It’s a nice job, chancellor of the exchequer. Sets you up well, should things not go right. The recently deposed Sajid Javid was a simple banker until in 2010 he got bored and entered politics. Within a decade, the Tory party’s slaughter of the talents shot him through five cabinet posts in as many years until as chancellor he fell foul of Johnson-Cummings syndrome. He is now nursing his wounds on the backbenches and returning to his old berth at the American bank, JP Morgan.
What is it about banks? JP Morgan specialises in getting on well with politicians. Javid joins Tony Blair on its payroll, as well as a former Finnish prime minister and an Italian finance minister. Whitehall’s committee on business appointments vets such jobs lest they are “being traded for favours”. In the case of banks this is a joke. The City and Whitehall just now are like two drunks tottering down the street together, pie-eyed on public money.
Ever since the middle ages, the British economy has benefited from a tension between high finance and politics, between the City and Westminster. Even as William the Conqueror was laying waste to Saxon England, he left the City with its autonomy intact in return for cash. Boris Johnson is behaving in much the same way today.
The City of London can reasonably claim to have been a rock of stability on which Britain has survived half a century of deindustrialisation. But its current potency did not emerge until Nigel Lawson’s Big Bang of 1986. What had been a hide-bound oligopolistic club burst open and became the wildest money market in the west. During the privatisation boom of the 1990s, governments turned to a gilded circle of merchant banks and the Big Five accountancy firms for advice. Funds were pouring into London from around the world, only to multiply as the decades rolled by.
Much attention has since focused on the inadequacy of regulation. Sputtering reforms have tried to curb the more outrageous tax dodges, offshore shelters and “London laundromats”. But money has talked: money from Russia, the Gulf, the far east, from anywhere. No one asks why serious regulation never bites.
The answer is that between the City and Westminster there is a revolving door of co-dependency. As we scroll back through the past 20 years, we see a procession of Treasury permanent secretaries passing from Whitehall to commanding heights in the City. Lord Burns goes to chair Santander, Sir Peter Middleton to chair Barclays, Lord Macpherson to chair Hoares. All are of impeccable rectitude. But it is not the actual jobs that matter, rather the knowledge at the back of every Whitehall and Westminster mind that a mile up the road lies a warm refuge in troubled times. Look after the banks and they will look after you. Whitehall grandees do not join the boards of Shelter, Action on Poverty or the RSPB.
Under Gordon Brown, UBS Warburg’s Shriti Vadera became a renowned go-between with the City, ending up as a business minister herself. She was involved in orchestrating the City rescue in the 2008-09 credit crunch, when some £500bn was at one point going to being hurled at the banks to rescue them from reckless lending – ultimately reduced to £30bn. No British banker was handcuffed or jailed, as they were in New York and Iceland. When a bank was eventually unsuccessfully prosecuted, Barclays, it was for impropriety in avoiding government rescue rather than succumbing to it.
In the coronavirus crisis, the Treasury has turned to the City to facilitate its colossal borrowings. Clearly under instructions from the prime minister, the chancellor, Rishi Sunak, appears to have unlimited access to cash. But every penny carries a fee. Buyers of government bonds go on to make a pretty penny at the taxpayer’s expense, as do those who sell the bonds at gilt auctions. In the swirl of billions passing between the Treasury, the Bank of England and the clearing banks, a lot of people are getting very rich at other people’s expense.
The Treasury’s initial instinct when the economic crisis broke was not initially to channel money to firms and individuals – as had governments on the continent and in the US. It was rather to hand £330bn to the banks. When the banks refused to pass this on to desperate businesses without 100% collateral loan guarantees, Sunak indemnified them – though still insisted they be loans not grants. As a result, just as this September is to be lockdown’s “month of unemployment”, so next May’s repayment time will make it the month of bankruptcies.
This is policy distorted by favouritism. Sunak’s furlough scheme was certainly generous in the short term to many British workers. But his generosity to banks knew no bounds. The trouble was that, as in 2008, the banks stored the money or bought shares. As my colleague Larry Elliott has pointed out, this has not helped the economy but merely inflated asset values beyond all reason. The state has offered an ongoing welfare safety net to banks, though not to individuals. Much, if not all, of this money will somehow have to be written off. The Treasury’s rescue helicopter hovers low over its friends in Lombard Street.
In the 1950s President Eisenhower warned of “a military-industrial complex” corrupting defence policy for private profit. A similar political-financial complex operates in Britain. Vast sums in fees, consultancies and “parastatal” contracts – such as those now being negotiated with desperate railway and construction companies under Johnson’s Build, Build, Build policy – surge back and forth between Whitehall and the City.
The security of capitalism rests on two foundations: the moral hazard governing risk and effective democratic regulation. Neither applies to the present relationship between the British government and high finance. A hard-pressed population sees the City’s wealth drift ever further from the reality of the rest of the economy. Every decision government makes under corporate lobbying – such as proposed planning easements and housing subsidies – widens the gap between London and the provinces. While high streets crash to the ground, stock markets soar. Rolls-Royce and M&S stumble, but Lloyds and NatWest know they have friends in court.
I doubt if it makes sense to stop individuals passing between careers in politics and other walks of life. Indeed, private industry makes a change from the alleyways that link Westminster with the murky world of thinktanks, party offices and journalism. But for parliament, Lords or Commons, to give house room to one powerful economic interest is unhealthy. The former chancellor sits as an MP but “advises” an industry that massively overlaps with government. This cannot be right. It is his constituents that his former boss Johnson has chosen to impoverish. It is they who need £330bn right now, not his new employers.
• Simon Jenkins is a Guardian columnist