Morning:
8°c
THE FIRST anniversary of the collapse of Lehman Brothers is a chance to reflect on the myths that have already sprung up about that dramatic period. The key to a sustainable and balanced recovery depends on exploding three myths about the past and taking three steps into the future.
The first myth is that Britain's economic woes were largely caused by the collapse of Lehmans - in other words, its all the fault of American bankers. It is extraordinary how this version of events has taken hold. Even the BBC is running a programme this week called The Credit Crisis: One Year On. But it's not one year on, it's two years on. The credit markets froze in August 2007. This September is the second anniversary of the run on Northern Rock. The British economy had been in recession almost six months before the collapse of Lehmans.
No one doubts that the dramatic events last autumn caused confidence to plummet still further, and that the banking system looked perilously close to imploding. That is why a year ago the Conservatives, unlike many oppositions around the world, very publicly supported the capital injections and liquidity guarantees at the time.
But if we think, as Gordon Brown does, that the crisis in our banking system was separate from fundamental weaknesses in our economy, we are making a fatal mistake. Yes, we need to overhaul banking regulation at home and internationally. But we must also understand the weaknesses in our banks were a reflection of the deep imbalances across our economy, that in part reflected deep imbalances across the world.
Britain had the most indebted consumers, the most leveraged banks, one of the largest property booms and one of the highest budget deficits. If we do not understand this mistake, we are in danger of repeating it. We cannot pump up the bubble again. We should heed the warning from Stephen Hester, the RBS chief executive, who said yesterday that unless we have a recovery "where people can save more, borrow less, the balance of payments deficit closes, the Government gets its own deficit under control" then we may suffer from a "lost decade" of economic stagnation.
The second myth is that Britain has been, in Labour's words, "better than most" in weathering the storm. In fact we have been among the worst at weathering it. France, Germany and Japan came out of recession in the last quarter, while our economy continued to shrink. We hope we will belatedly follow others out of recession this year, but that, sadly, will not mean an end to rising unemployment or soaring debts. That is one reason why the OECD this month put our growth prospects at the bottom of the league table of G20 countries, and the size of our budget deficit at the very top.
The third myth is that the Government's "massive fiscal stimulus", in Mr Brown's words this week, has been the key to "getting Britain through". What has this "massive fiscal stimulus" meant in practice? Most of it went on the temporary VAT reduction - a policy which no other country followed, no major retailer thought worked, and which the Treasury is resisting all attempts to extend beyond the end of the year.
As for the other dozen government schemes launched in a blaze of headlines earlier this year, it is striking that when the Chancellor gave a speech on the economy last week he mentioned only one. It is no wonder when the Mortgage Rescue Scheme had, at the last count, helped just nine families and the Capital for Investment Scheme helped just two companies. Instead, what has helped families and businesses in this deep recession, and done most to stimulate demand, has been the unprecedented monetary stimulus from the Bank of England, particularly the deep cut in interest rates. This radical monetary action is what we Conservatives called for last autumn and if anything is working, it is.
So we need to learn the real lessons of the past two years if we are to have a sustainable and lasting recovery, not the unstable mirage that the Prime Minister is grasping for.
First we must continue to repair a banking system that remains deeply damaged. If you want proof, look at the latest survey of credit conditions from the Bank of England, which showed the crunch continues for thousands of small and medium-sized businesses. We took a deliberate decision to let the banks earn their way out of trouble on the back of taxpayer support, and now we have to make sure those earnings go to strengthening their balance sheets so they are strong again, not to paying out undeserved mega bonuses. We need new international capital rules that work to control the credit cycle not exacerbate it. At home we need to replace the dysfunctional tripartite system of regulation that failed so spectacularly by putting the Bank of England clearly in charge.
Second, we must get our public finances under control. The sooner we confront this, Labour MP Frank Field reminded us this weekend, the sooner we can get the lower long-term interest rates for families and businesses, and smaller interest payments for the taxpayer. It would be the clearest signal of our commitment to the fundamental economic change that needs to take place - from a country that borrows too much to one that saves.
Indeed, international confidence is sustained only because people increasingly expect there to be a Conservative government committed to spending control and tackling imbalances.
A strong Prime Minister would have gone to the TUC annual congress and told them the truth: that we can't go on spending without limit. Instead, this weak and desperate PM is putting the finances of the Labour party ahead of the public finances of the nation.
When I first broke the political taboo and said spending would have to be cut, I warned that if Labour denied that, they would be condemning themselves to the sidelines of the real debate. So it has turned out to be. There is no thinking at all taking place in the Labour Cabinet about how to improve the productivity of public services, how to overcome the roadblocks to progressive reform and how to learn from how the best of local government has saved money. That means that if Labour were re-elected, it would have no alternative but to implement steep tax rises and frontline cuts in vital services. It's the Conservatives who are actually doing the thinking needed to avoid that.
Finally, we need to send the powerful message that Britain is open for business. The current government is sending exactly the opposite message. Instead we need to say to people: set up a business, take on new staff, learn a new skill, come and invest here and we will support you. That is the Conservative message and with David Cameron we offer the country a strong, united and honest government to deliver it.
George Osborne is the shadow chancellor.
Reader views (8)
Brown is guilty. He put himself first, then Scottish Labour, then Labour, with UK as cashcow to fund them.
Now the US snubs him, for Labour lies over Lockerbie.
He boasted endlessly in 2007 'I ended boom and bust', while news said 'White Hot Markets' rising 25% pa.
Those 2 incidents symbolise Brown.
