Three quick-fire solutions to the economic crisis

Henry Hopwood-Phillips 10.06am

1. LIQUIDATION. In 2000, when ex-Federal Reserve chairman Alan Greenspan stated, “an organisation that is very large is not too big to fail, it may be too big to be allowed to implode quickly. But certainly, none are too big to orderly liquidate”, he was breaking a shibboleth.
   The last time “orderly liquidation” had been implemented was in 1907, almost thirty years before the “Too Big to Fail” doctrine was formulated effectively by the introduction of deposit insurance in 1934. 
   This should be allowed to happen now. Though markets, like people, rally in the short-term off short fixes, quick highs, solution-lites, they also in the long-term, like people, prefer discipline, transparency and honesty.
   The problem with this solution is that too many banks have been “zombified”. Governments have played their cards and there is an awkward feeling that it is too late to try and reshuffle the deck.
2. HYPERINFLATION. Ben Bernanke, the incumbent Federal Reserve chairman, gave a speech in 2002that reminded indebted governments that they had little incentive to control inflation. In it he informed the audience: “The US government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many US dollars as it wishes at no cost”. 
   The Weimar school of debt reduction is doubtless attractive and perhaps most resembles the current path. However, though prices and wages would rise with the tide and debts vanish beneath the waves of time, the fact remains that the inflation created would most likely be non-uniform. Banks can and do ultimately absorb all the benefits of inflation through various “transaction costs”, shoring up their positions in an illiquid interbank lending market.
3. JEWISH DEBT JUBILEE. From the Lords of fiat money to the Lord of all. Perhaps it is no coincidence that the Kondratiev wave cycle - at approximately fifty years - lasts for almost the same amount of time as the debt jubilee cycle of the Bible. The Lord told the Jews in Leviticus 25:10, ”This fiftieth year is sacred—it is a time of freedom and of celebration when everyone will receive back their original property, and slaves will return home to their families.”
   Perhaps we should take this as being if central banks printed out money that could be especially tailored/enabled to being spent solely on paying off debt then getting back to year dot might not be so difficult as commonly supposed.
   The obvious risk is the huge moral hazard such an action would create. But anything must be better than this economic malaise.
   Follow Henry on Twitter @TheHolySmoke

What House of Lords reform tells us (encouragingly) about the House of Commons

Richard Ellis 8.27am

For centuries, the House of Commons had been intent on acquiring power. Blood was spilt and lives lost to secure greater authority for MPs. They became the foremost authority in the legislature and the chief seat of the executive.

Recent years have seen a near-total volte face. The House of Commons has been casting away its powers with an unbecoming incontinence. Whether to the European Union, to quangos or to the courts, MPs have hastened to jettison the rights for which their predecessors fought so long and so hard.

Who has the right to stay in this country? Who may vote? For how long can terrorist subjects be imprisoned? These are tricky subjects and they should be the subject of political discussion. The House of Commons should debate these points, have the necessary votes and pass the appropriate laws – and be subject to judgment at the ballot box.

MPs, sadly, have failed to take that line. Now the final decision on these and many other questions are taken miles away from any ballot box and often miles away from our own shores.

It is little short of pathetic that the Labour party should want a judge to hold an inquiry into the banking system. Banking reform is one of the most pressing issues of our time. Not only should the House of Commons be the prime mover, it should be chomping at the bit to be the prime mover. Labour MPs, however, want to sneak away from the fight and ask the wig-and-gown brigade to do the heavy lifting. Feeble.

The debate over the House of Lords, now delayed by yesterday’s decision to withdraw a timetabling motion that the Government knew it would lose, offers MPs the chance to stop this descent into impotent lethargy. Many of those who oppose this reform say that their main concern is the prospect of an elected House of Lords - with the greater legitimacy of a democratic mandate - challenging the supremacy of the House of Commons. It is a rare treat to hear that supremacy championed.

An elected House of Lords would indeed seek to challenge MPs.  It would, moreover, be right to do so; if you have a democratic mandate you are duty-bound to seek to have your way. Hence this Bill, which passed its Second Reading last night despite a Tory rebellion of 91, would lead to constitutional chaos. That is just one reason why it must be thrown out.

