The Prime Minister is caving in to pressure from the City of London to ensure minimal financial regulation, but isn’t this the approach that got us into the crisis in the first place?
Once again it seems that David Cameron might be doing a U-turn – this time in relation to economic policy. Having come into power realising (so we thought) the necessity of re-balancing the UK economy, the coalition government produced a lot of rhetoric about re-establishing the importance of manufacturing. Now, at the behest of Tory MPs, the City of London and the media, the Prime Minister is riding to the rescue of the City in relation to the proposed financial market regulation.
Let’s get some facts straight. It was the financial institutions in the City (and elsewhere in the world) who got us into the mess we are now in and that was as a consequence of poor regulation of those institutions and a cavalier approach to risk on their part. Subsequently, we had to put up hundreds of billions of pounds of public money to bail out the banks .
What did we find? Firstly, that those same banks are reluctant to help businesses with liquidity or investment finance, and secondly, they are again paying themselves big bonuses as well.
The UK economy is hugely and critically unbalanced. I discussed in a previous blog that in almost no other developed country does the largest city dominate, politically, to the extent that London does in the UK. London also dominates economically in that it has a hugely disproportionate level of economic activity, compared to other parts of the UK, resulting in huge disparities in income and wealth. Also, as a consequence of the predominantly London-based financial services sector, the importance of the manufacturing sector has shrunk alarmingly and is now below all our major competitors.
As Anna Turley pointed out in an earlier PF blog, in spite of the fine rhetoric of the government, the regions outside London are in the doldrums. Regional Development Agencies were abolished with undue haste, the regional growth fund has stalled, the business department is recreating ‘local offices’ to compensate for the loss of RDAs and the success of LEPs seems to be very mixed to say the least.
It is becoming increasingly clear that a strong recovery in manufacturing is unlikely to happen for a number of reasons, not least the hollowing out of manufacturing capacity in the UK.
Goodness knows what price we will have to pay to the EU to get ourselves exempt from this regulatory process of the City, but the danger is that we will end up paying it because of the influence of the City over the Conservative Party.
If only as much effort had been put into helping Bombardier win the contract to supply new trains for Thameslink but then Bombardier wasn’t based in the City of London. Given the role of the City in the financial crisis, what’s wrong with a bit of stronger regulation anyway?
Malcolm Prowle is the co-author of Public services and financial austerity: getting out of the hole published by Palgrave Macmillan
