The Times: EU has jumped gun on City regulation

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Although the UK has the largest financial services sector in Europe, it will only have a small voice over EU regulations

Sir, We are concerned that hasty agreement to EU proposals for financial services regulation has pre-empted the discussion of what would be best for the EU as a whole. David Charter’s article (“Jubilant Sarkozy sees EU take powers over the City", June 20) appears to confirm the handover of financial services regulation to EU executive committees. Monitoring UK compliance with the rules will be largely left to the British Financial Services Authority (FSA) but the rules themselves will be written in Brussels. For the time being the UK has by far the largest financial services sector in Europe, but it will only have a small voice, just one of the 27 voting members, in determining what the new rules will be and how supervision takes place.

Due process seems to be flouted: the FSA’s call for consultation on this matter closed only last week with some organisations being given more time and the EU consultation on the communication closes in mid-July. We support the internationalising of financial services regulation but moving the regulation of one of the largest and most sophisticated markets immediately to a body with executive responsibility for a miscellany of markets in different stages of development threatens to undermine EU financial services competitiveness in the world market.

The EU formal legislative process has only progressed as far as a communication, albeit effectively a draft directive. The Treasury has yet to issue a draft British Impact Assessment as it should have done by now. The EU Impact Assessment fails to make the case for these changes, still less to quantify costs and benefits of this new agreement for the EU.

Next month the Adam Smith Institute’s Regulation Evaluation Group, of which the undersigned are members, will publish its full response to the EU communication in the form of a report that considers the optimal financial services regulatory arrangements for the EU as a whole. The blueprint for all this was written by a team led by a former governor of the Bank of France, and supported in a letter from Alistair Darling to the Commission President, dated March 3, 2009. It would appear that agreement in principle was the price of French involvement in the recent G20. The UK Government appears to have negotiated some minor opt-outs, such as the EU committees not being able to commit member state governments financially but to claim credit for recovering £1 from £100 given away is perverse.

London’s pre-eminence as a financial centre is as dependent as ever on its fiscal and regulatory environment. As a result of the pending increase in the UK marginal tax rate to 51.5 per cent, including national insurance, we know a significant number of firms were already considering moving to Switzerland. The prospect of this takeover of financial regulation can only hasten this exodus.

Tim Ambler, Eric Anstee, Keith Boyfield, Eamonn Butler, Tom Clougherty, David Foxman, Michael Green, Richard Jeffrey, Hugh O’Donovan, Edmond Robinson, Mike Waterson

Adam Smith Institute, London SW1

Published in The Times here

Daily Mail: UK's £230bn budget gap equals 'biggest' hole in economy

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Analysis from the Adam Smith Institute shows British taxpayers would have to hand over every penny they earned between January 1 and June 25 to pay for this year's vast public spending programmes.

Published in the Daily Mail here.

London “Sold down the Rhine” say experts

RELEASE DATE:
Monday 22 June 2009

London “Sold down the Rhine" say experts

The City of London has been “Sold down the Rhine", a group of regulatory experts says today (Monday 22 June).

According to the Regulatory Evaluation Group (REG), part of the Adam Smith Institute, it looks as though Gordon Brown agreed last week to hand over the control of financial services regulation to EU executive committees. UK agencies such as the Financial Services Authority and the Bank of England will monitor compliance with the regulations, but the regulations will be written in Brussels.

According to press reports, France’s President Sarkozy claimed after the decisive meeting “We have agreed a European system of supervision with binding powers."

The REG experts say this is a severe threat to the UK, which presently has by far the largest financial services sector in Europe. However, it will be in a small minority when it comes to voting on the new regulations and monitoring arrangements – just one out of 27 votes.

“Do you recall President Sarkozy threatening to walk out of the G20 unless he got what he wanted? It would appear that he was successful. The EU will have control over the City of London, and with it, a substantial part of the British economy," commented Tim Ambler, Senior Fellow, London Business School, a REG member.

The blueprint for the takeover, says Ambler, was written by M. de Larosière, a former Governor of the Bank of France, and was supported in a letter from Alistair Darling to the President of the EU on 3rd March 2009. 

Britain has negotiated some minor opt-outs on the cost of the new scheme, but the Europe-wide regulation plan seems unstoppable, with the EU leaders agreeing a ‘Communication’ – effectively a draft EU-wide Directive.

The Adam Smith Institute plans to publish its response to the EU Communication in a report by regulation experts Tim Ambler and Keith Boyfield, in mid July.

“The timing of this decision is extraordinary," said the Institute’s director, Dr Eamonn Butler. “The Financial Services Authority has not even had time to read the submissions to its ‘consultation’ on the future of UK financial regulation, which closed just last week. It seems that it doesn’t matter what we think about the future of our own financial system, Gordon Brown has already sold it out."

“I predict that many firms currently based in the City of London will be moving to Switzerland, which is bad for everyone in Britain."

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The Times: Professor Norman Gash: historian and biographer

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Several of Gash’s protégés, who included Michael Forsyth (now Lord Forsyth of Drumlean) , were later to provide powerful suppport to Thatcherism in the 1980s as MPs or leaders of the influential Adam Smith Institute in London.

Published in The Times here.

Lower taxes and spending cuts are the keys to overcoming recession

RELEASE DATE:
MONDAY 22 JUNE 2009

'Lower taxes and spending cuts are the keys to overcoming recession'

The financial crash was entirely foreseeable, was made worse by abject policy failures by the government, and will only be cured by a long period of reduced taxes, balanced by public expenditure cuts.

