News Column

Leading article: Economic regulation: Finance fettered, inequality indulged

June 27, 2014

Editorial



"Not just a light touch, but a limited touch." That was the New Labour catchphrase on regulation at one time - a time when the Tory opposition demanded that Whitehall's grubby paws be pulled even further away from finance.

What a difference a crisis makes. The Bank of England yesterday marched into terrain that its governor, Mark Carney, might once have dismissed as 1970s micro-management at best, or Gosplan at worst. It put a cap on mortgages exceeding 450% of borrowers' income, and imposed new checks on borrowers' ability to cope with an interest rate rise. Neither stricture has much immediate bite, but the Bank stands ready to get more draconian if house prices keep soaring.

A day earlier, the Financial Conduct Authority, newly empowered to regulate payday lending, had forced Wonga to compensate 45,000 customers who had been sent scary fake letters by non-existent law firms demanding repayments. It was only because this mass fraud took place before the FCA acquired its new powers that the firm avoided a fine.

To be sure, many inconsistencies remain in the moves to get a grip on the disparate problems of finance. One David Cameron aide moved seamlessly from No 10 to Wonga, while George Osborne's Help to Buy scheme puffs the property bubble that the Bank worries about deflating. But politicians no longer talk as if regulation is simply something to be swept out of the way. Reality is making itself felt in the discourse, and this is welcome.

So much for finance, but in relation to the great social sore exposed by the recession - yawning inequality - policy is becoming not more, but less interventionist. The slump did not create Britain's grotesque rich-poor gap, and top incomes briefly took quite a knock. Rather, the downturn exposed the consequences of a gulf that had opened up over the third of the century that came before. As foodbanks pop up, homelessness rises and rough sleeping surges in London, it has become plain that large parts of the community were in no condition to absorb the big squeeze. The coalition once promised that the bulk of the work in fixing the public finances would fall on the broadest shoulders, but yesterday came official confirmation that this is not happening.

Compared with the previous year, the new Office for National Statistics figures revealed that in 2012-13 the rich got richer, and the poor poorer, as benefit cuts began to bite. These cuts have intensified since. As for tax, forget Lib Dem waffle about lifting the poorest out of the net - the total tax burden has edged up for the poor, even as it has eased elsewhere.

Laissez-faire may have fallen out of fashion in finance, but when it comes to who gets what out of the economy, the drift is in the direction of malign neglect.


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Source: Guardian (UK)


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