Speaking at the first session of the Demos Politics 2010 series in London this morning, Lib Dems Shadow Chancellor Vince Cable reiterated calls for investment and retail banking to be separated.
He said: “A modern version of Glass Steagall is required separating retail and investment banking and there is need too for more meaningful competition in business and mortgage lending.
“Until the banks are broken up and are able to compete and succeed or fail without UK Government guarantees, they should pay an insurance premium – a supplementary tax on bank profits.”
Cable called for banking regulation to be reformed and improved, but said he does not support Tory calls for the FSA to be abolished.
He said while the FSA has made mistakes it is not the right time to change the regulator in the middle of an economic crisis.
Cable said the banking industry needs more local banks, mutuals including credit unions, a banking arm for the Post Office and specialist banks to support new ventures and infrastructure.
Cable criticised Labour and Conservative plans to ring-fence some Government budgets from spending cuts.
He said: “By doing so, the Government and the Tories are condemning other valued services to deeply damaging cuts. By cutting in a haphazard and panicky way, in some departments but not others, this Government has already made a start on arbitrary cuts which are hitting important scientific research as well as capital spending on affordable housing and further education.”
Instead the Lib Dems are proposing tougher limits on public sector pay rises, reform of public sector pensions and cuts in welfare spending such as tax credits for higher earners and scrapping future child trust fund contributions. Cable said the Lib Dems have identified an additional £10bn in net savings beyond what the Government has put forward.
Cable also detailed a “revenue neutral” package of tax changes that centre on tax cuts for the low paid by lifting the income tax threshold to £10,000.
He said: “Such tax cuts are a means of sustaining disposable income amongst low paid workers and pensioners but also provide an incentive to work for those facing very high marginal tax rates because of a combination of tax, National Insurance and benefit withdrawal.
“The tax cuts would be paid for by raising taxes on the wealthy by removing relief such as higher rate tax relief on pensions, closing the differential between earned income and capital gains tax, an extra levy on high value property, over £2m, and some green taxation on aviation.”