More generally for the Bank’s employees – 7,200 by 1979, of whom 4,600 were banking staff, compared to 7,400, of whom 4,450 were banking staff, in 1970 – it was a decade of some austerity, especially as wage levels gradually slipped below those of the clearers, with Richardson perhaps less inclined than O’Brien had been to insist on operational autonomy in this sphere. Even so, the fringe benefits remained enviable and, prior to a certain tightening in 1978, largely untouched: not only subsidised lunches and the Housing and Educational Loan Schemes, but also interest-free loans to meet commuting expenses and unsecured personal loans for ‘approved purposes’. Paternalism, in short, still broadly flourished. ‘The Governor is very pleased with Tennant,’ was the word one crisis autumn about the governor’s chauffeur. ‘He has remarked particularly on his patience and fortitude during a period when he has had excessively long hours both of waiting and of driving. The Governor welcomed the idea that Tennant might receive some extra reward for his efforts.’23
In the world at large the 1970s were of course the decade of sharply deteriorating labour relations, and the Bank could hardly expect to be immune, not least given those eroding differentials with the clearers. In February 1973, after years of increasing dissatisfaction with the Council of Directors and Staff, the banking staff overwhelmingly voted to have their own internal representative body to negotiate direct with management; and by the end of the year the Bank of England Staff Organisation (BESO) was up and running, with the Court palpably relieved by the staff’s decision not to seek representation through a national trade union. BESO’s regular newsletters soon, though, had a notably sharp tone. ‘Well, so what?’ asked its general secretary, John Ward, in April 1974 in the context of the Bank having in 1972 fully implemented equal pay for women but continuing to refuse to make housing loans available to married women – on the grounds (in the Bank’s words) partly that ‘despite some erosion by current social trends, responsibility for providing the marital home still rests primarily with the husband’, and partly that ‘if all married women took advantage of the Scheme, the additional capital commitment by 1986 would be some £4.5 million’. Ward himself was adamant: ‘The Bank can afford it. There may be some employers in the City who cannot afford principles but the Bank is not one of them.’ Two years later, in a symbolic action, BESO moved its offices out of the Bank; while by December 1978, during Britain’s winter of discontent and with staff temporarily refusing (following a pay claim rejection) to co-operate on efficiency and productivity schemes, the recently appointed chief of Establishments, Rodney Galpin, was looking quite darkly through the glass. ‘The present dispute must be seen as an indication that staff relations are in disrepair,’ he observed to George Blunden (now the executive director in charge of staff matters), although he still believed that ‘there remains amongst the staff a basic loyalty to the Bank’. And Galpin went on:
Staff at all levels in the Bank are, I judge, to varying degrees now –
(a) demotivated and disillusioned with their lot while blaming it on the Bank;
(b) uncertain of the commitment which the Bank feel to their staff; and consequently critical of the Bank’s staff policies;
(c) anxious to be further involved.
More serious action was averted, but by spring 1979 there existed, according to the veteran staff representative Paul Clayton, ‘a small but powerful and vociferous group’ within the staff who wanted BESO to join forces with the national union, NUBE. ‘As much as these people are sincere in their views they are courting disaster,’ warned Clayton in the Old Lady. ‘In a large Trade Union our small numbers would be swallowed up and we would have little influence in our own future.’ Accordingly, he counselled ‘extreme caution when dealing with “Trade Unions bearing gifts”’.24 NUBE was soon renamed the Banking, Insurance and Finance Union (BIFU), and within a few years had succeeded in absorbing BESO after all.
