So Mervyn King, Britain’s central bank governor, warned at the weekend that another financial crisis was brewing. He is right. There are four problems with the banks, and none of them has been resolved – lending, tax, pay, rebalancing. On every one of them the banks have faced down the Government. So who’s in charge? These are the facts.
Project Merlin was supposed to ensure that the banks ended the lending drought which has starved businesses for the last 3 years. They finally announced a target of new lending of £190bn, but only to creditworthy businesses and only if the economic conditions were right – judgements that the banks would make and likely to result in little if any increase in lending at all.
Osborne a month ago trumpeted his new levy of £800m on financial institutions, increasing the tax on banks to £2.5bn. This is hardly a serious imposition on banks which have nearly wrecked the economy with direct and indirect costs to the taxpayer of nearly £850bn. £2.5bn amounts to no more than each of the big banks doled out this year in bonuses, it’s less than Labour’s bonus tax last year of £3.5bn, and it’s a mere fifth of what consumers are being forced to pay each year in extra VAT.
Outlandish bonuses are still the order of the day, with Bob Diamond scooping £8m this year even when nearly a million young people are on the dole. In 2009 Osborne declared “It is totally unacceptable for bank bonuses to be paid on the back of taxpayer guarantees. It must stop”. But that’s precisely what Barclays and the other banks are now still doing. Ministers are reduced to the humiliating posture of begging the banks to show restraint – as though they ever will – and the banks are even refusing to disclose the pay of their top earners.
Though it is recognised that other factors contributed to the financial crash – notably an unduly lax monetary policy and overly light regulation – the banks unquestionably caused it by their combination of greed, recklessness and arrogance. Yet the liability for bearing the consequences has been shifted entirely to its victims, the public sector, and the banks have been allowed to escape with impunity by their blackmail that they will up sticks and leave the UK if they are made to pay any due penalty for their folly.
The dominance of the City drew in investment funds from abroad, pushing up the exchange rate which hobbled industry and keeping interest rates low which led to the excessive personal borrowing bubble and the collapse that followed. To rebalance this lop-sided economy the Government should use the nationalised banks to guide investment into the key economic sectors of the future and to prevent the speculation that led to the last crash. But it isn’t happening: the Government lacks the inclination and the will, and the banks are exercising the power to block it.
