Till Time's Last Sand

by David Kynaston

  Exactly three weeks after Thatcher’s landslide triumph was Richardson’s final day in office. It concluded with a dinner in the Court Room for directors and wives, at the end of which there entered ‘beneath an enormous busby a vast piper’ who, recorded Dow, ‘marched slowly round the table, solemnly piping, and slowly back, and slowly round again, finally saluting before the Governor, whom he dwarfed’. That was a relaxed occasion, unlike some other formal meals during his governorship. In 1981, a week after becoming a Treasury minister, Jock Bruce-Gardyne had been ‘bidden to luncheon’:

  On arrival I was ushered up to Kit McMahon who, after a brief exchange about the weather, took me on to the Governor’s sanctum. Once again, a brief word of welcome, and then in we passed to a substantial dining-room. Gathered there were about 16 assorted Bank top brass awaiting our arrival. In silence. A glass of sherry was proffered, and then the Governor took me round the circle of introductions. No one else spoke. We sat down, myself on the Governor’s right hand, Lord Croham on his left, Kit McMahon opposite. Apart from these three, and a rare intervention from the head of the Bank’s market operations, Eddie George, no one round the table used his mouth for any other purpose than to swallow food throughout the entire meal. One and all stared, as if mesmerised, at my host. I emerged to my waiting car sweating.

  In the tradition of Norman, Cobbold and Cromer, if not perhaps Catto or O’Brien, Richardson was the last of the governors to be treated – and, in his case, sometimes to demand to be treated – as akin to an Eastern potentate. But during ten of the most challenging years in the Bank’s history, he had in many ways proved himself as one of the great governors. Perhaps he was vain, perhaps he was arrogant; undeniably he could take an eternity deciding what to do, resulting in what one aide called ‘paralysis by analysis’; but he had a fine mind, a deep devotion to duty and an infinite capacity for taking trouble. Neither the secondary banking crisis of the mid-1970s nor the international debt crisis of the early 1980s would have been resolved nearly so successfully without those qualities. A final word – to return to matters of the table – goes to the member of the governor’s office who wrote in March 1981 to Mr Mounce, BE Services Limited, about ‘Menus for Court Room Functions’:

  1 The Governor does not approve of Smoked Salmon for a large number of people because of its terrible price nowadays.

  2 He feels strongly that the foods which are actually in season at the time should be served – e.g. Pheasant is certainly not in season at the end of April. You cannot go wrong with Asparagus, Strawberries and especially Raspberries when they are in season over here – but only then.

  3 This applies strongly to New Potatoes – but the Governor insists that these should be the very small ones. In fact he likes vegetables to be light and simple. He particularly dislikes Broccoli and also Courgettes.19

  ‘The present Governor is commendably prompt in the despatch of business,’ McMahon in March 1984 told fellow-members of the Deputy Governor’s Committee. So he was, in marked contrast to his predecessor, but the statement begged the question of precisely what business passed across Robin Leigh-Pemberton’s desk, especially given the rationale of the remodelled DGC itself. In this potentially invidious situation, as he gradually grew into a position that had come to him so unexpectedly, it helped greatly that the new governor brought to bear some impressive human qualities. ‘He was a man of great charm and decency,’ Forrest Capie has written. ‘He had complete integrity and was generally relaxed and at ease in what he did. He proved to be much shrewder than many would have thought on his appointment. He could also be strong when required. He knew his limitations but also would not only listen to advice but happily delegate where needed. He did not try to substitute his judgement for others on technical monetary matters. He inspired people to give of their best …’ A trio of brief snapshots from senior Bank people who worked for him help to flesh out the picture:

  A lovely man … the ultimate non-executive chairman. (Michael Foot)

  Gave people their head, he trusted them and he backed them, and if they asked him to do something to help achieve a goal he would do it very patiently. (Pen Kent)

  He always stood with his troops. He never cut himself loose … (Roger Barnes)

  ‘I have enjoyed pretty well everything I’ve done – life is interesting if you take enough trouble to find out the details, the problems, the purposes of whatever it is you’re concerned with, it nearly always emerges as interesting, and therefore invokes an enthusiastic reaction,’ Leigh-Pemberton himself had told the Old Lady shortly before taking office. ‘And I find it easy to get on with people and therefore to respond to them – whatever their role.’ He certainly did not come out of central casting as the modern technocratic central banker – and Dow soon after his arrival sighed that ‘conversation at lunch is less amusing; the other day the new Governor and Charles Goodhart discussed sheep’ – but at the top of any institution there is much to be said for the human touch.20

