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Labour vow to scrap Ofgem and split banks

Labour have said they would scrap energy regulator Ofgem if they came to power, and threatened to break up banks if they do not separate their retail and investment functions.

Speaking at the Labour party conference, Ed Miliband said banks must focus on the customer, and not adhere to international markets.

The Labour leader said: “Either they can do it themselves - which frankly is not what has happened over the past year - or the next Labour government will, by law, break up retail and investment banks.

“The banks and the Government can change direction and say that they are going to implement the spirit and principle of Vickers to the full. That means the hard ring-fence between retail and investment banking.

“We need real separation, real culture change. Or we will legislate. If they don’t do it voluntarily, embrace the change Britain needs, then we are going to have to do it by law.”

Elsewhere in his address, Mr Miliband said Ofgem would be scrapped and replaced with tougher scrutiny to stop people getting ripped off.

Commenting on the proposals, Will Straw, associate director at IPPR, said: “Ofgem clearly have a case to answer. Our research shows that Ofgem has failed to ensure that all consumers pay a fair price for energy with some being overcharged, refused to put an end to loss leading tariffs which block new entrants, and dragged its feet on a range of enforcement issues.

“Any new regulator will want to improve competition in the energy market as the best means of keeping consumers’ energy bills down. But consumers also need a back stop to ensure that they are not ripped off.”

Shadow Chancellor Ed Balls said Labour would use an estimated £4bn wind-fall income from the sale of 4G spectrum to fund the building of 100,000 affordable homes.

John Cridland, CBI Director-General, said: “What stood out of Ed Ball’s speech for me was the emphasis on new housing. The CBI welcomes more action on housing investment, which would give a much-needed boost to growth. But such action must compliment continued efforts to reduce the deficit. The two must go together, it cannot be an either or.

“This speech firmed up Labour’s plans for investment in infrastructure, but there will clearly be tough choices ahead in their zero-based spending review, and we will need to hear more of the detail. Both will need a strong focus on effective action and delivery.”

Some commentators have questioned the £4bn estimate, suggesting that real funds raised in the sale will be a fraction of that.

Graeme Leach, Chief Economist at the Institute of Directors, said: “There is always a danger in spending money before you’ve actually got it – particularly when it seems unlikely that the 4G auction will actually raise the £4 billion Ed Balls has predicted.

“The windfall from the 4G auction is a rare bit of good news for the public finances, and any money it raises must be used wisely. Ideally, it should be put into the essential process of deficit reduction – or if it’s going to be spent, then spend it on the infrastructure which will support economic growth. It would be much better for our long term economic prospects to use this to invest in our transport system anddigital infrastructure, rather than housebuilding.”

This was posted in Bdaily's Members' News section by Tom Keighley .