Tony Blair has admitted that regulation of the City needs to change 'dramatically and fundamentally'.
But the former prime minister said the government would have faced a “big political problem” if it had tried to impose tighter curbs before the credit crunch.
In an interview with the Financial Times, Mr Blair implicitly accepted that the light-touch regulatory system instigated by his government for financial services had proved inadequate. “The point is to learn and learn the right lesson,” Mr Blair said. “This was a credit bubble and a product of a particular way of running the financial system and that has to change and change dramatically and fundamentally.
'And it is changing. It is not a problem of the whole free enterprise system.'
Challenged on Labour’s failure to impose more stringent controls before the credit and banking crisis, Mr Blair said the government would have acted if the regulators had warned of the extent of the problems. But he suggested that in the absence of such warnings, the boom meant tough statutory regulation was virtually impossible in political terms.