Is Michael Gove now going to be held to account for his advisers' "bullying tactics"?

There are accusations the Education Secretary misled Parliament.

Last week, my colleague Rafael Behr warned that the "ultra-partisan tactics" being used by Michael Gove at the Department for Education and reported by the Observer were just the start, given that the Education Secretary is considered to be one of the most effective Tory minister in government.

He's been proved right, and perhaps more quickly than we could have guessed, as today's Observer carries further details of how Gove is now facing accusations that he "may have misled parliament over claims of bullying and intimidation by key advisers". Toby Helm reports:

The Observer can reveal that a senior civil servant in the education secretary's department has received a secret payoff of about £25,000 out of public funds, after a lengthy grievance procedure involving members of Gove's team, including his special adviser, Dominic Cummings, and the department's former head of communications, James Frayne.

While an investigation within the department cleared the men, and said no disciplinary action was necessary, the final judgment made clear that their conduct had on occasions fallen short of the levels expected and that the behaviour of Cummings and Frayne, who has since left the department, "has been perceived as intimidating". After the internal investigation was launched in the spring of 2012, the civil servant also decided to lodge a case with a tribunal, where the allegations would have been heard in public. A date was set for last month, but after further negotiations the financial settlement was agreed and the tribunal was cancelled.

On 23 January, however, Gove – who under the ministerial and special advisers' codes is responsible for the behaviour of his advisers (known as Spads) – denied knowledge of any allegations of misconduct during an appearance before the education select committee.

Observer columnist Nick Cohen has also weighed in on the subject, explaining how Gove stays above the fray as a "Tory gentleman", allowing his advisers to do his enforcing:

Here is how the retaliation works. The gang around him treat any slight to their master as an affront. The lead comes from his special advisers Dominic Cummings and Henry de Zoete. Cummings is a piece of work. He is a political hack of such reputation that Andy Coulson tried to blackball him from working for the coalition. If a former editor of the News of the World, now awaiting trial, warned me that a potential employee was too unsavoury to touch, I would pay attention. Gove did not.

Cummings and de Zoete can call on the services of Paul Staines, author of the Guido Fawkes website. They also have Telegraph journalists, the Murdoch press and most of the rightwing blogosphere at their disposal.

Part of the allegations against Gove's advisers revolve around their alleged use of the @ToryEducation Twitter feed to publish personal, partisan attacks against Gove's critics. If Gove's special advisers are indeed behind it, it would constitute a breach of both the special advisers' and the civil service code. The virulent nature of its attacks have started attracting wider attention in recent weeks, as NS deputy editor Helen Lewis noted recently:

It's long been suspected that Gove considers himself a viable future Tory leader. As a former journalist, he already has excellent contacts among right-wing hacks, and it would seem that his advisers have made pains to maintain those links. Most definitely one to watch.

Michael Gove - a "Tory gentleman"? Photograph: Getty Images

Caroline Crampton is assistant editor of the New Statesman. She writes a weekly podcast column.

Image: Shutterstock
Show Hide image

The need for responsible investment banking with a strong regional focus

Let’s begin by stating the problem: there’s a lack of long-term investment in the UK economy, both in infrastructure and in the capital needed to run productive businesses.  That counts double at a regional level across the country. This is an old song to be sure, but that doesn’t detract from its reality.  And with the main fallout from Brexit likely to be a decline in foreign direct investment, the investment gap is only going to get worse.

For example, the OECD think tank estimates an annual infrastructure investment of 3.5% of GDP is necessary in developed economies to maintain competitiveness, never mind boost it.  Currently, public sector infrastructure investment in the UK is forecast to reach to be 1.4% of GDP in 2020/21 – and that’s with the increase in capital spending offered in the Autumn Statement.

The curious thing, though, is that there is no actual shortage of capital.  In fact, in the City, there is probably the world’s biggest pot of footloose cash just looking for an investment opportunity. Which suggests that the failure to invest in UK Plc has more to do with the financial plumbing that anything else. Which brings us to investment banks and their role in the economy.

