'The City of London is a major drain on productive economic activity in Britain'

29 May 2022, 13:33

By Tim Dodd

Greece's former Minister of Finance Yanis Varoufakis has told LBC that the City of London is "a major drain on productive economic activity in Britain", which "pushes money into speculation" rather than production.

It comes amid fears over whether Rishi Sunak's new windfall tax could make inflation worse.

The Chancellor confirmed he will tax the big profits made by energy firms to help fund a package for squeezed Brits in the cost of living crisis.

He has now doubled the £200 discount on energy bills to £400 and removed the requirement for it to be repaid, along with payments made to the most vulnerable in society.

Inflation is the key driver behind the cost of living crisis, with prices soaring – and Paul Johnson, Director of the Institute for Fiscal Studies, said there will be limited effect if the tax is just a one-off.

"If when it comes to this time next year, what is supposed to be a one off increase in spending turns out to be much more than one off, because he [Rishi Sunak] can't resist pressure to do more, then I think put all that together, and then I think we would be worrying about it the inflationary impact quite significantly", he said.

Read more: Sunak gives every household £400 off energy bills after windfall tax U-turn

Mr Varoufakis told Tom Swarbrick: "Look, there are two ways of looking at the City of London. The conventional way, that it is the engine of the British economy, creates huge numbers of jobs, and is great for the United Kingdom. That is the official version.

"And then there is my version: The City of London is a major drain on productive economic activity in Britain. It creates bubbles which then burst, which then diminish further investment in the real things - green energy, good quality jobs, good schools and so on.

"So given that I am of the second school of thought, I am saying that anything that liberates the financial sector, is not good for the United Kingdom, it is not good for the world."

Tom challenged Mr Varoufakis: "Even though it is the main driver of our economic growth?"

"Well I don't think it is. This is the first school, to which clearly you subscribe," he said.

"I think a much smaller City of London would have been more consistent with a more dynamic British economy.

"The real manufacturing, service providers, in the United Kingdom are suffering because the City of London effectively sucks the living daylights out of the British productive sectors."

Mr Varoufakis said the City of London "pushes money into speculation rather than to productive and to technological-advanced production".

Read more: 'Nonsense' to suggest Brexit to blame for surge in inflation, says Tory MP

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