After many promises to take the City firmly in hand, the government announced the results of its ‘deal’ with the banks yesterday. Under the name ‘Project Merlin’, chancellor George Osborne has valliantly wrestled the big four banks to the ground and made them promise to behave.
Under the terms of the deal, the banks will be able to pay themselves the usual bonuses, with a little restraint on the side, as long as they write to the Financial Services Authority to say what they’ve done. In return, banks will have to declare the earnings of their top five managers, which apparently makes the UK “the most transparent pay regime in the world.” They will cough up £200 million to help fund a Big Society bank, a figure put into perspective by the £9 billion bonus pool this year. And most importantly, they will have to lend £190 billion to businesses, half of that to smaller ones.
Now, getting banks to agree to lend money… isn’t that a little like getting a postman to agree to deliver mail? Or persuading the guy at the cornershop to sell you a pint of milk? Lending to business is what banks are for. If they’re not doing it, it’s either because they’re making too much money on speculative trading to waste their money on real people and things, or because they haven’t got any money to lend.
Anyway, Osborne told us all yesterday that “Britain needs to move from retribution to recovery”, and attempted to draw a line under the whole banking issue. (Read Osborne’s statment here) Within hours, it was obvious that it hadn’t worked. Labour called it a ‘damp squib’ of a deal. Treasury spokesman Lord Oakeshott resigned in protest, saying “the banks have taken the Treasury for a ride.”
So what happened? How did such long negotiations and stern warnings end in such a flimsy agreement?
Well, for starters, perhaps it has something to do with the negotiating team. “I want to thank John Varley for the huge amount of time and personal commitment he has given to this project,” said Osborne yesterday, thanking his co-negotiator. Who is John Varley? Only the former chief executive of Barclays, who stood down on January 1st. Varley has more integrity than many of our bankers, but it’s hardly surprising that the deal came out so well for the banks. There were bankers leading the negotiations on both sides of the table.
As well as the lobbying, the banks were letting their money speak too. Since coming to power, donations from the City to the Conservative Party have soared. As the Bureau of Investigative Journalism revealed yesterday, the financial sector accounts for half of all Tory funding, donations rising from £2.75 million in 2005 to £11.4 million last year. Six of the top ten Conservative donors are hedge fund managers. Big gifts are rewarded with access to politicians, and sometimes more – two of those donating hedge fund managers were given seats in the House of Lords last year.
As taxpayers, we bailed out the banks in the financial crisis. As voters, we chose a party that promised “robust action” to reform the financial industry. Millions of ordinary people do not speak as loudly as a handful of people with millions.