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Banking industry’s year of shame ends in a blizzard of Libor revelations

Category : Business

UBS’s £940m fine disproves the theory that a few bad apples have caused the rot. It now seems the problem is cultural

The pledge made by one UBS trader – “I’m a man of my word” – seems a fine sentiment, until the realisation dawns that the promise he is making is to do “one humongous deal” with a broker to help him manipulate the Libor rate.

Last week saw another blizzard of revelations in the Libor scandal, as the Swiss bank was slapped with hefty fines for repeatedly trying to fiddle the key interest rate.

“I will fucking do one humongous deal with you … Like a 50,000-buck deal, whatever … I need you to keep it as low as possible … If you do that … I’ll pay you, you know, $50,000, $100,000 … whatever you want.”

The revelations contained in the documents published alongside last week’s settlement with regulators in the UK, US and Switzerland, as they fined UBS £940m, came at the end of a year of shame for banking.

Andrew Simms of thinktank the New Economics Foundation now says that, far from the banking crisis being caused by a few bad apples, “the level of mould inside the barrel is thick and healthy and covering every part of it”. The coalition is in the process of rethinking the UK regulatory regime – giving the Bank of England back the power to police the banks, for example – but Simms says the changes are little more than cosmetic: “I think the banks feel almost untouchable – the absence of any genuine structural reforms; the absence of any genuine change of culture. I think they think they’ve got away with it.”

Taxpayers who had hoped the multibillion-pound rescues of Northern Rock, RBS and Lloyds Banking Group marked the darkest days of the financial crisis have instead watched with horror as increased scrutiny from the world’s regulators has uncovered a consistent pattern of misbehaviour and, in some cases, outright fraud.

An industry once viewed by ministers – not least in the Labour government – as a world-beating national champion has become not only a drain on the public purse, but a source of shame.

“We have just had one scandal after another,” says Vince Cable, the business secretary, whose strong reputation in opposition was founded partly on his fierce criticisms of Britain’s banks. “There is a deep cultural problem.”

And he argues that the failings are not confined to the swashbuckling disregard for the public interest revealed in the Barclays and UBS cases. It also extended to the retail banks’ dealings with ordinary savers and borrowers: “The high street banks lost their relationship with their customers.”

The legacy of the era when anyone who ventured into a branch could expect to be bombarded with offers of loans and insurance has come back to bite the biggest banks. The bill to compensate customers wrongly sold payment protection insurance has already topped £12bn, for example, while small business customers mis-sold interest rate swaps are also awaiting multimillion-pound payouts.

The same claims companies that have spearheaded the effort to win PPI compensation for clients are now turning their efforts to investigating the interest-only mortgages that were popular while house prices were booming.

And one after another, the major banks have been fined for a string of other offences. Even those once regarded as having escaped the 2008 banking crisis with their reputations intact – HSBC and Standard Chartered – have now joined the shameful roll-call.

HSBC was fined £1.2bn by US authorities for having systems so lax that it let billions of pounds be laundered for drug barons in Mexico; cashiers in its Mexican branches had extra-wide windows to allow the piles of cash to be paid in.

Standard Chartered paid £415m in penalties after breaching US rules on money laundering, including with Iran. One of its top executives, Richard Meddings, is said to have responded to warnings about the bank’s misdeeds with: “You fucking Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians?” The bank denies such remarks were made.

Barclays was fined £290m by the Financial Services Authority and US regulators after its traders were found to be offering bottles of Bollinger champagne in exchange for collusion in fixing Libor.

Then last week came the fine for UBS over charges that 40 staff were involved in or aware of efforts to rig Libor. The banks made corrupt payments of £15,000 a quarter to brokers to help fix the rates. Two former employees of the Swiss bank – including British citizen Tom Hayes – have been charged in the US.

There will be more Libor revelations in the new year, too: bailed-out Royal Bank of Scotland is expected to be next. The Financial Services Authority still has investigations under way into six financial firms, not all of them banks.

This apparently widespread culture of “gaming” any rules put in place to constrain the banks’ activities underpinned the findings of the parliamentary commission on banking standards, chaired by Tory MP Andrew Tyrie, which issued its first report on Friday.

George Osborne has backed the proposals of Sir John Vickers’s commission on banking, which called for the banks’ safer retail activities to be legally and financially separated from their riskier investment banking businesses. But Tyrie and his colleagues argued that this so-called ring fence between the two types of activity should be “electrified”, to prevent canny banks from finding a way around it.

Tyrie said the latest revelations about the banks’ behaviour “beggar belief,” and offer “the clearest illustration yet that a great deal more needs to be done to restore standards”.

