Parliamentary Connections: March 2009 Archives

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March 2009 Archives

March 6, 2009

Brown has lost the regulatory reform battle already - he just can't bring himself to admit it

As hard as he might try, it looks as if Gordon Brown has already lost control of the debate on the future regulation of the world's financial services industries. His pleas to President Obama and the US Congress for a co-ordinated global response sounded very fine but lacked substance and, crucially, lacked credibility. His hopes of pulling off a deal at the G20 Summit next month now look very slim.

Most of the rest of the world is not looking to the UK or the United States for a lead in reforming the way financial markets and the firms that play in them are regulated for the simple reason that they think the Anglo-US approach of the last 25 years has a lot to do with the mess the world's economies are currently in as many leading commentators are starting to point out. Europe, in particular, does not want a UK or US solution and is already busily working at its own. Last week's Larosiere report spells out a new approach that has quickly won approval in the European Commission and among key national governments in mainland Europe. The Larosiere Report?  You haven't heard of it? You can be forgiven because the coverage in the UK of this key report for the European Commission by former International Monetary Fund managing director Jacques de Larosiere has been poorly covered here. Yet, it has set the EU on a course to create three new pan-national regulatory bodies - the European Banking Authority, the European Securities Authority and the European Insurance Authority.

These new regulators will be given wide powers to impose supervisory standards on national regulators, make binding decisions on technical issues (very likely to include powers over product design) and enforce adequate prudential supervision in conjunction with another new body, the European Systemic Risk Council. Certain pan-European organisations will find themselves closely regulated for the first time with credit ratings agencies at the top of the list - they are in for a very nasty shock if these recommendations go through. For the time-being, the EU envisages micro-level regulation of individual firms being left with national regulators but it sets out a course towards far greater control in the future, threatening to bring a range of other market and conduct of business issues under the remit of its new structure.

The report and the Commission make a nod in the direction of the world outside Europe's borders by urging a "deepening of the EU's bilateral financial relations with all its major partners" but here, in the very next line, is the key statement of intent "There is an opportunity for the EU to seize global leadership". This is where the battle lines will be drawn and it is hard to see Gordon Brown's voice being heard above the noise of that battle.

There are some scores to be settled with the UK among many regulators in Europe dating back to the creation of the Single Market in financial services in 1992 when the UK won a protracted argument over the balance between prudential regulation and product regulation, with the EU rules coming down firmly in favour of the former. At the time, many financial products in Germany, France, Italy and Spain were tightly regulated in terms of design and rates. All of that was replaced by a more UK orientated system of prudential supervision and it is that system that many in Europe believe has now failed, no more so that in the UK. Larosiere comes back time and again in his report to the need to regulate at much more detailed level, especially when it comes to hedge funds, over-the -counter derivatives and credit default swaps. It also has things to say on the need for greater risk retention by the issuers of securitised products and calls for common rules for what it rather vaguely refers to as "investment funds".

The UK has given a lukewarm welcome to the Larosiere report but merely praising it as a "good basis for further discussions" as Alistair Darling did this week is hardly going to win friends at the European Commission, especially as he goes on to dismiss the idea of given any new pan-European bodies powers over national regulators. Europe sees it as the agenda for those discussions and we can expect to see France and Germany pressing this at the G20 summit. They are not interested in the sort of wishy-washy talk of global co-operation that the Prime Minister peddled to the US Congress this week: they want firm action with tough new rules and see how to deliver that as the starting point for debate, not merely as an option for discussion.

If the UK financial services sector wants to engage in the real debate over the future of regulation it will be much better advised to look to Brussels rather than to Westminster.

Posted by DavidWorsfold on March 6, 2009 8:54 AM | | Comments (1)

March 18, 2009

Goodwin's pension is obscuring the issue

There is no coherent argument that can be offered for defending Sir Fred Goodwin's pension and it was disappointing to see yesterday's hearings of the Treasury Select Committee largely wasted in pursuing the City minister Lord (Paul) Myners over the Goodwin pension.
We all know what happened. In the eye of the crisis last October when the banking system was being swept towards an abyss, a morally bankrupt RBS board pulled a fast one when they knew the government wouldn't be looking. They thought Goodwin was been sacrificed to satisfy the government as it poured public money into their ailing company and so did everything they could to feather his nest. The decisions they made were deliberate, calculating and cynical. You cannot blame the government - in particular Lord Myners - for not noticing this at the time. Can you imagine the outrage if government ministers had become so distracted by arguing with the RBS board over Goodwin's pension that RBS or another bank had gone under. Re-arranging deckchairs on the Titanic would have been an under-statement of how that would have looked.
The real anger shouldn't be aimed at the government but at a board who acted so cynically, sadly showing what Barclays has just proved yet again with its gagging of The Guardian - that bankers simply do not understand how they are perceived by the rest of us. What is needed to steer us out of this crisis is a real partnership between government, regulators (here and elsewhere but especially the European Union) and financial institutions. Clearly, too many of the latter are still not working to the same agenda as everyone else. That is the real issue now.

