Jeremy Corbyn has got into a spat with international banks, one of which has said that a government led by him poses a greater threat than Brexit. ‘That’s fine by me’, is the gist of Mr Corbyn’s reply. He takes the view that the ‘damaging and failed’ banking system is at the root of many of our woes and he is determined to do something about it. Is he right and is it about time someone challenged the mighty banks? Or does his approach pose a threat to Britain’s prosperity?
The row was sparked earlier this week when the European equity team of the international investment bank, Morgan Stanley, published a report in which it said that ‘for the UK market, domestic politics may be perceived as a bigger risk than Brexit’. It went on: ‘From a UK investor perspective, we believe that the domestic political situation is at least as significant as Brexit, given the fragile state of the current government and the perceived risks of an incoming Labour administration that could potentially embark on a radical change in policy direction.’ The authors of the report believe that a Corbyn government would mark ‘the most significant political shift in the UK since Margaret Thatcher’.
Mr Corbyn relished that. In a video posted on social media he said Labour was a ‘government-in-waiting’ and … ‘when they say we’re a threat, they’re right. We’re a threat to a damaging and failed system that’s rigged for the few’. He promised that a Labour government would rein in the ‘speculators and gamblers who crashed our economy in 2008’.
And there was more along similar lines: ‘Bankers like Morgan Stanley should not run our country. But they think they do. Because the party they fund and protects their interests – the Conservative Party – is in Downing Street. That’s why they want to keep the Tories there. Because their rigged economy and their tax cuts for the richest work for them. Their greed plunged the world into crisis and we’re still paying the price’. He pointed out that Morgan Stanley paid its chief executive, James Gorman, £21.5m last year and UK banks paid out £15bn in bonuses to its staff, while ‘nurses, teachers, shop workers, builders, just about everyone is finding it harder to get by.’
Mr Corbyn’s views will find an echo among many beyond those who would regard themselves as left-wing socialists like him. The financial crash of 2008 had many causes but among them was the reckless expansion of many banks’ balance sheets: the willingness to lend imprudently and to create complex financial instruments that few people fully understood. When the whole shaky edifice came crashing down it was the taxpayer who had to bail the banks out in order to prevent a total collapse of the economic system.
The result was a recession followed by a persistent fall in the rate of economic growth that has left most people’s real incomes less than what they were before the crash and with the prospect that they won’t return to those levels until well into the next decade. What’s more, the deficits in public finances ballooned, which meant governments had to adopt ‘austerity’ policies that slashed spending on public services.
And there’s something else that rankles with many critics of the bankers. None of those responsible for the crash has faced prosecution: indeed the impression is that it is back to business as usual, with bankers’ greed stoking up the next crisis. Many believe that the resulting sense of ‘them and us’ – of a greedy financial elite acting with impunity while everyone else struggles – helped fuel an anti-establishment mood that found expression in Brexit. To many of those who read recent history in this way, Mr Corbyn’s willingness to take on the banks is both welcome and overdue.
But not everyone sees it in this way. Many believe responsibility for the crash lies as much as with the regulators of the financial system as with the bankers themselves. After all, they argue, banks are in the risk-taking business and it’s the responsibility of the regulators to make sure that these ‘masters of the universe’ don’t take risks that threaten the whole system and with it the livelihoods of the rest of us ordinary mortals.
And yet, in the period before the crash, governments celebrated their policy of ‘light-touch’ regulation that gave the banks their freedom. None did so more confidently than our own Labour government which took supervision of the banking sector away from the Bank of England and claimed to be on good terms with the City. Indeed Tony Blair’s principal private secretary, Jeremy Heywood (now the Cabinet Secretary) took a sabbatical to work for Morgan Stanley and Labour’s last chancellor, Alistair Darling, has served on the bank’s board since 2015.
Since the crash, it’s argued, regulation of the banks has been greatly tightened. So by threatening the whole system, as Mr Corbyn appears to be doing, he risks serious damage to our economy. The City creates a huge amount of wealth for this country and with it a great deal of tax revenue. As Edwin Morgan, the director of policy at the Institute of Directors, put it: ‘whether the leader of the opposition likes it or not, finance is one of the UK’s most competitive industries and, if he were to become prime minister, he would certainly be grateful for the jobs and tax revenue it creates’.
Some will see Mr Corbyn’s ‘threat’ not so much as a considered response to a pressing problem but as an example of socialist ideology born out of envy rather than analysis. They will point to his linking of nurses’ pay with that of Morgan Stanley’s chief executive as being evidence of this. Even if Mr Gorman’s remuneration were reduced to a hundredth of what it’s claimed to be, it would have no effect on nurses’ pay. Instead, they argue, a general attack on the banks might leave a Labour government with less tax revenue to pay the nurses.
Indeed Sergio Ermotti, the chief executive of the Swiss bank, UBS, claimed that what lies behind Mr Corbyn’s comments is envy. He told the Financial Times: ‘I think this discussion is made by people who are maybe frustrated that they do not make that kind of level of money.’
Supporters of Mr Corbyn will be outraged by such a remark. They will point out that he personally has never been remotely interested in money. His motive is purely to create a fairer, more equal society and that that cannot be done while bankers continue both to earn so much themselves and threaten the stability of the whole economic system in the process.
So who’s right? Should we welcome Mr Corbyn’s ‘threat’ to rein in the banks or is it simply a case of cutting off a nose to spite a face?
Let us know what you think.