On Wednesday evening at the Mansion House, Alastair Darling, Chancellor of the Exchequer, preached on the theme of the improvement required in the behaviour of Britain's bankers. This was a drunkard giving a sermon on temperance. For earlier that day one of his junior ministers, Kitty Ussher, had resigned over allegations that she had avoided paying capital gains tax.
What about the behaviour of politicians? Ms Ussher was advised by her accountant to switch her designated primary home from London to Burnley. In a letter, the accountant wrote: "I am enclosing a declaration to vary your previous main residence election for a period of one month to (the Burnley home) and then back (to the London home).
"The effect of varying the election is that (the Burnley home) will receive the final three years' main residence exemption and the gain will be completely exempt from capital gains tax provided (the Burnley home) is sold before April 2007."
She took the advice and as a result she avoided paying some £16,800 in capital gains tax when she sold her constituency home in 2007. This was not, strictly, speaking illegal, but it was improper behaviour for a Treasury minister. Mr Darling has had his own problems with claims for parliamentary expenses. He agreed to repay around £700 having claimed for two properties at the same time. He used the same technique as Ms Ussher in "flipping" the designation of his main and second homes and also claimed public money for personal tax advice.
So when Mr Darling told the Lord Mayor's guests that, "bank boards must have the right people and the right skills and experience to manage themselves more effectively; they need to be equipped to ask the right questions; their focus must be long-term wealth creation, not short-term profits; they must recognise their duty to shareholders is best fulfilled by acting in the interests of their customers and all – not just some –of their employees", I am surprised that the diners didn't start giggling or even heckling.
Were Mr Darling and Ms Ussher asking themselves the right questions when they were playing their tricks on the tax authorities? Did they also recognise, as Mr Darling was urging bankers to do, that the wider interest should come before concern for personal gain?
Deprived as he is of all moral standing, the only reason for paying any attention at all to the Chancellor is that he retains a residual power to make policy decisions before he leaves office at next year's general election. That the Governor of the Bank of England, Mervyn King, lacks respect for the Chancellor was evident from his speech at the same dinner. While Mr Darling was all for hurrying ahead with regulatory reform, Mr King urged caution. He said he shared, "the concerns of many of you that we are a long way from identifying precise regulatory interventions that would improve the functioning of markets". This seemed very like saying that Mr Darling doesn't know what he is talking about.
Both speakers discussed the problem of banks that believed themselves to be too big to be allowed to fail. In effect such institutions have an implicit guarantee that they will be rescued if they get into trouble, an unwritten insurance policy, if you like, for which they pay no premium. "The solution is not as simple, as some have suggested, as restricting the size of banks," opined Mr Darling.
Mr King evidently did not agree. He quoted with approval the words of an American economist that if some banks are thought to be too big to fail, then "they are too big". He was prepared to contemplate, as Mr Darling would not, that guarantees to retail depositors could, "be limited to banks that make a narrower range of investments". This is the notion that the only banks to receive a guarantee would be ones concentrated solely on money transmission, taking deposits and lending at short term, in effect banking as a utility service like water or gas. Such institutions would not be able to engage in fancy investment banking activities.
Never before have Chancellor and Governor disagreed so openly in front of an audience of City grandees. Day by day authority drains away from the Government. Isn't this fun, pushing the Prime Minister and Chancellor this way and that?Reuse content