Osborne increases control over the Bank of England

Tim Wallace
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THE CHANCELLOR will give instructions on financial policy to the Bank of England, the Treasury revealed yesterday, chiselling away at the usual position that the Bank is independent of political interference.

The financial policy committee (FPC) is charged with maintaining financial stability, for example by stopping the system from breaking when banks fail and intervening to prevent dangerous bubbles building.

But it is also expected to back George Osborne’s economic goals.

“The Financial Services Act empowers me to make written recommendations to the FPC about its responsibility in relation to support for the government’s economic policy, as well as matters to which the FPC should have regard in exercising its functions,” Osborne said in a letter to the Bank.

That will include an annual letter to detail those economic policies, plus extra recommendations when any event deemed systemically important takes place. That could include a major bank failure or an overheating in part of the economy.

And he told the FPC to become more consistent in its communications to banks, calling for a unified message from the committee. If follows criticism of the Bank for warning of a black hole in banks’ capital buffers, but taking many months to offer advice on rectifying the problem.

“The FPC should attach high priority to the goal of reducing uncertainty and boosting confidence in financial markets, notably by providing clear, focussed and consistent messages about the planned regulatory response to identified financial stability risks,” he said. “The FPC should ensure messages from its channels of communication, for example the official records of the meetings and the speeches and opinions given by individual members are as consistent as possible.”

That runs counter to the Bank’s usual processes – members of the monetary policy committee often disagree in public speeches.

Governor Sir Mervyn King said he would consider the proposals and respond in due course.