Some people have asked me why the Opposition has failed to lay the blame for the economic crisis squarely at the door of the Prime Minister. They complain that we have let him get away with the impression that our difficulties are the result of world economic events, and the sub prime credit crisis in America.
Firstly I don't blame the government entirely for the recession. Economic activity has, from the beginning of civilisation, moved in a cycle of growth and recession; boom and bust. No government causes or can prevent this economic cycle: the job of government is to manage within it. What I do blame the government for is leaving us so ill prepared for it. Governments should run a budget surplus in the years of growth so that they can afford to stimulate demand when the economy is in recession despite collapsing tax revenues.
Our problem is that the Government, like King Canute, believed that it really had abolished boom and bust, and so never prepared us for the bust. Even at the height of the years of economic growth, the Government was borrowing billions of pounds and spending much more than it raised in taxes. The consequence is that now when the cycle has turned the, cupboard is completely bare. They really didn’t fix the roof when the sun was shining and for this reason the recession will be worse in Britain.
In addition to the trade cycle bringing a recession, we also have to cope with the shock of the credit crunch: a banking crisis originating in America and arising from irresponsible mortgage lending to people who were in no position to repay. Undoubtedly there is some truth in this but the problems of Northern Rock, HBoS, Bradford and Bingley and RBS were not made in America, they arise from their own decisions and lending policies. That they were allowed to behave in such an unwise and risky fashion is an enormous failure on the part of the authorities that are supposed to regulate them. The regulatory regime under which the banks operate was designed and implemented by our own Prime Minister and their abject failure, is by extension, his failure. The warning signs have all been there over recent years and the alarm was raised by international observers, but was ignored by the Government.
Most members of the public are not so interested in who is to blame. They don’t want a game of Cluedo with their politicians: finding out if it was the Prime Minister; in the library; with the lead piping. What they are really much more interested in is what we are going to do to get them out of this mess, and in particular what the Opposition would do differently from the Government. This has been a very difficult question for the opposition to answer because when the crisis broke in October we pledged our support to the Government’s policy of bailing out the banks with taxpayer’s money. I think that the Government's Pre-Budget Report has now decisively brought this period of ‘phoney war’ to an end. Real differences between the political parties have opened up and can be exposed to the proper scrutiny of public debate. The difference is now clear: the Government believes in spending its way out of recession by doubling the national debt to one trillion pounds; and paying for with much higher taxes – but not until after the next election. On the other hand the Opposition is committed to a series of initiatives designed to alleviate the recession but which have to be paid for by economies now rather than taxes later. It is a proper and healthy debate to have.
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