LOBBY BRIEFING: 11.30AM THURSDAY 27 JUNE 2002
Foreign Affairs
The PMOS said that Jack Straw had updated Cabinet on foreign affairs issues. In relation to India and Pakistan, he had
pointed out that travel advice had been eased but was still strong. He said that the tension across the Line of Control
had lessened due in large part to the diplomatic pressure applied by the international community, and that it was
important for this to be maintained. He indicated that Geoff Hoon would be visiting the region next week. Foreign
ministers from other Governments would also do the same in the weeks to come. Asked to clarify the Foreign Office's
latest travel advice to India and Pakistan, the PMOS said that travel advice to those in the region had been downgraded
slightly earlier this week and directed journalists to the FCO for details.
The PMOS said that Mr Straw had taken the opportunity to brief Ministers on President Bush's speech on the Middle East.
He had also updated colleagues on the Conclusions from the European Council, pointing to the agreements which had been
reached on asylum and immigration, as well as Council reform. On Gibraltar, he had said that he and his Spanish
counterpart, Josep Pique, had agreed at an informal dinner last night to hold a formal Brussels Process meeting on
Friday 12 July in Madrid.
Economy/WorldCom
The PMOS said that the Chancellor had updated Cabinet on recent developments in world stock markets. He had said that
while the regime for regulating financial services had been strengthened since 1997 - for example, there was a Standing
Committee on financial stability with the Financial Services Act - there was no room for complacency. That was why he
and Patricia Hewitt had set up a special group in February, including senior figures in the accounting and auditing
profession, to consider the potential lessons for the UK from the Enron affair. He had confirmed that the remit of that
group had been widened to look, as a matter of urgency, at the potential lessons from WorldCom as well. That group would
provide an interim report within the next month. The PMOS listed the member of the group: Ruth Kelly (Financial
Secretary to the Treasury), Melanie Johnson (Minister for Competition, Consumers and Markets, DTI), Sir John Bourn
(Comptroller and Auditor General), Michael Foot (Managing Director, Financial Services Authority), Mary Keegan
(Chairman, Accountancy Standards Board), Professor Ian Percy (ex-Chairman, Accounts Commission for Scotland, Rosemary
Radcliffe (Complaints Commissioner, Financial Services Authority and former Chief Economist PriceWaterhouseCoopers).
The PMOS said that Patricia Hewitt had told the Cabinet that we believed our audit rules were better than those in some
other parts of the world. Nevertheless, the findings of the interim report would obviously be looked at very carefully.
She had also pointed out that the DTI and Treasury had commissioned a joint review into the role of non-executive
directors, which was being carried out by Derek Higgs.
Questioned as to whether Ms Hewitt had stated explicitly that the UK had a better auditing system than the US, the PMOS
said that as the Prime Minister had pointed out yesterday, the revelations about WorldCom did not automatically mean
that corporate governance everywhere was of poor quality. Obviously that was not the case. Ms Hewitt had been
underlining the point that some of the measures we had put in place through the Financial Services Act, for example,
meant that we were in a better position in relation to corporate governance than other countries. However, that was not
to draw any straight comparisons with any particular country. The point was that it was important for us to remain
vigilant and not be complacent. That was why we had set up the two reviews to examine whether there was anything else we
could do to tighten the existing regime.
Asked whether Ms Hewitt or Downing Street believed that a WorldCom-type scandal could happen in the UK, the PMOS said
that no one had a crystal ball which they could use to look into the future and answer that question. What we could do,
however, was to ensure that the regime in this country was as tight and as effective as it could be. It was important to
have proper rules for auditing and accounting and the institutional framework that we had put in place ensured that such
a financial scandal was as remote a possibility as it could be. Asked whether the regulations and measures we had put in
place would prevent such a thing happening here, the PMOS said he would be accused of glibness were he to answer the
question with a 'yes' or 'no'. The honest answer was that no one knew. We recognised that the US had seen corporate
problems with companies like Enron and WorldCom. Equally, it was true we had not had such scandals here. However, as the
Chancellor had underlined today, it was important for us not to be complacent. That was why we would look carefully at
the conclusion of the interim report and the joint DTI/Treasury review. Pressed further, the PMOS said that the
Government, the City, the FSA, the regulators and accountants all needed to understand the importance of putting in
place standards and measures that were as robust as possible.
Put to him that further regulation would mean more red tape - which organisations like the CBI had been campaigning
against, the PMOS said that the committee had not yet reported back on its investigations and he was reluctant to
pr-empt what they might or might not say. The industry's watchdogs were all bound in to this. Anything that could be
done to ensure the protection of investor confidence was in the interests of business as a whole. There was always a
balance to be struck in imposing necessary regulation. We would argue that we had achieved the right balance, although
others could take a different view.
ENDS