  What about relations across town? Leigh-Pemberton was so much a political appointment that in July 1983 Bruce-Gardyne (no longer a minister) confidently predicted the governor having ‘less tense’ times at No 10, but warned that ‘relations with the new Chancellor could prove more demanding’. He knew his man. ‘Nigel Lawson is an unusual Chancellor,’ he wrote a few years later. ‘Ever since his years in Fleet Street – as a “Lex” columnist on the Financial Times, and subsequently as City Editor of the Sunday Telegraph – his admiration for the City and its ways has stopped well this side of idolatry. A politician of exceptional determination, he would have been a cross for any Governor to bear.’ In their important 1998 survey, The Politics of Central Banks, Robert Elgie and Helen Thompson put it well:

  Apparently unbruised by the failure of the MTFS, Lawson brought to the job an overriding confidence in his own judgement not only about the big strategic issues but the day-to-day operation of policy. In the ensuing years he never waited for the Bank to take the initiative about monetary policy nor bowed to the Bank’s technical advice about the exact timing of interest rate changes and government bond issues. On occasions Lawson would even, against all previous protocol, telephone directly the Bank’s foreign exchange market operators to give instructions. In all senses, Lawson believed he could decide for himself. As he told the House of Commons Treasury and Civil Service Select Committee, ‘we take the decisions but they do the work’.

  Thatcher for her part kept a beady, suspicious eye on the Bank – in May 1984 the governor was rung by Lawson to tell him that she was ‘strongly opposed’ to the raising of fees for non-executive directors – but it was Great George Street that really made life difficult. ‘Of course relationships have always been up and down,’ reflected McMahon in December 1985. ‘But what worries me about the present situation is the amount of evidence we keep getting from friendly journalists of really savage attacks from Treasury officials …’ Not long afterwards, in May 1986, came a serious blow-up, indicative of a mutual lack of trust, following a newspaper article in the context of a major City row about Lawson’s proposed charge on the conversion of ADR (American depository receipt) shares to native stock:

  The Governor made it clear that he could not acquiesce in stories of this kind. It was quite unacceptable for the Bank, or for him personally, to be said to be giving wrong and inaccurate advice to the Treasury when this had not been the case …

  The Chancellor said that, far from advising against the 5% rate, David Walker had said that it would be acceptable to the City. The Governor said that this was simply not so, and that the Bank had never agreed that any rate in excess of 3% could be argued for. The Chancellor said that he distinctly recalled David Walker’s having said this at a meeting at which other officials were present, and the officials’ memories tallied with his own. He said that if the Bank had not advised him to impose a 5% rate he would not have done so. The Governor made it clear that all the information in his possession suggested that the Bank had not given any such
advice to the Chancellor, and at the very most had been forced by circumstances into acquiescing in a rate of 5%.

  Almost certainly the early years were the worst in the Lawson/Leigh-Pemberton relationship, with the latter recalling many years later that the politician had been ‘initially fairly domineering and so on, but gradually we became quite close, genuine friends’.21 Even so, those early years left their mark in Threadneedle Street: to be remembered for long afterwards as a low point in the operational autonomy of the nationalised Bank.

  Lawson himself played a significant part in the forging of the July 1983 settlement between the government and Stock Exchange – the former getting the court case dropped, the latter promising to reform – that ultimately led to the City’s ‘Big Bang’ a little over three years later. The Bank, which of course had done much to prepare the way, naturally welcomed the deal; and over those three years it equally naturally continued to mediate between government and the Exchange. Within weeks, in September 1983, the governor was reporting to Cecil Parkinson (the trade secretary who had reached the deal with the Stock Exchange’s Sir Nicholas Goodison) ‘an atmosphere of growing uncertainty and nervousness’ in the market about ‘the future structure of the securities industry’, accompanied by an increasing desire ‘for abolition of all minimum commissions in one full swoop, at a date to be announced well in advance’; while next day, amid a growing sense that it was not only minimum commissions that were a dead duck but also single capacity, John Fforde reflected on the broader approach that the Bank should take to the future of the securities industry. It would be wrong, he argued, to give ‘the impression that officialdom has the power to choose, and to decide, and to implement, some particular middle-course outcome to a structural revolution’. Instead: ‘It would be better to emphasise that a revolution rather than an evolution is now in prospect; and that officialdom can best help by responding correctly to what happens and consolidating the regulatory apparatus etc when things look like settling down.’ By this time, the term ‘Big Bang’ (coined in this respect by the Bank’s Douglas Dawkins) was poised to enter the City vocabulary; and at a meeting in early October, Lawson and Parkinson agreed with Leigh-Pemberton and Walker that ‘the “big bang” might in practice make more sense than a phased programme of abolition’. So it would be, with in due course all roads leading to 27 October 1986. ‘He found himself open-mouthed at the pace of change he saw going on in London,’ recorded McMahon in December 1984 after a conversation with Volcker; and it was indeed a high-speed City revolution – one that in many ways the Bank had spearheaded.

