Happy 290th Birthday Adam Smith!

Had Adam Smith somehow survived until today, he would be 290 years old, having been born on 5th June 1723. The economist, now adorning the £20 note and credited with founding the modern discipline of economics (or political economy as it was known earlier) was originally renowned as a moral philosopher for his widely respected Theory of Moral Sentiments.

Go here to see Tyler Cowen and Alex Tabarrok (economists at George Mason University) explain why he was the greatest economist of all time.

Go here for Adam Smith Institute Director Dr. Eamonn Butler's The Condensed Wealth of Nations (and the Incredibly Condensed Theory of Moral Sentiments).

23 Things We're Telling You About Capitalism XXI

The 21 st thing is that a larger government actually makes economies more flexible: thus we should have larger governments in order to increase the necessary flexibility of the economy. And if the first part were true then the second part might indeed follow: only it isn't, at least not in the sense that Chang means it.

As part of his argument there's one thing that Chang does which is really very naughty indeed. He compares the growth rates of various European countries to that of the US. And he divides the growth rates into two periods: early 1950s to late 70s, late 70s to now (or what was now when he wrote a couple of years ago). He's right that the European economies, with their larger state sectors, grew more quickly than the US did in the earlier period. Hence the claim that larger government can mean more economic growth. Except, well, there's just one thing missing from this calculation: the Wermacht. As the perceptive will have noticed the German Army did have something of a European tour in the years immediately preceeding the early 50s. And the destruction of getting them to go home again was considerable: something which did not happen to the US at the time.

Just as we expect a developing country to have a higher growth rate than a developed one, given that copying is easier than being at the technological cutting edge, so we also expect an economy recovering from a total war being fought on its territory to grow faster than one which is not. So while the growth rates are true we cannot use them as proof that larger governments will create more economic growth.

The real problem with Chang's position though is that he confuses two entirely different things. He talks about employment inflexibility: the way in which it's difficult to get fired and thus the workers all feel secure. He also talks about the existence of a decent welfare state: unemployment pay, health care, retraining opportunities and so on. The problem is that he sees these as being equal: both increase the security felt by the workers and thus increase their flexibility. Which is untrue: they work in very different ways indeed.

It is true that a decent welfare state does lead to greater flexibility in the economy. The workers (and everyone else in fact) will be less stuck in their ways if they know that a change in the economy does not mean destitution. But job security works entirely the other way around: those who are too secure in their jobs won't accept any change at all. Thus reducing the necessary flexibility of the economy.

The reason that this becomes important is because Chang points to the Nordics as evidence of his assertion that you can still have decent economic growth with a large government sector: indeed that it increases growth to have a large such sector. But the very success of the Nordics argues against all of the other strictures about free markets and capitalism that he wants us to understand and adopt. For it is true that they do have large and generous welfare benefits: the unemployment pay, the retraining and so on. They also have decent economic growth. But what they don't have is the sort of regulation, planning and government intervention into the economy that Chang proposes. Look behind the tax numbers (necessary to pay for those benefits) in the economic freedom index and look instead at everything else. They have less regulation of markets than we do, greater economic freedom than even the US, less intervention into capitalism than just about anyone other than Hong Kong. Which is what makes the places work of course: as Scott Sumner is fond of pointing out, Denmark might well be the most classically liberal economy on the planet underneath that welfare state.

All of which I admit I find rather amusing. It is true that the Nordics are nice places to live, despite those crippling tax rates (almost all of which are tumbling down). It is indeed true that they've had very decent economic growth over the years and decades. It's entirely true that they have a lavish social insurance system. But those economies work precisely because they ignore, do absolutely the opposite of, everything else that Chang proposes a government should do to an economy. They're more free market and capitalist than even the US: which is why they work. Indeed, it's probably true to say that the only way in which you can have a social safety net like they have is if you allow capitalism and markets to let rip: how else can you possibly afford to pay for it all?

Why should benefits be universal?

Ed Balls, the economic spokesman for the UK's opposition Labour party, has suggested that wealthy pensioners should be stripped of their winter fuel allowance. At present, over-60s eligible for the state pension receive £200 a year, and those over 80 receive £300, to hep keep them warm. The policy was introduced some years ago after media stories of pensioners suffering from hypothermia because they could not afford to turn on their heating. Even those in care homes get fuel payments of £100-£150.

Government figures show that withdrawing these winter fuel payments from pensioners who earn enough to pay the higher income tax rates would save £105m. Not a huge dent on an annual government budget deficit of £120bn a year, but every little helps.

