By a Newsnet reporter
The Labour party is facing claims that it sanctioned the manipulation of LIBOR rates in 2008 after leaked documents suggest that an advisor in Gordon Brown’s government told BoE officials that reducing LIBOR rates would help the UK economy.
The documents indicate that Baroness Vadera, a former Cabinet Office minister and one of Labour's chief economic advisers, told officials in 2008 that bringing down the rates would be “a major contribution to the stability of the banking system and to the health of the economy”.
According to the Daily Mail, a paper prepared by the Labour peer along with former colleagues at the UBS bank was headed ‘Reducing Libor’, which is the London based inter-bank lending rate at the heart of the rate-rigging scandal.
The newspaper claims the document was circulated amongst the Labour peer's Ministerial colleagues at the height of the credit crunch in 2008 and concluded that 'Getting Libor down is desirable.'
The revelations come on the day that Barclays' Chief Bob Diamond announced his resignation. Mr Diamond is scheduled to give evidence in front of a Commons Committee tomorrow and there is already speculation over what he may reveal.
News that the scandal is linked to the former Labour government will pile pressure on the Labour party to explain what Gordon Brown and Chancellor Alistair Darling knew about attempts to manipulate Libor.
It is now emerging that there were two specific attempts to rig the rate. The first was an attempt by Barlcays' traders to inflate the rate in order to gain advantage and increase bonuses and profits. The second involves attempts to lower the rate at the height of the credit crunch with claims that the manipulation was carried out with the approval of the Band of England.
The scandal has already led to calls for a full public inquiry to be held, with the powers to compel former Labour PM Gordon Brown and his Chancellor at the time Alistair Darling to appear.
Labour leader Ed Miliband is refusing to co-operate with a Parliamentary probe announced by PM David Cameron. Mr Miliband has claimed that he too wants a full public inquiry.
Lady Vadera's leaked note, from November 2008, suggests the Labour government at the time were fully aware of the high rates being posted by Barclays, RBS and HBOS. However there is no proof that Lady Vadera knew that rates were being rigged.
There are already official government documents that show officials from the FSA, Bank of England and the British Bankers' Association were warned about the Libor rate as far back as 2007, but did nothing
The claims by the Daily Mail come only days after it emerged a phone call in 2008 between BoE deputy Paul Tucker and Barclay's head Bob Diamond led to Barclays' managers believing they were manipulating rates downwards with BoE approval.
Speaking to the Daily Mail, Conservative MP Jesse Norman, a member of the Treasury select committee, said: "This document appears to show that senior figures in the last government were highly concerned about ways of reducing Libor at the height of the financial crisis. The question is whether and how that was passed on to the banks.
"That issue, and the relationship between the Bank of England and Barclays, will need to be looked at closely by the Parliamentary inquiry."
Current Chancellor George Osborne has already signaled that former Labour Ministers will be required to give evidence. Mr Osborne, in a Commons clash with Labour's Ed Balls, whose former ministerial duties included regulating the City, asked: "Did he express any concerns about the Libor rate when Gordon Brown was Prime Minister? We will find out in due course."
The scandal has already prompted the SNP to demand answers from former Labour Ministers, including Gordon Brown and Alistair Darling.
In a statement yesterday, Finance Secretary John Swinney called for a full and immediate public inquiry into the affair.
Mr Swinney said:
“Last week’s revelations that Barclays had, for several years, been rigging the rate at which it borrowed money and misleading the regulators about what it was doing has once again undermined public trust in the UK banking sector.
“As further details of the FSA investigation emerge it is clear that that there remain many unanswered questions.
“Before the banks can begin to re-establish a reputation for responsible and accountable management of their customers’ money we need to understand in detail who knew what and when. The impact this has had on people’s mortgages is something that must be uncovered as a matter of urgency."
The SNP Treasury Spokesperson Stewart Hosie MP, a member of the House of Commons Treasury Select Committee, called for full transparency from Labour, and added:
"We must have full transparency from not only the banks but also the Labour members who were Ministers at the time, and the financial regulators that reported to them.
"Alistair Darling was Chancellor, Gordon Brown was Chancellor and Prime Minister and Ed Balls was Economic Secretary to the Treasury when LIBOR fixing was going on. Were Darling and his colleagues asleep at the wheel or did they know what was going on yet fail to take any action?
"Americans and British regulators received complaints about LIBOR manipulation as early as 2007. Why was Parliament, the markets and the public not informed of the allegations by Alistair Darling?"
There are now claims that some people may have lost their home as a result of the rate fixing. The claims follow a scandal involving mis-selling of financial products that led to many businesses going bust.