Outlook The finishing line is in sight for Sir John Vickers, the head of the Government-appointed commission charged with shaking up Britain's banking industry. Yesterday, he began sifting through the responses to his preliminary findings, published in April, and he now has to present his final report on 12 September.
Will Sir John stick by his initial proposals, particularly on ring-fencing, which went down like a lead balloon with much of the banking industry? There iscertainly something of a fightback going on – bank bosses are ramping up the rhetoric ready for what one might describe as a summer of discontent.
The British Bankers' Association, naturally, is leading that fightback, though it seems to have changed its tactics. Rather than argue about the efficacy of the ring-fencing proposal, the BBA now wants Sir John to think about the wider economic impact of such reforms. It's a throwback to a line we have heard in the past from the City – we are the wealth creators, do not fetter us with regulation.
What, though, have the banks had to say individually to Sir John? Well, we don't know yet, since unlike the BBA, the CBI and many other organisations, none of the big banks appears to have any intention of publishing the submissions they had to make before the deadline for responses to Sir John's preliminary report passed on Monday night.
It's curious that the banks have opted not to do so. Sir John has said he plans to publish all the submissions he receives alongside his final report in September, so there's no possibility of avoiding scrutiny in perpetuity. Indeed, publication may come earlier than that if the Treasury Select Committee, which has asked for copies of the banks' submissions, decides to publish them itself.
There's a good chance the TSC will do so: Andrew Tyrie, its chairman, has made it clear he thinks this is a debate the banks ought to be having in public. He is right, of course: the suspicion must be that at least some banks are choosing to stay silent for now because they are busy fighting a bitter rearguard action against ringfencing and Sir John's other proposals. What does Lloyds have to say, for example, about the idea it might have to sell off more branches than previously thought?
The problem is that if the submissions are published only alongside Sir John's report, it will be too late to challenge the assertions the banks may now be making. That's not to suggest Sir John can't be trusted to hold his own – far from it – but this is an argument that ought to be conducted openly so that everyone can see whateveryone else is saying.
The MPC returns to a familiar theme
How quickly the tenor of theeconomic debate can change. As recently as three months ago, there was almost no debate at the Bank of England's Monetary Policy Committee about a return to its expansionary policy of quantitative easing. Though Adam Posen has been making the case for that direction of travel since last year, no one else was interested – the question was how quickly interest rates might begin to rise.
That the reverse is now the case – the MPC meeting that begins today will be more preoccupied with a possible return to QE than a rate rise – in part reflects that fact that Andrew Sentance, who has consistently been the most hawkish member of the committee, has now stood down. His replacement, Ben Broadbent, went with the consensus view of no change to either policy last month.
The more significant factor in the shift of emphasis, however, has been the change in the economic environment – for the worse, that is. Almost every economic indicator you care to look at has turned negative over the past couple of months. Faced with such an array of negative data, one can hardly blame the MPC for feeling more inclined to look through the short-term inflation issue while prioritising a policy that is geared towards securing the recovery.
Indeed, to paraphrase the economist Keynes, the MPC has changed its mind because the facts have changed. It will also be aware that those responsible for fiscal policy, rather than monetarymatters, do not feel they have the luxury of doing the same (whether you believe George Osborne is sticking with Plan A for political reasons or in fear of the markets).
Another broadside on executive pay
One of the most interesting findings in the research on public versus private sector pay published by the Office for National Statistics yesterday concerned pay differentials. The ONS said that while, on average, public sector workers are paid more than those in the private sector, the gap between the highest and lowest earners is wider in the latter. Private sector high earners earn 5.6 times more than low earners – the ratio is 4.6 times in the public sector.
That data may well reflect the fact that while private sector pay has been static or even falling over the past couple of years, executive pay has continued to rise – and by significantly more than inflation,in fact. Still, the discrepancy is something of a puzzle. We often hear about the lack of accountability in the public sector, generally amid scandalised reports about the number of people earning more than the Prime Minister (it's never made quite clear why this role should be the yardstick by which others are judged).
Yet the real lack of accountability is in the private sector, where companies continue to hide behind the catch-all argument that the best talent costs money to hand over ever-increasing sums to executives even when performance does not justify doing so. Despite an increase in the number of pay revolts at annual general meetings, shareholders mostly let them get away with it.Reuse content