Richard Lambert: Lord Turner has generated headlines about the wrong issues

Lord Turner's analysis of what caused the credit catastrophe ... is the best there is. And the Turner Review of Financial Stability is regarded from Wall Street to Tokyo as a model from which other financial regulators must learn. Moreover, it's not his job to be a cheerleader for the City of London.

If the world's financial regulators had been more challenging and aggressive in the past decade, then the financial sector would be in a lot more healthy shape.

The trouble is, though, that the headlines Lord Turner has generated are about the wrong issues. There are only two questions that really matter in the banking market today, and they are not about bankers' pay and rations, or the social value of credit derivatives.

Instead, the right question to ask is: how do we get credit flowing properly through to the private sector, especially to small and medium sized enterprises? And what kind of shock absorbers do the banks need to have in place so that they can get off the taxpayers' back, and do what they are supposed to do in a competitive and open marketplace?

In a free society, it's not the job of a politician -or, for that matter, of a regulator – to argue that a particular form of activity is or is not of social value.

We badly need a sense of perspective about what the financial sector is, and how it works. It's not a walled garden, barricaded off in the City. Rather, over 70 per cent of the workforce is located outside London, generating output per head which is well above average and spreading decently paid jobs right across the UK.

Nor is it some bloated excrescence throwing the whole UK economy out of balance. It's true that the contribution of the sector as a whole to gross value added across the economy picked up in the years ahead of the recession. But on the most recent figures, the share still stood at no more than about eight per cent, which is roughly where it was in the late 1980s.

Expressed in a different way, total pay of financial services employees represents a bit less than four per cent of GDP. For comparison, the public sector equivalent is over 16 per cent. Which figure is too big?

Taken from a speech by the director general of the CBI at the CBI North East Annual Dinner in Gatehead last week