Carney was undoubtedly shaped by his time as Governor of the Bank of England, and we’ve already seen evidence that Carneynomics borrows from his UK experience. To get ahead of any potential changes, it’s worth asking, “What does the UK do?”

Key Points: 

  • Mark Carney’s UK experience (for example, Gordon Brown’s 1997 reforms) is a major influence on Carneynomics and is likely to drive Canadian federal policy shifts.
  • We don’t know exactly what Carney thinks about Brown’s various reforms and other things the UK does, but things like financial supervision and pension rules are notable and worth considering.
  • Financial institutions and pension funds should proactively assess potential reforms by asking “What does the UK do?” to prepare for policy shifts.

In his October 14 post on MBP Intelligence, Tyler explained the origin of Carneynomics’ move to split federal spending into operating and capital as follows:

“This isn’t a new idea. In fact, it’s not even a Canadian one. The shift is largely inspired by a series of reforms then UK Chancellor of the Exchequer, Gordon Brown, produced in 1997 as part of the “golden rule”.”

As Carneynomics becomes more entrenched in federal policy, expect to see more of this UK influence. As policy makers and shapers watch and try to shape, influence or support federal policy in the age of Carneynomics, a key question should therefore be “What does the UK do?”

Gordon Brown was Chancellor of the Exchequer from 1997 to 2007. Mark Carney followed Brown’s term as Governor of the Bank of England from 2013 to 2020. By the time Carney was Governor, the Brown reforms that worked, and those that didn’t, would have become obvious. 

Gordon Brown’s first budget was his seminal budget. It delivered a series of reforms, from greater Bank of England independence to revised financial supervision to pension tax changes. It also introduced the aforementioned “golden rule” that stipulated that the UK government would only borrow to invest, not to spend. Sound familiar? 

It’s not just reforms introduced prior to or during Carney’s tenure as UK Governor that should draw the interest of Canadian policy makers. Structural differences are also important. 

Let’s conduct a brief thought experiment and look at the Office of Superintendent of Financial Institutions (OSFI). 

OSFI is the Canadian prudential (or solvency) regulator for financial institutions (banks and insurance companies) and pension plans. OSFI is part of the federal Department of Finance. It is one of the most independent bodies within the federal government. It reports to Parliament through the Minister of Finance. Its enabling legislation does not allow for formal Ministerial Direction that other agencies, even the Bank of Canada, have provisions for. The Superintendent can only be removed “with cause” and that cause must be reported to Parliament. The Superintendent serves a term of seven years. 

The next statutory Bank Act Review is slated for 2026, after it has been delayed a few times. Financial institutions and pension funds regulated by OSFI should probably be asking more than just what reforms, if any, they would like to see.  

They should be asking themselves “What does the UK do?”

Because they do something quite different. 

The Prudential Regulation Authority (PRA) is the UK equivalent to OSFI. Rather than reporting to, and being housed within, the Chancellor of the Exchequer, it is a subsidiary of the Bank of England. 

The PRA has a Prudential Regulation Committee (PRA) that sets the overall strategy and policy. The Governor of the Bank of England chairs the PRA. The Committee comprises the Governor of the Bank of England, Deputy Governors for Financial Stability, Markets and Banking, and Prudential Regulation, the Chief Executive of the Financial Conduct Authority; a member appointed by the Governor with the approval of the Chancellor; and six other external members appointed by the Chancellor. The Chancellor wields the balance when it comes to appointments, but operationally the Bank of England drives the PRA.

We are quite certain Mark Carney has views about which system works better, having seen both in operation. 

Do we know what those views are? 

We do not. 

Will those views drive some structural reforms in the upcoming Bank Act review? 

They sure could.

Would moving OSFI under the remit of the Bank of Canada affect Canadian banks, insurance companies, and pension funds?

Absolutely.

If you are in one of those institutions, or in one  affected by the prudential regulation of those institutions,  you better be asking yourself, and soon, “What does the UK do?”

OSFI is just one example, posed here as a thought experiment, that is worth considering. But there are many others. A nonexhaustive list: 

  • Bank of England independence: Shortly after the 1997 election, Brown unexpectedly granted the Bank of England authority to set interest rates, previously controlled by the government. A new Monetary Policy Committee was established to manage rates, aiming to curb inflation and end the UK's "boom and bust" economic cycles.
  • Revised financial supervision: Alongside Bank of England independence, Brown shifted banking supervision from the Bank to the new Financial Services Authority (FSA). Critics later argued this division worsened the 2008 financial crisis in Britain.
  • Pension tax changes: Brown controversially scrapped the dividend tax credit for pension funds, effectively taxing stock dividends held in pensions. Critics linked this to the decline of final salary pensions, while the Treasury defended it as vital for long-term economic growth by spurring corporate reinvestment.

Again, we don’t know exactly what Carney thinks about these various reforms, but Carney may well have well-formed and strong opinions on them. It would be prudential for anyone that could be impacted by reforms to proactively consider what these changes could look like. 

And if you’re interested, this is something Meredith, Boessenkool & Phillips can help decipher.

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