The chairman of NatWest has told staff he “never felt so embarrassed internationally” as he did at the International Monetary Fund meeting in the wake of the UK’s disastrous mini-budget, as he warned about government plans to boost the competitiveness of City firms.
Sir Howard Davies told hundreds of employees at NatWest – which is still 48% owned by the state – that ex-chancellor Kwasi Kwarteng’s package of unfunded tax cuts for the wealthy in late September, which triggered a market meltdown, caused “quite a significant problem” and “scarring” of the UK’s reputation, according to a recording reviewed by the Guardian.
“I was at the IMF conference while all this was going on and Kwarteng was there. It was embarrassing, because he was then summoned back home to be sacked … The perception of the UK was terrible,” Davies told hundreds of staff at the private event held 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 banking peers and regulators, including those at the European Commission, tried to comfort him the way colleagues would if you had an ill parent.
“It was a bit like that, [with] people coming in to say ‘I’m terribly sorry to hear about your economy and your government, I’m sure it’s not so bad’. And you say, ‘well actually, it probably is. Really – it’s about as bad as you think’.
“It was awful, I’ve never felt so embarrassed internationally,” he said.
Kwarteng returned from the meeting in Washington in mid-October to be sacked by then-prime minister Liz Truss.
Davies, who also led the Financial Services Authority (FSA) before it was split in the wake of the 2008 banking crash, told employees he was concerned about the way the government was planning to boost competitiveness of City firms.
The Treasury is planning for force regulators at the Bank of England and Financial Conduct Authority to consider how regulation may impact the way UK-based banks and other financial firms compete with international rivals.
Campaigners and former politicians including ex-business minister Sir Vince Cable have already warned that the rules, which are being introduced through the wide-ranging 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 served as chair of the FSA between 1997 and 2003, said he was “not keen on” the competition clause, which went further than the guidance laid out prior to the financial crisis. At that time, he said the FSA only had to prove that issues such as competitiveness were “taken into account” and were not something “you were trying to achieve directly”.
“In my view, to give the regulator the objective of promoting competitiveness, could be the thin end of a rather peculiar wedge. I mean, why would … the regulators not come in and tell us to cut our cost-income ratio? That would improve our competitiveness. And if they had a competitiveness objective, it seems that would give them an ‘in’ to the way we run our business, which I think would be a bit tricky, really, and that is one reason why the regulators aren’t really keen on it either.”
He claimed the ministers were talking about the new competition rules as one of the “supposed benefits of Brexit”.
“It’s something which is driven by this notion that we must be able to identify some things that we have done which we wouldn’t have done [without] Brexit. It’s not a great place to start in my view to think about how you best regulate a financial sector and that’s all I’ll say on that,” he told staff.
NatWest and the Treasury declined to comment.