Nonetheless, these reforms may have a positive legacy. It can only augur well if the idea of an elected House of Lords has reminded MPs how important any elected chamber (the Commons included) should be.

If the House of Commons has finally woken up and recovered the will to defend and advance its role in our constitution then we may yet owe a debt of gratitude to Nick Clegg. The European Union, the judges, the media, the bankers all have great power over the British state. They have all got much wrong, none are properly accountable and all could provide much work for our newly-active democratic representatives. A reinvigorated Commons could be just what the doctor ordered.

With any luck these reforms could be a footnote in the history of the House of Lords and a turning point in the history of the House of Commons.

Fingers crossed.

Gordon Brown and the Labour party are the unashamed architects of this banking balls-up

Craig Barrett 10.08am

It comes as no surprise to me that Ed Miliband is calling for a full public inquiry into what has been going on at Barclays regarding LIBOR.  In the absence of any contrition for the devastating effect that his Labour party’s policies had on the British economy, and in the apparent absence of any serious policy for economic recovery, Mr Miliband and Mr Balls seem to think that a public flaying of hate-figures is the only way to get back to power.

Conveniently, they forget that the phone hacking scandal, for example, actually occurred under their watch; worse still, the Barclays / LIBOR issue arose under a regulatory model of which they were the architects.

The danger is, however, that they are onto something. With nothing but bad news about the economy, there is a pervasive and wider belief that the public seem intent on baying for the blood of anyone who can be deemed culpable of anything.  With journalists, this isn’t the case. Most people, assuming that such things as phone hacking have gone on for years anyway, are uninterested in Murdoch et al, the story being kept alive only by the non-Murdoch press and the increasingly blinkered BBC.

With bankers, on the other hand, the public are very interested. Logic goes out of the window and the Labour party has been able to manipulate matters to the extent that bankers are now deemed up there with paedophiles and sheep rapists in terms of human evil.

The fact is that 99 per cent of bankers aren’t evil and the remaining 1 per cent are probably, at worst, misguided.

Most bankers are simply getting on with their jobs. One-tenth of tax revenues come from banks, while bankers’ bonuses, because of the different rates of corporation tax and income tax, are actually a more efficient way of getting money into the hands of the government.

Yet we see that Stephen Hester has foregone his bonus this year, thanks to an IT glitch for which he cannot have been responsible, but which undoubtedly the Labour party would have demanded regardless. Despite having written his contract, those Labour party figures who remain are conveniently forgetting that an agreement was signed – just how much do they think Mr Hester should be paid? If you want a loss-making business turned around, it’s going to cost more to hire the best.

And now that Bob Diamond has resigned - one suspects for reasons of peace and quiet rather than any admission of guilt or otherwise - it does seem that the Labour party shall not stop until they have hounded out every competent manager in Britain.

This aside, calls for a banking inquiry show that the Labour party is driving the agenda and this Government is on the back foot.  An inquiry will only keep open the wounds and, given that the public associates the City with the Conservative party, will do us no favours at all. It’s doubtful whether it would even get to the bottom of the LIBOR scandal. The inquiry that is to be headed by the fiercely independent chairman of the Treasury Select Committee, Andrew Tyrie, must focus on the dramatic failings of the FSA and the tripartite regulatory system that Gordon Brown and Ed Balls created, because it is entirely clear to me that this is the root of the troubles.

When these issues were debated by the House of Commons in 1997, it was obvious to the Tory benches that Gordon Brown’s regime was not going to keep the City in check.  The new Chancellor’s motivations were less about regulation and more about his obsession with inflicting iconoclastic changes on fully functioning extant systems that he viewed as brimming with enemies.  Mr Brown hated the City and hated the Bank of England, so he sought to transfer powers to a new quango of his choosing.  A couple of choice lines from Peter Lilley, then Shadow Chancellor:

“We know that funding policy is an intrinsic part of monetary policy, and the Bill will leave the Bank as a one-club golfer without even a putter left in the bag. How will the Treasury, the Bank and the new board co-operate to handle monetary policy? If they need to get together, why is it necessary to separate them in the first place?

“The coverage of the FSA will be huge: its objectives will be many, and potentially in conflict with one another. The range of its activities will be so diverse that no one person in it will understand them all. Its structure will be as complex as those of the organisations that it replaces, if not more so.”

