ALEX BRUMMER: Bank of England takes up the slack amid fears for its independence
Under the leadership of Governor Andrew Bailey, the Bank of England has done a sterling job in helping to limit the damage from the pandemic.
In the early days of lockdown here and across the world it stepped in to calm financial markets with the first round of buying government bonds to keep the markets from falling over a precipice.
Since then it has intervened twice more, bringing the total amount of quantitative easing up to £450billion. That is almost one quarter of all Britain’s national debt.
Pressure: In the early days of lockdown the Bank of England stepped in to calm markets with the first round of buying government bonds to keep the markets from falling over a precipice
As heroic as this has been in supporting the banking sector and keeping Covid loans flowing to business, the scale of the intervention has worried monetary purists.
The fear has been that the scale of the bond buying and the close liaison with government on pandemic measures may have impinged on its independence.
A simple question to be asked is: could Rishi Sunak have financed his record level of borrowing in the current fiscal year if the Bank was not in the market as a buyer of last resort?
Some of the gilt auctions, when the Government sells off its debt, suggest it might have been a close-run thing were the Bank not standing behind the Treasury.
As Bailey’s predecessor Mark Carney observed, in the context of Brexit, the UK is dependent on the kindness of strangers.
There is only so much gilts that UK banks, insurers and pension funds must, and want to, hold on their balance sheets and much of the rest is bought by sovereign investors in the Gulf, Norway and elsewhere.
The blurring between what the Bank does and the Treasury’s role was complicated by the Chancellor’s public spending statement in the Commons.
Sunak told MPs that the ‘underlying debt’ – removing the temporary effect of the Bank’s asset purchases – would be 91.9 per cent of national output.
This looked to flatter the reality as outlined by the Office for Budget Responsibility (OBR), which said that net debt would be 105.2 per cent of GDP.
The Chancellor’s objective, we are told, was to show underlying debt is increasing every year, whereas the OBR’s numbers bounce up and down.
Inadvertently or not, the Chancellor has wandered into dangerous territory. Critical analysts will wonder whether the interest rate-setting Monetary Policy Committee is acting on its own behalf or doing the Government’s bidding.
Insurance entrepreneur Sir Peter Wood is set for another big payday with the agreed takeover of comparison website Go Compare by Country Life publisher Future.
Wood’s 29.65 per cent stake is worth £170million, of which £40million will be taken in cash. He will retain a stake of 5.7 per cent in the enlarged enterprise, which has expanded rapidly under the leadership of Zillah Byng-Thorne.
Wood, who has been confined to his Surrey mansion during lockdown, is an entrepreneur who takes his citizenship seriously in spite of spending much of the year in the US, where he has big insurance interests.
He says he will be paying the full whack of capital gains and other taxes on the sale, adding to the £200million he has handed to HMRC from previous transactions. He contrasted his decision to remain a UK taxpayer with those of business figures who chose non-domicile status.
In particular he had harsh words for those non-doms (unnamed) who don’t pay taxes in the UK but have taken advantage of the furlough scheme while not paying their fair share.
Wood is clearly pleased that Go Compare, where he has been actively involved, is going to a good UK home and not ending up in overseas hands.
He wants to see UK enterprise thrive and advises the Chancellor not to punish firms by solving his borrowing and debt problems on the back of business by raising capital gains and corporation taxes.
On that advice, we can all agree.
Pandemic or not, commerce goes on. Unilever has dipped another toe in the good health pool by buying California-based Smartypants Vitamins from co-founders Courtney Nichols and Gordon Gould.
The big selling point is that all the company’s supplements are made with bio-available nutrients.
Unilever boss Alan Jope is taking a leaf out of the late James Hanson playbook who a generation or so earlier bought Seven Seas on the grounds that cod liver oil would keep him well and be the next big thing.