Bank of England staff may endure continuing pay restraint just as Mark Carney prepares to become the first foreign governor in the institution’s 319-year history.
The central bank in London is consulting with labor-union representatives on salaries and intends to follow Chancellor of the Exchequer George Osborne’s policy on public-sector pay, an official at the bank said. Osborne is limiting increases in pay for government workers and welfare benefits to 1 percent a year.
BOE staff have already had a two-year freeze that began in March 2011 after Governor Mervyn King followed a previous decision by Osborne on public pay. Osborne hired Carney, a Canadian, on a larger salary than his predecessor to lead an institution taking on enhanced powers to regulate banks at a time when trading scandals have tarnished London’s status as the world’s leading financial center.
“Their argument will be everyone is suffering, but for the bank it is a particular concern because they’ve got lots of very good people who they know can go and earn more elsewhere,” said Richard Barwell, an economist at Royal Bank of Scotland Group Plc in London who left the central bank in 2010.
While the Bank of England intends to follow Osborne’s guidance, its plans to limit the increase in its wage bill to 1 percent may still allow for individual pay rises greater than that depending on staff attrition.
The salary freeze was marked by a number of departures, including economists lured by higher earnings at banks in London’s financial district, known as the City. Former Federal Reserve official David Stockton said in a report on the BOE’s forecasting capability in November that the bank faces competition in retaining high-quality staff.
They are “intelligent and energetic, and the bank faces fierce competition for their services from firms in the private sector, and particularly in the City, that can offer much better pay,” he said.
Carney, whose term begins in July, will join the BOE on a basic salary of 480,000 pounds ($775,100), about 50 percent more than the maximum he could earn at the Bank of Canada and 57 percent higher than King’s basic pay. He will also get an allowance of 30 percent of salary in lieu of a pension and a 250,000-pound annual housing allowance.
According to the consulting firm Mercer, London was the world’s 25th most expensive city in 2012, while Montreal, the closest city on the list to the Bank of Canada’s home city of Ottawa, was 87th.
U.K. take-home pay growth slowed to an annual 0.4 percent in the fourth quarter, which compares with an inflation rate of 2.7 percent. While the Bank of England has a target of 2 percent, inflation has been above that for the past three years.
“Mark Carney is getting 250,000 pounds just for his housing and is expecting people to work for him when standards of living are going down,” said John Mann, a Labour lawmaker and a member of Parliament’s Treasury Committee that will question Carney on Feb. 7. “It’s puzzling that he can expect to lead an organization when there is such disparity.”