Osborne's plans spell end of FSA

GEORGE Osborne, the shadow chancellor, will outline plans today to abolish the Financial Services Authority and impose "dynamic provisioning'' rules that force banks to beef up their reserves in boom times, if the Tories win the next election.

The Conservative "White Paper'' on City regulation will call for Gordon Brown's tripartite system to be dismantled, saying it led to the botched response to the financial crisis. The FSA's powers should largely be transferred back to the Bank of England, echoing the pattern in the United States where the Federal Reserve is emerging as the super-regulator.

Mr Osborne told the BBC's Andrew Marr Show that Britain's "cupboard is bare'' and there will have to be years of tough belt-tightening. The main thrust of Tory policy will be to bring spending under control, targeting "transfer payments'' spent on a large swathe of the public that cannot be considered genuinely indigent.

He promised a "whole culture change'' in the way public money is sprayed around, adding that both the pounds 5bn aircraft carrier programme and the Trident nuclear deterrent would come under the microscope.

"I have not ruled out tax rises, but I do think after a decade of over-spending, people should not be over-taxed because of that mistake,'' he said.

It has been a repeated theme of Mr Osborne that the state share of GDP has risen to levels that pose a serious danger to the long-term health of the British economy. At around 50pc of GDP, the ratio is now higher than Germany and most of the European Union. The Thatcher revolution on state spending appears to have been reversed entirely under Labour.

Mr Osborne is studying the Canadian "programme review'', learning from Canada's remarkable turn-around in the early 1990s when federal government spending was cut to avert disaster. The policies led to a virtuous circle of improving finances that turned Canada into one of the G8's best performers.