Gordon Professor Charles Tony Blair Paul Margaret Thatcher Ken Dodd Ken Clarke Eddie George Eddie Deanne Julius Charles Charles Uk London Henderson Britain

Best Of Today 2017-09-29:13:10.00
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  • You're listening to a podcast from the today programme on B.B.C. radio four, it's twenty years since the Bank of England was granted independence, the independence to set interest rates and stop politicians mucking everything up.

  • But is it time to rethink how that works well, Dominic has more on that.

  • Yes, good morning.

  • Many people probably think, the Bank of England has always see interest rates, but it is a relatively recent development, and it was quite a shock at the time, there are some who think that independence has gone a bit far at the government is not really taking it share of responsibility for directing the economy that too much has been handed off to the Bank of England, one of those surprising is it balsa former Chancellor, who was one of the architects of independence, I caught up with them.

  • Yesterday, then asked him about the about the background to that big decision back in nineteen ninety seven, it wasn't really discussed at all in the run up to the general election.

  • At the time, interest rates were made by the Chancellor Ken Clarke, in a monthly meeting with the Governor Eddie George this was called the cabinet to show when it was actually quite combustible and the year before the general election, with any wanting rates to go up and Ken Dodd, the idea of Bank independence had been around for the previous twenty years, But Margaret Thatcher had opposed it.

  • John major had opposed it.

  • When the Chancellor's proposed it for labour, the idea of giving up power of interest rates would have been seen as very controversial Gordon brown and I talked about it many times between ninety four and nineteen ninety seven, and then on the Monday before the general election, Gordon brown said to me, I've been thinking about this, I think we should do it straight away.

  • He said, I don't want to have the Gordon and Eddie show, I don't wanna be in a position where were asked me, whatever interest rates with the Bank, we should set the objective, they should make the decisions, and he told Tony Blair on election day, and we announced at the following Tuesday.

  • It was a complete bolt from the blue.

  • You talk about the and eighty show political responsibility for setting interest rates was part of also keeping their horrible Genie that stalks all economies inflation in the bottle or a cap, we knew we needed to keep inflation low because high inflation and ups and downs caused high unemployment in the sessions, and that had been a real scourge in Britain for thirty years.

  • I think we thought this was a much better system was what we call operational responsibility, the chancer sets the objective and the Bank each month in its new Committee with independent members get sore and makes the decisions.

  • So fast forward twenty years has it Worked, if he's any doubt between nineteen ninety seven and two thousand seven, it worked really well in delivering inflation and stronger growth.

  • Of course, we don't have a financial crisis and a bit, a lot of changes made in the way in which we run a regulation and a financial policy important changes.

  • There is now a financial policy Committee in the Bank of England with regulation under the Bank of England's waiting, which is looking at those wider issues outside inflation and growth about credit.

  • The housing market, and that's something which I think the Bank of England, should have paid much greater attention to a change, which happens is two thousand seven have been good changes.

  • I think the work in progress.

  • I think there is still a floor, which needs to be sorted out in them, but did the older Rangers be ninety seven and two thousand seven caused the crisis.

  • No, what's the floor, you refer to an account arrangement for the current Treasury.

  • He's basically washed its hands.

  • If it's responsibility and said, we've got order, the Bank of England operational responsibility for setting interest rates with work really well for twenty years operational responsibility for the partial policy Committee making decisions about leverage or that lending or about housing policies in the financial system, fine, I think, just as a Treasury sets the inflation target, the Treasury should be setting a clear objective for financial stability of policy and the Treasury should be In there on a regular basis, the Chancellor, I'm not just an official talking to the Bank about the risks, whether being managed properly.

  • But there's more, we need to do, and it's that sort of subtle balance, which we established in nineteen ninety seven for monetary policy between operational responsibility and government leadership.

  • That's what I think we are currently lacking.

  • They mark on is doing a brilliant job, but to do this on his own with the Bank of England would be superhuman, he's a politically contentious things and the Chancellor should take more responsibility, it's the next step in the evolution of the system.

  • Was it balls, the former Chancellor talking listening to that interview was the economist Professor Charles good heart, he's at the London school of economics, he was a Member of that very first monetary policy Committee, the body within the Bank that sits interest rates, looking back to those days, it was a shock, not so much the idea of opinions, but perhaps the timing of it, that's correct.

  • It was mentioned in the run up to the election, but Gordon brown, at the time, had said that he would wait to see how the Bank of England was handling issues like some of the financial stability issues.

  • So, although we expected that it might come, we didn't expect it to come immediately after the other.

  • When looking back has actually worked did it did it do what, what was meant to Do it worked brilliantly, for the first ten years, with the exception that neither the Bank anyone else, including most economists realised that there was a great deal of financial instability, building up, Aye.

  • Banks were lending too much too much leverage not enough equity capital interviewed Paul said it wasn't their fault, or the structure, because, along with independence, financial regulation was put into a different body, the F.A., say, do you think that's a fear, a fear of judgement hall almost the structure.

  • Part of the problem, as well as the general ignorance.

  • I think the structure was part of the problem, and was not only the structure, he was the way people looked financial stability issues, they did, but they just didn't think that they could come as long as they thought they had, as long as the Bank kept the overall economy stable, they were get financial stability.

  • Alongside that, and that was a major error, you can easily have a situation where everything looks good, better at things look, the more people are prepared to take bits, which eventually turn out bad balls.

  • They also, hence, hence, that might be coming to an end, all that there could be a tweak to the structure.