The remarkable thing, though, is that a Labour politician should attack the principle of universal benefits at all. (He must, as Westminster-watchers believe, definitely be on the way out.) Giving state benefits to everyone might waste money on people who don't need it—£200 is not a lot to a top-rate income tax payer. But the argument for making state benefits universal is not just that it is administratively easier to do than trying to target the money. The argument is that universality gives the middle classes a stake in preserving the benefit system, as they gain from it too.

I have always thought it a pretty odious argument: that we should waste taxpayers' money on people who do not need it in order to buy their political support for more generous state benefits. And the result of including the middle classes is that they do very nicely out of the deal. Being articulate, politically astute and well represented in Parliament, the welfare state has elided into a system designed for them, rather than the poor. Not just cash benefits, but free healthcare, free education and all the rest – people who could well afford to pay are the biggest gainers.

We need to scrap this entire system of middle-class state patronage and replace it with a negative income tax, so that we can see clearly how much we are spending on welfare support and so that government—and political—activity is clearly focussed on those who genuinely need it.

23 Things We're Telling You About Capitalism XX

For our twentieth outing we're told that equality of opportunity isn't enough: we must also have a deliberate and planned levelling of outcome in order to produce a truly just society. Chang manages to reach this position by confusing inequality with insufficiency: something not unknown over there to the left of us. But I'm afraid that this is an incorrect conclusion for the two things really are very different indeed.

Fortunately Chang is agreeable to the idea that entirely equal rewards for very different efforts doesn't actually work. There has to be, unlike Maoist China, some connection between the work put in and the relative rewards taken out. Which is true: but that's not quite right even there. For the truth is that we shouldn't really be caring at all about the efforts that is being put in. We are not Puritans, we do not think that work for its own sake is good. Indeed, I myself am very much an Anti-Puritan in this sense. I care not a tittle nor a jot how much work someone puts in to make their money: they're going to get some of mine according to the value that they produce for me. And that's also how it should be on the macro scale, in the entire economy. If, just as an example, Eddie Izzard finds it takes mere moments to think up a joke which has millions laughing for hours then good luck to him. It's not the effort put in that matters, it's the value he's created that does. Ditto with, say, the miner digging up tantalum to make our mobile phones. None of us gives a hoot whether it takes him 30 seconds or ten hours: the value is in the capacitors in the phones and that's what we're paying for.

That rewards should be commensurate with effort is a corollary of the fallacious labour theory of value. Rather than Adam Smith's much more correct theory of the value in consumption. With this correction we can move on. Now that we accept that it is the value produced for consumption by others which should determine income and reward, not the effort put into that production.

Where Chang does go wrong is in his insistence that true equality of opportunity isn't enough. He uses the example of a poor black child in South Africa: the schools are terrible, the teachers barely literate, in what sense can we say that he has equality of opportunity with his witer and richer fellow countrymen? He doesn't, of course. equality of opportunity would mean at least comparably good schools. Chang then compares this to the UK say, where a poor child won't have perhaps the same self-confidence as his richer contemporaries. Nor the same luxuries in his home life. All of which might well be true. Then comes the sleight of hand: this inequality of opportunity requires that parental incomes thus be equalised in some manner. Which is, I have to admit, an interesting use of the "it's all for the children" argument.

But it's an incorrect argument: equality of opportunity does not require equal incomes: it requires sufficient incomes. Sufficient to be clothed, fed, housed, warm and so on: sure, it needs all of those. But making sure that everyone has a sufficient income for their children to be provided with these necessary things is very different from insisting that incomes must be more equal. It might be a valid argument for some redistribution even, to ensure those sufficient incomes, but not for more equality of incomes as a specific goal. Imagine, just as a made up number, that it requires £5,000 a year to provide a child with a sufficiency of these things. If all children have that amount available for their care then we do have equality of opportunity in this education and life success sense: that other children have £40,000 a year lavished upon them does increase inequality but does not cause a reduction in opportunity.

That slide from having to reduce inequality to provide equality of opportunity just doesn't work I'm afraid. And given that we want reward to be tied to the value produced for others to consume, the evident and obvious truth that some do, with varying levels of effort, produce very much more value than others means that we're just entirely happy with inequality of reward: as long as we do have that equality of opportunity.