Chris Leslie of the shadow Treasury team says Labour will fight to have a backstop written into the legislation in the new year that would impose a full split on the banks if they have failed to implement the Vickers proposals faithfully by 2015.

“It’s about trying to create a banking system that is not only safe but appears to be safe, not just for customers but for taxpayers,” he says. “The jury’s out on a ring fence, therefore we have got to insure against its failure.”

Tyrie’s commission is due to report next year on a series of other issues, such as whether a new professional body might take on the role of banning miscreant bankers in the same way as the General Medical Council has the power to strike off doctors.

But Cable says new rules and regulations, and measures such as the coalition’s creation of two new watchdogs, the Prudential Regulation Authority (inside the Bank) and the Financial Conduct Authority, can only go so far.

“You can only partly deal with these things through structural reform,” he says. He points to the importance of competition – challengers such as Metro Bank, Handelsbanken and the mutually owned Co-op grabbing a growing share of new business – as another important check on the other banks’ behaviour.

He also welcomes the wholesale shake-up in personnel at the top of the major financial groups since the grim days of 2008 and 2009: “We’ve got sensible people running Lloyds and Barclays, who are much more interested in long-term banking.”

Despite the new faces, the persistence of bumper pay deals in the Square Mile has helped perpetuate fears that it is “business as usual” at the top of Britain’s financial institutions. Research by the Institute for Public Policy Research shows that people working in the financial sector routinely earn up to 20% more than those with similar qualifications elsewhere.

When it was announced last week that Hector Sants, the former boss of the Financial Services Authority, had won a package worth up to £3m in his new job at Barclays – where he has been brought in to help restore the broken corporate culture – many in the City didn’t bat an eyelid. But to outsiders it looked like an extraordinary reward for a gamekeeper turning poacher.

And while the reputational damage to the banks of the latest revelations has been serious, the financial penalties do not seem to be causing too much pain. Even as UBS admitted that the £940m payout would force it into a fourth-quarter loss, its share price barely moved, almost in relief that the bad news was out of the way.

Pete Hahn of the Cass Business School is concerned that fines have become a “cost of doing business” – one of those hiccups caused by having operations in financial centres around the world.

He asks whether instead banks that misbehave should be stripped of their licences – effectively closed down: “My suggestion is that the penalties need to be much more. That will create a real cultural change.”

Meanwhile, Cable says he can easily understand why many members of the public still don’t have confidence in the banks: “I don’t have confidence either.”

Revealed: the real identities behind Britain’s secret property deals

Category : Business

Latest part of investigation into offshore firms comes as government promises to investigate sham directors

The real identities behind British property deals previously cloaked in secrecy are revealed in the latest part of a major investigation into offshore firms, which prompted the government on Monday to promise that it would investigate any abuses revealed involving sham nominee directors.

Previously secret owners are identified in a sample of almost 60 UK homes and offices, ranging from multimillion-pound commercial premises in the heart of London to a small hotel in Southend, Essex.

They typify the 100,000 such purchasers who have set up offshore companies, largely registered in the British Virgin Islands (BVI), since 1999. The owners of BVI entities use them to hide their dealings in UK property and to take advantage of tax loopholes.

New disclosures about property ownership follow a pledge by Vince Cable, the business secretary, that his department would look at evidence of sham directors putting their names to thousands of anonymous offshore companies.

“We are not complacent or naive. We recognise there are individuals who will seek to abuse or evade,” he said. “We will investigate fully any specific allegations and ensure appropriate action is taken … If we identify a need for further action as a result of that review, we will not be afraid to take it.”

Cable was responding to a worldwide investigation into offshore abuses by the Guardian, the BBC’s Panorama programme and the US-based non-profit group, the International Consortium of Investigative Journalism.

It is not illegal in Britain to use offshore companies to buy property or to exploit tax loopholes. Capital gains tax, inheritance tax or stamp duty on property purchases can often be avoided by offshore owners. The tax breaks open to offshore buyers have attracted a flood of foreign property money into Britain, particularly into central London. This has forced up the capital’s house prices in defiance of the recession, often to levels that are unaffordable for ordinary British residents. According to the estate agent Knight Frank, the price of prime residential property in London has increased by 49% since March 2009 – five times more than the UK as a whole.

But, until now, the full scale of this invasion has been hidden by the anonymity conferred on the owners of BVI companies. Britain’s land registry controversially allows offshore property owners to keep their true identities secret, despite its official status as a public record.

