THE BLOG
09/11/2011 07:46 GMT | Updated 09/01/2012 05:12 GMT

Is the Bank of England Really Independent?

A couple of months ago, while promoting his new book, former Chancellor of the Exchequer, Alistair Darling, let slip to the BBC that during the 2008 crisis he had become so exasperated with the Governor of the Bank of England, Mervyn King, that he sought advice from the Treasury on whether he could over-rule the Bank.

A couple of months ago, while promoting his new book, former Chancellor of the Exchequer, Alistair Darling, let slip to the BBC that during the 2008 crisis he had become so exasperated with the Governor of the Bank of England, Mervyn King, that he sought advice from the Treasury on whether he could over-rule the bank.

This small, but actually hugely important titbit, was missed by the UK's media. After all, if this conversation had indeed taken place and if the Treasury had indeed responded that Darling could in fact over-rule Thread needle Street, then that would pretty much do away with any notion that the Bank of England is an independent entity -- and put a huge question mark over the independence it was granted in 1997.

To get to the bottom of this, a couple of months ago Gold Made Simple sent a Freedom of Information Act request to HM Treasury asking it whether this conversation had taken place and, if so, what had been said. Here's what was sent:

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 over-rule 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 over-ruling the Bank of England made to Alistair Darling, to be made public under the Freedom of Information Act 2000.

Goldmadesimple 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.

A few weeks later we received a response from the Treasury confirming that some form of correspondence on this subject between the then Chancellor and the Treasury had indeed taken place but that it had identified the information as potentially not being in the public interest - or the interest of the economy - to release. Therefore it would need until early November to decide whether it would be appropriate to issue this information. Interesting, we thought.

But it gets even more interesting. Last week, when we were finally due to receive the information, we instead received another response from the Treasury saying that it needed even more time to decide whether it should release the information it holds regarding the conversation between Darling and the Treasury.

This says one thing to us. That there's something in this that potentially might be a little explosive.

After all, if HM Treasury releases information that states that the Treasury can in fact over-rule the Bank of England then any notion that the Bank is an independent policymaking entity quickly crumbles. We expect the response from the Treasury within the next fortnight or so, so watch this space.