George Osborne due to announce FSA shake-up

George Osborne faces the first big test of his Chancellorship tonight when he gives his maiden Mansion House speech in the City of London. The speech is traditionally used by chancellors to make a big announcement, and tonight Osborne is expected to detail the effective break-up of city watchdog the Financial Services Authority.

In opposition, Osborne said he would scrap the FSA, which has been heavily criticised for not doing enough to prevent the credit crunch. Analysts now expect him to retain Gordon Brown’s pet watchdog but to transfer most of its real powers to the Bank of England.

According to BBC business editor Robert Peston, regulation and supervision of the banks will now be supervised by a powerful new Financial Policy Committee at the Bank of England. Osborne is expected to give the Committee a range of powers including restricting bank lending, effectively preventing consumers from borrowing too much.

Other aspects of the FSA’s former role will also be redistributed. Consumer protection and the investigation of financial crime will be handled by two brand new independent agencies.

It’s thought the Chancellor will announce a new tax on the banking sector intended to compensate the taxpayer for the numerous state bail-outs of banks precipitated by the financial crisis. He will argue that “fairness” makes such a levy necessary.

There are also rumours that Osborne will announce a review of the banking sector, possibly headed by former Office of Fair Trading head Sir John Vickers, which could result in some of the large banks being broken up, with their ‘casino’ operations separated from their investment arms.

Writing in the Daily Telegraph today, Ian Cowie, warns that the Chancellor’s crusade against excessive borrowing could be misguided, putting an end to social mobility and taking the UK back to the “dreary 1950s”.

“Will today’s bedsit tenants thank the regulators for freezing them out of home ownership and condemning them to years of throwing cash away on rent?” he asks, adding: “I doubt it.”

“The Chancellor should resist the temptation to meddle with markets, remember the importance of individual free choice and give young homebuyers a fighting chance.” ·