11/07/2012 Newsnight


11/07/2012

In-depth investigation and analysis of the stories behind the day's headlines with Gavin Esler.


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Tonight, our banking model is broken, so how do we fix it? We're

:00:14.:00:20.

above London's financial district to take a panoramic view, with the

:00:20.:00:23.

Treasury Minister, Mark Hoban, an expert panel, and an audience of

:00:23.:00:27.

City insiders. After the LIBOR crisis, is this the moment the

:00:27.:00:36.

system is finally changed? It might be you need some sort of state-

:00:36.:00:40.

backed institution to lend to longer term project that is are

:00:40.:00:43.

difficult for private entrepeneurs to discount the returns on. I think

:00:43.:00:47.

there is a case for all of those in a modern society. We will be

:00:47.:00:50.

discussing what's wrong with the banks and trying to work out

:00:50.:00:54.

whether there's an alternative to the way we do things now.

:00:54.:00:57.

Also tonight, after a massive rebellion by Tory MPs on Lords

:00:57.:01:01.

reform, it looks like the coalition's not responding. Or at

:01:01.:01:06.

least not as it should. Does it need to shut down or be rebooted,

:01:06.:01:10.

for trust to be re-established. coalition Government is moving

:01:10.:01:13.

beyond, outside the original coalition agreement I think really

:01:13.:01:17.

for party unity, and also in the national interest, it is important,

:01:17.:01:21.

as with many other countries, that the agreement is reviewed mid-term.

:01:21.:01:25.

The British company that made a fortune round the world selling

:01:25.:01:28.

bomb detectors that didn't work. A Newsnight exclusive report. Now the

:01:28.:01:38.
:01:38.:01:42.

police bring charges. Good evening. A cesspit, that's how

:01:42.:01:46.

one Bank of England boss described the LIBOR scandal this week, and

:01:46.:01:51.

it's not over. Bob Diamond, the former Barclays boss, hit back at

:01:51.:01:56.

MPs today, saying claims he misled them were unfounded and "terribly

:01:56.:02:00.

unfair". But it's now likely Mr Diamond will have to testify on

:02:00.:02:05.

Capitol Hill, and meanwhile here, on this hill, this ancient,

:02:05.:02:07.

venerable city behind me, there is pressure for faster and bigger

:02:07.:02:14.

reform of the banks. But what kind of change? How will it come? In a

:02:14.:02:17.

moment we will discuss things, where they go next, with a minister,

:02:17.:02:21.

our panel of experts, and a small audience of people with, as they

:02:21.:02:25.

say here in the City, skin in the game.

:02:25.:02:30.

First, to the people at the cold face, starting with one banker, all

:02:30.:02:39.

too notorious, in the business. Just like the bar it is set in, the

:02:39.:02:44.

Alex cartoon, currently in the Telegraph, is a City institution.

:02:44.:02:48.

But for the sharp-shouldered finance types, real and fictional,

:02:48.:02:53.

the world is changing. I think the LIBOR scandal may be the last straw.

:02:53.:02:57.

I think it has proved the straw that broke the camel's back. This

:02:57.:03:01.

man, who writes the Alex cartoons, is all too aware of the impact of

:03:01.:03:05.

the latest LIBOR scandal. Suddenly, there's all this focus on the City,

:03:05.:03:08.

they are in the public eye, and Alex used to like that, he used to

:03:08.:03:15.

like common people looking at his Porsche, and his suit and being

:03:15.:03:19.

impressed by it. Now he doesn't like the scrutiny any more.

:03:19.:03:22.

doesn't want to be scrutinised at all? Not the way he's being

:03:22.:03:26.

scrutinised right now. And the change is not just coming from

:03:26.:03:34.

regulators any more. Since the LIBOR scandal started two things

:03:34.:03:38.

have changed, politicians have had it up to here with the banks, and

:03:39.:03:43.

to regulation and rhetoric the gloves are off. And secondly,

:03:43.:03:46.

ordinary savers have started to vote with their feet. Since January

:03:46.:03:49.

half a million people have moved their money out of the five big

:03:49.:03:55.

banks and into ethical, mutual, or local banks. In the past two weeks,

:03:55.:04:04.

the Coe op has seen a 25% in-- Oc- Op has seen 25% increase. Ethical

:04:04.:04:09.

banks are report ago 200% increase. LIBOR, it seems, has brought City

:04:09.:04:12.

dodginess into the lives of millions.

:04:12.:04:15.

People are obviously very upset about bonuses, they are concerned

:04:15.:04:18.

about SME lending, they are concerned about stability and the

:04:18.:04:21.

integrity of the financial system. What LIBOR has done is it has made

:04:21.:04:24.

them start to question whether they are paying a fair price for the

:04:25.:04:29.

products and services which they rely on, their mortgages, their

:04:29.:04:34.

loans, their childrens' student loans and pension pots. They can

:04:34.:04:37.

see their personal decision to bank with bank that is a mainstream

:04:37.:04:43.

provider is starting to impact on the macro level concern. But could

:04:43.:04:46.

Britain really switch to an alternative type of banking,

:04:46.:04:51.

focused on people and businesses with non-astro no mamic bonuses, on

:04:51.:04:56.

a human scale? Anne Paul's house was damp and cold, she needed a

:04:56.:05:00.

loan to renovate it, she worked for a bank, but no bank would lend her

:05:00.:05:04.

the money at affordable rates, despite her being a homeowner.

:05:04.:05:10.

the winter, my son would see things, look mum, that wall isn't very good.

:05:10.:05:16.

I would say we would try to put something in front of it and do the

:05:16.:05:22.

best you can. Now she has the money from something called the London

:05:22.:05:26.

Rebuilding Society a community- funded finance scheme. They have

:05:26.:05:29.

changed their approach as seeing the customer as an individual, not

:05:29.:05:34.

one of their customers just. It was this disconnect between Britain's

:05:34.:05:39.

massive banks and the needs of people, that the Vickers report was

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supposed to address. Only ring- fenced banks would supply the core

:05:44.:05:49.

domestic retail banking services, taking deposits from individuals

:05:49.:05:53.

and small businesses and extending overdrafts to them. Vickers

:05:53.:05:57.

mandated Lloyd's to sell 650 branchs to encourage competition,

:05:57.:06:02.

and he made one big proposal about the structure of our banks. The

:06:02.:06:05.

Vickers' proposals would split the banks internally, but some

:06:05.:06:09.

politicians want to go further, and separate retail and investment

:06:09.:06:12.

banking completely. And, you have to whisper it in place like this,

:06:12.:06:18.

there is even a proposal to abolish leverage, completely.

:06:18.:06:21.

Leverage means a bank borrowing money against the cash it holds,

:06:21.:06:25.

lots of it. And the problem is, it can go wrong for boring banks as

:06:25.:06:30.

well as risky ones. The problem is the good bank is going to be invest

:06:30.:06:37.

anything good assets, which can go bad. Which can become bad assets,

:06:37.:06:43.

just like Italian bonds used to be very safe assets, and Lehman

:06:43.:06:48.

