The Bank of England yesterday bowed to the inevitable and warned us that we will become worse off this year. Many people already feel worse off, after the huge increases in food and energy costs that we have experienced in recent months. There was no apology for leaving credit too loose a couple of years ago, and no public recognition that the Bank had kept conditions too tight last summer and autumn as the bakdrop to the Northern Rock crisis. There was no revision to the absurd line just before the Northern Rock crisis struck that banks had been foolish in their lending and there would be no bail outs!
The Bank is right that they are boxed in – boxed in by government spending that is too high, by a public sector whose productivity is too low, by past credit excess and rising prices, and by the more recent Credit crunch which is having a big impact on property. The Bank is partly boxed in by governemnt mistakes – the government should have reined back more on wasteful spending earlier, and cut public borrowing – and partly by its own erratic performance on money growth.
We now have a boom and bust approach to credit creation – boom in 2003-6, bust in 2007. We have had boom and boom in public spending. Now we see the government fighting to get to grips with the problem of over spending.
I am glad the Conservative leadership has responded to those of us who have asked that we should not match all of Labour’s spending plans in the future. We should keep all the teachers, nurses, doctors, police and armed services personnel, for they only cost under one quarter of publilc spending. We should not keep all the quangos, regional governments, ID cards, computerisation schemes, advertising budgets and management consultancy contracts. They do not represent value for money and they are squeezing the public needlessly.