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One good thing about the budget: the recognition by George Osborne that the financial crisis began with the banks. This was the justification for the £2 billion bank levy – though, as nef’s Tony Greenham points out, this is only a third of what they paid out in bonuses.
The implication – though Osborne didn’t say this bit – is that it will also end with the banks. Only the most anal deficit hawk can possibly believe any more than we can cut our way to recovery. Quite the reverse. John Maynard Keynes warned that this approach will lead to “a peregrination in the catacombs with a guttering candle”.
No, the only way out of recession is to get the enterprise economy working again, despite decades when official attention – and certainly the attention of the banks – has been elsewhere. The fantasy is that somehow the free market will do this magically, when it clearly won’t – and the main reason it doesn’t is that we no longer have a banking system fit for purpose. Its structure and attention is on the speculative economy.
So, although Osborne may have made the link between the banks and the crisis, the full implications of that don’t seem to have been worked through in the budget. There is nothing but more cuts ahead unless we can produce a useful, local banking infrastructure out of the oligopoly of dinosaurs we have inherited from the huge banking mergers that the UK government encouraged throughout the 20th century.
We have names now to the banking commission that will investigate this, but they are not hugely inspiring ones, and the hands of the expensive lobbyists for the banking industry are everywhere – and desperate to keep us all chained supplicants to the old dispensation.
The key point we need to get across is that solving the problem of our ineffective banking infrastructure is critical to bringing recovery forward, and staving off more cuts. It is a fantasy to suggest that somehow UK bankers can be cajoled in lending more effectively locally. They don’t have the systems or the people in place to do that. It is a fantasy to imagine that enterprise will somehow emerge without lending.
“The Chancellor has unequivocally stated that this crisis began with the banks. It is clear that his next step must be radical reform of the banking system to ensure that such a crisis doesn’t happen again. But let’s keep the £2 billion banking levy in perspective: it’s only a third of what the bankers pay themselves in annual bonuses,” said Tony Greenham, head of Business and Finance programme at nef.
“The Chancellor says he is committed to a Green Investment Bank, but we still have no more detail about what it will do and how it will be funded. Mr Osborne spoke a great deal about the ‘crisis’ of national debt, but barely mentioned the much bigger and more dangerous crisis of climate change. These are supposedly five year plans, but we heard nothing about the need for a rapid transition to a low carbon economy.” said Dr Victoria Johnson, climate scientist at nef.
“The Chancellor was giving with one hand and taking with the other,” said Dr Faiza Shaheen, researcher in economic inequality at nef. “The increase in the income threshold is a positive measure, but the hike in VAT will have a disproportionately negative impact on low income groups. Also, the Chancellor’s cap on housing benefit overlooks the root cause of the rise in costs, namely the property boom and lack of social and affordable housing.”
“While we welcome the waiver of National Insurance contributions from new businesses in the Midlands and the North, this won’t be enough to fill the jobs gap created by cuts in the public sector,” said Dr Faiza Shaheen, “Nor does it deal with the considerable barriers to the success of new enterprise in these regions.”
“The cut in employer’s National Insurance contributions is the kernel of a great idea since it involves shifting the burden of tax away from something we want more of: employment,” said Tony Greenham, head of the Business and Finance programme at nef, “The Government now needs to follow this logic through and make up the difference in revenue by taxing things we want less of: short-term financial speculation, pollution and waste of natural resources.”