* UBS report advised former Labour government how to reduce
* Labour says report contained legitimate policy
* Government says ex Labour ministers have questions to
* Barclays paid near $450 million fine over rate-rigging
By Tim Castle
LONDON, July 7 A political row in Britain over
the fixing of interbank lending rates deepened on Saturday after
the publication of confidential advice from UBS to the former
Labour government on how to reduce the key Libor rate at the
height of the financial crisis in 2008.
The Conservative-led coalition, trailing in opinion polls,
has tried to pin part of the blame for the rate-fixing by bank
traders on the government of former Labour prime minister Gordon
Brown, questioning whether the government directly or indirectly
sanctioned the manipulation.
The chairman and chief executive of Britain's Barclays Plc
resigned this week after the bank agreed to pay nearly
$450 million for its part in rigging the Libor rate between 2005
and 2009, which is used to settle interest rates on trillions of
dollars of contracts globally.
The scandal has reignited anger in Britain against bankers,
who are blamed for a deep recession the country is struggling to
Opposition Labour said the coalition government had tried to
smear the party by insinuating that the confidential advice was
about the deliberate manipulation of the Libor rate.
The advice, in a note titled "Reducing Libor, improving
lending conditions", was sent from Swiss-based bank UBS
to the Treasury at a time when lending between banks
had all but dried up over fears they might collapse.
Instead, the document, published in the Financial Times,
"simply proposes legitimate policy improvements" to reduce the
cost of banks lending to each other during the credit crunch,
It called on the coalition's finance minister George Osborne
to withdraw "false allegations" that people close to Brown were
at fault over the rate-fixing scandal.
"There is absolutely nothing in this note about the
deliberate fixing of the Libor rate, which Barclays traders were
involved in," said Labour finance spokesman Chris Leslie.
In the document, UBS suggests that the Libor rate could be
reduced if the government cut the cost of a credit guarantee
scheme (CGS), which backed bank lending, to levels operating in
a similar scheme in the Netherlands.
"Libor will fall significantly quicker if the cost of the
CGS, under one year, is reduced; so that banks can borrow
unsecured at an all-in cost which is less than Libor," said the
note, written on Nov. 1, 2008.
Although the document appears to contain no "smoking guns"
to implicate the Brown administration, it indicates the
government's concern at the time to lower the Libor rate and get
credit flowing again between banks.
The fallout from the Libor scandal widened to the political
sphere after Bob Diamond, who quit as Barclays Chief Executive
last week, said Paul Tucker, now deputy governor of Britain's
central bank, had called him in October 2008 to relay concerns
from within government about the high level of Barclays' funding
Barclays has said the conversation was understood by a
senior executive, Jerry del Missier, to be an instruction to
lower the bank's reported Libor rate, which he duly passed on to
the bank staff concerned. Del Missier, who also resigned this
week, has not commented on the matter.
It remains unclear whether Tucker was referring to
government ministers or officials and the policymaker is not due
to give his side of the story until he testifies before a
parliamentary committee on Monday.
In the meantime, Osborne has sought to exploit the
uncertainty by saying former Labour ministers had questions to
The Conservatives have fallen behind Labour in opinion polls
since a badly received budget in March, when Osborne cut the top
rate of tax for the biggest earners and raised tax on the
elderly, prompting claims the government was out of touch with
One area of Osborne's attack on Labour was the UBS document,
not made public until now. Osborne said there were questions
over the role played by former Labour treasury minister Shriti
Vadera, who has confirmed she made comments on the document at
Osborne's main target has been Labour's treasury spokesman
Ed Balls, a former treasury minister and close ally of Gordon
Brown, with the two clashing in fiery exchanges in a
parliamentary debate on Thursday.
Balls rejected as "utterly false and untrue" suggestions by
Osborne he had been involved in government discussions on Libor
at the time of the credit crunch, when he was schools minister,
accusing his rival of "cheap and partisan" attacks.
Vadera has said she commented on the report but added that
it was legitimate for the government and regulators at the time
to be concerned about why the cost of interbank lending,
reflected by the Libor rate, had stayed stubbornly high.
UBS said it had no comment to make on the publication of the
report. There was no immediate comment from the Treasury.
The rates submitted by banks are compiled by Thomson Reuters
, parent company of Reuters, on behalf of the British