Since November 2008, United Kingdom Financial Investments (UKFI) has been the holding company responsible for managing the government stakes in banks acquired as a result of the financial crisis ‘bailout’. Created by the Treasury, UKFI’s first chief executive was John Kingman, probably the most successful career civil servant of his generation, having become second permanent secretary in the Treasury before the age of 40.
UKFI initially occupied offices in the Treasury buildings, and its operational budget was negotiated with the Treasury. Yet from the very beginning, Kingman’s message as chief executive was that it operated at ‘arm’s length’ from the government. That was the theme of an op-ed piece in the Financial Times placed by Kingman and UKFI’s first chairman early in its life, and again in Kingman’s own account to the House of Commons Treasury select committee of the relationship between government and UKFI.
Note that what were being kept at arm’s length here were public institutions in Whitehall. UKFI was anything but at arm’s length from the City. The first two chairmen were both retired City grandees who had subsequently made reputations as City-friendly non-executives of major public companies.
The first, before he departed to chair RBS, was Sir Philip Hampton, an ex-finance director of Lloyds Bank turned non-executive chair of Sainsbury’s. He was succeeded by Glen Moreno, an investment banker who became chief executive of Fidelity International and then retired to become non-executive chair of Pearson. Moreno’s seat is now occupied by Sir David Cooksey, founder of one of the leading private equity houses in Europe.
The senior full time staff is drawn from a similar pool. John Kingman announced his departure to Rothschild in the summer of 2009, to make some serious money. Robin Budenberg, his successor, spent most of his career with UBS, the Swiss investment bank.
The board consists mainly of banking insiders. With the exception of the Treasury representative, its members have spent several lifetimes in blue chip banks and fund management corporations on both sides of the Atlantic, with CVs including Citigroup, Merrill Lynch, Barclays and Warburg.
It is hardly surprising, given this history, that UKFI’s definition of its responsibilities expresses the values of the financial markets. Public ownership is viewed as a brief transition; the Treasury is a kind of ‘fund manager’ to maximise shareholder value.
The framework document of March 2009, which set out UKFI’s rules of engagement, was crystal clear: ‘The company should … develop and execute an investment strategy for disposing of the investments in an orderly and active way through sale, redemption, buy-back or other means within the context of an overarching objective of protecting and creating value for the taxpayer as shareholder.’
UKFI has lived up to its mandate. It has consistently taken a permissive line on bankers’ bonuses, arguing that they are a necessary ‘incentive’. It took the occasion of Kingman’s departure to announce a further symbolic separation from the public sector, moving from the Treasury to the offices of the old owners of the Titanic. And it has now recommended to the chancellor that the time is ripe to sell off the rescued Northern Rock.
Why was the opportunity to exercise public control over the banking industry lost? With the exception of the Labour backbencher, Chi Onwurah, parliament has been virtually silent on the unaccountable status of UKFI. But this is hardly surprising. UKFI is a New Labour creation. In the 2008 crisis, the Treasury had no plan B. Faced with the job of managing the new holdings it could only turn for help to its friends in the City so assiduously cultivated during the Brown chancellorship. It is hard for the present opposition front bench to criticise what it brought to life.
But UKFI is part of a bigger story still. The City has changed. It no longer wields influence through amateurish old boy networks or clubland lunches. It is a highly skilled lobbying operation, which, even in the depths of a disaster such as the financial crisis, was capable of fashioning powerful instruments of defence against democratic government – like UKFI. n
Michael Moran and Karel Williams are members of the Centre for Research on Socio-Cultural Change (CRESC) at the University of Manchester. The latest CRESC report on the power of the City in the UK can be downloaded free from