The Real Economy

The financial derivatives crisis and the recent calamities in the housing sector arise from inappropriate financial controls and fiscal policies.

The Labour heartland

An "independent" Bank and an "independent FSA" were never going to prevent the Labour party doing what was best for its political survival. Northern Rock was always going to receive special treatment by the Labour party. Northern Rock serves the Labour party heartland with the highest rate of electoral support...

The European Commission was careful not to rock the boat with a Parliamentary debate on the European Treaty coming up...

The word independence hides the visceral instincts associated with political party survival...

In 2004 our sister medium, Real News described the independence of the Bank of England as,"The only policy which has worked", even describing the event as a Brown masterpiece. However in "The Briton's Quest for Freedom" ¹, published in July 2007 the more mundane reasons for this independence were described as a tactic to distance the Labour party from any association with negative impacts associated with possible future modifications in interest rates. Gordon Brown had observed that the Conversatives lost to the Labour party very much in the wake of Black Wednesday and the rise in interest rates causing over 1 million home repossessions.

What was not noted was that having made the independence of the Bank of England the main thrust of policy there had been less attention to detail on the question of monitoring financial institutions and markets.

The Financial Services Authority (FSA) was organised following the Financial Services and Markets Act 2000 as an an independent non-governmental body, given statutory powers and with four basic objectives:

maintaining confidence in the financial system;
promoting public understanding of the financial system;
securing the appropriate degree of protection for consumers; and
reducing the extent to which it is possible for a business to be used for a purpose connected with financial crime

Both the Bank and FSA report to the Treasury.

The unravelling of such an oversight system was observed in the case of the Northern Rock crisis and, in spite of the independence of the Bank of England and of the FSA, the Labour party in government has had to nationalise the bank. The reason for nationalisation is quite simple. The Labour party faced a serious political exposure not as a result of being associated with the setting of interest rates but through losses of depositors in a bank serving one of the Labour party's most important constituency regions in the Norther East. According to, "The Briton's Quest for Freedom", the North East represents Labour's highest national level of percentage constituency support at 30% (national average 19%) as well as the most consolidated support for MPs with 93% of MPs being Labour. The political designs of the Labour party on the North East were indicated by this region being the first "English Region" to be offered a regional devolution election in November 2004. The specific party political objectives of English devolution are described in more detail in "The Briton's Quest for Freedom".

Although the European Union has strict impositions on the degree to which governments can assist private financial intermediaries such as banks, the up and coming Parliamentary "debates" concerning the European Treaty were, it would seem, a reason why the European Commission was particularly subdued on the matter of Northern Rock. In the end the whole affair was one relating not to independence of economic and financial policies and procedures but was a more visceral issue of the image and survival of the Labour party.

Constitutional Issues

The case of Norther Rock is another example of where legislative provisions which are seemingly equitable and supported by "actions" of independent institutions can end up as a wholly political party affair directed towards the interested of the party's medium term electoral prospects.

¹ McNeill. H. W., "The Briton's Quest for Freedom - Our unfinished journey...". 418 pp., HPC, 2007