Would Nigel Farage threaten BoE’s independence?

Good morning. At noon on Thursday, the Bank of England will decide whether to lower interest rates from 4 per cent. Financial markets are fairly sure the BoE’s Monetary Policy Committee will opt to pause instead. One thing I think is certain is that Labour ministers will not criticise the BoE after the meeting.

I am also sure that the convention of accepting the MPC’s judgment would not hold with a Reform UK government headed by Nigel Farage, who will set out the party’s “economic vision” in the City of London today. So what would the UK’s central bank look like if it were operating with Reform in Downing Street?

Farage’s deregulatory zeal

We can get some clues from a recent Bloomberg interview. Farage made an explicit threat to sack the BoE governor Andrew Bailey. “Well, he’s a nice enough bloke . . . but he’s had a good run, we might find someone new,” he said. He called for all banking regulation to go back to the central bank, saying the conduct rules that led him to be briefly debanked a few years ago were made by the “utterly useless” Financial Conduct Authority. Most importantly when it came to financial regulation, Farage said the BoE and other regulators needed to be more favourable towards cryptocurrencies because they “have got to understand that the world has changed”.

I could point out some obvious factual errors that Farage made. Bailey’s term runs to 2028, so he will already be gone by the time of the next scheduled election. The BoE also did not do most financial conduct regulation before 1997, which was undertaken by government departments and a bunch of self-regulatory bodies.

It’s also true that there are some glaring contradictions in Farage’s views. One was when he claimed credit for Bailey changing his views on stablecoins after a private meeting in which he told the governor that his views were “dinosaur like” and “ridiculous”. A few minutes later the Reform UK leader was asked about other private meetings and he insisted he was very discreet, so that “if I have private meetings with people, I never discuss them”.

I could even note that Farage’s view of technology is weirdly quaint. “Go to Miami,” he said. “Fly to Miami tonight and tomorrow morning you can go out and buy everything from a Starbucks coffee to a Ferrari with a card you’ve loaded up from an ATM with Bitcoin, Ethereum or other currencies”. Perhaps he has not been shopping much in London, but you can buy all those goods with a debit card linked to your UK bank account and with zero transaction fees. The reason some people in Miami contemplate cryptocurrency for purchases is because the US banking system and payments infrastructure is so expensive and far behind that of Europe.

But rather than dwell on all that, I want to pose the question of whether BoE independence is better or worse protected by the UK’s institutional checks and balances than the Federal Reserve is in the US, where it is under sustained fire from President Donald Trump. Remember, central bank independence is not a goal in itself, it just happens to foster better economic outcomes generally.

In existing legislation, a Farage government would struggle to undertake mass sackings, because BoE governors and deputy governors can be removed only if they miss meetings, are bankrupt or are unable or unfit to discharge their functions. Being unfit to discharge functions is underpinned by significant legal precedent and could not simply be the whim of a prime minister saying something like, “she’s had a good run, it’s time for someone new”.

That said, a UK government with a significant majority could just change the law, so the ultimate checks and balances are definitively weaker in Britain.

But a Farage government would not need to take such a drastic step if it wanted control over the BoE. If it was in power between 2029 and 2034 it might not get to pick the next governor or the one after because Bailey’s replacement would serve from 2028 to 2036. But it would get to pick four deputy governors who serve five-year terms and four external members of the MPC, who serve three-year terms. The same is true for other BoE policy committees.

As far as setting interest rates is concerned, a Farage government would be able to appoint at least seven of the nine members in a five-year parliamentary term, so it could gain a majority on the MPC pretty quickly within a parliament.

All of that is perfectly proper. It should not scare anyone. Nor should Farage saying he wants more control over the BoE. That always happens with any government that sets the central bank’s mandates and appoints senior staff. The only thing that should scare people is if the quality of appointments were to suggest that a Reform UK government really did not care about inflation and financial stability, but just wanted to juice the economy for short-term advantage. That would be dangerous. But we have not seen or heard that from Farage or Reform UK.

Now try this

Along with many of my FT colleagues, I am a superfan of The Celebrity Traitors. I fear though that this week’s final will be something of a damp squib with the faithfuls prevailing easily. Come on producers. Give the Traitors a helping hand, I say . . . 

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