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Posts Tagged ‘Alistair Darling’

Cameron: helicopter deficit is scandal

Conservative leader’s comments come as poll reveals backing for British involvement in war has grown

David Cameron today said it was a “scandal” that the British army did not have enough helicopters to transport troops around Afghanistan.

Speaking as a new poll suggested that the growing British casualty rate had not increased public hostility to the conflict, the Conservative leader said the government should deal with the helicopter problem “as a matter of urgency”.

Cameron will have the chance to challenge Gordon Brown on the issue when the prime minister makes a statement to the Commons, which will cover the latest deaths in Afghanistan, later today.

In a speech on international aid today, the Tory leader said the government should supply British troops with more equipment.

“Of course we must do that – it is a scandal in particular that they still lack enough helicopters to move around in Afghanistan,” he added.

“The government must deal with that issue as a matter of extreme urgency.”

Research carried out as news broke of the deaths of eight soldiers in 24 hours – taking the British death toll in Afghanistan to more than that in Iraq – revealed support for the war remained firm and backing for British involvement had grown.

The poll of 1,000 showed that people appear reluctant to turn against a conflict while soldiers are fighting and dying on the front line, and the increasingly high-profile nature of the war appears to have strengthened public backing.

Opposition to the war, at 47%, is just ahead of support, at 46%, according to the ICM poll for the Guardian and the BBC’s Newsnight.

Backing for Britain’s role in the conflict has grown since the last time an ICM poll was conducted on the subject in 2006.

It is up 15 points from 31%, while opposition has fallen over the same period by six points from 53%.

The poll also showed that 42% are in favour of the immediate withdrawal of British troops, and a further 14% want them home by the end of the year. These figures are almost identical to the results in 2006.

A further 36% want troops to stay as long as they are needed – again a similar proportion to 2006, when British casualties were lower.

The findings came as ministers drew up plans to devote more troops and resources to Afghanistan after dismissing repeated requests from defence chiefs for reinforcements.

The shift in approach follows the rising death toll, outspoken criticism from opposition politicians and the prospect of a long period of intense fighting against the Taliban.

Gordon Brown will today confirm that the number of British troops is increasing to 9,000 from a base of 8,300.

One favoured option, which has not been agreed, is for the number of troops to be kept at 9,000 after the next general election.

Today, Miliband told GMTV the government’s strategy in Afghanistan was clear.

“This is a mission that’s been developed with a very clear strategy: above all, to make us safer here because we know these areas of Afghanistan and its neighbour Pakistan are used to launch terrorism around the world,” he said. “So the mission for us is clear.”

Miliband admitted there had been a “terrible casualty toll” and paid tribute to those who were killed, but added that more helicopters alone were not the answer.

John Maples, the Tory deputy chairman, yesterday told the Guardian: “Increasingly, people are starting to ask whether this war is winnable and whether our military objectives are sensible given the number of troops and the amount of equipment we are prepared to commit.”

Lord Ashdown, the former Liberal Democrat leader who almost became the UN special representative in Afghanistan last year, was scathing about British and US conduct.

“The army were persuaded, for political reasons, to follow a Beau Geste strategy – putting our people out in forward forts largely because the politicians were persuaded by [Afghan president Hamid] Karzai that this was where his supporters and family lived,” he said.

“It led to a military error of major proportions. The army’s job in a war is to find and kill the enemy.”

After previously blocking requests by the chiefs of staff for 2,000 more troops to be deployed in southern Afghanistan, Brown has said in a letter to senior Commons committee chairmen: “We will of course continue to review our force levels based on the advice of commanders and discussions with our allies.”

The Treasury has previously blocked the defence chiefs’ request on the grounds of cost.

However, the chancellor, Alistair Darling, said over the weekend: “If [British troops] need equipment, whatever it is, to support them in the frontline then of course the government, through the Treasury, is ready to help.”

He told the BBC: “You can’t send troops into the frontline and not be prepared to see it through in terms of the … resources they need.”

