Outlook: Reformers should look at £38bn bung from taxpayer to the banks

 

That the Banking Reform Bill is a worthwhile effort is largely thanks to the efforts of Andrew Tyrie and his colleagues on the Parliamentary Commission on Banking Standards.

They forced a government still leery about upsetting the City into accepting a package of reforms that it would really rather have swept under the carpet and forgotten about.

However, even with the exhaustive process all but over, it’s worth remembering that this is an industry that is still receiving a £37.5bn bung from the taxpayer.

Not in direct aid, it’s true. But a subsidy is still a subsidy. Here’s how it comes about: the number was calculated by the New Economics Foundation as the benefit received by the big four British banks through the implicit state guarantees that they enjoy to this day.

The markets believe that these banks – Barclays, Lloyds, Royal Bank of Scotland and HSBC – are too big to fail.

Banks now have so-called “living wills” that are supposed to ensure an orderly wind up if they go bad.

As a result, smaller banks – and the Co-op is a good example here – can be allowed to fall over. There are mechanisms in place to allow this while ensuring they don’t drag customers and other banks down with them.

But if one of the big banks were to appear to be in danger of falling off a cliff, for whatever reason, – and the next crisis is all too likely to come from a direction that has barely been considered – is there really any doubt that the state will step in? That is certainly what the markets think will happen. As a result, the big four are able to secure financing at preferential rates that provides them with a net benefit of £37.5bn.

Standard & Poor’s, Moody’s, Fitch et al might assign these banks their own individual credit ratings. However, in reality, they all enjoy an effective rating of S&P’s AA+. Which is the rating of the UK Government that stands behind those banks.

You’d think, this being the case, that we’d be able to get something in return for this. But, in truth, we actually get very little.

Remember, the big banks only really started lending to support the economy when the Bank of England started throwing cheap money at them. Which is effectively another subsidy. 

Meanwhile, the impact of George Osborne’s banking levy is limited at best, and while the cost of ring-fencing retail banks could cost up to £2.5bn, it’s a drop in the ocean compared to that £37.5bn.

Based on this, perhaps we should be asking a question: Should the bill really be viewed as the end of a reform process? Or just the beginning?

EU inquiry shines light on dithering over nuclear power

 “Brussels bureaucrats blast Britain’s nuclear programme”. This is the developing narrative surrounding the forthcoming EU competition investigation into the proposed new nuclear plant at Hinkley Point, its financing and the price for the electricity it will eventually produce that has been guaranteed to EDF Energy and its cohorts.

The problem with such an investigation is that it is likely to result in more delays to an already tortuous process. Grist to the eurosceptics mill then?

Well, maybe. Interestingly, the GMB union is rather more sanguine.

It points out that – given the scale of the project – it would be actually be very surprising were the commission not to run the slide rule over it.

Moreover, an investigation into the set up of Hinkley could actually be seen as a positive thing if it gives a clean bill of health to the financing, and to that electricity price. If it doesn’t do this, then maybe we should thank it for raising the issue given what is at stake for the taxpayer and for energy consumers.

And as for those delays that the baddies in Brussels are creating?

Here’s the thing: it’s not as if the need for Britain to develop new sources of energy through projects like this is news. Whitehall has been aware of the problem for years, and yet it has sat on its hands.

If the EU delays the project by a matter of months, even a year, that’s nothing compared to the delays caused by the British Government’s complacency and its unwillingness to take difficult, and potentially controversial, decisions to ensure that the lights stay on. The real problem with projects like Hinkley have been caused not by bureaucrats in Brussels but by paper pushers closer to home.

Trade with China? We may need that third runway

Another marvellous example of that is the continuing paralysis among policymakers over what to do about the UK’s airports and their future capacity.

Today sees the publication of the interim report of the Airports Commission, the next plodding step in a process in which it’s still hard to see an end in sight.

David Cameron likes nothing better than to be seen glad-handing in China, while his people push out press releases gushing about multi-million pound trade deals.

Meanwhile, there is much talk on the Conservative benches about Britain’s need to do more in this dynamic region.

Ah, but when it comes to taking concrete steps to facilitate that – through a third runway at Heathrow, for example? Ah, erm, hmm. It might upset our voters you see.

Meanwhile, our EU partners have no such scruples. They also like the idea of trade with the East. And they have airports that offer direct flights to allow their business leaders to get there.

PROMOTED VIDEO
News
ebooksNow available in paperback
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Reach Volunteering: Trustee – PR& Marketing, Social Care, Commercial skills

Voluntary Only - Expenses Reimbursed: Reach Volunteering: Age Concern Slough a...

Reach Volunteering: Charity Treasurer

Voluntary Only - Expenses Reimbursed: Reach Volunteering: Crossroads Care is s...

SThree: Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...

Ampersand Consulting LLP: Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

In a world of Saudi bullying, right-wing Israeli ministers and the twilight of Obama, Iran is looking like a possible policeman of the Gulf

Iran is shifting from pariah to possible future policeman of the Gulf

Robert Fisk on our crisis with Iran
The young are the new poor: A third of young people pushed into poverty

The young are the new poor

Sharp increase in the number of under-25s living in poverty
Greens on the march: ‘We could be on the edge of something very big’

Greens on the march

‘We could be on the edge of something very big’
Revealed: the case against Bill Cosby - through the stories of his accusers

Revealed: the case against Bill Cosby

Through the stories of his accusers
Why are words like 'mongol' and 'mongoloid' still bandied about as insults?

The Meaning of Mongol

Why are the words 'mongol' and 'mongoloid' still bandied about as insults?
Mau Mau uprising: Kenyans still waiting for justice join class action over Britain's role in the emergency

Kenyans still waiting for justice over Mau Mau uprising

Thousands join class action over Britain's role in the emergency
Isis in Iraq: The trauma of the last six months has overwhelmed the remaining Christians in the country

The last Christians in Iraq

After 2,000 years, a community will try anything – including pretending to convert to Islam – to avoid losing everything, says Patrick Cockburn
Black Friday: Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Britain braced for Black Friday
Bill Cosby's persona goes from America's dad to date-rape drugs

From America's dad to date-rape drugs

Stories of Bill Cosby's alleged sexual assaults may have circulated widely in Hollywood, but they came as a shock to fans, says Rupert Cornwell
Clare Balding: 'Women's sport is kicking off at last'

Clare Balding: 'Women's sport is kicking off at last'

As fans flock to see England women's Wembley debut against Germany, the TV presenter on an exciting 'sea change'
Oh come, all ye multi-faithful: The Christmas jumper is in fashion, but should you wear your religion on your sleeve?

Oh come, all ye multi-faithful

The Christmas jumper is in fashion, but should you wear your religion on your sleeve?
Dr Charles Heatley: The GP off to do battle in the war against Ebola

The GP off to do battle in the war against Ebola

Dr Charles Heatley on joining the NHS volunteers' team bound for Sierra Leone
Flogging vlogging: First video bloggers conquered YouTube. Now they want us to buy their books

Flogging vlogging

First video bloggers conquered YouTube. Now they want us to buy their books
Saturday Night Live vs The Daily Show: US channels wage comedy star wars

Saturday Night Live vs The Daily Show

US channels wage comedy star wars
When is a wine made in Piedmont not a Piemonte wine? When EU rules make Italian vineyards invisible

When is a wine made in Piedmont not a Piemonte wine?

When EU rules make Italian vineyards invisible