Chancellor must avoid boom and bust policies
Tuesday 29 July 1997
Actually, no. The move followed the Bundesbank's announcement that it would only set a repo rate for two weeks, amounting to the faintest of hints that it is so bothered by the weak Deutschemark that it might consider raising German interest rates. It was enough to send a few banks seeking Deutschemark cover just in case, which was enough for some other investors to take a bit of profit on the pound.
The gap between the instant interpretation and the reality illustrates the utterly facile level of much of the debate about sterling's current strength. First of all there is the fact that business keeps urging the Chancellor to do something. He had his turn with the Budget, which raised taxes and cut spending, and now it is up to the Bank of England. Clearly, the business community still has to grasp that Mr Brown really meant it when he said he was giving the Bank the independence to set interest rates.
Secondly, there is not much the Bank can do about the level of sterling either. An exchange rate links two currencies and reflects the position of two economies. It is an inescapable fact that the British economy is at a much more advanced stage of its business cycle than the ailing German economy. UK interest rates are likely to rise, German rates far less likely to do so despite the Bundesbank's hints.
Even if the central banks jointly decided to intervene by selling their sterling reserves and buying marks in a joint operation, it would represent the triumph of hope over experience. Intervention can turn exchange rates around, but generally only when they are ready to be turned but need the initial encouragement. We only need remember Black Wednesday to see the futility of intervention against the weight of the market.
The best thing both the Chancellor and the Bank can do to keep sterling at a sustainable and competitive level is to run policies that avoid boom and bust in future. But this time it is too late, and Mr Brown, like the rest of us, will have to live with his predecessor's mistakes.
Too many cooks in the regulatory kitchen
At the regulators' tea party you can spot Nicholas Durlacher, chairman of the Securities and Futures Authority, a mile off. He is the one in the stripey apron picking "rogue currants" out of the cake mix and putting them back in the box marked "not fit and proper". Last year, according to the SFA's annual report, there were lots of currants masquerading as raisins and even the odd sultana. Morgan Grenfell Asset Management, Sumitomo, Fidelity Brokerage Services, Barings - it's just amazing how easily the recipe can go wrong when nobody is keeping a proper check on the ingredients.
The cake that Mr Durlacher and the SFA are more interested in, of course, is a grander confection altogether - the new super-SIB that Howard Davies, currently (currantly?) deputy Governor of the Bank of England, goes off to bake at the end of this week.
Will the SFA be the icing on the top, the jam in the middle or just part of the flour and water? It is, of course, a question that lots of self- regulatory organisations are starting to ask. One upon a time there was room at the trough for everyone - Imro, Lautro, Fimbra, PIA, SFA, SIB. But then a new government arrived and asked the obvious question: why have such a complicated and duplicative structure when banking, insurance and securities firms are fast becoming indistinguishable from one another?
Answer came there none, which left the SROs needing to justify their relevance for the day when they are all rolled into a single regulator. The SFA, for one, reckons it has a lot to bring to the party - individual registration, risk assessment-based supervision, and the division between regulation of wholesale and retail markets for a start.
One of the problems, however, is that Mr Davies' cake does not come out of the oven until 1999. Meanwhile the SROs have the awkward task of keeping their eye on the regulatory ball while simultaneously appearing not to be lame duck administrators.
And there is plenty to keep an eye on, according to the SFA. Buoyant markets, high volatility, the star culture inside most investment banks and the absence of any traders who remember the last real bear market all point to a souffle waiting to collapse.
The SFA is probably guilty of over-egging the pudding out of self-interest. But these are dangers worth flagging up before we move sooner or later to the main course - which is to ask whether Mr Davies and the SIB aren't biting off more than they can chew.
Late payment law will not help small firms
Margaret Beckett has succeeded in unhooking Labour from many of the poorly thought out policies it adopted in opposition - reversing the burden of proof in hostile takeovers and sliding scale regulation for the privatised utilities to mention just two.
But the one it remains impaled on is the commitment Tony Blair gave to small firms that they would have a statutory right to receive interest on unpaid debts. The upshot is yesterday's consultative document on the subject which smells of legislation for legislation's sake.
Although all the surveys pinpoint late payment as one of the small businessman's greatest bugbears, the reality is that no-one, save for the Forum of Private Business, actually wanted a statutory right to interest when they were asked for their views.
When he was still in government, Michael Heseltine let the cat out of the bag by confessing that the worst payers were small businesses themselves.
Barbara Roche, the Small Firms Minister, has thought about this one and decided to protect them from themselves by giving small businesses four years' protection before the legislation applies universally.
Even then, the new law threatens to be largely redundant. Where lengthy payment terms are the norm they can remain. Nor will the legislation prevent a customer and supplier agreeing terms that stretch payment well beyond the 30 days canvassed by the DTI.
Those owed money will, of course, be able to pursue a course in law but if the unpaid debt is more than pounds 3,000 that means the time and expense of a county court and, it hardly needs pointing out, the end of any business relationship.
Ah, says Mrs Roche, but yesterday's consultative document is really all about improving the payment culture through best practice. If that is so why persist with legislation which is at best irrelevant and at worst, may actually legitimise late payment?
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