A welcome U-turn from Osborne as he gets tougher on the banks

The Chancellor backs down and announces that regulators will have the power to break up banks that try to evade new rules.

It isn't often that we have cause to praise George Osborne here at The Staggers but today is one of those rare occasions. Having previously resisted calls from MPs for the government to toughen up its proposed banking reforms, the Chancellor has now decided that regulators will, after all, have the power to break up the banks if they try to evade new rules aimed at ensuring they are no longer too big to fail. The ring-fence separating their retail and investment arms will be "electrified" (one might call it the "Jurassic Park solution"). 

Osborne is giving a speech at 10:30am at JP Morgan's office in Bournemouth (yes, bankers do exist outside of London, is the message from his choice of venue) and will say: 

My message to the banks is clear: if a bank flouts the rules, the regulator and the Treasury will have the power to break it up altogether - full separation, not just ring fence.

He will add:

We’re not going to repeat the mistakes of the past. In America and elsewhere, banks found ways to get around the rules.

Greed overcame good governance. We could see that again – so we are going to arm ourselves in advance. We will electrify the ring fence

Proving that, like the Bourbon kings of France, they have learned nothing and forgotten nothing, the banks have hit back at Osborne, accusing him of creating "uncertainty for investors" (and more certainty for the rest of us?)

Anthony Browne, the head of the British Bankers' Association (formerly Boris Johnson's economic policy director and the director of Policy Exchange) said: "This will create uncertainty for investors, making it more difficult for banks to raise capital which will ultimately mean that banks will have less money to lend to businesses.

"What banks and business need is regulatory certainty so that banks can get on with what they want to do, which is help the economy grow. This decision will damage London’s attractiveness as a global financial centre."

Labour has responded more favourably to Osborne's move, describing it as a "partial climb down", but also raising two major concerns. First, that the new power to break up the banks will only apply to those that misbehave under the new criteria, rather than across the board. Second, that Osborne is planning to introduce a cap on leverage set at 33 times banks' capital, rather than the tougher 25-times limit proposed by the Vickers report.

Shadow Treasury minister Chris Leslie said: "If the reports are correct and the Chancellor is planning to stop short on both the backstop powers and legislation for the leverage ratio, then there will be a very real sense in the country that despite all the rhetoric the Chancellor hasn't got the appetite for the radical banking reform we need."

Having already conceded that his original position on ring-fencing was wrong, Osborne will need to address these criticisms in his speech if he's to have any credibility on this issue. 

George Osborne will say in a speech today that "if a bank flouts the rules, the regulator and the Treasury will have the power to break it up". Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Photo: Getty
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What Jeremy Corbyn gets right about the single market

Technically, you can be outside the EU but inside the single market. Philosophically, you're still in the EU. 

I’ve been trying to work out what bothers me about the response to Jeremy Corbyn’s interview on the Andrew Marr programme.

What bothers me about Corbyn’s interview is obvious: the use of the phrase “wholesale importation” to describe people coming from Eastern Europe to the United Kingdom makes them sound like boxes of sugar rather than people. Adding to that, by suggesting that this “importation” had “destroy[ed] conditions”, rather than laying the blame on Britain’s under-enforced and under-regulated labour market, his words were more appropriate to a politician who believes that immigrants are objects to be scapegoated, not people to be served. (Though perhaps that is appropriate for the leader of the Labour Party if recent history is any guide.)

But I’m bothered, too, by the reaction to another part of his interview, in which the Labour leader said that Britain must leave the single market as it leaves the European Union. The response to this, which is technically correct, has been to attack Corbyn as Liechtenstein, Switzerland, Norway and Iceland are members of the single market but not the European Union.

In my view, leaving the single market will make Britain poorer in the short and long term, will immediately render much of Labour’s 2017 manifesto moot and will, in the long run, be a far bigger victory for right-wing politics than any mere election. Corbyn’s view, that the benefits of freeing a British government from the rules of the single market will outweigh the costs, doesn’t seem very likely to me. So why do I feel so uneasy about the claim that you can be a member of the single market and not the European Union?

I think it’s because the difficult truth is that these countries are, de facto, in the European Union in any meaningful sense. By any estimation, the three pillars of Britain’s “Out” vote were, firstly, control over Britain’s borders, aka the end of the free movement of people, secondly, more money for the public realm aka £350m a week for the NHS, and thirdly control over Britain’s own laws. It’s hard to see how, if the United Kingdom continues to be subject to the free movement of people, continues to pay large sums towards the European Union, and continues to have its laws set elsewhere, we have “honoured the referendum result”.

None of which changes my view that leaving the single market would be a catastrophe for the United Kingdom. But retaining Britain’s single market membership starts with making the argument for single market membership, not hiding behind rhetorical tricks about whether or not single market membership was on the ballot last June, when it quite clearly was. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.