Jeremy Warner's Outlook: Dangers of a regulatory backlash grow

Whenever there is a financial crisis, of one thing we can be certain – that long after the horse has bolted, a posse of law-enforcing regulators and politicians will come charging after it determined not just on retribution but on so hedging the markets around with rules and regulations that they can never again run wild.

Mercifully, the regulatory backlash has so far been more apparent than real, at least in Britain. New resolution procedures have been proposed to deal with failed banks, including a beefed-up deposit insurance scheme, which if in place last summer would have avoided much of the grief and embarrassment caused by Northern Rock.

Yet for many, these largely sensible and measured reforms don't go far enough. There's an alarming groundswell of opinion looking for a more root-and-branch response, which reverses the "light touch" approach to regulation of recent years and replaces it with an iron grip.

Neither fiscal nor monetary policy had been up to the task of controlling the bankers, according to this line of thought, so it is time for the regulators to step in and exercise some restraint, both by tightening solvency standards and by more directly regulating credit markets.

Very few of the proponents of such a crackdown are ever able to say exactly how they would further regulate the markets, other than in broad terms by interfering with or entirely stopping the securitisation of debt. Nor do they much care to analyse whether this would actually be a positive development.

What do they propose? A return to the mortgage queues and credit rationing of the past? No one is going to thank them for such an outcome, which in any case is being imposed by markets of their own accord right now as credit conditions tighten. Do we really want to institutionalise these developments by regulating the supply of credit?

The present crisis has demon-ised the idea of debt securitisation in a way that ignores its overwhelmingly beneficial contribution to economic efficiency and progress. It is to be hoped that the politicians don't give way to those who would return us to a bygone age of warm beer, nationalised industries and socially segregated access to credit, yet I sometimes fear I may be arguing a lost cause.

Record fine for Grid over metering abuse

Someone, somewhere seems to have put a rocket up Sir John Mogg, chairman of Ofgem, the nominally independent energy regulator. In short order, we've had the announcement of an investigation which only a few weeks ago the regulator said wasn't needed into the gas and electricity supply market, and now to further prove the organisation's credentials as a consumer champion there's a record-breaking £41.6m fine on National Grid for "serious breaches of competition law".

Ofgem insists that the two things are unrelated. It was just coincidence that brought a near three-year inquiry into the domestic gas meter market to a close at the same time as it was felt necessary to investigate the supply market to ensure it was fully competitive.

Yet to be free of political interference, as utility regulators invariably insist they are, doesn't mean the regulator is immune to public opinion, and after years of apparently sitting on its hands and doing nothing as energy bills went through the roof, the impression is suddenly of a hive of activity and a determined crackdown.

That said, Ofgem is right to deal harshly with National Grid's manifest abuse of its dominant market position in the gas meters market. The real mystery is how five of Britain's six suppliers were persuaded to sign up to such restrictive contracts, where financial penalties are imposed if the supplier tries to update more than a small number of meters each year.

No wonder the costs of having a meter moved or replaced are so extortionate. National Grid has more than 90 per cent of the market, and was plainly intent on keeping it that way by freezing out cheaper rivals.

Yet it is not just price which has prompted Ofgem to act. The contracts have also become a significant barrier to the roll-out of so-called "smart meters", which both give the consumer more control over energy consumption and the supplier the ability to reduce cost significantly through remote reading.

Smart meters are expected to play a key part in Government plans to address the problem of domestic emissions. Unfortunately, the abolition of these contracts, though removing an impediment, won't solve the problem.

The cost of re-metering Britain with smart gas and electricity meters could be up to £8bn. There is no market mechanism to ensure this investment takes place. Even in the small number of cases where meters are replaced, there is a big price differential between the smart and old-fashioned "dumb" meters. Given that the smart meters allow the customer to use less energy as well as feed micro-generated electricity back into the grid, there is no obvious reason for the supplier to install them.

Some form of governmentimposed market subvention will be necessary if the process is to happen quickly. In the meantime, the £41.6m fine apparently goes straight into the Treasury's coffers, rather than reducing the burden of energy bills.

The Government, which needs every penny it can get what with Northern Rock, a widening budget deficit, the credit crisis, the London Tube, an overstretched military, and so on, thus becomes the main beneficiary of National Grid's metering fiddle. Well, there's a surprise.

Britain more a haven than Liechtenstein

Liechtenstein, the tax haven made famous by Robert Maxwell as the ultimate repository for his business assets, is once again in the limelight thanks to the cunning of one of its residents who stole the records of a major bank and then apparently sold them to the tax authorities in Germany, the US, Britain and elsewhere.

Already there has been a wave of arrests across Germany for alleged tax evasion, starting with the chairman of Deutsche Post and spreading out to a number of other high-profile individuals.

With Revenue insiders reportedly describing the information as "a goldmine", there must be lots of worried souls here in the UK too. Luckily for them, stolen evidence may be inadmissible in any criminal prosecution here in the UK. We may never know who the miscreants were, even if the Revenue does manage to reclaim hundreds of millions in evaded tax.

As it happens, there are very few places left to hide for the consummate tax dodger. Most of the locations traditionally thought of as "tax havens" – Bermuda, the Channel Islands, the British Virgin Islands and so on – now co-operate fully with OECD rules on banking secrecy and information sharing. Only three are still deemed "unco-operative" – Andorra, Monaco and Liechtenstein. There are still lots of places which charge little or no tax themselves, but hardly any which allow rich foreigners illegally to hide their wealth from their own jurisdictions. After the present furore, even these three will find it hard to hold the line. Banking secrecy laws are not, it seems, protection against the disloyal employee.

I say there aren't many of these havens left, but actually one of the last remaining might be thought of as Britain, in so far as the non-doms are concerned. Rules that go back as far as the Napoleonic wars allow foreigners living in Britain to enjoy spectacularly unobtrusive treatment of their overseas earnings and capital gains.

In compromising his proposals for a crackdown on these perks, the Chancellor, Alistair Darling, recently promised that he wouldn't pry into the tax affairs of non-doms provided they paid the proposed £30,000 annual exemption fee. The "light touch" applied to foreigners contrasts markedly with the sledge hammer used by Her Majesty's Revenue and Customs when dealing with the tax affairs of its own citizens.

j.warner@independent.co.uk