UK needs 'tougher market rules'

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The global financial downturn has left the idea of unregulated markets in "profound crisis", Cabinet minister Ed Miliband has said.

The Energy and Climate Change Secretary told a Fabian Society conference in London tough regulation was needed to curb the excesses of the markets.

He likened the impact of the crisis on British domestic policy to the effects of the 9/11 attacks on foreign affairs.

He added that nationalising banks was now seen as the "mainstream consensus".

Mr Miliband, a former adviser to Prime Minister Gordon Brown when he was at the Treasury, said the banking collapse of 2008 would come to be seen as an "historical moment".

He compared it to the so-called 'winter of discontent' which paved the way for Margaret Thatcher's general election victory of 1979 and Conservative rule.

"This is no ordinary time because, in the same way that September 11 shook the foundations of a thesis about foreign policy... so the economic events we have witnessed have done the same to our domestic politics," he said.

'Massive bonuses'

He said the crisis had arisen out of the market system itself, blaming a combination of excessive lending fuelled by a lack of effective regulation, mainly in the US.

He added that this was made worse by a system of incentives and pay which encouraged the "most reckless and irresponsible behaviour".

He said: "Above all then, this is a moment of profound crisis for the idea that, in economics, as far as possible we should leave markets to their own devices; the idea that government is the problem not the solution."

Mr Miliband said the crisis had shifted perceptions across the political spectrum and the nationalisation of banks was no longer the solution of the far left.

"For a dynamic economy we need markets not unaccountable to government but regulated by them," he said.Lord Mandelson questioned the wisdom of big City bonuses

Business Secretary Lord Mandelson told the conference Britain was likely to see the economy move away from a dependence on financial services.

He said problems in the financial sector were going to take more time and ingenuity to resolve.

"We've got to identify... what specialist businesses we are going to invest in, where are we going to make our contribution to the global economy," he said.

"We are going to have to find new competitive advantages in Europe. That's going to require both innovation and activism on the part of government."

Lord Mandelson also said there were "important questions" over massive bonuses in the financial services.

"Why have so many incentives for individuals in the financial services sector ended up destroying value rather than creating it?

"What does it mean for the valuable concept of earning your wage in society?"

But he added: "We shouldn't have a problem with high pay for high performance. I see nothing wrong at all in giving rewards for those where you are rewarding excellent performance."