POLITICS
How far can you go against Tories and the City?
PETER RIDDELL
There is more than a whiff of scandal in the City, and the Labour Party scents a good political issue. Recent disclosures are denounced as `Thatcherism in the raw' and there are full-blooded attacks on the old- boy network, `obscenely' high incomes and upper-class `greed'.
It is a familiar tune but not necessarily less catchy for that. British politicians have always believed that the public is censo- rious and does not share Bagehot's robust view that `the rough and vulgar structure of English commerce is the secret of its life'. Members of the Heath government be- lieved that the property and secondary banking boom, and collapse, damaged the Tories in the two 19784 general elections. That administration rushed into ill- considered actions in 1973 to counter the results of the boom — which it was itself responsible for fuelling — just as it was coming to an end. There was the fatuous correspondence between Mr Peter Walker, then Environment Secretary, and Mr Har- ry Hyams over the empty Centre Point. This was completely irrelevant to what was happening but it made the headlines. Then there was the hastily prepared develop- ment gains tax.
The memory and myths of that period led to nervousness about the political impact of something going wrong in the City well before the Guinness and Collier affairs. A commonly expressed view among Conservative backbenchers when the Financial Services Act was going through Parliament a year ago was that there were bound to be casualties from the Big Bang deregulation of the securities markets, and that the Tories would be blamed. Paradoxically, the most recent allegations of insider trading and wrong- doing have nothing to do with the Big Bang.
The Government is on strong ground in defending its response to recent disclo- sures. Mr Michael Howard, the under- secretary for corporate and consumer affairs, has so far adroitly judged the pressures for tough words, and actions. He can fairly argue that no one has suggested specific new powers to deal with abuse going beyond what is already law. Insider dealing was made a criminal offence in 1980 (partly enacting a measure proposed by Labour but lost with the 1979 election), while the Financial Services Act provides draconian new powers of investigation to forces co-operation, or risk action for contempt of court. Meanwhile, the Bank- ing Bill to tidy up regulation in the after- math of the JMB affair is quietly chugging its way through the Commons.
Mr Howard maintain's that the Govern- ment has not hesitated to use these powers with the appointment of several inspectors to investigate alleged wrongdoing. The snag is that these inquiries take a long time — an average of two years. In the current fevered atmosphere this can seem like delay — hence Labour's demand for an interim report on Guinness, though minis- ters believe this might compromise the inspectors' work.
The Government is more vulnerable on the broader issue of the framework of City regulation, as has been skillfully exploited by Mr Bryan Gould and Mr Robin Cook, Labour's successive City spokesman. it is not just the opposition parties but also many interested Tory MPs who have argued that the proposed hybrid of statu- torily backed self-regulation through the Securities and Investments Board may prove inadequate. The Securities and Ex- change Commission in the US seems alter- nately to attract the repel as an example. But while most British politicians do not favour an exact copy of the SEC, there is growing political support for — and in some cases a reluctant acceptance of the inevitability of — greater statutory regula- tion. and this case may be strengthened by the forthcoming Neill report on Lloyd's.
All of this may appear somewhat esoteric, even for most MPs. Only a couple of dozen or so members — including barely half a dozen on the opposition benches took any interest in the Financial Services Act. The City is generally only discussed when there are headlines and that usually means trouble.
What matters is the sleaze factor — the feeling that something shoody and disrepu- table is going on. The Government may angrily protest its relentless opposition to financial wrongdoing, but the City and the Conservative Party are somehow inextric- ably linked. as Mr Cook put it, they are part of the same family — 'the City of London is the Conservative Party's Brent Council'. There are obvious personal and financial links, with City organisations being major contributors to the Party.
More fundamental is the assertion that the present Government's ideology and
economic approach have created the cur- rent freewheeling mood in the City. A belief in deregulation and competition (however qualified in practice) led directly to the massive restructuring of the City and the associated big jump in personal income and wealth. But these attitudes have also contributed indirectly to a new style of management and behaviour. It is the very opposite of an old-boy network. Instead, it is acceptable, even mandatory, to be aggressive and go-getting — the soulless materialism of the young rich so vividly portrayed in these pages and elsewhere by Mr Nicholas Coleridge. In these circum- stances the old rules and sanctions dis- appear and cutting corners and winning at all costs become acceptable. People like Mr Ernest Saunders and his associates became the heroes of the hour for turning round Guinness and their evi- dent ruthlessness was applauded. There Is nothing new in such a fashion. Mr JO Slater was the man of the moment in the late 1960s and early 1970s when he was praised for re-organising sleepy companies (which his critics called asset-stripping). What have changed are the overall regula' .tory framework and values. Then there were a City establishment and the Gov ernor's eyebrows to exercise restraint. Now it is the blue-blooded Morgan Grefr fell which brings in outsiders in the hope of becoming more competitive. It would be grossly unfair to link the Government directly with what has been going wrong. There is no suggestion of an) involvement or laxity by ministers or To? MPs, nor, crucially, of any scandal assoer ated with the privatisation issues (apart from multiple applications). It is more that the City revolution appears to epitomise the economic values of Thatcherism. It can be seen as elevating the priorities of finance over industry, and of London over the regions. So the Toile' may be tarnished, just as any strike tends to damage Labour through its associatiorl with the unions. Yet while Labour ma) rally the faithful by attacking the City —35 it has always done — its leaders know frorti bitter experience that they will continue to have to persuade the financial markets of the soundness and responsibility of the policies.
Peter Riddell is political editor of the Financial Times.
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