The party’s claims scrutinised

Vow to take “toughest action” in world on bonuses

What has been announced?

Gordon Brown vowed to take the “toughest action of any country in the world” against banking bonuses.

What is the government proposing?

A new bill will be announced in the Queen’s Speech within weeks, giving the Financial Services Authority the power to require banks to set aside more capital if their overall pay policy is deemed too risky.

“That will ban the old bonus systems and make it impossible for firms to be able to use them,” the prime minister said. The vehicle is a long-planned bill to give the FSA new statutory powers and responsibilities.

What do critics say?

The tough talk is not backed by any tough new action.

Mr Brown was merely restating proposals unveiled by Alistair Darling, the chancellor, to parliament in July. In the words of Philip Hammond, shadow chief secretary, “it remains to be seen what is actually in it that is new”.

Indeed Mr Brown has yet to confirm whether the legislation will include measures on transparency recommended by Sir David Walker in his review of governance at banks. These steps – which could include publishing the pay bands for the top earners – remain the most contentious unresolved issue for the government.

Will it last?

There is very little time to push through legislation. Many of the bills in the Queen’s Speech are likely to be stillborn. But the financial services bill will be the main priority, meaning it could be pushed through before the election. Any powers to the FSA will be carried through to the next government, at least until the Tories implement their plans to revamp the regulatory architecture.

FT verdict Mr Brown was writing an obituary for City excess. But the prime minister was unable to cite any new ways to beef-up the government’s existing plans to temper City pay. On the political side, the position could flush out opponents to a bonus crackdown among the Tories.

The tough talk could also galvanise the FSA’s enforcement efforts. But the claim that Labour is leading the world’s biggest crackdown on bonuses? Existing US rules already require banks to be more transparent about employee bonuses than Mr Brown is proposing.

Legally-binding pledge to reduce fiscal deficit

What has been announced?

A legally binding commitment on ministers to reduce the deficit.

What is the government proposing?

A fiscal responsibility act will be included in the Queen’s Speech, requiring the next government to halve the deficit. This puts existing Budget plans on a legal footing, with the deficit reduction beginning in 2010 and ending in 2014.

More details are set to be unveiled by the prime minister and chancellor in coming days. But officials are already comparing the legislation to similar initiatives in the US and Brazil, where clear fiscal targets are enshrined in law and backed by an enforcement mechanism. Brazilian ministers face fines – and even jail – for falling short.

Unsurprisingly, however, every such act includes caveats for “exceptional circumstances”, meaning that technical breaches are rare and punishment is even rarer.

What do critics say?

A political wheeze. The Conservative party argues that it is similar to their proposal for a legally binding Office for Budget Responsibility, and claims: “Gordon Brown spent the whole year telling us we were wrong”.

The initiative also bares a remarkable resemblance to Mr Brown’s old “fiscal rules” on borrowing and investment. These were placed on a legislative footing in 1998, but have since been soundly broken. Britain is already committed to maintaining no more than a 3 per cent deficit under the European Stability and Growth Pact.

Halving the deficit by 2015 – and meeting Mr Brown’s new legal commitment – would still leave Britain in breach of this agreement.

Will it last?

If there is time to drive through the legislation before the election, the law may stay on the statute book; no party would want to amend the legislation and appear fiscally irresponsible. But apart from the shame of breaking the rule, the law is unlikely to be stringent enough to change the behaviour of a government for fear of punishment.

FT verdict Labour cannot legislate its way to fiscal responsibility. As it stands, the target is arguably neither enforceable nor sufficient. It is simply a cost-free way to answer charges that Labour is spendthrift.

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