Brown defied Bank of England warning over his £6bn gold giveaway

By Jason Groves for the Daily Mail
Updated: 02:52 EST, 1 April 2010

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Ex-Bank Governor Eddie George

Gordon Brown rode roughshod over resistance from the Bank of England to order the disastrous sell-off of Britain's gold reserves, secret papers have revealed.

Treasury documents released under Freedom of Information last night suggest that the Bank was reluctant to sign up to the sale of 395 tonnes of gold at rock-bottom prices in a series of auctions between 1999 and 2002.

The deals, struck when Mr Brown was Chancellor, are thought to have cost Britain £6billion, almost double the £3.3billion cost of Black Wednesday in 1992 when the country crashed out of the European Exchange Rate Mechanism.

Senior officials are said to have warned that the timing of the sale risked losing money for the taxpayer.

Treasury ministers and Tony Blair previously told Parliament that the sale was made 'on the technical advice of the Bank of England'.

One crucial passage in the papers about relations between the Treasury and the Bank has been blacked out.

Liberal Democrat Treasury spokesman Vince Cable said: 'It has long been clear that Gordon Brown's gold sell-off was spectacularly bad timing, but these papers show the extent of the opposition from those who saw how much money his actions could lose the country.

'It is clear that the taxpayer is now footing the bill for the Prime Minister's refusal to listen to reason.'

The sale took place during a slump in world gold prices which drove its value to record lows. At the time City analysts warned Mr Brown against the sale.

The Treasury achieved an average price of just $275.60 an ounce. The price of gold has since quadrupled to $1,114 an ounce.

The documents show that Mr Brown made repeated efforts to persuade the Bank to agree a 'joint proposal' on the gold sell-off.

The Treasury made at least four separate attempts between August and December 2008 to persuade the Bank to sign up to the sale.

It is made clear that the Bank offered advice to Mr Brown in September 1998 but it was rejected. The bank is thought to have told Mr Brown to delay at least part of the sale until the price improved.

A source close to the Bank of England said last night: 'It was not our decision. It was their decision and we simply provided technical advice. Then it was up to them.'

Rock-bottom prices: 395 tonnes were sold off

Two days before Christmas 1998 - just a month before the sale was announced - a senior Treasury official wrote to the department's then permanent secretary Gus O'Donnell: 'The Chancellor is keen that officials at the Treasury and the Bank work together to produce a joint proposal. As I understand it the latest proposal is not a joint one.

'The Chancellor needs to know the status of the proposal, what the difficulties are in drawing up a joint proposal, how you think we can move forward in achieving a joint proposal.'

Three weeks later Mr Brown met the then Bank Governor Lord George for lunch to discuss the plan. But the outcome of the talks is unclear because the Treasury has blacked out a key section of the only note referring to it.

Lord George offered only the most lukewarm endorsement of the decision at the time, telling MPs it was a 'perfectly reasonable portfolio decision'.

If he had refused to agree to the sale he would almost certainly have had to resign.

The documents surrounding the gold sales were kept secret for years until the Information Commissioner ruled this month that they must be published following a Freedom of Information request.

Shadow Chancellor George Osborne said: 'Under questioning from David Cameron, Gordon Brown said he would be happy to publish the truth about his disastrous decision to sell off Britain's gold at the bottom of the market.

'Now we see a key passage has been redacted. What has Gordon Brown got to hide? After all, we can't get the gold back. If he doesn't publish the documents in full, people will suspect there is a cover-up.'

In a statement last night the Treasury said: 'The proceeds of these sales were re-invested in interest-bearing foreign currency assets. Other central banks have adopted similar policies.

'As a result of this, the Treasury reduced the risk of volatility to the reserves by 30 per cent.'

A Bank of England spokesman refused to comment.