Brothers' bonds were safe assets, now they are bad assets. The more

:06:48.:06:53.

radical solution is known as "limited purpose banking", it was

:06:53.:06:58.

considered as a blue skies option under Vickers, and then discarded.

:06:58.:07:02.

Its designer thinks it is the only way forward. There is 10,000

:07:02.:07:08.

separate mutual funds in the US. The ones 100% equifinanced had no

:07:08.:07:11.

trouble in the crisis. If you don't borrow any money you can't go broke.

:07:11.:07:15.

If you have a financial system consisting of a lot of little

:07:15.:07:21.

mutual funds, none of which are leveraged or borrowed, none of them

:07:21.:07:26.

can fail. The plan says simply, all regulated banks, investment furnds,

:07:26.:07:29.

hedge funds et cetera, become mutually owned. So your savings

:07:29.:07:32.

account becomes like an investment, and it can be lent out to

:07:32.:07:36.

businesses. But the bank itself can't go to the markets and borrow

:07:36.:07:41.

money. To the extent that households and firms need to borrow,

:07:41.:07:48.

to buy homes, or to invest in new products, that's where the real

:07:48.:07:54.

advantage of leverage comes from in economics. It is not to have the

:07:54.:07:58.

financial intermediaries to borrow and gamble. We don't need the

:07:58.:08:04.

intermediaries to be leveraged. This week has not been happy for

:08:04.:08:08.

the image of the City. Here is how the man who regulates it described

:08:08.:08:12.

the LIBOR market. We can't be confident in anything after

:08:12.:08:20.

learning about this. This cesspit. How did that go down? Jim O'Neil

:08:20.:08:27.

manages �780 -- $780 billion of others money e manages the part of

:08:27.:08:30.

Goldman Sachs that manages people's savings and pension funds. Do you

:08:30.:08:35.

do people feel about this rush of negativity going on? Understandably

:08:35.:08:39.

and justifiably some of the emotional language being used,

:08:39.:08:45.

there is quite a bit of annoyance. The City ranges from people that

:08:45.:08:50.

are doing jobs probably that most normal people don't get bonuses or

:08:50.:08:56.

get paid that much, to those that are victimised in the populist

:08:56.:09:01.

current mood. You have British institutions, whose prime purpose

:09:01.:09:05.

is to support Britain's economy and Britain's role in the world. And

:09:05.:09:09.

then you have a much larger number of institutions which includes

:09:09.:09:14.

parts of those British institutions, whose purpose is primarily because

:09:15.:09:19.

of the time zone, the English language, and serving the world's

:09:19.:09:25.

needs. And they don't have to be in London. Despite that threat, he's

:09:25.:09:31.

simple theyic to a bigger division of labour -- sympathetic to a

:09:31.:09:34.

bigger division of labour in banking, and would go further on

:09:34.:09:38.

one issue. With the most basic of lending to individuals and

:09:38.:09:42.

companies, you need utility-type banks, and it looks like Vickers

:09:42.:09:47.

has recognised that. We certainly need, despite the mood, investment

:09:47.:09:51.

banks, now being divided as casino banks. You need those that can take

:09:51.:09:55.

risks and risky things, you just don't need them to be big enough to

:09:55.:09:58.

cause enormous problems. And it might well be that you need some

:09:58.:10:05.

sort of state-backed institution, particularly to lend to longer term

:10:05.:10:09.

projects, which are difficult for private entrepeneurs to discount

:10:09.:10:13.

the returns on. Hold on a minute, we have the boss of Goldman Sachs,

:10:13.:10:18.

saying it might be a good idea, if the state owned a bank? Well, I

:10:18.:10:23.

think if you look around the world, some of the countries that have

:10:23.:10:29.

with stood the crisis the best, happen to have those.

:10:29.:10:34.

He has impuned my integrity. bankers, the politicians, and the

:10:35.:10:39.

regulators have a massive image problem, formerly a cosy elite,

:10:39.:10:44.

they are now finger-pointing like crazy as the anger mouoints. How is

:10:44.:10:50.

this going down with the City's most iconic banker. Is he worried?

:10:50.:10:54.

I think he has an escape plan somewhere. Where will he go? They

:10:54.:10:59.

are all buying defensible land, they think there will be civil

:10:59.:11:04.

unrest, they are buying private islands where they can have a

:11:04.:11:08.

primary army on them. What is for sure, is that this particular

:11:08.:11:18.
:11:18.:11:19.

island no longer feels the same about the money men. Joining me

:11:19.:11:23.

here, with the City behind us, is Mark Hoban, secretary to the

:11:23.:11:27.

Treasury. People are moving their money out of the high street banks,

:11:27.:11:30.

and you heard there, a lot of people in the City behind us, most

:11:30.:11:35.

of whom are honest people, furious with some of the emotive language

:11:35.:11:38.

coming out of parliament about this industry. You are the Financial

:11:38.:11:42.

Secretary, what are you doing about it? We are doing a range of things,

:11:42.:11:47.

we are implementing the proposals of the Vickers Commission, to ring-

:11:47.:11:52.

fence retail banks. Eventually? line with the timetable Vickers

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announced. We are organise ago major overhaul of the financial

:11:56.:12:00.

system in the City, we are promoting competition in the

:12:00.:12:03.

banking sector to encourage more people to shop around. And they

:12:03.:12:11.

are? And last Friday, we pubished a paper in the society sector toe

:12:11.:12:15.

make them more attractive. And Lloyds Bank is negotiating the sale

:12:15.:12:22.

of 650 branches to the Co-Op. many branches will that leave for

:12:22.:12:25.

the big five remaining banks? will still have significant market

:12:25.:12:30.

share, the key thing is to ensure there are new challenges in the

:12:30.:12:33.

market. We sold Northern Rock to Virgin Money, we need to make it

:12:33.:12:38.

easier for people to move their bank accounts. And the Independent

:12:38.:12:40.

Commission on Banking made proposal about doing that. And people can

:12:40.:12:44.

shift their money easier, and we can see a flourishing competitive

:12:44.:12:48.

landscape. That will keep bankers' on their toes. It hasn't so far,

:12:48.:12:51.

they are not on their toes? That is why we are starting the process. We

:12:51.:12:54.

are also looking at the regulation of the City. We are giving the

:12:54.:12:58.

financial conduct authority, the conduct regulator, much bigger

:12:58.:13:01.

powers, more teeth, more intrusiveness. We saw some of that

:13:01.:13:08.

the week before last, when it introduced measures to compensate

:13:08.:13:11.

businesses who had been mis-sold complex interest rate ops. The this

:13:11.:13:17.

year, in April, we had Barclays and the FSA in a bit of a conversation.

:13:17.:13:21.

