A New Economic Model: Part 8

A New Economic Model: Eight Benchmarks for Britain.

This is my analysis of George Osborne's economic policy should the Conservatives win the next election.

7 Create a safer banking system that serves the needs of the economy

Remember the big bang? That was when the Thatcher government de-regulated the financial sector, to create cheap credit and the foundations for the finance sector to become 20% of the UK's economy. Any government inheriting the de-regulated finance sector would have found it difficult to re-regulate, and so in 1997 Gordon Brown sensibly decided to bring in a light touch regulation. The global nature of international finances mean that the markets around the world are inter-connected and so a financial collapse in the United States was bound to affect the finance sector in the United Kingdom. Of course, Gordon Brown and Alistair Darling's decisive action to support the banks in the UK prevented the American sub-prime crisis from causing more serious damage to the UK economy. The question is whether the further regulation of the finance sector is necessary, or desirable.

The details:

"We will reform the regulation and structure of the banking system to ensure lower levels of leverage, less dependence on unstable wholesale funding and greater availability of credit for small and medium sized businesses."

These are platitudes again. Every government wants to promote "lower levels of leverage, less dependence on unstable wholesale funding and greater availability of credit" the question is how?

Osborne's "benchmark" (OK, policy) is to munge the tripartite regulation system (Bank of England, FSA, OFT) into the Bank of England and a new quango called the Consumer Protection Agency. More reforms, more changes. It is unclear whether such changes will have any effects. Osborne is also promising reforms to the finance sector similar to the Obama reforms and Osborne openly admits that they are dependent upon international agreements. This is a pledge which can be promised, but there is no guarantee of delivery, so how can Osborne include it as a benchmark?