The employment situation inevitably varied between departments: whereas staff working in Exchange Control increased from some 500 at the start of the decade to some 700 by the time Clayton was writing, those in the Accountant’s Department declined from around 1,300 to barely 1,000 – the latter change almost entirely the result of continuing computerisation. Computers themselves were at the centre of an invidious decision in 1971, ahead of their much greater use in the banking offices: in essence, the choice between the politically favoured ICL (British) or the technologically favoured IBM (American). ‘Sir Eric Roll suggested that the timing of a decision in favour of an American supplier would come especially ill against the Common Market background and wondered if we should not delay for two or three months,’ noted Jasper Hollom in July 1971 after a discussion with that non-executive director. ‘When I suggested that only a delay of two years or more would help ICL to compete more effectively he was half inclined to jump at such a prospect.’ The outcome the following month was a nicely judged compromise. After explaining to ICL’s Sir John Wall that the Bank was ‘reluctantly’ unable to alter its view that IBM were ‘better equipped to satisfy our computer needs at the next stage’, O’Brien went on:
However we had also to take account of Government policy in this field and of the national interest in developing a U.K., or perhaps later European, firm as a real rival to I.B.M. The Governor and the Court had given the matter the most careful consideration and had finally decided on a two-centre solution, entrusting the Accountant’s Department to I.C.L. and the remainder of the Bank’s needs to I.B.M. This roughly 50/50 division would, we hoped, spur I.C.L. to make every effort to prove themselves truly competitive and no one would be better pleased than the Bank if they succeeded.
Sir John expressed his gratitude for the line the Bank had taken …
As for IBM’s reaction, further noted Hollom after their man had called on the governor, ‘they were grateful to us for deciding to entrust to them the more complex part of our programme’. More generally, technology mattered ever more. ‘Telephones had been giving trouble in the dealing area and this created grave problems,’ John Fforde was reported as admitting in February 1974 after visiting the Gold and Foreign Exchange Office. ‘Moreover, there was a considerable delay before new direct lines could be installed. He [Fforde] had been told that Post Office engineers had intimated that a £200 bribe could expedite matters.’ ‘If this were in fact true,’ added that most austere and upright of men, ‘it was a serious situation.’25
Later in the decade Fforde contributed to the Old Lady’s regular ‘As I See It’ column. ‘Is the Bank’, he wondered at the end of some stimulating if tortuous reflections about how society had changed so much during his lifetime, ‘an institution that tolerates dissent, fosters an experimental freedom tempered by effective self-regulation, and prefers a persuasive leadership that proceeds by consent?’ To which he answered: ‘I think it is.’ The previous issue’s column, earlier in 1977, was written by Tony Carlisle. Focusing almost throughout on the Bank itself, and comparing it with the Bank of the mid-1960s, he was inclined to accentuate the positive: more delegation (partly reflecting the growth in the overall volume of work) and more personal involvement; lower barriers between different types of staff (‘it would have been rare indeed fifteen years ago for the most senior people to join the most junior in the bar to celebrate a birthday or a wedding or a change of work, but this is now common practice’); and discrimination against women ‘now a fading memory’. But although relaxed about changing sartorial standards (‘white collars, once de rigueur, are now a rarity’, likewise ‘waistcoats, braces, and shoes with laces’) as well as hair styles (‘it is pleasant to see full scope given to individual choice’), Carlisle did have three gripes: ‘idiosyncrasies of spelling’; ‘the practice of knocking on doors, wholly unknown here until a few years ago’; and the tendency of specialist recruits (as opposed to ‘aspiring central bankers’) to be ‘sometimes slow to develop a corporate spirit, hitherto one of the Bank’s great strengths’. Those were two contemporary assessments in the Old Lad
y. A third, also in the magazine but not until 1985, was more retrospective:
I have always had the feeling [wrote the editor, David Pollard, who had been at the Bank since 1965] that the Bank was far too slow, particularly in the late ’60s and the ’70s, to react to the needs of a workforce which was increasingly volatile, drawn from an ever-widening social spectrum, and threatened by the march of technology. My impression was that, bearing in mind the considerable resources devoted to ‘man management’, the Bank was surprisingly unprofessional in its approach to that particular task. It often seemed that the Staff Principal, instead of being selected on the basis of a natural talent (which some have, but most don’t) for staff work, and specifically trained as a specialist in that field, was either a technician who had to do a ‘staff job’ before moving on to higher things, or just a ‘nice guy’ …26
Hidden from the pages of the Old Lady, and perhaps consciously or otherwise responding to the wider national mood, an agenda for fundamental institutional change emerged during the second half of the 1970s.
