As the FT has noted this morning:
The UK government's plan for pension reform has been called into question after Bank of England governor Andrew Bailey said he did not think it was appropriate for ministers to mandate investment in British assets.
As they note:
The pensions schemes bill includes a contentious power to allow regulators to force pension funds to invest a minimum amount in private markets.
And as they add:
On Wednesday, the BoE governor joined a chorus of criticism against the measure. “We've had a low level of pension fund investment in the economy and I think structural changes to the pension industry are helpful in this effect.” “However, I do not support mandating, I don't think that's appropriate.”
The intervention has been noted, as they record:
Sir Steve Webb, a former pensions minister and partner at consultancy LCP, said Bailey “will not have chosen lightly to be so critical of government policy” and his “nuclear” intervention would be unwelcome at the Department for Work and Pensions.
Why note this apparently rather technical issue at this length? There is, in fact, very good reason to do so. What Bailey has done is directly challenge Rachel Reeves, who is (although I rather doubt he thinks it) his boss.
My suggestion is not about what Bailey said, although I would agree Reeves' plan to force money into what are, in effect, private equity markets makes no sense as it does not guarantee any new investment in the new economy, which, as I noted yesterday, is what is required. Rather, what I think this is about is whether Bailey now believes he can speak out against Reeves, presuming he speaks on behalf of an alternative power base in the City who have had enough of Labour.
I do not question their right to be troubled by Labour. Almost everyone is. But I think Bailey crossed a line, and it will be noticed. Whether he likes it or not, he is in effect a civil servant, and a very well-paid one, and he would be wise to recall where his duties lie. The moment he tries to set up an alternative power base, as these comments suggest he thinks he can do to deliver an alternative policy agenda, what he actually does is one of two things.
Either he numbers his own days at the Bank.
Or he numbers the days that the Bank remains supposedly independent.
The best option, of course, is that he does both.
Bailey might be very foolish to think that Reeves will not bite back if he begins to undermine her policy. In fact, I would rather hope she will. The time for a 'King across the water' in the City of London is long gone. We need one authority, one policy and integrated thinking.
Whether Bailey can think is open to question. What we do know is that he is a proponent of a two-strand approach to economic policy, using fiscal policy and monetary policy as if the two are independent of each other, and nothing could be further from the truth. If his days were numbered, it might represent a step forward towards the integrated policy we need.
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Bailey has certainly provided a reason for Reeves to ask for his resignation. He could have made his concerns clear in private, the fact that he chose to go public is clearly a deliberate challenge.
Is Reeves tough enough to do what should be done?
You are right to draw attention to this – it is very telling indeed about how the main protagonists see themselves.
A probable explanation is that he knows Reeves days are numbered and is manoeuvring on behalf of a possible replacement.
I expect he likes his job, there are few other places that pay so well for ignorant pomposity, and is trying to keep it.
You might be right (I hope you are right) – but she might also pull the pompous pillock down with her, by sacking him before she also walks the plank.
Indeed, if she is crafty (unlikely) sacking him would make removing her more difficult – too many changes.
Fiscal policy and monetary policy independent of eachother. Tiday’s great joke.
Perhaps he can pop over to Frankfurt and ask how many ECB bigwigs would say no to being given fiscal policy to play with!
I’d like rid of both of them but their clones are waiting in the wings, ready to protect the destructive status quo.
I’d like a totally different interest rate strategy and a totally different monetary and fiscal strategy, preferably ones that complemented one another and addressed some of our life-and-death urgent problems. ie – all change at the Treasury, and all change at the BoE, the next train is headed for economic, environmental, political, social recovery, but has been delayed indefinitely.
Any volunteers with the support of 83 Labour MPs, like to step up?
No, I thought not.
We agree that forcing UK pensions into Private Equity is crazy. After the experience of the Universities Superannuation scheme investing in Thames Water I am staggered that the Private Equity lobby has managed to persuade HMT that this is a good idea – it is just a green light to unload a bunch of highly leveraged businesses at high prices to unsuspecting pensioners. (Ask any PE player and they are desperate to unload assets but the market is not interested at current valuations).
We agree that Andrew Bailey is a very poor Governor of the BoE.
We agree that economic policy making should be a co-ordinated process and that ultimately must be under democratic/political control.
But, given the current set up, he is right to speak out. Policies should be tested and challenged…. and well, why not in public? If Reeves and HMT can’t justify the policy in the face of criticism then it really is not a good policy.
Of course, the next question is will this become a “resignation issue” or even a “sacking issue”? I suspect both sides will duck this one.
Why not?
Because he is a civil servant, in effect.
And he has all the access he wants to Reeves as a regulator. There must, then, have been another agenda for doing this.
I wonder if Bailey is or rather was a pension scheme trustee and he was thinking about Fiduciary duty on all trustees?
As is my usual modus operandi, I’ll intervene on a subject about which I know very little! Is it inappropriate for the BoE Governor to warn a Chancellor against forcing pension funds to invest in a particular manner? The previous Government intended to pass a law which would have prevented public bodies like universities, local councils and pension funds from divesting from funds linked to Israel and companies supporting war crimes. Fortunately, there was a general election. (I say fortunately……)
On the one hand you say that Bailey works for Reeves, but on the other you talk about the BoE’s independence.
Help!.
I cannot see how this does come within his remit – no
I am aware that the BoE is a regulator – and includes the PRA (Prudential Regulation Authority)
But, I am not sure why that lets him intervene in this way
Thanks Richard. I wasn’t challenging your comment, just seeking more information.
Thank you, Richard.
Last December, I chatted with my former manager, a Treasury minister under John Major, at a Christmas reception. She reported how, the week before, Bailey laughed at Rachel from Complaints’ claims about her career at the Bank and reminded them that Rachel from Complaints had reported to him for a few months on her trainee rotation.
No end of colleagues, Bank of England and HBOS, are waiting in the wings to expose Rachel from Complaints. One hopes, if Rachel from Complaints had any sense, she reads this post.
Fall out? Bailey’s dismissal? Bring it on!
It would be good news