The party's over

Tory conference? What Tory conference? You could be forgiven for asking that question about the Conservatives’ gathering in Birmingham. Even the pledge by George Osborne, the shadow chancellor, to freeze council tax for the next two years seemed trivial when set against the latest shocks in the financial markets.

David Cameron’s party went into the conference last week thinking they were almost a shoo-in to form the next government. But as events unfolded – including the decision to nationalise Bradford & Bingley and the US Congress’ rejection of a $700bn (£403bn) bail-out for the financial markets, which has since been reworked and approved – they were forced to change the game plan.

Cameron said in his keynote speech: “We will not allow what happened in America to happen here. We will work with the government in the short term in order to protect our economy.

“But that must not stop us telling the truth about the mistakes that have been made. It is our political duty – and if we had a written constitution I would say constitutional duty – to hold the government to account, to explain where they went wrong and how we would do things differently to rebuild our economy for the long term.”

His words got a rousing response from supporters but, just after the conference came to a close, the headlines were stolen by the ousting of Sir Ian Blair, the Metropolitan police commissioner, and by the shock return to the cabinet of Peter Mandelson. Tough luck for Cameron.

Still, the Tory conference and the Labour conference held the previous week in Manchester went a long way in testing the mettle of Cameron and Gordon Brown when it comes to the financial crisis.

Cameron defended his inexperience by saying that character is what counts, and that the country has had enough of Brown.

But a YouGov poll taken after the Tory conference and published in Saturday’s Daily Telegraph showed that Brown’s experience was winning favour with voters. After trailing Cameron for months in questions about who was the best choice to lead the country, the poll put Brown at 39% – just one point behind his Tory rival.

During his conference speech two weeks ago, the prime minister outlined proposals for tackling the country’s financial woes. He said all transactions should be transparent, banks should demonstrate that risks could be managed and priced for good and bad times and no member of a bank’s board should be able to say they did not understand the risks they were running and walk away from them.

He also said he would ensure bonuses were based on hard work, effort and enterprise over the long term.

Both Brown and Cameron have called for tougher regulation of City bonuses. But the Tory leader said he wouldn’t engage in “bashing financiers”. The Conservatives also want to give the Bank of England new powers to deal with failing banks. But Labour said it had already done that in February and March.

On Monday the government held its first meeting of the national economic council – a cabinet committee created by Brown to deal with the credit squeeze. As Insurance Times went to press, Monday’s discussion was expected to focus on the growing pressure for Britain to increase the limit on savings protected under the Financial Services Compensation Scheme. Last week the UK raised the limit from £35,000 to £50,000 but that might not be enough considering Ireland, Greece and Denmark have raised their limits to 100%.

While Brown and Cameron battled it out from the podium, many of the conferences’ fringe events focused on the economy. Others, however, touched on topics that are just as important to the industry. Insurance Times visited the Labour party conference to check out the action:

Whether you’re a broker with high net worth clients or a top-dog chief executive, this fringe event might have made you a little nervous. It wasn’t quite financier bashing, but it questioned the preferential treatment of the rich – and asked what could be done to stop it.

The crowd was told some sobering statistics: the median household income is £362 per week and social mobility has stalled. So what’s the solution? Tax, the majority of the panel agreed.

Jon Cruddas, the left-leaning MP for Dagenham and former deputy leadership contender (who missed out in the cabinet reshuffle last Friday) said Labour had been guilty of not paying enough attention to fairness, equality and economics.

He called for a 45% tax bracket for those with incomes of more than £175,000.

“Why don’t we say, if you earn £34,000 when you trip into the 40% rate, why don’t we put that up to £44,000 and we take 580,000 people out of it. It’s a middle-class tax cut. You fund it, £2.5bn, by those over £175,000 paying 45%.

“You also have a windfall tax on the oil companies and you use that to raise thresholds at the bottom level, as well as help people on fixed incomes with their fuel bills. I don’t think that’s outlandish, I think that’s fairly pragmatic.”

