As one of the least popular of Theresa May’s ministers, Liz Truss may be packing her bags this week after a cabinet reshuffle if, of course, the Tories are re-elected. Not a lawyer by training, the justice secretary has been subject to multiple attacks at the ministry, particularly for her perceived lack of support for the judiciary over its stance on Brexit. There is also dissatisfaction with her advocacy for the legal profession, something that some senior lawyers claim shows a lack of independence from Downing Street.
The irony is that for many in the business world, the legal profession is already overweening and should have its voice heard less, not more.
One area of friction is whiplash reform and the way in which compensation for catastrophic injuries is calculated, known as the Odgen rate. Unless it is rethought, an updating of Ogden in February will increase costs to the NHS, the biggest payer of compensation for serious injuries, by £6 billion.
The insurance industry and lawyers have their own self-interested positions in the debate. Insurers urge an end to the compensation culture that has jacked up car insurance claims and their costs. Lawyers want access to payouts for the victims of crimes and accidents, which comes with fees for themselves.
It may become clear soon which way the government will come down in this fight. If Mrs May wins on Thursday, she would have a few days to consider the leadership of the justice department before deciding whether to include reform of whiplash and Ogden in the Queen’s speech on June 19.
Advertisement
There is talk that Ms Truss may be replaced by Brandon Lewis, a Home Office minister in charge of the fire and police services. Lawyers would be pleased no doubt that Mr Lewis qualified as a barrister and so is one of their own. They should curb their celebrations. An escalation of claims costs creates a bill that someone has to pay. That will be taxpayers, for the extra costs on the NHS and insurance policyholders. Whoever is running the ministry should consider that when lobbying starts.
No surrender
Powerful forces are at work in the mysterious world of international bank regulation. Last week John Cryan, the British chief executive of Deutsche Bank, said that European banks should not “surrender” to American attempts to bulldozer through changes to the risk assessment of their lending books, which could require banks to hold much more capital.
The struggle is coming to a head, with politicians and regulators keen to get an agreement on the capital rules known as Basel IV before the next meeting of the G20 in July.
The issue may seem “over there”, with the changes being shepherded through by Switzerland’s Basel Committee on Banking Supervision, but they will become real over here. Britain’s biggest lenders are allowed to attach relatively small risk probabilities to their mortgage loans, reflecting the fact that their portfolios are largely made up of conservative loans that rarely sour.
American banks offload their mortgage lending to the government-owned entities Fannie Mae and Freddie Mac and so riskier commercial and unsecured loans make up a higher proportion of their books. But if the Americans get their way, internal models will be curtailed and British and continental banks will have to increase their risk weights. That will force them to hold more capital against their loans. The changes may not be enforced for several years, but if banks know they have to move in a certain direction, the result will be more expensive loans and constrained mortgage availability. For anyone hoping their home will be their nest-egg in years to come, that would be bad news.
Advertisement
It’s a waiting game
Anyone in the City feeling warm and fuzzy after Theresa May had cosied up to business in the past few days with warm words about her Brexit priorities may want to think again.
One of London’s experts on financial regulation has a different view. Simon Gleeson, a partner at Clifford Chance, the law firm, to whom banks and officials are turning for expertise on the rules that govern European financial services, said in Brussels last week that he believed there would be “a hard Brexit with no agreement”. In that situation, he added, “there is a real risk that supervision of major European firms will simply fall apart”.
Mrs May’s comments seem ill-considered and vague. The City hopes that she is keeping her cards close to her chest before serious negotiations start. They have little choice but to wait and see.
Knockout blow
This week a trial could start at which Fred Goodwin gives evidence. Most shareholders suing Royal Bank of Scotland over its disastrous £12 billion rights issue are ready to settle for 82p a share, but a group, mainly of staff, is holding out. If the group gets funding, the case could start on Wednesday. It is unlikely that they will raise the £7 million or more needed to push ahead. That could mean RBS is off the hook, a travesty of justice in many people’s eyes.
It is also a case study for Lloyds, which faces a class action this year over its purchase of HBOS in 2008. Those involved will have noticed that RBS litigants who held out got twice as much compensation as those who settled early. If Lloyds fears it is on shaky ground, a knockout compensation offer in summer could spare it months of distraction.