Christopher Dow set the ball rolling in April 1976 with a paper on ‘Possible Future Lines of Development for the Bank’. In essence, he wanted the Bank to attain ‘a role as an adviser to the Chancellor of the Exchequer separate from and roughly parallel to the Treasury’ – in effect, ‘a claim to “parity of esteem” with the Treasury’. This would involve not only building up greater economic expertise, but also cultivating a more modern public image. ‘Even small questions of appearance matter,’ insisted Dow. ‘It is worth asking whether the Court Room is a good place for a business meeting to take place; whether indeed the Court should be called the “Court”; whether messengers should wear pink coats. The Bank could benefit from a phase of aggiornamento.’ Further aspects of helpful change might include ‘the Bank “distancing itself” somewhat from the City’; a more balanced Court (‘Perhaps a possible formula would be three City and Business; three other “rightish”; three TUC and other “leftish”; and three “independent”’); the Court itself being ‘used more explicitly as an Advisory Council’; generally, ‘more frequent, more extensive and more formal meetings with industrialists’; and even the establishment of ‘a formal Industrial Advisory Committee’. In the fullness of time, it would become clear that Dow’s was a vision that, taken as a whole, anticipated much of what lay ahead. But in 1976, although Richardson apparently told Dow that he went ‘a long way’ with the paper, that was less immediately apparent; and with Dow himself, conscious of the waning influence in the Bank of his Keynesian views, letting it be known that he hoped to go to the Treasury but vexing the governor by failing to tell him to his face, his paper failed to build up the necessary head of steam, even after it turned out that he was in fact staying at the Bank.27
The next initiative came from Kit McMahon. ‘Externalising the Bank’ was the title of his June 1977 paper, written in the context of an ongoing internal debate about how – in the wake of the troubles of 1976 – the institution should improve its hitherto not particularly impressive communication skills. There were, he argued in typically robust fashion, seven main reasons why in recent times the Bank had been ‘subject to abuse, misrepresentation, belittlement, etc’:
(i) Misunderstanding about our aims, activities, our intellectual quality, the kind of people we are, etc.
(ii) Actual mistakes, bad decisions, bad handling of situations, etc.
(iii) The implementation of decisions of policies which may be appropriate or indeed very desirable on general grounds but which adversely affect vocal individuals or institutions.
(iv) The rise of an extremely vocal and opinionated strain of extreme monetarist thinking.
(v) The now rather widespread view that any obvious manifestation of the Establishment has an inherent tendency to be ridiculous, stuffy, overbearing, well-off, etc.
(vi) Straightforward hostility from the Left to the Bank based on the feelings mentioned above, together with race memories of Montagu Norman, hostility to the City and indeed almost everything to do with finance other than receiving it.
(vii) The failures, apparent or real, of British economic performance and of the authorities’ capacity (in the most general sense) to overcome them.
As to what to do about all this, McMahon had a suggestion:
We tend to play our news management extremely straight. Naturally there are very good arguments for continuing to do so but it is a rough world and a gentleman among a lot of players is apt to appear wet and stuffy. We could simply put up with this stoically and perhaps this is what we should do. If, however, we were prepared to be a little more calculating, a little more ‘political’ in our off-the-record comments, letting journalists know what we were going for and where we were finding obstruction, I think we might find it possible not only to change our image and get ourselves more space in the press and more respect as a motive power in policy; we might also enhance our ability actually to influence policy.
In short, it might be time to start exercising the dark arts. That was indeed the way the world was going; and in the event, it was not long before the Bank’s press office started to become far more professional and systematic in its approach.
