Welcome to the first in a series of posts going through the full coalition agreement section by section. You can read the full coalition document here.
For all the importance and controversy associated with banking reform, it is also one of the areas where cross-party agreement is easiest – because once you’ve decided that major reform is necessary, the differences of approach are essentially ones of pragmatic detail rather than principle. Some at the free-market or state control fringes may beg to differ, but it’s a debate about what will or won’t work rather than what political philosophers do or don’t believe.
In that respect, the coalition agreement punts one key issue into the not too long grass, by setting up a commission to investigate whether or not retail and investment banking should be split. I’m pretty relaxed about the commission route because the ridiculously busy lives led by frontline politicians means they actually have very little time to study large, complex policy questions. As a result, whilst political rhetoric can get very heated as different people say how absolutely sure they are that one particular approach is right, in practice none of the prominent MPs arguing for or against this split have had much time to study the issue in detail.
Other key parts of the agreement are introducing a bank levy, encouragement for more mutuals and more competition in the banking industry, actions on bonuses, enhancing the flow of credit to small and medium sized firms and cracking down on white collar crime. Quite whether a crackdown on crime will mean more than many an announced Labour crackdown we can’t really judge until details emerge. However, the proposal to draw together into one body the anti-crime work that is currently split between the SFO, FSA and OFT looks promising. So too does the plan to introduce a free national financial advice service.
Perhaps the greatest doubts remain over financial regulation, where the agreement simply says, “We will bring forward proposals to give the Bank of England control of macro-prudential regulation and oversight of micro-prudential regulation.”
The document also rules out joining the euro for the duration of the agreement, though given the economic situation even a Liberal Democrat majority government would not have been looking to join the euro in the next few years.
Moving on to business, there is a general tone of ‘we don’t like the volume and quality of regulation but we’re not quite sure of the details of how to fix that’. Instead, a series of principles and processes are laid down – a one-in, one-out rule whereby new regulation is matched by axed regulation, giving the public the chance to have more of a say over poor regulations, more sunset clauses for regulation and so on.
Another consistent thread is support for small businesses, including reviewing IR35 and the taxation of small businesses, looking to make small business rate relief automatic, letting social tenants starting businesses at home and allowing councils to take into account creeping dominance by large retailers when drawing up local development plans.
The two big headline issues in this area are corporation tax – with the intention to simplify and cut – and the Royal Mail, where the coalition “will seek to ensure an injection of private capital into Royal Mail, including opportunities for employee ownership. We will retain Post Office Ltd in public ownership.” Post Offices themselves will be allowed to offer a wider range of services and the creation of a Post Office Bank is to be considered.
On Regional Development Agencies, the cause of quite a lot of confusion in Conservative policy-making, the agreement is explicit that they go, to be replaced by Local Enterprise Partnerships. These will be joint local authority – business bodies led by local councils.
Overall these two sections would not look particularly out of place if they had been presented to a Liberal Democrat conference as a policy motion, save for the explicit reference about not joining the euro. As a result, Liberal Democrats are likely to end up happy or displeased with the government in these areas based on the practical experience of how well or badly they work rather than because many government initiatives run up against long held principles.
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4 Comments
The coalition should be careful of light touch regulation given it’s failure to stop market irresponsibility with financial institutions. The key point to bear in mind is understand why the regulation is there in the first place, before deciding whether to remove it.
The creation of a PostBank should be more than just considered – get on and do it!
If they can make it work in Ireland, New Zealand, and France – Why cant we?
( answer : because it got nobbled by the big banks here)
Its a perfect stick to beat the big banks with as well as providing needed community services where they have been withdrawn – and sustaining the Post Office side of the business into the bargain – a win win all round.
One caveat – New management needed – The current dictatorial attitude to Sub-Postmasters does not show the ‘Can Do’ type of organisation required to make this happen.
I would have thought, Mark, that “what works, and what doesn’t” very much depends what criteria you have for making it “work”. In terms of the suggested split in types of banking, surely we already know the broad lines of an answer, even if we are not all academic business students or economists. That is, that you can create complex systems which will often work, but when the system is put under any kind of stress the whole thing breaks down, as in sub-prime loans etc etc in 2008. So the decision is, at heart, whether you want a stable long term system or one prone to intermittent breakdown with the enormous consequences for society and people that we see all around us. A no-brainer really. Unless we want a society built on who are the best gamblers, and just to pose that question is to answer it, really.
One of the most concerning things about the coalition agreement for me, and I would imagine for all of us in the party who are “on the left” economically, is that there seems to be an agreement between Orange bookers and free market Tories, where there would be relatively easy agreement, but when it comes to the oft acknowledged “need for change” to the “Thatcherite legacy”, our economic left doesn’t seem to have had a great deal of input. If we are talking of “the politics of change” surely that is what we should be considering?
Toss an idea into the mix for comment, bearing in mind the need at the moment to raise whatever money can be raised with a view to reducing the deficit. There’s already been talk of a tax on financial transactions where the purpose of that transaction is speculative – let’s extend that thinking. When I lived in Another Country, there was a tax – we’re talking pennies – on any and all financial transactions, business or personal. Write a cheque? Use a cash machine? Charge groceries to your debit or credit card? Each transaction would incur a few cents’ charge, deducted and passed on to the revenue authorities by the bank.
The idea here is to pitch this tax at a level that most people would barely notice – say 2p per transaction. Most people would quickly learn – as we did – to manage their banking needs in such a way as to minimise their exposure. If we need to make it more palatable, exclude basic accounts from the levy. But given the sheer number of transactions that run through the British banking system each day, I’m figuring that the amount raised would not be insignificant.
Thoughts? On one front, let me just say: some will criticise this idea for being another piece of general taxation. I’m noticing, though, that no proposals for “tackling the deficit”, including the coalition’s, do anything other than reduce the rate at which public borrowing rises – no-one is talking about how to actually start paying any of this back. I have two young kids, and I would far rather bear the pain of dealing with this issue now than leave it for them to pay back later, and I’d like to see that thought guide policy thinking on this subject.