Report criticises reach of City finance

Passing the Bank of EnglandAn in-depth new report has questioned the role of the City of London in acting as a "City state against the national settlement" which acts as a powerful political force independently of national government. And it says the real contribution of the finance sector to the economy is as low as 7.5% of tax.
The report, by the UK-based Centre for Research on Socio-Cultural Change (CRESC), looks at how financial interests have constructed a false impression of the contribution made by financial services and warns of the political damage this has wrought, both in the UK and across the globe.

The paper looks at the argument, advanced by successive governments since 1979, that there has been a redistribution of resources from the financial sector to the rest of the economy. And it finds that this 'settlement' has not been as substantial as we've been told.

Finance sector

The finance sector's contribution has not been enough to compensate for the destruction of manufacturing industry and the terms of this 'settlement' are now coming to an end as a result of the austerity programme currently being imposed by the Coalition.

Between 1979 and 2011 UK manufacturing employment fell by 3.5m. The value of financial services output trebled during the same period while the value of manufacturing did not grow at all. Across the UK, that meant employment fell between 4 and 18.8%. Only one region saw employment rise. That was London, and the rise was just 0.7%.

The report details how, while this going on, big finance was engaged in the "political capture" of the state, a process also detailed in Nicholas Shaxson's book Treasure Islands, which was reviewed yesterday on this site (see link below).

Key factoids

It says that a sustained effort to inflate the contribution of the financial sector was mounted, with consultancy providing intellectual support and the regular updating of "a few key factoids about the tax contribution of the financial services sector" adding to the spin.

Research carried out by the report indicates the financial sector accounts for just 7.5% of Government tax revenues. And that's because of the political success of big finance. The report says: "Tax avoidance was embedded in the character of the financial markets built as instruments of regulatory circumvention and tolerated in the governing of the City state after Big Bang."

Neutered opposition

There's much more in an incredibly detailed report which is available to download and read in full at the CRESC link below, including an analysis of "the rise of a financial nexus between the leading parties and City interests" and the neutering of opposition to the City.

This has left Labour rudderless and the Conservatives – traditionally reliant on grassroots funding – now getting more than half of their funding from big finance. What all this means is that "The idea of acting against plutocracy becomes increasingly politically unthinkable". And that should concern us all.

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