A breakfast panel discussion on the role of government within business
Lesley McLeod, director of communications, British Bankers' Association
What we want to see is proportionate regulation and proportionate law around business and banking. We want it to be considered and we want it to be brought in in a timely fashion, so that the industry can actually respond and deal with the changes in a way that doesn't actually impact on the business of banking as that has a knock on effect onto the economy and to individuals.
Banks in the UK are quite strenuously regulated. They are regulated by themselves at the level Are the right people dealing with your money? Is your money ring fenced in a way that you can see your money and see that someone else hasn't gone away with it? Then the problem begins to proliferate. You currently have a tripartite system of regulation, which sees different people regulating different things. This would work quite well if they actually did regulate the whole of the system.
In Northern Rock, you had a situation where some things were regulated by some people, and some things were not. It gave rise to a situation where people said No they do it and someone else said No, it is him. By the time it emerged that no one was regulating, the system keeled over. That system is in the process of being reformed with regulation moving back within the ambit of the Bank of England - a situation more analogous to pre-1997.
On top of UK law, the banking system is regulated within Europe and then there is the G8 and the G20. That proliferation of conflicting regulation and legislation is contradictory in places.
There is a tendency to legislate in the UK, and there is a tendency to gold plate other people's legislation. Europe announces a new regulation, and the UK brings it in but at higher level than it was initially intended. We are very much prescriptive. The French and German system is more interpretive.
There was an attempt [by Whitehall] to create a system in order to ensure that the people who were regulating whatever industry, not just the banking sector, knew more about it. There were secondments and other arrangements. I don't know how much of that is currently going on because they were always finding it difficult to attract people to come in to government and when you let the civil servants out they didn't come back because they were being paid more money.
There are other industries where government regulation or legislation has arguably not improved the situation. I was at Transport for London while the part-privatisation of the Underground was underway. It became a bureaucratic nightmare. There was more paperwork than I have ever seen in my life, and you ended up with contracts that frankly were not fit for purpose. I don't think anyone has seen an Underground that is markedly improved as a result. I think that's an example where those people who were legislating were unable to do so effectively because they did not fully understanding the businesses that they were meant to be looking after.
Charles Lewington, managing director, Hanover Communications
Being a child of Thatcherism I was always led to believe that markets know best and government intervention generally did more harm than good. Then we had the crisis in 2007 and turned to the Government, and thank God it was there to help recapitalise the banking system. There were a lot of good measures put into place by [former Business Secretary] Peter Mandelson. For example, who could argue that the vehicle scrappage scheme did not underpin the motor industry during the period when sales were falling off the cliff? So I am the sinner that repented really. There is a role for Government to be supportive and to sweep away obstructions that hamper business.
What industrial policy does is set down the framework within which investors take a view. Part of the problem in recent years is that too much policy chopped and changed; what we need is a clear industrial policy that doesn't change for ten, 15 or 20 years so that if you are a Chinese or Brazilian or German company and you come here, you know the policy framework within which you have to operate.
I think business has a huge responsibility to demonstrate that it operates in a responsible and fair way and their leaders have that responsibility as well. It would be a shame if the debate about the fairness of capitalism actually overshadowed the fundamentals that drive business and create jobs because that's what really matters. A big and agonised debate about corporate governance or FTSE 100 salaries is not going to help create jobs in this country or generate economic growth.
Debates around new regulations for the banking sector are fine but what about the quality of the regulator? There's a revolving door between the FSA and the banking sector. We need to look very seriously as to how we pay people better within the FSA and encourage banks to act more responsibly by encouraging high fliers to go and work for the regulator and for that to be seen as very much part of their career progression.
Banking is unlike any other industry. You cannot manage without it and if a bank goes bust there are ramifications far beyond, say, a motor manufacturer going bust. It's qualitatively different. It's much more difficult to regulate it properly. You can impose health and safety laws on a manufacturer and check quite easily whether they're being observed. The regulatory and prudential constraints on banks are much more difficult for the regulators to check whether they're working and much easier for the banks to get round.
I think it's difficult to argue on the one hand that Government should better understand business and should do more things that generate economic growth and jobs in the country, while on the other hand say that there shouldn't be too cosy a relationship with business, or indeed there shouldn't be a clear dialogue between business and Government. How is government, with all the constraints of the civil service, to properly understand what business requires unless it's talking on a cheek-by-jowl basis? For the most part, the lobbying industry acts as a facilitator and interlocutor between the two parties in a wholly constructive way.
There are quite persuasive arguments that a better solution [for binge drinking] is a more graded form of differential duty application for different strengths. I think that may well be where we end up, but it's a very good example of why it's extremely difficult to do it within EU legislation. It would actually require a repatriation of powers for that to happen.
Neil Collins, columnist, FT Alphaville
The best thing that government can do for business is to get out of the way. And that really ought to be the guiding light; by their own admission, governments cannot generate wealth. All they can do is regulate, control and redistribute: wealth is made by someone who can produce two blades of grass where previously there was just one.