  • Do you do you think the whole idea of independence is under threat at all, you gave a speech that slightly didn't affect yesterday, I think it could be the key issue is worrying about how do you manage financial Stability, but the pointer setting objectives were Jake mentioned, and how do you do it, you can't measure financial stability.

  • And you know what.

  • Inflation is, or at least, you know, with the various indices ages, but, I mean, how do you tell whether the U.K., no more financially stable today than it was yesterday, you can't, one of the problems at central banks, of course, have have to deal with is the ultra low interest rates that they sit after the financial crisis in two thousand seventeen years on, we still have those low interest rates.

  • This is how de and Julius, another former him P.C. Member, there put it when we spoke to him.

  • The aftermath of the financial crisis was quite a problem for this Bank of many central banks eventually they did drop interest rates down to the zero zero level.

  • Unfortunately, we're still stuck at almost a point.

  • So I think the system is getting much more complicated.

  • Now, how we need to find a way to get back into conventional territory.

  • Again, so there was Deanne Julius Charles, that's a question for you solve the world's problems at a stroke hell.

  • How do central banks get back to some kind of normality on on interest rates.

  • I don't think it's basically for central banks, one of the main problems is, there's a very considerable physical advantage is suing get rather than equity you can, because it does a favourable tax treatment dick.

  • It's A favourable tax treatment equity does knock, which means that, given the choice, most C.E.O.s of maize companies own financial intermediaries Willie's who'd get rather than Edward m. is that part of the expression, to think, as to why we are also indebted all right about the corporate sector, and we've actually got to change the system radically make the issue of equity, more attractive than make their years who were Gay had really lesser crack is their that's something that that a government has to do, you can't, you can't rely on the central Bank can't do that, you've got to start taking steps or on the physical side of the central Bank in the miracle, the fiddles, it has started to take some tentative steps back towards normal interest rates at all pretty low.

  • Can you see something similar happening here in the U.K., Oh, yes, of course, and producer, but you said, yeah, I know a lot of us feel that you have actually already have happened, the cut of twenty five paces points.

  • Immediately after the referendum was, I'm right at the time, but, in fact, the economy recovered and went on Muck isn't strongly of the people who thought that culture had been reversed.

  • Arguably quite long actually have we just shifted the problem that we had a nineteen ninety six people were afraid to take away the punch bowl.

  • It is this, it central bankers are afraid to take away the punchbowl absolutely in His puppy, in a sense, her own fault, because the low interest rates of encourage all these is suing of debt, we've now got a huge dead crap means a central Bank is frightened about raising interest rates, and that means with the low interest rates are dead.

  • It's ever bigger and bigger.

  • Thank you much Professor Charles good hot from the London school of economics or markets case, this morning is a lawful from genoise Henderson and vistas Laura, this could be big moment on the markets today trevelyan which a lot of people will know bitter as tarmac the construction company is going to release that Slater's results.

  • It's been one of the biggest fall from grace for a quota comely than I can remember, and I see a rueful look on your face.

  • You, you're your shareholder tell us what has happened.

  • Ensure they've had two real problems.

  • The first is that they've let the ballot sheet get far, far too levity, similar to what Charles was talking about too much too much debt or large pension deficit as well, so that's been built up over many years. second problem that they've had a staigh found a large number of extremely problematic contracts, so they've had to take an eight hundred fifty million pound provision, yes, huge provision earlier on this year, and they're still in the process of combing through the remainder of their contract work out if they've got any more problems.

  • The the finger That crilly much it, which intrigues me is that the accounts are out there, they say that this is this is that the state of financial health of the company, and at the same time, it's the most shorted in London, so lots of people think that Koreans troubles or an open secret and have bit on there.

  • She is going down.

  • How was that that it can be such an open secret that a company's in trouble, and yet nothing on the face of it, everything's fine.

  • So I think people were short, it because of the balance sheet of debt was there for everyone to see, as was the pension that was in the numbers what wasn't whizzed those problematic contracts mean that eight hundred fifty million provision took everyone by surprise.

  • The sheer scale of it was really not expected it did take Heather candidate, I guess it must be that, that's why the shares have recovered this week.

  • Personally, I think that's fairly unlikely to happen.

  • I mean, we'll see, but etching or falling.

  • My physics.

  • Well, whoever takes over will be taking on that problematic debt, the pension deficits, it's really not an easy recovery story for whoever is licking at it, something else, which is happening.

  • As we speak, he lon mask, these sort of going to it was talking about his plans to colonise Mars's latest planes to colonise Mars, a new emerging market for you on the red planet.

  • Perhaps I think I'll be waiting a little bit hopeful stinging to buy shares in Mars canals.

  • Plus, there's a serious point here, there was all these new technologies, canals, railways, the channel tunnel even that the ball had charismatic people have drawn and suck it investors that money's been burnt and then someone else has come and made a good Emily, maybe I'm too cautious.

  • I think it's always better to wait for the second generation.

  • These types of things. know, maybe we'll see it with tessler maybe test that will be the biggest car manufacturer in the world, but maybe won't be maybe I'll be beyond Robbie and then just cook it or back on planet earth Ryan again in trouble with the C.A.A.. it's arson to right again.

  • Wanna share price has not been much tainted by any of this.

  • Yeah, I find that quite interesting.

  • I think the cancelled fights themselves are not particularly material to the earnings, I'm quite surprised at their Rhino share price held up quite as well, because it's, it's much harder to work out what the implication is for their brand over the long term.

  • That could be more material will keep an eye on it.

  • Thank you much lawful from Janus in there, so you can listen to more free content from the today programme by going to w. w. w. dot c. dot co dot U.K. forward slash today.