Osborne’s Plan A (Beta v.4.021)
Feeling confused about the Chancellor’s economic policy? You’re probably not clever enough.
Thursday evening saw the Chancellor’s joint announcement with Mervyn King of two more stimulus packages worth over £100b, aimed at encouraging banks to lend money to small businesses and individuals. This is in addition to already deployed Quantitative Easing measures. This is not “Plan B”, you understand. It is “Plan A, Beta v.4.023”. In 2009 Osborne described Quantitative Easing as “the last resort of desperate governments when all other policies have failed.”
I am no expert, so perhaps someone could explain to me, why every measure announced by a Chancellor whose catchphrase seems to be “We cannot borrow our way out of a debt crisis” is focused on lending. The only rational answer is that while debt in general is bad, private debt Osborne can live with. This blog explained a while ago how a big part of the government’s policy for debt reduction was the simple conversion of public debt into private debt. Half a trillion worth of it. It is a simple and effective way for them to claim success at the end of their term, while you and I actually end up a lot poorer.
On Friday morning figures emerged (figures which would have been available to Osborne on Thursday evening when he made his speech) which showed that the Construction sector plummeted a staggering further 13% compared to the month before. The ONS attributed this fall to public cuts and the cancellation of infrastructure projects. And yet, as recession deepens while the Chancellor boasts about record-low borrowing rates, his choice is not to borrow some money and pump it into infrastructure projects. It is to borrow money and make it available to Banks, to lend to private businesses. With no risk, since the loans are effectively underwritten by the taxpayer. And, of course, at a healthy profit.
In any case, there is no guarantee that banks will heed the government’s request to lend more. Many experts predict that it will be used to shore up their capital balances. There is every chance that this latest scheme will be another “Project Merlin” – which largely consisted of the Chancellor waving a wand at the public debt while incanting Expelliarmus!
If only there were a solution to this conundrum. If only we had a safe conduit for these loans. If only, say, the taxpayer owned one of the largest banks…