The third initiative was, in its internal implications, the most important. It began with a memo on ‘Organisation’ that George Blunden sent to Richardson in August 1978, almost certainly following conversations between the two men about the desirability of a major restructuring. At the heart of Blunden’s analysis was the identification of a series of shortcomings. ‘On many matters,’ he argued, ‘Governors and Executive Directors have to rely on “grape-vine” methods to keep themselves informed’; budgetary control had become ‘highly centralised under the Deputy Governor’, with heads of departments ‘inadequately involved’; the chief cashier’s role ranged ‘too widely to fit effectively in the Bank of the 1970s’, with one man being unrealistically expected to be ‘deeply involved’ in ‘the detailed work of credit and monetary policy and in the conduct of monetary operations’ at the same time as being ‘chief administrator of the Bank’; whereas, by contrast, at least three of the four executive directors ‘do not have clear-cut executive roles’ and ‘tend to form a separate little pyramid under the Governor parallel to the larger one going down through the Chief Cashier and other Heads of Department’. To remedy the situation, Blunden proposed an essentially twin-track remedy: on the one hand, in a clear echo of McKinsey a decade earlier, giving the executive directors proper and meaningful executive job descriptions; on the other hand, seriously reducing the chief cashier’s responsibilities. Given that the chief cashier (then John Page) had been at least the third most important person in the Bank for virtually three centuries, this was – as Blunden well knew – potentially incendiary stuff.
Richardson’s next step was to commission a more detailed report on the Bank’s organisation from Lord Croham, who as Sir Douglas Allen had been head of the Civil Service and who joined the Bank in 1978 as a special adviser. In early April 1979, he sent his draft report to the governor. Pointing, like McKinsey and Blunden, to the long-run failure to integrate the executive directors into the Bank’s management structure (‘policy co-ordinators without managerial responsibilities’), Croham asserted that ‘there is a general feeling in the Bank that the present management structure is unclear and frequently leads to delays in decision making and a misdirection of the efforts of higher management’; and he called for ‘an organisation in which the lines of command ran through Executive Directors to areas for which they were responsible for both policy and general management’. Just over a fortnight later, having discussed possible policy options with the governor, Croham in his amended report came up with a solution remarkably like Blunden’s twin track. It was not yet, however, a done deal; and in the meantime, there was the small matter of a political and economic revolution for the Bank to handle.28
17
Serious Misgivings
‘Proper control of the money supply is
unlikely to become a simple matter,’ the Bank at the end of April 1979, shortly before the general election, warned the next chancellor. ‘With a combination of correct judgement and good fortune, the authorities are able to steer a course that allows the money supply to grow within its permitted range without this being accompanied by unforeseen, unwelcome, or unacceptable behaviour of either the rate of exchange or the rate of interest.’ Unfortunately for harmonious relations, the problem was that the new Tory government under Margaret Thatcher had a zealous and unbending streak of monetarism, quite different from the Bank’s far more cautious approach.
On Thatcher’s part, this streak involved attaching huge importance not only to the meeting of tight monetary targets (especially £M3 targets) but also to the ultimately will-o’-the-wisp doctrine of monetary base control (MBC) – a doctrine based on the theory that (in the retrospective words of her first chancellor, Sir Geoffrey Howe) ‘the Bank of England could control the money supply directly by manipulating and targeting the small deposits held by the clearing banks at the Bank’. The Bank was not keen from the start, with a paper by Charles Goodhart and others in the June issue of the Quarterly Bulletin arguing that MBC would ‘threaten frequent and potentially massive movements in interest rates, if not complete instability’, quite apart from serious ‘disturbances and dislocations to well-established arrangements’. Undeterred, Thatcher soon afterwards commissioned a joint Treasury/Bank study of MBC, a study that over the next half-year or so moved at fairly glacial speed. Thatcher herself, understandably perturbed by the sharp hike in MLR (14 to 17 per cent) in November after a rapid rise in the money supply had led to a funding crisis, became increasingly impatient. ‘Wass noted that the Prime Minister and the Chancellor were continually pressing for progress and made it clear, in answer to a question, that it was the Bank that was seen to be responsible for the absence of faster progress, this being our particular area of responsibility,’ ran the Bank’s record of a Richardson visit to the Treasury shortly before Christmas.
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