Despite their differences, Cruddas also praised the prime minister for his speech: “I thought [Brown] developed a much more emotional language in terms of arguing for greater equality and fairness. That’s something to be welcomed.”

Brendan Barber, general secretary of the TUC, slammed City bonuses and called for the super-rich to pay more in taxes.

“If you go back to 2000, a chief executive of a FTSE 100 company on average earned 39 times the average of us were paid,” he said. “In just eight years that gap has accelerated to being 100 times the rate of ordinary workers. In the City we’ve seen this culture of billions paid out in bonuses – somewhere north of £10bn last year … It’s also produced the consequences we’re now seeing in the financial market.”

Barber said studies had shown the richest people in the UK were avoiding tax by lawful means to the tune of £13bn a year. The 54 billionaires who live in the UK pay only a tenth of 1% on their assets and earnings, he added.

But Sir Trevor Chinn, chairman of the Mayor’s Fund charity, defended the super-rich on taxes, explaining that the wealthy from the UK and elsewhere pay income tax and VAT, as well as create jobs. He did call on the wealthy to give more to charity.

The tax issue was also raised during a fringe session on the future of the Square Mile. Stuart Fraser, chairman of policy and resources at the City of London Corporation, said the government’s corporate tax take was under threat because of the financial crisis and companies looking to redomicile.

But he believes the City itself will escape much fallout. “It’s not really a threat to the City in the sense that they don’t move their operations; they set up a brass plate more or less, or a small office. This is a revenue problem – we’re going to lose revenue.”

He added: “Insurance companies have been domiciled all around the world, but their physical presence is where their customers are. They’d still be paying the profits on their UK tax to the revenue, but some of the money they pay the revenue for their non-UK based earnings, the revenue won’t go here, it will go to Ireland.”

Phil Woolas, who was environment minister but has been named immigration minister in the reshuffle, provided an update on the draft Floods and Water Bill, which is expected in spring 2009.

“There’s nothing planned in the bill that’s directly related [to insurers],” said Woolas.

“But as well as the objective of the statement of principles of having insurance available for everyone, there is the important issue of, can we encourage lower premiums for people whose houses have got resilience [to flooding]. Also, can we encourage insurance companies to ensure, when houses are prepared, that they’re repaired in a resilient manner?”

Woolas declined to explain who would pay for rebuilding a house with flood-resilient materials.

The panel also discussed the reluctance of some councils to comply with the government’s policy on building away from flood plains [Planning Policy Statement 25].

“We’ve toughened the law and planning guidance. If local authorities aren’t responding, we’ll have to keep it under review to see if it needs to be tougher, and if the Environment Agency’s powers are as tough as they need to be. The ball’s in the court of the local authorities,” Woolas said.

Dominic Clayden, director of claims for Norwich Union, added: “What we’re looking for is, when the Environment Agency says don’t build on a flood plain, we don’t want to see building happening. If it does, then at the end of 2009, the insurance industry won’t guarantee to insure properties that are there.”

One event in Manchester discussed the need for the EU to take a greater role as the financial crisis becomes a global problem.

The member states showed their ability to work together last weekend when Nicolas Sarkozy, the French president and current holder of the EU presidency, hosted a meeting in Paris with the leaders of Britain, Germany and Italy.

The four leaders agreed to slacken the EU rules governing how much money individual states can borrow, but decided against forming a joint bail-out fund for banks. They also discussed potential sanctions against leaders of failed banks and more flexibility for EU budget rules.

“It is our political duty to explain how we would do things differently to rebuild our economy for the long term.

David Cameron

The need for coordinated European action became clearer as crisis talks to rescue Germany’s second largest mortgage lender, Hypo Real Estate, collapsed. But since the weekend a €50bn (£39bn) bail-out by the German government, banks and insurers has been agreed.

During the Labour conference Peter Mandelson, who stood down as European trade commissioner to take up the post of business secretary, said: “The ultimate demise of the two US mortgage lenders was not caused by domestic investors but by Asian banks withdrawing their capital. Japan and China have combined foreign exchange reserves in excess of $2,500bn.

