The NatWest chairman told staff he had ‘never felt so embarrassed internationally’ as he did at the International Monetary Fund meeting following the UK’s disastrous mini-budget. United, as he warned against government plans to boost the competitiveness of businesses in the city.
Sir Howard Davies has told hundreds of staff at NatWest – which is still 48% state-owned – that ex-Chancellor Kwasi Kwarteng’s unfunded tax cut package for the wealthy at the end of September, which triggered a market crash, caused “a pretty big problem”. and “scarring” of the UK’s reputation, according to a recording reviewed by the Guardian.
“I was at the IMF conference while all of this was going on and Kwarteng was there. It was embarrassing because he was then called home to be sacked… The perception of the UK was terrible,” Davies said to hundreds of employees at the private event organized for the group’s legal, governance and regulatory affairs division in early November.
Davies, who has been chairman of the former Royal Bank of Scotland since 2015, said his banking counterparts and regulators, including those at the European Commission, tried to comfort him as his colleagues would if you had a sick relative. .
“It was a bit like that. [with] people come and say “I’m terribly sorry to hear about your economy and your government, I’m sure it’s not that bad”. And you say, ‘actually, it probably is. Really – it’s about as bad as you think”.
“It was awful, I’ve never felt so embarrassed on the international stage,” he said.
Kwarteng returned from the meeting in Washington in mid-October to be fired by then-Prime Minister Liz Truss.
Davies, who also led the Financial Services Authority (FSA) before it split following the 2008 banking crash, told employees he was concerned about how the government planned to boost the competitiveness of businesses in the city.
The Treasury plans to force regulators at the Bank of England and the Financial Conduct Authority to examine the impact of regulation on how UK-based banks and other financial firms compete with their international competitors.
Campaigners and former politicians, including former business secretary Sir Vince Cable, have already warned that the rules, which are being introduced through the sweeping Financial Services and Markets Bill, would be a “recipe for excessive risk-taking” and could create the same conditions that have since been blamed for the 2008 banking crash.
Davies, who was chairman of the FSA between 1997 and 2003, said he was “not favourable” to the competition clause, which went further than guidance set out before the financial crisis. At the time, he said the FSA only had to prove that issues such as competitiveness were “considered” and not something “you were trying to achieve directly”.
“In my opinion, giving the regulator the objective of promoting competitiveness could be the end of a rather particular corner. I mean, why… wouldn’t the regulators come and tell us to reduce our cost-income ratio? This would improve our competitiveness. And if they had a focus on competitiveness, it seems like it would give them an ‘input’ into how we run our business, which I think would be a bit tricky, really, and that’s one of the reasons regulators aren’t exactly keen on it either.
He claimed ministers were talking about the new competition rules as one of the ‘supposed benefits of Brexit’.
“It’s something that’s driven by this notion that we have to be able to identify certain things that we’ve done that we wouldn’t have done. [without] Brexit. It’s not a good starting point in my opinion to think about how best to regulate a financial sector and that’s all I will say about it, ”he told staff.
NatWest and Treasury declined to comment.