Reassuring as ever

The Lord Pearson of Rannoch put the following Written Question to HMG:

To ask Her Majesty’s Government what is the present status of the Luxembourg Compromise; how many times it has been invoked, and to what effect; and whether they intend to use it in relation to proposals affecting the United Kingdom's financial services industry.

The Luxembourg Compromise is an odd little agreement that is supposed to keep countries who are not keen on certain aspects of European integration moderately happy. It was signed in 1966 after de Gaulle's "empty chair policy" over aspects of the then EEC policy that he did not think were in the French interests.

The Luxembourg Compromise, signed on 30 January 1966, provides that "Where, in the case of decisions which may be taken by majority vote on a proposal of the Commission, very important interests of one or more partners are at stake, the Members of the Council will endeavour, within a reasonable time, to reach solutions which can be adopted by all the Members of the Council while respecting their mutual interests and those of the Community".

Given the importance of the financial services industry to this country's economy, it is not unreasonable to suggest that HMG might, at some point, having handed most of that industry over to the EU, consider invoking the Luxembourg Compromise. Well, they might. On behalf of HMG Lord Deighton replied:

The Luxembourg Compromise is a convention which has not been formalised and the procedure for invoking it is not defined.

The Government has always led the case for a competitive and stable UK financial services sector and believes that the prosperity of the City is in the interests of the UK and the EU. The Government will use the relevant negotiating and legal framework to protect the interests of the UK financial services sector.

It is, of course, very reassuring to us all that we have a government whose negotiators act in our best interests at all times.

Legal base for the control of bankers' bonuses

Lord Stoddart of Swindon (a frequently appearing character on this blog) put down the following Written Question:

To ask Her Majesty's Government under what Articles of the European Union treaties the new European Union rules restricting bankers' bonuses are being implemented; and whether there are any plans to introduce such restrictions in other industries or in the public sector.

For once the answer was clear and informative:

The Capital Requirements Directive IV proposals on remuneration are based on Article 53(1) of the Treaty on the Functioning of the European Union. There are currently no specific legislative proposals for the introduction of similar measures in other industries or the public sector.

Especially, not the public sector, I'd say. What deprive those poor innocent little regulators of their bonueses? Fie, I say, fie.

Looking the relevant Article up in the CONSOLIDATED VERSION OF THE TREATY ON THE FUNCTIONING OF THE EUROPEAN UNION, I found the following apparently irrelevant text:

1. In order to make it easier for persons to take up and pursue activities as self-employed persons, the European Parliament and the Council shall, acting in accordance with the ordinary legislative procedure, issue directives for the mutual recognition of diplomas, certificates and other evidence of formal qualifications and for the coordination of the provisions laid down by law, regulation or administrative action in Member States concerning the taking-up and pursuit of activities as self-employed persons.

How on earth does this apply to bankers, who are not self-employed, let alone their bonuses? Nothing for it, I sighed, let us have a look at the relevant Directive proposal.  As ever, it gives a great deal of information, including relevant aspects of the Basel agreement, which is rarely mentioned in the various discussions, and says this in Section 3.3:

3.3. The EU's right to act and justification

The legal bases for EU level action in this specific field are: Article 53 TFEU (former Article 47 CE) which provide the EU legislature with the possibility of adopting directives for the coordination of the provisions concerning the taking-up and pursuit of activities as self-employed persons and the provision of services in the Internal Market,  and Article 114 TFEU according to which the European legislator can adopt "measures for the approximation of the provisions laid down by law, regulation or administrative action in Member States which have as their object the establishment and the functioning of the Internal Market." The European legislature has discretion as to the method of approximation which is the most appropriate in order to improve the conditions for the establishment and proper functioning of the Internal Market. This may include the approximation of national laws concerning the type and level of administrative sanctions to be imposed.

While I remain unconvinced about the relevance of Article 53, it is clear that Article 114 gives the European legislature a carte blanche in its anxiety "to improve the conditions for the establishment and proper functioning of the Internal Market". I notice this was omitted from the answer given to Lord Stoddart of Swindon.

May one enquire how our Prime Minister or what passes for one intends to renegotiate that?

Who is intending to kill the goose that lays the golden eggs?

OK, I admit it. I went to hear Mark Littlewood, Director-General of the Institute of Economic Affairs interview Nigel Farage the once and once again Leader of UKIP about his and his party's free-market credentials. It was, as readers can imagine, a very jolly affair and Our Nige performed rather well, though he did have to admit that when it came to some of his free-market, free-trade and just generally pro-freedom ideas, he had something of a fight on his hands with many members of his party. Younger members and supporters, however, as he told me afterwards over a glass of wine, tend to be of our sort of persuasion. On the whole that is true, give or take a few thousand hysterical teenagers who like to smash things in central London while shouting gimme, gimme, gimme. (Ooops, I promised not to write about them again.)

Inevitably there was talk about taxation and regulation and the City of London. Farage referred to an article I had read on my way to the IEA by Chris Blackhurst in the Standard, London's freebie newspaper.

Mr Blackhurst enumerates all the reasons why we, well, he viscerally hates bankers and the City, one reason being

The failure of the City to give more back is dismaying too. It suggests its workers really don't understand or, worse, don't care about the divisive society they are helping to create.

Before I could even begin to work out what that might mean I found the following information:

Yet those pouring scorn on the financial services industry (the City in its wider, non-geographical sense), and those who feed off it, need to think again. The unpalatable truth for those critics is that we need the City.

A report published today shows that total tax receipts from financial services in 2009/10 were £53.4 billion, or 11.2 per cent of the UK's entire tax take. The City is now far and away the highest contributing industry in the UK in terms of corporation tax, overtaking North Sea oil and gas. The 1.3 million employees in financial services across the UK paid £24.5 billion in employment taxes.

This, don't forget, was during a global recession — the previous year, 2008/09, the Exchequer received more than £61 billion. As recovery comes — and there are signs of a lift in the City again, with mergers on the increase and markets climbing — the City's overall tax bill will climb once more.

So, the City creates wealth and jobs as well as keeps large parts of this country going through its tax contribution. Remind me what should they give back and to whom?

As Mr Blackhurst points out the idea that we can somehow resurrect dead industries (killed by trade union activity, bad management and a complete inability to keep up with competition) is moonshine. Therefore, the government piling taxes and regulations on the City to the point when it can no longer function for apparently punitive purposes is, to put it mildly, short-sighted. Who is going to keep the huge public sector in funds if not the private sector? Of course, while we have politicians who enter the employ of their parties straight out of nursery that obvious fact will not be faced.

On the other hand, there appears to be one very obvious fact that Mr Blackhurst is not facing or, at least, not writing about and that is the ten-year old programme rolled out by the European Union of the Single Market for Financial Services in the name of which control of the City has been gradually handed over to all sorts of organizations in Brussels. What will it take for Mr Blackhurst and others of his kind to write about it and not just every now and then when it is a slow news day.