Owners identified by the Guardian on Monday include:

• Peter Vastardis, who used legal loopholes to sell a London flat to a Latvian businessman without paying stamp duty;

• Raheem Brennerman, a 29-year-old of Nigerian extraction, who borrowed £118m from the Royal Bank of Scotland;

• A Hertfordshire businessman, Lawrie Alderman, whose BVI entity bought London office premises;

• Sir Sam Jonah, former president of Ashanti Goldfields in Ghana, who bought a luxury flat near Regents Park

• Bruce Rockowitz, billionaire head of a Hong Kong garment firm, who used a Cook Island trust as well as a BVI company

• Bobby Wahi, who said he was a United Nations “goodwill ambassador” and acquired 42 properties around Skegness, Lincolnshire before going bust;

• Andreas Stavrinides, who owns care homes and the Skylark Hotel in Southend;

• Yoram Yossifoff, an Israeli lawyer who has acquired more than £1bn of UK property for himself and clients;

• A Rotherham builder, Keith Wilson, who set up two BVI companies to carry out a barn conversion.

The tax breaks open to offshore buyers have attracted a flood of foreign property money into Britain, particularly into central London. This has forced up the capital’s house prices in defiance of the recession, often to unaffordable levels for ordinary British residents. According to the estate agent Knight Frank, the price of prime residential property in London has increased by 49% since March 2009 – five times more than the UK as a whole.

But until now, the full scale of this invasion has been hidden by the anonymity conferred on the owners of BVI companies. Britain’s land registry controversially allows offshore property owners to keep their true identities secret, despite its official status as a public record. The Guardian has also uncovered instances of offshore owners failing to register the genuine price paid for luxury flats.

The Land Registry’s chief executive, Malcolm Dawson, said: “Our register records the legal owner of property, both residential and commercial, whether that is an individual or a company and regardless of whether that company has been registered in the UK or not.”

He said the Land Registry was to look into “our practice for capturing price paid” but had no evidence that it was being deliberately concealed.

Outrage as AA’s owner Acromas pays just 2.7% in corporation tax on profits

Category : Business

After Google, Starbucks and Amazon, Acromas is the latest big company to come under attack

Private equity firms looking to make millions of pounds from selling the AA breakdown service have come under attack for the tiny amount of corporation tax its holding company has paid.

Unions and MPs have rounded on the owners of the AA’s holding company, Acromas, which also houses Saga financial products, for paying tax of 2.7% on profits since its creation in 2007.

The company’s accounts show that it paid a combined £67.1m in its five-year history, on total operating profit of £2.49bn made from a turnover of £8.75bn during the period.

The revelation will spark further outrage about the extent of UK tax avoidance by corporations, which last week saw representatives of Google, Starbucks and Amazon grilled by the public accounts select committee. UK corporation tax is set at 24% but is expected to fall to 23% next year.

Last week business secretary Vince Cable called on the chancellor to use his autumn statement to “get to grips” with companies that are “systematically abusing” the UK tax system.

Paul Maloney, regional secretary of the GMB union, which counts many Acromas staff as members, said: “The chancellor should use this example to end tax relief on private equity loans, which is skewing the corporate sector towards borrowing rather than equity, and leading to an erosion of the tax base. The loss of tax has been huge.

“Taking advantage of this tax relief is what drives private equity. It has led to excessive leverage across the economy in the likes of the AA, Southern Cross, Four Seasons Healthcare, pub companies and Boots as well as a loss of tax. There is now a wall of debt of £111bn that buyout companies in the UK will have to refinance over the next five years.”

Acromas has hired investment banks to advise it on a sale of the company that could value it at £6bn to £8bn, compared to the £6.3bn paid for the AA and Saga.

The company’s private equity owners, Charterhouse, CVC Capital Partners and Permira, have been able to pay low levels of corporation tax because profits are wiped out by interest payments on the debt required to buy the AA and Saga.

Acromas has also made £248.1m of acquisitions in the healthcare sector in the past three years, including the purchase of Nestor Healthcare, which specialises in home care, maintaining Acromas’s debt mountain at £4.1bn.

Private equity ownership of the AA has been controversial from the start. About 2,800 AA staff, including 600 patrolmen, have been laid off. In 2010 AA workers voted to strike for the first time in a row over pensions. Acromas’s combined pension funds are currently running at a deficit of £146.3m.

The most recent accounts for Acromas reveal the company made a payment of £421m to its shareholders while paying £47.3m of corporation tax. It paid £14.3m and £5.5m in tax in the two previous years and none in the first two years.

An Acromas spokesman confirmed it had paid only £67.1m in corporation tax but added: “We pay all our taxes in the UK. Overall, our operations paid over £300m in taxes of one kind or another.”

Acromas, which describes itself as a “great British success story”, is one of the UK’s largest private companies, employing 38,000 staff. Its management team owns 22% of the company.

