Government's bank reforms are a waste of space, say MPs

Another bad morning for the Treasury, as MPs slam its planned reforms and the IMF puts the crunch bill at $10trn.

Last Updated: 31 Aug 2010

The grim news keeps on coming for the Government: on the day that the International Monetary Fund estimated that the credit crunch has cost national governments a combined $10trn (with the UK deficit set to be the worst in the world), it’s also had a kicking from some of its own MPs. The cross-party Treasury Select Committee (comprised partly of Labourites, including chairman John McFall) dismissed the planned reforms to the tripartite supervisory structure as superficial and muddled. Just the kind of morale boost it needed...

PM Gordon Brown and Chancellor Alistair Darling will probably have been hoping that their old mate McFall would go easy on them. But no such luck. In its latest (126 page) offering on the banking crisis, the TSC slammed the Government’s ‘reforms’, such as replacing the Tripartite Standing Committee with a Council for Financial Stability (to co-ordinate the efforts of the Treasury, the FSA and the Bank of England). They said this change was ‘largely cosmetic... Merely rebranding [the committee] will do little in itself’. It also believes the division of responsibility ‘remains unclear’. Ouch.

Given that the report was equally scathing about the FSA (which it says ‘failed dreadfully’ to do its job), the TSC’s report appears to play right into the hands of the Tories, who have been arguing for the FSA’s duties to be handed over to the Bank of England. But fortunately for Brown and co, the TSC spared their blushes by stopping short of this: in fact, the MPs went on to praise Lord Turner’s efforts to spruce up the FSA and insisted that it did not advocate ‘substantial change’ to the current framework.

Unfortunately the IMF hasn’t been so gentle. In its latest estimate of the cost of the credit crunch – in which it suggests that rich countries have spent a frankly-incomprehensible $9.2trn propping up the financial sector – it also claims that the UK will have the biggest budget deficit of any rich country in the world by 2010: over 13% of GDP. We’ll also have the biggest increase in debt of any rich country over the next five years, by which time our IOUs will basically equate to our entire national output. And as the IMF has pointed out, the Government still hasn’t come up with a plan as to how to pay it back.

So all in all, this morning has provided a few more nails in the coffin of the Government’s hard-won reputation for economic competence (remember that?). On the other hand, the FTSE hit a seven-month high yesterday, after a record-equalling 11 straight days of gains (with a 9% rise so far this month, it's on track for its biggest jump since September 1992). So maybe everything’s all right after all?

In today's bulletin:

Government's bank reforms are a waste of space, say MPs
BA plunges to £148m loss - can Walsh stop the rot?
We need a longer-term lending solution, says FPB
Are directors too cowardly about executive pay?
Learning from the voice of experience, with YouTube

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