Mandy Rhodes interviews Labour MP for West Dumbartonshire John McFall about the power of money
Ironically, it is the Thatcher Room of the House of Commons which is more often than not the place where two political worlds collide; where the rich/poor divide dissolves into an analysis of greed and where John McFall, an Old Labour warhorse and chair of the powerful Treasury Select Committee gets to interrogate the arch arbiters of capitalism. How sweet…
An appearance before the committee has become something of a right of
passage among city swingers, whose ability to generate enormous wealth
has given them godlike status in their normal life. They may enter the
committee room believing they can walk on water but by the time they
leave, their gilt has somewhat lost its sheen following a bruising from
McFall, who cuts them down to size with one of his famous analogies.
No one is too powerful and no one too rich to feel the sharp end of McFall’s tongue and the committee room in which he presides has gained something of a reputation for being a torture chamber for the money men – the bankers, politicians and regulators – who are regularly summoned to explain their roles in the financial crisis of the moment.
Martin Gilbert, the bullish owner of Aberdeen Asset Management, said that appearing before the committee to explain his company’s involvement in the disastrous split cap affair that saw thousands of investors lose tens of millions of pounds, was one of the worst days of his life. His discomfort was obvious as the battered investment group at the centre of the split-capital investment trust scandal was accused of “obfuscation” by McFall and criticised for supplying documents to the committee just minutes before he was due to appear.
McFall has also given a regular tongue lashing to Mervyn King, the Bank of England Governor, and his deputy, Sir John Gieve, who felt the full force of McFall’s acerbic wit at one of his appearances when he was told in relation to Northern Rock that he was “asleep in the back shop while there was a mugging out front’’.
McFall takes no prisoners. He said Northern Rock’s chief executive was “asleep at the wheel’’; that John Tiner, the FSA’s former chief executive, was “…not just sleeping, you were comatose’’ and credit card bosses were warned that they were “sleep walking into disaster’’. Banker, Sir David Walker, former chairman of Morgan Stanley International and one time Assistant Secretary to the Treasury, executive director for finance and industry at the Bank of England and deputy chairman of Lloyds TSB, left the Treasury Select Committee meeting having had his report on private equity dismissed as “vague, silent and watered-down”.
And his dry west coast wrath isn’t just reserved for the big City hitters, fellow politicians and government departments are not immune to his searing criticism. Reports into the Treasury’s Comprehensive Spending Review, the pre-Budget report and the HM Revenue & Customs lost discs debacle are all handled with the same amount of vigour and probity as investigations of money mishandling in the private banking sector.
The credibility of the Prime Minister himself has been called into question by the TSC with a warning that he has done nothing to show that he is serious about halving child poverty by 2010 and eradicating it by 2020. McFall said there was growing concern that Mr Brown has “drawn back from a whole-hearted commitment to meeting this target”.
It’s a ticking off that the PM will take seriously for McFall has form and a well-earned gravitas. He has just written a report on financial transparency, published a weighty report on globalisation, is currently investigating inflation and has the lofty authority to interview each new recruit to the Bank of England’s Monetary Policy Committee – even exercising his power over veto, as he did in one case. Complicated issues such as the power of Sovereign Wealth funds and the nefarious nature of hedge fund practices are also on his current radar.
Two weeks ago, his committee accused investment bankers of sparking the credit crisis by creating “ludicrously complex financial products which you need a Nobel prize in physics to understand’’.
But he also pointed the finger of blame at investors and warned them of the need to take responsibility for their own decisions.
“It is clear that many investors threw caution to the wind when making investment decisions and were seduced by products they did not understand. Many investors were blind to the risks involved, equated complexity with security and were engaged in a bout of collective madness. You cannot regulate against stupidity
Many investors were blind to the risks involved, equated complexity with security and were engaged in a bout of collective madness. You cannot regulate against stupidity 
.