Significantly, given the government’s past decisions to cap resources for Afghanistan, Darling added: “You’ve got to listen to what the chiefs of staff tell us.”

Commanders on the ground have made no secret of the fact that they want more helicopters and more British troops.

General Sir Richard Dannatt, the head of the army, was yesterday reported to have told a private dinner of MPs that too few troops and helicopters were available.

In an interview with the British Forces Broadcasting Service on Saturday, Brown paid tribute to the “sacrifice” of the 15 troops who have died since the start of the month in the bloodiest fighting Britain has seen in the Afghan campaign.

“I know that this has been a difficult summer – it is going to be a difficult summer,” he said.

The prime minister said he had been assured, in a lengthy briefing by commanders, that Operation Panther’s Claw to drive the Taliban from central Helmand province was making “considerable progress”.

Bob Ainsworth, the defence secretary, said troops were “attacking the Taliban in one of their heartland areas”.

“The reason they are standing and fighting is they know that what we are doing potentially hurts them seriously and strategically,” he said.

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The Business: Banking white paper

Regulation, regulation, regulation

On this week’s (slightly delayed) Business podcast, Aditya Chakrabortty, Dan Roberts and Jill Treanor analyse the government’s white paper on banking reform. Is it a financial fudge, or a blueprint for a new age of responsibility?

Also in the podcast, bonuses are back in the City – so what is the chancellor doing to clamp down on excessive risk-taking in the Square Mile?

Finally, as the leaders of the world’s most influential economies meet in Italy, we hear from Larry Elliott about the agenda at the G8. Will the EU and the America sign up to Britain’s ideas on cleaning up the monetary system?

Have a listen to the show, and please post your comments on the blog below.


Darling rules out radical City changes

• Chancellor rejects caps on pay or break-up of banks
• Lib Dems say plans mark return to business as usual

Alistair Darling stepped back today from a radical overhaul of Britain’s banks when he ruled out caps on bankers’ pay or breaking up the biggest City institutions.

Pointing to the importance of 1m jobs in financial services and the £250bn of tax generated by the sector in the past nine years, the chancellor’s much-anticipated response to the current “severe financial crisis” rejected demands for major reforms by opposition parties and the Bank of England governor Mervyn King.

But Darling told the Commons that “irresponsible pay practices made banks take too much risk” and that bank boardrooms “had little appreciation of what was going on inside their own businesses”. Proposals for boardroom reform will be announced in an interim report by the City grandee Sir David Walker next week.

While Darling outlined steps to give the Financial Services Authority (FSA) new powers for financial stability, the current “tripartite” system involving the FSA, the Bank of England and the Treasury will remain largely intact after today’s 176-page white paper on reforming financial markets. Banks will be have to hold more capital but it is not immediately clear how much, or what the impact of that will be.

On bankers’ bonuses, the chancellor wants the FSA’s code of conduct on pay, due to be finalised later this year, to be more transparent. The regulator will have to report annually on how banks are avoiding excessive risk-taking with their bonuses and announce how it will deal with firms that do not comply.

The City regulator has already warned the 45 biggest banks and financial firms that if their pay deals entice traders to take too much risk, they will be penalised by being forced to set aside more capital – or even face fines. “We need a change in culture in the banks and their boardrooms, with practices that are focused on long-term stability and not short-term profit,” Darling said. “The FSA has powers to penalise banks if their pay policies create unnecessary risk, and are not focused on long-term strength.” The first task of a new Council for Financial Stability – which is being set up to formalise the current tripartite system – will be to tackle bank remuneration policies.

But the chancellor’s programme for reform was criticised by shadow chancellor George Osborne – who wants to tear up the current system – and Vincent Cable, the Lib Dem Treasury spokesman, who said the plans would be welcomed by bankers. Cable said: “This paper will be greeted with a sigh of relief in the City since it marks a return to ‘business as usual’.”

