The MT diary: Howard Davies

Hail an election year; Bank's bare mantelpiece; ghost of chancellors past; charity match.

Last Updated: 31 Aug 2010

It's election year. Probably. Let joy be unconfined. Hours and hours of perfectly balanced three-way analysis to look forward to. Synthetic Newsnight anger from Jeremy Paxperson. In-depth forensic interviews by John Humphrys with Teresa May. A new crop of party political broadcasts, confected by the finest ad agencies in the land - or at least in Soho. Mori poll upon Yougov survey will illuminate the enlightened, and sometimes the baser, self-interests of the electorate.

Perhaps you can hardly wait for the fun to begin. If so, you are unlike anyone I have talked to in recent weeks. They see this election as a match between a team that has done enough to lose and one that has not done enough to win. My team, Manchester City, gains such points as it does in games like this.

So it will almost certainly be three points to Tony and business as usual, as long as the economic sun continues to shine.

Which is more likely than not. UK interest rates have now been on hold for some time. Scribblers in the City have been fertile in generating explanations for this masterly inactivity at the Bank of England. Has the housing market finally turned? Is the Monetary Policy Committee anxious about the falling dollar?

If the commentators strolled down to Tate Britain on London's Millbank, they would find the correct answer. The 'Johns' show - not a lavatorial retrospective but a celebration of the careers of Augustus and Gwen - includes a magnificent portrait of Montague Norman. Norman was the governor of the Bank of England through the 1920s and '30s, whose tight monetary policy accentuated the Depression.

For years, Norman sat above the fireplace in the first-floor committee room at Threadneedle Street, exerting his baleful influence on the MPC, which meets there. But in September, Mervyn King generously lent the portrait to the Tate. Since then, the committee has been frozen, with no guidance available from above. The show finishes at Millbank quite soon, but is then going on a world tour (of Cardiff), so Norman will not be available for consultation until well into the summer. Expect no change in rates for the time being, therefore.

Nigel Lawson, who raised interest rates himself a time or two in the Treasury, was in match-winning form at the LSE the other day. The school has hosted a series of lectures from five surviving former Chancellors of the Exchequer, beginning with Denis Healey, on how economic policy changed during their time. Lawson spoke of his achievements in changing the consensus. The way he puts it is that before his time macro policy was seen to be about stimulating growth and micro policy about controlling inflation. He turned that orthodoxy on its head.

But even when he is talking about consensus, Lawson cannot resist provoking a fight. Addressing the serried ranks of LSE's finest econometricians, he contended: 'No Chancellor of the Exchequer has ever been assisted in the slightest degree by an equation.'

Gordon Brown, or his alter ego Ed Balls with the famous attachment to neo-classical endogenous growth theory, might dispute that, but we will have to wait a while to find out. If Brown does 12 years in Treasury Chambers, and thereby sets the benchmark for his successors, the next time we will be able to field five former chancellors will be around 2059. There is a risk I will be otherwise engaged.

One point that all five chancellors

made was that Brown meddles too much with the tax system. That may well be true, but it is hard to imagine that the Treasury was enthusiastic about an extraordinary little Bill sneaked into the legislative programme but not mentioned by Her Majesty in her speech, which exempts judges from the new cap on tax-relieved pension contributions.

The argument advanced - that otherwise it would be impossible to persuade barristers to go on the bench - is extraordinary. Barristers are by no means the only people who take salary cuts to go into public service: think of John Tiner or Hector Sants at the FSA, or indeed Richard Sykes of Glaxo at Imperial College.

It is surely good to promote cross-fertilisation of this kind. And people such as Tiner or Sykes cannot predict when the call might come or prepare their pension position in advance. Senior silks, by contrast, have a pretty good idea when the Lord Chancellor will knock and can prepare accordingly.

I hope their lordships give this Bill a rough ride - and that the legal peers will do the decent thing and abstain, at worst.

The new Lord Mayor of London, Michael Savory, is not a lawyer, but is as cunning as one. He has decided on an unlikely pairing to champion his appeal - in aid of the Fisherman's Mission and Forces Help, which supports military families in need. He has harnessed me and Brian Winterflood, who was, shall we say, not one of the FSA's greatest fans during my time there - though he took good care to stay within the rules. The chance of working together, rather than slugging it out, was, I guess, irresistible for both of us. I will let you know how we get on, but the signs are positive. There's no blood on the carpet - yet.

- Howard Davies is the director of the London School of Economics.


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