For 13 years Gordon Brown as Chancellor and now Prime Minister has been cosy and happy in the knowledge that the City of London has been supplying a vast proportion of his tax receipts simply because they were the best in the world. He was so pleased he praised them to the skies: - ,- -
“Over the ten years I have had the privilege of addressing you as chancellor, I have been able year by year to record how The City of London has risen by your efforts, ingenuity and creativity to become a new world leader . . . an era that history will record as the beginning of a new golden age for the City of London. . . . Britain needs more of the vigour, ingenuity and aspiration that you already demonstrate that is the hallmark of your success”.
Gordon Brown, speaking to an audience of bankers, 20 June 2007”
Now suddenly bankers are devils incarnate and must be taxed till the pips squeak, be regulated until they can’t operate, and their directors cannot pay what is needed to make the City the profit centre of Britain again. Brown and all his government lead the ‘bank bashers’. This is because they no longer care what misery they leave behind or whether the vast hole in our finances can ever be plugged unless the banks are prosperous.
Here two strong comments on this daftness are to be commended.
Christina
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TELEGRAPH 3.12.09
1. Darling must lead by example if he wants Europe to leave the City alone
The row over bonuses at the Royal Bank of Scotland highlights the impossible and contradictory position Labour has landed itself in. It's the sort of multi-dimensional mess that a dissembling Government born of spin and manipulation thoroughly deserves to end its days with.
By Damian Reece
Alistair Darling was in Brussels yesterday. "Leave off the City of London," was his message to his EU counterparts who seem hell bent on smothering our biggest industry. He could have added: "Because that's my job." He cannot accuse Europe of trying to undermine our financial services industry while doing exactly that himself. Clamping down on investment banking bonuses at RBS and elsewhere has long been a red herring in tackling the causes of the credit crunch. It's an inexact science too – as Barclays is now proving by raising basic pay.
Reforming the structure of how people are paid is one thing, but being judge and jury on how much they're paid is quite another. If you want to rebuild the profitability of banks in relatively short order, then including an investment banking business is a good way to do it - for RBS probably the only way. The Government can then think about selling its stakes at a profit. But if you choose to have one that's successful, you have to pay for the people to work in it. Would other bankers work at RBS and deliver the required returns for less? No, I'm afraid they wouldn't.
If Darling wants banks that are profitable and able to hit lending targets to help the economy recover, he has to let them work as banks. But that's politically uncomfortable. He could choose for RBS not to have an investment bank but he'd have to find a new management team to run it. By forcing the bank's directors to toe a political line, such as vetoing bonuses for staff, Darling would be asking them to work against the interests of RBS's other shareholders, which is illegal.
If Darling wants the EU to leave the City alone he has to lead by example and show Brussels what he means. What sliver of credibility he has left is utterly undermined by any other approach.
2. City more threatened by Britain's political masters than Sarkozy and Brussels
London's position as one of the world's premier financial centres has been the envy of Paris for generations. Ever since the Napoleonic wars, when high finance was harnessed to the purpose of France's eventual defeat, the French political class has hated, feared and admired the City in equal measure.
By Jeremy Warner
No one embodies this bi-polar view of London better than President Nicolas Sarkozy, one of whose many ambitions is to recreate the City's success in global finance in the image of Versailles. I'm told he even has a most un-Gallic plan of tax breaks lined up to attract the high priests of finance to the elegance of Paris – only, for political reasons, he daren't unveil them quite yet. With his popularist hat on, he condemns the excesses of Anglo-Saxon finance and announces the final triumph of the European economic model. But behind the scenes he's planning to steal London's dinner.
Fortunately for him, Britain's political masters seem to be doing their utmost to help him out. The tax and regulatory advantages of London as a financial centre are being put sharply into reverse, while the electioneering around bonuses threatens permanent damage to international competitiveness.
Rivals are sniggering behind their hands at this extraordinary display of self-harm. But it's worse than that. By threatening to cap bonuses at RBS, the Government is, for political purposes, recklessly gambling with more than £50bn of taxpayer investment in the troubled bank. What solvency and profits are left at RBS come entirely from investment banking interests; yet, oblivious to the consequences for the public finances, the Government seems in its search for votes intent only on destroying them.
