The late Sir George Blunden once wrote to Nigel Lawson praising the co-operation between the chancellor's department and his colleagues at the Bank of England. A similar note might be written today regarding their deflationary accord
It was a remarkable occasion. The deputy governor of the Bank of England wrote a note to the chancellor saying: "I don't think there has been a time since the war when Treasury ministers, the Treasury staff and the Bank have worked so well together."
This was not a reference to dealings between Treasury and Bank in recent years. These were pretty fraught following the crisis in 2007, as Alistair Darling's book makes clear, although the two institutions eventually got their act together – more or less.
No, this was the great Sir George Blunden writing to chancellor Nigel Lawson, just after the 1987 general election. George, who died last weekend at the tender age of 89, had reason to know what he was talking about. He had joined the Bank in 1947, retired in 1984, and been called back as deputy governor in 1986 when the powers that were could not decide between the merits of rising stars Eddie George and David Walker, and compromised by getting Blunden back.
They were great days, when governors and deputy governors held considerable sway in the City. George, who had a most distinguished career, had a mischievous streak. "I can do anything I like now," he told me. "I have been brought back from the dead."
There was one occasion when, at an internal meeting, a junior official said: "There seems to be a consensus." Blunden muttered to her, sotto voce: "I'll soon deal with that."
There was a wonderful undertone to Blunden's note to Lawson. The immediate period he was referring to included the famous episode when Lawson had instructed the Bank to "shadow the D-mark" – that is to say, to intervene in the foreign exchange markets to keep the value of the pound close to that of the German currency.
Having despaired of the monetarism he had so fervently preached, my old friend Lawson decided that, if the Germans were so good at keeping inflation low, it would be a good idea to shadow their currency. The following year Margaret Thatcher was furious when she found out, and so began the slow erosion of trust between her and her chancellor.
We had reported the "pound shadowing the D-mark" story in the Observer a long time before the prime minister discovered what was going on: indeed, Lawson claimed that she should have known. But she did not read the Observer; and, apparently, the mistress of small print did not study her chancellor's notes properly either. My lips are sealed as to the source of the story, but it was not the chancellor.
These days the governor and his senior colleagues seem to be on the public stage most of the time. It was not always thus. Indeed, in more reticent times for governors I once wrote: "If the Bank of England has a public face, it is George Blunden." He was tickled pink. The next time I saw him it took some time before he resumed his customary teasing, on such matters as his greater success than mine with the Azed crossword – "the only reason for buying your paper" he would say with a wicked grin.
Blunden liked to keep people on their toes, and there are those who do not speak as highly of him as I do. At one Bank meeting he said: "On this issue I find myself agreeing with Mike Tucker". Everyone else murmured assent, evidently not realising that Mike Tucker was a fictional character from The Archers.
Which brings us to the non-fictional Tucker who is one of Blunden's successors as deputy governor, namely Paul Tucker. (Sorry, one more Blundenism: I kept in touch with him after he retired in 1990, and, after the Brown/Balls reforms of the Bank in 1997, Sir George observed: "I see they now need two people to do my job.")
Paul Tucker is joint deputy governor with responsibility for financial stability. He recently addressed the annual dinner of the Society of Business Economists on "National balance sheets and macro policy: lessons from the past". It would be only a slight exaggeration to paraphrase the gist of a long and erudite speech as "Where we went wrong and the precautions we are now taking to avoid another disaster, although there will no doubt be one".
What particularly intrigued me was his answer to a question from Trevor Greetham of Fidelity, who suggested the need for a more expansionary fiscal stance, since macro-prudential policy was tight (all those capital-ratio requirements) and the most that monetary policy, in the form of rock-bottom interest rates and quantitative easing, seemed to be doing was producing zero growth.
Tucker revealed that during a weekend shortly before the 2010 election, when the Greek crisis arose, he told governor King: "You have got to urge the government, whoever wins, to take the UK out of the line of targets." Whether Sir Mervyn needed urging is an open question, but there seems little doubt, from this and various public statements made by the governor over the past 20 months, that the Bank and Treasury are in this deflationary strategy together.
We are all suffering for this, and the pre-budget debate about minor changes in tax rates does not begin to address the accumulated problems of the British economy. I shall return to this subject after the budget, from which, it has to be said, I am not expecting the kind of growth strategy for which Vince Cable has called. But no doubt the deputy governor will be writing to the chancellor on the subject of how well they are working together.