Some Labour figures seem to see this recession as pay back time for past recessions. This was to be the recession that hit the south more than the North, hit higher earning services more than manufacturing. This view is as wrong as it is unpleasant.
Today’s news of big job losses at Corus follows hard on the heels of short time and job shedding at the major car assemblers and component makers, and in many other manufacturing companies across the country. This recession is hitting manufacturing all too hard. A number of the companies sacking people are efficient and well run by world standards. Their managements have caught up with the best in the world, and their workforces have done what has been asked of them. The UK is no longer the sick manufacturing man of Europe, bedevilled by weak management and striking workforces. At its best there is a common purpose between leaders and led, a willingness to do what it takes to be competitive in a very competitive world.
At the same time we see the sorry spectacle of a couple of banks, RBS and Northern Rock, still paying huge salaries and bonuses to senior executives who have presided over disaster for their institutions. Their business models failed to survive in the dangerous waters of UK banking and monetary policy. They paid themselves too much for doing things that lost their banks huge sums of money as asset prices fell and financial instrument markets became untuned. They became huge , costly and complex bureaucracies that did not necessarily serve their banking customers well. RBS was allowed by shareholders and Regulators alike to go on a bizarre acquisition spree near the top of the market, heaping debt on debt on its huge balance sheet. Why can’t the government see this, and at very least cut the pay and bonus extravagances at the top end dramatically?
The government claims to be interested in social justice. Few of us can see much justice in subsidy for the banks and tough rations for the manufacturers. The government is right in one thing – lettting a major bank go under would not be a pretty sight. They are wrong that they needed to buy shares and effectively subsidise their bloated costs and wrong business model. They needed to lend short term, whilst putting pressure on the borrowing banks to cut their costs substantially and quickly, and to dispose of activities that did not relate to core banking in the least damaging way.
I am pleased that at last the regulatory authorities have taken the point that I and a few others have been making that they need temporarily to relax the capital requirements on UK banks. I read in the week-end press they now want the banks to have a minimum ratio of 6% share capital to total liabilities, instead of 10%. That means that for every pound of share capital a bank could now put £17 to work, instead of £10, which will help ease the squeeze. It will not mean that foreign banks, also reining in, will necessarily become very active again in the UK. I also detect in the latest briefings to the press from the government, Bank and UKFI, signs that they are now ready to look at cutting the huge risk taxpayers are running in RBS by selling or winding down the investment banking activities and selling some more of the non UK businesses. Please may this be true – it is much needed to try to make RBS a profitable organisation again, and is certainly needed to protect the taxpayer from yet more scandalous losses.