation is licensed under CC BY-ND 2.0 is licensed under CC BY-ND Bank of England by Bank exterior front (2) DeHavilland Content & Service Teams May 2019 DeHavilland Bank of England Introduction Governor Speculation Introduction The job description of Governor of the Bank of England has been radically transformed over the last decade to reflect the political and economic challenges the country has experienced. Outgoing Governor Mark Carney’s term expires on 31 January 2020, seeing out the final months of his tenure at a time when the shape of the UK’s relationship with the EU is far from certain. His predecessor, Lord King of Lothbury, has not shied away from the platform and status afforded to him to opine on both political and economic issues. Dr Carney’s successor will take up one of the most powerful appointed roles in the country at a time of unprecedented challenge and uncertainty. Brexit and the strains it has placed on the UK’s political system means that we cannot even be sure which party will be in power to appoint them. In this briefing, DeHavilland examines the politics and the process, as well as the people who could be the next Bank of England Governor. 1 DeHavilland Information Services Ltd 2019 www.dehavilland.co.uk DeHavilland Bank of England Governor Speculation The selection process In an appearance before the Treasury Select Committee, the Chancellor confirmed that the process would seek to appoint a candidate for the full eight-year term but hinted that there would be some flexibility in that for an “outstanding candidate”. Dr Carney initially agreed to serve a five-year term and has twice agreed to extend it since then. Candidates had an initial six-week period to apply with interviews expected to take place over the summer. The recruitment panel for the role includes: Tom Scholar, Permanent Secretary to the Treasury; Charles Roxburgh, the Second Permanent Secretary; Brad Fried, Chair of the Bank’s Court of Directors; and Kate Barker, a former external member of the central bank’s Monetary Policy Committee. The final appointment is formally made by the Queen. It is also expected to be made in the autumn to allow the successful appointee to be placed before Dr Carney’s tenure ends. The base salary for the role is £480,000. This process differs from previous ones, in that the Treasury has hired a recruitment agency, Sapphire Partners, to oversee the process. The agency has already been tasked with recruiting two external members for the Bank’s Financial Policy Committee. There has never been a female Governor of the Bank and many have seen the Government’s decision to bring in this all-female recruitment consultancy as an attempt to ensure all diversity elements of the process are considered. The politicisation of the position To get a sense of the unique political challenges that the outgoing Bank of England Governor has faced, one just has to look over his regular appearances before the Commons Treasury Select Committee. DeHavilland produces in-depth written summaries of these Select Committees for our clients and the subjects of these sessions often appear straight forward, such as covering the Bank’s Inflation Report. In one of these such sessions in early 2019, Dr Carney informed Labour MP Rushanara Ali that the UK did not have sufficient warehouse space to house the goods necessary for stockpiling in the event of a no-deal Brexit. This is just one example of how the figure of the Governor has been increasingly pulled from the economic sphere into the political one in the ten years since the Financial Crisis. Both before and since the EU Referendum, the Conservative Government has turned to the Bank to provide an economic analysis of the likely impact of the UK’s departure from the EU. In doing this, Dr Carney has had to move from being seen as a figure whose words were used by the Cameron Government in defence of remaining inside the EU, to one whose words have been used by the May Government to help explain how the longer-term path of Brexit would affect the economy. It has been a tightrope walking act for Dr Carney. 2 DeHavilland Information Services Ltd 2019 www.dehavilland.co.uk DeHavilland Bank of England Governor Speculation Judgements of his success, or failure, in carrying out the newly politicised nature of his role will largely be determined by how someone views his words in relation to Brexit. Treasury Committee sessions with Dr Carney often feature robust exchanges with Brexiteer MPs, such as European Research Group Deputy Chair Steve Baker, or Remain supporters like Ms Ali seeking to tease a damning judgement out of him. For the most part, in these encounters, Dr Carney has remained unphased and stuck to economics. Major decisions of his governorship have also been closely defined by politics. The changes to the Base Rate