Bank of England’s independence under threat in EU referendum row
Senior Conservative politicians have accused the Bank of England and HM Treasury of “startling dishonesty” in their contributions to the EU referendum debate, raising the prospect of a major clear-out of senior officials under any new Tory government created following a vote to leave the EU in next Thursday’s national poll. The row threatens the Bank’s independence from government, established nearly 20 years ago.
In the last days before the ‘purdah’ period of the referendum campaign – during which government departments may not make policy announcements – HMT published projections predicting that a UK ‘Brexit’ from the EU would severely damage the UK economy, whilst the Bank of England governor Mark Carney warned that the consequences could “possibly include a technical recession”.
Leading ‘out’ campaigners reacted angrily, arguing that the Bank was taking sides in the debate. Unlike Treasury officials, the Bank’s employees do not have a duty to take instructions from ministers and should remain politically neutral: the Bank was granted autonomy by Tony Blair’s first, 1997-2001 government, in a bid to prevent ministers from manipulating the economy to secure political advantage.
Defending itself, the Bank responded that it was simply fulfilling its duty to inform ministers and the public about the threats facing the UK economy, saying: “Assessing and reporting major risks does not mean becoming involved in politics; rather it would be political to suppress important judgments which relate directly to the Bank’s remits and which influence our policy actions.”
Nonetheless, leading Brexit campaigner and select committee chair Bernard Jenkin MP wrote to Carney on 13 June, warning that during the purdah period “you are prohibited from making any public comment, or doing anything, which could be construed as taking part in the referendum debate”. Carney responded in a letter which, the BBC has reported, depicted Jenkin’s letter as a “threat” containing “numerous and substantial” misconceptions.
According to the BBC, Carney’s letter said: “All of the public comments that I, or other Bank officials, have made regarding issues related to the referendum have been limited to factors that affect the Bank’s statutory responsibilities and have been entirely consistent with our remits.” And Carney accused Jenkin of displaying a “fundamental misunderstanding of central bank independence”, pointing out that the Bank has “a duty” to report its “evidence-based judgements” to Parliament and the public.
Yesterday (Thursday), the Bank of England continued to comment on the likely outcomes of a Brexit, including in its monthly statement on interest rates a warning that uncertainty over the referendum result presents the “largest immediate risk” to global markets. The Bank pointed to the “risk of adverse spill-overs to the global economy”; said that it is “increasingly likely” that sterling’s current slide would worsen in the event of a Brexit vote; and predicted a “materially lower path for growth and notably higher path for inflation” outside the EU.
In setting out its analysis of the likely results of a Brexit, the Bank has put itself in the firing line in a bitter referendum campaign: repeated warnings by economists and international bodies that leaving the EU would badly damage the UK economy have provoked fury from ‘Leave’ campaigners, who accuse them of bias.
Earlier this week, four top Tories – former chancellors Lord Lamont and Lord Lawson, and former party leaders Michael Howard and Iain Duncan Smith – wrote to the Times accusing the Bank of England and HMT of “peddling phoney forecasts” to scare people into voting to stay in the EU. They argued that “there has been startling dishonesty in the economic debate, with a woeful failure on the part of the Bank of England, the Treasury and other official sources to present a fair and balanced analysis.”
Few think that PM David Cameron could survive a vote to leave the EU, with most commentators predicting that he’d quickly resign – prompting a Tory party leadership campaign likely to be won by one of the ‘Brexit’ campaigners. And leading analysts point out that any such new Tory leader would find it almost impossible to work with officials accused by prominent ‘Brexiteers’ of plotting to “back up the attempts of David Cameron and George Osborne to frighten the electorate into voting Remain”.
Robert Peston, the political editor of broadcaster ITV – and the journalist who pioneered the story of the credit crunch back in 2008 – argued that the leading Tories’ Times letter says “explicitly that the cherished independence of the Bank is a sham and that the nine members of the Monetary Policy Committee, who include five Bank officials and four distinguished independent economists, are corruptly in league with the Remain campaign.”
Peston added that “this would imply, inter alia, that if Leave were to win and take control of the government, the new Brexit PM and cabinet would need to sack the entire MPC – since the entire MPC has endorsed the Bank’s statement on the toxic implications of Brexit.”
Such a clear-out could badly weaken the Bank’s independence, both by revealing the vulnerability of Bank staff to ministerial intervention, and by leading to the appointment of a new swathe of officials deemed to be supportive of the new government. And it seems inevitable that any new pro-Brexit PM would also cut a swathe through senior officials at the Treasury, accused by Leave campaigners of “peddling phoney forecasts” in support of the Remain camp.
In another new development, former UK cabinet secretary Lord O’Donnell warned that any new pro-Brexit PM chosen by Tory MPs after a vote to leave would find it very difficult to pass legislation. “I think there will be great difficulty, because we’ll have this new government who by definition will be negotiating our Leave through a parliament where the majority of our MPs – and, it has to be said, the majority of Lords – would be against leaving,” he told Sky News on Wednesday night.
The Tories would retain their narrow majority in the Commons until the next general election, and would survive any votes of confidence unless several Tory MPs refused to back the new PM. “But the question is will they on individual votes, in the Commons in particular, back the new government,” commented O’Donnell. “They might not, which will make it very, very hard for a new Government to pass significant legislation. So I think we might get quite a lot of gridlock.”
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The EU referendum debate lacks hard facts on how any UK exit would be negotiated, says the British prime minister’s former chief legal adviser. And Sir Paul Jenkins tells Matt Ross that the frameworks for negotiations and voting could force Britain to make big concessions – or risk a chaotic departure with no trade agreement