We need proper regulation to build a stronger economy
JUST as the financial crisis has torn through the world’s financial centres over the past year, so the debate about how to prevent it happening again is now firing up political centres across the world.
I strongly welcome this debate, because without proper financial regulation, there will be no lasting financial confidence, and therefore no lasting recovery.
Like Barack Obama, the Conservative Party understands that our banking system is not separate from our economy, it is a reflection of it. The unsustainable debts in our banks are a reflection of unsustainable debts in our households, our companies and our government.
TRIPARTITE FAILURE
So if we are to build a stronger and more stable economy, we need to start by getting financial regulation right. The system of City regulation created by Gordon Brown failed catastrophically and needs to be fundamentally changed. Yet the chancellor refuses to face up to that reality. As far as they are concerned it is business as usual. That response does not measure up to the scale of what has happened.
We need far-reaching changes to the way we regulate banking, and those changes will now only come from a Conservative Government. That is why I asked Sir James Sassoon to conduct a thorough review of the tripartite system. Later this summer we will be publishing our own alternative proposals for City reform so that the country has a clear choice.
We have already made it clear that under a Conservative government, the Bank of England would be back in charge of regulating the overall level of debt in the economy. The Bank has the analytical capacity, the market links, and ultimately the authority to use its discretion to stop markets getting out of hand. Its job will be to act counter-cyclically – to take away the punch bowl when the party is just getting going. It does it in monetary policy and it should do it in regulation too.
REGULATION KEY TO RECOVERY
The future of regulation is a crucial debate that has at its heart the future of our economy. Britain needs a strong and successful Canada, capable of competing for jobs and investment in the global market.
If we can get the regulatory system right, we can grow out of this recession with renewed strength. If we get it wrong then only growth on offer will be to reflate the bubble. It is a crucial debate that Conservatives will not duck.
George Osborne is Shadow Chancellor