The FSA told Barclays they were aggressively, they had an

:13:21.:13:25.

aggressive pattern of effectively pushing the rules beyond acceptable

:13:25.:13:29.

limits. This was done, presumably, in private, I'm presuming, did you

:13:29.:13:34.

know about that? The regulator is independent. They don't come to the

:13:34.:13:37.

regulators and say one of the British banks is pushing the rules

:13:37.:13:41.

here? We have an independent regulator, we make sure they have

:13:41.:13:44.

the powers they need to take action. That is why one of the regulations

:13:44.:13:46.

going through parliament at the moment, we are giving the Bank of

:13:46.:13:49.

England and the financial conduct authority much more powers to take

:13:49.:13:53.

action to tackle some of these practices. Hold a minute, we see,

:13:53.:13:57.

now, thanks to the freedom of information requests, the way that

:13:57.:14:01.

e-mails fly around on an hourly basis between Whitehall and the FSA

:14:01.:14:04.

and the Bank of England and these banks. Are you seriously telling me

:14:04.:14:06.

that the Government had no idea there was something wrong at

:14:07.:14:11.

Barclays, which the FSA had actually identified? Look, you know,

:14:11.:14:14.

the FSA is responsible for regulating financial services.

:14:15.:14:19.

say they had no idea? We know what they are responsible? I don't think

:14:19.:14:23.

you would like it Paul if Government ministers interfered in

:14:23.:14:26.

the financial regulation of independent businesses t has to be

:14:26.:14:29.

done independently at arm's length. We have to make sure they have the

:14:29.:14:32.

powers they need to tackle wrongdoing in the City, we are

:14:32.:14:36.

doing that. The point seems to be to outside observers, that the

:14:36.:14:39.

Government is consistently behind the curve on these things, were you

:14:39.:14:44.

shocked when you suddenly found out that LIBOR had been manipulated by

:14:44.:14:48.

this major British bank, were you shocked? The reality is this

:14:48.:14:50.

Government is taking action to reform depings service, and

:14:50.:14:54.

Meredith Vickers said we are leading the world in attempts to

:14:54.:14:57.

reform -- John Vickers said we are leading the world in attempts to

:14:57.:15:01.

reform the banking system. That is why when we found out what was

:15:01.:15:07.

going on in Barclays and LIBOR, we got the report done, how to

:15:07.:15:10.

regulate LIBOR in the future, and how to ensure there are criminal

:15:10.:15:13.

sanctions in place to prevent it happening to LIBOR again. We are

:15:13.:15:17.

taking action to sort out this mess and make sure we have a City people

:15:17.:15:25.

can be proud of. And one place that employees, it employs two million

:15:25.:15:28.

people across the country, to make sure it thrives and service the

:15:28.:15:33.

economy. We know it is an important employer, and we know that the

:15:33.:15:36.

Vickers proposals may not have stopped what was going on in

:15:36.:15:40.

Barclays. That the structure wasn't going to be stopped by creating a

:15:40.:15:44.

ring-fence inside it, it was failure of regulation and

:15:44.:15:47.

management. What more can you do, than what Vickers, what you have

:15:47.:15:52.

accepted from Vickers, what more can you do to assure the British

:15:52.:15:56.

public that there won't be mother banks like this, after, eventually

:15:56.:16:02.

in 2019, Vickers is implemented? Vickers is range of things we are

:16:02.:16:04.

doing to sort out the financial sector. It won't be enough in

:16:05.:16:08.

itself to solve the problems, that is why we are radically reforming

:16:08.:16:11.

financial regulation and giving the Bank of England more powers T will

:16:11.:16:15.

take over the division of banks t will use its jupltd to intervene

:16:15.:16:18.

and act. That is what people - judgment to intervene and act. That

:16:18.:16:24.

is what people want to see. We have set up parliamentary inquiry on so.

:16:24.:16:29.

Brorder issues flowing from the LIBOR-fixing scandal, -- broader

:16:29.:16:33.

issues flowing from the LIBOR- fixing scandal. Something Vickers

:16:33.:16:40.

has drawn back you will accept? What the parliamentary ip inquiry

:16:40.:16:46.

is looking at is the ethic -- parliamentary inquiry is looking at

:16:46.:16:50.

is the ethics in the banking system. There is a range of steps taking,

:16:50.:16:55.

to change the banking structure and regulatory system, we have

:16:55.:16:57.

identified problems that need to be tackled. You have given more power

:16:57.:17:02.

to the Bank of England, your own colleague, Mr Andrew Tyrie, said to

:17:02.:17:05.

the deputy Governor of the Bank of England, this week, this does not

:17:05.:17:10.

look good, they have missed the Barclays LIBOR manipulation,

:17:10.:17:15.

despite discussion it at committee in 2007. Do you think it looks good

:17:15.:17:18.

the way the Government has handled the LIBOR communication? We need to

:17:18.:17:22.

learn the lessons that are going on, that is why we need to act. People

:17:22.:17:25.

want to see the action and see the mess sorted out. Thank you. Stick

:17:25.:17:30.

around for main. We are going to talk to our panel of experts. I'm

:17:30.:17:35.

joined by our panel to discuss their thoughts on how to fix our

:17:35.:17:37.

broken banks. Martin Wolf, the Financial Times journalist, who sat

:17:37.:17:43.

on the Vickers' commission. We have a specialist in industrial policy,

:17:43.:17:48.

and from the industry body City UK, Chris Cummings.

:17:48.:17:52.

Chris Cummings, the reputation of this industry is in shreds, despite,

:17:52.:17:57.

as I say, the vast majority of the people working in it being honest,

:17:57.:18:01.

hard working, talented people. What are you do about it? I think there

:18:01.:18:06.

are a range of things we can do. Let me first of all say the fact

:18:06.:18:09.

that some people tried to rig LIBOR is completely unacceptable.

:18:09.:18:14.

Wrongdoing has happened, it has been traced by the regulator, and

:18:14.:18:18.

the banks involved have co-operated. I come back to the point that you

:18:18.:18:21.

made, this industry is a national employer, two million people work

:18:21.:18:24.

in financial services, two-thirds of those outside London. This is

:18:24.:18:28.

actually a national industry. Something that we want our public

:18:28.:18:32.

to be proud of tkpwhin. We want our employees to be -- again. We want

:18:32.:18:36.

employees to be proud of. Yes we want to work with the regulator and

:18:36.:18:39.

the Government, in order to address these problems. But actually, what

:18:39.:18:45.

we need to be inculcating is a reputation where it is not enough

:18:45.:18:50.

to obey the rules, we have to do the right thing, that is more

:18:50.:18:54.

important. Presumably you will stop quibbling about Vickers, and

:18:54.:18:58.

spending money on lobbyists to tweak the edges of the Vickers'

:18:58.:19:02.

proposals to become more acceptable to members S that a promise?

:19:02.:19:06.

industry is working very closely with Vickers. We know, and the

:19:06.:19:09.

result is it is watered down? is a range of views out there.

:19:09.:19:12.