Like so much of what Mr Brown ‘achieved’, it was borne of the clunking hatred that drives him and his desire to complicate matters to such an extent that the Government becomes all powerful, even if it itself does not itself comprehend its own role.

The FSA, or ‘Fundamentally Supine Authority’ as Private Eye rightly called it, was destined to be a disaster - something foreseen by the Conservative party. The separation of roles was a creation of Gordon Brown’s loathing of an establishment that he perceived as Tory-leaning. The Labour party’s role in the LIBOR scandal becomes all too clear when you realise that it was their system of regulation that failed. It is that which should be the focus of an inquiry, not simply a digging around the files at Barclays bank.

The Labour party cannot be allowed to claim that this is somehow the Tories’ fault. For once, I am prepared to let Gordon Brown have the last words, after a fashion, from two Mansion House speeches, in 2007 and 2004:

“I congratulate you on these remarkable achievements, an era that history will record as the beginning of a new golden age for the City of London … I believe it will be said of this age, the first decades of the 21st century, that out of the greatest restructuring of the global economy, perhaps even greater than the industrial revolution, a new world order was created.”

“In Budget after Budget I want us to do even more to encourage the risk takers.”

As ever, re-reading his utterances, I find myself wondering what planet the man was on.

Follow Craig on Twitter at @mrsteeduk

Britain does need a banking inquiry

Michael Economou 10.30am

The late historian Ronald Syme wrote, “In all ages, whatever the form and name of government, be it monarchy, republic, or democracy, an oligarchy lurks behind the façade.”

It is difficult to argue that twenty-first century Britain is any different. Recent revelations in public life have begun to unveil a network of power, privilege and wealth that exercises a disturbing control over our country.

Politicians of all parties toady to media moguls and millionaires, trading policies for good stories and donations, while cabals of journalists and bankers abuse the system for profit.

The twisted mask concealing this state of affairs has developed cracks, through which we have glimpsed the true face of institutionalised corruption and an esurient elite. Cash for honours, the parliamentary expenses scandal, phone hacking, endless tax avoidance tales, and now the scandal of rate fixing among our major banks - these are all symptoms of the same disease, an economic and political culture built on cronyism and deceit.

The solution has never been reactionary leftism, anarcho-capitalism or any other sinister ideology pedalled by fringe politicians. The cure is sustained, old-fashioned One Nation conservatism that genuinely tries to end the frightening gap between the rulers and the ruled.

The Government should embrace calls from across the political spectrum for an inquiry into the British banking industry. The Governor of the Bank of England, Mervyn King, has argued against such a step on the grounds that “there must be many people who work in banking today who know that they are honest, hard-working and feel they have been let down by some of their colleagues and indeed their leaders.”

But this is precisely why we need an inquiry. The actions of a few rotten bankers are destroying the reputation of an entire industry. Just this year, banks have been attacked for mis-selling PPI, fixing Libor rates, and mis-selling interest rate swaps to small businesses. It is unlikely to end there.

What should we expect from a banking inquiry? Hopefully enough information for the Government to carry out the sensible reforms needed, rather than the futile and punitive tax rises that the Tories and the Labour party have used to get one over each other, and which act merely as punishment rather than rehabilitation.

Moreover, fish rot from the head down. If we don’t insist on better leadership from those at the top, then Britain shall sink under its own cynicism and disillusionment. Of course, a banking inquiry would only be a relatively small step, but it is necessary for us to fix thoroughly the banking system, build a new conservative consensus, and make sure that the British people don’t turn in their (entirely justified) revulsion to the sort of political movements that can only make things worse. It is time to smoke out the rats and put our economy in order.

Follow Michael on Twitter @MichaelEconomou

The financial and Eurozone crises have changed the face of politics forever

Sara Benwell 6.45am

Economic policy has always been important in politics, and people have always cared about fiscal policies that affect them directly, but not such a long time ago broader economic strategy only made up a small percentage of the issues that mattered when people decided who to vote for.

Essentially, voters cared if their taxes were going up, but when it came to broader economic strategy the issues were sidelined compared to other policies that had more obvious effects on people’s lives. Moreover, much of the banking world and financial terminology remained a complete mystery to the majority of the electorate, so as long as things were going well, economic policy was seen to be less important. Everyone presumed that the government and the bankers knew what they were doing.

