Inter-Organisational Distrust and the Political Economy of Central Bank Independence in the UK

ABSTRACT

This article revisits a puzzle: why did the Conservative Governments of Margaret Thatcher and John Major not grant independence to the Bank of England? A substantial literature offers several explanations for why New Labour carried out this reform to UK monetary policy, many of which ought to have been relevant to the Conservatives’ stewardship of the economy in the 1980s and 1990s. So why did the Conservatives fail to see the advantages of a policy that the Blair Government seized on as one of its first acts of office? Combining new archival research with elite interviews of some key participants during this period, this article re-examines this neglected question. It argues that one overlooked reason why the Conservatives decided against granting independence to the Bank of England relates to the role and importance of inter-organisational distrust. Conservative leaders (and Treasury officials) had negative expectations about the Bank’s ability to implement monetary policy and did not want to increase their dependence on that institution to fulfil a function deemed crucial to their political fortunes.

KEYWORDS:

• Central bank independence
• trust
• Bank of England
• monetary policy
• Conservative party

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1 For a statement of this position, see Nigel Lawson’s speech ‘The New Conservatism’ delivered to the Bow Group in 1980s and reprinted in his memoirs (1992, pp. 1039–54).

2 Some Treasury officials (Wass 2008, p. 179) contest this interpretation and argue that the crisis was the result of an accident. However, it is not denied that, at the time, the Treasury desired devaluation and lobbied the BoE (which was sceptical) to adopt such a policy.

Additional information

Notes on contributors

Jim Buller

Jim Buller is a senior lecturer in Politics at the University of York. He has written widely on the subject of British public policy. His latest book, Comparing strategies of depoliticisation in Europe: governance, resistance and anti-politics (with Pinar Emine Donmez, Adam Standring and Matt Wood) was published by Palgrave in 2018.

Ben Whisker

Ben Whisker is an ESRC funded PhD student in the Politics Department, at the University of York. His thesis presents a reappraisal of ideational accounts of the Thatcher Governments utilising recently released archival material.