Martyn McLaughlin: The failure to call HSBC’s bluff leaves Treasury on a losing streak

Picture: Getty
Picture: Getty
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The principle of nominative determinism may have led some analysts to believe Stuart Gulliver, the chief executive of HSBC, would make good on his threat to uproot his bank from

Britain and travel to the Far East, but his confirmation that it will stay in London should come as no surprise. Its strategic review of its headquarters was an exercise to ensure its Canary Wharf nest remains sufficiently feathered.

The banking giant’s decision to remain in situ has elicited sighs of relief in the City and backslapping in the Treasury, but the popular narrative that depicts it as an endorsement of George Osborne’s economic strategy ignores some important concessions. It was a bluff that succeeded in demonstrating the totality of the UK government’s capitulation to a banking sector that continues to wield excessive influence.

Aficionados of understated humour no doubt appreciated the statement issued by HSBC confirming its intention to stay, a paragraph or two which revealed its executives to be among the most gifted ironists of our generation.

The UK, it fawned, can lay claim to “an internationally respected regulatory framework and legal system, and immense experience in handling complex international affairs”. Quite so, and the usual outcome is to sweep troubling matters under the carpet, with firms like HSBC the main beneficiaries.

Last month, it emerged that the Financial Conduct Authority (FCA) had dropped its review into the tax evasion scandal surrounding HSBC’s Swiss arm, a few months after the watchdog’s chief executive, Martin Wheatley, was ousted from his role on the basis that – heaven forfend – he was too confrontational towards finance executives.

A few weeks later, a senior HMRC official informed the Public Accounts Committee it had wound up its inquiries into claims that hundreds of British customers used HSBC Suisse to evade tax. An investigation that began six years ago has resulted in a solitary prosecution.

With regulators as supine as these, it should be no surprise that HSBC is staying put. A bank that has been heavily fined and censured in other jurisdictions for money laundering, tax avoidance and abusive mortgage practices has not even been given a slap on the wrist by UK authorities.

The greatest incentive offered to the bank so that it might remain under London’s bosom was even more flagrant, one which left the outcome of HSBC’s ten-month-long review of its future base in no doubt.

Since last summer, a slew of regulations surrounding big banking have been curtailed; concessions have been made in the rules around the ringfencing of high street banking operations, while the bank levy has been declawed, replaced with an 8 per cent surcharge on corporation tax, a move that analysts predict will boost HSBC’s profits by up to 6 per cent by 2021, while costing the Exchequer £1.8 billion a year. It constitutes “a significant giveaway” say the Institute for Fiscal Studies, with a “large slice” going HSBC’s way.

The bank’s review, said Christine Berry, senior researcher at the New Economics Foundation, was a threat dangled before the Treasury, a form of coercion that has succeeded in “unpicking a whole string of measures designed to protect taxpayers and consumers”.

She added: “This is a far greater threat to our future economic security than HSBC moving its headquarters would have been. The bank has made repeated UK job cuts since the crisis, making their threats to leave rather hollow.”

HSBC’s chairman, Douglas Flint, insisted this week that the regulatory regime “hasn’t been softened” under George Osborne’s watch. In any case, he added, no pressure had been exerted on the chancellor.

“We had no negotiation with the government,” he told the Today programme. “The government was well aware of our view, and indeed the view of many other people who commented upon it, but there certainly was no pressure put, or negotiation.”

Mr Flint may have a point. HSBC has had no need to rely on the lobbying industry when the art of persuasion can be expressed in much more direct ways. The revolving door between the bank’s headquarters, government and the upper echelons of the civil service has hardly stopped spinning since the Conservatives came to power six years ago.

The most high-profile pilgrim to have made the transition is Lord Green, the derided former group chairman of the bank who would become trade and investment minister, but several others have made the opposite journey.

Dave Hartnett, the former permanent secretary for tax at HMRC, became an adviser to the bank’s committee on financial systems, a role also given to Bill Hughes, former director general of the Serious Organised Crime Agency.

Most recently, Michael Ellam made the move from director general at HM Treasury to a managing directorship at HSBC, where his brief is to develop the bank’s senior government relationships.

Instead of trying to influence public policymaking, HSBC has simply colonised it, just as a monopolistic company might subsume a
troublesome interloper.

The UK government has acquiesced to HSBC’s every whim and fancy. As the old order reasserts itself in the post-crash era, the big banks know Mr Gulliver and his colleagues have set a precedent.

All they have to do is cry wolf and their dutiful Chancellor will come running.