“the paradox of the 1997 Labour government was that it was at once a left- and a right-wing administration. It wanted a huge public works programme. It aimed to redistribute enormous amounts of wealth. To achieve both these desirable goals, it made a bargain with the markets. All right, the political left said, we will accept extremes of wealth we once denounced as obscene. With the City accounting for a fifth of the British economy, we will embrace your speculators and not drive them overseas with tough regulation. If the authorities overseeing the Wall Street markets or the Frankfurt bourse become too inquisitive, capital will always be able to find a sanctuary from scrutiny here. Nor will we restrict the operations of financial services even though they are entrapping our supporters in levels of debt that the puritan in us finds frightening. We will concede all this if in return you will give us the tax revenues that will allow us to build the new schools and hospitals, and increase the incomes of our struggling constituents. For all its virtuous intentions, the political left was living off the proceeds of loose financial morals. Prostituting itself, to be blunt.”
Obviously I come from a different political place than Nick but I think his argument is pretty solid. There’s little doubt that the government, unable or unwilling to address the problems affecting the rest of the British economy, indulged in regulatory and taxation arbitrage to keep and bring business to the City: look at how Brown was perfectly prepared to accept non-doms while the number of people being hit by the top rate of tax nearly doubled during his stint at the Treasury.
Where I would disagree with Nick—apart from on the desirability of increased state spending—is that I think the bargain was made with big business not the market. As the third runway at Heathrow debate has shown, is pro-business not pro-market.