Politics Summary: Thursday, June 17th

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BP is to pay out $20 billion (£13.5bn) in compensation following talks with President Obama; they have also agreed not to pay a dividend this year. The sum is just a down payment into a special compensation fund for victims of the Gulf of Mexico oil spill, reports The Guardian, with the president insisting it “is not a cap”. He said: “The people of the Gulf have my commitment that BP will meet its obligations to them.”

The report says: “The deal was announced four hours after four BP executives – led by [chief exec, Tony] Hayward and [chairman, Carl-Henric] Svanberg – marched up to the west wing, allowing the cameras of cable television networks a clear view of what was immediately dubbed a ‘perp walk’ – the US slang term for a police parade of suspects. Svanberg used the moment to try to repair BP’s battered image in America by serving up an apology. He said BP would conduct its own investigations into the spill. The deal appeared to settle the biggest concern for residents of the Gulf: that BP, which has already spent more than $1.5bn on clean-up costs, would not make good on claims from fishermen and other businesses put out of work by the spill.” Meanwhile the Telegraph reports the prime minister’s calls “for the company to be protected from excessive compensation claims”, making “an appeal on behalf of BP’s British investors”. Mr Cameron explained: “BP is an important company… It is an important company for people’s pensions, it employs thousands of people in the UK, it pays a lot of tax. It’s important to try to give some level of clarity and certainty so that the company can actually continue and be financially stable… They do need a level of certainty, and this is BP’s worry, that there won’t be claims entertained that are three or four times removed from the oil spill. This shouldn’t be about going after BP for the sake of it.” And The Independent reports that BP’s execs will “face a further mauling in Washington today”, appearing before the Senate Committee on Energy and Commerce.

The Financial Times leads on the Chancellor’s abolition of the Financial Services Authority. Mr Osborne’s plans, announced at last night’s Mansion House speech, will result “in a sweeping increase in the Bank of England’s powers”, reports the FT, with Mervyn King, governor of the Bank, becoming “one of the most powerful central bankers in the world, with a new remit to prevent the build-up of risk in the financial system in addition to his monetary policy role”. The governor said last night that his new role in enforcing financial stability was to “turn down the music when the dancing gets a little too wild”. The Chancellor justified his decision by saying: “The FSA became a narrow regulator, almost entirely focused on rules-based regulation… No-one was controlling levels of debt and when the crunch came no-one knew who was in charge.” The Telegraph also report’s the Chancellor’s “sweeping changes to the banking system” and “sweeping changes to the system of City regulation”, which he claims will usher in “a new, fairer era with banks supporting society rather than society having to bail them out”, with The Guardian reporting Mervyn King’s elavation to “the most powerful governor of the Bank of England in living memory after George Osborne gave him sweeping powers to curb City excesses and prevent another financial crash”.

The Independent reports on the “new crisis in Euroland”, with fears growing in Europe that Spain “is preparing to ask for a bailout which would dwarf the €110bn (£90bn) rescue plan for Greece”. European leaders will meet in Brussels today to discuss the latest crisis, though the Spanish Government has denied Europe’s fifth-largest economy is seeking a bailout. Prime minister Jose Luis Rodriguez Zapatero insisted: “Spain is a country that is solvent, solid and strong, with international credibility.” With a European Commission spokesman adding: “I can firmly deny [that a Spanish rescue is under discussion]. I can say that that story is rubbish.” However, the Indy says: “It is proving hard to shake off persistent market fears about Spain, which, if it needed a lifeline, would swallow up a large part of the emergency fund. Worryingly for the EU, the doubts about Spain – whether real or driven by speculation – are eerily similar to the gradual seeping away of confidence that sent Greece into a financial death spiral in March and April. The Spanish government’s cost of borrowing hit a new record yesterday. The interest rate gap, or spread, between 10-year Spanish bonds and their German equivalents, rose by more than 0.10 of a point to 2.23 percentage points… Fears over Spain’s finances checked the recovery of the euro on money markets yesterday. The single currency lost much of the gains it had made in the past seven days.”

The Independent also reports that a revolt by Tory backbenchers has succeeded in “watering down” reforms to capital gains tax. The backbenchers, who claimed the reforms would penalise savers, have forced ministers into a rethink of the policy ahead of the Budget next Tuesday; the Government’s initial proposals were to raise CGT from 18 per cent to 40 or even 50 per cent. The reports says ministers “are known to be considering a tapering system under which people who try to make quick profits are penalised, but those who hold long-term assets are not affected”, with the prime minister yesterday telling the BBC: “We are finding a lot of people turn income into capital in order to evade the tax system and we’re losing over £1bn by that. So there’s a problem we have to address… But I do not want to do anything that actually unfairly punishes savers – I don’t want to go back to very high rates of marginal tax.” The Indy says a possible compromise could be to introduce “a tapering scheme under which, for example, a rate of 30 per cent is imposed on gains over two years, 20 per cent for three years and 10 per cent for four years. There used to be a tapering system until 2008.”

And the tabloids are up in arms over demands from MPs to be given “publicly funded credit cards” to cover expenses. The Express reports that MPs “want the card to avoid having to pay upfront for costs linked to their work”, and that they “demanded they be given a credit card rather than submit receipts before being reimbursed”, while The Sun, under a mock-up of a credit card in the name of “Mr Phil Yearboots MP”, says: “FURIOUS MPs yesterday demanded to be given taxpayer-funded CREDIT CARDS. They moaned a new expenses system brought in to stop fiddling had left them out of pocket. Dozens turned up at a debate to vent their anger. MPs used to have office costs – like rent and stationery – paid directly by Commons bosses. Now they fork out themselves and claim it back. The taxpayer still foots the bill – but MPs argue they have to wait too long before being refunded.”