March 17, 2021
One year into his role as Governor, Andrew Bailey has reliably steered the Bank of England’s response to the Covid-induced economic crisis, but disappointed many with his failure to seize several opportunities to green the Bank’s operations and transform the UK financial sector into one that helps provide solutions to the multitude of long-term challenges our economy faces.
This week marks Andrew Bailey’s one-year anniversary since beginning his eight-year term as Governor of the Bank of England. Undoubtedly one of the most powerful jobs in the country, Bailey’s performance over the last twelve months has been a mixed bag at best.
Regarded by many as a “safe pair of hands”, Bailey’s appointment was an uncontroversial choice by then-Chancellor Sajid Javid. Described by The Economist as “a solid if unspectacular technocrat”, Bailey first joined the Bank in 1985. He steadily rose through the institution, becoming Chief Cashier in 2004, and later a Deputy Governor, before leaving in 2016 to run the Financial Conduct Authority (FCA).
In the context of the economic crisis caused by the pandemic and ensuing national lockdowns, much of the Bank’s response under Bailey has been timely and commendable given the relatively high-degree of coordination displayed between the Bank and Treasury, something we hope continues long-after this current crisis has passed. Alongside the welcome offer to help fund government spending directly during the pandemic, he kept interest rates low and oversaw a massive expansion in the Bank’s Quantitative Easing (QE) program to almost £900 billion, which has allowed the government to spend massively without increasing debt costs.
However, whilst QE is arguably necessary in a crisis, it may not be an effective long-term solution, as it has turbocharged inequality by benefiting the already asset-wealthy whilst doing very little for the vast majority of working people. The fact that the Bank of England has expanded its already huge money creation scheme which benefits the wealthiest in society, whilst at the same time the Government is saying there isn’t enough money to pay nurses properly, is an injustice that must be addressed. For a deeper dive into the problems and potential solutions for QE, read our recent blog here.
Given the recent shift in public discourse to embrace the huge role the Bank can play in government spending, we need a Governor who is more willing to speak up about the power the Bank has to steer a just and fair recovery for everyone.
Bailey’s performance has fallen far short of satisfactory on the issue of climate. Whilst far from perfect, Bailey’s predecessor Mark Carney did lay much of the groundwork required for the Bank to take a necessary greater role in tackling the financial sector’s contribution to the climate crisis. By launching the Bank’s first ever round of climate risk stress-tests, helping to found the Network for Greening the Financial System (an international group of central banks designed to meet the goals of the Paris Agreement) and making many high-profile public speeches dedicated to the subject. Bailey’s term began with a promising start to continue this work, when during his confirmation appearance he said greening the Bank’s quantitative easing (QE) programme would be “a priority”. But this early promise soon soured.
He postponed the climate stress-test for another year, the Bank’s QE portfolio continued to include and invest in companies contributing to a path of 3.5C global warming, and he oversaw the creation of a new scheme which lent billions in public money to big polluters with no-strings attached.
The Covid Corporate Financing Facility (CCFF) was a joint Treasury and Bank of England bailout scheme launched in the wake of Covid-19, specifically designed to provide the UK’s largest corporations with funding directly from the central bank. In the beginning the CCFF was shocking in its lack of transparency, with the Bank refusing to publish the names of companies who benefitted, nor the amounts they were given – forcing us to launch a campaign demanding the Bank of England come clean. We were pleased to celebrate a win soon after, when the Bank responded by publishing weekly data ever since, but the need for such a campaign in the first place was dispiriting, as were the findings that this newly-won transparency brought to light.
Recipients of the CCFF include some of the most polluting corporations, such as British Airways and oil and gas company Baker Hughes, whilst almost a third of companies cut jobs while continuing to pay out dividends to shareholders, whilst receiving this public money. So we launched a new campaign to attach social and environmental conditions to these billion pound bailouts – something two thirds of the public agree with. Alongside Caroline Lucas MP who deemed the scheme a “massively wasted opportunity”, we highlighted the scheme’s failure to exclude high-carbon companies and invest in greener alternatives. We gave evidence to Parliament’s Environmental Audit Committee, and were pleased to see them pick up this criticism in their resulting report published in January.
At the recent Budget, the Treasury gave the Bank an explicit mandate to align its operations with the Government’s legal commitments to reduce carbon emissions. This gives Bailey no excuse to drag his heels on taking on tackling the climate challenge and putting this into practice will be Bailey’s next big test. Thankfully Bailey seems up for this challenge, with Bank of England insiders telling the Financial Times that he regards enacting this new mandate to be an important part of his legacy and rightly so. As we desperately need a Governor who’ll use all policies in the Bank’s toolkit to steer us away from climate collapse and live up to the UK’s leading role in the UN’s COP26 summit happening in Glasgow later this year.
While only a year into the job and with at least seven years left of his tenure, Andrew Bailey could still prove to be the Governor we need. When he was selected, Andrew Bailey said “it is important to me that the Bank continues to work for the public”, but he still has far to go in making that promise a reality.