Former prime minister Margaret Thatcher was warned the Big Bang deregulation of financial services could lead to “unethical behaviour” and eventually “boom and bust”, secret memos have revealed.
The notes – hidden for 30 years before being transferred to the National Archives – reveal the tussle between policymakers and MPs ahead of the changes, which have been seen by some as a cause of the 2008 financial crisis, the Financial Times reports.
Future Tory minister David Willetts, at the time part of the Number 10 policy unit, told the prime minister in a 1985 memo that “some things were bound to go wrong” following deregulation, including the creation of a “boom and bust” culture.
The Big Bang opened up the City to foreign banks and laid the foundations for the boom in UK financial services that would take place over the next twenty years.
But Willetts warned City workers would be encouraged to “fraud or to unethical behaviour” as a result of less strict rules.
Former Cabinet secretary Sir Robert Armstrong wrote to a parliamentary aide to the prime minister expressing concern about the “way in which corners are being cut and money is being made in ways that are the least bordering on the unscrupulous”.
Willetts memo also predicts: “If it leads to scandals and liquidations it will be labelled the unacceptable face of unpopular capitalism”.
However, head of the policy unit John Redwood, another future minister, was more bullish about the reforms and resisted calls for excessive checks and balances.
He said: “The rapidly developing nature of banks and the banking system makes it all the most important to address these weaknesses speedily and effectively without at the same time hobbling British banks with excessive regulation.”
The memo also reveals the prime minister’s own concerns.
In asking staff to rewrite a document she says: “Para 20 implied that the chancellor was sure that the Bank’s supervision of the remaining 600 banks was sound. This seemed to be a hostage to fortune.”