George Osborne's expert bank-lancing act

Tim Montgomerie

Apologies for the tabloid-esque headline but the Chancellor has succeeded in performing a very difficult balancing act on banks. He's done enough to ensure the banks are making a bigger contribution to British business and society, without wrecking the City.

As a result of yesterday's Project Merlin announcement there'll be more bank lending to British businesses (to the tune of £10bn), especially smaller businesses; more transparency on top bankers' pay; smaller sums paid in bonuses; and some extra help for Britain's regions and charities. George Osborne has also secured - via his new levy - £2.5 billion more in annual tax revenues from the banks (in addition to the £70 or so billion they and their employees already pay).

I have sympathy with what Patrick Nolan wrote for ConHome yesterday. We don't want the state forcing banks to lend more than they would choose under market conditions. Such government interference in the US mortgage market was one of ten primary causes of the global financial meltdown. But Merlin was on the right side of modest to avoid creating major distortions.

In today's Sun, Mr Osborne certainly shows an awareness of the need to now end the banker-bashing. He writes: "Being angry, and wanting retribution, is not going to create a single extra job or help our economy grow. Britain needs to move from retribution to recovery."

Two further things are needed from Mr Osborne: (1) A signal that the kind of mini-budget we got on Tuesday's Today programme was a one-off; banks and other wealth creators must not think tax burdens can fall on them from out of the blue and (2) Quick resolution of the question of banking structure; investors won't expand in Britain until they know what kind of regulatory regime will be put in place after the Vickers review.