You are currently browsing the tag archive for the ‘george osborne’ tag.
In the library of the Treasury, there is an ancient copy of one of Keynes’ pamphlets, and it has been scrawled over by Treasury officials with the words ‘bankruptcy’ and ‘insanity’.
Keynes was challenging the Treasury idea, which seems to have been in their DNA since time immemorial, that the way out of recession is to get people to save not spend. The money has to be in the banks, ready to lend.
Keynes’ view was that, in the end, this kind of puritanical retrenchment led to death – “a peregrination in the catacombs with a guttering candle”. But we don’t have to worry because that was in the 1930s. Or do we?
A little bird told me recently that the attitude in the Treasury has reverted to type faced with the recession and deficit. Once again, the official view is that people should be encouraged to save not spend, so that the money is available for lending.
Since Keynes’ day, there are two extra problems with this, and they are not small. There are hardly any banks left, and those that survive have long since dismantled the infrastructure they need for local lending. Their attention is elsewhere. They can’t do it.
So when the Treasury persuade George Osborne to raise VAT to 20 per cent, this is the agenda: don’t spend, save. Unless he and Cable and Danny Alexander can stand up to the Treasury, and tackle this hideous and ancient mistake, I fear it may be the peregrination in the catacombs for us.
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.”
There was much to discuss in yesterday’s Mansion House speech, but I would like to focus on one disappointment and one pleasant surprise.
First the disappointment; the five members of the new Independent Commission on Banking are all economists and bankers of the highest calibre and integrity. Some are on record with quite strident views about the ills of our banking system and quite radical prescriptions for their cure.
But they are all, well…, bankers and economists.
If we are to truly create a system as Mr Osborne says, where “banks support the people, instead of the people bailing out the banks”, we need to understand HOW the banks need to support the people.
- Can these five commissioners really understand the needs of small businesses?
- Can they really understand the needs of social enterprises, and local regeneration?
- Will they consider the still shameful lack of access to finance experienced by many of our citizens?
- Do they understand the urgent need for massive investment in decarbonising the UK economy?
We do not know yet how the commission will carry out its remit. It should ensure it builds a broad, credible and comprehensive stakeholder consultation on the needs of the users of the banking system, and not just get lost in the technical details of restructuring the banks.
Which leads me to the pleasant surprise.
The new commission’s terms of reference are not limited to the question of splitting investment and retail banking. They include the Government’s wider goal of “creating an efficient, open, robust and diverse banking sector”.
This last point – diversity – is crucial. To meet all society’s needs, the banking system should comprise many different kinds of institution: different in industry sector skills and expertise, different in regional and local focus, different in forms of ownership, different in investment horizons, different in culture and goals.
It’s not just that we need to look at breaking up the massive universal banks we have today, we need to look at how to build up the alternative and diverse institutions we need tomorrow.
Lindsay Mackie is a consultant at nef. She is leading nef’s post office campaign and works on Clone Town and Ghost Town Britain.
Let’s hope, as the chancellor prepares his Mansion House speech on Wednesday evening, that he has already included brave words about the banks along the lines of “I know that the cuts I am announcing are in part the result of banking folly and greed. And so I am entirely with my colleague Vince Cable, who is even now preparing root-and-branch banking reform. We cannot have a public service cuts programme without the banks being equally painfully reformed.”
To help him in this decision, let’s also hope that some brave Treasury official slides across to him the following info from Britain’s small businesses.
Around a quarter of them are deeply fed up with the banks’ lack of business support, particularly credit availability. Nearly half of them don’t even have a local bank manager. Thousands of them have had to deal with not one, two or even three business managers at their bank in the past two years, but four or more.
Since the height of the crisis last year, the 213,000-strong Federation of Small Businesses has been polling its members monthly and collecting this kind of information. These are the people on whom local economies, and the national economy, depend. And the banking system treats them appallingly.
They are joined of course by the poor and the unbanked – its reckoned that 2 million people have no access to a bank account. The numbers of people falling into the hands of loan sharks (1,800% interest, threats thrown in for free) are already increasing.
Now, as George Osborne prepares to throw raw meat to the deficit hawks at the Mansion House, he cannot ignore the banks’ failure. He should not be contemplating cuts that will hurt the economy and individuals without announcing banking reform at the same time. Does he, or does he not, agree with his colleague Cable, who said in his first public speech in government two weeks ago that we have “a seriously dysfunctional banking system”?
Taking on the banks is absolutely crucial and there is a movement growing around it. The Future of Banking Commission yesterday called for regulation and separation of functions and – most importantly – transparency, so that we can see where and to whom banks lend. The Better Banking Coalition is powerfully arguing for real and fair help from banks – who will have to be forced to do it – for the unbanked and the less well off. The Post Bank Coalition, of which the new economics foundation is a member, wants a publicly owned local banking network based on the Post Office. It’s a popular and ingenious idea and bedrock small businesses want it.
The chancellor will be surrounded by the City, literally and metaphorically, at Mansion House tonight. That food on those exquisite plates will be hard to swallow if he does not announce painful banking and reform along with the cuts for the rest of us.
When George Osborne, Shadow Chancellor, called for the break-up of Lloyds and RBS, he echoed the recommendations of our report I.O.U.K. on the failure of British banks to provide credit appropriate to our economy’s needs.
It seemed inevitable that this issue would rear its head again, and now we finally witness the financial sector’s response, via its ever-willing ally, the Government and Treasury. Their response came today with a Treasury report – commissioned before the worst days of the current crisis – that staunchly defends the right of big banks to get bigger. According to today’s Financial Times, the Chancellor and the authors reiterated the report’s findings that “an industry constrained on narrow lines would find it harder to develop new products”.
What does not seem to be acknowledged in the current debate is that the failure of overly-consolidated banking pre-dates the crisis. As we discussed in I.O.U.K., the inability of the banking sector to provide the necessary credit for thoses small businesses and sectors of the economy which do not enjoy unwavering Government support is not a result of the credit crunch and economic crisis. The reality is that banks have been withdrawing from communities, closing their branches and abandoning relationship-driven banking for over two decades now. And it is this retrenchment from the real economy which has made them so vulnerable to the kinds of economic shocks we have seen in the last eight months. Northern Rock and Bradford & Bingley used to be mutuals, but they abandoned old-fashioned banking and converted into shareholder-owned institutions in search of better returns. And the result of this shift? They both went bankrupt and had to be rescued by the taxpayer.
It was selfish herd-like behaviour seeking the easiest profits, encouraged by policymakers since Margaret Thatcher’s 1980s reforms, which thoroughly undermined our financial system. Perversely, it is now the Tories who seem to perceive the contradiction of a banking system with a permanent Government get-out-of-jail free card for banks that are, in the Shadow Chancellor’s words, “too big to fail, too big to bail”.
Perhaps the Conservatives are willing to contradict the prior orthodoxy just to win political points? Or maybe Osborne is just concerned about how big a headache a banking system in need of permanent subsidy will be when he has to present the next Budget?