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.

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Brexit is teaching the UK that it needs immigrants

Finally forced to confront the economic consequences of low migration, ministers are abandoning the easy rhetoric of the past.

Why did the UK vote to leave the EU? For conservatives, Brexit was about regaining parliamentary sovereignty. For socialists it was about escaping the single market. For still more it was a chance to punish David Cameron and George Osborne. But supreme among the causes was the desire to reduce immigration.

For years, as the government repeatedly missed its target to limit net migration to "tens of thousands", the EU provided a convenient scapegoat. The free movement of people allegedly made this ambition unachievable (even as non-European migration oustripped that from the continent). When Cameron, the author of the target, was later forced to argue that the price of leaving the EU was nevertheless too great, voters were unsurprisingly unconvinced.

But though the Leave campaign vowed to gain "control" of immigration, it was careful never to set a formal target. As many of its senior figures knew, reducing net migration to "tens of thousands" a year would come at an economic price (immigrants make a net fiscal contribution of £7bn a year). An OBR study found that with zero net migration, public sector debt would rise to 145 per cent of GDP by 2062-63, while with high net migration it would fall to 73 per cent. For the UK, with its poor productivity and sub-par infrastructure, immigration has long been an economic boon. 

When Theresa May became Prime Minister, some cabinet members hoped that she would abolish the net migration target in a "Nixon goes to China" moment. But rather than retreating, the former Home Secretary doubled down. She regards the target as essential on both political and policy grounds (and has rejected pleas to exempt foreign students). But though the same goal endures, Brexit is forcing ministers to reveal a rarely spoken truth: Britain needs immigrants.

Those who boasted during the referendum of their desire to reduce the number of newcomers have been forced to qualify their remarks. On last night's Question Time, Brexit secretary David Davis conceded that immigration woud not invariably fall following Brexit. "I cannot imagine that the policy will be anything other than that which is in the national interest, which means that from time to time we’ll need more, from time to time we’ll need less migrants."

Though Davis insisted that the government would eventually meet its "tens of thousands" target (while sounding rather unconvinced), he added: "The simple truth is that we have to manage this problem. You’ve got industry dependent on migrants. You’ve got social welfare, the national health service. You have to make sure they continue to work."

As my colleague Julia Rampen has charted, Davis's colleagues have inserted similar caveats. Andrea Leadsom, the Environment Secretary, who warned during the referendum that EU immigration could “overwhelm” Britain, has told farmers that she recognises “how important seasonal labour from the EU is to the everyday running of your businesses”. Others, such as the Health Secretary, Jeremy Hunt, the Business Secretary, Greg Clark, and the Communities Secretary, Sajid Javid, have issued similar guarantees to employers. Brexit is fuelling immigration nimbyism: “Fewer migrants, please, but not in my sector.”

The UK’s vote to leave the EU – and May’s decision to pursue a "hard Brexit" – has deprived the government of a convenient alibi for high immigration. Finally forced to confront the economic consequences of low migration, ministers are abandoning the easy rhetoric of the past. Brexit may have been caused by the supposed costs of immigration but it is becoming an education in its benefits.

George Eaton is political editor of the New Statesman.