Liberal democrats

It’s the moment of the truth for Britain’s banking sector: the publication of the Vickers report. The headline is as expected: the Commission recommends the imposition of a ringfence on banks' ‘core operations’ (such as consumer deposits and small business lending) from the riskier elements of their business. According to the FT (£), the banks will have discretion over where the ringfence will fall, giving lenders and users a degree of flexibility, which suggests that Vickers is not recommending the full separation of retail and investment banking, as some had hoped.

How long will Alex Salmond's honeymoon with the voters of Scotland continue? Given that his next mission is to hold and win an independence referendum, much depends on his popularity and that of his party. Today, a third opinion poll puts support for the Scottish National Party at just under half of the national electorate. Angus Reid, polling for the Sunday Express, puts support for the SNP has now hit a remarkable 49 per cent. Given that the Nationalists only won 45 per cent of the votes in May's election – enough to sweep all the unionist parties into the background – this new high just shy of 50 per cent really does represent an extraordinary development in Scottish political terms. The poll also shows how far the Liberal Democrats have fallen.

William Hague’s comments in an interview with The Times that the Liberal Democrats are restraining the Tories on Europe will increase the grumbling among Tory backbenchers about the power of the junior coalition partner. Hague tells the paper that ‘A point of difference in our manifesto was the aim to repatriate some powers. Clearly that’s something I’m in favour of, but that’s the area we had to compromise on in return for other compromises.’ (In many ways this is a statement of the obvious. But in the current uncertain European environment, his remarks are news). In an attempt to reassure euro-sceptics, Foreign Secretary stresses that the Conservative party ‘would like to see powers returned from the EU to the United Kingdom.

I understand that following a meeting in Downing Street this morning, Eric Pickles, the Communities and Local Government Secretary, has been put in charge of dealing with Britain's 120,000 "problem families". In the aftermath of the riots, David Cameron promised to put all of these families through some a family-intervention programme by the time of the next election. This policy, though, was bogged down in the bureaucracy as it cut across so many different departments. Pickles' department will now have sole responsibility for this commitment. It will receive extra budget, with the money coming from education and work and pensions, and staff to deal with this.

Banking reform has always been one of those issues that was going to test the unity of the coalition. Indeed, it was the subject of the very first inter-coalition wrangle when back in May 2010 George Osborne and Vince Cable tussled over who would chair the Cabinet committee on banking reform.   To date, these differences have been held in check by the fact that the coalition is waiting for the recommendations of the John Vickers-led Independent Commission on Banking. But with the final draft of the Vickers Report being published on 12 September, these splits are starting to open up again.   Cable and the Liberal Democrats would like, at the very least, a strict ringfencing within banks of the investment and retails arms.

There’s a big coalition split coming down the road. Next month the Vickers’ review into banking reform, which is going to suggest a ring-fencing of the investment and retail arms of banks, will come out. The Liberal Democrats — led by Vince Cable — will push for the instant implementation of the report’s recommendations. The Treasury will argue that banks need to be given time to introduce these new rules. The result will be, as one senior Lib Dem source tells this morning’s FT, ‘a big fight’.   The tricky question for Cameron and Osborne is how do they win this argument when there’s a visceral desire for tough measures against the banks?

Traditionally the fact that the Liberal Democrats hold their conference first and still vote on party policy at it has been regarded as a disadvantage. But this year, I suspect that these two things will be in their favour. By going first, they will get to set the terms of debate for conference season. They’ll be able to spike their coalition partners’ guns on a whole variety of post-riots issues. They can make clear that they won’t accept any changes to the human rights act or any government push to encourage marriage. Even better, they can pass motions to this effect. They also will have first crack at setting out on what terms the 50p rate can be ended.

The future of the 50 per cent tax rate is growing issue within the coalition. Unlike most government wrangles, this one doesn’t split on partisan lines, with the yellows on one hand and the blues on the other. The debate is largely being forged by personalities. George Osborne is well entrenched; Eric Pickles weighed-in for the race last weekend, saying that he wanted people “to keep more money in their pockets”, indicating that he hopes the rate is temporary. (He went take a swipe at Vince Cable's mansions tax, which he described as a "big mistake".)   It’s David Willetts’ turn this weekend. The Times reports (£) that Willetts believes the tax must stay for the time being.

Nick Clegg laughed-off the dousing of blue paint he received in Glasgow yesterday, like one of Noel Edmonds’ unwitting victims. Today, Clegg has turned into the grinning douser: drenching his coalition partners in yellow paint by saying that the European Convention on Human Rights will not be watered down. Writing in the Guardian, Clegg says that the Conservatives are right to seek operational reform of the European Court of Human Rights, but the common ground ends there. He says that “the Human Rights Act and the European convention on human rights have been instrumental” in preventing injustices from council snooping to the misuse of DNA records and that the incorporation of human rights into domestic law was a “hugely positive step”.

First came the Germans and then came the Brits. The UK Treasury has secured an agreement with authorities in Zurich to tax the assets of UK citizens held in Swiss banks to reduce on tax avoidance and stamp out evasion. The deal will follow the lines of that which Switzerland made with Germany last month. The FT has details: 'Taxes on future income will be withheld at a rate of 48 per cent, corresponding to the top 50 per cent rate that now applies to Britain’s highest earners. A one-off levy of between 19 and 34 per cent will be applied to all Swiss accounts held by UK residents, with the exact percentage to be determined by the size of the deposit and how long it has been maintained.

Libya has elbowed the riots off the front page. But, in the medium-term, how Cameron responds to them remains one of the big tests of his premiership. In the Evening Standard today, Tim Montgomerie vents the frustrations of those Tories who fear that Cameron is missing his chance. Tim’s complaint is that Cameron has actually done — as opposed to said — very little and that the chance to use this moment to push through a whole bunch of big, necessary changes is being missed. With every day that passes, action on — say — the Human Rights Act becomes less likely as the Liberal Democrats become more dug in.

It's no surprise that 70 Tory MPs have formed a Eurosceptic group, as the Sunday Telegraph reveals today. They are the modernisers now. The new Tory intake are strikingly robust on all this: by and large, their idea of political balance is a picture of Thatcher on the wall and Jacques Delors on the dartboard. The impending boundary review and thinner-than-they-expected majorities mean they worry more about their constituency (and constituency associations) than the whips. But I'm told today that this rebellion isn't quite as fierce as it may seem. One Tory backbencher tells me the Tory whips have actually encouraged this group to call for renegotiation of the UK terms of EU membership.