Then came recession and the onset of the Eurozone crisis - and everything changed.

Now more people have a better working understanding of finance. Almost everybody I meet has an opinion about Greece, about Spain, about whether the Eurozone will break up and most importantly about whether or not the Government is doing the right thing to deal with the financial crisis or whether now is the right time for a credible plan B, or even C.

People don’t merely care about the areas of policy that effect them; they now care about the broader economic strategy. The space allocated to business and financial news - not just in the broadsheets but also in the tabloids - is increasing and is reflective of a growing public interest. These days it’s rare you’ll see any business stories in the national press that don’t have a direct link to finance and the economic situation; more often the stories will reflect job creation or losses, financial results, or economic indicators.

While the economic crisis is clearly not a good thing, it’s arguable that the increase in public knowledge and awareness has to be the silver lining to the debt crisis cloud. How many people fifteen years ago knew about monetary policy decisions, about inflation and about quantitative easing, let alone had a good working understanding of these terms as well as an opinion on them? Wider comprehension has to be a good thing.

There has also been a shift towards people wanting their financial institutions and their government to be held accountable. Now that everybody has seen the impact of the poor financial policies of the last labour governments and the problems that can arise when the bankers are given a free rein with little or no fear of retribution, there is an increasing focus on making sure that somewhere somebody is held responsible.

This has been reflected by the recent ‘shareholder spring’. While I think this is an exaggeration, and the term is used too widely and too often, there is no denying that the recent spate of chief executives like Sir Martin Sorrell being denied their bonuses would have been unthinkable a few years ago and reflects growing popular demand for more accountability in the business world.

Furthermore, policies like the ring-fencing of the banks, which I have written about here before, illustrate a move by the Government to introduce financial legislation designed to protect the electorate. This policy has recently been watered down, but that doesn’t change the fact that political parties have recognised the importance of bringing in policies to ensure that an increasingly aware voting public are sheltered from having to bail out the banks once more.

One can quite easily argue that the Coalition will stand or fall on the success of its economic policies. And it is increasingly clear that you cannot spend your way out of a recession, despite what the Labour party might claim.

So the question confronting us now is whether the Coalition Government has enough time left for its economic policy to come good, or whether ministers need to be considering a new plan.

Rest assured that whatever the answers to those questions, the British public is no longer ignorant about economics. And if the Coalition partners, particularly the Conservative party, wants to win the next election, they shall need to prove the credibility of their economic strategy.

Follow Sara on Twitter @sarabenwell

We have misunderstood the role of auditors in the financial crash

Matthew Robertson 9.47am

“It is not the answer that enlightens, but the question.” Eugene Ionesco.

I regularly receive updates from LinkedIn, telling me how more of my friends and colleagues have connected to an ever-increasing network of workers. My typical reaction is to head for the delete button but lately a headline grabbed my attention: ‘The nation’s auditors find themselves more than ever under public scrutiny.’

Well. It is certainly the case that auditors were at least partly culpable in not spotting systemic problems in banks prior to the financial crisis hit in 2008. In particular, the off-balance sheet items that concealed banks’ toxic assets went unidentified.

Couple this with the Enron scandal, which toppled top-5 firm Arthur Andersen, and it is not difficult to see why auditors have acquired a bad reputation.

Political cynics might also point out that the following ICAEW (Institute of Chartered Accountants in England & Wales) members were MPs during the expenses scandal: Peter Bone (husband to the famous Mrs Bone and rebellious Tory MP for Wellingborough), Nick Gibb (now a schools minister), Justine Greening (Transport Secretary), Mark Harper (a Cabinet Office minister), Mark Hoban (Financial Secretary to the Treasury) and Iain Wright (Labour MP for Hartlepool and a former schools minister). Nothing like an expenses scandal to confirm the notion that all accountants ‘fiddle the books’…

But the perception held in some quarters that accountants are unethical and too close to their clients is an unfair one. It was true in the case of Enron, where Arthur Andersen was relying on large consulting fees generated by their client - comprising roughly 27 per cent of the audit fees for Arthur Andersen’s Houston office. That was a classic conflict of interest case, which prevented auditors from applying proper professional scepticism.