“This is not the end of the story,’’ McFall said.”The consequences of the market turbulence go far beyond the financial community and there are growing signs that the credit crunch is now affecting the person on the street. We must act now to ensure that, in future, problems in financial markets do not affect innocent bystanders.’’
And that is at the heart of the matter for McFall. The unfettered wealth he sees paraded before him during committee sessions does not faze him but inequality and injustice does and it is his desire to protect the vulnerable in the money merry-go-round that drives him.
In an interview with the Sunday Herald just after he was appointed chair of the TSC in 2001, he laid bare his ambitions. He said changes were needed to loans, savings and insurance products to ensure customers’ interests were protected.
“I don’t think consumers have been well served by the financial community. There are a number of problems which we need to sort out.”
And sort them out he has; from raising awareness of financial inclusion, to securing the installation of free ATMs, McFall has become a champion of the poor while interrogating the rich. He might not be quite in the same league as Robin Hood but his interest in money is firmly rooted in the have nots.
Born and bred in Dumbarton from Irish immigrant stock, McFall left school without qualifications and took a job with the council in the parks department before enrolling at Paisley College when he was 24 to take a chemistry degree. An Open University degree in education followed – “teaching seemed the right thing for someone like me to do” - and while teaching chemistry and maths by day, he studied at night for an MBA at Strathclyde University. He was head teacher at a local comprehensive when he announced to his wife Joan, a fellow teacher who grew up in the next street in Dumbarton, that he had been asked to stand for Westminster – “I was more backroom political than front of house but I think I was just around at the right time” - and was duly elected in 1987.
“Joan and my friends thought I was off my head going into parliament. Getting into a situation where you maybe didn’t achieve anything other than talk. At least when I was in teaching, you could light up somebody’s life every day.”
However, between 1989 and 1991, he held the high-profile position of opposition Whip but resigned over the first Gulf War. He was brought back as a frontbench spokesman on home affairs, education and then Scotland, and made a Northern Ireland minister when Labour came to power. The reopening of Stormont made McFall redundant and with no ministerial reshuffle likely before the 2002 election, he was elected as chairman of the TSC. “I did not want to be out of office for a year or so,’’ he says.”I wanted to be on a select committee and the attraction of being chairman is that you can have it for a parliament.’’ He is now on his second term, having been re-elected in 2005, giving him another year before he must step down. Despite his non-financial background, he has carved himself a reputation of some worth in the City and is regarded as a fierce and effective inquisitor.
So what gives this 63-year-old, former school teacher and almost accidental politician from Dumbarton the right or indeed the qualifications to have the rich and the powerful quaking in their well-polished boots?
Well, he has undoubtedly made it his business to get educated in the world of finance; his weekend reading matter consists of lofty financial journals and reports and his conversation is smattered with the names of some of the most powerful business leaders and wealth generators in Britain. But he says that his main qualification is an ability to act as the bridge between the world of high finance and the ordinary man on the street.
He says he is there to remind the money men of their responsibilities and is unapologetic about his pugnacious approach. “These are grown up people who have an enormous responsibility and they have to be robust enough to be answerable for their actions,” he says. Neither does it worry him that powerful financiers express nervousness at being hauled before him. “I’ve never known a great banker lacking in confidence.’’
For a politician so against blood sports – he tabled a Private Member’s Bill which aimed to outlaw fox and deer hunting – he admits that an appearance before the TSC can sometimes feel a little like a blood letting but he is sure that the people learn from the experience, however painful.
Martin Gilbert admitted that Aberdeen had been unprepared for the grilling he suffered at two TSC hearings on the splits problems. As a result, Aberdeen began political lobbying, and hired new staff solely for this role.
The TSC has a wide agenda, anything vaguely financial can come under his committee’s scrutiny, so McFall is a powerful politician even without portfolio and while he is not directly involved in policy making, his committee certainly influences it.
