Capital

Liam Halligan writes:

Like me, Andrew Haldane is an economist who isn't afraid of holding uncomfortable views if that's where the evidence takes him. The difference is that Haldane is a serious player in the world of UK and global policy-making.

Appointed as the Bank of England's executive director in charge of financial stability last year, the youthful Haldane has, since sub-prime exploded, made a series of astute speeches about what needs to happen in order to stop Western banks from plunging the world into yet another crisis. His latest, delivered in Hong Kong a few weeks ago, was a corker.

Titled "The $100bn Question", Haldane's broadside used credit ratings to quantify the implicit government support banks enjoy. The UK's largest lenders, he concluded, have benefited from an average taxpayer subsidy of around £60bn a year since 2005 – hence the name of his speech.

Haldane's point is that none of the mooted bank taxes currently being discussed, not least those proposed by the International Monetary Fund last week, would come close to "internalising" those costs. President Obama's proposed levy, if applied to UK banks, would raise less than £4bn a year. Yet removing the implicit state subsidy is crucial in tackling the "moral hazard" that has incentivised banks to take crazy risks in the knowledge that governments will eventually pay.

The real breakthrough was that Haldane dared to express scepticism about the economic benefits of the all-powerful "mega banks" that have developed in recent decades, not least given their massive "too big to fail" risks. His speech floated the radical idea of breaking up the UK's banks into smaller and more resilient units, pointing to the genuine restructuring that's needed to make the system safer, as opposed to the woefully inadequate "tax and tweak" measures which are now rapidly gaining international support among politicians who lack the guts to do a proper job.

I repeat, Haldane is no newspaper scribbler. If the Conservatives win the election, he and his colleagues will become directly responsible for regulating this country's lenders.

Bank governor Mervyn King has in the past suggested that UK institutions should be split into "retail wings" and "casino banks" able to engage in more risky activity – the Depression-era "Glass-Steagall" divide which served the Western world so well until it was abolished in the late 1990s. Now Haldane is piling in behind him.

Some states' finances, he noted, have been stretched to the limits by this bank-induced crisis. "Both literally and metaphorically, global finance cannot afford another." I couldn't agree more. While Glass-Steagall isn't a panacea, it's a vital component of any new regulatory settlement – not only to purge the UK banking system of excessive risk, but to begin rebuilding our fiscal credibility too. Who wants to lend to a government that has to bail out the City's incontinent banks once or twice every decade?

While the Tories understand the case for Glass-Steagall, they're afraid of annoying the City institutions funding their campaign. So, ahead of the final leaders' television debate, I'll end by directing at David Cameron a piece of advice I gave his shadow chancellor six months ago.

A UK Glass-Stegall wouldn't make the City "uncompetitive". It would, in fact, do a great deal to restore London's name as a centre of regulatory excellence. Have you got the courage, Mr Cameron, to do the right thing, even though it will incense many of your friends in the City? Think carefully about the raw politics of serious banking reform. This could be your "Clause IV" moment. So look down the barrel of the lens and just say it.

Then there are the gigantic subsidies to the Tube and to endless capital projects in London, as well as London's stranglehold on publicly funded cultural life, and the heavy concentration of fat cat public sector or otherwise taxpayer-dependent jobs in London, now including the whole of the City. Not all of these things are objectionable in themselves, although some of them are. But it was never realistic to claim that London paid for the rest of the country, and any such suggestion is now obscene.