The Bank's gain is our loss

The mighty doors of the Bank of England have slammed shut behind him. We shall not hear any more from Howard Davies for a long time now. He has become one of the silent disappeared, swallowed up into the deepest maw of the establishment, with its mosaic floors, its pink-liveried footmen and its rituals redolent of Buckingham Palace under the reign of Queen Victoria. Behind him Davies leaves a last will and testament, in the shape of a series of lectures for BBC radio and this interview. As if he were taking the veil, he leaves behind bewildered admirers who ask one another, why has he done it? Why be deputy governor of the Bank of England - why deputy anything if you have the chance to run your own show? Why leave the real world, of which he knows more than most?

At its worst, it looks suspiciously like another symbol of the English disease, abandoning his post as head of the CBI in the earthy world of industry for the thin, heady air of high finance. The best British brains have always drained away into the City, gathering together in a cabal of intelligence that lures more towards them and away from the stupid people with the dirty hands. The bold and pithy message Davies leaves behind may make many regret his passing all the more. His last act was to draw up the CBI's advice to the Chancellor for the next Budget, duly delivered last week. Its tone proves how far he has taken the old elephantine CBI down the road to modernisation. This year it warned the Government not to endanger the economy with tax-cutting to boost its electoral fortunes: going for the popular vote could jeopardise economic revival.

This is revolutionary - no calls for tax cuts or lower interest rates, but instead a plea for long-term economic stability, in pursuit of which, he claims, he has entered the cloisters of the Bank as industry's representative. In lectures he castigates fat-cat directors for grasping great sums while trying to screw down their employees' wages. But most striking of all, he identifies the growing divide between rich and poor as the most serious social issue facing the country. This is all astounding stuff from the stuffy old CBI. However, this week Davies has been widely misreported as advocating a minimum wage. What he actually says in his lecture is that although it is a tempting solution to poverty, a high minimum wage would force more of the unskilled out of work. That is the orthodox government and CBI view. But then, because he is sensible and flexible, he adds a proviso, which is what has led to the misunderstanding. He advocates far more widespread use of family credit, the benefit that tops up wages so that it is always worthwhile for those on social security to take jobs.

He points out, however, that this could lead to gross abuse by cowboy employers, ripping off the Government by paying starvation wages in the knowledge the state would top them up. "If that did happen, then the Government would need to consider a minimum wage, set at a low level, to prevent exploitation. But that would be very much a last resort."

Davies is serious about poverty: "We can't go on like this, watching inequality grow and grow, without beginning to pay a high price for social division." He advocates a massive pounds 5bn expansion in education and training, since a high-skill, hi-tech future is the only one he can envisage. How are we to compete as a low-pay economy with the workers of Bangladesh who earn an unthinkable pounds 5 a week? He is a great deal woollier about where this pounds 5bn is to come from. It will hurt, he promises, but then mentions two minor savings that wouldn't hurt much or produce enough money: the middle classes would lose child benefit and free university education. "Yes I admit," he says, "it would mean a lot of other things, too." The end of universal pensions for the better off? "Maybe."

What about higher taxes? "Maybe."

Why does it matter what Howard Davies thinks? Because it would be hard to find a single individual who can speak with as much authority in such minute detail about so many aspects of our social and economic life. He has been in better places than any to observe society from multiple vantage points. Son of a pub interior designer, he went to Manchester Grammar School, gained a scholarship to Oxford and then to the Foreign Office. After a stint in the Paris embassy he went into the Treasury, earmarked as a fast-track high-flier. But bored with the oppressive cradle-to-grave Whitehall life, he left, went to business school in Stanford, California, and joined McKinsey management consultants. The job that made his name was controller of the Audit Commission, and there he shone. Of all his jobs, he says, it was the most exhilarating. It was a sluggish, dry-as- dust outfit, monitoring the efficiency of local government (yawn) - until he breathed life into it. It suited his sharp intelligence. It required him to ask the awkward questions, while his number-crunching minions set out in pursuit of embarrassing answers.

Complacent institutions crumbled before his piercing scrutiny. How much use is a beat policeman, he asked? The answer: a beat policeman will come within 100 yards of a crime once every eight years, and then is unlikely to be aware of it. The devastating nature of his public questions and answers had more power than many a statutory instrument.

Then he left to head the CBI and learn the ways of manufacturing, and joined the Rowntree commission on inequality. That is why he knows so much about so much. All this and he is still only 44. Though baldness gives him the superficial gravitas of another 10 years, his impatient energy attests to his youth. He has the sort of self-confidence in his brain power that affronts some, and he doesn't suffer fools for more than about half a minute. A certain irritability results, combined with an instinct to control everything around him, including famous/notorious social occasions in which he forces his guests into rigorous Mensa-type games and quizzes, revelling in the painful lacunae revealed in his friends' lesser brains.

Politically, he is a bit of a weather-vane of our times. He tried to join the Labour Party once, but they wouldn't have him because he didn't belong to the civil service trade union. When Margaret Thatcher arose and appointed him to the Audit Commission, he was said to be dry. Now with Tony Blair ascendant, he could hardly be wetter, but wriggles uncomfortably in his chair when I suggest his membership of the Vicar of Bray tendency. "No party has a monopoly on wisdom - or inefficiency. I have always remained dry on the macro-economy."

Now he is gone. Only murmurs from the Bank's vaults will tell us whether he is doing anything particularly useful in there, or whether his talents are muffled in the deep pile of the renowned carpets of his office. Is it better to have a radical voice within? Or is he a wasted asset in the public debate now in progress?

'Letters from the Board Room' are broadcast on BBC Radio 4, 9.45am, over the next three Fridays.