Cable fires a warning shot at the bankers (and Osborne)

Business Secretary attacks the banks as "disingenuous in the extreme" for attempting to delay reform

Vince Cable built his reputation in opposition as the hammer of the bankers, so it's no surprise that he's taken exception to their recent behaviour. In an interview in this morning's Times (£), the Business Secretary criticises the "special pleading" of those banks attempting to use the eurozone crisis to delay structural reform. He declares: "It is disingenuous in the extreme to use the current context to argue against reform. Banks are in a way trying to create a panic around something which they know has got to happen".

While the likes of Angela Knight, the chief executive of the British Bankers' Association, argue that reform should be postponed until the economy has recovered, Cable takes a diametrically opposed position: recovery is impossible without reform. As he argues: "The fact that we continue three years after the 2008 crisis to still have anxieties about big financial institutions is all the more reason for grappling with this issue."

In other words, banks' retail and investment arms must be split, or at least ring-fenced, in order to ensure that institutions are no longer "too big to fail". As Mervyn King recently noted in an interview with the Daily Telegraph, it is the knowledge that the state will bail them out "on the downside" that allows banks to pay their staff such extravagant bonuses.

The context for Cable's intervention is the imminent publication (12 September) of the final Vickers report into banking. The Business Secretary is willing to accept the imposition of a ring-fence between banks' retail and investment divisions (the solution proposed by Vickers' interim report and endorsed by George Osborne in his Mansion House speech) but only on the condition that it can be "as effective as a full separation". But while the banks accept that some kind of structural reform is inevitable, they are prepared to do everything in their power to delay it. The fear among Lib Dems is that Osborne is prepared to appease them. As the FT reported earlier this month, the Chancellor is considering a plan to endorse ring-fencing but give banks until 2019 to implement the changes.

Should Osborne agree to an eight-year delay, he will find himself on a collision course with Cable. The Business Secretary accepts that any changes would require legislation and would not take place immediately. But it's safe to say that 2019 is not the date he has in mind. As Lord Oakeshott, Cable's representative on earth, told the Independent: "The banks are like car-makers who say they cannot afford proper brakes. There is no possible excuse for delay. Every day that goes by with no action on the Vickers report puts the British economy at more risk."

Cable's fear is that the banks view the postponement of reform as a prelude to its abandonment. But should the status quo survive, a repeat of the crash is not just possible but inevitable. The stakes could not be higher. For the sake of the economy, Cable must prevail.

George Eaton is political editor of the New Statesman.

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BHS is Theresa May’s big chance to reform capitalism – she’d better take it

Almost everyone is disgusted by the tale of BHS. 

Back in 2013, Theresa May gave a speech that might yet prove significant. In it, she declared: “Believing in free markets doesn’t mean we believe that anything goes.”

Capitalism wasn’t perfect, she continued: 

“Where it’s manifestly failing, where it’s losing public support, where it’s not helping to provide opportunity for all, we have to reform it.”

Three years on and just days into her premiership, May has the chance to be a reformist, thanks to one hell of an example of failing capitalism – BHS. 

The report from the Work and Pensions select committee was damning. Philip Green, the business tycoon, bought BHS and took more out than he put in. In a difficult environment, and without new investment, it began to bleed money. Green’s prize became a liability, and by 2014 he was desperate to get rid of it. He found a willing buyer, Paul Sutton, but the buyer had previously been convicted of fraud. So he sold it to Sutton’s former driver instead, for a quid. Yes, you read that right. He sold it to a crook’s driver for a quid.

This might all sound like a ludicrous but entertaining deal, if it wasn’t for the thousands of hapless BHS workers involved. One year later, the business collapsed, along with their job prospects. Not only that, but Green’s lack of attention to the pension fund meant their dreams of a comfortable retirement were now in jeopardy. 

The report called BHS “the unacceptable face of capitalism”. It concluded: 

"The truth is that a large proportion of those who have got rich or richer off the back of BHS are to blame. Sir Philip Green, Dominic Chappell and their respective directors, advisers and hangers-on are all culpable. 

“The tragedy is that those who have lost out are the ordinary employees and pensioners.”

May appears to agree. Her spokeswoman told journalists the PM would “look carefully” at policies to tackle “corporate irresponsibility”. 

She should take the opportunity.

Attempts to reshape capitalism are almost always blunted in practice. Corporations can make threats of their own. Think of Google’s sweetheart tax deals, banks’ excessive pay. Each time politicians tried to clamp down, there were threats of moving overseas. If the economy weakens in response to Brexit, the power to call the shots should tip more towards these companies. 

But this time, there will be few defenders of the BHS approach.

Firstly, the report's revelations about corporate governance damage many well-known brands, which are tarnished by association. Financial services firms will be just as keen as the public to avoid another BHS. Simon Walker, director general of the Institute of Directors, said that the circumstances of the collapse of BHS were “a blight on the reputation of British business”.

Secondly, the pensions issue will not go away. Neglected by Green until it was too late, the £571m hole in the BHS pension finances is extreme. But Tom McPhail from pensions firm Hargreaves Lansdown has warned there are thousands of other defined benefit schemes struggling with deficits. In the light of BHS, May has an opportunity to take an otherwise dusty issue – protections for workplace pensions - and place it top of the agenda. 

Thirdly, the BHS scandal is wreathed in the kind of opaque company structures loathed by voters on the left and right alike. The report found the Green family used private, offshore companies to direct the flow of money away from BHS, which made it in turn hard to investigate. The report stated: “These arrangements were designed to reduce tax bills. They have also had the effect of reducing levels of corporate transparency.”

BHS may have failed as a company, but its demise has succeeded in uniting the left and right. Trade unionists want more protection for workers; City boys are worried about their reputation; patriots mourn the death of a proud British company. May has a mandate to clean up capitalism - she should seize it.