Andrew Goodsell, chief executive of Acromas, said in the company’s most recent accounts: “Our financial strength means we have been able to acquire complementary businesses. Our record level of investment has been funded from the cash our business generates.”

Goodsell received a pay package of £1.51m according to the latest accounts, up from £1.47m the previous year.

Acromas said any flotation or sale of either of its divisions was unlikely before 2014. A £1.4bn tranche of debt does not mature until 2015, giving the company flexibility to evaluate strategic options.

A Revenue and Customs spokesman said: “For legal reasons we cannot comment on the tax affairs of individuals or businesses.

“However, HMRC ensures that they pay the right tax in accordance with UK tax law. We employ specialist tax professionals to ensure that businesses and individuals pay the right amount of tax and address specific issues that arise with those concerned to ensure that is the case.”

Vince Cable takes on chancellor over plans for cuts in science

Category : Business

Business secretary to deliver speech insisting that coalition focuses on maintaining long-term growth

Vince Cable will publicly call on Monday for the chancellor to drop any plans for cuts in spending on engineering, science and further education from his autumn statement.

The business secretary will insist that the coalition must keep on investing for the long term rather than look to short-term fixes.

In a speech he will say that spending with the potential to spark economic growth, including the money ringfenced for research in science and engineering, is a “basic minimum” to maintain the country’s competitiveness.

Cable will also add his voice to those frustrated at the coalition’s totemic Tory target of cutting net immigration to “tens of thousands”, by stating: “Being open for business means being open to overseas talent as well as overseas investors.”

However, the Observer understands that the main focus of Cable’s speech will deal with the need to maintain a focus on long-term growth even if spending is unlikely to reap rewards before 2015.

George Osborne is said to be drawing up plans for “nuclear” cuts this autumn. The budget for science and engineering research was thought to be fortunate in not only avoiding cuts in last year’s autumn statement but seeing an increase of £200m.

In his speech to the Confederation of British Industry, Cable will hint at behind-the-scenes negotiations within the coalition, warning the chancellor against taking “political soft options” when he comes to speak to the Commons in December.

While admitting that the government faces serious financial constraints which will continue into the “middle of the decade”, Cable will say: “Now the main areas of higher education that still enjoy considerable financial support from government are subjects like engineering and science and the research ringfence which is the basic minimum to protect Britain’s scientific competitiveness.

“We need to build on our excellence in science, and improve how we turn great ideas into great businesses.”

He will add: “There has to be some prioritisation connecting public spending in areas which contribute to recovery and growth, not on the political soft options.” The Liberal Democrat will follow a speech by the prime minister at the CBI, where Cameron is expected to depict Britain as being in a “global race” for growth and expand on the need to improve competitiveness.

Cable will say that the UK has “had a difficult time” but claim that there are now some “reassuring figures on job creation, falling unemployment, falling inflation and business startups”, creating an “upbeat mood” in business.

He will hit back, however, at those, including on the Tory backbenches, who believe that the only role for government is cutting regulation and unleashing British business, leaving it responsible for research and training. He will say: “For wide swaths of training and education there are valuable spillovers which mean that the private sector needs support from the government. That is why I have been so determined to protect and grow apprenticeships and put higher education on a sustainable footing.”

In a sign of the Liberal Democrat side of the coalition’s frustration at the coalition’s immigration policies, Cable will also say that the country needs to “remain open to the many talented and entrepreneurial people that throng to our shores to learn, work and invest”. He will add: “That is how over the years Britain has gained so much of its industrial and business expertise.”

London mayor Boris Johnson has said that visa policies were preventing the City and universities from recruiting the brightest talent, and were “a block to growth”.

John Cridland, the CBI director general, for the first time last week called on Cameron to scrap the policy.

Former Lib Dem Treasury spokesman Lord Oakeshott said on Saturday that it was crucial for his party’s future to ensure that the coalition’s growth strategy was bold. He said: “The Lib Dem share of the vote in the three byelections dropped by three fifths – from 21% to 8%.

“Our ratings are flat on the floor, like the economy outside London. We must be much bolder and more decisive to get growth in both, starting with the autumn statement on 5 December. Otherwise we will keep taking most of the bullets for the coalition.”

Vince Cable’s crackdown on tax havens may upset some Lib Dem donors

Category : Business

Two of party’s biggest corporate donors are controlled from British Virgin Islands, while senior Lib Dems have links to havens

Vince Cable’s pledge at the Liberal Democrats’ autumn conference to work with allies to close down tax havens may not go down well with two of the party’s most generous corporate donors.