That is the conclusion of a think-tank report, The Recession: Causes and Cures by Harvard-trained economics professor David Simpson, published today.

Causes of the crisis

According to Simpson, four major policy blunders contributed to the crash:

(1) For years, the British and American governments kept interest rates too low. They claimed they had 'abolished boom and bust'. In reality, they were fuelling a huge bubble in the price of houses, shares, and other investments, and eventually, that bubble had to burst.

(2) Britain's regulatory system, set up by Gordon Brown, focused on form filling – questions like how quickly a bank answered its customers' phone calls – rather than looking at whether banks were taking dangerous risks. Like MPs, the banks obeyed the rules, but it didn't stop the system collapsing.

(3) Implicit government guarantees encouraged banks to become 'too big to fail'. They took dangerous risks because they knew that the government would bail them out if they got into trouble.

(4) Governments encouraged borrowing that people could not afford. The worst offender was the American government, which forced lenders to make home loans available to people with no record of creditworthiness. When house prices were booming, nobody noticed. When the bubble burst, the lenders were ruined.

Another reason why the banks took excessive risks, says the report, is that UK law gives too much power to boardrooms and not enough to shareholders – the people who actually own the business. This balance must be restored if future excesses are to be avoided.

Where do we go from here?

The only way to avoid crashes, says Professor Simpson, is to avoid creating booms. Now that the recession is here, the only way back to normality is to re-establish business confidence. And the best way to do that is to cut personal and corporate taxes, encouraging businesses to invest and customers to spend. But the government is trying to borrow its way out of the problem, which digs the hole even deeper and dents confidence even further.

Serious, long-term, confidence-building tax cuts will of course require equally drastic cuts in public expenditure. The Adam Smith Institute believes that the public is ready for such a programme, particularly when people look at the salaries, expenses, and index-linked pensions now enjoyed by public-sector employees.

The government's flawed response

Professor Simpson says the government's move to bail out the banks was a mistake which will prove harmful. Instead, some banks with large volumes of 'toxic' debt should have been allowed to fail, which would have left the others in a stronger position. The banks would now be lending again, and small businesses would have been able to borrow, and jobs would have been saved.

Furthermore, while there may be a case for targeted help to avoid the worst hardships caused by recession, a general financial stimulus package is likely to do more harm than good by preventing markets from adjusting to changed circumstances.
 
'Quantitative easing' – effectively printing money – will provide only a short-term stimulus, but will stoke up long-term inflation, says Simpson. The Bank of England does not have a good track record of keeping inflation under control.

Indeed, the whole crisis casts doubt on whether governments can actually be trusted with our money. They can print as much as they like, and enjoy the resulting fake boom. But, says Professor Simpson, we might be better off with money that is rooted in something governments can't manipulate – gold, for example – which would save us from the politicians' booms and busts.

Download a PDF of The Recession: Causes and Cures

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CNBC: Less financial regulation, not more

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Published on CNBC here.

MoneyMarketing: Passing the buck?

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The Adam Smith Institute has slammed the FSA’s response to the financial crisis, saying its failure to recognise the extent of its own failings compromises its ability to improve regulation.

Authors of the report Tim Ambler and Keith Boyfield say the central problem is the FSA's "self-obsession and self-justification". Their report, Regulatory Myopia, says the FSA should be streamlined, rather than expanded, and core responsibilities should be given to other bodies. Adam Smith Institute director Eamonn Butler says: “Instead of being expanded, the FSA should be scaled back to what it can actually achieve, and more weight given to existing market-restraint structures, such as the Financial Reporting Council, the Accounting Standards Board and non-executive directors."

The report claims that the FSA has introduced “red herrings" such as international responsibilities, hedge funds and offshore funds to distract readers from its own responsibility in the crisis.

Should the FSA be scaled back and supervision of the banking system be given to the Bank of England? How can the performance of the FSA be judged moving forward to minimize further regulatory failings? And who should the FSA ultimately answer to on a formal basis?

Published in MoneyMarketing here.

Cambridge News: State of the nation

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By his own admission, Eamonn Butler spent several fruitless years trying to generate enthusiasm from publishers for his book chronicling what he perceives as our nation's decline from sceptr'd isle to septic embarrassment.

But even he could scarcely have imagined how, when it did eventually see the light of day, T he Rotten State of Britain would end up chiming so perfectly with the funereal mood of the times.

In the book, Butler takes a forensic scalpel to all aspects of modern British society, from the broken economy to abuses of political privilege via the rise of spin, surveillance culture and the nanny state...

Published in Cambrideg News here.

Evening Standard: City Spy: Now Ronaldo is top of M&A league

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Vincent de Rivaz, CEO of France's EDF Energy, spoke at the Adam Smith Institute's Nuclear Industry Forum. “When I arrived, they told me you were on strike," he declared. “So I thought Well, at least we have something in common!'." Adam Smith director Eamonn Butler replied by telling him about the new French version of The Apprentice — it's the same, except you can't fire anyone.

Published in the Ebening Standard here

Daily Mail: Banks line up a counter-attack

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A paper co-written by Tim Ambler, a senior fellow at London Business School and Keith Boyfield of Adam Smith Institute, today argues that it is 'scandalous' that directors whose banks have been rescued by the taxpayer are being permitted to carry on paying themselves generous salaries.

Bankers whose institutions have effectively failed should be permanently expelled from the industry, they say.

Published in the Daily Mail here.