UK Means More than Financial Services: Minister

Concessions must be made to boost the economy over the long-term, UK Minister of Trade and Investment, Mervyn Davies, UK Minister of Trade and Investment, told CNBC Thursday, one day after Labor announced a budget which was widely criticized.

One of the complaints was about Labor's dramatic decision to break their pledge on taxing the wealthy, as Chancellor Alistair Darling has lifted the top rate of income tax to 50 percent, meaning the bosses of Britain's biggest companies will pay an average extra £265,000 a year in tax.

Certain tough measures to boost revenues mean, "inevitably there is a small percentage of the population that is having to pay high taxes," Davies told CNBC.

He also defended the diversity of the UK economy, saying: "we are not just a financial services industry, we have great strengths in mobile, IT, life sciences, pharmaceuticals. I think we are a broad based economy."

But many economists, including the London School of Economics Professor Willem Buiter, would disagree. In his blog on the FT, Buiter argues that the UK ,"has a bloated financial sector, including a banking sector that is too large to save unless state support is restricted to the UK high street banking parts of UK-based global banking groups."

Davies defended the UK financial system, saying that, unlike the US and their stress tests, the British government has 'drawn a line' under the issue of bank recapitalization and lending, but admits the industry still need to go through a 'fundamental change'.

— Written by Leonie Kidd