Professional scepticism is the bedrock of the entire accountancy and auditing world. It is an attitude that comprises a questioning mindset, being alert to conditions that might indicate misstatement due to error or fraud, and a critical assessment of audit evidence.

Truly to understand the importance of professional scepticism needs some understanding of the purpose of audit itself, namely to enable an auditor to express an opinion as to whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework. Its benefit is in instilling confidence in the financial statements of companies for those who use them, such as the Government, banks, shareholders, investors and so forth.

The common misunderstanding of the auditor’s role is around the level of assurance that is provided. Due to the nature of evidence available and time or financial constraints, it is impossible to provide absolute assurance that a financial statement is a true and fair reflection of the company. Instead an audit offers reasonable assurance.

‘Reasonable assurance’ is the measure of confidence that a financial statement has not been materially misstated by an auditor exercising professional skill and due care. This is not the same as saying a financial statement is correct, nor an opinion on the financial health of a company. It is merely stating that auditors are able provide an opinion to what extent the financial statements give a true and fair view of the company.

A further problem is that an auditor’s confidence is subjective. Users of financial statements derive their own confidence from many sources, including the knowledge that auditors work to professional standards (including a code of ethics) and within a regulatory framework. The company is also presumed to be subjected to strict reporting standards.

Auditors will not find every problem or irregularity in a company but they will use professional scepticism to ask the difficult questions that push management to exercise adequate controls. My favourite analogy is that auditors are the little voice inside your head that constantly asks ‘Why?’

The challenge the accountancy profession faced prior to the financial crash, and one it still faces, is the ever-increasing complexity of the financial system. More companies are today trading in an international context, which requires auditors to understand multiple reporting frameworks, different economies and to an ever greater extent, to have a knowledge of different IT systems. This can hinder their ability to ask the correct questions and thus exercise professional scepticism.

What was striking about this financial crash is found in this complexity. Merely a small population of mathematicians truly understood how financial securities such as CDOs and CDSs functioned. The financial system relied on computers designed by physics, engineering and mathematics graduates drawn into the lucrative world of investment banking. When it all came crashing down, as we now know, few could confidently value the assets banks held.

Auditors did not have the skill set to ask the appropriate questions. This allowed banks to hide their assets off-balance. The fundamental principle of professional scepticism was compromised.

The question is where the auditing profession goes from here. Increased regulation means that auditors must document and test more findings than ever before. This is certainly a welcome development where the auditing of major companies is concerned. However, does a letting management company based in the UK need to document the risk from currency translation into euros? Or a church need to document risks associated with financial derivatives?

There comes an extent beyond which regulation undermines an auditor’s work. Auditing ought to be a thinking man’s profession, not a process of regulatory box-ticking for the sake of it.

Follow Matthew on Twitter @FlatFootTory

Breaking down the Budget

Sara Benwell 10.53am

Another year, another Budget. Another abortive attempt to find a pub with a garden and a telly with the Budget on it, so that I can enjoy the sunshine and a glass of wine (but perhaps not, thank you very much George, many more cigarettes).

This year’s Budget has been called ‘radical’ by members of the press. It contains many positive elements, including tax measures to help the lowest earners and stamp duty increases for the most expensive properties.

On the negative side, pensions have taken a pounding and there is scant help for the nation’s savers. Let’s look at the headline measures and see what they actually mean in practice.

Income Tax personal allowance to be increased to £9,205 in April 2013

This is the big good news story, which will mean a real cash gain for British workers. George Osborne said this Budget would reward work and this will do so, while also keeping the Lib Dems happy (it is, in essence, a policy they mostly instigated). It means that the Government is hopefully going to reach the £10,000 level desired by Nick Clegg sooner rather than later.

It is worth noting, however, that hidden in the Budget, the Chancellor has lowered the threshold for the 40p higher tax rate from £42,475 to £41,450.

50p top tax rate to fall to 45p

This could be interpreted as a political gamble, rather than financial decision. A nod to the well-heeled and a sop to the right-wing, it could sit well with ‘traditional’ Tory voters.

But it isn’t. While the move will only (directly) assist the highest earners, Mr Osborne said the 50p rate had distorted the economy by encouraging tax avoidance and the cut to 45p will only cost the Exchequer £100 million.

