Ex-mandarin with ‘no economic experience’ misses out on Bank of England job after backlash

Dame Clare Moriarty is not on a list of appointments after criticism of Treasury’s focus on ‘ideology not ability’

An ex-mandarin with “no economic experience” has missed out on a Bank of England board role after a last-minute U-turn by the Treasury.

Dame Clare Moriarty is not on a list of four people who will join Threadneedle Street’s top management, following a backlash over her appointment.

The Telegraph revealed Dame Clare had been selected by Chancellor Nadhim Zahawi after having been lined up by the Treasury during Rishi Sunak’s time as chancellor.

A former permanent secretary of the environment ministry, she is now chief executive of Citizens Advice. Her Twitter profile says she is “agitating for diversity, inclusion and change”.

Dame Clare’s proposed Bank of England appointment, which was put forward by senior mandarins including Treasury permanent secretary Sir Tom Scholar, was criticised by MPs due to her lack of economic experience.

Conservative MP Neil O’Brien said her mooted appointment “sums up much that is wrong with the British state”, tweeting that it showed “people being appointed on the basis of adherence to [equality, diversity and inclusion] ideology not ability”.

Mr Zahawi has now signed off four new appointments, with Dame Clare no longer among those named.

Instead, the appointees are: former investment banker Lord Jitesh Gadhia; Sabine Chalmers, a senior lawyer at BT; Soumen Das, finance chief at property group Segro; and Tom Shropshire, company secretary at drinks maker Diageo.

It is understood that Ms Chalmers replaced Dame Clare on the final list following the criticism.

Dame Clare did not respond to a request for comment. The Bank of England declined to comment.

The backdrop to the appointments is one of the most challenging periods for the Bank of England since it gained independence. The central bank has come under fire over its failure to tackle inflation, as prices rise at their fastest pace in 40 years.

Governor Andrew Bailey and the Monetary Policy Committee last week sought to defend their credibility with a half percentage point rate increase, the biggest rise in 27 years.

The Treasury faces a £9bn-a-year blow from higher interest rates as its valuable income stream from the Bank of England's quantitative easing programme becomes a multi-billion pound drain on the public purse.  

Quantitative easing, the massive programme of bond buying established in 2009 to stabilise financial markets, was set up to be fiscally neutral for the Bank of England. Any gains from the bonds it buys are paid back to the Treasury, while the Government is bound to compensate the Bank for any losses.

Losses and gains occur as the Bank finances bond buying through the creation of new money with private banks. Threadneedle Street then pays the prevailing interest rate on those funds to private banks.

When interest rates were low, the policy was a “cash cow” that saw £122.8bn enter Government coffers, UBS said in a new report. However, it will turn into a multi-billion-pound liability as the Bank cranks up the cost of borrowing.

Strategist Rohan Khanna said the arrangement is “set to reverse” by the end of the fiscal year as rates rise above the yield paid out on government bonds. Mr Khanna said it could cost the Government £9bn this year if rates rise as expected.

The Treasury may even need “to think about raising funds” to protect the Bank against losses, he warned.

If interest rates rise a percentage point beyond market expectations, it could cost the Government £100bn over the next decade.

The Bank has built up a £840bn pile of securities since it launched quantitative easing, primarily in UK government bonds.

The central bank is beginning a process of quantitative tightening (QT), an effort to lower the amount of bonds it holds to rebuild firepower for the next crisis. Earlier this year, it allowed £27.9bn of bonds to mature without replacing them.

“Assuming the current path of market expectations for the bank rate and only passive QT, the calculations show that the HMT is unlikely to receive any net cash from the BoE and may instead have to transfer funds to the APF this [fiscal year],” said Mr Khanna.

The Bank is expected to pivot to “active” QT in September, with the Monetary Policy Committee setting out plans last week to make £10bn of sales each quarter to reduce the pile. Mr Khanna said this could “worsen cash flow dynamics”.

The Treasury said: “Under long-standing arrangements, the Asset Purchase Facility has transferred cash in excess of £120 billion to HMT to-date. We have previously acknowledged that, as monetary conditions normalise, it is likely that the cash flows may need to reverse. 

“We have a clear financing strategy to meet the Government’s funding needs, which we set independently of the Bank of England’s monetary policy decisions.”

A spokesman declined to comment on the Bank of England board appointments. Citizens Advice declined to comment.