We could usefully put eggs in other baskets – but the City is a major part of the economy

There are two schools of thought about how best to rebalance Britain's economy. One is to throw the government's weight behind manufacturing, grooming those industries where we already excel – such as aerospace, life sciences and car making – to become world beaters that export across the globe and sustain thousands of highly-paid jobs at home.

The other is to board up the City of London.

Both would achieve the same end – creating an economy that no longer stacked all its eggs precariously in the financial services basket. But to dismantle the Square Mile – the envy of Germany and France and nudging ahead of New York as the finance industry's global capital – would cripple Britain's income.

It's a hard truth to take for many taxpayers who had little choice in bailing out RBS and Lloyds, as well as underwriting insurance schemes and the like that stopped others going to the wall. Yet the source of some of our economic slump today is also one of the best chances we have of climbing back out of it.

The City has become a careless shorthand for the banks, and the bad bankers housed within them. It is clear from the latest crop of rogue traders that it takes only one or two bad apples to generate billion-pound losses. A broader community clusters around the banks' flows of money, sustaining many more well-paid and well-taxed jobs.

Bear in mind the largest accounting firms, Deloitte and PricewaterhouseCoopers, which have recorded strong top-line growth in what might otherwise have been expected to be sluggish years. At the same time, they've kept up high levels of graduate recruitment.

London is stuffed with lawyers too. English law remains one of our best exports. Roughly half of the work carried out in the average Magic Circle law firm here will concern transactions that have nothing to do with Britain. And the insurers are on a roll, with the Lloyd's of London insurance market recovering well from a costly, disaster-strewn 2011.

What banks urgently need to do is rebuild their reputations as well as their balance sheets, so ordinary people can begin to understand why welcoming the money men is not bad news for Britain.

But while bank bosses conjure with issues of image and culture, the City has been suffering. Jobs have been slashed in line with plunging trading volumes. New safeguards being introduced in the wake of the financial crash have already eroded London's competitive edge, to the benefit of Singapore and New York. A eurozone-wide banking union to shore up shaky continental lenders could strengthen Frankfurt's arm.

Figures earlier this year from the Centre for Economics and Business Research showed that one pound in every five earned by Londoners is used to fund the rest of the country.

So the City does matter, whether people like it or not. The trick is to make it much less risky without killing its role in sustaining jobs and wealth. Think of it in Olympic terms. Curmudgeons worried by cost and traffic gridlock grumbled about London hosting the Games this summer, but would we really be better off if all the action had taken place in another city?