In the first of a two-part series looking at the legacy of the Big Bang, Martin Vander Weyer reflects on the old City life and reminds it of its 1980s context.
“The past is a foreign country,” wrote LP Hartley in his 1953 novel The Go-Between
. “They do things differently there.”
It is an observation that might have been made of the City of London before the Big Bang revolution of October 1986 that allowed banks to build large-scale securities trading operations.
Except, of course, that, for some, it is the 21st Century City and its Canary Wharf satellite that seem ‘foreign’ – or in more polite terms, wholly international – by comparison with a previous era in which the Square Mile is remembered as a bastion of Englishness.
A good thing?
The detail and impact of Big Bang itself has long been blurred by so much else that has happened since – technological, architectural and market upheaval as well as changes of ownership, regulation and social mores.
Whole careers have been completed since banks and London Stock Exchange firms first began to reposition themselves for this new era. To have experienced the pre-Big Bang way of City business to the full, you would have started work (as I did myself) in the 1970s — and are now approaching retirement, if not already there.
So, let me revisit the question Was Big Bang a good thing?
by way of a broad overview of City life – and without disguising my own prejudice, expressed in The Spectator
on Big Bang’s 20th anniversary in 2006 and reiterated here for the 30th.
This was, I wrote, an exercise in modernisation that in the end “destroyed shareholder value, job security and collegiate trust and made millionaires of some very undeserving people. On a wider front it encouraged ill-conceived takeover deals and excessive risk-taking in increasingly volatile markets, while doing nothing to protect or boost the savings and pensions of ordinary people.”
Not so good?
Since the cataclysmic financial crisis of 2008, it is now even more difficult to imagine the counterfactual, Would the City be a better place if Big Bang had never happened?
Yet we should remember that Big Bang was just one front in the wider Thatcherite revolution, other elements of which remain under constant reappraisal.
We still ask today whether it was right, in the long run, to sell millions of council houses to their tenants or to privatise every utility. And it’s still worth asking whether it was right to try to turn the City into an imitation of Wall Street.
My mature conclusion is that it probably was but that – as with those other flagship policies of the Thatcher years – it came with collateral damage and unintended consequences.
What the Big Bang was
Let us recall, in a nutshell, what Big Bang was.
Driven by the Thatcherite urge to sweep away closed shops wherever they were found — and to see London raise its game as a hub of global capital markets — the new rules, negotiated in 1983 by Sir Nicholas Goodison on behalf of the Stock Exchange, abolished fixed minimum dealing commissions and permitted ‘dual capacity’ for the first time.
That meant stockbroking (acting as agent for institutional and private investors) and stockjobbing (market-making in shares and bonds) could henceforth take place within the same firm.
And such firms could henceforth be corporately owned, notably by banks that would provide the capital to underpin market-making risks – and the floorspace and kit for a simultaneous switch to screen-based trading.
What was lost and gained
Thus, the partnership model – through which individuals had for two centuries risked their capital and reputation as members of the Exchange – more or less died with Big Bang. As did the face-to-face mode of business on the Exchange floor in which personal acquaintance and trust played a vital part.
At the same time, remuneration scales multiplied, first to keep up with incoming American competition and then under their own spiralling volition – as the bonus culture took root and the most capable dealmakers hawked themselves from firm to firm.
I have argued many times, from personal observation, that risk behaviour changed as a result, but it’s a moot point whether ethical standards of business declined. We must not forget that the old City was notoriously prone to dealings that favoured insiders – whether in the Stock Exchange or the Lloyd’s insurance market. And to be an insider in those days was very much a matter of old boys’ networks.
At least the new City was more meritocratic.
And it was now capable of carrying out huge, complex transactions – starting with the £5bn British Gas privatisation in December 1986 and absorbing the £7bn sale of the government’s residual stake in BP despite the Black Monday crash of October 1987.
Yet we should also remember that the most pioneering of large-scale privatisations – that of British Telecom in November 1984 – had been triumphantly completed under the old rules, involving numerous merchant banks, brokers and overseas agents in close co-ordination.
Martin Vander Weyer is business editor of The Spectator. Before turning to journalism, he spent 15 years as an investment banker and was a director of Barclays de Zoete Wedd, the predecessor of Barclays Capital. He is a visiting research fellow of York University Management School.