I have found it extraordinary to read some of the commentary on the liberalisation of the City in the 1980s, written by people who now have access to state papers under the 30 years rule. They wish to see in our debates and discussions the causes of the banking crash which happened 23 years later from quite unrelated causes. Such is the power of Labour’s spin.
The banking and broking system moved smoothly from the cartelised and small City of the early 1980s to the global market of the later 1990s without accident. When the Conservatives left office in 1997 we had a decade of success with the larger City under our belts. The commercial banks were bigger and did more, but they still had sensibly controlled balance sheets thanks to the continuity of banking regulation under the Bank of England. There were no more scandals then than in the years prior to Big Bang.
Gordon Brown decided to tear up our regulatory settlement, take most of the bank regulation responsibilities away from the Bank of England, and give them to a new Statutory body, the FSA. It was that fateful decision, not our decision to liberalise the City, which caused the banking crash. Mr Brown’s new regulator allowed a massive expansion of bank balance sheets and credit, well beyond anything we would have allowed, and then in 2007-8 they decided to bring the system crashing down by forcing change too rapidly on a bloated banking industry with higher interest rates and demands for more capital.
Big Bang transformed the City for the better, as I hoped at the time. It broke up the cosy cartel of the old stockbrokers and jobbers, introduced competition into commissions which made share buying and selling so much cheaper, allowed in many foreign banks and brokers with extra capital, new business and job opportunities, and allowed UK institutions to raise serious amounts of new money to operate on a world scale.
It built one of the dominant financial service and banking sectors of the world. The City expanded from the narrow Square Mile around the Bank of England, to encompass Aldgate, Liverpool Street, the Finsbury area , parts of Mayfair , St Paul’s and parts of docklands. Today we earn £60 billion from our financial and business service exports, and have a group of companies and service industries that the world envies. Without Big Bang none of that would have happened, and the UK would be a lot poorer. Instead of blaming Big Bang for financial scandals, people should remember there were scandals before Big Bang, and remember above all that it was Mr Brown’s regulators who helped bring on the crash they were meant to prevent.