This from Redwood once again cuts through the fog and tells it
straight! Why on earth Cameron cannot be as clear - he seems
unable to make his position so clear that the voters will be able
tro relate to it!
Yesterday's Telegraph had an feature article, by Neil Tweedie,
looking at the present views of those who were Margaret Thatcher's
chief aides in the rescue of Britain from an earlier Labour economic
collapse. Here's an extract:-
So what should the Tory leader do? He should, says Lord Bell, learn
one of Thatcher's most important lessons. [Tim Bell, now Lord Bell,
who advised Thatcher on her advertising strategy}
"David Cameron should say what he thinks, and do what he thinks is
the right thing to do," he explains. "The reason people have no faith
in politicians now is because they never tell the truth. He should
say that it is clearly wrong for people to spend money they haven't
got. We have people supporting the ridiculous argument that we are in
this position because we borrowed too much, so we should borrow some
more.
"The number one thing Cameron and Osborne have to understand is that
the Conservatives will not win the next election, the government will
lose it. But their egos are such that they can't bear that. They
think, 'I want to be elected because I'm brilliant'. But there has
only been one great Conservative government since the war, and that
was Margaret Thatcher's."
Sir John Hoskyns [No 10 policy unit between 1979 and 1982] is
equally cautious in his estimation of the man who would be prime
minister. "I am fairly doubtful about Cameron generally. Does he have
the necessary determination? Although the details of 1979 and now are
quite different, it is the same business of inheriting a total
disaster. He will have to say, 'You can kill with kindness or you can
be cruel to be kind, and I'm afraid the latter is what we are going
to have to do. And you will thank us in the end.'
XXXXXXXXXXX CS
========================
SUNDAY TELEGRAPH 11.1.09
Borrowing caused the crisis - it cannot be the solution
The Government should look instead at cheaper tax reductions that put
money in our pockets, writes John Redwood.
John Redwood
Last autumn, the British Government stepped in with massive cash
injections for the banks. A few weeks on, and ministers admit this
£487 billion package did not even put the main banks into a condition
where they can lend normally, let alone save the world.
The country faces a severe economic decline. The Government is trying
to print money, slash interest rates, expand public spending and
borrowing, inject capital into certain banks, nationalise others,
boost demand by an expensive tax cut, prop up certain companies and
industries, while lecturing the banks to lend more. So far, none of
this is working. The cruel logic of past mistakes is pushing the
economy into a vicious downward spiral.
We should remember the origins of our problem. The Monetary Policy
Committee kept interest rates too low for too long. The banking
regulator allowed banks to balloon their balance sheets and
supplement this excessive lending with off-balance-sheet devices that
came to haunt them in the bad times. The economy ran faster than
could be comfortably handled, leading to a large balance-of-payments
deficit as we sucked in what we could not produce at home, and a
large private sector borrowing binge. Asset prices escalated giddily
on the back of easy money. Homes became unaffordable without taking
on a huge mortgage, which would prove too burdensome come higher
interest rates or job loss. Once the authorities called time on
excessive debt, there was bound to be a downturn. Their decisions to
hold rates too high for too long, and then to require banks to hold
more capital and cash to support their lending when we were well into
the downturn, made the problem considerably worse.
I argued strongly for lower interest rates a year ago to take the
edge off the coming decline. I argued against nationalising banks. I
would have kept them in business by having the Bank of England act as
lender of last resort, providing cash and loans against proper
security, and offering stronger deposit guarantees when needed. The
aim should be to see them through, with their shareholders and senior
executives taking all the hit for past mistakes. The government's
role towards the banks should be that of the intelligent bank
manager, not the owner needing profit and access to cheap cash for
himself.
The Government, as it says, needs to stabilise asset prices, get the
banks to clean up their past mistakes, ensure none of the major banks
goes under, and reflate overall demand. However, a number of the
measures it has taken are making the problem worse.
Nationalising Northern Rock and the loan book of Bradford and Bingley
were bad mistakes. Neither of these institutions can now make a
contribution to new mortgage lending on current policy and given
competition rules.
Forcing three banks to take taxpayers' cash for shares because the
authorities wanted them to have more capital was not clever either.
The government failed to do any proper due diligence on what it was
buying and failed to require write-downs of the loan books before
venturing. As a result, taxpayers now have shares in institutions
that may announce further big write-offs. The regulators should have
discussed with the banks how to strengthen their balance sheets
through retained profit and by raising money from markets in the
usual way. The central bank should have stood behind them in the
normal way.
Cutting VAT was about the worst way to try to stimulate demand, and
has left us with a costly hole in the national accounts for little
benefit. The escalation of the government borrowing requirement,
mainly through the mistaken bank nationalisation policies and the VAT
reduction, is alarming.
So what should they do now? They should cancel the remaining VAT
reduction, and look instead at cheaper tax reductions that put more
money into the pockets of individuals and small companies. We need an
expansion of cash and deposits in the hands of individuals and
companies to get the economy going.
They should aim for early repayment or sale of the taxpayer shares,
and ask the banks to accelerate a programme of cost reductions, asset
sales, and resumption of profitability. The immediate target should
be to get the cash back for the special preference shares the
government bought, and to sell the mortgage books and administration
of the Rock and Bradford and Bingley on to the commercial sector,
where there would be more chance of building these businesses and
saving some jobs.
Mr Brown should invite the Financial Services Authority, the Bank of
England, the Treasury and the commercial banks to a meeting to hammer
out the right mixture of regulation, loans and guarantees so that
they can restore normal lending levels more quickly. The Prime
Minister has to defend the taxpayer, but he also needs to listen to
the people running the banks: it is their conduct that he needs to
change. The meeting will need to decide on temporary lower levels of
capital for any given volume of lending, to withdraw the proposals on
banks keeping more in cash and bonds, and to tweak the packages of
short-term loans and guarantees so they are more attractive to the
banks.
None of this is guaranteed to lift the recession quickly. The
authorities have allowed the downward spiral to become entrenched.
The banks face further write-offs from their corporate loan books as
trading deteriorates and more companies go under. House prices are
still high. People are reluctant to commit to large new loans when
there are so many uncertainties about their jobs. Many people and
companies are unable to take on more debt, if it becomes available.
The proposals above are designed to hasten the end of the recession,
and to cut the risk in current policy. They would reduce the
Government's need to borrow substantially, and would speed up the
resumption of more lending by banks. You cannot end a crisis brought
on by borrowing too much by the state borrowing even more, or by
transferring all the dud loans to the taxpayer. We have to work our
way out of borrowing too much and inflating asset values too much.
This package would at least put us on the right road to recovery.
------------------------------------------------
John Redwood is MP for Wokingham and chairs the Conservatives'
Economic Competitiveness Policy Committee.
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