The biggest problem we face is at the moment is jobs and growth. The Government should exempt the smallest companies from labour regulations. I don't know how many of you have run your own business and taken on somebody who turned out to be inappropriate and the difficulty in dealing with that sort of labour problem given the complexity of labour laws and the rights of employees. The government could, if it chose and without cost, give any enterprise with fewer than 25 employees freedom of contract between the employer and employee.
It is the remuneration at the top that is the big problem. It is a global problem. One of the stitches in the social fabric which is really coming apart is the growing disparity between the pay at the bottom and the pay at the top; it's even more dramatic in America. The extraordinary statistic that the bottom quartile of the US population has seen no increase in its real standard of living in the last 30 years, during which time gross national product has probably more than doubled, is a demonstration of a really deep-seated problem. I don't have an answer to this except to encourage the Government to persist with 50 per cent income tax. This is a very serious problem because the social cohesion depends on people accepting to a greater or lesser extent that there are going to be differentials. But if all the gains go to the people at the top, if the winner really does take all, then I don't think that a society can survive.
I would advocate that [an employment] contract between a board member and a company is not binding until approved by shareholders at the general meeting. To be able to say Well, we think you're worth it but unfortunately the shareholders won't wear it is quite a powerful bargaining tool when you're trying to persuade somebody to come and run the company for a reasonable amount of reward.
I think a lot of banking activity is just shovelling money around and keeping what sticks to the shovel. A lot of what they do has no purpose. They are basically run for the benefits of bankers.
[Price fixing in the 1960s] had two unintended consequences. It took away pricing power from the buyers, and put it into the hands of the sellers who were forever lobbying the Prices and Incomes Board for the right to increase their prices. It meant that prices were higher than they would otherwise have been. Setting prices is a very bad idea. Setting a minimum price for alcohol is, I think, a political gesture, a bit like suggesting an 80 mile an hour limit on motorways. It's just a headline grabber. It's completely devoid of any meaning.
[Should regulators be paid more?] Although it's true that if you pay peanuts you get monkeys, if you pay the monkeys more they're still monkeys.
Dan Roberts, national editor, The Guardian
If ever we needed a test case of why business sometimes needs to be saved from itself and why there are market failures, it is the banking industry.
The reason we are in a great crisis in capitalism, certainly in the West, is because we have allowed too many market failures to build up in important parts of the economy, which have eroded people's faith in the fairness of the market. Business is littered with examples where entrenched interests have been allowed to corrupt that principle of the free market. They actually built up cartels and practices and customs. Regulation is a way to deal with them.
Executive pay could be regulated. Should boards be allowed to ignore shareholders who say that their directors are paid too much? I have not heard anyone mount a convincing case that they should be ignored, but they are.
I am a great believer in privatisation of utility companies, such as electricity and rail, but I think anyone who has used those services recently will know that the regulators are not doing their job. A cartel seems to have been able to build up in the energy industry where there isn't effective regulation and price competition. Nobody seems to be asking the question: how did we let margins in the gas and electricity world get that high?
Is business regulated too much? I think the answer from the last ten years is obviously not. We need to restore faith in the fairness of the system. People need to feel that if they do work hard, look after their kids, do all the things that they've been taught to think will make them get on in life, that they will get on in life. What has been so corrosive about the last few years is that great swathes of people, not just the poorest in society but also the middle classes, have lost sense that the market and business work for them.
Rewards at the top, whilst probably only a small part of the real issue, are symbolic. The latest executive pay figures showed a 50 per cent rise in FTSE board remuneration. Who could look at the state of the economy and British business and say that that is justified by recent performance? It's a wonder there's only 200 tents outside St Paul's. This is the stuff of revolution in some countries. I think we need to recognise the crisis that we're in.
Sarah Hanratty, head of communications and external affairs, The Portman Group
There really is nothing like the threat of government regulation to keep an industry very much on its toes and very serious about self-regulating and doing that effectively. I believe the drinks industry - and I've heard quite a lot about lobbying around the food area -as a whole does take responsibility seriously. You can't be a successful business without actually taking CSR really seriously. The public won't let you be an irresponsible company and be successful.
[The Scottish government's plans to impose minimum pricing on drink] is essentially price-fixing by any other name. Will it solve alcohol misuse? I think cross-population blanket measures never work in that way, but it may certainly be a symbolic statement by the Scottish government that they want to really target those small pockets of alcohol misuse. Whether it's legal, let's wait and see. The lawyers are rubbing their hands, I'm sure, right now.
I think there is always a perception about problem products: it's very difficult to regulate. Who is it to decide whether a sweet drink is ok or not ok? Drinks companies are not targeting and marketing at under-18s. Imagine going to your board and saying Can I spend my £3 million budget marketing my product to people who aren't even legally allowed to buy it?. There is a perception element definitely. But there are some valid points around whether, because alcohol is so cheap, it's causing the problem of binge drinking. What we need is ongoing behavioural change, and education to really make that shift. I think we all agree that those blanket price interventions are not going to work. It needs to be a unified effort from both the industry and government, and individuals and families and parents. We don't want to lobby and do it all on our own; we want to work in partnership.