Confessions of the London regulator

June 10th, 2009

This just in, from the Financial Times:

“The City regulator will put less emphasis on maintaining London’s competitiveness in relation to other financial centres, its head said on Tuesday, in a striking acknowledgement that the approach had undermined the stability of the financial system.

Lord Turner, chairman of the Financial Services Authority, said that prudential regulation of institutions and the financial system had suffered as regulators in many countries had in the past put too much focus on the attractiveness to the financial industry of their home markets.”

That is quite a confession. The regulator of the City of London is, it seems, catching up with the Tax Justice Network. Not all the way – he needs to define his terms a little more closely:

“We are interested in competitive markets rather than competitiveness.”

Yes, OK – but he needs to unpack this some more. This word competitiveness is a weasel word, if ever there was one. The competitiveness of a country is quite a different thing from the competitiveness of a company, as he seems to have woken up to. He might read more here in this section, which has been on our site for a rather long time.

But these words by Turner undoubtedly reflect progress. What other position is there to take?

Turner added this:

“What we have just been through shows that getting it wrong in a prudential sense was so costly economically that you would have to believe the competitive advantage was extremely strong for it to have been worth it.”

But that, too, needs unpacking. This appears to be, though it isn’t quite clear, Turner considering the position of the UK in isolation. Has all the damage from London’s recklessness been bad for the UK as a whole? What, pray, about the rest of the world, which has seen its capital flee into the great sucking hole that is the City of London?

Yet Turner’s progress is mitigated by something else. The same edition of the FT carries another story that says:

“(A) promise, contained in a statement after an EU finance ministers’ meeting in Luxembourg on Tuesday, eased British concerns about whether an overhaul of EU financial supervision might restrict national fiscal sovereignty.
. . .
A majority of EU countries support tougher pan-European rules to avert future financial turmoil and are willing to give EU supervisors the power to impose binding decisions on governments in situations where two or more national supervisors cannot agree on how to treat a bank in difficulty. But a small group of EU states, led by the UK, opposed such an expansion of EU-wide supervisory powers, saying it would undermine the principle that taxation is a matter for national governments, not the EU.”

In all these situations, a pan-national approach would be better. Britain has wangled an opt-out, doubtless to be able to do as it pleases again. And that, we are afraid, may bring us back to the evils of tax competition.

Written by Tax Justice Network

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