The business secretary told delegates he would crack down on those who used secretive, low tax jurisdictions: “No one keeps their cash in tax havens for the quality of investment advice; these are sunny places for shady people,” he said.

Alpha Healthcare and its sister company C & C Alpha Group, part of a venture capital group in the private health sector, have together donated £970,000 to the Lib Dems since 2004. Alpha’s parent company, Harberry Investments, is based in a small office in Tortola in the British Virgin Islands – named as a tax haven by Congress in the US. Bhanu Choudhrie, a director in both donor companies, has also given a personal donation of £35,000 to the party. His father, Sudhir Choudhrie, who was once involved as a director of companies in the Alpha group but has now stepped down, has given a further £95,000 to the party since 2006.

The Choudhrie family, originally from India, was first introduced to the party by Simon Hughes, the Lib Dem MP for Bermondsey in south London.

Both Choudhries said in 2010 that they were domiciled outside Britain for tax purposes. If this is still the case they can, if they wish, avoid British tax on any income or gains from their overseas assets.

Contacted on Monday, one of the company’s directors, Dhruv Choudhrie, declined to comment on Cable’s speech, saying he was abroad. A spokesman for the company did not respond to emails or telephone calls.

Some senior Lib Dems have maintained close links to offshore havens. Lord Razzall, a former Lib Dem trade and industry spokesman, sits on the board at a firm called Ardel Holdings. The company is based in Guernsey and offers services including tax mitigation for clients, promising that “income can be rolled up tax free”. Ardel helps with tax mitigation through “fiduciary structuring” for businesses and individuals. It also helps non-domiciled UK residents exploit non-taxable offshore funds.

Its website says: “The benefits and flexibility delivered by offshore companies make them a highly attractive option for clients.”

Razzall said: “As an adviser to the owner of Ardel Holdings for the last 25 years I have always been satisfied that the business does not engage in activities of the type criticised by George Osborne.”

The former Liberal leader Lord Steel is a non-executive director of General Mediterranean Holdings, a Luxembourg-established company set up by Nadhmi Auchi, an Iraqi-born billionaire. Steel said the company’s headquarters were in Luxembourg and it held most board meetings there.

A spokesman for the Liberal Democrats said: “Liberal Democrats are committed to targeting companies and individuals who are using aggressive tax avoidance measures by hiding money off shore. In some cases, there are legitimate reasons for global companies to not base themselves in the UK, and even corporations such as the Guardian Media Group have on occasion used the Cayman Islands.

Regarding the donations from Alpha and C & C, he added: “They are part of global groups which have UK based businesses, paying full UK tax and employing British workers.

“But as Vince Cable and Danny Alexander have made clear, Liberal Democrats will be cracking down on anyone using tax havens to solely avoid paying a fair share of tax in the UK.”

Steve Bell on Vince Cable at the Liberal Democrat conference – cartoon

Category : Business

Business secretary could restore party’s ratings, poll shows, as Labour lead widens

Original post: Steve Bell on Vince Cable at the Liberal Democrat conference – cartoon

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Vince Cable’s new bank underlines the truth: the lending system is failing

Category : Business

High street banks’ continued reluctance to lend has forced yet another government initiative to help small businesses grow

Vince Cable’s business investment bank, announced last week as part of the coalition’s latest stab at an industrial strategy, was yet another desperate attempt to bypass the broken British banking system that remains one of the major obstacles to economic recovery.

Project Merlin, the painfully choreographed deal between Cable, George Osborne and the biggest banks announced in February last year, was meant to result in a surge of new loans to small businesses; yet net lending continued to fall.

Osborne used his autumn party conference speech last year to promise a new policy of “credit easing”, launched as the National Loan Guarantee Scheme in March this year. Not all the banks agreed to participate; the negotiations with lenders about how they would pass on cheaper borrowing costs from the Treasury were long and fraught; and again, nothing happened.

A few months later, at the annual Mansion House dinner, Osborne and Sir Mervyn King used their speeches to the black-tie-wearing dignitaries to announce yet another scheme, known as funding for lending (or FLS), aimed at cutting the cost of borrowing for the banks and persuading them to lend.

It’s too soon to say whether FLS is having an impact, since it was only launched in July – though there is some evidence in the housing market of a modest decline in mortgage rates, and a rise in loan-to-value ratios, as a result of government intervention.

However, the fact that the Treasury is willing to countenance setting up a new state-backed institution to lend to businesses suggests there remains deep anxiety in Downing Street about the pace of business lending.

And if companies are still struggling to borrow, it doesn’t just matter because it puts jobs at risk and delays Britain’s recovery in the short-term, but because the kind of adjustment the economy must make – from finance to industry, domestic consumption to exports – requires a radical transfer of resources. That can’t happen if the financial plumbing is blocked.