The British Bankers’ Association welcomed the paper. Angela Knight, BBA chief executive, said: “Banking is a global business and reform needs to be thoughtfully handled so moves in the UK dovetail with those overseas, ensuring the UK sector remains competitive. Otherwise business could move again.”

The chancellor announced new legislation would be introduced:

• To create the new Council for Financial Stability.

• To force banks to pay a fee for a money advice service for consumers, and pre-fund the deposit protection scheme that pays out to savers when banks collapse – a reversal of current policy that will prove unpopular with banks.

• To give the FSA a new statutory objective of financial stability and tougher powers and penalties against misconduct, including regulation of “systemically” important hedge funds. The FSA will have wider powers to close down firms.

Darling risked inflaming the row with the Bank of England over whether banks were “too big to fail”, saying that breaking up banks was too simplistic an approach to the problem as both large and small banks could cause systemic meltdown.

He wants banks to have a pre-arranged plan to break themselves up easily in the event of collapse and set aside more capital. In a move that could ultimately lead banks to downsize through what has been described as a “regulatory tax”, banks will need to hold more capital depending on the cost of bailing them out. Darling said banks would need “to hold capital at a higher level that reflects not only the possibility, but also the cost, of failure”.

They will also be required to “lean against the cycle” and build up capital cushions in the good times, and also be prevented from over-extending themselves with loans during the boom years.

Darling also tried to tackle the reduced competition among banks and building societies since the crisis erupted – notably because the government allowed HBOS to be taken over by Lloyds TSB. He wanted to encourage “non-banking” institutions into the sector and indicated that when taxpayer stakes in banks were sold, competition issues would be borne in mind.

The stake in Northern Rock would be disposed of “as soon as appropriate in a manner that promotes competition”.

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Treasury to unveil financial reforms

In a response to the financial crisis the chancellor will extend the highly visible risk alerts for tobacco and fatty foods to include mortgage and pension products

Alistair Darling will sketch out plans today for a health warning system for financial products as the government seeks to show that consumers will benefit from the Treasury’s wide-ranging revamp of the banking industry.

In a much-anticipated response to the financial crisis of the past two years, the chancellor will look at ways of extending the highly visible risk alerts for tobacco and fatty foods to include mortgage and pension products.

The Treasury, braced for criticism that its lengthy document ducks some of the key reforms to prevent another systemic breakdown of the financial sector, will announce a three-pronged strategy. Darling wants improved regulation of the financial system, better management of banks and a better deal for consumers.

Darling has made it clear that he intends to implement all 27 recommendations made by Lord Turner, the chairman of the Financial Services Authority, in his April review of what went wrong in the City.

But the chancellor is likely to concede that it is impossible to implement all the changes at once, with some reforms pushed through immediately and others put off until the next parliament. Among the immediate changes are the requirements for banks to set aside more capital if they provide incentives for traders to take big risks, and for credit default swaps to be pushed through a central clearing system rather than traded in private.

The combined white and green paper will reflect Treasury opposition to a separation of high-street banks and investment banks, but will support the call from Mervyn King, governor of the Bank of England, that commercial banks have a “last will and testament” to make it easier to break them up in the event of collapse.

Consumer groups have been pressing hard for changes and the chancellor is expected to stress that the rebuilding trust in banks is a vital part of any reform package. Darling is concerned that the consolidation of the banking industry since 2007 has reduced the appetite for competition among the major players .

Mick McAteer, director of the Financial Inclusion Centre, said: “Competition in the UK banking sector has been weak due to the stranglehold the big players have on the high street. As a result of the financial crisis, there is a risk that they will consolidate this stranglehold and that competition will be further undermined.”

McAteer also called for bank boards to exert stronger controls on powerful chief executives, a subject that will form a central plank of the review by City grandee Sir David Walker, due next week. Darling is likely to say that the FSA already has considerable powers to influence the make-up and performance of bank boards but that a new code of practice will be crucial to prevent the excesses of the past.