He also claimed the richest would be paying five times more than before, due to other measures such as the increase in stamp duty on properties worth more than £2 million.

Age related additional personal allowance to be phased out

This is already turning out to be the biggest headline of the Budget, with #GrannyTax being the highest trending topic on Twitter yesterday afternoon. Commentators circled in their droves to criticise the changes, for instance Iain Martin on Telegraph blogs, who said it would “spark a war between the generations”.

The Chancellor announced a phasing out of the higher income tax allowance, meaning that from next year, people turning 65 will no longer qualify for the higher rate allowance of £10,500 and instead only receive the standard allowance, which was raised to £9,205. This change, reported to be worth an additional £3.3 billion over the next five years for the Treasury, represents one of the biggest money-makers of yesterday’s Budget.

It is a strange move from Mr Osborne, given that retirees are, statistically speaking, more likely to vote - and vote in great numbers. (While the top rate reduction, conversely, will affect very few voters.)

What we have to remember is that pensioners have also borne the brunt of quantitative easing as annuity rates have been hit hard (see Fraser Nelson’s figures of an ‘annuities rate massacre’ on the Spectator’s Coffee House), and whose savings are already hit by with record-low interest rates.

Nevertheless, we ought also remember that most pensioners don’t pay any tax at all and this change will only affect those who earn more than the average working wage.

Child benefit gradually withdrawn from those earning over £50,000

Mr Osborne has bowed to considerable pressure from his own MPs and diluted plans to remove Child Benefit from all families containing at least one higher-rate taxpayer.

Under this new scheme, anyone earning up to £50,000 will be able to keep their Child Benefit, worth £1,055.

Child Benefit will still disappear but now only gradually for parents earning between £50,000 and £60,000. Earn above £60,000 and you will lose the lot.

One of the biggest concerns with the original plan was that it didn’t take into account single income families with that single income falling into the higher bracket - and this problem still exists. Mr Osborne will continue to face criticism as the cuts hit families with a sole high earner on more than £60,000 but not families with two parents earning up to £49,000 each.

New Stamp Duty of 7% on properties worth more than £2m (and rate on company-bought properties rising to 15%)

It is a policy designed to show that the biggest burden should fall on the wealthiest.

It will mean that anyone purchasing a property above the £2 million threshold will be looking at a Stamp Duty bill of at least £140,000.

Property investors will also be a casualty of the new charges on high-value homes.

The Chancellor emphasised a crackdown on tax avoidance and unveiled three extra levies on people buying homes via companies. In future, people who purchase properties for £2 million or more via a company will have to pay Stamp Duty at 15 per cent.

There will also be a consultation on whether people who have already bought homes worth more than £2 million through companies should have to pay an annual levy.

These Stamp Duty changes will have a disproportionately high impact on the London property market. Take just one borough, the Royal Borough of Kensington & Chelsea, for instance, whose average property price is more than £2 million. Some are concerned it could have negative repercussions for London as an international business centre as it will discourage corporate executives from basing businesses in the capital.

Follow Sara on Twitter @sarabenwell

Labour’s hypocrisy over knighthoods, bank bonuses, railway bonuses and the vilification of success

Craig Barrett and Nik Darlington 10.42am

Given some of the recent hysteria about bankers’ bonuses, Mr Fred Goodwin and Labour’s leap on to the let’s-hate-the-wealthy bandwagon, people might be forgiven for thinking that this Government was guilty of misunderstanding of that famous misquotation of Calvin Coolidge: “the business of America is business.”

I do my best to avoid burdening readers with statistics but I should like to echo the wise words of Fraser Nelson, who pointed out over the weekend that the so-labelled “1%” earn 13 per cent of wages but pay 28 per cent of all income tax.

In the light of the Labour party’s apparent belief that it is fine for those of us who work and pay taxes to subsidise those who do not work to the tune of an equivalent of £35,000 per annum, it is easy to understand why the middle might be feeling a little bit squeezed.

The middle has neither the luxury of a substantial guaranteed income for being idle nor do they have the stratospheric income that some people would have us believe is commonplace in financial services.

In fact, bankers’ pay appears to be falling and pay increases among FTSE 100 directors are close to 3 per cent, rather than the misinformed reporting of figures like 49 per cent.

