LIAM HALLIGAN: The Big Bang liberated Britain from statist torpor. So why, 40 years on, is Labour intent on dragging us back?

As Chancellor John Healey stands at the Dispatch Box today, likely unveiling yet another Budget that hikes taxes and worsens our national debt, he might do well to remember the milestone that the City of London has just marked.

Forty years ago, a regulatory earthquake shattered the clubby confines of the Square Mile – and unleashed a boom in wealth the likes of which our country had not seen for years.

On October 27, 1986, what the financial press had christened 'the Big Bang' pulled Britain's stagnant financial sector out of its postwar doldrums, thrusting it into the crosshairs of global competition – and transforming the City from a polite, bowler-hatted backwater into the financial capital of the world.

Outdated restrictions on banks and stockbrokers were scrapped. Foreign banks were welcomed to transact and compete in London. And electronic trading began to overtake the rumbustious face-to-face market that had stood, in some respects, since the 17th century.

At the heart of this institutional storm of course stood Nigel Lawson, Margaret Thatcher's formidable Chancellor. He believed the truism that 'capital flows where it is treated best' – which is to say that money tends to move to the countries and markets where investors calculate that they will get the best return for the least risk.

To that end, Lawson stripped the City of its crushing regulatory barriers and broke up state-sanctioned cartels, clearing away the cobwebs of institutional complacency and bringing in the white heat of competition.

The impact was instantaneous. Alasdair Haynes, who was working on the floor of the London Stock Exchange (LSE) in October 1986, remembers leaving the frantic, open-outcry pit on Friday evening, and expecting to come back to the same chaos on Monday. Instead, he walked into an empty room. 

'The trading floor was practically a desert – it was mind-blowing,' he says. Haynes went on to become a pioneer of electronic trading, establishing the hugely successful Aquis Exchange.

In March 2023, I had lunch with Nigel Lawson at his flat in Eastbourne, East Sussex. Even at 91 – and, as it turned out, with only a few weeks to live – his mind was sharp.

At the heart of this institutional storm stood Nigel Lawson, Margaret Thatcher's formidable Chancellor. He believed the truism that 'capital flows where it is treated best'

'Genuine, full-throated reform was the only answer,' he told me. 'The old-school restrictions meant the London market was woefully under-capitalised.' In plain English: it lacked the clout to take on the financial giants in New York and Tokyo.

He freely acknowledged that his revolution, necessary though it was, had drawbacks – including, some would argue, a cold, transactional culture dominated by the giant American investment banks, and perhaps a degree of excessive risk-taking that helped to presage the City's part in the 2008 Great Financial Crash.

But he looked back, overwhelmingly, with pride.

Which brings me again to the Labour Party. It is worth remembering many in Opposition under Neil Kinnock opposed the Big Bang – and especially, of course, Lawson's tax cuts, which saw corporation tax slashed from 52 per cent to 35 per cent, the basic rate of income tax from 30 per cent to 25 per cent, and the top rate from 60 per cent to 40 per cent.

Yet these were the very reforms that helped to rescue Britain from the statist torpor of the previous decade, paving the way for the boom of the 1990s.

Labour railed against the Big Bang, predicting financial ruin. In January 1986, future leader John Smith warned in the Commons that 'the character of the City will change fundamentally' and foretold 'a period of depersonalisation as institutions become conglomerates'. Brian Gould intoned that the City under Thatcher was turning into a 'casino'.

Yet in the end of course, the party was forced to concede that Lawson's reforms created the golden goose that has helped to fund Britain's public services ever since, on which Labour loves to lavish so much tax money. It's hard to calculate precisely how much wealth was generated by the Big Bang, but it is certainly in the billions.

Labour has never lost its ideological hostility to financial services – and to business more generally. Since Keir Starmer – a human-rights barrister who understood nothing of finance or enterprise – took over in July 2024, the party has undermined the City, crushing growth and clobbering wealth-creators with a punitive and anti-enterprise tax regime.

Famously, Andy Burnham has an even weaker understanding of how markets and finance work – so no wonder that today, yet more blows are expected to land.

As the Mail's esteemed City editor Alex Brummer reported yesterday, rumours are circulating around Westminster and the City that British banks – already subject to a punishing tax 'surcharge' – are set to be hit with even higher 'windfall' levies.

Labour has never understood that you can't tax a sector, or a country for that matter, into prosperity. And you certainly can't maintain London as a global financial capital by treating its major institutions as a piggy bank to be smashed whenever you over-borrow and over-spend, as every Labour government has throughout history.

The truth is that as the entrepreneurial zeal sparked by Lawson has faded, the City's status has diminished with it. Back in 2006, London was still the number-one stock exchange in the world for companies to list for the first time, in what's called an Initial Public Offering. 

Today, we languish at a dismal 23rd, behind Mexico and Oman. This is what happens when you choke a global success story, as the Tories – to their shame – did in the banker-bashing climate that followed the 2008 crash, and that Labour has redoubled since it took over, in a toxic cocktail of bureaucratic over-regulation, institutional risk-aversion and political neglect. 

Burnham is not going to turn this around and Healey is no Lawson.

Andy Burnham has an even weaker understanding of how markets and finance work – so no wonder that when the Budget is announced, yet more blows are expected to land

A decade or two ago, the London Stock Exchange was the natural home for tech giants, mineral conglomerates and continental heavyweights seeking to go public. Today, British champions are fleeing the home market.

In 2023, Cambridge semiconductor-manufacturer Arm Holdings bypassed the City in favour of a blockbuster Nasdaq listing in New York. It was a brutal public humiliation and since then many other home-grown commercial thoroughbreds have made a similar choice.

How have our leaders squandered Lawson's monumental legacy? The root of the problem lies in a multi-decade pivot away from calculated risk towards suffocating compliance now made worse by Labour's tax raids.

Lawson knew that half-measures don't work.

You cannot cure an institutional malaise by tinkering at the margins, and you certainly cannot fix it by hiking taxes on the very institutions that, in the absence of a proper manufacturing base, generate our export wealth.

This isn't a cyclical downturn, but a structural failure born of political hostility and bureaucratic overreach.

As Healey delivers the Budget today, hammering us with more taxes and borrowing ever more to splurge on welfare, I'll be thinking of Nigel Lawson and remembering what British policy-making looks like when it is driven by conviction.

Lawson showed that with clear vision, a nation's structural decline can be reversed. It is a lesson our current leaders need to learn fast, before the lights in the Square Mile go out for good.