A levy on banks, action to limit bonuses and several other proposals published in the coalition agreement today suggest that the Liberal Democrats have exerted considerable influence over banking reforms.
Another remedy prescribed by the Business Secretary Vince Cable, forcing banks to lend, has made it into the final draft. This will be achieved through a major loan guarantee scheme and the use of lending targets, another Cable recommendation.
The entire Lib Dem party, from the Business Secretary down to the rank and file, is likely to be pleased with the pledge to take “robust action to tackle unacceptable bonuses in the financial services sector.”
An independent commission is to be established to investigate the viability of separating retail and investment banking, another Cable proposal.
The inclusion of a policy encouraging the growth of mutuals is unlikely to have been a bone of contention seeing as it embodies a core principle held dear by both coalition partners hold dear, localism
The coalition agreement certainly represents a triumph for the avuncular Lib Dem, especially after sources close to the chancellor indicated last week that the Treasury had ultimate control over banking reform. However, the extent of the proposals and the manner and timing of their implementation has yet to be fleshed out, so there's still plenty of scope for policies to be watered down or even dropped.
To help fulfill the Tories' campaign-trail mantra of wanting “the banking system to serve business, not the other way round” the coalition will encourage the creation of small, high-street mutual banks to “foster diversity in financial services”. The inclusion of this policy is unlikely to have been a bone of contention seeing as it embodies a core principle held dear by both coalition partners hold dear, localism.
More controversial is Conservative plans to denationalise government-owned banks, to which the coalition agreement makes no reference. Unlike the Tories, the Lib Dems supported the nationalisation of RBS, Lloyds and Northern Rock, and the plans to force banks to lend, which they championed, would be more difficult to implement if the Conservatives’ manifesto promise to sell shares in the banks.
The proposals will dismay the Mayor of London Boris Johnson, who blasted the coalition’s plans to overhaul the City. Labelling the proposals “nuts”, the man tipped as a future leader of the Conservative Party suggested that the individuals responsible for creating the crisis should be punished, rather than the entire sector being restructured and penalised.
The coaltion agreement also announced plans to make slash red tape and confirmed its aim of simplifying and cutting business taxes, which George Osborne set out to the CBI in his inaugural speech as chancellor yesterday.
Other proposals in the banking section of the coalition agreement include:
- Bringing “forward proposals to give the Bank of England control of macro-prudential regulation and oversight of micro-prudential regulation”
- To “rule out joining or preparing to join the European Single Currency for the duration of this agreement”
- Working “with the Bank of England to investigate how the process of including housing costs in the CPI measure of inflation can be accelerated”
- Creating “ Britain’s first free national financial advice service, which will be funded in full from a new social responsibility levy on the financial services sector”
- Taking “white collar crime as seriously as other crime, so we will create a single agency to take on the work of tackling serious economic crime that is currently done by, among others, the Serious Fraud Office, Financial Services Authority and Office of Fair Trading.”