There are certain things we want to see s and working with the

:19:12.:19:15.

timetable laid out. I think it is for the industry to prove good

:19:15.:19:19.

faith, that is really what we have been doing. You will accept it, in

:19:19.:19:24.

full, you will stop the rear guard action, you will accept the

:19:24.:19:30.

implications, your members will, of a fairly hard, eventual 2019, break

:19:30.:19:34.

within these banks. They won't be gaining that? We need proposals

:19:34.:19:39.

that work in practice what can look like rear guard action, is actually

:19:39.:19:42.

significant discussions on the detail to make sure we have a

:19:42.:19:46.

banking system that is as robust that everybody wants to see, but

:19:46.:19:48.

which still enables small businesses to get the loans they

:19:48.:19:52.

want to see, individuals to get the banking services they want. That is

:19:52.:19:56.

the heart of the industry's discussion with regulators and

:19:56.:20:03.

Government, on highly complex and technical matters. The senior bosss

:20:03.:20:06.

in your industry spend considerable time in dinners together, they have

:20:06.:20:12.

time and privacy. When they do this, do they discuss the culture at all.

:20:12.:20:15.

If so, why are they constantly shocked when it is revealed that a

:20:15.:20:20.

whole desk worth of people n this bank or other, is fiddling the

:20:20.:20:23.

system. Do they ever do anything about the culture. Do they even

:20:23.:20:26.

recognise it? Talk to any chief executive, in the City or across

:20:26.:20:30.

the country today, whether that's in banking, insurance, whether in

:20:30.:20:34.

Asset Management, in pensions. The one thing that everybody is

:20:34.:20:37.

concerned about these days is delivering a better culture. One

:20:38.:20:41.

that focuses on helping people get the loans they need, the savings

:20:41.:20:45.

that they want, and small businesses. So it really is at the

:20:45.:20:48.

heart of matters today. We will come back to you.

:20:48.:20:53.

You sat on this Vickers' commission, could it have stopped what happened

:20:53.:20:57.

at Barclays? No, they weren't designed to. They were asked to

:20:57.:21:01.

look at the structure of the banking system to make it more

:21:01.:21:05.

resilient, and to improve competition. I think we have given

:21:05.:21:09.

sensible recommendations on that. There are many matters of the

:21:09.:21:13.

conduct of financial institutions, which is essentially what this is

:21:13.:21:16.

about, which clearly didn't fall been that view. There were

:21:16.:21:20.

important issues that were affected by global and European regulation,

:21:20.:21:24.

which we obviously couldn't do anything about, so we focused very

:21:24.:21:28.

clearly on what we were asked to look at, and this sort of behaviour

:21:28.:21:32.

would not have been eliminated by that. That's for somebody else to

:21:32.:21:37.

look after, as you said, that is a profound cultural issue, we weren't

:21:37.:21:42.

asked to sort out the culture of banks. We have a regulatory

:21:43.:21:46.

structure where the Bank of England sits on top of it, you saw Paul

:21:46.:21:51.

Tucker at the committee, it didn't look very good, Andrew Tyrie, the

:21:51.:21:57.

chair of it. The regulatory system, do we have the new one up to

:21:57.:22:04.

scratch to learn about further malfesiants? It is absolutely clear

:22:04.:22:08.

that the ball slipped between all these hands. Now it is absolutely

:22:08.:22:13.

clear who is responsible, pretty well, it is the bank. The bank,

:22:13.:22:18.

before the crisis, basically wanted to get rid of regulation, they

:22:18.:22:20.

weren'ted interested. Now they surely are interested. I don't

:22:20.:22:24.

think look -- they weren't interested, now they surely are

:22:24.:22:27.

interested, I don't think looking at the past will tell us what to do.

:22:27.:22:31.

I would expect regulation for the next ten or 15 years to be really

:22:31.:22:36.

fierce, everybody knows how stupid they look as a result of these

:22:36.:22:41.

series of catastrophys. The horse has bolted. You heard Jim O'Neil of

:22:41.:22:44.

Goldman Sachs, surprisingly to me, suggest a state investment bank,

:22:44.:22:47.

this is something you and the people you work with in your

:22:47.:22:52.

research proposed. What would it do and add to the mix. We have heard

:22:52.:22:55.

people leaving mainstream banks, why do you need a state one?

:22:55.:23:01.

two different reasons. One is the one we have been hearing there, a

:23:01.:23:04.

counter cyclical lender, because private banks and businesses lend

:23:04.:23:07.

or spend too much during the booms and too little during the bust. You

:23:07.:23:13.

need the counter cyclical state policy in terms of bank lending.

:23:13.:23:17.

What is not said is you also need a state investment bank, we are

:23:17.:23:23.

seeing that in China and Brazil, to provide courageous capital in high-

:23:23.:23:26.

risk areas. What is interesting, is these investment bankers, as well

:23:26.:23:32.

as venture capitalists, talk about themselves as loving risks, they

:23:32.:23:34.

are entreprenurial, they are out there to look at the great types of

:23:35.:23:39.

investment that is might actually be nurturing long-term growth. If

:23:40.:23:44.

you look at where they have been investing, it is not in areas that

:23:44.:23:48.

created Silicone Valley. What would you do on the wider issue. You are

:23:48.:23:51.

somebody who is listened to people on both sides of parliament, for

:23:51.:23:55.

the wider issue of the industry, what is the number one thing would

:23:55.:23:59.

have to happen now? We have open up the debate about a state investment

:23:59.:24:03.

bank. We have the RBS, which is the skeleton there that we could

:24:03.:24:07.

transform very quickly. The point is not again just to talk about an

:24:07.:24:10.

institution and say where weather it is good ored bad, it is about

:24:10.:24:14.

the ecology of what type of banking system we need, to provide the

:24:14.:24:17.

patient and committed finance. That, by the way. If we look at the

:24:18.:24:21.

eurozone, why is Germany so competitive? Why is it a surplus

:24:21.:24:24.

country, where as Portugal, Italy and Greece are in this terrible

:24:25.:24:30.

situation? They have a state investment bank as well as these

:24:30.:24:35.

regional banks that have been lending, not only counter

:24:35.:24:39.

cyclically, but also better companies.

:24:39.:24:45.

You think it is a rubbish idea, what do you think? I think some of

:24:45.:24:48.

those banks are the worst in the world. I started my life in

:24:48.:24:52.

development, I recognise the good cases, there have been some very

:24:52.:24:55.

good state investment banks, and there have been a lot of

:24:55.:25:00.

unbelievably bad ones. If you promise me it will be a very good

:25:00.:25:06.

bank in the UK, state investment, I wouldn't buy it, I wouldn't be

:25:06.:25:11.

easily convinced of it. A couple of members of the audience. Gemma, you

:25:11.:25:16.

work for a wealth manager, Brooks McDonald, how does this feel to you,

:25:16.:25:19.

your colleagues out there watching this tonight and crying into their

:25:19.:25:24.

champagne, what does it feel like? Banks need to earn back our respect,

:25:24.:25:30.

but we can't use a sledgehammer to correct a house of cards. The

:25:30.:25:35.

challenge is that low level regulation hasn't worked, but

:25:35.:25:38.

heavy-handed regulation could be as damaging, and hit the man on the

:25:38.:25:44.

street hardest, in terms of higher borrowing costs, reduced credit

:25:44.:25:46.

availability, and potential job losses as well. You are

:25:46.:25:50.

representing Move Your Money, people winding up this getting your

:25:50.:25:53.

money out of Barclays, et cetera. What would you say to the

:25:53.:25:59.