“Decisions taken in Tokyo and Beijing are just as important as those taken in New York and London. We need to work together on many of the issues we face.”

Treasury secretary Kitty Ussher said it was important that the government maintained its risk-based approach to regulation. But it should also recognise that the economic problems had begun because not enough people – including banks and credit rating agencies – understood where the risks lay.

To fix this, she said, the government had started to change its focus around regulation, its liquidity, and capital requirements. Additionally, the prime minister had been talking about the need to look internationally.

“Britain’s been leading in pushing forward a proposal for a college of regulators in order to make sure that is more effective,” she said. “There’s also a role for Europe in considering to what extent an international response is required.”

The think tank Reform last month set out radical proposals to transform the NHS into a “national health protection system”, with individuals choosing their health provider. Under the plan, individuals would be awarded a healthcare premium of £2,000 a year to spend as they chose.

When Insurance Times asked Ben Bradshaw, the health minister, for his views on healthcare and insurance during a session on the NHS, he said: “If this has to do with a private or partly private insurance system, the answer is no … We spend half as much as a proportion of our GDP as the US does on healthcare. We have better health outcomes, we have better health equity and we don’t have 60 million people who have no health cover at all.

“Even countries like Germany, that do have a social insurance system, are looking more and more at shifting the emphasis towards more taxation funding, because it’s efficient, it’s fair and it helps control some of the costs, which some people might not like but I’m afraid it’s going to be a fact of life and we need to have a grown-up debate about it.” IT

Jon Cruddas, MP for Dagenham and darling of Labour’s left – as well as the former deputy leadership contender who, as Insurance Times went to press was rumoured to be up for a Cabinet post in a Cabinet reshuffle – said Labour has been guilty of not paying enough attention to fairness, equality and economics.

To balance the equation, he called for a new bracket of tax in which those with incomes of over £175,000 would pay 45%.

“Why don’t we say, if you earn £34,000 when you trip into the 40% rate, why don’t we put that up to £44,000 and we take 580,000 people out of it. It’s a middle class tax cut. You fund it, £2.5bn, by those over £175,000 paying 45%. You also have a windfall tax on the oil companies, and you use that to raise thresholds at the bottom level, as well as help people on fixed incomes with their fuel bills through the winter. I don’t think that’s outlandish, I think that’s fairly pragmatic and a sensible policy.”

Cruddas also praised Brown for his speech: “I thought [Brown] developed a much more emotional language in terms of arguing for greater equality and fairness. That’s a really, really striking change and something to be welcomed.”

Trade Union Council general secretary Brendan Barber slammed City bonuses and called for the super rich to pay their fair share of taxes.

He said: “If you go back to the year 2000, a chief executive of a FTSE 100 company on average earned 39 times the average of us were paid. In just eight years that gap has accelerated to being 100 times the rate of ordinary workers. In the City we’ve seen this culture of bonuses developed, of billions paid out in bonuses – somewhere north of £10bn last year. It’s created a culture which is not only damaging social consequences . . . it’s also produced the consequences we’re now seeing in the financial market.”

Barber said studies have shown the richest in the UK are avoiding tax to the tune of £13bn a year by lawful tax avoidance, and that the 54 billionaires who reside in the UK are paying only a tenth of 1% on their assets and earnings.

But Sir Trevor Chinn, chairman of the Mayor’s Fund, defended the super rich on taxes, explaining that the wealthy from the UK and elsewhere do pay income tax and VAT, and create jobs. He did call on the wealthy to give more to charity.

City of London: Heart of UK economy or world of its own?

The tax issue was also raised during a fringe session on the City. Stuart Fraser, the City's chairman of policy and resources, said that due to the financial crisis and companies looking to redomicile, the government’s corporate tax take has come under threat.

But he believes the City itself will escape much fallout from companies that redomicile: “It’s not really a threat to the City in the sense that they don’t move their operations; they really set up a brass plate more or less, or a small office. This is really a revenue problem, because we’re going to lose revenue.”

