Why we still need a public inquiry into the banks

A Leveson-style inquiry would expose the web of patronage and lobbying.

Listening to the Commons exchanges yesterday on the Chancellor’s proposal for a Parliamentary Committee of Inquiry into the LIBOR scandal was depressing.  It was the Commons at its worst: blame shifting; moralising; and, above all, opportunistic point scoring across the floor.  It’s not just the bankers who don’t get it; lots of MPs also do not realise the scale of the disaster that is the UK financial system.  A Parliamentary inquiry is a quite inadequate response to the scale of the problem. Some Parliamentary inquiries, notably those by the Treasury Select Committee, have done good work.  But even when not beset by party divisions they simply have not measured up to the job.  As in the notorious case of Fred Goodwin, they end up largely scapegoating individuals. Now Bob Diamond has followed his chairman in falling on his sword. It’s just as well he doesn’t have a knighthood; he could kiss it goodbye. 

Andrew Tyrie is an honourable man and will do his level best with the inquiry – if it happens.  But we can already see how inadequately he conceives the task: the inquiry will be "ring-fenced" (his words) to examine what the LIBOR tells us about the culture of the City. The LIBOR scandal is being trailed by the financial establishment as precisely that: a scandal.  In other words, a single disgraceful event, and in the manner of all scandals in Britain it is taking a predictable course: moralistic fulminations, and the sacrifice of a few prominent scapegoats.  Morals are important;  the amorality revealed in the Barclays’ e mails is shocking to normal people.  And  it is certainly the case that wrongdoers need to be pursued and punished.  But here at CRESC, where we have been tracking the financial crisis since 2007, we have been  arguing for some time that there are fundamental defects in our financial system, and that these won’t be solved by short term hunting down of scapegoats.  Faced with the  LIBOR scandal, politicians, bankers and regulators have responded  with the traditional Claude Rains defence: like Captain Renault, the character played by Rains in Casablanca, they are shocked, truly shocked, to discover that illicit gambling has been going on in the casino of the City of London.  But  the problems won’t be solved by firing a few top bankers, prosecuting a few white collar criminals, or even by conducting an inquiry into the workings of LIBOR – necessary though all these are.  We need to dispense with the illusion that a casino is the best way to organise the financial system for a modern economy – a truth that Keynes famously expressed many decades ago.

Our research reports show that the claimed economic benefits of the City for the "real" economy are an illusion, the product of effective PR over the years by the City elite.  Boring old manufacturing contributes about twice as much as glitzy financial services to the nation’s tax coffers.  And the City is doing nothing to solve our unemployment problems: throughout the great financial boom up to 2007 employment in finance was flat.  The  PR offensive has been effective because the City has enjoyed unique privileges in the government of finance, and unique access to top policy makers: both the Labour and Conservative parties have, in office, relied on paymasters from the financial elite.  And in turn they have, disgracefully, inserted financiers into key decision making positions.

The result is that the City is a web of markets proliferating increasingly complex and risky financial instruments that do little or nothing to promote welfare or efficiency in the wider economy.  The "other" scandal last week – the outrageous rip off at the expense of small business – is no single accident; it reflects the fact that finance is now in the business of creating and selling financial instruments regardless of the social harm they create.  Adair Turner’s condemnation of "useless" financial innovations is an understatement; the City has moved beyond the creation of the useless to the manufacture of the positively malign.

We need a full Leveson-style inquiry to examine how the casino is working, and to examine the web of patronage and lobbying that has allowed the City casino to trade with impunity.  An inquiry will be uncomfortable for many who were prominent in the New Labour years, and it is to the credit of Ed Miliband and Ed Balls that they have, nevertheless, recognised that full transparency is needed. We need an inquiry on the scale of Leveson, with the power to uncover the cultures and institutions that persuaded City operators that they could operate with impunity.  And we might yet get it if Labour refuses to play ball with Osborne’s proposal. But more important even than an inquiry, we need  a fundamental redefinition of the social and economic roles of finance. Banks must become public utilities with the duty to serve the wider economy, not players in casinos.  A Leveson-style inquiry would help provide the catharsis to  bring us to that point.

To read the full CRESC evidence and argument, download our report.

The claimed economic benefits of the City for the "real" economy are an illusion. Photograph: Getty Images.

Michael Moran is adjunct Professor of Government and Business in the University of Manchester Business School.

Getty
Show Hide image

Not since the Thatcher years have so many Tory MPs been so motivated by self-interest

Assured of an election win, backbenchers are thinking either advancing up the greasy pole, or mounting it for the first time. 