Posted by DavidWorsfold on March 18, 2009 8:51 AM | | Comments (1)

March 23, 2009

Tax bomb has started ticking

While the very public rows about the causes and consequences of the economic crisis continue to grab the headlines, we can see one of the key battlegrounds for next year's General Election emerging: tax policy.
With government spending now so far beyond any previous targets as borrowing heads towards 11% of national income (the highest among the G7 countries) and the public finances deteriorating daily as tax receipts plummet, the tax timebomb is ticking. Fear of its potential damage to the economy has already tipped the Conservatives into state of public confusion. On Saturday, shadow chancellor George Osborne said that a 45% Income Tax band was inevitable, even though that would be little more than a flea bite on the bloated public sector deficit. Yesterday, Kenneth Clarke, recently restored to the Conservative front bench as shadow business secretary, suggested that the previous Tory commitment to raise the Inheritance Tax threshold to £1m could be jettisoned. This was clearly too much tax in one weekend for the  Tories and Mr Clarke was busy "clarifying" his remarks this morning saying that the £1m threshold would be in the next manifesto.
The simple truth is that taxes will have to go up almost as soon as any recovery looks secure. The real questions are by how much, how fast and how can it be done in such a way that the government doesn't promptly push the UK economy back into reverse. The minor turbulence that has disturbed the Conservative revival this weekend will be nothing as the tax bomb ticks ever louder over the coming months.

Posted by DavidWorsfold on March 23, 2009 9:41 AM | | Comments (0)

March 24, 2009

Noose tightens on ratings agencies

The threat of tough rules to bring the ratings agencies into a new pan-European regulatory framework took a step closer to reality last night as the European Parliament's economic and monetary affairs committee voted through a hard-hitting package of proposals.
The prospect of ratings agencies being subject to regulatory scrutiny was flagged up by the Larosiere report and has also been on the agenda of the UK's Treasury Select Committee enquiry into the banking crisis. Up to now, however, the proposals have been abit vague and have pointed to much of the detailed regulation being left to national regulators. The proposals put forward by the internal market commissioner, Charlie McCreevy, put the Euroepan Union firmly in the driving seat of that reform. Under the proposals which now go to the European Parliament next month, all ratings agencies will have register with the Committee of European Securities Regulators - itself earmarked for a greater role by Larosiere - or be subject to equivalent regulation if based outside the EU. Within the detail of the proposals is a requirement that all lead analysts should be rotated every five years.
This is yet another example of the EU pushing ahead in its determination to take control of the reform agenda.

Posted by DavidWorsfold on March 24, 2009 11:23 AM | | Comments (0)

March 25, 2009

What can Brown salvage from the G20 Summit?

I am still struggling to see where this consensus the Prime Minister keeps talking about over fiscal stimuli and international agreement on future regulation is going to come from. His current mini-world tour in the run up to next week's London Summit doesn't seem to be getting him anywhere very fast. It is almost as if he is saying the same thing over and over again in an attempt to convince himself that everyone agrees with him but he is actually beginning to look very isolated.
The only clear consensus I can see among the UK, the US and the European Union is over the push for greater transparency on the part of tax havens and can easily imagine this being trumpeted as a major triumph in order to cover up the divisions elsewhere.
On regulation, it looks as if there is very little meeting of minds and, as I have said before in this blog, Europe is making the running here, although there is now some very tough talk emerging from the US too. So far, the UK hasn't put any specific proposals on the table so it is hard to see exactly where the expectations are being set for the summit.
When it comes to pumping even more public money into beleaguered economies, this message has gone down well enough in New York where the new administration has embraced this route with vigour but it is being met with a frosty reception on this side Atlantic. The main EU countries are not struck on this approach, although both France and Germany have indulged in some targeted public support, especially in the automotive sector.
It is at home where the support for this approach is collapsing. Yesterday, the Governor of the Bank of England made it clear that the central bank does not believe further extension of the public debt is sensible and, right on cue, the markets gave it a thumbs down today when they failed to fully support the gilt auction the the first time in seven years, an ominous sign that even if the government wanted to do more it simply won't be able to.
It is getting very hard to see where Gordon Brown is going to be able to take the G20 Summit.