  Arguably its most crucial aspect was ownership, the subject of keen debate in the Bank during the months immediately after the Parkinson/Goodison agreement, given that it was already clear that 100 per cent outside ownership of Stock Exchange firms was almost inevitable. ‘It is plainly undesirable that the entry of foreign firms to the London market should swamp the UK securities industry, either by taking it over wholesale or by dictating the terms on which business can be done,’ argued John Footman as early as August 1983. ‘Yet the UK industry looks on the face of it peculiarly vulnerable to both possibilities …’ That was undeniably true, and in mid-September he set out what he saw as the imminent reality:

  A rather stark choice may have to be made between, on the one hand, seeing the Stock Exchange lose market share and dominance, and on the other seeing large parts of it fall into non-member, probably foreign, hands. The balance of disadvantage will be difficult to assess. The preliminary conclusions of this paper [on ‘Ownership of the UK Securities Industry’] are that the consequences of a significant foreign investment in the Stock Exchange are by no means as unacceptable as is commonly supposed …

  A colleague, Leslie Lloyd, disagreed. ‘You see no reason to suppose that foreign firms could not be relied on to exercise efficient self-regulation,’ he responded to Footman. ‘I do not find this convincing.’ And he went on, specifically in relation to American firms: ‘I do not think we can expect them to adapt either to collective self-regulation or to watching people’s eyebrows in the way most UK establishments are used to. The consequence of greater foreign involvement would probably tend to be a shift towards greater statutory regulation.’ Lloyd raised other objections, including the possible conflict of interest between the UK government and the Bank on the one hand and the parent bank on the other, before concluding:

  While in present circumstances one may confidently expect foreigners to play the game, we are talking about a blue-print for a long-term scheme …

  While not noticeably xenophobic I tend to see a case for favouring courses of action which, while welcoming foreign participation, preserve indigenous control for an indigenous core of the UK securities industry.

  A few days earlier, Walker and Dawkins had received a visit from Christopher Reeves of Morgan Grenfell, with that British merchant bank already in discussions with several Stock Exchange firms and now wanting to discover whether the Bank foresaw any ‘impediments’. In reply, Walker pointed to how full external ownership ‘would of course open the Exchange to Morgan Stanley as well as Morgan Grenfell, and while instinctively we would prefer to see the UK houses providing the capital for and having ownership of securities trading in this country, the logical case for protection was not wholly compelling, and in practical terms explicit protection was probably not acceptable in any event’. The rest of Walker’s message to Reeves struck a delicate balancing act. No, ‘possible UK entrants could not expect preferred treatment’, given ‘the evident need to reverse the decline in UK securities trading capability’, which ‘in practice meant greater competitiveness’; but yes, in the sense that ‘within this general concern we wished to be as helpful as we could to UK firms or groupings’.22 In the event, over the next couple of years or so as the marriage market for Stock Exchange firms went its merry way, there was no bar to foreign ownership; but in relation to the ownership of British banks, a larger – and longer – debate still awaited.

  For Eddie George, the executive director responsible for the Bank’s gilt and money market operations, the paramount worry by the autumn of 1983 was that the process of deregulating the Stock Exchange might, in his own graphic words, ‘bugger up the gilts market’. Accordingly, he set about designing a comprehensive restructuring of that market in order to make it ready and fit for purpose in the coming post-Big Bang world. A report by the Fed’s Peter Sternlight, following a series of conversations in London in October 1984, accurately caught the mood as preparations began to be made. At the Bank, Bill Allen acknowledged that ‘they face great uncertainty in seeking to launch a rather fully developed system sometime in 1986 rather than see a system evolve more gradually and modify their approach as that process takes place’; also at the Bank, Peter Cooke expressed ‘some concerns about the rapid pace of new developments as he sees banks taking on additional obligations and risks’; while outside the Bank the chairman of Union Discount, Graham Gilchrist, was ‘quite concerned about profit prospects as they anticipate that there could be many firms battling for a share in a limited market’, but David Jones of Goldman Sachs said ‘they take comfort from the Bank of England assurances that there will be a level playing field’.

  What about the architect himself? ‘Mr George’s attitude, like that of many market participants, is a mixture of eager anticipation and apprehension’:

  The apprehension reflects concerns over market safety and stability, hence the desire not to go too fast and to keep some separating of functions [between broker and jobber, in the event impossible]. At the same time, he feels the changes will be beneficial to the U.K. financial markets in the long run. He is not wedded permanently to tap issuance of Treasury debt [where the Bank retained part of a gilt issue for release as and when market conditions were favourable], although he would want to see the new dealer market get started before he would consider switching to auctions … He likes the flexibility of the tap system and does not see this as a threat to dealers because the pa
st history of the Bank of England’s behavior shows it to be reasonable; it won’t clobber the market …