It's astonishing the banks haven't been ring-fenced earlier

The in-kind subsidy to consumer banks has been crying out for a limit.

The chancellor has announced his plan to "electrify" the proposed ring-fence between retail and investment arms of British banks — which George calls the "Jurassic Park solution" — ensuring that if a bank tries to breach the ring-fence, it will be separated fully.

Much of the criticism of the ring-fence, as well as the Chancellor's defence of it, stems from its effects on financial stability. That's obviously important, but there's a bigger reason why such a move is long over-due, and that's the state backing of retail banks.

This backing isn't even a question of the too big to fail subsidies which hand around £34bn to the biggest banks. Instead, it's the effect of the financial services compensation scheme.

That's the government body which protects up to £85,000 of individuals' deposits with accredited banks. Since it was formed, it has paid out over £26bn, mostly in the aftermath of the financial crisis, to customers of retail banks which went bust.

And that's good! The FSCS is necessary in a world in which customers can't be expected to judge the financial health of a bank when deciding where to keep their money, and even more necessary given that a bank account is largely deemed a prerequisite of living a normal life in the UK today (hence the concern over the lack of basic bank accounts). But, at least on a cursory analysis, the FSCS also reduces the cost of capital for banks, because they don't have to compensate customers for the risk that they will lose all their deposits.

For a bank that's not failing, though, the FSCS is an in-kind subsidy, and it makes sense to limit that distortion. That's the reason for a ring fence: it ensures that the government is only subsidising the consumer banking sector, rather than the entire sector at once.

The stability arguments are important; and the ring-fence does indeed lessen the downside of a casino bank going under (although the amount it will lead to broader stability of the financial system is more questionable). But even without them, there'd be a strong prima facie reason for some kind of limit to the amount consumer deposits can be leveraged.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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John Major's double warning for Theresa May

The former Tory Prime Minister broke his silence with a very loud rebuke. 

A month after the Prime Minister stood in Chatham House to set out plans for free trading, independent Britain, her predecessor John Major took the floor to puncture what he called "cheap rhetoric".

Standing to attention like a weather forecaster, the former Tory Prime Minister warned of political gales ahead that could break up the union, rattle Brexit negotiations and rot the bonds of trust between politicians and the public even further.

Major said that as he had been on the losing side of the referendum, he had kept silent since June:

“This evening I don't wish to argue that the European Union is perfect, plainly it isn't. Nor do I deny the economy has been more tranquil than expected since the decision to leave was taken. 

“But I do observe that we haven't yet left the European Union. And I watch with growing concern  that the British people have been led to expect a future that seems to be unreal and over-optimistic.”

A seasoned EU negotiator himself, he warned that achieving a trade deal within two years after triggering Article 50 was highly unlikely. Meanwhile, in foreign policy, a UK that abandoned the EU would have to become more dependent on an unpalatable Trumpian United States.

Like Tony Blair, another previous Prime Minister turned Brexit commentator, Major reminded the current occupant of No.10 that 48 per cent of the country voted Remain, and that opinion might “evolve” as the reality of Brexit became clear.

Unlike Blair, he did not call for a second referendum, stressing instead the role of Parliament. But neither did he rule it out.

That was the first warning. 

But it may be Major's second warning that turns out to be the most prescient. Major praised Theresa May's social policy, which he likened to his dream of a “classless society”. He focused his ire instead on those Brexiteers whose promises “are inflated beyond any reasonable expectation of delivery”. 

The Prime Minister understood this, he claimed, but at some point in the Brexit negotiations she will have to confront those who wish for total disengagement from Europe.

“Although today they be allies of the Prime Minister, the risk is tomorrow they may not,” he warned.

For these Brexiteers, the outcome of the Article 50 negotiations did not matter, he suggested, because they were already ideologically committed to an uncompromising version of free trade:

“Some of the most committed Brexit supporters wish to have a clean break and trade only under World Trade Organisation rules. This would include tariffs on goods with nothing to help services. This would not be a panacea for the UK  - it would be the worst possible outcome. 

“But to those who wish to see us go back to a deregulated low cost enterprise economy, it is an attractive option, and wholly consistent with their philosophy.”

There was, he argued, a choice to be made about the foundations of the economic model: “We cannot move to a radical enterprise economy without moving away from a welfare state. 

“Such a direction of policy, once understood by the public, would never command support.”

Major's view of Brexit seems to be a slow-motion car crash, but one where zealous free marketeers like Daniel Hannan are screaming “faster, faster”, on speaker phone. At the end of the day, it is the mainstream Tory party that will bear the brunt of the collision. 

Asked at the end of his speech whether he, like Margaret Thatcher during his premiership, was being a backseat driver, he cracked a smile. 

“I would have been very happy for Margaret to make one speech every eight months,” he said. As for today? No doubt Theresa May will be pleased to hear he is planning another speech on Scotland soon. 

Julia Rampen is the editor of The Staggers, The New Statesman's online rolling politics blog. She was previously deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.