The Treasury plans to expand a pilot scheme in the north-east and north-west, which has been helping bank customers get financial advice. Darling is also keen to build on recommendations from Lord Mandelson for tougher controls on overdraft charges levied on small businesses.

The chancellor will outline his plans at lunchtime while his City minister, Lord Myners, will field questions from the Commons Treasury select committee shortly afterwards.

Myners hit out at plans from Brussels for a crackdown on hedge funds, many of which are based in London.

Myners expressed concern at the “protectionist impact” of the plan, which he said would be costly for pension and investment funds. The City minister also said the hedge fund managers threatening to quit the UK would “make my job harder” in the negotiations with Europe.

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Cleaning up the City: a wishlist

Alistair Darling’s white paper is unlikely to leave teeth marks on the City – but here are some measures that I think would help

It is hard to believe it has taken this long, but, nearly a year after the banking system imploded, the UK Treasury is about to suggest some new laws to make sure this never happens again.

My colleague Jill Treanor is producing a checklist of what to expect from Wednesday’s white paper – and, more importantly, how to judge whether the proposals have any bite. Given that much of the work is based on the disappointingly timid report from the Financial Services Authority in March, the chances of Alistair Darling leaving teeth marks on a newly emboldened City look slim.

This will please those who argue all such regulation is futile. But what about those who still believe in the power of democratic governments to rein in the worst excesses of the market? Are there conceivable measures that would make a real difference? I doubt you will find these in the white paper, but here is my wishlist:

1) Banks should legally separate their risky investment activities from anything deemed so important to the wider economy that it would require government support in the event of bankruptcy. In particular, this would force big banks to split the business of looking after ordinary depositors’ money from what Mervyn King has dubbed the “casino trading” of investment banks. This definition would also cover pure investment banks – such as Lehman Brothers – that become “too big to fail” and force them to break up into smaller bits that can safely be allowed to go bust.

2) Bank pay should be fully transparent and regulated. If we are to stop City bonuses getting out of control in future, we need to know exactly how much money is paid to the top tier of employees – not just the board. Names can be withheld in the interests of personal privacy, but there is no reason investors and regulators should not be given a rough breakdown. The oxymoronic “guaranteed bonus” should be outlawed and all variable pay should be linked to long-term performance.

3) Bank boardrooms should be filled with people prepared to say no to managers who pursue reckless strategies. In particular, the means forcing companies to appoint independent chairmen from outside the bank. Non-executive directors sitting on risk and remuneration committees should also report separately to the Financial Services Authority.

4) Financial “innovation” needs to be seen for what it often is: an attempt to side-step the rules with complexity. This means much stricter rules on credit derivatives, securitisation and structured finance. If this means it is more expensive to borrow in future, that is an acceptable price to pay to avoid future credit bubbles. Relying on credit rating agencies to police the traders who pay them will never be enough.

Anything less will not prevent all this from happening again.

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Pay squeeze for public sector workers

A tight squeeze on the pay of 6 million public sector workers, and a further public sector efficiency drive this summer, was signalled today by Alistair Darling as he warned he was determined to tackle ballooning public sector debt.

The chancellor’s remarks indicate the government may be willing to take the controversial step of reopening multi-year deals with teachers and health workers. Darling’s comments also appeared to run counter to the broad strategy run by Gordon Brown that the electorate faces a choice next year between Labour investment and Tory cuts.

The chancellor, in an interview with Sky News, revealed he would be setting out his thoughts on public pay policy “over the next few weeks”. But he pointedly said: “Public sector pay has obviously got to reflect prevailing conditions and in particular inflation has come way down.” He added: “We have got to be fair with regard to people who work in the private sector,” a reference to the fact that its pay has been hit harder in the recession. Average earnings in the public sector for the three months to March 2009 (including bonuses) stood at +3.6%, compared to -1.2% in the private sector.

Darling was speaking against the backdrop of a call by the chairman of the Audit Commission, Steve Bundred, for a freeze in public sector pay. He wrote in the Observer that it could provide £5bn of the £50bn that would have to be found through tax rises or spending cuts.

