And so we reach the scene tediously familiar to even the most casual observers of this Conservative drama: the action after yet another huge debacle, wherein leading proponents search for a scapegoat. In the weeks that have passed since the mini-budget meltdown, the frenzied hunt has been especially remarkable. Liz Truss has blamed her chancellor, Kwasi Kwarteng; he has blamed the Queen’s death; her business secretary, Jacob Rees-Mogg, on Wednesday blamed the Bank of England’s governor, Andrew Bailey, and the Bank has paid this back (with interest, one might say, were that word not such a gruesome reminder), with its senior staff repeatedly laying the blame at ministers’ feet.
So far, so predictable – as is the usual buffet of U-turns and confusions. At Wednesday’s prime minister’s questions, Ms Truss backtracked on her backtracking over the ban on no-fault evictions and left observers scratching their heads as she swore there would be “absolutely” no cuts to public spending. Since the full budget is meant to demonstrate just how the government will close its budget deficit, by laying out spending cuts, one may guess that even more of the mini-budget is now heading for the bin. That would be a highly unusual move, and would leave Mr Kwarteng little option but to resign – yet so precarious and chaotic has this government been in its six long weeks that this may be the safest and wisest course of action.
While the prime minister and her chancellor make inevitable targets in this blame game, and deserve the opprobrium that comes their way, not enough consideration is given to the quiet man in this drama: Mr Bailey. Threadneedle Street is also deeply implicated in this crisis and has a case to answer.
Central bankers can play a positive role in a meltdown. Markets have just this summer marked the 10th anniversary of Mario Draghi promising that his European Central Bank would do “whatever it takes” to put out the conflagration of the continent’s sovereign debt crisis. Those three words did much more for world GDP than any number of tax cuts for corporations. When the Bank of England began its emergency intervention two weeks ago, that could have been a similar chapter ending. It wasn’t.
The Bank doesn’t want to put out a crisis, but sees its role purely as providing liquidity in very distressed markets. One of Mr Bailey’s predecessors, Mervyn King, pursued a similar line in the credit crunch of 2007, warning that those investors who’d gone wild in the good times must now pay the losses and that any help would constitute a “moral hazard”. The argument is perfectly sound – until a crisis strikes. Lord King eventually had to change both his argument and his policies.
Today, the Bank is taking a similar gamble. It would be wiser to relent – as its former governor had to – and show more support. Against a noisy backdrop, the Bank has also been a bad communicator. This week alone, Mr Bailey has said his intervention will end on Friday – hours before it was reported that Bank staff have been saying the opposite. The Bank then said it was definitely going back to business as usual. As direction-giving goes, this is up there with the grand old Duke of York. When the history of this mess is written, there will be plenty of blame to go round – most of it for the government. At the moment, a fair serving should be held in reserve for Mr Bailey and the Bank.
