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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Recess confidential: Labour's liquid party

Sniffing out the best stories from Westminster, including Showsec, soames, and Smith-side splits.

If you are celebrating in a brewery, don’t ask Labour to provide the drinks. Because of the party’s continuing failure to secure a security contractor for its Liverpool conference, it is still uncertain whether the gathering will take place at all. Since boycotting G4S, the usual supplier, over its links with Israeli prisons, Labour has struggled to find an alternative. Of the five firms approached, only one – Showsec – offered its services. But the company’s non-union-recognition policy is inhibiting an agreement. The GMB, the firm’s antagonist, has threatened to picket the conference if Showsec is awarded the contract. In lieu of a breakthrough, sources suggest two alternatives: the police (at a cost of £59.65 per constable per hour), or the suspension of the G4S boycott. “We’ll soon find out which the Corbynites dislike the least,” an MP jested. Another feared that the Tories’ attack lines will write themselves: “How can Labour be trusted with national security if it can’t organise its own?”

Farewell, then, to Respect. The left-wing party founded in 2004 and joined by George Galloway after his expulsion from Labour has officially deregistered itself.

“We support Corbyn’s Labour Party,” the former MP explained, urging his 522,000 Facebook followers to sign up. “The Labour Party does not belong to one man,” replied Jess Phillips MP, who also pointed out in the same tweet that Respect had “massively failed”. Galloway, who won 1.4 per cent of the vote in this year’s London mayoral election, insists that he is not seeking to return to Labour. But he would surely be welcomed by Jeremy Corbyn’s director of communications, Seumas Milne, whom he once described as his “closest friend”. “We have spoken almost daily for 30 years,” Galloway boasted.

After Young Labour’s national committee voted to endorse Corbyn, its members were aggrieved to learn that they would not be permitted to promote his candidacy unless Owen Smith was given equal treatment. The leader’s supporters curse more “dirty tricks” from the Smith-sympathetic party machine.

Word reaches your mole of a Smith-side split between the ex-shadow cabinet ministers Lisa Nandy and Lucy Powell. The former is said to be encouraging the challenger’s left-wing platform, while the latter believes that he should make a more centrist pitch. If, as expected, Smith is beaten by Corbyn, it’s not only the divisions between the leader and his opponents that will be worth watching.

Nicholas Soames, the Tory grandee, has been slimming down – so much so, that he was congratulated by Tom Watson, Labour’s deputy leader, on his weight loss. “Soon I’ll be able to give you my old suits!” Soames told the similarly rotund Watson. 

Kevin Maguire is away

I'm a mole, innit.

This article first appeared in the 25 August 2016 issue of the New Statesman, Cameron: the legacy of a loser