Wokingham Times

Last week the Prime Minister at last grasped that the credit crunch and the banking crisis is serious. I have met people on the doorsteps and in the streets who have told me how it is already affecting their lives. When the banks catch a cold we all suffer. Those working for the banks themselves, those involved with creating and issuing mortgages, those earning a living from selling and buy properties are all immediately affected. As other companies find it more difficult to borrow, so more businesses will be unable to create new jobs or even hold on to all the employees they currently have.

A number of my correspondents and website respondents have said they feel no sympathy for the banks. The banks did well in the good times, and did not take enough care to prepare for the bad times. Some of the bosses walked off with huge paypackets and bonuses when they were failing to sort things out as they should. Many think the banks should be made to pay for their own mistakes, with the Treasury and Bank of England watching from the sidelines.

I do not agree. Of course bonuses for the bosses should be removed when results are bad, dividends for shareholders should be restrained or reduced to husband bank cash, and shareholders should be asked to put some more capital. That on its own will not be enough. We need more cash in the markets to allow banks to go about their normal business. It is one of the duties of the Bank of England to manage the money markets. They failed to take enough cash out and put interest rates high enough during the credit binge. It is important they do not now make the opposite mistake, and put too little money in and leave interest rates too high during the credit crunch.

Many of you are finding it difficult to balance the family budget each month. The government tells us inflation is under good control because they use the CPI which seems to include too many things where prices are not rising, and distort the normal shopping basket the rest of us have to buy. We all know just how much fuel, food and taxes have soared in recent months. The petrol and diesel price is a shocker, and most of that is tax. (More than 70p a litre now goes to the Treasury). We need some respite from all of this. Lower mortgage rates would help. A more restrained and efficient government would also help, by stopping the upward drive on taxes.

One of the changes I would like to see is a greater sense of urgency in Whitehall about the need to increase central government efficiency and reduce its administrative costs, as the burdens on taxpayers are so large. If only more of the money we paid went on teachers, nurses, doctors and police we might then have better public services, but more than three quarters of it does not go on these essential public servants. It is high time the government stopped saying it was going to deliver value for money, and got on with trying to do so. The government is spending too much, taxing too much and borrowing too much. It is the pot calling the kettle black when the government says the banks lent and borrowed too much. The biggest borrower and the biggest user of off balance sheet vehicles to buy things on the never never was the government itself. We will all be paying back those debts for many years to come.

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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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