we all breathe a huge sigh of relief? Has peace broken out between bankers and politicians? Has the government caved in to the masters of the universe – or brought them to heal? And is it safe now to mention at dinner parties that you work in the City?
There are many different sides claiming victory, but it is undoubtedly true that most of the government wants peace to break out.
Certain members of the left might want a permanent war against bankers, since they are such a useful political enemy – just as Hugo Chavez has a permanent war with the Venezuelan middle classes. With a politically-motivated war, no punishment is enough, because the politics won’t change. Whatever pound of flesh is given, the insatiable cry would go up “we need more blood”.
But the Prime Minister and chancellor know that no responsible government can be in permanent war with the most profitable – and highest tax-paying – part of the economy. The chancellor crowed at the Conservative Party conference that he has introduced the first permanent banking levy. He thundered in parliament this week that London now has the most stringent bonus regime in the world. Aren’t the bank bashers satisfied?
The government thinks not – it wants to reach a settlement with banks, whereby it holds back on any new bonus clampdown, in return for banks increasing lending to small companies.
These are strange times indeed, and awkward for the Conservatives. They don’t want a new bonus tax, but it had a 97 per cent public approval rating and would fill a big fiscal hole. The Conservatives are fundamentally free-market, but politics dictates they must boast about introducing pay controls in private companies, and tell banks how much to lend.
It was politicians forcing banks to lend to causes that were morally worthy but not creditworthy that led to the subprime crisis, and sparked the banking implosion. The government must ensure the cure isn’t worse than the disease.
Despite the peace moves, the coming weeks of bonus season are going to be politically febrile. It will be some time before peace really comes, and it is politically safe for politicians to talk up financial services once again.
But even then, the threat to London as a financial centre will be far from over. Many policies damaging its competitiveness have been introduced, and in Brussels, where most financial services regulation comes from, they are unlikely to know that the war is over. Brussels’ grip over London’s financial services will probably prove to be the most profound legacy of this crisis, and the one that causes most problems in the long run.
• Anthony Browne is an adviser to the Mayor of London.