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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Leader: Against neverendums

At present, we are experiencing a fetishisation of referendums. But we must remember that Britain is a representative democracy.

Imagine a Britain where the death penalty was restored, where immigration quotas were determined on ethnicity and where some communities were forcibly repatriated to countries that they never called home. This is not some dystopia led by a British Donald Trump. It is what the UK could have looked like had the proponents of direct democracy – referendums – had their way.

Britain is a representative democracy. We elect 650 MPs and we entrust them with the power to make and scrutinise legislation on our behalf. This simple method of central government (we also have devolved institutions) has done much to ensure our stability where more fragile democracies, or illiberal ones, have succumbed to disorder or fascism.

At present, we are experiencing a fetishisation of referendums: we argue this having supported the Scottish referendum in 2014, for which the SNP had an unequivocal mandate. Yet, broadly, referendums are not a uniquely democratic way to arrive at a decision of national moment but a crude majoritarian tool. The deliberative nature of a parliament, with its built-in checks and balances, safeguards it against blindness to the interests of minority groups and views and allows compromises to evolve. Referendums can too easily allow the dominant moral panic of the time to be translated into immediate action. Had they been called on the progressive social advances of the 20th century, we would now be a far less open and tolerant society.

Referendums can also undermine the basis of representative democracy. Our parliament works, on the whole, because we trust its supreme authority to make decisions. As one concedes that there are some issues that are only legitimately settled by a referendum, the question immediately arises: which ones? If the UK’s continued membership of the European Union falls into this category, why not the Budget? If the Alternative Vote does, why not the issue of military intervention in Iraq or Libya? Yet the ultimate threat to our form of democracy is not referendums but those who have instigated them. The EU referendum on 23 June was dreamed up by the Prime Minister for no better reason than that he was pressured by recalcitrant right-wingers in the Tory party, as well as the UK Independence Party and the press.

Referendums seldom settle difficult questions, as events in Scotland have demonstrated. There, a “once in a generation” vote turned out to be no such thing: rarely does a week pass without Nicola Sturgeon making vague threats about a “second” independence referendum. Moreover, Ukip’s Nigel Farage is already talking about the need for a second EU referendum before the first has even happened.

When confused voters say that they want an objective list of the pros and cons of Brexit before they can make up their minds, what they mean is that they want their representatives to regain the courage to make difficult decisions on their behalf. Britain needs a frank reminder that politics is complicated and its practitioners are often skilled and conscientious.

It would be a folly to leave the EU but it was a folly enough to call this referendum during a period of multiple crises in Europe. It is time to speak up for representative democracy.

The rise of the nativist right

Had 31,000 Austrians voted differently, Europe would now have its first far-right president since 1945. The narrow defeat of the Freedom Party’s Norbert Hofer is emblematic of the xenophobic nativism that has spread across the continent. Mr Hofer’s softly spoken, telegenic manner belied his extreme views. He has declared that “Islam has no place in Austria”, wears a blue cornflower (the historic symbol of pan-Germanism) and is an honorary member of the student fraternity Marko-Germania zu Pinkafeld, which rejects the “fiction of an ‘Austrian nation’”.

Yet far from being an outlier, Hofer has many allies. Marine Le Pen’s Front National, Frauke Petry of Alternative für Deutschland and Geert Wilders of the Dutch Party for Freedom all rallied to his cause. In Hungary, Poland and Finland, the far right holds office.

The rise of these atavistic forces is an indictment of Europe’s mainstream, most notably its becalmed centre-left. As in the 1930s, nationalists have skilfully exploited cultural and economic alienation. History provides ample warning of the consequences of allowing such extremists into power. It is a lesson that Europe should not be forced to learn again. 

This article first appeared in the 26 May 2016 issue of the New Statesman, The Brexit odd squad