In today's Times (£) Lord Heseltine comes to the timely defence of the City:
“My view is a very clear one, the City of London is a vital part of the national economy. It is a world-class industry and brings huge wealth to this country. The politics [of the City] are very difficult, so skilled political judgment is needed to make sure you don’t throw the baby out with the bathwater, and there are at the fringes difficult things to defend. But the underlying health of the City and the financial world are of enormous significance to us.”
Tarzan's intervention will reinforce George Osborne's efforts to prevent Vince Cable from imposing even heavier taxes and regulations on London's banks. Mr Cable – now known by Tory MPs as the Anti-Business Secretary – may have lost his battle against Rupert Murdoch but he is determined to pursue his attacks on the City. Cable has compared bankers to “spivs and speculators” and his tough stance enjoys widespread public support. He is also being egged on by powerful newspapers, including the Daily Mail.
Up until now there have been few defenders of the City's importance to the UK economy. Mark Field MP has been an honourable exception. Lord Heseltine's intervention coincides with the publication of a new report from The TaxPayers' Alliance and the Legatum Institute. In a joint piece for today's Wall Street Journal Europe (£) Matt Sinclair (TPA) and Dalibor Rohac (Legatum) warn that the post-crisis approach to regulating the banks could precipitate the next crisis. Their main concern is globally harmonised regulations:
"International rules are supposedly necessary to stop financial contagion and a regulatory "race to the bottom." But harmonized regulatory regimes behave like farming monocultures: both are very vulnerable to disease. International rules will encourage firms to hold similar assets, take a similar attitude to risk and respond similarly during a crisis. The result will be more severe and more frequent international crises."
In their joint paper (available here) Rohac and Sinclair also worry that there isn't a big enough counter-cyclical element to the new banking rules. They also warn that "some measures proposed, like attacks on tax havens and hedge funds, are motivated by other agendas and do not actually address the problems that led to the financial crisis."