Without getting into a political debate, the Labour years stood for borrowing, at both a national and personal level. This filtered into all areas of society, including the way that regulation was formulated and implemented. Therefore mortgage regulation had minimum intervention or oversight by any regulator, at all levels.
Thus, as an example, the ability for clients to enter into inappropriate contracts, such as using the equity in their own residential property to fund the leveraged acquisition of buy-to-let properties. If an IFA had suggested borrowing against their own property to invest in, say, a wide range of assets managed by a professional fund manager, inside a pension for example, they would have been criticised or even fined for encouraging a client to “borrow to invest”.
In financial terms it actually would have been less risky to do that as at least the client was getting access to more than one asset class.
A new regulator will have to overturn the cultural effect that has occurred in society over the last 10 to 13 years, the effect being that if you want something, you simply borrow to get it. At Government level that meant employing public sector quangos to generate jobs that are simply not required, stealing the money from the end user, but having a short term effect of stimulating the economy. The long term effect is to give us the biggest debt since the Second World War.
At the banking level no-one at the regulator clearly understood the risks banks were taking with money they themselves borrowed to bet on the trading floor casinos – a one way bet for the traders of course, and as it turns out a one way bet for the bank chiefs as well – most of the money put into the banks by the taxpayer (as a result of incompetence, greed, and a regulator tougher on savings than on bank casino games), has ended up in the pockets of the bank chiefs and employees, again. And it appears the risk levels are back where they were before the last mess.
The effect on business has been that banks have lost any ability or motivation to deal as commercial banks – at one end of the scale they play casino games with products that they sometimes don’t understand, from money raised by overcharging customers who buy overpriced and often inappropriate products from them, and at the other end simply lend money on private residential property. Nothing in-between, thus stoking and encouraging borrowing whose strategic effect on the UK is extremely negative.
So less, if any regulation on savings, much more regulation of all forms of borrowing, and a regulator that employs qualified people, so they don’t have to spend money on external consultants to tell them what we pay them to know in the first place. When it’s easier to save than borrow, you will have a virtuous effect. When it’s easier to borrow than save you will have a repeat of the problems we have seen, and worse, a loss of competitiveness in the UK versus the rest of the world.
David Harrison is managing partner at True Potential