Peer's evidence piles extra pressure on PM

At the end of a pretty tumultuous week for Gordon Brown, Lord Burns's critique of the banks went unnoticed. But his evidence to a committee was more significant than some of the other brouhaha at the Palace of Westminster - and may yet come back to haunt Downing Street.





Yet the government appointed its former chief executive Sir James Crosby to become FSA vice-chairman in 2006. He was forced to resign suddenly this Wednesday amid claims that he had been dismissive of excessive risk-taking.

The Conservatives are increasingly convinced that the flaws in the regulatory system will become the achilles heel in Brown's claim that the British recession was caused almost exclusively by the sub-prime mortgage debacle in the US - a claim he restated at a question and answer session yesterday in Coventry.

But the shadow chancellor, George Osborne, believes the trail of responsibility for this crisis is now heading inexorably to Brown's door. Nevertheless, it was fortunate for Brown that when Burns gave his evidence earlier this week, reporters were swarming elsewhere in Westminster, hearing four former bank bosses give their abject apologies for driving the Royal Bank of Scotland and HBOS into the ground.

The questioning of Burns may have been gently done, and the answers couched in the understated tones of the upper house, but nonetheless the overall effect was highly damaging to the government's defence.

In 1997 he had acted as a fraught intermediary between Brown and the Bank of England's Eddie George over the decision to strip the bank's supervisory structure. Burns wrote the memorandum of understanding between bank, Treasury and the FSA, admitting in his evidence it had been his task to try to resolve some very serious tensions over their respective responsibilities.

He argued that paradoxically in the light of recent events : "The new system had been set up on the basis of a Treasury instinct that the Bank of England was always too ready to rescue banks. This was a view that ran quite strongly through the walls of the Treasury and therefore much of the arrangements set up, and the division of responsibilities, were designed to make it just a little more difficult for the Bank to get involved in this."

Discussing the start of the credit crisis, he said: "I don't think anybody quite anticipated a system where it would be the Bank of England dragging its feet as lender of the last resort, and there was a period when I felt possibly the Treasury was not as much in charge of this process as it would have been under the old arrangements. There was a period from the beginning when they had some difficulty in using the mechanisms that had been set up."







Today's best video

Find your MP

Today in pictures