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The following paragraph is from an article by Will Hutton in the Observer of 14 April 2013. The article as a whole is critical of her and her legacy, but this paragraph caught my eye as it contains basic inaccuracies; and it happens to deal with a subject I know about.

“Trade unions certainly needed the Thatcher treatment in terms of both accepting the rule of law and the need for responsibilities alongside their rights. But companies, shareholders, banks and wider finance also needed this treatment. But as "her people" and part of the hegemonic alliance she aimed to create, they would never get the same medicine. Instead, her Big Bang in 1986, allowing banks worldwide to combine investment and commercial banking in London, was a monster sweetheart deal to please her own constituency. Britain became the centre of a global financial boom, but at home this meant an intensification of the financial system's dysfunctionality, helped by little regulation and a self-defeating credit boom, worsening the anti-investment, short-termist that needed to be reformed. This is now obvious to all. But for nearly 30 years, the apparent success of Thatcher hid the need.”

The brief references to Big Bang manage to contain three inaccuracies:

1 The first is that Big Bang allowed banks to combine investment and commercial banking. In the UK banks were never prohibited from combining the two. The traditional merchant banks (the term then used) were both, even though the commercial banking side was typically tiny compared with the clearing banks. (It was in the US that the prohibition existed.) Big Bang was nothing to do with that.

2 The second is that Big Bang represented a “sweetheart deal” designed to please the City. It all related to the Stock Exchange. It arose following a legal case (far from being a sweetheart deal), brought by the government, attacking the Stock Exchange’s rulebook, which was claimed to entrench restrictive practices that were against the public interest. The Stock Exchange (represented by Linklaters) fought the case. Eventually they settled it, so it never went to court. The settlement resulted in what people quickly called Big Bang, which revolutionized the way the stock markets worked. So far as the government was concerned, it was certainly not a “sweetheart deal” to please a “constituency”; it was an attack on a monopolistic set of practices, perceived to be uncompetitive. It was exactly what Hutton says the Thatcher government failed to do, namely direct its fire against “her people”, by which he presumably means middle class people likely to vote Tory.

3 Even though the process resulted from an attack on uncompetitive practices, there is no doubt that many of the members of the Stock Exchange greatly profited from it. It could be regarded as curious that stockbrokers fought proposals that ultimately made them money. But that’s a different story. Also, as a result of Big Bang, the banks were able fully to participate in securities business. This must be the scintilla of truth lurking behind Hutton’s remarks, even though most of the banks that benefited were foreign and therefore not “her people”.

4 The third inaccuracy relates to regulation, assuming that Hutton means to blame Margaret Thatcher for the “little regulation” he refers to. In fact, the Thatcher government put in place the first serious regulation of the financial and banking markets. The City had for decades survived on genuinely “light” regulation. It was the Thatcher government that introduced the Financial Services Act to regulate the financial markets and the Banking Act to regulate the banks. The regulatory framework established by these acts worked reasonably well for the periods of conservative government and were not perceived by the City to have been particularly light. They failed to protect us all from the disasters of 2008, but many people at least partly blame this on the changes to the regulatory structure made by Gordon Brown, essentially removing bank supervision from the Bank of England. Whether or not this was good or bad (and the coalition government thinks it was bad) and whether or not the regulators performed well or badly, it’s hard to blame Margaret Thatcher.


Tony Herbert

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