Labour's chickens come home to roost - again

The fine of £290 million levied against Barclays Bank for a “fancy fiddle” in the financial markets will infuriate and confuse personal and business customers in equal measure.


Who exactly is being punished, and for what?

Nobody has been fired – yet – which is what many of us would like to see. Only the bonuses of multi-millionaire directors seem to be affected, and that on a voluntary basis for one year.

The “fine” will most likely come out of the pot available for lending, rather than the pockets of the guilty.

Immediately politicians have jumped onto their high horses to blame others for their own errors.

When Labour came to power in 1997 it changed the regulations for the financial sector. It could well be argued that many of the problems with the banks now stem from that.

Peter Mandelson told us Labour was “relaxed about people getting filthy rich”. Bankers certainly took him at his word.

The global financial crisis and the self-inflicted collapse of Northern Rock left the Coalition government with a mess, and a dilemma about what happens next.

They want to get the semi-nationalised banks back into the private sector, but to do that need them profitable.

They want them to lend to businesses to kick-start growth which the printing of money has so far failed to do.

And they want a banking crisis “never again” to happen, by making them build up their reserves (under an international agreement called Basel III, which typically the UK is implementing faster than anyone else) rather than lending out the money.

The banks need profits to pay dividends again, to build up the share price so they can be sold down, but they find it easier to do this by vast “casino-like” activities rather than take the risk of lending to large numbers of businesses, which might fail.

The Government had an imagination failure when it disposed of the shares it confiscated from Northern Rock shareholders rather than using the bank to push constructive lending, or turning it back into a building society.

It took a loss on the taxpayer’s investment to show it was being politically tough, rather than using its ownership in a positive and involved way.

With RBS (85% owned) and Lloyds (42% owned) it could enforce more reasonable senior pay levels and lending for growth. But it’s a hands off shareholder instead.

Recently I went to see a number of banks with a proposition that needed funding. Where I wasn’t laughed off the phone by banks with zero intention of lending, I found the terms that were so onerous that the project became unviable.

The reality from the bank manager’s office is that they won’t lend unless the Government forces them to, which it won’t do. Channelling some of the billions of “quantitative easing” into business lending really would give the economy a boost.

What they are doing instead is financial engineering – exactly the same crime of which Barclays has been found guilty.

But it’s the absence from Labour of an apology for the fine mess their policies gotten us into that particularly offends. Economic competence is the first requirement of Government. We all – and especially job-creating business – will do well to remember this.