Today’s high street retail banks – the sort you keep your current account with – make their money from mortgage lending and hidden charges on overdraft facilities. The last thing they do is risk lending money to industry or for long-term infrastructure projects. That’s where dedicated investment banks come in.  Their job is to organise the financial plumbing that channels risk capital from its owner through to companies or infrastructure projects, using any means necessary: underwriting share issues, creating consortia to build windfarms, brokering mergers, managing funds, or selling advice.

To cut to the chase: the UK is suffering a blocked financial pipeline.  Our local investment banking system is in crisis.  Post the 2008 Credit Crunch, domestic banks in the UK – Barclays excepted - have been in wholesale flight from investment banking, which is perceived as having been the cause of their ruin. Certainly derivatives trading allied to insane levels of inter-bank lending formed the detonator of the 2008 implosion. And some institutions – notably HBOS – leveraged themselves to unsustainable levels in order to invest in the latter stages of a commercial property bubble whose eventual collapse was obvious to anyone but a banker. 

But the retreat from investment banking activities by UK firms brings problems. First it implies handing over the keys to investment banking and capital supply to Wall Street. Second, if Donald Trump launches his proffered $1trillion infrastructure investment plan for America, there will be a capital flight from the UK and Europe. All of which suggests that Britain needs to make its own arrangements for capital provision through a reformed and expanded domestic investment banking sector or see UK productivity continue to flat-line.

That’s not to say there aren’t questions still to be asked about the ethical behaviour of investment banks. The five biggest global investment banks operating in the UK regularly contrive to pay no corporation tax locally, despite making billions in profits.  Name and shame: I mean JP Morgan, Bank of America Merrill Lynch, Deutsche Bank AG, Nomura Holding and Morgan Stanley.  But without a domestic UK investment banking sector, we are still going to be ripped off.

There is even more of a problem in the regions and nations that make up Britain.  If anything, regional inequality in the UK has worsened since 2010, with London becoming more, not less economically dominant despite the financial crash. The most recent data show that London’s share of Gross Value Added (GVA) increased from 21.5% in 2010 to 22.6% in 2014, while GVA per head also grew quicker in London than elsewhere.  But regional stock exchanges have long since vanished meaning that what capital is available – for growing companies or local infrastructure needs – is stashed in London and won’t go north in a hurry.

There is no single solution to this set of problems so let’s experiment with trying to create various new bits of financial plumbing. First, accept we need an investment banking sector. Next, let’s create some domestic competition in the sector. RBS has spent too much time chasing its tail and downsizing. It’s time RBS recovered its mojo and went back into the investment banking business. Besides, that is probably the only way it is ever going to start generating real profits again.  All it takes is for UKFI, its public owner, to tell CEO Ross McEwan to change course.

We can also unlock domestic capital specifically for safe, long-term infrastructure projects. Here the problem is Solvency II, the new EU regulations governing the capital requirements for the insurance sector and the pension funds they manage. UK pension funds invest an estimated 1% of their total assets in infrastructure. But this is very low compared with funds in Australia and Canada, where 8-15% of assets are invested in infrastructure.  The problem, complain UK insurers, is that the Prudential Conduct Authority is over-interpreting Solvency II and treating the industry as if it were a dodgy bank.  If capital requirements imposed by the PRA on UK insurers were eased, there would be more capital to invest in local infrastructure.

One possible hard solution to the regional investment gap comes from the New Economics Foundation in conjunction with Common Weal, a pro-independence Scottish think tank.  They are pushing the SNP Government at Holyrood to create a Scottish National Investment Bank and have published a detailed blueprint as to how it could work. Using Scottish Government figures for job creation from capital investment, their joint report states that such an investment bank could directly support the creation of 50,000 jobs “within just a few years of being established”.

Investment banking has become a dirty word since 2008. It’s actually a necessary part of the financial furniture.  The trick is to make it work properly. And for that to happen, politicians and regulators have to be pro-active.

Barclays has commissioned a report ‘‘What have the Capital Markets ever done for us? And how could they do it better?’’ by New Financial with the hope to start a debate about the value of capital markets to the economy, especially in the UK. Many thanks go to those who joined us at our events with New Statesman so to examine the report’s findings in detail.

For the previous feature in the series, see Alison McGovern’s Why we must maintain the highest standards in banking in the new political landscape.

George Kerevan is the SNP Member of Parliament for East Lothian.