He added: “Bear in mind, insurance companies have been domiciled all around the world but their physical presence is where their customers are. They’d still be paying the profits on their UK tax to the revenue, but some of the money they have to pay the revenue for their non-UK based earnings, the revenue won’t go here anymore, it will go to Ireland. But it’s a revenue side. One of the insurers said to me it’d take about 50 people to redomicile to Ireland.”

There was a reprieve from the economic focus with this event on floods. Phil Woolas, MP for Oldham East and Saddleworth and Minister of State in the Department for Environment, Food and Rural Affairs, provided an update on the Draft Floods and Water Bill, which is expected in spring 2009.

Woolas said: “There’s nothing planned in the bill that’s directly related [to insurers]. But of course, as well as the objective of the statement of principles of having insurance available for everyone, there is the important issue of can we encourage lower premiums for people whose houses have got resilience [to flooding]. Also, can we encourage insurance companies to ensure, when houses are prepared, that they’re repaired in a resilient manner.”

Woolas declined to answer who would pay for rebuilding a house with flood-resilient materials.

The panel also discussed the reluctance of some local authorities to comply with the government’s policy on building away from flood plains [Planning Policy Statement 25].

“We’ve toughened the law and planning guidance on this issue. If local authorities aren’t responding to that, we’ll have to keep it under review to see if it needs to be tougher, and if the Environment Agency’s powers are as tough as they need to be. The ball’s really in the court of the local authorities,” Woolas said.

Dominic Claydon, director of claims for Norwich Union, added: “What we’re looking for is, when the Environment Agency says don’t build on a flood plain, we don’t want to see building happening. If they do, then at the end of 2009, the insurance industry won’t guarantee to insure properties that are there.”

Global financial turmoil and shifting economic power: is Europe the answer?

These are politically sensitive times in relation to the economy. In the UK, it used to take just a word form the Bank of England to co-ordinate a rescue plan but now the responsibility lies with government. The £700bn US bailout scheme was a prime example of the government struggling to balance the interest of the economy and taxpayers.

This seminar discussed the necessity of a greater role for the European Union as the financial crisis becomes a global problem.

Peter Mandelson, commissioner of the European Union for trade, said: “The ultimate demise of the two US mortgage lenders was not caused by domestic investors but Asian banks withdrawing their capital. Japan and China have combined foreign exchange reserves in excess of $2,500bn. Therefore decisions taken in Tokyo and Beijing are just as important as those taken in New York and London. We need to work together on many of the issues we face today.”

Kitty Ussher, MP, economic secretary to the Treasury, said it’s important that the government maintains its risk-based approach regulation. But it also recognises the economic problems were ultimately because not enough people – including banks and credit rating agencies – understood where the risks lay. To fix this, she said, the government has already started to change the focus around regulation to liquidity, capital requirements. Additionally, Brown has been talking about the need to look globally.

For example, she said, work is being done on developing the Financial Stability Forum, which considers recommendations from all G7 countries.

She said: “Britain’s been leading in pushing forward a proposal for a college of regulators in order to make sure that is more effective. There’s also a role for Europe in considering to what extent an international response is required.”

Recently, the think tank Reform set out radical proposals to transform the NHS into a National Health Protection System, with individuals choosing their health provider. Under the proposals, individuals would be awarded a healthcare protection premium of £2,000 per year to spend as they chose.

When Insurance Times used this session as an opportunity to ask Ben Bradshaw, MP, Minister of State Health Services, about his views on the NHS and insurance, he said: “If this has to do with a private or partly private insurance system, the answer is no …we spend half as much as a proportion of our GDP than the US does on healthcare. We have better health outcomes, we have better health equity and we don’t have 60 million people who have no health cover at all.

“Even countries like Germany, that do have a social insurance system, are looking more and more at shifting the emphasis towards more taxation funding, because it’s efficient, it’s fair and it helps control some of the costs, which some people might not like but I’m afraid it’s going to be a fact of life and we need to have a grown up debate about it.”