Posted by DavidWorsfold on March 25, 2009 4:45 PM | | Comments (0)

March 30, 2009

MPs need the shake-up, not their expenses

I have been watching the current frenzy over stories of MPs expenses with a growing sense of despair. We are already facing a crisis because of the lack of respect for politicians and political processes in this country which is causing an accelerating disengagement from the democratic dialogue between citizens and Parliament. This is a cause of huge concern and should be at the forefront of MPs' minds. Instead,it seems that all too many of them have their own pockets as their first concern.
Frankly, I think what Jacqui Smith's husband watched is almost totally irrelevant. What I want to know is why does an MP even think that they can submit a Sky TV bill as a Parliamentary expense? It almost beggars belief. This might seem small fry against the huge amounts claimed for so-called second homes that are often totally unnecessary but it really does expose just how totally divorced most MPs are from the rest of us. As much as I respect many MPs I deal with, I do think that we have a real problem with the type of people who are elected to Parliament. We need a massive change of personnel at Westminster, not just an overhaul of the expenses system. A huge reduction in the number of MPs to around 450 should be a key objective of a complete review of Parliament, its role in the 21st century, the way it works and the way it and its occupants are managed.
Anything less and we will quickly reach a state of total alienation between Parliament and the people it is meant to represent.

Posted by DavidWorsfold on March 30, 2009 11:40 AM | | Comments (0)

March 31, 2009

Equitable Life battle lines become more entrenched

The fight for compensation for Equitable Life policyholders is becoming more embittered at every turn. Just take a look at the tactics and the language being used by both sides over the last couple of weeks.
First, the Public Administration Select Committee followed up its pre-Christmas report with a second report reviewing the government's response. In this it slammed the government response to its initial report and the proposals by the Parliamentary Ombudsman, Ann Abrahams, that the committee had endorsed, as "shabby, constitutionally dubious and procedurally improper".
This was followed up by a letter to all MPs from Ann Abrahams who made it clear that she will use the full range of powers in the 1967 Act that governs her office which provide that "if, after conducting and investigation, it appears that injustice has resulted from maladministration and that such an injustice has not been, or will not be, remedied, I may, if I think fit, lay before each House of Parliament a special report on the case". I cannot find an example of these powers having been used in the 40 years since the ombudsman was created.
This row then exploded onto the floor of the House of Commons last week during Treasury questions when the government's attempts to hide behind its commissioning of Sir John Chadwick to come up with a hardship payment scheme were heavily criticised by MPs. This provoked an angry outburst by the junior Treasury minister Ian Pearson: "I am very disappointed that the Public Administration Committee should chose to obscure the real help that it accepts the government's payments scheme will deliver ... seemingly driven by an uncritical acceptance of the findings of the ombudsman's report and by its unjustifiable and irresponsible characterisation of the manner of the government's repsonse". This comment was meet by a barrage of shouts of "shame" and "withdraw" from the opposition benches and a stoney silence from the Labour MPs behind him.
The government is isolated on Equitable Life and knows it. It seems to think that by playing a delaying game the problem will go away. The cynics suggest that it is simply waiting for the Equitable Life policyholders to die which is happening as many of them were obviously at retirement age when they took out their annuities in the early 1990s. More likely it is running scared of the implications of agreeing to compensate for regulatory failure with the prospect of years of scrutiny and investigation over its handling of the banking and credit crisis. It does not want to set any precedent that will prompt the shareholders and customers of Bradford & Bingley, Northern Rock, Royal Bank of Scotland ... the list goes on and on ... to think that the government will compensate them.
I honestly believe that had the banking crisis not occurred the government would have been more generous in its response to the ombudsman's report. It wouldn't have been so acquiescent in allowing the ombudsman to investigate if its intention was to virtually stonewall on all of her recommendations. However, it now does have to accept that this issue will simply not go away or die off and find a more constructive way of engaging with the ombudsman, MPs, the policyholders and Equitable life itself: trading insults will get it nowhere.
The ball is now back in the ombudsman's court with her special report due to be delivered to MPs and peers straight after the Easter recess.

Posted by DavidWorsfold on March 31, 2009 10:03 AM | | Comments (0)

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About March 2009

This page contains an archive of all entries posted to Parliamentary Connections in the March 2009 category. They are listed from oldest to newest.

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