Now then, what’s that very pleasant smell? Ah yes, it’s the fresh air emanating from the Department for Business, Innovation and Skills.
Michael Fallon, the business and enterprise minister promoted to the position by David Cameron in last September’s reshuffle, has decided to strike out and place some clear-blue Conservative water between himself and his supposed boss, Vince Cable, the business secretary. Three cheers for that.
Mr Fallon used the annual Institute of Directors’ dinner last week to start the process of “decoupling”. It was quite deliberate, Mr Fallon telling colleagues before he went to the podium that he was not going to stick to the script offered by his officials at BIS and would strike out on a different theme.
“No one wants to hear about responsible capitalism here,” he whispered to one.
The comment was a direct reference to Mr Cable’s latest hand-wringing speech earlier in the day bemoaning the “quick buck” approach of the City. In contrast to Mr Fallon, Mr Cable once again laboured over the dreadful evils of the market economy, saying that there had been “too many examples of irresponsible capitalism recently, companies not paying their taxes, employers making up the numbers or gambling the future of the entire company, customers being sold complex products they neither need nor want and managers helping themselves to lavish remuneration packages”. Please, Vince, tell us what you really think.
After “spivs and gamblers” (bankers), “massive cesspit” (the City) and “headbangers” (those who happen to agree that a relaxation of redundancy laws could be good for some businesses), Mr Cable is a one-man King Canute, hankering for the days of some Seventies’ idyll when financing was the preserve of the elite and the state had its finger in every pie.
As I have said before, Mr Cable has got his job the wrong way round. He appears to think that his role is to represent the interests of government to business rather than the interests of business to government. Or, as Mr Fallon put it at the IoD, the state should concern itself with “the business of government, not the government of business”, a neat paraphrase of Thomas Jefferson, a man mightily keen on government leaving most things well alone.
“Dr Cable spoke of responsible capitalism,” Mr Fallon said at the dinner. “Well, he slips his electronic tag occasionally. There is another side to responsible capitalism and that is responsible government. I believe there are limits to government.”
Mr Fallon’s words were warmly applauded, particularly when he suggested backing wealth creators rather than taxing them. Although it will take a long time for this very odd Coalition government to regain the trust of business sectors heartily tired of being used as political footballs, here at least is a start of the long march back towards market reality.
The debate needs to change. It needs to change away from endless new regulations and price controls from a Government that seems to think it is its business to wholly control the tariffs that energy companies can charge its customers, the price supermarkets can charge for alcohol, and keeps up a constant and wearying drumbeat on banking regulation and reform out of all kilter with the problems of the past it still believes it needs to tackle.
This is not important because market economies produce the best aggregate outcomes for the highest number of people (although that is true) but because investors, the people who have to provide the money which will lead to growth, are looking to better opportunities outside our shores. Capital flight is a real and present danger.
Last week The Sunday Telegraph revealed that the Association of British Insurers which represents institutional investors with £1.3 trillion at their disposal was working on a report that describes the UK banking sector as bordering on “uninvestable”.
One banking finance director of a major UK bank admitted to me last week that when investors ask him what the bank’s capital requirements will be in the future he is not able to give a complete answer. With the Bank of England making very public noises about the need for banks to raise more capital, no one can be sure when the next onslaught will be.
Most of the major banks have now provided their initial resolution and recovery reports to the Financial Services Authority the voluminous document that details how a bank will be dismembered in the event of a crisis at no cost to the taxpayer. With that threat removed and new capital requirements agreed internationally by the Basel process, regulators could do with a new tune to play about supporting banks to create a healthy economy.
I doubt they will, though. The fact that Royal Bank of Scotland (LSE: RBS.L - news) is braced for its Libor fine, probably before Christmas, will doubtless see another bout of clambering on high horses.
The energy sector must be feeling rather similar, another convenient whipping-boy for politicians casting around for scapegoats for green policies that add hundreds of pounds to the average consumer’s bill. Charge less, the politicians shout at the energy companies who control only a small proportion of the bills consumers receive, and at the same time invest billions of pounds in new nuclear and gas.
As Peter Atherton, the energy analyst, told the parliamentary committee looking at the new Energy Bill to be published this week by the Department of Energy (NYSEArca: JJE - news) : “They [major energy equity investors] arrive in London, spend the morning being told by one set of government ministries that they are a predator, they are horrible, and then go for lunch with another set of ministries and are begged to triple and quadruple their investment.”
Mr Fallon, your country needs you and the pleasant smell you create.