Darling refused to be as specific, but pointedly declined to propose the kind of binary choice between Labour spending and Tory cuts proposed by Brown.

Brown’s strategy has been creating tensions within the cabinet, with some ministers blaming the increasingly influential Northern Ireland secretary Shaun Woodward for what they regard as daft political advice.

Darling put the emphasis on the pain ahead, saying overall public spending totals after 2010-11 will have to be much tighter. At present, year on year or current spending is due to rise by 0.7% per year from 2010-11, with total spending, including capital spending, due to fall.

Darling also said the slowdown in the economy has been deeper than he had predicted at the time of the spring budget. Over the summer he promised to “rigorously examine each budget”, and will give fresh public spending predictions in the pre-budget report in autumn.

Darling’s relative candour came as the former defence secretary, John Hutton, also urged the leadership to be straight on the size of the deficit. Hutton told the BBC: “I don’t think you can go on saying we can continue to spend as if nothing has happened in the last year or so. Politicians have got to …be clear with people about what’s happening.” Some of the government’s immediate options to rein in public sector pay look limited in that two of the biggest groups – health workers and teachers – are in the middle of three-year deals not due to end until 2011. They were negotiated when inflation was projected to be much higher than the current 1%.

Teachers’ employers have said they will decide in the next few weeks whether to ask the government to review the 2.3% offer due in September and in 2010.

Similarly in the autumn, the NHS pay review body will decide whether the final year of a three-year deal, covering 2008-09 to 2010-11 and worth 2.7% a year, will be honoured. Pay makes up more than 40% of the health budget, and the pay deal covers more than 1.3 million staff.

In local government, the unions are still seeking an improvement on a 0.5% offer that was due in April. Dave Prentis, general secretary of Unison, said: “Freezing public sector pay during a recession is not the way to steer people through it.”

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Darling to clamp down on bonuses

High-paying City banks forced to hold more capital

City banks that pay out lavish bonuses for short-term profits will be forced to set aside a bigger cash cushion against losses, Alistair Darling will announce this week, as he sets out the government’s plans to crack down on the practices that led to the credit crunch.

With the darkest days of the financial crisis apparently over, bankers in the Square Mile have quietly begun to use the phrase “BAB”, or “bonuses are back,” to signal their hope that the era of outsize pay packets is returning. US bank Goldman Sachs is expected to pay out the biggest bonuses in its history this year, on the back of bumper profits.

But government ministers have stepped up their rhetoric against the City’s bonus culture in recent days, with Lord Myners railing against “weak and lazy” remuneration committees that wave through generous payouts.

As part of measures to re-regulate the banking sector, due to be announced on Wednesday, the chancellor will tell the Financial Services Authority that it must treat banks that pay out large cash bonuses on the basis of short-term targets as riskier than their rivals, and force them to hold more capital.

The FSA has already announced a code of practice for remuneration in financial firms, but Treasury sources said the regulator will be urged to give the new rules teeth, by cracking down on firms that fail to comply. The chancellor would also like to see more use of “clawback” clauses, which allow banks to call in bonuses if a trader’s bets turn sour.

Darling is keen to strike a tough pose on bankers’ pay, after it was revealed that the boss of part-nationalised RBS, Stephen Hester, could take home up to £15m if he meets share-price targets. Hester agreed to defer part of the payout for another two years, to 2014, after the deal sparked public outrage.

Vince Cable, the Liberal Democrat Treasury spokesman, said that insisting bonuses are paid in shares instead of cash was not enough. “Traders are doing that anyway, because the shares are cheap, and capital gains tax is only 18%,” he said.

The chancellor’s plans for cleaning up the City have already sparked a turf war between the government and the Bank of England, with governor Mervyn King complaining last month that, without more powers to intervene in risky financial institutions, “the Bank finds itself in a position like that of a church whose congregation attends weddings and burials but ignores the sermons in between”.