Government right now? I would say to listen to customers, half a

:25:59.:26:03.

million people have moved their money this year already, out of the

:26:03.:26:07.

big high street banks, and into alternatives, like mutuals, local

:26:07.:26:12.

Credit Unions, and ethical banks. I would ask the Government to carry

:26:12.:26:20.

on making it easier for people to move their money, and to release

:26:20.:26:23.

regulations that make it hard for these banks. They work for local

:26:23.:26:27.

communities, and for the UK economy, to make it easier for them to grow.

:26:27.:26:31.

We will come back to you Mark Hoban in a moment. I wonder if anybody

:26:31.:26:37.

else on the panel, there is an he can sis tension problem here, we

:26:37.:26:40.

all -- existential problem here, we know these guys are struggling to

:26:40.:26:43.

try to defend the industry, which is a strategic industry for this

:26:43.:26:47.

country, like it or not. Not doing a great job of it, let's put it

:26:47.:26:50.

that way. What would you do, what is the number one thing you would

:26:50.:26:53.

do to bring the situation to a head? I think that we should

:26:53.:26:57.

implement our proposals in full. And there are some important areas

:26:57.:27:00.

where they weren't being implemented in full. One of the

:27:00.:27:04.

most important, which directly relates to a scandal, you mentioned,

:27:04.:27:08.

is we felt retail banks, should not be selling derivatives to people

:27:08.:27:13.

who don't understand them. That is exactly what has happened in this

:27:13.:27:18.

very important case, and the Government has, unfortunately,

:27:18.:27:21.

ignored that recommendation F we implement the proposals in full, it

:27:21.:27:24.

will make a difference in the determine to how the banks operate.

:27:24.:27:33.

There is a danger if we accept rate -- separate commercial and

:27:33.:27:39.

investment banking, we are assuming small businesses will use the small

:27:39.:27:43.

banks, we need investment. We need to ask what sort of companies we

:27:43.:27:50.

want in the country, innovative companies that are producing jobs.

:27:50.:27:52.

Most SMEs don't create net employment, there is a small

:27:52.:27:56.

percentage of them, these high- growth, innovative companies, they

:27:56.:27:59.

need proper investment banking, they are not going to be satisfied

:27:59.:28:03.

by low-scale commercial banks. are out of time. Quickly to throw

:28:03.:28:06.

this to Mark Hoban. You do recognise this is a turning point,

:28:06.:28:10.

it has been a torrid couple of weeks for the place behind me and

:28:10.:28:13.

people who keep their money in banks? It has been a difficult few

:28:13.:28:18.

weeks. The important thing is tone sure we take the action needed, --

:28:18.:28:22.

to ensure we take the action needed so the banks with underpin the

:28:22.:28:26.

economy, they can lend money to businesses, take long-term

:28:26.:28:29.

decisions to promote growth, to offer good deals to consumers. We

:28:30.:28:33.

want to see people shop around, so there is more competition on the

:28:33.:28:36.

high street and businesses. Let's get a better outcome for the city,

:28:36.:28:40.

and the two million people across the UK who work in financial

:28:40.:28:44.

services. We all live in hope for all of that. That is all from us

:28:44.:28:47.

here in the Financial Times building in central London. Thanks

:28:47.:28:53.

to all my guest, back to you in the studio.

:28:53.:28:56.

Maybe it is that tetchy, end of term feeling, at the close of a

:28:57.:29:00.

parliamentary session. As MPs prepare to leave for their holidays,

:29:00.:29:03.

their grumpiness over Lords reform turned to questions about the very

:29:03.:29:07.

future of the coalition Government itself. The Prime Minister told his

:29:07.:29:11.

MPs today that he make one more attempt to win them over on Lords

:29:11.:29:15.

reform in the autumn, and then draw a line and move on. Liberal

:29:15.:29:19.

Democrats do have the nuclear option of bringing down the whole

:29:19.:29:22.

coalition, with potentially dire consequences for their party in any

:29:22.:29:25.

general election. What happens now? Our political editor, Allegra

:29:25.:29:31.

Stratton is here. Are they all could have chillaxing this summer?

:29:31.:29:35.

What I find interesting is the Olympics and Jubilee, were always,

:29:35.:29:40.

the people like me were told, is the rebooting moment for the

:29:40.:29:45.

coalition and a feeling of happy Britain, Richard Curtis-esque, and

:29:46.:29:48.

the Prime Minister would preside over it, it would be great moment

:29:48.:29:51.

for the coalition and trying to achieve majorities in the future

:29:51.:29:55.

for the Prime Minister. And what will happen with the Olympics is

:29:55.:29:58.

you and I will be watching it, but the machinery of the Conservatives

:29:58.:30:02.

will have to press very hard on the Tory rebels that rebelled in such

:30:02.:30:06.

large numbers last night, to get them on to side. We got a sense of

:30:06.:30:08.

it in our discussion last night with David Laws and others, that

:30:08.:30:11.

they weren't going to leave this, they were going to come back. You

:30:11.:30:14.

have had, this evening, the Prime Minister say, we are going to have

:30:14.:30:19.

one last try. Somebody described it to me, when you are trying to

:30:19.:30:23.

figure out what the grounds for consensus will be, it is incredibly

:30:23.:30:27.

difficult, they say a 3-D chess board being shaken, there is so

:30:27.:30:30.

many different interests and grounds for consensus that may or

:30:30.:30:33.

may not be possible. That is what the Prime Minister and his team

:30:33.:30:36.

will be trying to figure out over the summer. I don't suppose anybody

:30:36.:30:39.

seriously thinks the Government will end, or the coalition will end.

:30:39.:30:44.

But there is a risk of tit for tat meanness, point scoring on both

:30:44.:30:49.

sides? I think that the Liberal Democrats believe if they don't get

:30:49.:30:53.

Lords reform there won't be boundaries. This brings us back to

:30:53.:30:57.

the idea of how the Tories think they will get their majority in the

:30:57.:31:01.

future. Boundary review is very important for them, they think it

:31:01.:31:04.

delivers them anything between 15- 20 MPs t makes it more difficult

:31:04.:31:08.

for Labour to win majorities in the future. The Liberal Democrats are

:31:08.:31:13.

saying we will simply block that. They don't mind if the public think

:31:13.:31:22.

that is at this timeor at that time, that could also be -- think that

:31:22.:31:30.

could be tit for tat, they think that could be construed as strength.

:31:30.:31:33.

What about Ed Miliband? principle he's in favour, he's

:31:33.:31:36.

having a good summer, but he's blocking it because of the

:31:36.:31:41.

practicalities of this. For some that is not edifying politics.

