The Reasonable Politician Bankers Feel They Can Trust; PROFILE Oliver Letwin Has Been Leading the Government Side in Secret Talks with Banks over Pay

The Evening Standard (London, England), January 12, 2011 | Go to article overview

The Reasonable Politician Bankers Feel They Can Trust; PROFILE Oliver Letwin Has Been Leading the Government Side in Secret Talks with Banks over Pay


Byline: Chris Blackhurst City Editor

AS opposite pairings go, it is hard to imagine one more civilised than that between John Varley and Oliver Letwin. Last autumn, amid great secrecy, they sat on different sides: Varley, then boss of Barclays, fronting for the UK banks and Letwin, Cabinet Office minister, for the Government. Their sessions had a codename, Project Merlin, and the plan was they would try to reach an agreement between those who were regarded as the greedy, reckless and rich villains of the financial crisis and the elected representatives of the braying public mob.

But any thoughts of banging on tables, rudeness, shouting and swearing can be dispensed with. They could have been university dons meeting for a reading or a chinwag over a glass of sherry: the tall, patrician and studious Varley; and the earnest, scholastic Letwin.

Downside and Oxford versus Eton and Cambridge. The idea was that they would achieve a concordat on pay restraint, that the whole, inflammatory issue of bonuses would be laid to rest, to the satisfaction of both camps. The bankers would pay a price -- to increase their lending to small businesses, to be more transparent about their biggest payouts, and to reduce their bonus pools, already heading downwards because of depressed trading conditions.

Perhaps too, they would make some gesture in support of David Cameron's Big Society initiative. It was a package that would have gone some way to silencing the critics.

There was a blip in proceedings when Standard Chartered pulled out, maintaining that since its operations were located overseas it had no part to play in the UK debacle. There was tension, too, concerning HSBC, Santander and Varley's very own Barclays, all of them miffed at constantly being likened to RBS and Lloyds, which had been forced to seek the taxpayers' rescue.

Still, they pressed on. Varley was concerned the banks would lose their ability to compete for talent internationally if they accepted restrictions on pay. Letwin was aware of the level of anger within Government, particularly from the Lib-Dems and their need to assuage internal critics smarting over the U-turn on student finances. Merlin is now coming to a head. A compact is on the cards, under which the banks can pay unlimited bonuses so long as they do their bit to help small businesses and are more open about their remuneration levels, disclosing the pay of their highest rollers, without having to name them.

Although Labour, Lib-Dems and some Tories may scream and shout that this is a climbdown, it is the best that could realistically be achieved. Letwin will almost certainly be attacked for not having pushed hard enough. But the naysayers should appreciate that any pact at all is a minor miracle.

Cameron understood this when he asked Letwin to steer the Government's case. If there was one person in his top ranks guaranteed to be sympathetic and to see sense it was the MP for West Dorset, himself a former banker. Letwin had been here before. When Cameron was casting around for someone to lead the negotiations with the Lib-Dems over the formation of the Coalition, it was Letwin to whom he turned. Together with Danny Alexander from the Lib-Dems, Letwin drew up what has become the detailed blueprint for the administration. It says much about Letwin that he's acceptable to Lib-Dems and to bankers. This is all the more remarkable considering his political history. A former member of Mrs Thatcher's Downing Street Policy Unit, he was one of the architects of the Poll Tax. As a disciple of Keith Joseph, he was once seen as an unswerving Right-winger, from the libertarian end of the party.

THAT appeared to be confirmed when, as shadow chief secretary to the Treasury he provoked uproar during the 2001 General Election by saying the Tories could slash taxes by [pounds sterling]20 billion, more than twice the amount pledged. …

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