Cash, questions, lobbyists—and perverse regulation

UK Member of Parliament Patrick Mercer has resigned under accusations that he took cash (from journalists pretending to be lobbyists) to ask questions in the House of Commons. It has renewed calls for lobbyists to be registered and regulated in order that we know who our MPs are talking to.

Regulations invariably have the opposite effect of those intended. Such a move would damage independent debate. After all, policy think-tanks also talk to MPs. They may be utterly independent, getting their funding from public subscriptions rather than from companies. But if any organisation that talks to an MP has to register itself as a 'lobbyist', what is the result.

We have seen the result in the United States. Think-tanks carry on as before, but they have to set up a separate 'lobbyist' body comprising any of their personnel who have frequent discussions with folk on Capitol Hill. The effect is to politicise think-tanks and put a wall between their independent policy experts and the politicians. An issue comes up, a think-tank expert has important things to say, but cannot say them directly to the policymakers.

What is the best solution? Doctor, heal thyself. MPs should certainly declare their interests and whom they take favours from. But if MPs could be subjected to recall motions by their constituents, they would be a lot more careful about taking favours from business – and perhaps more careful to listen to independent policy advice.

Ultimately, though, if individuals ran their own lives and Parliament had a lot less power, it wouldn't be worth lobbyists (and journalists, let's remember)  trying to bribe them.

A question for market monetarists

Market monetarism, as propagated most prominently by Scott Sumner's (excellent) blog The Money Illusion, argues that recessions come about due to a collapse in demand. This is a problem because prices cannot adjust downwards quickly. Instead of a costly adjustment period we can simply boost demand by announcing a target and credibly committing to do the necessary quantitative easing (buying gilts to inject money in the system) to achieve that target.

This makes a lot of sense. Markets are finding it hard to clear; we boost AD to put the situation back where it was; now markets find it easier to clear. But lots of the best market monetarists, including Scott, Lars Christensen and many others, argue that right now what we need is more stimulus, because the economy is still in a bad shape, and it is still due to a shortfall of demand.

Last Tuesday Professor George Selgin delivered an extremely interesting lecture at the Adam Smith Institute making the case for productivity driven deflation. He said he agreed with the market monetarists that there is "bad deflation"—the sort that means nominal rigidities stop markets from clearing—but there is also "good deflation", from productivity improvements—and this is not associated with unemployment, stagnant or falling GDP, or any other cyclical issue.

After the talk I quizzed him on whether he agreed with the market monetarists that even though the ideal is a rule-based system, as opposed to the current discretionary way policy is set, right now the best discretionary policy is more easing, because that's probably what the ideal rule would require.

Prof. Selgin disagreed, arguing that we didn't need easier policy, and if you look at the graph above there's at least apparent reason to agree with him. Nominal GDP—aggregate demand—is not only well above its pre-recession peak in the US, but is growing at an apparently steady rate, roughly in line with its long-term trend. If the high unemployment in the US is down to insufficient demand combined with nominal rigidities then why hasn't a long period of higher-than-pre-crisis demand brought unemployment back down.

According to Selgin, policy uncertainty and pro-cyclical strictness in enforcing regulations (particularly risk-weighted lending rules that rate Greek bonds as zero but loans to small business at 100%) are holding firms back from investing their cash piles in capital and it is this that is stopping the robust recovery. He made the point very convincingly and despite trying hard to argue against it I couldn't find a good reason to disagree, except that I hadn't seen a good measure of the importance of these two factors so it was hard for me to compute how big their influence really was.

But many market monetarists—along with New Keynesians and most others—seem very sure that insufficient demand is the overriding factor holding back recovery, in the US as much as the EU, UK and Japan (where NGDP growth is further below trend). So my very genuine question is: upon what arguments and/or evidence do they rest this belief?

23 Things We're Telling You About Capitalism XIX

Our nineteenth thing is that of course planning's lovely: so much so that the collapse of communism isn't to be taken all that seriously., Yes, OK, so the central planning of the entire economy isn't all that good an idea (although Chang, almost ludicrously, believes that it did work in the early days. Someone should point out to him that the 5 year plans reduced economic growth from the NEP days: to say nothing about losing 8 million Ukrainian peasants by happenstance along the way.) but still there's a place for the very clever people in government to direct what everyone else thinks about making, buying and selling.

And even if that isn't true firms plan their activities, we've got lots of firms, so we must have lots of planning: and indeed we do have lots of planning.

