Talking Politics

How long until all banks are nationalised?

How far away are we from full-scale nationalisation of more British banks?

Every day, the government's options dwindle.

The recession deepens and becomes increasingly vicious. One day it's job losses; the next some dire economic forecast from the IMF or Mervyn King. Public anxiety gets worse, but the policy options diminish.

Some of the developments are purely practical. Barclay's deal with Abu Dhabi and Qatar, for instance, contained small print which effectively prohibited the government taking a meaningful stake in the business. If the bank raises fresh capital before the end of June the Middle East investors would earn a greater number of shares than their investment without coughing up any extra cash, making any government action extraordinarily poor value for money.

It was this sort of deal which provoked Vince Cable, the Lib Dems' economics spokesman, to describe Barclay's attempts to avoid government control "a scandal of momentous proportions". The banking sector looks on the deal with a mixture of envy and disdain. When banking chiefs appeared before the Treasury committee last week and the Barclays chief John Varley proudly flouted his lack of government help, one of his compatriots corrected him under his breath: no British government help, anyway.

And then there's the less tangible, but no less real, issue of public perception. At the height of disaster, as banks collapsed and apocalyptic warnings filled the airwaves, the public was prepared to countenance the vast scale of the bank bailouts, despite the terrifying proportions of the numbers involved. Attitudes have hardened. With little, if any, of that original money finding its way into economy, and taxpayers assessing how their grandchildren will pay it off, the political space for further bailouts is miniscule.

In France, those on national strike last month asked why all of President Sarkozy's spending had gone towards the rich and not the poor. Those calls have not quite been replicated in the UK yet, but British politicians will be watching continental developments closely. Attitudes spread faster now than ever before.

The British version of this argument surrounds bonuses and pay packets. Public anger at bankers' remuneration is now impeccably documented by opinion poll after opinion poll, not least the weekend survey by ComRes poll for the Independent which saw 84 per cent of respondents calling for a legal limit on pay in banks bailed out with taxpayer cash.

Much of the anger is directed at the Lloyds Banking bonuses. Last week at the same committee meeting, the Lloyds Banking chief Eric Daniels explained Lloyds would not have taken government money if it had not been for HBOS. As Lloyds TSB took on HBOS with the wink of Number Ten, why should the workers at the well-run Lloyds TSB lose their bonuses for the mistakes of HBOS and the privilege of cleaning up its mess for the government? he implied.

Another crisis point concerns foreign workers, where dubious European court cases - specifically Viking and Laval - allow workers from other EU states to work in the UK for the pay level of their home country, undercutting UK wages.

As public anger at these disparate aspects of the recession spirals upwards, available political responses grow fewer and farther between. Sensible governments track focal points for economic tension and address them before they erupt. Admittedly, the government's response to bonuses did not make it look sensible in the slightest. With over half a year to prepare for bonus season once the downturn hit, they managed to still seem overwhelmed by events, eventually instigating an entirely pointless one-year review as a substitute for action. But we can expect them to be tracking these developments and assessing the way they restrict the political acceptability of potential economic responses to the crisis.

And so it is that full-scale nationalisation of vast swatches of Britain's banking industry now looks probable rather than possible. Of course, the external communication from Whitehall still writes this option off as madness, in much the same way as the government did just before nationalising Northern Rock. Back then, Cable safely predicted that nationalisation would indeed become unavoidable.

When Number 10 said full-scale nationalisation of Lloyds Banking Group was not on the table this week, the Liberal Democrat gave a similar response: "This is a U-turn waiting to happen. It is frankly out of the question that the Lloyds giant will be allowed to go under, so the government must be honest in its assessment that the total nationalisation of the bank is a distinct possibility."

One area that may hold back full nationalisation remains the size. Northern Rock was modest and easily dealt with. The banking behemoth Lloyds Banking would be too great a headache for the Treasury, public finances and Darling's arm's length management.

But the electoral reality is becoming increasingly clear beyond the economic arguments. With public anger at these issues becoming pivotal to the way the three main parties are perceived, the unsustainable status-quo simply cannot maintain. The government has put in the money, but it still doesn't have the control. It will eventually become tiresome to watch politicians bleat incessantly for banks to lend, or forgo bonuses, while being unable to enforce their wishes. Total government control is surely on its way.

It's the precise opposite of every law of political gravity we've learnt over the last two decades, when everything slipped towards privatisation, starting with Thatcher selling off BT, utilities, Giro Bank and anything that came to hand. The process of selecting industries and stripping them of state control served the government's ideological perspective, but it also satisfied a unique political dream - to not be responsible when things go wrong.

Suddenly issues like gas and phone bills could be laid at the door of other men, leaving government to deal with its core priorities. They loved it.

Now, everything is backwards. Gordon Brown's less-than-eloquent posturing about state help and government action will take on a uniquely practical dimension. The government will have to live up to its responsibilities. It won't be a pretty sight.

Ian Dunt

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