:31:41.:31:45.

molt we will hear from three politic -- in a moment they will

:31:45.:31:53.

hear from three political insiders. And now an issue rarely centre of

:31:53.:31:57.

how MPs are dealing with it. You might have noticed there have

:31:57.:32:00.

been a few gliches with the coalition recently, little problems

:32:00.:32:04.

with the budget, little disagreements over Europe.

:32:04.:32:07.

Problems with the LIBOR scandal, and last night, of course, that

:32:07.:32:12.

battle over Lords reform. Time, some believe, for something

:32:12.:32:18.

of a coalition reboot. Now is a good time to have a cool,

:32:18.:32:21.

calm reflection, on what remain of the coalition, by taking it and

:32:22.:32:24.

having a review of the Government itself. David Cameron's first

:32:24.:32:29.

problem is many of his backbenchers aren't very happy right now.

:32:29.:32:37.

Last night's vote was a as -- as much a symptom of that over the

:32:37.:32:41.

disquiet over specifics of Lords reform. Not only do they feel

:32:41.:32:46.

valued, but there is no chance of promotion, and they don't get

:32:46.:32:49.

called in for a chat any more. They don't feel under any obligation to

:32:50.:32:53.

support David Cameron when he needs them to. Crunch the numbers and

:32:53.:32:58.

last night's rebellion looks even more spectacular. Out of 171

:32:58.:33:04.

Conservative backbenchers, who voted last night, only 80 voted for

:33:04.:33:09.

the Government. 91 voted against, and a further 19 abstained, some of

:33:09.:33:15.

them may have simply been unable to attend. Many of us fear...Connor

:33:15.:33:20.

Burns was one of ten MPs who had to leave their junior jobs after

:33:20.:33:25.

voting against the Lords Reform Bill. I resigned yesterday, I voted

:33:25.:33:28.

loyally for every vote for this Government and the coalition since

:33:28.:33:31.

I was elected a member of parliament. I'm going away more

:33:31.:33:37.

unhappy than I have been for a very long time. I didn't want to resign,

:33:37.:33:42.

I resigned over something in the last parliament, many members of

:33:42.:33:47.

Government voted for and remained in Government. Do you think

:33:47.:33:51.

backbenchers feel taken for granted? What you see often in

:33:51.:33:53.

television discussions, you will see somebody speaking for the

:33:53.:33:57.

coalition and the Liberal Democrats, and there is a sense that we need

:33:57.:34:00.

sometimes people who are speaking for the Conservative Party. This is

:34:00.:34:02.

a coalition for both the Conservatives and the liberal

:34:02.:34:06.

leadership, but there is also a coalition within each party,

:34:06.:34:11.

between the leadership and the backbenchers. That needs work.

:34:11.:34:14.

Today was the last Prime Minister's Questions of the parliamentary term,

:34:14.:34:20.

and Mr Cameron was rather teased by the Labour leader about what

:34:20.:34:25.

happened last night, particularly over an apparent bust up he had

:34:25.:34:31.

with the unofficial head of the rebels, the Lib Dem MP, Jessie

:34:31.:34:34.

Norman. He lost control of his party, and not for the first time,

:34:34.:34:40.

he lost his temper as well. We understand it was fisty cuffs in

:34:40.:34:45.

the lobby, with the member for Hereford and south Hertfordshire. I

:34:45.:34:48.

notice that the posh boys have ordered him off the estate today,

:34:48.:34:53.

he doesn't seem to be here. Who does the Prime Minister blame

:34:53.:34:57.

most for the disarray in his Government? The Lib Dems or his own

:34:57.:35:02.

backbenchers. If the best he can do today is a

:35:03.:35:08.

bunch of tittle tattle and rumour, how utterly pathetic. In fact, the

:35:08.:35:14.

MP in qi, -- question, Jessie Norman, wasn't in hiding, but

:35:14.:35:17.

meeting the Queen in his constituencies, he declined to

:35:17.:35:22.

discuss his row with the PM. Ask I ask you what Mr Cameron said to you

:35:22.:35:27.

yesterday? No it is a private matter. Apparently he's furious

:35:27.:35:31.

with you? No comment. Meanwhile the Lib Dems feel a bit bounced too, by

:35:31.:35:35.

Conservative MPs, who they say, are ignoring the coalition agreement.

:35:35.:35:39.

deal is a deal, and it is important you stick to that deal and to the

:35:39.:35:43.

contract, if you like, that you have entered into, that is why I

:35:43.:35:47.

think it is important, not least because so far both parties have

:35:47.:35:51.

stuck to that deal very effectively, that we continue to do so. That is

:35:51.:35:54.

why it is important we deliver House of Lords reform, it is a

:35:54.:36:00.

clear commitment in the coalition agreement. By contrast, today, one

:36:00.:36:03.

of Mr Cameron's own backbenchers said what should happen is the

:36:03.:36:06.

coalition agreement should be reviewed. The whole issue around

:36:06.:36:11.

Lords reform is because it was felt that this wasn't clearly defined in

:36:11.:36:15.

the coalition agreement, this agreement is specific, it is 400

:36:15.:36:20.

pages long. And yet this wasn't clearly defined in that it said we

:36:20.:36:25.

should reach consensus, and then bring forward proposals. It didn't

:36:25.:36:28.

talk about legislation and consensus hasn't been reached. It

:36:28.:36:30.

is sometimes felt that the coalition Government is moving

:36:30.:36:34.

beyond, outside the original coalition agreement. For party

:36:34.:36:37.

unity, and also in the national interest, it is important, as with

:36:37.:36:40.

many other countries, that the agreement is reviewed, mid-term.

:36:40.:36:44.

Tonight, at a meeting with his party, Mr Cameron said he was

:36:44.:36:48.

prepared to give Lords reform one more try, but then would draw a

:36:48.:36:52.

line under the matter. However, not many expect the Liberal Democrats

:36:52.:36:58.

to be so willing to drop the issue. With me now to give their own end

:36:58.:37:06.

of term report are three wise heads of Westminster, Danny Finkelstein,

:37:06.:37:11.

Amber Elliott and Steve Richards. First of all, when you talk to Tory

:37:11.:37:16.

MPs, why did so many of them, 91 of them, feel so emboldened or annoyed

:37:16.:37:19.

to rebel? There are two things, they don't like the scheme, they

:37:19.:37:23.

think it will lead to a bad House of Commons, as a Home Office Lords

:37:23.:37:26.

that will challenge the House of Commons, they don't believe in the

:37:26.:37:29.

principle of election, even though they are elected themselves. I

:37:29.:37:33.

suppose the other thing they are not committed theelojically as the

:37:33.:37:36.

Liberal Democrats are to the coalition deal. The Liberal

:37:36.:37:39.

Democrats went to the party and got the whole party committed behind

:37:39.:37:42.

the coalition deal, people felt a sense of investment in it. The

:37:42.:37:47.

Conservatives didn't go through the same process, so their MPs feel

:37:47.:37:52.

more justified in their own lines to rebel. Shouldn't David Cameron

:37:52.:37:57.

have thought of that before? certainly have got to look at your

:37:57.:38:01.

party management when you have lost so many MPs. But, on the other hand,

:38:01.:38:04.

this was always going to be very difficult. It was the reason why it

:38:04.:38:07.

wasn't a priority for the Tories, it splits the Conservative Party.