Look at Northern Rock. He was making noises long before the Government proper got involved. In September last year, Mervyn King had been due to address the committee on inflation but McFall opportunistically used the whole session to grill the Governor on the faltering bank instead and the committee did not stop there. Its report into Northern Rock made a whole series of recommendations before the Government eventually stepped in and nationalised.
Does he think nationalisation was the right decision?
“I always thought nationalisation was a real possibility because we’re facing a credit crunch situation which is a global situation. Yes, it had a reckless business strategy, it also depended on just one source of funding and the board took their eye off the ball completely, as the FSA did, in the situation we find ourselves, nationalisation was the only option. 
I would have sympathy with Alistair Darling in calling it temporary public ownership because I visited Washington in December and spoke to the Federal Deposit Insurance Corporation, which is the body responsible there for dealing with failing banks and I spoke to the Fed as well. And they’re used to failing banks and taking them into ownership and the last one that was of a major size was Continental Illinois in 1987 but then it floated four years later into the private sector. So I always thought that it was the likely option but it’s taken a bit of time to explore the various private bids that were put in. I felt that with private bids, it was going to be all one way, with them just making a lot of money.”
But surely the best option for the taxpayer would have been to just let a bank go under?
“No, we don’t have the facilities to let a bank go under. Banks are unique in this in that they privatise the profits and socialise the losses and the insolvency laws aren’t sufficient for it to happen. We need legislation in the United Kingdom to allow a bank to fail and that’s why I came out with this report on Northern Rock, a unanimous report by the way, agreed by Conservatives, Liberal and Labour in my committee, which allows for a prompt corrective action mechanism so that there is a bridge bank authority to deal with these situations. That would make banks the same as any other private institution but if the bank went under, the shareholders would lose their money but the depositors would be protected - you cannot expect depositors, any of us ordinary savers, to do due diligence on a bank. We have also suggested a prefunded payment scheme, where the banks contribute money to a fund which could be used when a bank fails. When I was in America, I spoke to the American Banking Association and they have a prefunded scheme and they are very happy with that.”
So if we’d had that, we wouldn’t be in the position we’re in now?
“If we’d had that, we would’ve been able to deal with a failing bank.”
So what happens if the next one is Alliance and Leicester or Bradford and Bingley or any other lending institution?
“The Government is hoping to introduce legislation in the next few months to cover this. One of the issues for our enquiry was asking the tripartite authorities; the Bank of England, the Financial Services Authority, the Treasury, just why they weren’t as alert as they should have been to this happening. They said they had been discussing it for the past few years but obviously, there was a failure there.
“I hope to invite Ron Sandler to my committee to discuss Northern Rock’s business model and other issues associated with it. My own view is that it will take a few years to get in position to be able to float it off again.
“The core issue is how do you protect the depositors and how do you keep confidence in the financial services system in the United Kingdom and we have to remind ourselves that we’re in this position because of an irresponsible policy with a bank that failed, and because of a lack of supervision. That’s the main reason why we are in this situation and how best can we protect the depositors, and I think, this is the mechanism that can do it. But do I want to see banks in this situation again in the public sector and in nationalisation? Absolutely not. I want to see banks able to fail like any other institution.”
Of course, the credit crunch isn’t just about one bank’s wrong decisions, it is also about a political environment that McFall is very much at the heart of, which allowed a bank to exploit the idea that people could borrow over four times their salary, to overextend themselves. Things were not always so fast and loose.
He laughs. “Well, actually, when Joan and I got married, which was almost 40 years ago, I went for a loan for a flat which was worth £900 and it was turned down as I was not sufficiently credit worthy.”
It has gone a little bid mad, hasn’t it?
“It has. In fact, I’ve been banging on about this for a while. I think there has to be responsible lending policies and I think that going into situations like that, going onto five, six times salary is nothing but irresponsible because at the end of the day, what you’re doing is, you’re putting people into risky situations by titivating their dreams.
