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 Images
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We need to destroy Isil, yes. But the Prime Minister has no plan

And so, until there is a better plan on the table, I will vote against bombing Syria, says Owen Smith.

There are no decisions we make as MPs more important than whether we commit our country to combat, with its inevitable loss of military and civilian lives. That is a view shared by MPs of all parties in the House of Commons, who treat their responsibility on this question with the utmost seriousness. I have no doubt, therefore, that the Prime Minister and all those who have concluded that we should enter more fully into combat in Syria, starting with bombing the Isil/Daesh stronghold Raqqua, have done so after careful consideration, believing that this action is necessary to protect the security of the UK, through defeating Isil and bringing stability to Syria.

However, I respectfully disagree with them, and I will not be supporting a motion to bomb, based on the arguments brought forward by the Prime Minister last week.

My opposition is not rooted in pacifism, it is a hard headed and finely balanced judgment based on what I think the likely strategic, security and military effects of our involvement are.

The Prime Minister is right to set out objectives to defeat Isil and the formation of a stable, inclusive government in Syria.  These are aims that we all should share and at some point the use of British military force may well be required to achieve that outcome.  I might well support military action if a comprehensive and serious plan were put to parliament by the Prime Minister.  However, the case that Cameron currently proposes singularly fails to explain to the country how bombing will achieve his twin objectives. In fact, he is equally hazy on both the end state he desires and the end game to deliver it, and even on the question of military action, it is the Opposition's job to point to holes in the government’s argument.

Though I, like most MPs, am no military expert, I have studied these issues with great care and, along with many military and diplomatic experts, I cannot see that that Britain adding around an extra 10 per cent per cent bombing capacity (we will contribute six to 10 planes) to the US, French and other forces’ capabilities is likely to make a truly telling contribution to what we can all agree should be an agreed military objective: degrading and defeating Isil.  Especially given that there have already been around 3,000 air strikes against Isil in Syria.

I am sceptical that our weaponry is significantly more effective than that of the US, however excellent our personnel. I am also sceptical that bombing can avoid civilian casualties. And am wholly unconvinced that bombing, without significant, committed, united and effective ground troops to hold and build on the territory cleared by the bombs, will deliver the objective. It may not even be enough to chase Isil out of their stronghold in Raqqa. If the Prime Minister had been able to build a coalition of support from neighbouring countries of Turkey, Jordan, Iraq and others, willing to commit troops on the ground to take and hold ground cleared by air strikes then the equation would be very different. However, the current coalition is incomplete, and the ground troops insufficient.

Cameron has talked of there being perhaps 70,000 men under arms in opposition to Isil and ready to engage on the ground, but this does seem to me, as to many others, to be an optimistic assessment. Evidently, some of the anti-Isil and anti-Assad forces can be effective, as the Kurdish militias (the YPG) showed in driving back Isil forces from the northern town of Kobani last year, under cover of US planes. But these successful moments of defence have been few and far between and have mostly either involved these Northern (Rojava) Kurdish fighters or their ethnic countrymen from Iraq, the US-trained Peshmerga. Neither group is in close proximity to Raqqa and both see their primary objective as securing a Kurdish homeland from Syria, Iraq and Turkey. Other groups, some suggest as many as a hundred, are fighting across the region, but have a wide variety of allegiances and aims, tribal and religious, including two powerful groups that are off-shoots of Al-Quaida.  So it seems clear that the Prime Minister’s current proposals offer no realistic prospect of ground forces securing territory in and around Raqqa, which will ultimately be necessary to effectively neutralise the Isil threat, both regionally and internationally.

Nor is it clear to me what Cameron hopes Bashar al Assad will do in the event of increased bombing of Isil.  Assad is currently fighting on several fronts, against Isil, against the Kurds and against other groupings, some of them the ‘moderates’ the PM hopes will help. It remains uncertain as to whether Assad will view the bombing as an opportunity to intensify his fight with Isil, or to crush the moderates whose main goal is to depose him.

Perhaps more important a reason to oppose this action than the apparent holes in the military strategy, is the lack of a plan for what comes after. The current situation on the ground, provides scant hope for a peaceful and inclusive government to emerge, even in the event of Isil being eradicated. Far more likely is the continuation of pre-existing conflicts and the emergence of new crises from the rubble of Raqqa. British bombs might hasten the end of this phase of the conflict, if supported by a real and reliable land army, but it is only diplomatic, financial and, crucially, regional political pressure that stands a chance of any form of stability.

Maybe these questions would shrink in size if I truly felt our security at home would be increased by our bombing Isil in Syria.  But I do not.  Isil is a terrorist organisation, but it is also an insurgent army, an idea and a brand. It’s monstrous reach out of Syria, to Paris most tragically, but potentially to any of our towns and cities, may well be in planning, arming and instigating. And I am sure that the Security Services could draw evil, concrete connections between Raqqa and the Bata’clan. But Isil’s reach, and its strength, is intangible too: in its propaganda and cultural call to arms.

The only way we can be sure of defeating the Isil threat to our streets and in the region, is to find a long term political solution in Syria.  Unfortunately in my judgement, the proposals put in front of us to vote on this week do not offer that potential.  The prime route to ensuring that Isil’s capacity to threaten Western Europe is destroyed is to build on the recent peace talks in Vienna, with the aim of constructing a concerted international strategy on defeating Isil.  For this to be successful, global and regional partners must play a central part in the strategy, showing that the world is united in opposition to the poisonous ideology of Isil. And Arab nations, with Sunni majorities, must be in the vanguard of both peace talks and any military action.  

Finally, I repeat that these are judgements, not facts, and I may well be proved wrong. But I reach my conclusion as an internationalist, a European and someone who loves France and the French people. Their call for us to join with them is, for this MP, by far the most compelling to step up our engagement to actual combat at their side. But it is neither unpatriotic nor cowardly for us not to do so. The UN Resolution and NATO Treaty invoked by France, call on us to engage in ‘such action as it (the individual member states or NATO as a whole) deems necessary, including the use of armed force’. That tells me that any action our Government undertakes, including bombing, will be legal. But is does not tell me whether it will be strategic and wise, politically or militarily. And just as we cannot outsource our defence to our allies in the US or France, nor too can we outsource our judgement.

And so, until there is a better plan on the table, I will vote against. 


Owen Smith is Labour MP for Pontypridd and Shadow Secretary of State for Work & Pensions.