Reading Evening Post

Incompetence has become the middle name of this government. Incompetence at Revenue and Customs, losing many bits of data, culminating in the loss of personal records for 25 million people. Incompetence at DEFRA and the Environment Agency, unable to keep the drains and ditches clear or to use some JCBs to dig land drains capable of taking all the water their developments rush into inadequate pipes. As a result we had serious floods this summer and watch nervously every time we have heavy rain. Incompetence at a government laboratory complex letting dangerous disease escape into our cattle. Incompetence at the Home Office, unable to control our borders properly or to keep records of who has legally entered the country. Incompetence at the Health Department, where hospital acquired infections stalk the wards of many NHS hospitals. You name a department, and they have made blunders.

The incompetence that worries me most because it will damage so many people is the incompetence at the Treasury and Bank of England. The bungled rescue of Northern Rock has left taxpayers with a staggering ??30,000 million at risk. Each adult has now been forced to lend around ??700 to the distressed mortgage bank. Our Chancellor refuses to tell us how much security we have for this money, or when Northern Rock will start to pay it back.

The Monetary Policy Committee of the Bank of England kept interest rates too low for too long in recent years, partly because Gordon Brown changed the target before the last election in an effort to keep rates down. As a result we have had more inflation than is desirable.

In October and November the hapless Committee was making the opposite mistake, keeping rates too high for too long. The results are becoming quite obvious. House prices are falling. Commercial property prices are falling. Mortgage advances are down. The money markets have seized up. Today’s problem for the banking sector is tomorrow’s problem for everyone else. It will mean less money in circulation as less borrowing is transacted, which will then reduce sales and jobs.

When Gordon Brown altered the Bank of England in 1997-8 he made a dog’s breakfast of it. He wrongly said he was making it independent. Instead he stripped it of its powers to run the government debt, and to supervise the daily workings of the clearing banks. This left the Bank distanced from the money markets it is meant to run. Because the bank does not see all the business in the way it used to it has lost its feel for the markets.

He also imposed the rickety tripartite structure on us to deal with banking crises. The Bank shares responsibility with the Treasury and the Financial services Authority. This summer they bickered over what to do about Northern Rock instead of getting on and solving it. We now know this does not work, as the three regulators together were unable to work out a solution to the Northern Rock problem, even though they knew the difficulties a month before the run on the bank began. When the Bank used to do these things on its own runs on banks were avoided, and money markets were kept more liquid.

Why is all this happening? It is happening because this government believes the business of government is amusing the media, and spinning stories. They still do not seem to have grasped that a Minister’s job is primarily supervising, leading and checking the work of his or her Department. It is detailed, voluminous hard work. We pay these Ministers large salaries. It would be good to start getting some productivity out of them for all the privileges they enjoy.

The Treasury could start by restoring the powers to the Bank of England they need to run the money markets and to regulate the banking sector properly. The Chancellor could follow that by apologising for the idiotic speech he made just before the run on Northern Rock when he said any problems for the banking sector served them right and there would be no bail-outs. He should instead say he is worried about the credit crunch and has instructed the Bank to take any measure necessary to restore liquidity and order to money markets. If he does not, if he continues to dither, more damage will be done to the economy needlessly.

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  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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