View more on these topics

Regulatory reform shouldn’t drive us to drink

Last week saw the Conservative Party publishing Sir James Sassoon’s interim review of the current Tripartite system of City regulation which was introduced by good old Gordon Brown back in 1997.

Shadow chancellor George Osborne pointed out it has “failed to protect Britain’s economy from over-indebtedness, a banking crisis, and ultimately recession”.

Now this Wednesday we will have the joys of reading Lord Adair Turner’s formula for reform and it will be interesting to see where the current chairman of the Financial Services Authority will differ from the former Treasury civil servant but as Sir James pithily remarked in an interview in the Evening Standard, “It’s a bold organisation that is telling you it ought to be abolished”.

Sir James’s main thrust is that both the Bank of England and the FSA have not been communicating with each other on the impact of macro economic issues on the micro or in other words on individual firms.

He therefore proposes that that there should be a public exchange of letters every six months in which the Bank identifies such issues and in which the FSA responds by confirming the actions in proposes to take.

It’s an interesting idea but given that the Treasury seems incapable of understanding the impact of macro-economic trends on the economy at large and that that Treasury and the chancellor seem incapable of communicating on even mundane matters, a couple of emails between a King and a Lord once every six months won’t exactly put the world to rights, especially if the Bank proves as effective as the Treasury in getting its facts or interpretation wrong.

Let’s face it, the Treasury has consistently underestimated the impact of the credit crunch and the scale of the subsequent recession and it can’t even get it sums right when planning for the next Budget.

The latest proof of that is a new study from the Centre for Economics and Business Research which shows that the greatest threat to the government’s finances is not the risk it is taking with the recapitalisation of the banks and its asset guarantee scheme but a collapse in its tax take from the financial services sector which will have fallen from £67bn in 2006/7 to just £39bn in 2009/10.

As the CBES points out, that £39bn does not appear to have been factored in more than half of the tax revenue decline for 2009/10 that the chancellor predicted in his Pre-Budget Report and there is little evidence that the longevity of the problem is yet fully understood in the fiscal part of the Treasury.

Recommended

Idea for asset-backed loans floated

Commercial mortgage brokers could be thrown a lifeline if pension funds get behind a new idea being touted by Stuart Parfitt.