Whatever it Takes: The Real Story of Gordon Brown and New Labour. Steve Richards
Authority rather than the Bank of England would become the new independent regulator for the City.
The separation of powers became the subject of intense controversy more than a decade later when the scale of risks being taken by banks was disastrously revealed. Because of the epoch-changing recession that began in 2008, the establishment of the FSA became a ticking time bomb. In his party conference speech in the autumn of 2008 the Conservative leader David Cameron argued that it was this act more than any other that had led to the catastrophic regulatory failures. By the spring of 2009 the focus became more intense as several banks verged on bankruptcy, admitting that they had taken too many risks. What was the regulator doing? Why did Brown remove the powers from the Bank of England?
The questions whirled noisily around, the volume rising as some of those who had furiously disapproved of the move at the time spoke up claiming vindication more than a decade later. For Brown the questions became a form of torture in the winter of 2009.
But like the related policy to make the Bank independent, the new separation of powers was implemented more subtly than the chorus of retrospective indignation allowed in 2009. Because the policy had been thought through in opposition and had not been thrown together to chase a media headline, the complex issues of accountability, and which body answered to whom, had to some extent been addressed. Brown and Balls appointed two deputy governors of the Bank, one in charge of monetary policy, the other a link between the Bank and the new regulator, the Financial Sevices Authority. There was always a formalized link between the two bodies. It was too easy for the Bank to complain later that it had been sidelined.
In addition the Bank of England had been a poor regulator, presiding over several high-profile collapses in the 1980s and 1990s, including Johnson Matthey, BCCI and Barings. The new structure was not in itself responsible for the colossal errors in regulation that were to continue for the next decade.
As in his abrupt dealings with Burns, Brown had shown courage in his approach to Eddie George. In removing the Bank’s regulatory powers Brown could easily have provoked a sensationally high-profile resignation. Indeed, George fleetingly contemplated a dramatic departure and almost admitted as much in public.
Brown was often underestimated and overestimated simultaneously. The verve with which he seized the moment in 1997 was seriously underplayed by his internal critics at the time and subsequently. But the degree to which he was being heroically radical was overstated in the days that followed his announcement of the Bank’s independence and since.
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