At the Mansion House tonight the government will doubtless tell us the economic problems of Britain come from a global crisis â€“ they are more the result of sub prime USA, not a sub Prime Minister. Our attention will be turned by attentive spin doctors and gullible media to wicked oil producers overcharging for petrol and diesel, and to greedy speculators chasing up the price of food and other commodities. We will doubtless be given huge reassurances that the UK is being managed well in the circumstances, that the UK economy will keep on growing despite it all, and the inflation will be temporary.
If that is the message, it wonâ€™t wash. It will reinforce most peopleâ€™s impressions that the government either does not know what is going on, or is so steeped in the business of disinformation that they cannot help themselves. It is probably a combination of the two. They have spun their line so many times, many of them now do probably believe it. They may once have understood the need for Prudence, for proper management of the public sector, for avoiding nationalisation and going with the grain of markets, but they have forgotten much of that in their crude political rush to spend money wherever they wrongly think it might buy them votes.
What the government should say tonight if it wished to re-establish some economic authority would be very different. They could of course point out that the Credit Crunch is an international phenomenon, but they should tell people part of it is made in Britain. They should admit that the handling of Northern Rock was unique British bungling, and set about repairing the Bank of England before the crisis gets much older. They need to restart the sale process for Northern Rock and get it back into the private sector as quickly as possible, to limit the amount of damage they have to do to the business by running it down, exacerbating the shortage of housing finance.
They should accept that past errors of monetary control have helped fire the inflation we are now experiencing. They should say that now there is a cruel dilemma â€“ should they mainly fight inflation with high interest rates, or fight slowdown and possible recession with lower rates? If they would take some of the pressure off the economy by moving to reduce wasteful public spending and lower the governmentâ€™s borrowing requirement, they could then risk lower interest rates, and start to give a little hope to the collapsing housing market.
Proposing some self discipline on public spending, instead of the sorry rakeâ€™s progress which passes for a public spending policy, could make a lot of difference. The large transport schemes they favour should be privately financed. Regional government, ID cards, central computerisation schemes, extra civil servants, more laws and regulations â€“ these are all luxuries we cannot afford and many of us think we do not need. Letâ€™s have a few billion off public spending by axing these and similar costs. Letâ€™s have a staff freeze on the public sector, exempting teachers, medical staff, police, armed services personnel and other key front line professionals.
That would send a message to markets that the government would take some of the pain of adjustment, as excess demand is removed and borrowing reduced. At the moment an honest Chancellor would have to say that all the adjustment is planned for individuals and families, which means a year or more of greatly reduced mortgage finance, of rising prices going up faster than wages, falling house prices and a cut in real incomes. This will be especially savage on the lower paid.