A new report argues that the UK is subverting progress towards a safer financial system, and has become a major barrier to international efforts for reform.
The report, Subverting Safer Finance, from think-tank NEF (the New Economics Foundation), reveals that compared with other major financial centres, including even the US, the UK is part of the problem in key areas of financial reform, rather than leading the search for solutions.
“In the UK, we are presented with the idea that we cannot act alone on financial reform and other nations stand in the way of global financial stability. We ask whether the reverse might be the case, and the UK itself is a ‘haven’ that threatens the stability of the global economy, says Tony Greenham, head of Finance and Business at NEF.
Greenham adds: "We are calling for the UK to live up to its image as a pre-eminent global financial centre and demonstrate strong international leadership on better regulation instead of pandering to vested financial interests.”
New Economics Foundation (http://www.neweconomics.org/) analysts found that in areas including potentially damaging speculation in food, energy and minerals, the Alternative Investment Market, ‘naked short-selling’ and the operations of British tax havens, the UK is holding back urgently needed regulation.
The report Subverting Safer Finance demonstrates that:
* The US banned naked short-selling (a form of trading that many argue increases market volatility and instability) in 2008. The European Parliament is seeking to impose an EU-wide ban on naked short-selling. But, the UK government is currently trying to derail this initiative.
* In several cases the UK is actively choosing to not tackle tax havens. While the UK claims it cannot influence tax havens, many are UK Crown Dependencies or Overseas Territories, where a past history of intervention suggests otherwise. HM Treasury confirms that the UK has reserve powers enshrined in the constitutions of the Overseas Territories to affect and block legislation. The UK also has the power to intervene to uphold ‘good governance’ in the Crown Dependencies.
* London is a major centre for trading in commodities, including food, yet instead of helping ensure that these vital markets operate in a fair and orderly manner, the UK is lagging ever further behind the US, and blocking EU attempts at reform.
* A London exchange called the Alternative Investment Market (AIM), has pursued a strategy of securing new business by driving down standards of transparency, governance and investor protection.
“Pushing soft-touch regulation as good for an ailing economy is like doping a horse that is already sick from taking too many drugs. It isn’t going to work and will probably make matters worse, explains Andrew Simms, a NEF fellow and a co-author of the report.
He continues: "If the government wants a safe and stable financial system it should stop the UK dragging down international efforts toward financial reform. If it doesn’t we are in danger of being seen by our neighbours as a financial rogue state, subverting safer finance.”
”The UK exerts a downward pressure on the quality of financial regulation in a range of ways. These findings contrast starkly with the dangers of Britain ‘acting unilaterally’ that are frequently voiced by the banking lobby in response to even the slightest hint of real reform," according to Lydia Prieg, NEF researcher and another co-author of Subverting Safer Finance.
"London can and should compete on the quality of its services, not on the laxness of its regulation and its tolerance of market abuse,” she adds.
In order for the UK to demonstrate that it wants to deliver a safer financial system, the New Economics Foundation is calling for a range of minimum necessary actions to be implemented immediately. These include:
* On commodity speculation: Bring standards up to US levels by introducing position limits on speculators in commodity markets and create a UK equivalent of the US Commodities Futures Trading Commission.
* On tax havens: Eliminate tax havens that are under UK control, and work with the US, the EU and other international authorities to co-ordinate regulation of global tax evasion and avoidance.
* On naked short-selling: Ban naked short-selling to bring the UK into line with the US, Japan, Hong Kong, India and Australia.
The risk is that by engaging in a race-to-the-bottom on financial reform, the UK undermines global financial stability with potentially devastating consequences for the global economy, says NEF.
Ann Pettifor, a political economist, NEF fellow and Director of PRIME commented: "Last week the Chancellor argued in his Budget statement for the City of London to be a 'leading financial centre' and for Britain to lead in "advanced manufacturing, life sciences, creative industries..(and) green energy.” The two are incompatible. The City of London's interests conflict with those of industry. Unlike industry, the City enjoys massive taxpayer-backed subsidies and protection.
"By refusing to reform the City, the government is condemning industry to a prolonged drought of lending and to high borrowing costs - not just in the UK, but around the world. We must return bankers to their role as servants of industry and society - not masters," says Pettifor.
Simon Barrow, co-director of the beliefs and values think-tank Ekklesia, said: "The government's commitment to an economic strategy that punishes the most vulnerable with cuts, while allowing the UK to remain a hub for hugely damaging financial speculation on commodities, is but one indicator of the fallacy of its thinking - which is being sold to the public as 'common sense' and 'good housekeeping'."
He added: "It is untrue to say that there are no alternatives, and once again the New Economics Foundation and its associates are at the forefront of demonstrating how corporate accountability, fair taxation, financial transparency, reclaiming lost billions from offshore evasion, and responsible regulation are vital in order to tackle the deficit in a just, sustainable way that does not cause irreparable damage to people and planet."
The full report, Subverting Safer Finance: How the UK holds back global financial regulation, is available here: http://www.neweconomics.org/publications/subverting-safer-finance