Last week I tried again to get the message through to the government that taxpayers cannot afford their bank share buying package. If they still doubt me, they should just look at what the international financial community thinks of this government’s economic policy. Since the summer the pound has slumped from $2.05 to just $1.45 as I write this. That has slashed our living standards and the value of the pound in our pockets and purses.
If you can still afford to go the States, that $2.05 cup of coffee which cost £1 in June, now costs you £1.40. The same has happened to anything we import which is priced in dollars. It means a large amount of the fall in the oil price will not benefit us, for oil is priced in dollars. We have lost even more against the yen, so it means buying fewer Japanese cars and electrical goods and paying much more for them.
I spoke in the Economy debate on the Monday, blogged about the crisis everyday on www.johnredwood.com, was invited on Newsnight and ended the week on Any Questions. My message was simple. The banks they want to buy are too big. The costs of redundancies and write offs could be large for taxpayers to carry. The £37 billion to buy shares in RBS and Lloyds/HBOS, combined with the £18 billion being borrowed to sell the deposits of Bradford and Bingley to Santander is simply too much for the poor long suffering taxpayer to carry.
In reply, the government just says it had to rescue the banks. Yes, of course it should lend them emergency money if they need it, and guarantee transactions if that is necessary. It should always do so taking good security for the taxpayer, and should do so for as short a time as possible. No sensible person wants a major bank to go under. No, it should not and did not have to buy shares in them. So far taxpayers have lost £580 million at Northern Rock, and had to put up another £3 billion of capital for that bank. Neither Northern Rock nor Bradford and Bingley now lend new mortgage money to customers. That’s another blow to the housing market, and is helping destroy jobs in housing related work.
Do I think the government should cut income tax as well as cutting interest rates to shorten and lessen the recession? Yes, of course I do. Do I think they can afford do, given their levels of spending and their commitments to the banks? No, of course I don’t. They need to change course, and do so quickly. The recession is spreading rapidly to the rest of the economy, from property and financial services where it started. The economy needs the tonic of lower interest rates and lower taxes to stop the losses and to start a recovery. All the time we have the present government’s spending and borrowing levels we are at risk of more losses on the currency and more difficulty borrowing all the money.
A modest devaluation of the pound earlier this year could help our exporters and curb some imports. It would speed the adjustment we need. The massive fall, the currency rout we are experiencing, is damaging. It makes us all poorer, and makes the government’s task of raising all the money it wishes to spend that much more difficult. The government needs to remember that borrowing is deferred taxation. Taxpayers have to pay it all back with interest. It needs to root out waste and stop its share buying.