On a mission to restore Abbey's image

THERE was a palpable sense of relief when Lord (Terry) Burns, the former Treasury mandarin, took over as chairman of Abbey National last November.

Since parting company with the Treasury in acrimonious circumstances in 1998, Burns has earned himself a reputation as a troubleshooter. He came to the rescue of Labour over a plethora of issues from the Financial Services Act to fox hunting and the National Lottery. He also helped to design and run Britain's first debt-based, not-for-profit utility at Welsh Water.

His skills are needed at Abbey National. Having successfully made the transition from building society to retail bank, it has found the going tough over the last year. A series of mis-steps damaged its image and share price.

Burns as a 'big part-time' chairman, spending up to four days a week at the bank, is seen as having the financial and political skills to sort it.

This means working alongside chief executive Ian Harley, who takes some blame for Abbey's recent turmoil. Last year it failed to pull off an agreed merger with Bank of Scotland largely because of personality issues, allowing rival Halifax to steal the prize.

More recently, Abbey's wholesale bank was criticised for losing £95m on exposure to Enron. The provision was among the reasons that annual profits slipped to £1.9bn. All this has led to gossip that further change is in the air, pushing the shares up this week.

Despite recent sackings and resignations from the Abbey board, Burns believes that he and Harley can get along.

'I don't think Ian Harley is a difficult person to work with,' Burns, 57, asserts. In his office on Baker Street, he has a panoramic view over Regents Park and the London Business School, where he worked as director of the Centre for Economic Forecasting, before moving into government and becoming part of the Thatcher revolution.

Burns says changes were needed at Baker Street because the board had got too large, and the wholesale bank had grown too fast and 'taken up a lot of capital - speculative capital - in the process'.

From now on he sees the wholesale bank as offering services to the rest of Abbey National 'but it is no longer going to grow so rapidly'.

So where will future expansion come? Burns appears confident that the bank can make up ground by focusing on wealth management and business banking.

Despite recent setbacks and strong competition, Burns insists that on the retail side the Abbey brand 'still has a great deal of carrying power'. He does not think that the consumer credit boom means personal debt has become unsustainably high.

'The only way to look at debt is in relation to your ability to service and to repay it.'

Though interest rates are low, Burns does not believe that they will rise far enough to cause the widespread problems of a decade ago.

An area that Abbey has marked for expansion is banking for smaller and medium-sized enterprises.

As a newcomer, it has an advantage in carrying none of the baggage of the Big Four. But there has been concern that some of its edge might have been blunted by the recent Competition Commission report - accepted with relish by Gordon Brown.

This ordered Abbey's competitors to pay interest on the current accounts of small businesses.

'Paying interest on current accounts detracts a little from your marketing package,' Burns acknowledges. 'But it is now a matter of demonstrating that there are lots of benefits to this.'

As a free market economist, Burns believes that Labour has made a mistake. 'I think that this is a dangerous direction to be moving in. Regulation and price controls are rarely in the long-term interest of the consumer.' He points out that you only have to go back two decades in the home loan market 'when there was only one mortgage, everybody had the same mortgage, the price was the same', to know that such interference does not work. Burns knows a little about this. He was at the Treasury in 1981 when Nigel Lawson devised a 'windfall tax' on the big banks.

'It was at a time when we were very concerned about public sector borrowing and it was any port in the storm. It was very attractive to be able to raise money from one of the parts of the economy which was doing well.'

It has been a long journey for Burns from the Sunderland of his early years to joining the elite band of bank chairmen. His was a working class childhood spent in a three-bedroom council house, where his parents continued to live for 50 years until his father died in 1987.

Young Terry was a smart lad who made it to Houghton-Le-Spring Grammar School. 'I had a pleasant childhood. I played the clarinet, watched Sunderland on Saturday afternoon, played a huge amount of tennis and some cricket. We didn't have a television, we never went on any holidays and we didn't have a car. My parents had an ambition that I should go to university. It was a brand new world, the first time I was away from home,' he recalls quietly in his unpretentious North-Eastern accent. Off he went to the University of Manchester. 'I got a full grant and worked in the summer holidays as a bus conductor in Great Yarmouth. It was never a question of not going on financial grounds. The grant was enough to live on.'

After his economics degree, Burns ended up in a research post at the London Business Schoolworking his way up to Professor-of Economics in 1979, before taking on the economic forecasting establishment. Along the way he met his wife Anne on a blind date just after she returned from a trip on the trans-Siberian railway.

They settled in Ealing, West London. Their three children all work in the public services. Eldest daughter Kate, formerly at the Bank of England, now keeps an eye on her father from her perch at the Financial Services Authority.

Burns has became a devoted Queens Park Rangers fan, rarely missing a game at home or away, even when he was in government.

Plucked from the LBS to the Treasury in 1980 as an economic adviser, he helped to lead the Thatcher revolution to monetarism, working alongside Sir Peter Middleton (later chairman of Barclays). Despite being an outsider, he prospered at the Treasury, rising to Permanent Secretary in 1991.

When New Labour came to power in 1997, it all started to go wrong. Burns found the publicity methods of Brown's young aides Ed Balls and Charlie Whelan irritating. Great chunks of the first Budget appeared in the press before either he or the Prime Minister had been informed.

Burns says there is no bitterness. 'I had some particular problems with [former Paymaster General] Geoffrey Robinson. The way they chose to use the press also posed problems.'

As a result, he decided 'to get on with my life'. During most of his period at the Treasury, the sterling exchange rate was an overarching issue.

Burns argues that the critical test for euro entry is whether 'we could live with a single interest rate that would be given to us by conditions in Europe as a whole'. He doubts whether this can ever be shown in a 'clear and unambiguous way' as Brown insists it must.

In the end, governments 'have to balance things off against each other and make a decision'. He does not expect to take part in the debate - except perhaps from the cross-benches in the Lords. But after the variety of tasks he has taken on for Labour, the possibility cannot be discounted that he will end up with a central role.