Yesterday in the Sky debate with Will Hutton I was impressed by Will’s realism. Far from trying to argue the self justifying and unrealistic Labour line, Will concluded:
1. There is a serious banking problem, which has still not been solved or gone away
2. There is a UK government borrowing problem, and the government did fail to put the finances in order in the good times
3. UK banks are very large in relation to the National income and the size of the government’s revenues. We could have a small version of the Iceland problem, as banks here are more than 4 times GNP. There are limits to how much the government can support them as a result.
4. Government does have to keep confidence in the currency and its finances to maintain borrowing at sensible interest rate levels
5. The Shadow Chancellor is not the reason sterling is falling.
I hope I have been fair to him in this summary. My purpose of repeating this here is to appeal to all those government supporters who read and comment on this site to listen to these points. If Will and I agree about these things there is the chance they are right. Will’s agreement demonstrates these are not “right wing” criticisms, as Labour usually seeks to suggest when I put well meant and serious points to them.
My conclusions from all this are also pretty clear:
1. The government needs to take action to cut its borrowing this year. It can do so by changing its approach to spending on the banks. They can raise more of their capital for themselves, sparing the taxpayer. Will and others do not yet agree with this, but it is the cheapest and best way out of the government’s hole. The government should sell off Bradford and Bingley and Northern Rock as quickly as possible, taking its loss before it gets bigger.
2. Once this has been done the government should then cut taxes, putting more money into the pockets of those likely to spend more.
3. The government needs to widen the range of stocks its issues to finance its remaining debt, with more at the long end of the market and more index linked securities.
4. The government needs to pursue its Gershon and related savings more energetically. It should impose a staff freeze on administrative posts, and terminate index linked final salary pension schemes for new recruits.
I welcome the fact that the Conservative party is examining a changed economic strategy for the changed conditions. This strategy must include plans to deliver more for less throughout the public sector, building on the big three themes the party has identified for savings. It should also include lower taxes on income and enterprise, funded from the reductions in spending. There will be no proposed cuts in teachers, nurses, doctors, service personnel and other important front line public servants, nor should there be.