The moment is fast arriving when Sajid Javid will choose Mark Carney’s replacement as the governor of the Bank of England, and Westminster is alive with speculation.
One of Javid’s first requests on being made chancellor was to be brought up to speed on the runners and riders for the Threadneedle Street race, although the official Treasury line is that an announcement will be made in the autumn.
Javid’s interest underlines the importance given to getting the right man or woman for the job. He has to decide whether to appoint one of the candidates on a shortlist, drawn up for him by a panel headed by the Treasury’s permanent secretary, Sir Tom Scholar, or choose someone else entirely.
There was a time when picking a governor was an uncontentious affair. In the years immediately after Gordon Brown granted it operational independence in 1997, the Bank operated largely as a monetary policy institute and concentrated on hitting the government’s 2% inflation target. Mervyn King was the obvious choice to step up from deputy governor to succeed Eddie George in 2003.
That was before the banking crisis of 2007-08, which resulted in the Bank being given responsibility for financial as well as monetary stability. It was before a decade of squeezed living standards and austerity, and it was before the UK voted to leave the EU. Bank of England governors are unable to avoid being dragged into political controversy whether they like it or not. Carney, a street fighter by nature, has rubbed plenty of Tory MPs up the wrong way with his downbeat Brexit forecasts.
One school of thought is that Javid will play it straight, choosing someone who knows their way around the financial markets, has a network of international contacts and can be trusted to steer the economy through what might be a tricky period. With the pound under downward pressure in the currency markets, there is a case for this sort of appointment, and the chancellor has someone who fits the job spec in the form of Andrew Bailey, the chief executive of the City watchdog, the Financial Conduct Authority.
A variation on this theme would be for the Treasury to appoint one of its own to run the Bank, either Sir John Cunliffe, who worked at the Treasury and 10 Downing Street before becoming one of the Bank’s governors or Sir John Kingman, the chairman of Legal and General but once a senior mandarin at Whitehall’s most powerful departments.
Johnson has appointed the most ethnically diverse cabinet in Britain’s history, which has seen bets placed on Minouche Shafik and Shriti Vadera. Of the two, Shafik, the director of the London School of Economics, looks to have the better chance. Born in Egypt, she worked at the World Bank, Whitehall’s international development department and the International Monetary Fund before joining the Bank in 2014. The fact that she left after two and a half years after reportedly falling out with Carney is probably a plus point as far as the current government is concerned.
Vadera was born in Uganda and arrived in the UK as a child after her family was expelled by Idi Amin. The difficulty for the chairwoman of Santander’s UK arm is that she was once a special adviser to Gordon Brown. Given that Johnson sacked two Brexiter ministers, Liam Fox and Penny Mordaunt, because they had backed Jeremy Hunt in the leadership race would appear to make a Vadera appointment extremely unlikely.
There is, though, another option. It involves Javid ignoring the names on the shortlist and plumping for Gerard Lyons, the former chief economist at Standard Chartered.
Lyons would certainly be a controversial pick. Questions would be asked about whether he has the management skills to run an institution as big and complex as the Bank. Eyebrows would be raised that a government which might last only months was handing him an eight-year fixed-term job. By no stretch of the imagination is Lyons the safe pair of hands choice.
But Carney was not on the shortlist either, and so far this government has relished doing the unexpected. From Johnson’s perspective, putting Lyons in to run the Bank makes sense.
Firstly, he has a good backstory. Brought up in Kilburn in north-west London in an immigrant Irish Catholic family, Lyons would comfortably be the most working-class governor Threadneedle Street has ever had.
Secondly, he worked for Johnson when he was mayor of London and was one of the minority of economists that backed leave in the Brexit referendum campaign. The prime minister considers him “one of us”.
Thirdly, Lyons is an expansionist who shares Johnson’s upbeat view of the world. After an inevitable period of disruption, he thinks Britain has a bright post-Brexit future. He believes public spending should be actively used to boost growth and was a critic of George Osborne’s austerity.
Fourthly, Lyons is an expert in China and other emerging markets, and that will be helpful to the government as it tries to deliver on its promise of a global Britain.
Last but certainly not least, appointing Lyons would send the clearest possible message to the rest of the EU that the government means what it says about leaving with or without a deal on 31 October. Treasury officials no doubt see Lyons as too risky, but they won’t be making the decision. Javid will, with input from Johnson and Dominic Cummings, and they might have a different perspective.