undertaken by the Monetary Policy Committee (MPC) under his time have all been closely connected to Brexit and subsequent rise in inflation post-referendum driven by the fall of the value of the Pound. Dr Carney appears confident that one aspect of his legacy is secure. He routinely tells MPs that the financial system has learned the lessons of the last decade and is better able to withstand a shock. Any Governor in his position would be keen to ensure that the Financial Crisis would not be repeated. He has also had an eye on the future with his warnings about the need for the financial sector to be at the heart of tackling climate change. What could influence the Chancellor’s decision? Brexit The politicisation of the position, which has been exacerbated by Brexit, makes the stance of the new Governor over Brexit significant to selection. The Conservative Government would not wish for the new Governor to be viewed as a Remainer, as this could fuel criticism from within the Conservative ranks. These voices have already been critical of Dr Carney’s Brexit stance. Notably, the Chief Executive of the Financial Conduct Authority, Andrew Bailey, who is currently the favourite to place Mark Carney following the announcement of the search for a new Governor, gave an interview to the Financial Times setting out his view for the city post-Brexit. In this interview Mr Bailey demonstrated that he is not afraid to engage with the politics and discussion surrounding the Brexit negotiations; whether this will be to his benefit or detriment is yet to be seen. It certainly would continue the current trend of the politicisation of the Governor of the Bank of England referred to above. Diversity The diversity in the Bank of England upper echelons has often been a point of contention, with only one member of the top Monetary Policy Committee being female. The lack of female representation has been criticised by the Business, Energy and Industrial Strategy Committee Chair, Rachel Reeves, who stated: “The sad truth is that the Bank has not done enough to recruit, train and promote talented women. More needs to be done to bring forward a generation of women economists who can be considered for the top job.” 3 DeHavilland Information Services Ltd 2019 www.dehavilland.co.uk DeHavilland Bank of England Governor Speculation The decision to use an all-female recruitment agency to conduct the initial selection process has been viewed as a commitment to provide greater opportunity for female candidates. A number of female candidates have been tipped for the role including: Shriti Vadera, Sharon White, and Nemat Shafik. The Labour Party The Labour Party is seeking to “radically reform the country”, and Shadow Chancellor John McDonnell has announced his plans for a “radical shake up of the UK banking system” and a “Green Industrial Strategy”. Should Labour get into power, we could potentially see a grab back of some of the country’s economic and monetary power that was given to the Bank under the coalition government. Significantly, Mr McDonnell has come out in support of several green protests and initiatives around sustainable investment and Government bonds. Recently, Mr McDonnell supported the #GreenTheBoE protest which took place outside the Bank of England on the day the bank announced its most recent Inflation Report. The protests called for the Bank to regulate in order to discourage investment in fossil fuels, as well as using quantitative easing to boost investment in green technologies. This echoed previous calls by the Labour Party which said the Bank must change “to reflect the climate change emergency”. In the current turbulent political climate, it is not unrealistic to suggest that the Labour Party could be in government before Mark Carney’s official exit date at the end of the year. It is clear that a Labour Government would have very different objectives and priorities, this could influence the candidate they would select. 4 DeHavilland Information Services Ltd 2019 www.dehavilland.co.uk DeHavilland Bank of England Governor Speculation Potential Governors Andrew Bailey Seen as one of the frontrunners for the role, Mr Bailey is presently the Chief Executive of the Financial Conduct Authority (FCA). He has previously held numerous roles at the Bank of England, including Deputy Governor, Chief Cashier and Chief Executive of the Prudential Regulation Authority (PRA). A graduate of the University of Cambridge, Bailey holds a PhD in Economic History. Raghuram Rajan A former Governor of the Reserve Bank of India, Mr Rajan has previously served as Chief Economist of the International Monetary Fund (IMF). During his Governorship in India, Mr Rajan oversaw the creation of a six-member Monetary Policy Committee tasked with tackling inflation and ensuring banks cleaned up their balance sheets.