Instead of handing King more control, however, the chancellor will suggest beefing up the Bank’s quarterly Financial Stability Review, which identified some of the weaknesses in the banking sector before the credit crunch.

Whitehall officials have been discussing whether the Bank should in future publish recommendations alongside its analysis, and the FSA and the Treasury then be forced to adopt them or explain why they have decided not to.

This week’s white paper is expected to reject some of the most radical proposals for preventing a future banking crisis, such as splitting large international banks into riskier “casino” arms and standard high street lenders, with only the latter carrying a state guarantee.

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Mandelson shelves Royal Mail privatisation

• Business secretary blames poor market conditions
• Trouble looms over £10bn pension deficit

The government today abandoned its controversial bill to part-privatise the Royal Mail before the general election, the day after it dropped plans for compulsory ID cards.

Lord Mandelson blamed the lack of credible bidders for the proposed 30% stake on the depressed market. He had found only one plausible candidate and was unlikely to secure a decent price of about £2bn. The sale might also have fallen foul of EU competition laws.

A Mandelson aide said that trying to force the legislation through the Commons would “be time-consuming and would completely dominate the government’s political agenda over the summer when we knew we would be unable to implement it in the immediate future”.

It is a severe blow to a government that had repeatedly said part-privatisation was essential to modernise a declining business under severe technological threat. Only on Monday Mandelson had accused David Cameron of going soft on public sector reform, a charge that was thrown back in his face last night by the shadow cabinet.

Mandelson told the prime minister of his decision yesterday and informed the chancellor, Alistair Darling, this morning before making a formal announcement in the Lords in the afternoon. He told peers: “Market conditions have made it impossible to conclude the process to identify a partner for the Royal Mail on terms that we can be confident would secure value for the taxpayer.

“There is therefore no prospect in current circumstances of achieving the objectives of the postal services bill. When market conditions change we will return to the issue.”

Last month Mandelson admitted he was struggling to secure a decent price for Royal Mail, but suggested he would press ahead with the bill, even if no satisfactory bidder was immediately available.

Now that option has also been dropped, leaving the government to hope it can revisit the issue if re-elected.

The bill had already been through the Lords and had been waiting for its second reading in the Commons. Mandelson had made strenuous efforts to win over backbenchers and strike a deal with the Communication Workers’ Union. There is no prospect of fresh legislation being introduced into the Commons in the final parliamentary session starting in November.

As part of the deal, the government had been planning to take on the £10bn pension fund deficit, as well as to change regulation.

But now Mandelson has put himself on a collision course with Royal Mail, its pension trustees and unions by refusing to bail out the postal company’s estimated pension deficit.

The trustees are expected to revise their estimate of the shortfall from the current figure of £3.3bn to at least £10bn in the next few weeks. This would require Royal Mail to more than double its annual payments to plug the deficit, which would bankrupt the company.

Royal Mail has until next June year to agree with its pension trustees how to protect the fund and its 450,000 members. Jane Newell, chair of the Royal Mail’s pension fund, warned Mandelson earlier this year of the “very severe consequences” for the pension scheme and Royal Mail if privatisation did not take place.

She met officials from the Department for Business yesterday to urge them to plug the deficit.

Yesterday, the CWU also stepped up the pressure on Royal Mail and the government when it announced that postal workers would stage three days of rolling strike action in London.

The union claims Royal Mail has reneged on their agreement on how to modernise the business, accusing it of making arbitrary cuts.

Royal Mail said in a statement that the need to resolve the three key issues facing the business had not gone away: “The need for fairer regulation, the need for a resolution to the large and growing legacy pension deficit and flexible and timely access to capital remain as urgent as before.”

The shadow foreign secretary, William Hague, said: “This is the government of the living dead. They are in a state of chaotic inertia.

“Even Peter Mandelson is no longer in control of the Labour party, let alone Gordon Brown or the rest of the cabinet.”

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