In Brussels, Mr Sarkozy has found a new stick with which to beat the City for his own advantage, or hopes he has anyway. As the French president has proclaimed, the Brits have lost out to France for the most important position in the European Union governing finance – internal markets.
With French nationals now dominating many of the top posts in international policy, including Dominique Strauss-Kahn at the International Monetary Fund, Pascal Lamy at the World Trade Organisation and Jean-Claude Trichet at the European Central Bank, it is small wonder the French premier should think he's about to reverse nearly two centuries of shame.
Yet therein lies the flaw in Mr Sarkozy's ambitions for Paris as a financial centre. Down the ages, France and Britain have defined themselves as much through their rivalry as their intrinsic differences in language and culture.
France regards itself as the antithesis of Britain, which is why Paris would never have the attributes necessary for a successful trading centre. It would be thought too compromising, dangerous, vulgar, short termist and, yes, Anglo-Saxon.
There are lots of highly successful French financiers, while French bankers are whizzes at the creation of complex derivative securities. Yet crucially, most of them operate elsewhere in the world. French nationals who are any good at finance tend fast to turn native, which means not French.
Mr Sarkozy's ambitions for Paris should therefore be taken with a large pinch of salt. Yet if he can't have European finance, there's always the fall-back position of destroying it for everyone else.
Thus far, London has been relatively successful in snuffing out some of the more stupid initiatives to eminate from Brussels. But it is a constant battle and, as Lord Myners, the City minister, admits, just knowing who to talk to in this largely unaccountable bureaucracy is a nightmare in itself.
In the end, however, engagement usually pays, even when political influences hostile to Anglo-Saxon finance are pulling the strings. The new internal markets commissioner may be a former French agricultural minister of left-leaning persuasion, but his top civil servant is a Brit.
Personally, I'm not as worried by Brussels as others. Europe seems to me to be more of a tiresome irritant, like a constantly demanding dog with a terrible propensity to get the wrong end of the stick, than a real threat. The real danger for the City comes not from the dead hand of Europe, still less the fantasies of Sarkozy, but from London itself, where bank bashing has reached destructive proportions.
For whatever reasons, Alistair Darling, the Chancellor, has been a good deal more guarded and responsible in his public remarks about the City than many of his political opponents. Yet actions always speak louder than words, and on this front Britain is bizarrely and suicidally leading from the front in the charge against international banking.
Regulatory reform is meant to be happening on a coordinated and uniform basis across the G20, but the Financial Services Authority (FSA) is determined not to wait for the others and has started imposing stringent new capital and liquidity controls with abandon.
New forms of regulation are being introduced unilaterally in a manner which is not just harmful to the City's competitiveness but also further restricts credit provision and therefore slows the recovery. Other countries are taking a healthier view, which is that reform can wait until the banking system and the economy have mended themselves.
It is as if Gordon "Britain leads the world" Brown has shouted "over the top lads" only to find there's no one behind him. While the City is being mowed down on the battlefields of Flanders, everyone else is laughing in the trenches.
One investment banker regulated out of London tells me he has lost a number of recent transactions to Goldman Sachs because the capital demanded by the FSA was too great. The business and liquidity instead ended up in New York, where a gentler approach was applied. The Americans seem to have learned a thing or too from the over-reaction of Sarbanes-Oxley after the last meltdown. They don't intend to make the same mistake again.
Add to that Labour's Damascene re-discovery of the lost art of taxing the rich until the pips squeak – expect more of that in next week's pre-Budget report – and you have the whole catastrophe. You might reasonably think all this is a justified reaction to the economic collapse, but to do so would be to misunderstand the causes of the banking crisis.
The real mischief took place not on the trading floors of the City, but in the over-expansion of plain vanilla commercial and mortgage lending among conventional retail banks such as RBS, HBOS and Northern Rock. Britain needs the City to help restore the economy and the public finances. Sometimes it seems that the covetous Nicolas Sarkozy understands this better than our own politicians.
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