UK Government looks at splitting up banks

UK Government looks at splitting up banks
By Kiran Stacey
Copyright The Financial Times Limited 2010
Published: May 20 2010 11:54 | Last updated: May 20 2010 11:54
http://www.ft.com/cms/s/0/906848be-63e8-11df-ad7c-00144feab49a.html


The government will set up a commission to look at splitting up retail and investment banking, ministers announced on Thursday, as they published the full details of the coalition agreement between the Conservatives and Liberal Democrats.

The body is part of a new push to reform the banking sector, and will be implemented alongside a new bank levy, curbs on bonuses, measures to free up lending and a free national financial advice service.

Meanwhile ministers will work with the Bank of England to speed up the inclusion of house prices into the official measure of inflation.

But the agreement leaves unanswered many of the crucial questions on banking reform and other policy areas. The government remains undecided, for example, on whether a loan guarantee scheme, net lending targets, or both, will be the best way to encourage banks to lend.

The banking regulation commission, which will report within a year, but the findings of which will not be binding, is one of several such bodies promised by the new agreement – published in full on Thursday.

The government will also set up reviews to look at the replacement of the Human Rights Act, public sector pensions and long-term social care. On other sensitive subjects, such as the replacement of Trident missiles and nuclear power, Liberal Democrat MPs will be allowed to abstain.

It also remains unclear whether a “pupil premium” to encourage schools to take disadvantaged children, which was supported by both parties, will receive funding, as the Liberal Democrats have demanded.

But David Cameron insisted the parties had not avoided tackling the areas most likely to create disagreement. He referred to “the amount of sentences that start ‘we will’” and said the surprising element was “the shortage of commissions, not the amount of them”.

In one of its bolder policy steps, the government will freeze council tax for a year and seek to freeze it for another 12 months if it gains the agreement of local authorities. It will also hold elections for local NHS health boards.

The document further promises “changes to our political system to make it far more transparent and accountable”. These include funding 200 primary elections by postal vote for seats which have not changed hands for many years.

On the sensitive area of reform of the House of Lords, a committee will bring a draft motion by the end of the year. But there has been some compromise on whether the new House of Lords will be fully elected, as proposed by the Lib Dems, with the document promising a “wholly or mainly elected upper chamber on the basis of proportional representation”.

The coalition will push ahead with plans to part-privatise the Royal Mail. But Vince Cable told the Financial Times earlier this week: “There are no imminent proposals for legislation ... We need to take a long, hard look at this and not rush into it.”

In spite of the questions left unanswered by the new document, both Mr Cameron and Nick Clegg, the deputy prime minister, insisted it was “an historic document in British politics”. Mr Cameron called it “a full programme of reform for a full parliament by a partnership government”.

Coalition document: key points

● A commission will be established to examine splitting banks into retail and investment operations, to report within a year.
● Banks will be encouraged to lend to small and medium companies through a loan guarantee scheme, net lending targets, or both.
● Corporation tax rates and reliefs will be simplified.
● The government will try to inject private money into the Royal Mail, but will keep the Post Office in public hands. It will look at creating a Post Office Bank.
● ID cards will be scrapped.
● CCTV will be more carefully regulated.
● A commission will review replacing the Human Rights Act with a British bill of rights.
● Council tax will be frozen for a year.
● Trident will be renewed, although the Lib Dems will search for alternatives.
● Deficit reduction will be accelerated, with most coming from spending cuts rather than tax rises. Cuts of £6bn will be made this year, the details of which will be announced on Monday.
● The third runway at Heathrow will be scrapped, and additional runways at Stansted and Gatwick will be refused.
● A cap on immigration from non-EU countries will be imposed, but the details have yet to be decided.
● This parliament will last for five years, with a 55 per cent majority needed to dissolve it.
● There will be a whipped vote on a referendum for the alternative vote system, but the parties will be allowed to campaign for either side
● A committee will bring a draft resolution on making the House of Lords wholly or mainly elected by the end of the year.
● Schools will be offered a premium to take on pupils from disadvantaged backgrounds, funded by cuts from outside the schools budget.
● Communities will be allowed to set up “free schools”, funded by the taxpayer but run independently.
● The personal income tax allowance will be increased to £10,000.
● Capital gains tax will be increased to levels that are close to income tax.