Lies and spin are Labour's trademark from Blair ('I'm a pretty straight kind of guy' as he took £1m). Jo ('9/11 is a good day to bury bad news') Moore. McBride's Labour website to spread personal lies. To Mandleson sacked twice for breach of trust, and people like Baronesses Scotland and Uddin leaching on the taxpayer!
Lies and spin were the only source of Brown being financially clever. Average people saw 2007 as a boom.
Brown drove the UK economic bus far above speedlimits, and over a cliff. In 1997 about 100 were inside. He and 20 had safe cushioned State jobs and welfare. Then he took all the protection and gave it to another 10 to 15. And he pulled in another 5 for their votes.
From the 60 private people left on board he took all their protection. He threw it over the 35 to 40 State passengers with safe seats, as he drove over a cliff.
From the crash wreckage he raided cash from the pockets of private passengers he ruined, and threw it around, boasting 'I saved the world' and demanding credit.
Brown is the worst PM ever.
- Joannie, Newcastle uk, 24/09/2009 08:53
Report abuse
Its not really that surprising that Mr McRuin is puting 'Party First' before the state of the nation. Mr McRuin's job could be on the line, as to whether there will be a plot to 'Change the Donkey'. After the TUC Knees-up will soon be the Liarbore Party Knees-up, and Pa Broone could be in for a jolly old rollicking time.
The person who has the safest job is 'He Who Must Be Obeyed', Lord Meddlesome of the 'Secret and True Leader'. Pa Broone will soon be toast, but Lord Peter will be enjoying the fruits of the Upper House - 'Money for Old Rope' along with his ex Kommie Kommizzar Pals, the Kinochios.(all allegedy of course)
- Uncle Vanya, East Anglia Area UK, 24/09/2009 07:53
Report abuse
The trouble is that New Labour was built on a lie. The Tories did their job (1979-97) by reforming the private sector to remove its class elitism, and industry by removing the stranglehold of the unions (and by allowing defunct industries to fail to be replaced by new industries). But they were not trusted to reform public services - that was Labour's job. Yet the most reactionary force in British politics - the trades union movement - stopped Blair's genuine attempts at reform. The vested interests of the TUC stopped New Labour doing what it was elected to do - make the public sector more efficient. Instead they simply threw money at the problem (making it even less efficient), which - along with their determination not to return to the "squeeze them til the pips squeak" Healey tax policies - has led us where we are now: in a right old mess. I believe Blair was a genuine reformer, shackled by the unions' Labour stranglehold (hence the cash for honours scandal to try and break that grip). Brown, on the other hand, is a tax and spend class warrior who reasons that a bloated public sector votes Labour and increased taxes will fall on diehard Tory voters. Meanwhile the majority of people still want public sector reform to make it better value-for-money. Blair couldn't do it, Brown doesn't want to do it - Labour has therefore failed in its mission. It should "leave the stage" to quote John Major in 1997.
- Milton Not Keynes, London, 24/09/2009 07:53
Report abuse
....and the financial and political elephant is the EU - this bureaucratic, costly and corrupt organisation needs taming. The brave, new, forthright, tell it as it is Conservative Party has a distinct blind spot here.
- Tony Gee, London, 24/09/2009 07:53
Report abuse
Thats not a solution, that only extends the problem, money is created and distributed by the banks, with values they set up, filtered through the government to be distributed in this sad monetary system, Money is nothing its a piece of paper with a face on it, I refuse to believe that this is life, its a sick game of monopoly where its soul purpose is to divide and conquer, its an old out dated system where profits come first and people are always second, obviously most of you all know this and just accept it and let it go over your heads thinking well that's just how it is...
well here is an idea, Burn all that money! its not needed, there is enough resources and natural energy in the world for everyone and can be harvested mostly by our modern day technology, no pollution, no war, no politicians.
Peace.
- Freeman, Matt, Swindon, 24/09/2009 07:53
Report abuse
If any one thing indicates Brown's lack of economic savvy, it has to be the panic ridden reduction of vat.
At the time the shops were full of 50% off offers, and some even better than that, which meant that the relatively small reduction of 2.5% went un-noticed to shoppers.
However, now try putting the rate back up again! It becomes an unwelcome increase in the cost of any shopping basket, and yet another nail in the coffin of this useless bungling PM.
His lack of foresight is as astonishing as his lack of political judgement.
I hope that this is a start of a capaign from George Osborne to bring in to the political arena ALL of Brown's many mistakes, and just what this incapable man has cost this country.
- Ronnie, Billericay England, 24/09/2009 07:53
Report abuse
Well said Judith C!
The Labour Party, led by one Gordon Brown, ex-Chancellor and now Prime Minister is technically bankrupt, what does that say about his financial expertise?
They are relying on a STG 6 million overdraft, the corporate donors have disappeared after the 'cash for honours' scandal, there are several outstanding loans to be repaid and their organisation is in total disarray.
They rely on a large number of volunteer workers at election time and after the Mp expenses scandal, many have said they will no longer campaign for the Labour Party.
There core base is being eroded by the BNP and UK Independence Party will they seem unable to respond. As plotting and in-fighting continue within the Parliamentary Labour Party, the al-Megrahi and Gary MacKinnon issues remain open and Gordon Brown dithers, their prospects look bleak!
- Manny Goldstein, London, England, 24/09/2009 07:53
Report abuse
Brown is not putting his party before his country. He's putting himself before his party before his country.
- Judith C, London, England, 24/09/2009 07:53
Report abuse
