The Great Debate UK

Why George Osborne should think again

– Mark Hannam is a guest columnist, the views expressed are his own. He formerly worked at the Bank of England. He currently chairs Fair Finance, a microfinance company. The views expressed are his own. –

George Osborne’s proposals to reform the UK’s system of financial regulation make for good short-term politics but bad long-term policy. He should think again.

Blaming the tripartite structure of financial regulation for the banking crisis makes sense politically, because it suggests that the Prime Minister, who designed the structure, was responsible for the crisis.
Good politics does not always make for sound policy however. There are three reasons to think that Mr Osborne’s proposals are ill conceived. First, unless the opinions polls change dramatically in the next few months, the FSA will start to haemorrhage high quality staff and will not be able to replace them.

Second, if the Conservatives implement these plans they will throw the financial regulatory system into chaos for two or more years while the re-organization takes place. This will create risks in an already fragile financial system and generate costs for an already depleted public purse. Regulatory reform on this scale is neither quick nor cheap.