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Caution's the word, Bank governor warns Brown
Joe Murphy, Political Editor24 Mar 2009
Gordon Brown's hope of a big new fiscal stimulus in the Budget was dealt a serious blow by the Bank of England governor today.
Mervyn King said the Government was already running up significant debts and should be "cautious" before pumping more into the economy.
He told MPs: "The fiscal position of the UK is not one which says 'Let's just go on another significant round of fiscal expansion.'"
The governor's intervention came as the Prime Minister took off on a world tour to raise support for an economic stimulus package he hopes will be agreed at the London G20 summit next week.
Mr Brown is said to be piling pressure on Chancellor Alistair Darling to do more on top of the £20 billion fiscal stimulus unveiled in the autumn's Pre-Budget Report, which included the VAT cut.
But Mr King said it was too soon. "I'm sure the Government will want to be cautious," he said. "There is no doubt that we face very large fiscal deficits over the coming years." Mr King, who was giving evidence to the all-party Treasury committee, added: "I think it would be sensible to be cautious about going further in using discretionary measures to expand the size of those deficits." He was not against "targeted" measures but warned that the full effects of the existing £20 billion had not worked through the system.
His comments will strengthen Mr Darling, who has signalled that he does not plan spending rises or tax cuts designed to make people feel better off and more confident. Shadow chancellor George Osborne said the debate on the dangers of continued borrowing had reached a climax. Mr Osborne said the Tory position to oppose the VAT cut had been vindicated and the Mr Brown left isolated. He pointed out that former Labour minister Stephen Byers agreed the VAT cut had not worked and should be scrapped.
"The big debate in British politics about the recession has been whether or not the country could afford a debt-funded fiscal stimulus," said Mr Osborne. "This leaves Gordon Brown's political plans for the G20 and the Budget in tatters."
Mr King told the committee:
● Charges for accounts may return as high street banks are no longer making enough from interest rates on loans to cover costs.
● He was "mildly encouraged" by the Bank's policy of quantative easing. He made clear that interest rates would be raised at the first sign of inflation creeping back.
● It will be "many months" before the inter-bank lending rate comes down to lower levels. He also expressed irritation that high street banks were not yet lending to businesses and families, in breach of an agreement made in October.
Reader views (2)
My dear Georgie, Islington, London,
I think you have lost the plot, Elected or Unelected, the fiscal situation we are all in will have to run it's disastrous course,regardless of what party is in power.
I don't think it has yet sunk in to the general populace that we have been paying ourselves too much spending too much!
The so called "Experts" have in fact turned out to be no more accurate than those "Experts" that purport to fortell our future in the Astrology columns in the various newspapers!
Unfortunately, the real clever fiscal brains remain outside the corridors of Parliament, as they do not need the cloak of Parliamentry Privilege/Waffle to make their fortunes, we only get the "Failed" experts in Government whom in reality are only front men for the permanent ministers whom themeselves would not last 5 minutes in the outside world, that's why they plumped for the safe environment of the "Establishment"!
It is said, and I quote, "In Central or Local Government, you can get away with incompetence for years, whilst in the private sector you can get away with charm for about 15 minutes, but after that, brother, you had better know something"!
Obviously, the Banking sector Executives did "Know Something", that's why they are "Laughing all the way to the Bank", and the numpties in Government are left holding an empty bag!
- Geronimo, LONDON MIDDLESEX, 24/03/2009 18:27
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How much longer can we live with this incompetent UNELECTED pm?? Why is parliament not calling an election?
- Georgie, Islington, London, 24/03/2009 16:07
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