Osborne’s plan for financial reform stacks up — I think
February 3rd, 2010
Britain’s shadow chancellor, George Osborne, yesterday came up with a package of reforms which did much to highlight the flaws in what we’ve seen from prime minister Gordon Brown and chancellor Alistair Darling.
Osborne said it was essential that the UK weans itself off its addiction to debt and that British firms become more competitive in export markets. He portrayed Brown’s policy of borrowing from the Chinese to fund consumption as morally questionable and economically disastrous.
Osborne said his party — seen as likely to gain power at the next general election in a few months time — will dismantle the failed tripartite system of regulation that Brown cannot bring himself to reform, largely because he still sees it as one of his proudest legacies (!) The shadow chancellor also reaffirmed his party’s commitment to handing back responsibility for the supervision of banks to the Bank of England.
Speaking at the launch of the Conservatives’ policy document A New Economic Model: Eight Benchmarks for Britain, Osborne confirmed that the Tories “will restore the Bank of England’s historic role in monitoring the overall growth of credit and debt in the economy”. This will be music to the ears of Mervyn King, the bank’s governor, who has been at loggerheads with the government over how to reform finance and financial regulation for many months, and is rumoured to have done some sort of deal with the Tories.
Osborne added that a future Conservative government will enlarge the Bank of England’s role to include financial stability and that his party will put forward an “emergency” budget within 50 days of taking office, in addition to setting up an Office of Budget Responsibility that will strive to ensure the country can cling onto its AAA credit rating.
He said the Tories are committed to eliminating the UK’s £178bn structural deficit over the course of the next parliament — a policy like to be at odds with Tory leader David Cameron’s references to tax cuts. The deficit reduction programme stacks up favourable against the more half-hearted pledges we have heard from the current chancellor, Alistair Darling, who has indicated he wants to halve the national deficit over the next four years.
In their policy document, the Tories added that they will “pursue international agreement to put in place an insurance fee on banks and to prevent retail banks from engaging in large-scale proprietary trading that puts the stability of the bank at risk”.
This falls short of the outright ban on proprietary trading which US President Barack Obama is pushing for in the US, but could still lead to a separation of ‘utility’ banking from ‘casino’ banking businesses. Lib Dem finance spokesman Vince Cable yesterday suggested the government has been sweet-talked into preserving banking’s status quo by silver-tongued City lobbyists.
Osborne, scion of a wallpaper manufacturing family, who has been shadow chancellor since 2005, also promised a competition review of the banking sector “that will inform our strategy for selling the government stakes in state-controlled banks”. He seemed to be implying that some state-owned banks will only be reprivatised if they are first broken up.
Osborne also called for lower leverage in the banking system as a whole, and less dependence on “unstable wholesale funding”. He said at the launch event: “The financial services sector is one of our global success stories, and we want it to stay that way. But because of a massive failure of regulation it has put our whole economy at risk.”