The problem with this is that he's mixing and matching in a way that isn't really viable. Firms do indeed plan: but their plans are then subject to examination through competition with the plans of all the other firms. You know, that marketplace thing. Planning is thus preparatory to the test of whether the planning has worked. With government planning we don't then get that test: for governments don't then subject, or at least limit as much as they can, the exposure of their plans to said market. You can see this quite clearly in the current arguments about renewables and fracking for shale gas. The DECC has its plan, we'll all shiver in the gloom of solar powered (in England!) lights so therefore no one must be allowed to drill for shale which would upset that plan. Yes, I know they've said that it will be allowed to go ahead: but have you looked at the limits they've put on earthquakes? 0.5 on the Richter Scale was the last I saw: that's about the shock of the cat jumping off the bookcase next door*. A deliberate attempt to stifle an innovation that would ruin the government's plans. This is something that private sector companies don't get to do: which is why the results from private sector planning work out so much better. Someone else can indeed derail them, to the consumers' benefit, by having a different and better plan.

If you like, the market is where plans compete to see which is the best one. Government planning doesn't enter that competition so we never do find out quite how bad those government plans are. We just end up not quite as rich as we thought we were going to be or should be.

Chang also talks about how governments plan a lot of the R&D these days: or at least pay for it and thus presumably have some sort of plan about what they're going to spend it on. He also notes that the Soviets were pretty good at invention of spiffy things but this didn't seem to feed though into making said consumers any better off. He should read his William Baumol to see the connection between these points.

Baumol defines invention as the, well, invention of new and spiffy things. He makes the point that the Soviets did do satellites first. Indeed, either sort of system, planned or market, seems to be about the same at invention as the other. However, innovation is the getting of interesting things stemming from those inventions into the hands of consumers in a shape and form they desire. Either to do things with or to develop further to do other things with. And there the planned system is appalling and only market economies have ever really proven to be any good at all at it. The Soviets could make tanks alright but hot water tanks were beyond them (quite literally, the Soviet housing system didn't have them).

Which is really very much the same point as the one above. Markets provide the test to see what an invention might be used for, who is going to innovate with it. Further, given that we're talking also about capitalism here, that part of the system provides the incentive to risk the money to find out about one or other innovation. Which is why innovation is indeed driven forward on capitalist and market based societies and not in planned ones. OK, so governments pay for a lot of the R&D. So what? That's not the important part of the system: innovation is, not invention.

Which brings me back to hot water tanks. The Soviet system operated on district hot water heating plants. Hot water piped into the radiators and bathrooms of the whole urban area. From a planning point of view is looked quite efficient: but as it turned out it's not what the consumer actually wanted. As soon as the old system fell one of the most popular additions to a Russian apartment was an individual hot water system: the type of tank that the Soviets, the planners, didn't even know was wanted rather than the ones they knew how to build but which the market sniffed out almost immediately it was allowed to.

And that, in the end, is why planning is inferior to markets. Because planning will provide what the planners think the people want, or should want, or even what the planners think they should have. Markets allow the consumer to do the demanding of what they do want.

*Hyperbole alert. Update: I have now been told that it's actually 3,000 cats jumping off a 2 metre bookcase. No, really, it is, assuming perfectly inelastic cats. And it's also happening half a mile away.....

What fun with Margaret, Lady Hodge

Margaret, Lady Hodge, has been wibbling on about corporate taxation so much that it's a relief to hear her on another subject. Not that her wibbling gets any better, it's just a different set of things to disagree with her about. This particular outburst contains two classic political illogics:

Margaret Hodge, chairman of the PAC, lambasted the OFT’s regulatory efforts claiming it has “never given a fine to any of the 72,000 firms in this market” and has “very rarely revokes a company’s licence”, The PAC said the OFT spent just £11.5m regulating the market last year - “or £1 for every £15,300 in the market, which is low by comparison with other regulators”, according to the report. The OFT’s “investment in regulation is paltry”, said Ms Hodge. “It could easily have increased its fees, especially to larger credit card companies who only pay a £1,075 fee, and used that income to raise its game as a regulator.”

The first is the complaint that no one has been driven out of business by the regulator. There are two possible reasons why this is: the first being that the regulator isn't trying. The second is that no one is actually breaking the law and thus the regulator has a reason to drive them out of the business. Note that the politician's response is to immediately assume the former reason. For as a politician one just knows that the capitalist bastards are indeed defrauding the good honest folk of the Kingdom. That people just voluntarily borrow and lend money at rates which they find mutually acceptable is not a thesis that can be permitted to cross the synapses.

