The report on the riots 30 years ago changed police. Today's Vickers commission on banking makes proposals to fit our timorous times
Nobody who lived through the Brixton riots of 1981 – 30 years ago this week – doubted that they were seismic upheavals demanding a national response. Few doubted, either, that Lord Scarman's report on the riots was the watershed event in supplying that response. The report was not perfect. Yet Scarman looked the race and policing issues straight in the eye, told the truth about them and wrote a blueprint for a new way of policing. Everything in British public policy on race and police changed as a result, not always consistently or successfully, but overall unquestionably for the better. As a response to a national crisis, it was about as good as it gets.
Compare that with the Britain we live in today. Like the Britons of 1981, we also have lived through a seismic upheaval, though this time it was banking not policing that was found wanting. The banking upheaval, like the one in the streets 30 years ago, has come as a damning verdict on past inequalities too long neglected and institutional fragilities inadequately addressed. Everyone knows that a change of priorities is required to prevent it happening again. Yet it is doubtful whether this week's report by Sir John Vickers's banking commission will figure as prominently as Scarman's does in reflections on 1981 when the Britain of 2041 looks back at what happened in the financial crisis.
In the mad onrush of the 24/7 political world to the next thing, the Vickers report has had its own brief moment of attention and, with the exception of the specialist financial press, has already been mostly left astern, even though it only came out on Monday. Vickers is an important document nevertheless, not just because it deals with epochal events with continuing impact, but also because it is a reasoned and serious attempt to address an incredibly elusive yet overwhelmingly important area of policy. Ultimately, though, it is also a failure.
It would be wrong to labour the comparison between Scarman and policing and Vickers and banking too much. Policing and banking are apples and pears. Yet one of the things about Scarman was that it triggered a widespread debate about what policing was actually for and, therefore, what constituted a good police officer. Before 1981, these questions were rarely asked at all and, when they were, the answers were often steeped in Dixon of Dock Green cliche. Since 1981, this has changed, not enough for some of us, but markedly and irreversibly for the better all the same.
At least, as a result, there is now a public arena of constructive debate about the public interest in what a good police officer should be and do. This is absolutely not the case with banking. Party politics has always been more than happy to argue about what should be required to be a good teacher, a good doctor, a good social worker, a good police officer, a good employee, a good immigrant or a good parent. But the equivalent question is never ever asked in commerce and finance. It was an article of faith both for Thatcherism and for New Labour, though for different reasons, that the subject was off-limits. Other than the blessed Vince Cable for a while, no modern politician has ever asked what was required by the public interest to be a good banker, to run a good company, let alone to run a good hedge fund, to be a good short-seller or to run a good credit ratings agency?
Vickers at least starts by posing one of the right questions. "What is the financial system for?" his report asks. It is refreshing even to see the question written down. Vickers offers a textbook answer: providing payment systems, providing deposit-taking facilities, lending to households, businesses and governments, and helping clients manage financial risk. Moreover, though his prose is po-faced, he even sets out succinctly where things went wrong. "The crisis represented a spectacular failure by financial institutions and the market to manage risk efficiently. They amplified, rather than absorbed, the shock from the fall in property prices." Or, as one of the main hedge-fund managers in Michael Lewis's The Big Short put it: "We fed the monster until it blew up."
Vickers is truthful as far as it goes. Its solutions, while modest, are serious. Ringfencing retail banking is better than not ringfencing it. The 10% baseline equity-to-assets ratio for systemically important banks proposed in the report is a stronger protection for the public than the 7% ratio currently in operation. The proposals for breaking up Lloyds would strengthen competition. It is wrong simply to dismiss the report as a timorous compromise. Or rather, it is wrong to dismiss it in these terms without recognising the wider timorousness of the public debate on banking, which the report itself reflects.
Unlike Scarman with policing, Vickers has not looked the banking problem straight in the eye. Instead he has blinked. He has averted his eye from some of the issues, not least remuneration. He is not alone in that. The public arena is full of politicians and commentators – not least George Osborne – saying that the economy needs to be rebalanced away from an over-dependence on financial services. But it is one thing to wish that we had a different and better form of capitalism. It is quite another to design it and implement it, especially in perilous times for the wider economy.
Parties of the left are as guilty as those of the right. Few books have struck more of a chord here as Tony Judt's Ill Fares the Land, with its call to arms (well, not literally) against the uncritical admiration for the private sector and for unfettered markets bequeathed by the 1980s. Yet the gulf between the recognition that what Judt says is right and the emergence of a globally sustainable – in all senses – alternative form of capitalism is a wide as it has ever been. Vickers is not alone in falling into the gap.
"It's laissez-faire until you get in deep shit," reflects another banker in Lewis's The Big Short. But what happens then? I recently heard a senior banker say he would accept a lower salary but that the bank would collapse if he did. He was probably right. The Vickers report is a reminder that the banks are not just too big to fail but too big to control either. It would be nice to think that the hundreds of economists who have signed this week's letter to G20 finance ministers supporting an internationally enforced financial transaction tax have cracked the problem at last. Until they succeed, Vickers and his piecemeal caution offer the only viable way forward. The failure to reform our banking in the public interest is a collective reprimand to us all.