FoI UPDATE: The Treasury admits it has information on over-ruling the BoE – says releasing the information may ‘prejudice the UK economy’
At the start of September we penned a piece on the startling revelation by Alistair Darling that the Treasury sought legal advice on whether they could over-rule the Bank of England.
Asking this question is startling in-and-of itself, given the fact that we are constantly told that the BoE is independent of the Treasury.
But the really startling thing was the reply Darling got from the legal team at the Treasury – yes he could over-rule Mervyn King and the MPC.
After reading on BBC News that Darling was told he could over-rule the BoE Gold Made Simple sent a freedom of information request to the Treasury for the following inflation:
Goldmadesimple is seeking all documentation (including but not limited to, minutes of meetings where this matter was discussed, emails where this matter was discussed and written correspondence where this matter was discussed) relating to the authority of the Treasury to overrule the Bank of England as implied by the BBC News article.
Goldmadesimple is also seeking full disclosure of the final advice on the matter of overruling the Bank of England made to Alistair Darling, to be made public under the Freedom of Information Act 2000.
Goldmadesimple News is also seeking disclosure of whether this advice (that the Treasury has the legal authority to overrule the Bank of England) was also made available to the Bank of England themselves and/or any other government departments.
Before we reveal the Treasury’s response perhaps its worth refreshing our memories why the BoE is meant to be independent in the first place. It was Gordon Brown as Chancellor of the exchequer on May 6th 1997 who ‘granted’ the BoE independence. At the time the BBC said this on independence of the BoE:
It means the bank will now be free to decide monetary policy without taking the short-term wishes of politicians into account
So, the implication here is that if politicians get involved with operational policy (like setting interest rates or even QE) they will not act in the best long term interests of the people, but rather will act out of short-term political self-interest.
For some more colour on why we are told that an independent central bank is vital for a sound economy here is what the ‘Central Bank’ wiki page has to say on the matter:
Advocates of central bank independence argue that a central bank which is too susceptible to political direction or pressure may encourage economic cycles (“boom and bust“), as politicians may be tempted to boost economic activity in advance of an election, to the detriment of the long-term health of the economy and the country. In this context, independence is usually defined as the central bank’s operational and management independence from the government….
…It is argued that an independent central bank can run a more credible monetary policy, making market expectations more responsive to signals from the central bank. Recently, both the Bank of England (1997) and the European Central Bank have been made independent and follow a set of published inflation targets so that markets know what to expect…
…Governments generally have some degree of influence over even “independent” central banks; the aim of independence is primarily to prevent short-term interference.
[emphasis ours]
It’s clear, BoE independence has been sold to the British public as necessary and beneficial because, simply put, politicians can’t be trusted with operational monetary policy because they will be tempted to “boost economic activity in advance of an election, to the detriment of the long-term health of the economy and the country”.
And the independence card is still being played to this very day. Here is George Osborne just last week talking about the BoE’s decision to print $75bn – listen carefully 5 seconds in.
Did you catch it? He said:
I think it is the right way forward for this country, that the Bank of England undertakes quantitative easing, they’ve made that independent judgement…
Of course the subtle sub-text of using that word ‘independent’ is basically saying to the UK public that “don’t worry, this isn’t a ‘political’ decision, some very wise men separate from government and short-term political goal-seeking have made the decision to print, so it must be ok, right?”
So if it turns out that the Treasury not only asked if it could over-rule the BoE, but was also told that it could, this pretty much blows out of the water any notion that the UK has an independent central bank. And by extension any supposed benefits of independence, like preventing politicians acting in a manner ‘detrimental to the long-term health of the UK economy’.
It’s probably also worth remembering that it’s not just whether the Treasury has over-ruled the BoE, but just as important is whether it has threatened to over-rule the BoE. Even a threat of over-ruling calls into question any central bank independence.
So with all the above in mind here is the response to our FoI request in full from the Treasury:
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First note that importantly the Treasury admits that it does indeed have information relating to whether the Treasury can over rule the BoE when it says:
I can confirm that the Treasury holds some information in scope of your request
It then sights two sections of the FoI Act that allows the Treasury exceptions from releasing the relevant information.
Section 42(1)
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Or in other words “we don’t have to tell the UK public because advice from our lawyers is just between us and our lawyers”.
However, it really isn’t as simple as that because if it can be shown that it is in the public interest to release advice given by government lawyers then legal advise has been released to the public before.
Probably the most famous case of legal advice being made public in the UK is that of the then Attorney General, Lord Goldsmith and the advice he gave to the Blair government on the eve on the Iraq war. Eventually the legal advice was made public – some 7 years after the start of the war though.
But the point is there is precedent for legal advice to be made public and the 42(1) exemption certainly isn’t some ‘catchall’ exemption.
However it is the next reason for exemption where things get really interesting:
Section 29 (1)(a)
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Yup, you read that correctly. The Treasury is actually arguing that making public the advice on over-ruling the BoE would prejudice the economic interest of the UK. How?
Are they essentially admitting here that if the public knew the truth, that the BoE isn’t really independent, this fact would damage the UK economy?
However, the final paragraph does offer some hope that this vital inflation be made public:
We always aim to reply to requests in full within twenty working days, even when the balance of the public interest is required; however in this case, the Treasury has not yet resolved the conflicting considerations
There is clearly a debate going on inside the Treasury right now on whether to release this information. So at least there are some inside the Treasury who think the public in the UK has the absolute right to know what monetary system the UK actually operates under, not just what they are told they operate under.
However, we’re certainly not holding our breath that the Treasury will turn around and release this crucial information – we hope we are pleasantly surprised.
We also hope people realise that this issue goes to the very heart of the financial crisis in the UK and demands public attention and media attention. The public simply must be told what clearly broken monetary system they operate under. For how can we fix a problem if we don’t even know how it really operates?
Watch this space for more details around November 1st.
Related posts:
- Freedom of Information request made to the Treasury on its authority to ‘overrule’ the BoE
- UK PMI shows economy teetering on the edge of recession
- Gold Price Update: 200 Daily Moving Average
- The UK government can “overrule” the BoE – so much for independence
- Political economy and the crisis
Link to this article: : http://www.goldmadesimplenews.com/gold/foi-update-the-treasury-admits-it-has-information-on-over-ruling-the-boe-says-releasing-the-information-may-%e2%80%98prejudice-the-uk-economy%e2%80%99-5469/
Posted by Thomas Paterson on Oct 17 2011. Filed under Analysis, Gold News, Markets.
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