The second is the assumption that the verity of regulation depends upon how much is spent upon such regulation. More is better here: it's again a classic political delusion. We cannot measure the output of most government activity so we measure instead the input. And thus more is better. By this logic we get the idea that if we spend vast amounts of money on aircraft carriers with no planes then the nation is better defended: look, we've spent lots of money, see?

But what is rather more amusing is the final call:

Ms Hodge added: “It would be a big step forward if consumers were given straightforward information on just how much loans are going to cost them. We would like to see the misleading APR rules ditched and replaced by a legally required statement of the Total Amount Repayable in cash.”

Lady Hodge is going to get into such trouble for that. For the entire capmaign against payday lenders depends upon that very manipulation of the APR. Here's Stella Creasy, a fellow Labour MP to La Hodge, with one of her oft repeated statistics.

The legal loan sharks profiting from the austerity that Britain is currently experiencing. The Consumer Finance Association boasts that it has "intelligent financially-savvy consumers who are making critical, proactive and positive financial decisions every day to help them live within their means whilst coping with the varied challenges of the post-credit crunch era." The Citizens Advice Bureau tells a very different story. They deal with the fallout of a country where companies offering loans with rates of 4,000% cover every town centre and dominate internet and mobile phone advertising.

4,000 % eh? What outrage, such usury!

Except, of course, the APR comes from taking the interest rate and arrangement fee on a loan for one week and then multiplying by 52 and compounding. The actual cost of a £100 loan for a week is more like (and no, I'm not going to do the maths here) £100 for the loan, £20 arrangement fee and £10 in interest. Or for £200, £20 in arrangement fee, £20 in interest and the £200 of the loan. Please do note that these are only examples, not actual numbers.

Now, you or I might look at those numbers and think that £30 on £100 for 7 days is a bit steep. But then we've never been the single mother needing nappies and baby mush on a Friday after The Social has screwed up the benefits payments telling her to come back on Tuesday, have we? However, others in that situation might think that it's a price well worth paying. Which is why the industry exists at all of course.

Which is rather why I expect that call to do away with APR as a measurement to be a suggestion which is swiftly dropped. For to do away with it will rob the campaigners against voluntary association with their greatest weapon: the ability to use badly calculated and horrendous APRs as a scare tactic.

All of which I find most amusing. Lady Hodge manages, by some happenstance, to blunder into a good idea and it will almost certainly be the one she has to drop as a result of political pressure.

So private charity does step in when the State moves out

I thought this was a very interesting little story:

Massive cuts to social safety nets have led to "destitution, hardship and hunger on a large scale" in Britain, with more than half a million people now forced to rely on food banks for sustenance, key poverty charities have warned in a report.

Welfare changes and mistakes by Jobcentre Plus staff are causing delays in benefits and errors or sanctions, which push vulnerable people into precarious situations, the report from Church Action on Poverty and Oxfam warns.

The charities want an urgent parliamentary inquiry. "The shocking reality is that hundreds of thousands of people in the UK are turning to food aid," said Mark Goldring, Oxfam's chief executive. "Cuts to social safety nets have gone too far, leading to destitution, hardship and hunger on a large scale. It is unacceptable that this is happening in the seventh wealthiest nation on the planet."

A number of reactions are possible: the one that they hope to engender is that we must spend more through the State to alleviate such problems. Although it has to be said that that's not terribly persuasive as they're blaming screw ups by that very State for a goodly portion of the problems.

We could also agree (as I certainly do) that in a country as rich, both compared to history and to the current globe, it is ridiculous that people, absent mental or drugs problems, are going hungry. There is indeed enough wealth around to make sure this does not happen.

The really interesting line though is this:

Food banks may not have the capacity to cope with the increased level of demand.

From which we can deduce that food banks are currently coping. Which leads us to an extremely interesting conclusion.

One of the major screaming matches in this whole "whadda we do about the poor and or incapable?" is that one group tells us that only the State can possibly take responsibility and thus we'd all better cough up our taxes and do as we're told. We also have those who insist that without the State exactions we human beans are empathetic enough that we'll, purely charitably, provide what we think those poor and or incapable need. Now look at what the argument being put forward here is:

As the State withdraws from providing some things to the poor and or incapable food banks, those purely voluntary organisations, are taking up the strain. This therefore proves that the State must provide all.