One hears despair from Labour not just about probable defeat, but from MPs who felt they had three years to improve the party’s fortunes, or to prepare for personal oblivion. In the Conservative Party, matters seem quite the opposite. Veterans of the 1983 election recall something similar: a campaign fought in the absolute certainty of winning. Theresa May talked of putting the interests of the country first when she engineered the poll, and one must believe she was sincere. However, for those expecting to be Tory MPs after 8 June there are other priorities. Theirs is not a fight for the national interest, because that for them is a foregone conclusion. It is about their self-interest: either advancing up the greasy pole, or mounting it for the first time. They contemplate years ahead in which to consolidate their position and, eventually, to shape the tone and direction of the party.

The luxury of such thoughts during a campaign comes only when victory is assured. In 1983 I worked for a cabinet minister and toured marginal seats with him. Several candidates we met – most of whom won – made it clear privately that however important it was to serve their constituents, and however urgent to save the country from the threats within what the late Gerald Kaufman later called “the longest suicide note in history”, there was another issue: securing their place in the Thatcher revolution. Certain they and their party would be elected in the aftermath of the Falklands War, they wanted their snout in the trough.

These are early days, but some conver­sations with those heading for the next House of Commons echo the sentiments of 1983. The contemporary suicide note has not appeared, but is keenly awaited. Tories profess to take less notice of opinion polls than they once did – and with good reason, given the events of 2015 and 2016 – but ­imagine their party governing with a huge majority, giving them a golden opportunity to advance themselves.

Labour promises to change the country; the Liberal Democrats promise to force a reconsideration of Brexit; Ukip ­promises to ban the burqa; but the Tories believe power is theirs without the need for elaborate promises, or putting any case other than that they are none of the above. Thus each man and woman can think more about what the probability of four or five further years in the Commons means to them. This may seem in poor taste, but that is human nature for you, and it was last seen in the Labour Party in about 2001.

Even though this cabinet has been in place only since last July, some Tory MPs feel it was never more than an interim arrangement, and that some of its incumbents have underperformed. They expect vacancies and chances for ministers of state to move up. Theresa May strove to make her team more diverse, so it is unfortunate that the two ministers most frequently named by fellow Tories as underachievers represent that diversity – Liz Truss, the Lord Chancellor, who colleagues increasingly claim has lost the confidence of the judiciary and of the legal profession along with their own; and Sajid Javid, the Communities Secretary, whom a formerly sympathetic backbencher recently described to me as having been “a non-event” in his present job.

Chris Grayling, the Transport Secretary, was lucky to survive his own stint as lord chancellor – a post that must surely revert to a qualified lawyer, with Dominic Grieve spoken of in that context, even though, like all ardent Remainers in the government, he would be expected to follow the Brexit line – and the knives are out for him again, mainly over Southern Rail but also HS2. David Gauke, the Chief Secretary to the Treasury, and the little-known Ben Gummer, a Cabinet Office minister, are tipped for promotion with Grieve if vacancies arise: that all three are white men may, or may not, be a consideration.

Two other white men are also not held in high regard by colleagues but may be harder to move: Boris Johnson, whose conduct of the Foreign Office is living down to expectations, and Michael Fallon, whose imitation of the Vicar of Bray over Brexit – first he was for it, then he was against it, and now he is for it again – has not impressed his peers, though Mrs May considers him useful as a media performer. There is also the minor point that Fallon, the Defence Secretary, is viewed as a poor advocate for the armed forces and their needs at a time when the world can hardly be called a safe place.

The critical indicator of how far personal ambition now shapes the parliamentary Tory party is how many have “done a Fallon” – ministers, or aspirant ministers, who fervently followed David Cameron in advising of the apocalyptic results of Brexit, but who now support Theresa May (who is also, of course, a reformed Remainer). Yet, paradoxically, the trouble Daniel Hannan, an arch-Brexiteer and MEP, has had in trying to win selection to stand in Aldershot – thanks to a Central Office intervention – is said to be because the party wants no one with a “profile” on Europe to be added to the mix, in an apparent attempt to prevent adding fuel to the fire of intra-party dissent. This may appease a small hard core of pro-Remain MPs – such as Anna Soubry, who has sufficient talent to sit in the cabinet – who stick to their principles; but others are all Brexiteers now.

So if you seek an early flavour of the next Conservative administration, it is right before you: one powering on to Brexit, not only because that is what the country voted for, but because that is the orthodoxy those who wish to be ministers must devotedly follow. And though dissent will grow, few of talent wish to emulate Soubry, sitting out the years ahead as backbenchers while their intellectual and moral inferiors prosper.

Simon Heffer is a columnist for the Daily and Sunday Telegraphs

Simon Heffer is a journalist, author and political commentator, who has worked for long stretches at the Daily Telegraph and the Daily Mail. He has written biographies of Thomas Carlyle, Ralph Vaughan Williams and Enoch Powell, and reviews and writes on politics for the New Statesman

This article first appeared in the 27 April 2017 issue of the New Statesman, Cool Britannia 20 Years On

0800 7318496