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Government shouldn't 'over react' to financial crisis

Politicians and policy makers should avoid over-reacting to the current financial crisis and instead focus on preventing the next one according to a new book by LSE London, London coping with austerity: A review of housing, planning and public policy issues in 2010

Mark Boleat, Deputy Chairman of the Policy and Resources Committee of the City of London Corporation warns that, in order to retain London's status as one of the world's pre-eminent financial centres, the government must avoid introducing a tougher regulatory regime than exists in the rest of the world.

He explains: 'The more onerous regulation is, and the higher the capital requirements, the less competitive financial services will be, the less they are able to lend, and the higher the cost of their financial product.'

Furthermore, the government should sell, at a profit, its shares in Royal Bank of Scotland and Lloyds Banking Group.

Boleat says: 'A prerequisite for restoring…stability is for the crisis to be over and to be seen to be over. This will not occur as long as two of the major banks are significantly owned by the tax payer.'

Excessive salaries and bonuses in the financial services industry are, he argues, a market issue and not one that should be tackled by regulation. The fact is that a particular level of talent and ability earns far more in financial services than it does in the economy generally. Boleat points out that this is also true of other sectors such as the media and football.

In addition banks and financial services industry need to demonstrate their value to the economy and to society. This needs to be done individually by staff working in financial institutions, by the institutions themselves, collectively at sectoral level through trade associations, and nationally through various national organisations.

Boleat writes: 'Getting the balance right in a difficult political climate and with substantial public resentment at what has happened will be far from an easy task, and will require brave, rather than popular, politicians,'

London coping with austerity: A review of housing, planning and public policy issues in 2010 highlights the way major players in London - including the Mayor, local councils and communities -are seeking to work together to meet the capital's employment, housing and transport requirements.

The book includes chapters on the relationship between the London boroughs and the Mayor of London, transport, the legacy of the Olympics, how the housing market has fared in the financial crisis and the challenges facing social housing,.

'With the public funding constraints, the challenge of meeting the needs of London's communities and its growing population will get ever more difficult,' said Professor Christine Whitehead who led the project. 'The Government's housing benefit cap will have the greatest impact in London, driving claimants into poor quality accommodation in cheaper areas and creating concentrations of poverty,' she added.

The book is available both in paper format and online. Please contact Lselondon@lse.ac.uk for a free copy, or upload: London coping with austerity

LSE London is a centre of research excellence on the economic and social issues of the London region, as well as the problems and possibilities of other urban and metropolitan regions.

Mark Boleat established Boleat Consulting in 1999 which specialises in trade association strategy and management and the handling of public policy issues. He is Deputy Chairman of the Policy and Resources of the City of London Corporation.

Posted: Friday 12 November 2010