This week in politics
|September 16, 2011||Posted by Tom Wooldridge under this week in politics|
The independent commission, dispatched by George Osborne in June last year, which was looking into reforming the banking system reported this week. This was led by Sir John Vickers, a professor at Oxford University, who led the Office of Fair Trading from 2000-2005 and before that was Chief Economist and member of the Monetary Policy Committee at the Bank of England. He is returning to academia following this report. The report was commissioned to look into “structural and non-structural reforms” to “promote financial stability and competition”. Basically, avoiding another economic crisis similar to that of 2008-2009. He has suggested splitting the banks into two: retail and investment banking. Retail banking is your personal bank accounts, small and medium size business accounts and household mortgages; this is relatively low risk. The other side is the investment banking, this is the high risk lending that can damage the bank significantly (as happened in the credit crisis) or make the investment bankers and directors lots of money. This type of banking is what has fuelled the massive increase in senior pay for workers in the financial sector in the last two decades. Vickers says they should be separate and banks therefore cannot trade on the stock market with money from personal accounts. It also requires banks to keep more money rather than lend or invest it; he suggests making the legal minimum 10%. For example, if a bank had £1m in savings accounts it could only lend £900,000. This has faced a hostile reception from the banks and is projected to cost between £2bn and £10bn to implement. Many Lib Dems, including Vince Cable, are calling for the regulations to be attached to the Financial Services Bill currently going through parliament, but senior Tories have said they want it implemented by 2015 at the earliest with Osborne pushing for 2019.
Unemployment this week hit 2.51m, the highest since 1995, with 1.58m people claiming jobseeker’s allowance, the highest since 1997. More women are unemployed than in the last 22 years (a large proportion of the public sector workforce are women) and the number of youths (18 - 25) that are unemployed has risen by 80,000, reaching 973,000. Estimates at the start of the year predicted 1m youth unemployment by the end of this fiscal year. This looks set to continue with Cameron’s spin that the private sector will replace lost public sector jobs unveiled as just that. Cameron will also face pressure from across the Atlantic, with Obama giving a speech last week to launch his jobs bill, which will cost $447bn with tax revenue coming from energy companies (who currently get large tax breaks) and the rich. This will invest in infrastructure, provide finance to smaller businesses, offer tax cuts to smaller businesses and other programs aimed at helping the economic recovery.
Meanwhile, at the Trade Union Conference, over 20 unions announced ballots for their members for a program of strikes this autumn. The likely date will be the 30th November; this is still at an early stage and they cited the government’s previous unwillingness to grant concessions in the teacher’s pensions negotiations for this action. This means if the negotiations don’t work out they have already got the right to strike. It should put more pressure on the government to negotiate, but they seem too ideologically driven to have meaningful negotiations. It remains to be seen but I suspect there will be a strike knowing the government’s relationship with public sector workers and record on “negotiations”.
Greece has faced more trouble from its own people this week, as the public are resisting the austerity package and the markets. The country will default (not paying the repayments) next month if it doesn’t receive the final €8bn from last year’s bailout fund. This hasn’t been released due to them failing to raise the tax they said they would in last year’s bailout agreement, much of this increased revenue was cracking down on tax avoidance. The second €109bn bailout agreed last month hasn’t been signed and this is needed to pay November’s debts – this deal is conditional on them passing the austerity package that the people are fiercely resisting. Many economists are now arguing that Greece can’t avoid defaulting on their debts, they propose that Greece asks for a significant amount of its debt to be written off. If they default, they will have to leave the euro, which will have disastrous consequences for its banking system and damage some French and German banks to which they owe money. Their exposure to Greek debt is so high that some more liberal economists are saying the French government will have to lend some money to the banks to stop them collapsing. Nicholas Sarkozy (French President) and Angela Merkel (German Chancellor) have said “the future of Greece is in the eurozone”, but this remains to be seen.