The Bank of England has estimated the loss of output since the great crash.  At the same time it has made its most explicit proposals yet on the future of our banking system.  Andrew Haldane, the Bank’s Director for Financial Stability, puts the loss of output from a bank generated recession at £7.4trn for the UK. 

He puts the hidden cost to taxpayers of implicit support to the big UK banks at more than £50bn. 

No wonder he has views on banking reform – or, as he might have put it, how can we stop these banks buggering us up again.

There is a debate raging between the government and its allies on the one hand, who argue for strengthening the existing tripartite system, and the Bank of England, with the Tory Party in tow, who argue for splitting off retail banking from the speculative activities which almost brought the world’s banking system crashing down around our ears. 

Andrew Haldane’s stance is important because it adds intellectual weight to the Bank’s stance.  It also makes the following decisive point. 

He compares the US banking system as it was under the Glass-Steagall Act of 1933 and the modern Basel Two International Capital Regime. 

He observes ‘Glass-Steagall was simple in its objectives and execution.  The Act itself was only 17 pages long (but its effect on the banking system lasted) well over half a century without a significant systemic event in the US’.

Haldane then contrasts the regime that followed, namely, the Basel II.  ‘This was anything but simple, comprising many thousands of pages and taking fifteen years to deliver (and was) overwhelmed by the recent crisis scarcely after it had been introduced’.

Equally telling is Mr Haldane’s comments on the collective intellectual stature of the banking community:  ‘this crisis has provided many examples of failures rooted in an exaggerated sense of knowledge and control.  Risks and counter-party relationships outstripped the banks’ ability to manage them’.

This is the most important statement that has been made from within the banking community about what future direction the country should take in reforming the banking system.  I read three daily papers, the Independent, The Times and the Financial Times.  What does it say that it was only the Independent that carried a report on Andrew Haldane’s paper? 

Is this a topic of which Times’ readers should remain ignorant?  And how can the FT explain its silence when it devoted two thirds of one of its pages to a photograph of Mr Blair and his speech yesterday?

It is hardly news for the previous Labour Prime Minister to support his colleagues in the coming election battle.  It might have been worth a two thirds of the page had he refused to do so. 

The FT’s silence on the Banks’ report shows an extraordinary set of priorities from our country’s leading financial newspaper.

The Government today recycles much of its previous statement on social care.  A compulsory levy will be introduced to create a universal system of social care for adults in England, according to the plans now unveiled by ministers.

What will follow is Labour wins?  At best a new commission will be established to look at when and how the fees should be applied.  If we are lucky we will then get a new system implemented in the parliament after next.

During my time as an MP I have undertaken two major funding pieces of work.  The first was on building up a funded pension scheme to wrap around the current state pay-as-you-go scheme.  The aim was to pay a pension above means-tested assistance for every citizen who played the game.

The second piece of work centred on, as it was called then, long-term care.  I believed we were entering into an age when the size of the state would be questioned.

I was anxious for this not to be a negative debate with downsizing being equated with cuts in what the government does.

I certainly believe the government should get out of some of the areas in which it is now involved.  But part of the new contract with taxpayers was to welcome its exit from areas we can best look after ourselves, and encourage new forms of collective provision covering new needs.

This was part of how I hoped we would renegotiate the national insurance contract.  If we are going to have a system that rewards those who play by the rules, then national insurance will have a growing role and means-testing a diminishing one.

The two pieces of work made the following distinction.  As practically all of us retire we need to save for that retirement, i.e. transfer existing income to a claim on future income.

But most of us, thank God, will not need long-term care.  Hence my argument for a reinvention of national insurance where the risks are spread over all of us and not concentrated on the one in seven or one in eight of us who will need intensive care for longish periods towards the end of our lives.

The idea was to have this new scheme up and running before the end of the 1997 Parliament.

The details of these publications can be found here.