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The Conservatives stress that they are vigorously cracking down on financial chicanery. It was they and not Labor, the Tories point out, who outlawed insider trading in 1980. Moreover, because of the comprehensive financial- services law passed last November by the Conservative-led Parliament, judges can now jail those who, under oath, refuse to answer questions that involve insider trading. "Ours is the party of law-and-order," asserted Chancellor of the Exchequer Nigel Lawson in the House of Commons. "The government is determined to prevent, detect and punish wrongdoing wherever it may occur." His speech was greeted by hoots and guffaws from the opposition.
The City is afraid that the spreading mess of Guinness will force the Conservatives to clamp down on the number of mergers, which has gone up 160% in the past three years. Snaps Liberal Party Leader David Steel: "This endless shuffling about of assets has done nothing to improve the basic efficiency and capacity of British manufacturing." Already, takeover fever has abated. "There are no megabids running at all," says Kenneth Morton, an executive director with the Hill Samuel Group. "There's no doubt that people's attitudes have changed." Last month BTR, one of Britain's most aggressive raiders, backed away from a contested takeover of Pilkington, a highly successful glassmaker. Though BTR insists that its decision was based entirely on commercial considerations, others believe that the company was reading the political winds.
City officials are also concerned that the government might abandon its belief that the financial sector should be largely self-regulated. Under the new law, virtually all of Britain's financial-services areas, including securities, Eurobonds, commodities and foreign exchange, will be governed by a series of self-regulatory organizations. Their activity, in turn, will be supervised by the Securities Investment Board, a private-sector body whose decisions are backed by the force of the law. Says SIB Chairman Sir Kenneth Berrill: "The aim in the U.K. was to get the rules applied and interpreted by practitioners, and not by lawyers." Now, even some Conservative Party members feel that a tough U.S.-style Securities and Exchange Commission is needed. Says former Prime Minister Edward Heath: "I do not believe that the City is any longer capable of self-regulation."
Whatever set of regulations emerges, it will take time to undo the severe damage to the City of London's reputation. For many Brits, the Guinness affair has reaffirmed a deeply felt suspicion of the City. Recently, 80% of those surveyed in a Gallup poll believed that the charges of "shady dealings" and "corruption" applied to "many" City companies. "I always felt there are bigger rogues at the top than there are at the bottom," says George Payne, a foreman at British Road Services' Oxford depot. "So this is no surprise to me."