All the suggestions are that, just like another of Cable’s cherished ideas, the Green Investment Bank, the new institution will be hemmed in by tight financial restrictions imposed by a nervous Treasury that believes governments should not be in banking.

But a new report by the Institute of Public Policy Research (IPPR), due to be published later this week, suggests that £40bn would be the minimum size worth bothering with if the new bank is to make a serious difference to the economy, and urges Osborne to allow it to raise funds on capital markets to boost its lending power to £100bn.

Like Cable, the IPPR’s Tony Dolphin sees the bank as a solution to some of Britain’s long-term economic problems, rather than a rapid cure for the slump. It could help to boost investment levels, for example, which are far too low in the UK relative to our international rivals, at just 15% of GDP. A state-backed bank could also take a more long-sighted approach than small firms are accustomed to seeing from high street lenders, with their computerised loan models and centralised management.

So Cable is to be encouraged for floating the idea, and we should wish him luck as he tries to persuade the Treasury to be bold; but it also serves to underline the unfortunate truth that Britain’s banking system is failing – and for two reasons.

The first is a direct legacy of the boom-bust cycle of the past 10 years. The big four banks, which control an extraordinary 75% of the small business market, still have billions of pounds’ worth of assets on their books from the happy-go-lucky days before the Great Recession, when they lent so freely to everyone from first-time buyers with no wage slips to show to the cash-strapped Greek and Spanish governments.

The Bank of England’s financial policy committee has expressed concern about what has popularly become known as “extend and pretend” – the banks’ practice of showing lenience to borrowers who can’t make repayments, rather than write down the value of their loans and face the knock-on effects across their balance sheets.

That’s a relief to struggling debtors, whether homeowners or companies; but the banks will remain reluctant to make new loans while they’re loaded up with dodgy debts from the past. And it means the risk remains of another hugely costly taxpayer bailout if the economy fails to recover.

Secondly, the flip side of Cable’s argument – that a state-backed investment bank could take a longer-term approach and help to boost investment levels – is that despite Britain’s banking sector being one of the largest relative to the size of the economy of any developed country, it has failed to channel savers’ funds into productive, long-term investments that boost the economy’s growth potential.

Instead, as the work of the Cresc group of economists has shown, banks devoted themselves to recycling cash around the financial system – or, as Martin Wheatley, who will be boss of the new Financial Conduct Authority pointed out recently, trying to flog consumers risky products they didn’t need.

This government, like the last, has been far too timid in getting a grip on the style, culture and scale of British banking, despite owning a large part of the industry as a result of the bailouts of RBS and Lloyds Banking Group. All power to Cable’s elbow – but building a shiny new lender with his name above the door won’t give Britain’s businesses the banks they deserve.

Vince Cable reiterates his opposition to ‘fire at will’ employment laws

Category : Business

Business secretary says he will resist Tory calls for no-fault sackings and remained convinced of need to raise tax on rich

Vince Cable has said he will not budge in his opposition to “fire at will” employment laws and remains convinced of the need to increase tax on the wealthy.

The business secretary said cuts to red tape should be concentrated on complex immigration and tax rules rather than allowing “no-fault dismissal”, as urged by some Conservatives.

The strongly pro-business Michael Fallon and Matthew Hancock were both moved into Cable’s department in David Cameron’s reshuffle, seen as an effort to restrain the senior Liberal Democrat.

Fallon told the Sunday Telegraph he wanted Britain to “salute” wealth creation “and stop thinking of new ways to tax it”, scrap 3,000 regulations and make it easier to sack underperforming staff.

Proposals for sweeping away bureaucracy are due to be published on Monday and a new industrial policy on Tuesday as the government continues efforts to kickstart its programme.

Cable told BBC1′s Andrew Marr Show that he considered Fallon a “very, very able and experienced politician” with whom he could work as well as he had other Conservative colleagues.

“I like working with intelligent people with strong views. It makes politics more interesting. I have got David Willetts who is very, very able and likeable Conservative,” he said. “We work well together. I know I will with the new team.”

He made clear that he retained strong views in areas that could put them on a collision course. Asked about Fallon’s promised bonfire of regulations, he said it would only happen if it could be done “in a rational way” and without badly downgrading protection for employees and the environment. And he suggested that the main focus should be on immigration and tax.

Cable said he had “set myself very firmly” against the call for a no-fault dismissal system made in the David Cameron-commissioned Beecroft report – and pointed out that Fallon was not responsible for that area. “It is very important that we do these things in a way that does not massively undermine people’s sense of security. That is why we are not going down the no-fault dismissal line,” he said.

