The laddites are at it again, slagging each other off right properly despite the fact that their policies are so similar. Of course there are differences, but the similarities greatly outweigh the differences – hence the stridency with which they feel the need to denounce each other. Osborne and Mandelson battle it out again about which party will make the biggest cuts (probably the Tories, but after 2013 who knows?), which will do more to protect frontline services, and how fast the public debt should be reduced. But they share agreement that bank regulation should remain minimal and virtually unchanged, even though bank recklessness was the fundamental cause of the economic meltdown. They agree that public expenditure should be substantially cut rather than tax selectively increased on the richest tax avoiders. They agree that the neo-liberal instruments of deregulation, privatisation and unfettered markets should remain in place unhindered. They agree that there should be no large-scale public investment programme to tackle deep recession and fast-rising unemployment. They agree that the role of the State should be minimised even in areas of serious private failure like housing, pensions, energy and transport. So when are we going to have a real debate on real options rather than mud-slinging?
That real debate should concentrate on several areas which are currently either being neglected or mishandled:
1 In order to shorten the recession and prevent unemployment rising even further beyond its present 15-year high of 2.44 million, the banks should be required to switch from their current policy of consolidating their balance sheets to raising their lending substantially to businesses and homeowners. The Government’s own M4 money supply figures which measure this lending show that it has catastrophically fallen from an annual growth rate of 20% on February 2007, just before the credit crunch, to virtually nil now (the latest May 2009 figure was a miniscule 0.3% rate of annual growth). The top management of the part-nationalised RBS and Lloyds Group should be instructed to make this change as an immediate priority, with published quarterly reports to demonstrate that the new policy was working, particularly in lending to small businesses. Any failure to comply should lead to their being replaced by new management. The remaining key banks, notably HSBC and Barclays, should be given similar guidelines by the Bank of England, enforced if necessary by high reserve requirements which could be put to the same purpose.
2 Now that there has been a significant upturn in the financial indices (share prices, bank profits, house price rises), the banks’ asset protection scheme, where the majority of the £585bn has not been utilised, should be reviewed. It has served its original purpose which was to stave off the very real possibility of a global financial collapse following the dismemberment of Lehman Brothers in October 2008. In the very different circumstances of today, It should now be greatly cut back, which would substantially ease the pressure on the public accounts deficit and thus significantly reduce the need for major public expenditure cuts.
3 Partly with the funding thus freed up, a huge public investment programme should be launched in housing and construction, rail extension, energy conversation and efficiency, skills training, and renewable energy development. This would absorb large numbers of the unemployed (particularly the workless young), increase tax revenues and reduce benefit expenditure, as well as lay the foundations for the cleaner, more sustainable economy of the future.
4 It will still be necessary, though to a much lesser and more manageable degree, to take further measures to curb the public debt. The first priority here should be to increase taxation where it can be afforded by those who have been the overwhelming gainers from the decade and a half of growth (1993-2008). Non-doms should be taxed on a progressive basis, capital gains tax should be levied at the same rate as income tax (as it was in the Thatcher period), the tax breaks given to hedge funds and private equity should be removed, a serious crackdown on tax avoidance (estimated in a recent study to cheat the Revenue and the taxpayer of £25bn a year) should concentrate on netting at least a third of this each year, and the richest 2% whose wealth has quadrupled since 1997 should be required to pay a super-charge of 50% on remuneration above £100,000 and 60% above £250,000 which Treasury figures show would yield £11bn a year.
5 Where as a last resort (and not as the first resort for the main parties) public expenditure still has to be cut, the first for the chop should be major spending projects whose relevance is now widely doubted (Trident), or whose value is largely discredited (ID cards), or whose performance has been shown to be not fit for purpose (many large Government IT super-databases). Any remaining cuts that are still necessary should be determined rigorously in accordance with overall priorities, not across the board uniform cutbacks, thus protecting the most sensitive area of public service.
6 Longer term it should be made clear that the banks will be required to pay back most, if not all, of the vast funding provided at the expense of the taxpayer and the real economy to save them from extinction. This is of course normal banking practice where the banks have themselves lent funds to others. But in addition, if huge cutbacks in public expenditure have been caused by the crass incompetence and greed of the banks, the victims who have been forced through no fault of their own to pay the price should be compensated as fully and as quickly as is feasible for the banks to do so. For that purpose a special tax should be imposed as a proportion of banking profits in future until restitution has been reasonably secured.