Commentaries

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Banks must see the debate has changed

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Regulators are rarely accused of being too candid. But Adair Turner’s observation that the financial sector is too large has seen the chairman of Britain’s Financial Services Authority swamped by a wave of protest.

Executives, lobby groups and even Boris Johnson, London’s Mayor, have responded with dire warnings about the risks of undermining the financial sector. This knee-jerk response shows the industry still fails to understand the consequences of the crisis it helped to cause. It is high time bankers engaged in a proper debate about their future.

The criticism of Turner takes two familiar forms. First, financial services businesses and their employees pay lots of tax. Second, tougher regulation could drive this valuable activity elsewhere. Both arguments have some limited merit. However, this narrow defence fails to address the broader question of the banking industry’s function, and its relationship with the state.

It is true that big banks have in the past paid a lot of tax, as have most of their employees. However, these historical receipts must be weighed against the trillions of dollars of public money that governments have been forced to commit to prop up their banking systems.

Boris’s crocodile tears for London’s Development Agency

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It’s tough being a Tory Mayor of London. Boris Johnson’s Conservative instinct is for less government spending, fewer subsidies and (hopefully) lower taxes. Unfortunately, political reality obliges him to complain at the latest round of cuts at the London Development Agency, his local arm of one of the Labour government’s biggest and most expensive quangos.

There are eight more Regional Development Agencies covering England, and they have over 2 billion pounds to spend in the next financial year. The 2007 Comprehensive Spending Review spoke glowingly about merging the regional economic strategy with the regional spatial strategy, better alignment of funding with strategy and plenty more of the meaningless guff which fills Treasury documents these days.

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