It's not an argument that works, is it? It's very much evidence for the other side of the shouting: that private charity is indeed, possibly only at times, a viable alternative to State provision. For you really cannot use the growth of private provision as an argument that only State provision can work which is what is being tried on here.

No, I don't therefore conclude that therefore there should be no State provision. Only that the existence, the recent growth in, food banks show that the alleviation of poverty, hunger, is not something that is necessarily entirely a State competence. For we've actual evidence that as the State retreats that charity does indeed move in.

The Fault, Dear Barclays, Lies in Yourselves

Over the last three years, the caseload of the Financial Ombudsman Service FOS) has soared. The fault lies not with building societies, or insurers, or financial advisers, but with the big banks.

Few complaints come in about Building Societies and those are mostly not supported by the Financial Ombudsman.  The Building Societies are good at dealing with their own complaints.

Not so with the big banks, which generate 74% of Ombudsman complaints, most of which are upheld.  Clearly the banks’ internal complaint procedures do not work.  And market forces do not work either because consumers think the banks are all the same so there is no point in switching.  Or most of them:  when frustrated by Barclays’ incompetence and failure to deal with complaints, I moved to First Direct and the sky is blue again.

No customer is more loyal than one whose complaint has been well handled.  I complained about my breakfast on British Airways once and got a personal letter from Colin Marshall, then the CEO. How can we get banks to satisfy their own customers like that?

Properly managed internal complaints systems would be better for consumers, better for FOS, better for the country at large and better for the banks themselves.   The banks cannot win public trust unless, like the building societies, they cut complaints to the FOS to a trickle and lose few FOS judgements.

What can FOS do about it?  If they charged the banks thumping fines for their poor complaints handling, FOS would be accused of bias, imposing fines just to raise revenue.  Handing the fines over to HM Treasury might mitigate that but maybe not enough.

The big banks are more of a club than a competitive market.  The FSA has to take the rap for that.  By trying to standardise everything, making entry difficult, disallowing failure and fining them all together in an effort to be fair, the regulator has done no service to the consumer.  The new Financial Conduct Authority talks competition but nobody has any idea of how that will be achieved. Maybe the FCA has no idea either.  The FOS could make a start by singling out and publishing the best and the worst performer of the month so that the odium can be targeted, not shared equally.

The FCA should be closed down immediately and these matters left to the FOS. That would deal with the boundary issues between them.  The suggestion that regulators look forward but the FOS looks back is nonsense: for ten years the regulators have lagged far behind the FOS – which at least has its ear to real customers in the real world.

Summary

Over the last three years, the caseload of the Financial Ombudsman Service FOS) has soared. The fault lies not with building societies, or insurers, or financial advisers, but with the big banks.

Few complaints come in about Building Societies and those are mostly not supported by the Financial Ombudsman.  The Building Societies are good at dealing with their own complaints.

Not so with the big banks, which generate 74% of Ombudsman complaints, most of which are upheld.  Clearly the banks’ internal complaint procedures do not work.  And market forces do not work either because consumers think the banks are all the same so there is no point in switching.  Or most of them:  when frustrated by Barclays’ incompetence and failure to deal with complaints, I moved to First Direct and the sky is blue again.

No customer is more loyal than one whose complaint has been well handled.  I complained about my breakfast on British Airways once and got a personal letter from Colin Marshall, then the CEO. How can we get banks to satisfy their own customers like that?

Properly managed internal complaints systems would be better for consumers, better for FOS, better for the country at large and better for the banks themselves.   The banks cannot win public trust unless, like the building societies, they cut complaints to the FOS to a trickle and lose few FOS judgements.

What can FOS do about it?  If they charged the banks thumping fines for their poor complaints handling, FOS would be accused of bias, imposing fines just to raise revenue.  Handing the fines over to HM Treasury might mitigate that but maybe not enough.

The big banks are more of a club than a competitive market.  The FSA has to take the rap for that.  By trying to standardise everything, making entry difficult, disallowing failure and fining them all together in an effort to be fair, the regulator has done no service to the consumer.  The new Financial Conduct Authority talks competition but nobody has any idea of how that will be achieved. Maybe the FCA has no idea either.  The FOS could make a start by singling out and publishing the best and the worst performer of the month so that the odium can be targeted, not shared equally.

The FCA should be closed down immediately and these matters left to the FOS. That would deal with the boundary issues between them.  The suggestion that regulators look forward but the FOS looks back is nonsense: for ten years the regulators have lagged far behind the FOS – which at least has its ear to real customers in the real world.