Asked about Fallon’s comments about the “politics of envy” that sought to tax wealth creators, he said: “I think wealthy people could contribute more. There is massive wealth inequality. I do believe that entrepreneurs should be properly supported. But I continue to believe that we need effective wealth taxation.” Cable backs the introduction of a “mansion tax” on £2m-plus properties.

Fallon denied he had been parachuted into the department to “keep an eye on” Cable.He told the Sunday Telegraph: “We need to salute that and stop thinking of new ways to tax it – that kind of wealth creation. That’s an attitude I want to help change.

“We need to get away from the politics of envy in this country and salute those who not only create wealth but risk their own money to create jobs for other people. Above all I want business to feel it has a strong Conservative champion in the department.”

In an interview on the Sky News Murnaghan show, Fallon renewed his attack on proponents of a wealth tax, saying entrepreneurs and private equity bosses should be lauded like Olympic and Paralympic champions.

“I was at the Paralympic Games yesterday and I think people have been really struck by the drive, the focus, the ambition of these champions,” he said. “And we have got to do the same with our business leaders. We have got to get behind them. I am not talking about bankers I am talking about entrepreneurs.”

He said he would give details of about 6,500 of the regulations that most affect people’s daily life in businesses on Monday, with a target to scrap or “substantially reduce” half of them. Bureaucracy that could be abandoned would include local authority health and safety inspections of low-risk businesses such as online publishers or digital marketing firms, he said.

Asked about the Beecroft proposals, he said there was “no difference between Vince Cable and me on that”. Reform had already started to end the perception that “getting rid of people is going to be very expensive, time-consuming for management and far too bureaucratic”.

Banking scandal: our whole society has been warped by the City | Observer editorial

Category : Business

Only by re-examining our relationship with finance can we rebuild the trust

George Osborne described the damning trail of emails that emerged from the bowels of Barclays last week, in which traders addressed each other as “big boy,” and “dude,” as they connived to fix the Libor rate, as “the epitaph to an age of irresponsibility”. He would dearly like us to believe the comforting fiction that under the failed regulatory regime designed by Gordon Brown and Ed Balls, selfish bankers ran amok, wreaking havoc on the economy and society; but that since the credit crunch – and his own arrival in Downing Street – the culture in the Square Mile has changed.

Barclays boss Bob Diamond has sung from the same hymn sheet in recent months, insisting that far from being a rapacious, morally bankrupt monster, the bank is now a “good citizen”.

Yet the Libor revelations were only the most recent of a string of scandals over the past weeks and months that have laid bare what Sir Mervyn King, capturing the public mood, has called “shoddy” and “deceitful” behaviour.

Osborne would boast that he has not been idle in reforming finance: he has laid plans to tear down the “tripartite” structure created by Labour, handing back the power to oversee banks to the Bank of England, and creating a new regulator, the Consumer Protection and Markets Authority, to protect banks’ customers. Meanwhile, the government has promised to implement the proposals of the independent Vickers commission on competition in banking – set up to placate business secretary Vince Cable – which will impose a legal separation between the risky casino arms of banks and their high street operations.

The FSA certainly failed the public badly in the run-up to the credit crisis; but there are doubts about whether the Bank, which is also being handed fresh powers to oversee the economy, has the capacity and skills to do much better.

Vickers, meanwhile, offered a cautious, legalistic solution to the narrow question it was posed; but even when his proposals are fully implemented in 2019, it will leave the money-grubbing mores that have leaked from the City’s trading floors to the boardrooms and branches of high street banks, and beyond into society, fundamentally untouched.

As King clearly implied, when he talked of a problem with both the structure and the culture of banks, a few tweaks to regulation structure will do nothing to turn around an industry that has been fatally tainted by the events of the past five years.

The parallels with what we have learned about some parts of the news media in recent months are striking. Just as News International’s insistence that phone hacking was confined to a few “rogue reporters” has been revealed as a lie, the idea that a small number of Bollinger-swilling renegades operated unnoticed inside our great British banks is absurd.

Indeed, the gravity of the issues facing the banking industry are hard to overstate.

Britain’s banks have received tens of billions of pounds of taxpayers’ cash in bailouts, cheap loans and implicit subsidies to keep them afloat through these past five years.

Yet their leaders have continued to pay themselves extraordinary sums of money – with Diamond alone taking home almost £100m since 2006 – while carefully cultivating their links with the political elite.

More than a quarter of Tory party funding comes from City firms and when David Cameron wielded Britain’s veto in Brussels last year, he was not batting for the unemployed or for hard-pressed manufacturers in forgotten corners of the country, but for City financiers hoping to defend their cosy practises against interference by the European Union.

