Why moving the Bank of England out of London makes sense

(Bloomberg Gadfly) -- You can almost hear the outrage emanating from the hallowed halls of the Old Lady of Threadneedle Street, just a few hundred yards from the Gadfly office. The Labour Party is proposing, should it win power, to move some of the Bank of England functions out of London -- to Birmingham!

It makes sense for more government departments to relocate around the country. As well as distributing income and jobs away from the capital, decentralizing the government would mitigate the group-think that undoubtedly afflicts the metropolitan elite. But previous efforts to redistribute the bureaucrats more widely across the nation haven't gone well.

Why moving the Bank of England out of London makes sense

A decade ago, the Office for National Statistics decided to move most of its functions to Newport in South Wales. As many as 900 of the agency's 1,000 employees quit rather than leave London, according to Civil Service World. Former BOE policy maker Charlie Bean said in 2016 the resulting loss of expertise had a "significant adverse impact" on the production of economic statistics.

Study after study has shown beyond any reasonable doubt that the U.K. economy is too focused on the south east in general and London in particular. A report by Parliament's Communities and Local Government Committee found the capital accounts for 25 percent of gross domestic product, 21 percent of the country's company headquarters and about 19 percent of U.K. jobs. It called for greater devolution to regional governments.

In its election manifesto, the ruling Conservative Party pledged to "start moving significant numbers of U.K. government civil servants and other public servants out of London." Efforts to move state-owned broadcaster Channel 4 out of London, however, have stalled amid staff opposition to the shift.  

Far too much of the government's operational architecture is based in the capital city, and the centralization is worsening, if anything. London is home to 18.6 percent of U.K.'s civil servants; that's up from 16 percent at the start of the decade, according to the Institute for Government.

The Bank of England seems to have sensed which way the wind is blowing. It's stepped up its regional engagement, and last month governor Mark Carney spent a day in Liverpool as part of a program to explain its work to the people whose economic lives it governs. That outreach augments the BOE's network of 12 regional agents across the U.K., which provide economic and financial intelligence to the bank.

Being based in Birmingham may not have altered the decision last month to raise interest rates. But shifting the center of gravity of policy making away from the capital would surely broaden the minds and experiences of future monetary policy committee members.

There are operational benefits as well. The central bank could slash its wage bill. It has 4,261 employees and pays 290 million pounds a year in wages, producing an average salary that's twice that paid to public-sector workers across the entire U.K.

Why moving the Bank of England out of London makes sense

BOE staff, moreover, would find that the pound in their pocket stretches further, at least as far as the cost of buying a house is concerned.

Why moving the Bank of England out of London makes sense

The Labour Party proposal would see Birmingham also host the National Investment Bank, along with planned a Strategic Investment Board.

Devolution, though, should encompass more than relocating government offices across the country. The Houses of Parliament are in need of major repairs. According to a study by consultancy firm Deloitte, the refurbishment would take 32 years if lawmakers stayed put. If they moved out, the works could be completed in just six. Moving Parliament out of Westminster therefore makes economic sense. And rehousing the center of government in Birmingham, Manchester, Leeds or Liverpool would send a fantastic signal that the government is serious about creating the so-called Northern Powerhouse it claims to champion.

It probably won’t happen. But it should. And if Labour gets the chance to make good on its pledge to move the Bank of England to Birmingham, maybe there's a chance that the current London-centricity will finally diminish.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Mark Gilbert is a Bloomberg Gadfly columnist covering asset management. He previously was a Bloomberg View columnist, and prior to that the London bureau chief for Bloomberg News. He is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”

To contact the author of this story: Mark Gilbert in London at magilbert@bloomberg.net.

©2017 Bloomberg L.P.