The chancellor has laid out his goals for future economic policy, including committing to a ‘ring-fence’ for banks and curbing vulnerability to banking and housing booms.
Speaking at the Royal Economic Society yesterday (14 January) George Osborne stated that while the government has made progress during the last four years, “huge economic challenges remain”, noting that the deficit “is still far too high” and the debt ratio of 81 per cent of GDP “leaves us exposed”.
He stated that beneath the surface remain many structural weaknesses remain, like the long-term fiscal challenges of an ageing population, the fact the UK still invests less than competitor nations, a dependence on slow-growing European export markets and the endemic problem of low skills causing persistently weak productivity.
To help overcome these challenges he set out three “ambitious goals” for the next two decades of British economic policy.
“First, while we must never be deluded into thinking you can abolish the economic cycle, we do have it within our power now to curb Britain’s age-old vulnerability to banking and housing booms.
“Second, having regained fiscal credibility, let’s resolve never to lose it again – the only way to keep our economy secure is with a credible plan to reduce our debts.
“And third, we can become the most prosperous of any major economy by the 2030s, with that prosperity widely shared – an aim I believe is firmly within our grasp.”
Mr Osborne added that these present a “formidable agenda” for economic policy over the years ahead.
To build resilience in our housing market and banking sector – the cause of so many of Britain’s economic problems in recent decades – he stated the need for coherent monetary policy and financial stability.
The governor of the Bank of England’s recent proposals to further strengthen governance and accountability were backed by Mr Osborne, who said that the proposals will require primary legislation.
“I commit to introducing a new Bank of England Bill early in the next parliament to ensure that oversight of our financial system remains at the forefront of international best practice.”
He also reiterated the need to complete implementation of the Vickers ring fence. “Some banks have thought strategically about this and got on with it; other banks are still reluctant to face up to the inevitable. Ring fencing retail banks from investment banks is a job that must be completed in the next parliament.”
Mr Osborne also committed to complete the state’s exit from ownership of our banking system in order to boost competition and get back the money taxpayers were forced to put in.
“Early in the next parliament we will have to make a decision on the timing of any exit programme from RBS.”
peter.walker@ft.com
