| 13.2°C Belfast

‘Damp squib’ banking reforms create fresh cracks in coalition

The Government's long-awaited deal on banking reform was under fire last night as critics dismissed it as a damp squib.

Project Merlin’ began to unravel almost as soon as the deal, negotiated by Chancellor George Osborne and former Barclays chief executive John Varley, was announced.

Banks will agree to lend £190bn to businesses, including £76bn to smaller companies, and have their lending scrutinised by the Bank of England.

They have also said they will show “restraint” over bonuses and Lloyds and Royal Bank of Scotland will pay less than last year.

Details of the pay of the top five managers at banks under board level will be published. But cast-iron commitments on this most contentious of issues was lacking and no details will be given on the bonuses of high-earnings traders — dubbed ‘casino bankers’ — whose pay can be many times higher than even that of bank chief executives.

A further £200m will be advanced to finance the so-called ‘Big Society Bank’ that will fund community projects. However, this amounts to a loan, with the money eventually intended to come from so-called dormant accounts which have often been held for many years with no activity by banks.

The deal has been signed by Lloyds, Royal Bank of Scotland, Barclays, and HSBC — Britain's four biggest lending banks. Spain's Banco Santander, the number five bank in Britain, said it would agree only to the lending commitments.

Announcing the deal, George Osborne — who on Tuesday increased his banking levy by £800m — called for an end to “banker bashing” so the banks could help the economy to grow.

He admitted the public would remain angry with the bankers but said: “Anger and retribution will not bring growth or create jobs — Britain needs to move from retribution to recovery.”

As the Chancellor trumpeted the banks' promise to boost lending to small firms, his aides warned that a tax on bonuses could be revived next year if the banks did not meet the deal.

Cracks within the coalition emerged when Lord Oakeshott, a Liberal Democrat Treasury spokesman, stepped down after criticising the deal with the banks.

Lord Oakeshott said it was “not a good deal” and the negotiating team had “an awful combination of arrogance and incompetence”.

He added: “If this is robust action on bank bonuses, my name's Bob Diamond and I'm going to claim my £9m bonus next week.”

Ed Balls, the shadow Chancellor, said: “The small print has a clear get-out clause which allows the banks to do whatever they wish to enhance the interests of their shareholders.”

He described the lending agreements as “toothless”.

Daily Headlines & Evening Telegraph Newsletter

Receive today's headlines directly to your inbox every morning and evening, with our free daily newsletter.

This field is required


Top Videos



Privacy