Labour after LIBOR

If anyone out there is still making the intellectual case for further banking deregulation, they are keeping strangely quiet right now. And yet for the longest time, an automatic presumption in its favour constituted the prevailing orthodoxy among Conservative and New Labour politicians alike.

Last week’s revelations about Barclay’s complicity in rigging the London Interbank Offered Rate highlight just what was wrong with the doctrine.

It is no more tenable to expect bankers to police themselves than it is to ask a bunch of teenagers on their first unaccompanied holiday in Faliraki to practice safe sex and strictly observe government drink unit guidelines.

What is more, there are further revelations to come. While the scandal will have taken many by surprise, readers of the Financial Times and the Wall Street Journal have been aware for several months that numerous investment banks have been under investigation. Barclays was merely the first to reach a settlement.

The Tories are pointing out –- and entirely accurately so –- that the misdeeds took place under a Labour government. Even now, interns will no doubt be busily engaged in seeking out damning quotes from Gordon Brown’s 2007 Mansion House speech and the writings of Ed Balls during his tenure as City minister.

But banking deregulation is yet another policy of Thatcherite provenance that Labour adopted under Blair. The party that introduced the Big Bang of October 1986 must surely bear parental responsibility for what happened when its love child came of age.

It probably says much about the torpid state of British politics at the moment that no socialist politician or union leader, either inside or outside Labour’s ranks, is remotely capable of reflecting popular disgust and channelling towards the left.

Ed Miliband has so far limited himself to calls for the criminal prosecution of those involved, the departure of Bob Diamond and a ‘bank Leveson’ inquiry into just what happened. These are timid and hardly distinctive responses; the demands could in principle have been put forward by any party.

There are reports that he is considering a commitment to the introduction of the mandatory separation of retail and investment banking. That would be as welcome as it is long overdue.

But Labour is somehow grimly determined to remain within the confines of regulatory liberalism. In so doing, it is missing the opportunity to challenge the post-Thatcherite consensus over the the role and size of the financial sector. So badly have the banks discredited themselves that the political space is there to develop a radical new agenda.

There is much that the left should be discussing, from the tax rate that Mr Diamond should rightly be paying to the possibility of using banks that are already under de facto public ownership as an instrument for job creation. Sadly, our imagination has failed us once again.