100 days of the Coalition government. What has it meant for financial services?
I thought it would provide an interesting perspective to look at what has been done by considering impact that the Liberal Democrats have had on policy in this area. After all, the only real alternative to the Conservative/Liberal Democrat coalition following May's General Election was a minority Conservative administration. This would have been unstable and would have be looking to create a suitable opportunity to call a fresh election later this year or early in 2011 to drive for an overall majority. This would have made it rather more cautious in a couple of crucial areas.
The first would have been overall economic policy where I think it is inconceivable that a minority Tory government would have proposed such a drastic programme of public expenditure cuts, as much as it may have wanted to. It is only the security of the coalition's majority and the prospect of not having to face the electorate for five years that has instilled the confidence in George Osborne and the Treasury team to announce a high risk strategy of spending cuts. They are prepared to run the risk of a stalling recovery because they believe the economy will come out of the other side much stronger and know they have the time to wait for the hoped for benefits to become manifest.
The second policy area where I think we would have seen a more cautious approach applied is pensions. The backlash to the various announcements about raising the retirement age and abolishing barriers to working longer has been sadly predictable and is not something a government constantly looking over its shoulder at the opinion polls would have risked provoking.
Beyond that, most of the rest of what we have seen so far in the way of policies for the financial services sector would have been much the same.
The reform of the regulatory structure looked initially as if it might be strongly influenced by the Liberal Democrats but, after some debate within the coalition we have seen the Conservative manifesto proposals rolled out virtually unchanged. The Financial Services Authority is going and its responsibilities split between the Bank of England and a new Consumer Protection and Markets Agency, coupled with a clearer focus on financial crime. The Liberal Democrats were dismissive of calls to restructure the delivery of regulation, preferring to stress the need for more effective management if systemic risk within the existing structure. They would have retained the FSA.
Action to get the banks lending and to rein in remuneration has largely reflected the promises and rhetoric of the Conservative election campaign. They may not be as keen as their coalition partners on shaking up the banks but they know full well that they cannot afford to be seen to be soft on them. This is one area, however, where policy could take a more distinctively Liberal Democrat turn over the next few months. The Treasury is currently consulting on the proposal to impose a levy on the banks and Vince Cable's Department of Business, Innovation and Skills published a wide-ranging consultative document - Financing a Private Sector Recovery - just before the recess containing some quite radical proposals to force banks to lend more to businesses. The more fundamental battle over the structure of the UK banking sector, with the possible separation of retail and investment banking (favoured by Cable and the Lib Dems), has been temporarily postponed with the creation of the Independent Commission on Banking to review this area but it will force its way back onto the policy agenda next year.
The final policy that merits a mention is the decision to press ahead with compensating the policyholders of the failed Equitable Life. In opposition both the Conservatives and Liberal Democrats were highly critical of the Labour government's steadfast refusal to bring this long running saga to a conclusion and both included pledges to act quickly in their manifestos. The recent proposals to set in train a process of compensation would have happened with or without the coalition.
Apart from banking reform, there are relatively few significant policy differences between the Conservatives and Liberal Democrats in financial services so we are not likely to see many battles here which threaten the stability of the coalition. Those battles will be fought elsewhere as the full implications of the depth of the public expenditure cuts dawns and as the process of electoral and political reform begins to gain some real momentum.
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