“This has been a wake-up call and who got us into this situation – the best and the brightest within the investment banks, the whiz kids with the PhDs, they make up models for what they call originate and distribute securitisation, which basically means you’re not able to trace where the risk is. So people are buying products that they don’t understand and I’ve had investment banks in front of me telling me that. This is a mad world and it needs to change.”
Does he not think that his own party has to take some responsibility because we now have a Prime Minister who was a Chancellor who benefited from that ‘feel good’ factor surrounding the fact that everybody could buy the house they wanted?
“I suppose the Labour Party’s come a long way – when I joined it, we wanted to nationalise the top 200 banks. You know, the prevailing view in the Labour Party is that we should let the market work and I don’t think there is any party in the UK, any mainstream parties that would say that that’s not the situation but how we deal with the excesses of the market is something that I’ve been banging on [about] for years but it’s a very hard exercise because the ground keeps changing under your feet. So I think there has to be a more hawkish approach by government regulators and others on these situations.”
At the end of the day, surely everything that comes before the TSC is rooted in greed?
“I suppose these are the excesses that we are seeing at the moment and there is greed and hubris and that’s why we’re in this situation.”
Does he take a sneaky, socialist, pleasure in bringing the rich and powerful to book?
“I suppose I’m quite unique, in that I usually don’t call anybody as a witness who’s not got at least 20 times my salary and maybe I started off with the view that the more salary somebody had, maybe there was more wisdom accompanying that and that is a view that has been well shattered.”
Does he think his committee job is more powerful than being a minister? “It’s going to sound very arrogant if I say yes,’’ he says. “But I’ve had the opportunity to influence things – so the answer is, yes. We are able to influence the direction of legislation and influence change.’’
He has been reselected to stand in the next general election; does he feel there is a place for him in a Brown Cabinet?
”No, I don’t think he likes people with grey hair,” he laughs and then adds, “It’s a very young Cabinet – a great example of the modern apprenticeships scheme - but yes, I think the Prime Minister could do with some more experienced voices in there, he certainly needs that in terms of the link with the parliamentary Labour Party and in ensuring that there is a wide range of advice being sought there.
“The Labour Party’s been in government for ten, going on 11 years. I spent my life in the Labour Party and my mentality is an opposition mentality and I think there are some people in the party, certainly younger people, who’ve come in and haven’t known the grind of opposition, got themselves ministerial jobs and they feel that they’re born to rule. We’re not born to rule and we’ve got to engage with people regularly and we’ve got to renew that and it’s that urgency to engage and renew, I think, that we need to get across, both within the Labour Party and without.”
As a politician who has lived through many years of opposition, what would his advice be to the Labour members in the Scottish Parliament?
“Be measured about how you go about opposition and recognise that although the Chamber is important, it’s more important to be out and about in the community and building links with the NGOs, the universities, the businesses, and others to establish that relationship and that credibility over a period of years. So a measured, controlled approach rather than responding to every headline that Alex Salmond is generating because you’ve got to keep in mind that Salmond is generating these headlines to sow divide between Scotland and England and to further the independence cause.”
As we finish up, I ask Joan, John’s wife, who deals with the money in the McFall house?
“Oh, he’s like the Queen with money,” she says, “He never carries it. He’s not even subtle about it, he doesn’t even pretend anymore, he sits down when it’s his round and he says, ‘Joan’. If we’re going out for the night, he would just assume I have the money, our money…”
“But we’ve never had a fight about money in 40 years, have we Joan?”
“That’s right; he would never question what I buy or what I do. That’s the secret.”
Can you be rich and a socialist?
“Yes, I think you can be rich as a socialist, I don’t think there is any doubt about that
I think you can be rich as a socialist, I don’t think there is any doubt about that
. It gives you an economic freedom and in Scotland, I see a number of rich people that use their money in a very productive way, for example, Tom Hunter. You can help people realise
their ambitions, you know, spread a bit of happiness.”
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