King accused of ?unholy alliance? with the Tories over economy

Author: By Andrew Grice, Political Editor

Gordon Brown and the Chancellor, Alistair Darling, are said to be ?perplexed? by
Mr King?s outspoken remarks to a Commons committee on Wednesday, in
which he demanded tougher action in future years to cut the ?extraordinary?
levels of public borrowing, and complained he had not been consulted about
the Government?s imminent plans to reform the way banks are regulated.

Senior ministers told The Independent that Mr King appeared to have formed ?an
unholy alliance? with George Osborne, the shadow Chancellor, who has
admitted privately that his strategy is to ?keep very close? to the Bank
Governor. The Tories have promised to put the Bank in charge of financial regulation
if they win the general election. But the Government will maintain the
three-way split between the Treasury, the Bank and the Financial Services
Authority (FSA).

One cabinet source said: ?King is fighting a turf war with the FSA. The Tories
are flattering him, appealing to hisvanity and using him to play politics.?

The minister said he was not accusing Mr King of indulging in politics,
admitting he was ?an academic, not a politician?.

But he claimed that the Governor?s controversial remarks to the Treasury Select
Committee would damage confidence in the British economy.

Mr Darling met Mr King at 11 Downing Street last night for a routine private meeting
planned before his appearance before the Treasury Committee.

The two men discussed the White Paper on banking regulation, to be published
in the next few weeks. The Chancellor was surprised by the Governor?s claim
that he had not been consulted because they have discussed the blueprint

However, Mr King has not yet seen a draft of the document. Last autumn, the
Chancellor told the Governor he suspected him of passing on details of a plan
to recapitalise the banks to Mr Osborne and David Cameron, who called
publicly for such a move before the Government announced it. The Tories
denied that they were briefed on the plan. One senior Tory said last night:
?George Osborne meets Mr King regularly, which is normal practice. No one
is playing politics. Labour is upset because Mr King endorsed our critique ?
that borrowing was out of control before the recession. Labour didn?t fix
the roof while the sun was shining.?

Mr Darling and Mr Brown believe the right way to reform the banks is to work
out what needs to be done following last autumn?s financial crisis, before
deciding which powers are handed to the Bank and the FSA. They believe Mr
King and the Tories are looking at the issue ?through the wrong end of
the telescope?, a Downing Street source said.

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