the Vickers report is out and is the banking version of a Collaborative law agreement, where two parties agree they have to break up and divide the financial assets but want to give each other time and space to do so. This one is going to take until 2019.
The key points of the report are that the main British banks must ringfence their retail operations such that if there is a disaster in their investment banking division this will not mean you cannot get your money ‘out of the wall’ and the UK economy go into free-fall. This is a good idea and popular as everyone understands why it is needed.
The cost of this according to the report is estimated at between £4-7bn. Whilst this is less than many of the estimates that had been made, this will still be a higher cost than doing business in the other financial centres. The Government should be careful. The UK’s attractiveness as a financial centre is very important to our economy and more cost, regulation and the 50% tax rate has meant the UK is becoming the highest taxed and most costly financial jurisdiction there is. This is bad news for UK plc.
Whilst the aim to rebalance the economy is a good one, what is needed is to bring up the skills in other sectors of the economy to have an export led recovery. This should not and need not be at the expense of causing competitive disadvantage to our main export sucess story – the financial sector.
The report gets the balance right and the time given, whilst it may upset some, is the right approach. The economy is very fragile and we need to see how these changes will play out as they are developed and implementated to ensure they give us the strong banking sector we need.
Gordon Brown wrecked our economy by spending more money than we had. To succeed again the Government needs to bring the state back in order and allow the private sector to lead the recovery.
In terms of the financial sector, the Vickers report goes in part some way towards this in providing certainty for the banking sector. What we need now in addition is a plan for growth. We should make clear we want large banks to headquarter in the UK and employ staff here, we should encourage investment banks to thrive, encourage more IPOs on the LSE, make M&A easier and cheaper in the UK and encourage entreprenuers to come here by reducing national insurance (which is a tax on jobs) and get rid of the 50% tax rate which discourages them to settle or stay here.