Banking Reform

In the autumn of 2008, I was in New York and walked past Lehman Brothers as the bank collapsed, heralding a global financial crisis.

Looking back, I wonder if we all understood just what these events would mean for our economy and living standards.  We are still living in their wake.

So reform of the banking system is vital.  This week the Government announced that, having set up a review of banking services led by Sir John Vickers, we will implement the findings in full.

The dilemma is how Britain can remain home to the world's leading financial centre without British taxpayers being exposed to the costs of those banks failing.

It is vital that Britain has a strong banking system that supports lending to business and families, promotes job creation and encourages economic growth.

Financial services are one of Britain's leading industries.  The City directly and indirectly supports over a million jobs.  It was the need to safeguard these services that led the Prime Minister to veto the proposed EU treaty change.

One of Vickers' most significant proposals is the introduction of a ‘ring fence' around retail banking to separate and protect services such as deposit holdings and lending from riskier global investment activities.

The costs of a crisis should fall on shareholders and wholesale debt holders, not small depositors or taxpayers.

There is still a lot of justifiable anger about the way the banks behaved.  I think it is right that they make a fair contribution to the public purse. 

The Chancellor has introduced a permanent bank levy which will raise £2.5 billion a year, more than the one-off bonus tax introduced by the last Government.

I also share concerns about the disconnection between how some of our largest companies perform - and not just in the City - and the pay of their directors.

I believe that entrepreneurs who take risks with their own money and create wealth are entitled to reward.

But at a time when public sector pay is frozen, and many lower down in the private sector are suffering pay cuts or job losses, some top pay packages are particularly unjustifiable.

The Government has published a discussion paper on high end salaries.  It is time for restraint and responsibility.