Osborne calls for tougher financial regulation

By Andrew Grice, Political editor

Monday, 29 September 2008

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David Sandison / The Independent

David Cameron addresses the 125th annual Conservative Party Conference at the International Conference Centre

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The Conservatives will today call for reforms to stamp out irresponsible practices in the City in the wake of the crisis engulfing British banks.

George Osborne, the shadow Chancellor, will adopt a tougher line on the need for regulatory reforms when he addresses the Tory conference in Birmingham. He will say: "I am not going to blame everything on the bankers alone. But nor am I going to excuse them of their responsibility, or allow them to think things can carry on as before."

The change of tone reflects fears among some Tories that Labour may get the credit for "cleaning up" the City and paint the Tories as the defenders of indefensible practices because of their links with the financial industry.

Mr Osborne will say: "I am not going to do what the left has done and use the crisis as an excuse to abandon the free market economy. But nor am I going to pretend the crisis doesn't raise the most profound questions about our financial system and how we regulate it."

He will admit that this problem does not only exist in Britain or is all the fault of the Government. But he will hit back at Gordon Brown calling David Cameron a "novice", saying: "He says he's the candidate of experience. We've all had enough of the Gordon Brown experience. We racked up more than a trillion pounds of mortgages and credit card bills and household debts and the Government never stopped to think what would happen if the credit dried up."

Mr Osborne will promise to bring in the toughest fiscal rules in the world to keep government borrowing in check if the Tories win power. Mr Brown's fiscal rules would be replaced by a body to monitor the Government's performance on balancing the nation's books and ensuring that debt falls as a percentage of national income.

Senior Tories claim the move would be as radical as Mr Brown's decision to hand control of interest rates to the Bank of England. They hope their plans for a squeeze on borrowing will stave off demands by activists for a promise of tax cuts. Yesterday Mr Cameron refused to rule out the possibility that he might have to raise taxes if elected.

He backed a review of City bonuses by the Financial Services Authority. But he added: "What you won't hear from me is beating up on the market system, bashing financiers. It might get you headlines, but it is not going to pay a single mortgage ... save a single job."

The Tory leader told an emergency debate on the economy on the conference's opening day: "Yes we believe in regulation, yes we believe in rules and what I call social responsibility and that means corporate responsibility as well."

Mr Cameron added: "My message to Gordon Brown is this. You have had your boom and your reputation is now bust."

The Tories' offensive was undermined by disclosures that some of the party's big donors are hedge-fund managers whose firms took part in "short-selling" shares in British banks. The Tories pointed out that Labour also received money from hedge fund managers.

Yvette Cooper, the Treasury Chief Secretary, said: "The Conservatives have been saying we should give the Bank of England new powers to deal with failing banks. We did that in February and March and the Conservatives voted against it."

* The Tories would scrap plans for a third runway at Heathrow and instead build a high-speed rail link serving London, Leeds, Manchester and Birmingham at a cost of £20bn. The shadow Transport Secretary, Theresa Villiers, told The Guardian that the Conservatives wanted to cut more than 66,000 flights a year at the airport