In the City
J'accuse Bank or Treasury
Nicholas Davenport
One of the chores for the writer of this column is to wade through the thick bulletins of the Bank of England and the National Institute of Economic and Social Research. It is a dreary business. I prefer the National Institute because its bulletin is more outspoken, less inhibited and nonmonetarist and because it occasionally brings on an agreeable Keynesian nostalgia. The Bank bulletin is frankly dull and has become more so by including last week ten pages of the speeches of the Governor, Gordon Richardson, who is no Delphic oracle. It is also on occasion maddeningly smug.
A smug understatement which I found provocative came on page 23 of its bulletin. I quote: 'Two new issues £500 million Exchequer 131 per cent and £800 million Treasury 13i per cent 2000-03 were made on 22 February and over-subscribed'. This was its only reference to the greatest public outrage ever committed by the Treasury — the floating of over a billion of public debt with such an unnecessarily high coupon that it gave the moneylending stags a quick profit of £100 million on the 'long tap' alone!
This insult to us suffering taxpayers was accompanied, as I have said, by a private insult to the many brokers who could not lodge their applications in time because the Bank's issue department closed its window at one minute past ten on a long struggling queue of City messengers. On the initiative of two frustrated brokers the Council for the Securities Industry made a formal complaint to the Bank about its failure to provide proper facilities for new issues and the Bank has now agreed to make the full length of its counter available in future and not just three parts of it and to have its four lifts working and the staircase open and not closed. Slowly and painfully the Bank is being brought up to date — but not alas! on its economic and financial thinking.
My main complaint is that it is applying its new-found monetarism in the crudest possible manner and in the most harmful way to the business world. Its simplistic monetarism compels it to move interest rates up and down in accord with the chance movements of an imperfect money supply figure — M3. It has been happy to do this because the wrong-headed 'Competition and Credit Control Directive' of 1971 put the emphasis on changes in interest rates as the technique of economic control instead of a more direct control of bank lending. But it should have dawned on the Bank by this time that you cannot get the best out of a world-trading industrial economy by just pushing Bank rate up and down. It has driven businessmen out of their minds and it has alienated their working force. There were 13 changes in Bank rate in 1975, 15 changes in 1976, 18 changes in 1977 and 7 changes in 1978— from an extreme low of 64 per cent to a high of 124 per cent (subsequently 14 per cent).You cannot plan a business with such frequent changes in the money costs of operation and you will never convince workers that the Government is seriously concerned about creating stable conditions for steady employment. My next complaint, still prompted by this bulletin, is that the Bank has been financing the Government's borrowing requirement in too expensive and shortsighted a manner. Its high coupons have been outrageous and will tempt later governments to let inflation breed to make repayment of this expensive debt less burdensome. Indeed, as the dear money policy of the Bank has been slowing down the economy and inhibiting the creation of new wealth it has been making a continuum of inflation inevitable. The last budget's financial statement gave the interest charge on local and government debt as £84 billion. With our huge budget deficit the interest charge seems to be mounting at the rate of over £4 billion a year. When it reaches £10 billion it will mean that 124 Per cent of our wages and salaries will have to be diverted from consumption to service this expensive debt. Has it never occurred to the Bank that there is a less extravagant way of financing the borrowing requirement than by the constant issue of highcoupon 'tap' stocks? The only answer it has so far made to mounting public criticism is to issue this week £800 million of Exchequer 121 per cent stock by tender! We are now swimming in debt. Long ago the Economist — I think it was Donald Macrae — suggested that the Bank might consider issuing some form of equitY stock which would not burden future generations with a heavy debt service charge. Nowthat socialist governments have been acquiring large slices of the national assets this idea has become highly relevant. The obvious assets which could be sold off would be the profitable national boards. I have already suggested that the gas and electricity boards could be unitised and a proportion of the dividend-paying units offered to residents and workers of the UK. The opportunity might then be taken to offer, say, 25 per cent of the units to the gas and electricity workers provided they gave up the right to strike. The units would not be given free to workers; they would be held in escrow by a state finance company until the dividends had repaid the cost of the units. The English disease is, as we should all know, mental; it is the mental disinterest felt by the British work force in increasing productivity and creating new wealth. It is the dusty answer of the Marxist indoctrinated to private enterprise. Does the Bank really think that it can change the mind of an alienated work force by restricting the money supply of its managers? Has it no better way of treating a mental patient than by ill-treating its nurse? The Bulletin finally calls for cuts in public expenditure to avoid the need for higher taxes in the budget but it does not seem to occur to the Bank that apart from eliminating waste and extravagance the most desirable cuts to be made would be in the huge debt service charge which it is imposing on us taxpayers.
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