:38:08.:38:12.

In terms of where it leaves the coalition, do you think the

:38:12.:38:15.

relations are bound to be pretty tetchy into the summer and autumn?

:38:15.:38:18.

Someone described it to me as we're at the bump in the road, we know

:38:18.:38:23.

the bump is there, we know we have to get over it, we don't quite know

:38:23.:38:28.

how yet. I saw Nick Clegg this evening, he was sort of a lot more

:38:28.:38:31.

downhearted, shall we say, about the future of Lords reform than he

:38:31.:38:35.

was previously. He was saying, look it is up to David Cameron to sort

:38:35.:38:39.

it out over the summer. We are going to go away and come back to

:38:39.:38:42.

it, but I won't agree to it unless we get the programme motion which,

:38:42.:38:48.

is the timetable for Lords reform. How far do you think trust is

:38:48.:38:52.

necessary in this. It is obviouslinessry at the very top

:38:52.:38:58.

between Nick Clegg -- obviously very necessary at the very top

:38:58.:39:05.

between Nick Clegg and Cameron, does it matter elsewhere or does it

:39:05.:39:08.

become tribal? They are two separate parties running in a

:39:08.:39:12.

coalition. When it is said, rightly, that Conservative MPs feel strongly

:39:12.:39:16.

about this as a matter of principle. It is admirable they are sticking

:39:16.:39:22.

up for Nair beliefs and threatening their ministerial careers. -- their

:39:22.:39:26.

beliefs and threatening their ministerial careers. However there

:39:26.:39:30.

was an agreement, and I understand why Nick Clegg is feeling down, he

:39:30.:39:35.

has delivered on many issues that were difficult for the Lib Dems,

:39:35.:39:40.

tuition fees and other things. It is difficult for them to have a

:39:40.:39:43.

profound sympathy for the Conservatives, when they had to

:39:43.:39:49.

jump some of their deeply-held beliefs to back other areas of the

:39:49.:39:57.

coalition. There is another issue as well, that is that with

:39:57.:40:01.

electoral reform, that was a painful moment for Nick Clegg, but

:40:01.:40:05.

Cameron delivered the referendum, he ruthlessly won it, he delivered

:40:05.:40:08.

it, that was the deal. This was delivery on the substance, and he

:40:08.:40:14.

can't do it. I think there are causes for real tension now. Do you

:40:14.:40:20.

think the worry is there will be reprisal, that some Lib Dems will

:40:20.:40:24.

be unwhippable, and party at the top might be irritated? If you part

:40:24.:40:27.

company with the them you are in unchartered territory. If you look

:40:27.:40:31.

at what is in front of the coalition, if you end up not having

:40:31.:40:35.

the Lords, the Lib Dem leaving the Government to vote against the

:40:35.:40:39.

boundary reviews, you are looking at a coalition spliting up over

:40:39.:40:42.

issues that the public don't care about. That is not doable for the

:40:42.:40:45.

Liberal Democrats or the Conservatives. You need a

:40:45.:40:48.

compromise, either they drop both those things, or David Cameron is

:40:48.:40:51.

going to be able to come back to Conservative MPs with something on

:40:51.:40:54.

the Lords they will accept, and that Nick Clegg will accept too.

:40:54.:41:00.

There must be a range of such compromises, because Nick Clegg

:41:00.:41:03.

cannot possibly and David Cameron cannot possibly allow the

:41:03.:41:06.

Government to fall on such an issue. Do you broadly agree with that,

:41:07.:41:10.

that the Government will not fall on this issue, but some how they

:41:10.:41:13.

have to stagger on for the next two years? I can't see them falling

:41:13.:41:16.

over this issue. For the last two years we have had the Liberal

:41:16.:41:18.

Democrats saying they are in the Government for the greater good, it

:41:18.:41:21.

is because of the public they are doing this. Although they could be

:41:21.:41:26.

in a burning building with no exits, Danny was suggesting that today?

:41:26.:41:30.

The problem is they could turn around and say that is enough, you

:41:30.:41:34.

haven't delivered it and we are out of here, it looks like they were in

:41:34.:41:39.

it for self-interest. They are in a difficult place. Nick Clegg is

:41:39.:41:43.

trying to distance himself from Lords reform, saying it is up to

:41:43.:41:46.

David Cameron to sort it out, we have delivered t you co-signed the

:41:46.:41:50.

word in the white paper, you are in it, whether you like it or not.

:41:50.:41:53.

Where does it leave the leader, the Times had a story suggesting that

:41:53.:41:57.

Nick Clegg after the AV referendum failed was offered by David Cameron,

:41:58.:42:02.

something, what do you want. The Tories, apparently, accord together

:42:02.:42:05.

story thought he would say scupper NHS reform, he didn't, he went for

:42:06.:42:10.

this, that could be a big mistake in his own judgment? If you don't

:42:10.:42:14.

get it, having put yourself so closely in line with a particular

:42:14.:42:18.

issue and you don't get it. Obviously it is devastating on many

:42:18.:42:21.

levels, you have to explain it to your party that you failed to do it.

:42:21.:42:25.

He will have an answer, that it is not his party, they are all united

:42:25.:42:28.

behind it. But the others, however, it is still not deliverable for him.

:42:29.:42:34.

And so, it is very difficult for him. As I say, having failed to get

:42:34.:42:38.

electoral reform, to note get this, and meanwhile have to explain why

:42:38.:42:41.

you are endorsing more of the sort of policies associated with the

:42:41.:42:44.

Conservatives, puts him in a very difficult position. What about

:42:44.:42:47.

David Cameron's position on this, does the size of the rebellion, and

:42:47.:42:51.

also the coverage that has suggested there were nods and winks

:42:52.:42:59.

saying we wouldn't be tooishcated - - ircated by this? It isn't the

:42:59.:43:05.

issue for them is the aren't they stkpnt get AV is nobody -- didn't

:43:05.:43:11.

get AV is nobody isn't interested. This isn't the issue that is a

:43:11.:43:15.

problem for them. The problem in Nick Clegg's case is to be seen to

:43:15.:43:18.

be supporting responsibly, as a governing party, that can be

:43:18.:43:23.

trusted in a coalition. The issue for David Cameron is he seen to be

:43:23.:43:27.

in touch and competent, and those are issues about the real economy,

:43:27.:43:33.

and this is just an issue they have got to sort out between the -- them,

:43:33.:43:37.

because the electorate doesn't mind. For Ed Miliband, a few months ago a

:43:37.:43:41.

lot of columnists were writing him off, not now? We have had the

:43:41.:43:45.

situation with Tony Blaired today. I think the problem for Ed Miliband

:43:45.:43:49.

s he has to find way to be constant. He has big highs, like bark close

:43:49.:43:57.

and Levy, and then he has lows. -- Barclays and lefson, and then he

:43:57.:44:02.

has lows. Until he is seen by the public as a trustworthy figure he

:44:02.:44:07.

has problems. He has to say he's a man that is better for you than

:44:07.:44:11.