And while politicians of all stripes – not least New Labour – lauded Britain’s banks as national champions, standing shoulder-to-shoulder with the best in the world, the experience of consumers queuing in their local high street branch was of chaotic service and aggressive sales tactics.

Far from serving the economy, by helping people to save for the future and channelling resources to promising businesses to enable them to expand, the banks were busy flogging loans that could never be repaid and insurance policies that would never pay out, while staking our savings on now notoriously risky investments such as sub-prime American mortgages.

The visible impact on the economy, through the recession that followed the financial crisis, and the price of rescuing the clapped-out banks, is obvious.

But there are less visible and no less pernicious effects too, from the thousands of talented engineers and scientists sucked into the Square Mile by the lavish rewards on offer, to the scandalous neglect of other critical sectors, such as manufacturing, while the money-men hobnobbed in Downing Street and lined up to receive knighthoods.

Pressure is steadily mounting for a Leveson-style public enquiry into the culture and practices of banking.

David Cameron’s reticence is understandable: his own links with the City are just as chummy as those with Rebekah Brooks. But Ed Balls, who is deeply implicated in drawing up the lax rules that allowed behaviour such as that uncovered at Barclays to flourish, has suggested he is willing to see his own record scrutinised. Cameron should be, too.

Only through a thorough-going examination of how Britain’s banks have been allowed to metamorphose from sober, conservative guardians of our savings to high-stakes gambling dens run by overpaid alpha males will we see how our own society – and economy – have been warped and corrupted by that process.

Only by re-examining our relationship with finance, and reminding ourselves and them that they are meant to serve the public – not the other way around – can we rebuild the trust that has been so cruelly shattered over the past five years.

Diamond infamously told MPs last year: “There was a period of remorse and apology for banks and I think that period needs to be over.”. He was wrong: plenty more remorse and apology would be appropriate, and welcome; but much more importantly, the values, culture and practices of finance, as they have developed since the “Big Bang” reforms of 1986, must be torn down, and a smaller, humbler, simpler world of banking built in their place.

Vince Cable’s pay reforms are one step forward

Category : Business

The first binding votes on pay will take place at annual meetings in 2014 – many doubters of the government’s resolve thought the day would never come

Vince Cable, business secretary, today claimed he is introducing “the most comprehensive reforms of the framework for directors’ remuneration in a decade”. The boast is probably fair – but only because past efforts in this field, such as Labour’s introduction in 2002 of an advisory vote on pay, were utterly feeble. Let’s be clear about what Cable has done: he has needlessly watered down his original idea to introduce a binding annual vote on pay, opting instead to make such votes happen only every three years in most cases.

Cable’s cover story is that companies should set pay with long-term principles in mind. Thus, as long as pay committees abide by policies that are approved by shareholders every three years, the bog-standard advisory vote should suffice in the other years.

This logic is not persuasive. The chief problem is the vagueness of the term “pay policy”. Take Barclays, where chairman Marcus Agius has often boasted that “we pay as little as we can get away with”. Who wouldn’t applaud that fine principle? But then you see how Agius and his colleagues interpret it – for example, the £2.7m bonus for Barclays chief executive Bob Diamond in a year in which returns on equity were “unacceptable” (Diamond’s word).

True, in practice, companies would have to set some parameters within their pay policies – a crude pledge that the non-executive would try their hardest wouldn’t do. But the point remains: awarding bonuses and share options involves matters of judgment and discretion. The shareholders’ vote, at least in part, is meant to be a verdict on how the directors have exercised that judgment. And, as the bonuses and share awards are dished out annually, a binding vote should happen every year if it is to happen at all.

Still, let’s not be too churlish. Assuming Cable’s reforms do not get diluted any further as they go through parliament, at least the first binding votes will take place at annual meetings in 2014. Many doubters of the government’s resolve thought the day would never come. There are other good elements, such as the principle that companies won’t be able to pay exiting directors more than shareholders have agreed. There is also a beefing-up of the advisory vote on pay – a “no” vote will automatically trigger a binding vote the following year. Call the package a step forward – just not the three steps forward that it could have been.

But remember, too, the context here. There are still too few engaged shareholders. Even many of the activists don’t dare to vote against the re-election of a director, even the chairman of a pay committee whose report has been rejected. And many companies that have experienced revolts over pay continue to believe they have a communications problem and not a pay problem. These are all deep cultural problems that have contributed to the widening of the gulf between boardroom pay and boardroom performance. A binding vote, whether held annually or every three years, is far from being a cure-all.