Everybody seems to have had fun with yesterday’s analysis of the Coalition Agreement and its provisions on ‘Jobs and Welfare’ – so let’s have a look at another part of it:

1. BANKING

The banking crisis, coupled with incessant propaganda from the Conservative Party and the right-wing press, brought down the Labour government in the 2010 general election. The incoming Coalition government promised reform – but did it deliver?

In recent years, we have seen a massive financial meltdown due to over-lending, over-borrowing and poor regulation [Conservatives were lobbying for less regulation, right until the crash happened]. The Government believes that the current system of financial regulation is fundamentally flawed and needs to be replaced with a framework that promotes responsible and sustainable banking, where regulators have greater powers to curb unsustainable lending practices and we take action to promote more competition in the banking sector. In addition, we recognise that much more needs to be done to protect taxpayers from financial malpractice and to help the public manage their own debts.

• We will reform the banking system to avoid a repeat of the financial crisis, to promote a competitive economy, to sustain the recovery and to protect and sustain jobs [flannel – but it is just an introduction; setting out the stall, if you like].
• We will introduce a banking levy and seek a detailed agreement on implementation [The levy, as eventually imposed, was effectively a tax break for the banks, whose share prices actually rose when it was announced].
• We will bring forward detailed proposals for robust action to tackle unacceptable bonuses in the financial services sector; in developing these proposals, we will ensure they are effective in reducing risk [The Coalition’s bank levy was devised to raise no more than £2.5 billion per year, while bonuses for the year of its introduction were believed to total around £7 billion. No effective effort has been made to curb excessive bonus payments in banks].
• We want the banking system to serve business, not the other way round. We will bring forward detailed proposals to foster diversity in financial services [diversity has fallen off], promote mutuals [these plans were criticised as having ‘no legs’] and create a more competitive banking industry [no sign of this yet].
• We will develop effective proposals to ensure the flow of credit to viable SMEs [by the end of 2013, more than 70 per cent of small business owners said they believed the government had produced little or no effect in this regard]. This will include consideration of both a major loan guarantee scheme and the use of net lending targets for the nationalised banks.
• We will take steps to reduce systemic risk in the banking system and will establish an independent commission to investigate the complex issue of separating retail and investment banking in a sustainable way; while recognising that this will take time to get right, the commission will be given an initial time frame of one year to report [current situation: banks have until January 2015 – nearly the end of the Coalition’s term in government – to detail how they propose to manage this separation].
• We will reform the regulatory system to avoid a repeat of the financial crisis. We will bring forward proposals to give the Bank of England control of macro-prudential regulation and oversight of micro-prudential regulation [some reform appears to have taken place but have not yet been tested].
• We rule out joining or preparing to join the European Single Currency for the duration of this agreement.
• We will work with the Bank of England to investigate how the process of including housing costs in the CPI measure of inflation can be accelerated [this has not happened].
• We will create 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.
• We take 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 [plans for this agency will not be published until the end of 2014 at the earliest].

Conclusion: Where the Coalition has made decisions, they have been weak, meaning banks have enjoyed business as usual for the last four+ years instead of enduring the promised crackdown. Many measures – like the separation of retail and investment banking that we were told was absolutely vital to protect our savings – have not happened at all.

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