Business secretary plays down speculation of cabinet divisions over proposed banking reforms, insisting Lib Dems and Conservatives are on ‘common ground’
Vince Cable has insisted the coalition partners are on “common ground” over the need for banking reforms after an attack on banks by the business secretary fuelled speculation of behind-the-scenes divisions with the Conservatives.
Cable sought to portray a government in unity over the need to shake up the banking system after giving a newspaper interview in which he accused big banks of using the economic turmoil in Europe to try to derail reform of the financial sector.
The Independent Commission on Banking is expected to recommend ring-fencing banks’ retail operations from their investment arms when it reports on 12 September.
Intensive lobbying by the banking sector ahead of the final report has led to speculation that changes could be shelved until after the next general election amid reports that the Liberal Democrats and the Conservatives are at odds on the timing for implementing changes.
Cable told the Times that “louder and louder voices” were being raised among some of the big British banks warning that regulatory change in Britain would put the recovery at risk. Cable, who acknowledged that any changes would require legislation and would not take place immediately, told the Times: “It is disingenuous in the extreme to use the current context to argue against reform. Banks are in a way trying to create a panic around something which they know has got to happen.”
The prime minister struck a more cautious tone in comments that appeared at odds with the business secretary when he warned against any move that could undermine growth.
Pressed on Cable’s broadside against banks during a visit to the Mini factory in Oxford, Cameron said “no decisions” should be made until the publication of the report next week.
But he added: “I think the key thing we want from banks is lending into the economy so we can support growth and jobs, and we need to make sure we are not taking risks that put jobs at risk.”
Labour seized on the comments to urge the commission to advise “bickering ministers” on the timing for implementing reforms to ensure they are not “ducked” by the coalition government.
But by Wednesday afternoon, Cable was seeking to portray a smooth working relationship with the Treasury and his coalition partners more widely.
Cable told the BBC: “I work very well with my coalition partners in the national interest, on economic matters, we’ve come at this from different directions, but certainly on banking reform, there is a common ground of the need to follow through on the report of the banking commission when its report is finalised in two weeks.”
He added that current instability in financial markets made it “all the more necessary that we press ahead and make our banks safe and reform them”.
Nick Clegg, deputy prime minister, ducked questions about the timing of reforms, though he stressed that the banking system needed to be reformed because “we cannot ever again allow the banking system to blow up in our face in the way that it did before”.
“I don’t think we should provide a running commentary on the details of a report that none of us have seen yet,” he added.
The director general of the CBI, John Cridland, and the British Bankers’ Association’s chief executive, Angela Knight, have attacked the proposals, with Cridland claiming that action to reform the banks now would be “barking mad”, and Knight warning that imposing the measures on lenders risked denting confidence and cutting the supply of credit.
George Osborne, the chancellor, has indicated he is likely to accept the interim recommendations in favour of ring-fencing high street banks, but he and Cameron are rumoured to be more receptive to bank demands for them to be given several years to deliver the “Chinese walls” while Nick Clegg, the Lib Dem deputy prime minister, backs Cable.
The Independent quoted a Whitehall source as saying: “There is a battle under way now inside the coalition. It is all about timing.”
John Thurso, a Lib Dem MP who sits on the Commons Treasury committee, told BBC Radio 4’s Today programme that banking reform was “absolutely central” for the economy and said the Lib Dems were “absolutely right to keep pushing to make sure it doesn’t go away”.
He said Cable’s comments about bank reform would chime with many of his fellow MPs. “Vince is really expressing the intense frustration that is felt by a vast number of MPs, not simply the Liberal Democrats but other parties as well, that through the summer they have met a great many businesses and, indeed, in my case I’ve met a great many regional bankers who are all actually saying the same thing.
“The businesses are saying, ‘We can’t get the money on terms that are anything like affordable’, and the regional bankers are saying, ‘Our head office is making us turn down deals that we think are good and would help and we would like to do.'”
Cable told the Times he did not expect another 2008-style meltdown in the banking sector, but acknowledged difficulties could still lie ahead for the British economy.
“To my mind, the greater worry is not a massive financial crisis again but it is a general slowing down of western economies, with all the problems that presents for employment and long-term dynamism,” said Cable.
Cridland told Today that his organisation, which includes banks as members, was not opposed to reform but was concerned by the timing and whether the proposals on the table were the right ones.
“There is a real question mark, still, over whether the proposals are the right package and that’s why we should be cautious, because I don’t think it’s absolutely clear that [Sir John] Vickers [chairman of Independent Commission on Banking] has got it right,” the CBI chief said.
There had been a “radical slowdown” in the world economy since Vickers published his interim proposals, said Cridland, and there would be a “major problem” if growth stagnates, he said.
“At that point, my businesses being able to get cash from their banks is critical, and anything that makes it harder for the banks to keep the wheels of the economy well oiled is not good timing.”
A Treasury spokesman said: “It’s too early to be talking about timings and no decision has been taken: the final report is not due until later this month.”
Chris Leslie, Labour’s shadow Treasury minister, called on the government to “get a grip” and not be sidetracked by coalition rows.
“The choked off recovery we’ve seen since George Osborne’s spending review and VAT rise should not be an excuse for ducking the necessary reforms,” he said.
“And nor should rows between senior cabinet ministers and coalition politics, nor lobbying by the banking industry, stand in the way of delivering banking reforms that are in the national interest. That’s why in its final report next month the Vickers Commission should advise bickering ministers on the timing for implementing these reforms.”
David Hillman, spokesman for the Robin Hood Tax campaign, said bank lobbyists should not be allowed to deter necessary reforms to the sector.
“An out-of-control banking sector is no basis for economic recovery. Banks should be made to pay for the damage they caused and not be allowed to repeat the mistakes of the past. We must not be deterred by bank lobbyists whose idea of ‘economic recovery’ means increasing bank profits.”
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