David Cameron and you can trust me more on situations like the economy.

:44:11.:44:13.

In that sense, since the budget, that may have changed one or two

:44:13.:44:19.

things. I have talked to a few Tory MPs who are a bit irritated

:44:19.:44:23.

defending certain things that were reversed S that all good news for

:44:23.:44:27.

Miliband? -- is that all good news for Miliband? I slightly disagree.

:44:27.:44:30.

On the whole he has been a pretty constant performer, it is

:44:30.:44:34.

interesting that the way he is perceived has changed. Today at

:44:34.:44:37.

Prime Minister's Questions, I noticed a lot of commentators

:44:37.:44:42.

tweeting that it was a brilliant performance from Ed Miliband. It

:44:42.:44:45.

wasn't that much different from performances six months ago, but

:44:45.:44:49.

the context has changed. When you have a Prime Minister who can't

:44:49.:44:53.

deliver his own parliamentary party, and the Deputy Prime Minister

:44:53.:44:56.

feeling betrayed by the Prime Minister for not doing so, as

:44:56.:45:00.

leader of the opposition you were in a stronger position than you

:45:00.:45:05.

were, which has always been pretty good. Is Lords reform dead in the

:45:05.:45:08.

water? I think they could find a compromise. They have either got to

:45:08.:45:13.

do that or drop t they can't possibly break up over it. I think

:45:13.:45:17.

he's looking to have 120 elected peers by 2015, that is what he will

:45:17.:45:22.

push on and Cameron hopes so too. Dead or alive? In the end they will

:45:22.:45:25.

find a compromise that won't really please any of them, but might get

:45:25.:45:31.

them through this particular hurdle. A British businessman is to face

:45:31.:45:34.

criminal charges over a supposed bomb detector he sold to countries

:45:34.:45:39.

around the world, including Iraq, which paid �50 million for the

:45:40.:45:44.

devices. Jim McCormick has been remanded in custody and will appear

:45:44.:45:49.

in a London court tomorrow, charged with multiple counts of fraud. A

:45:49.:45:53.

Newsnight investigation revealed the product made by Mr McCormick

:45:53.:45:59.

didn't work. This is how the called bomb

:45:59.:46:02.

detector was sold, with extraordinary claims about how it

:46:02.:46:07.

can detect explosives, powered only by the use of static electricity.

:46:08.:46:13.

The device didn't come cheap. Iraq, one of Jim McCormick's biggest

:46:13.:46:20.

customers, spent $85 million on t at a cost of around $40,000 each.

:46:20.:46:23.

They are still used at police checkpoints today. Jim McCormick,

:46:23.:46:28.

shown here on a visit to Baghdad, runs a security company, based in

:46:28.:46:33.

Somerset. Filmed by BBC Points West in 2009, Jim McCormick claimed that

:46:33.:46:38.

these cards are the key to how the device work, and they can detect

:46:38.:46:42.

everything from explosives to dollar bills and ivory. Ideal

:46:42.:46:47.

conditions you can be up to one kilometer away. So this card will

:46:47.:46:53.

help this device spot explosive as kilometer away. Under ideal

:46:53.:46:59.

conditions, yes. After a string of deadly bombs in

:46:59.:47:02.

Baghdad, we began investigating the device, which Jim McCormick has

:47:02.:47:08.

said he has sold to some 20 countries around the world. In

:47:08.:47:12.

early 2010, we managed to obtain a set of Mr McCormick's special cards,

:47:12.:47:15.

and brought them to Cambridge University's computer laboratory,

:47:15.:47:19.

to analyse them for us. There is nothing to programme in these cards,

:47:19.:47:24.

there is memory, no microcontroller, these are shop theft prevention

:47:24.:47:29.

cards. It couldn't be programmed then to detect TNT? Absolutely not.

:47:29.:47:33.

We told the Government the results of our investigation, and it

:47:33.:47:38.

immediately banned the export of the ADE-651 and similar device, to

:47:38.:47:43.

both Iraq and Afghanistan. Now, after a long and complex

:47:43.:47:48.

international investigation, Jim McCormick has been charged. He will

:47:48.:47:53.

face six charges under the Fraud Act 2006. Three count of possession

:47:53.:47:58.

or having under his control a device for use in the course of use

:47:58.:48:01.

for fraud. A further three counts of manufacturing or supplying a

:48:01.:48:04.

device, knowing that it was designed to be used in the

:48:04.:48:07.

commission of a fraud. McCormick has been remanded in

:48:07.:48:12.

custody, and due to appear at a court in London tomorrow.

:48:12.:48:22.
:48:22.:48:41.

That's all tonight, we leave you with news that the man who brought

:48:41.:48:45.

bunga-bunga into the English language, Silvio Berlusconi mayk

:48:45.:48:49.

staging a comeback, despite charges -- bay be staging a comeback,

:48:49.:48:54.

despite charges of having sex with a 17-year-old hanging over them, it

:48:54.:49:04.
:49:04.:49:08.

is thought he may make a bid for # The Italian

:49:08.:49:14.

# Take a chance # And try to steal a fiery kiss

:49:14.:49:21.

# The Italian # When you hold me

:49:21.:49:31.
:49:31.:49:34.

# Don't just hold me Hello there. There is a brief

:49:34.:49:37.

window of fine weather for most of us on Thursday, but not everywhere.

:49:37.:49:40.

A little bit of rain across the north-east of Scotland. Rain

:49:41.:49:44.

pushing into the south western parts of England as well. Inbetween

:49:44.:49:48.

a fair amount of dry and at times fairly sunny weather to be enjoyed.

:49:48.:49:52.

That is difficult to find in recent days. Temperature-wise, still

:49:52.:49:55.

fairly disappointing, getting up into the high teens, possibly the

:49:55.:50:00.

low 20s in one or two of the brighter spots. The rain moving in

:50:00.:50:05.

well across south Hampshire, and heavy by then across parts of Devon,

:50:05.:50:09.

Cornwall and Somerset. The rain edging into South Wales, along with

:50:09.:50:12.

a freshening breeze. For North Wales you might well hang on to

:50:12.:50:14.

sunny skies into the afternoon, and across Northern Ireland,

:50:14.:50:18.

essentially, it is a fine day, with spells of sunshine, lingering on.

:50:18.:50:22.

But still disappointing temperatures, 14 or 15 degrees,

:50:22.:50:26.

western Scotland still dry, rain badly needed across the Western

:50:27.:50:31.

Isles, a persistent drought here, 12 degrees in Inverness, very poor

:50:31.:50:35.

here. It doesn't get warmer here as we go into industry as well.

:50:36.:50:40.

Edinburgh struggling 13 degrees, the high with cloud hey skies and a

:50:41.:50:45.

cool breeze to go -- cloudy skies and a cool breeze to go with it. It

:50:45.:50:50.