The outrage at bonuses at RBS betrays a fundamental misunderstanding of the nature of the Government’s involvement in the bank.

RBS was effectively nationalised by the last Labour government in order to bolster the bank’s balance sheet. However, unlike the nationalisations of Rolls-Royce in 1971, British Leyland in 1975 and (to a certain extent) Railtrack in 2002, RBS remains a public company listed on the stock exchange.

It represents an investment for the British taxpayer, not an exercise in the Government in-sourcing financial services, as some seem to believe. The hope is that sensible management and some vision will steer RBS back to prosperity, at which point the Government can sell its stake and perhaps make us all a profit.

Referring to RBS constantly as being “taxpayer owned” gives it something of the status of a Government department, which is to confuse entirely what the RBS rescue was all about.

Everyone would be rather shocked to see Arsenal being sponsored by the Department for Energy, for example - naturally, because it has no commercial role to play and no need to attract business. RBS, on the other hand, will only recover if it remains competitive and is able to attract business, hence its continued presence as a sponsor of sporting events and other marketing activities.

In the same way, it will only be able to recover if it is permitted to run its internal management like any other commercial organisation.

Stephen Hester is not a civil servant subject to a pro-forma contract of employment, sanctioned by countless HR executives and trade union representatives. He is a successful businessman hired on a negotiated contract to work his socks off turning around a failed financial institution. Mr Hester’s contract was negotiated on the basis of normal industry practices. Like it or not, those industry practices include performance-related bonuses and, like it or not Edward Miliband, it was your party (and a Cabinet of which you were a member) who signed off on the deal.

What is more, the Labour party has since leapt on the bonus payments to executives at Network Rail. Its chief executive, Sir David Higgins, was set to receive a bonus of £336,000. Another five senior colleagues would have received up to 60 per cent of their standard pay in bonuses.

But Labour is the political party which, when in Government, was quite relaxed about Network Rail paying its board of directors bonuses of £437,000 in 2004, £871,000 in 2005, £1.1 million in 2006, £648,000 in 2007 (lower as awards were partially deferred because of investigations into the Grayrigg derailment), £1.5 million in 2008 (normal services resumed) and £1.2 million in 2009.

In those six years, Labour ministers did not bat an eyelid at Network Rail paying its directors approximately £5.75 million in bonuses and incentive schemes on top of their already sizeable salaries.*

The attitude of the Labour party - whether directed against Mr Hester, Mr Goodwin (the man knighted by Gordon Brown) or others - does nothing for this country’s credentials as a serious player in the world economy.

The politicians responsible for deregulation and setting up plans for growth remain obsessed with executive pay - something Nick Boles highlighted in his recent Macmillan Lecture.

And worst of all, the cowardly behaviour of the Government over the Stephen Hester bonus furore sends out a signal to the rest of the world that success is no longer appreciated in Britain. In particular, the notion that employees should somehow have the right to sit on remuneration committees misunderstands completely the entrepreneurial spirit that made this nation great.

The correct Coolidge quotation is: “the chief business of the American people is business.” This is correctly linked to the people. It applies equally to ‘UK plc’ because our country will only grow if we can go back to being a business-friendly environment, where companies like RBS are able to get on with things without the need to satisfy baying blood-lust through embarrassment, shame and meek hand-wringing.

Success benefits us all - a rising tide lifts all boats - and a strong financial sector will stimulate growth.

Bruce Anderson, channeling the past once again, yesterday resurrected the phrase “brain drain”, recalling a time when Labour’s perverse taxation drove so many smart and industrious people out of this country.

Stop and think. With 1 per cent of people paying 28 per cent of income tax, that means it shall take a lot more of us to cover the deficit if just one of that 1 per cent leaves. We must not allow this country to become one that appears to tolerate uncapped benefits for those who don’t work, yet vilifies those who do.

*Incidentally, the Office for Rail Regulation (ORR) has begun criminal proceedings against Network Rail for breaching health and safety law preceding the Grayrigg derailment. The first hearing in the case is in a couple of weeks. If Network Rail is found guilty, will the directors who deferred bonuses at the time of the derailment return the bonuses they received in subsequent years?

Follow Craig on Twitter @mrsteeduk

Follow Nik on Twitter @NikDarlington