The Economic Research Council published a report on the state of the global economy in November. The report titled ‘Global Economic Indicators’ is short but focuses on the UK in particular. It starts…
The breakdown of the banking system is still “work in progress”. The fact that it has not been fixed is serious. While it appears unlikely that after the Lehman experience Governments will let any more large or even mid-size banks go down, the bankers themselves are not performing their function of providing liquidity to commerce and industry.
So the opening line of the report describes ‘the breakdown of the banking system’. It doesn’t get any better, with Damon de Lazlo the Council’s Chairman ripping the Prime Minister a fresh orifice.
This leaves the bizarre case of Britain where the Prime Minister, having spent the last five or six years talking prudence and running a profligate Government, intervenes periodically in his Darling Chancellor’s efforts to resolve the economic crisis by vetoing the few sensible suggestions that are put up. There is a systematic failure in Government policy making caused by Brown’s dismemberment of the authority of the Bank of England, the only body that had some understanding of the banking system. When regulation of the system was split between the Bank, the FSA and the Treasury and the management of Government debt was parked in a backwater, the ability to create cohesive advice for the Chancellor was destroyed. There are now four key areas with different remits and responsibilities and the Chancellor seems to be unable to get a cohesive and thoughtful policy developed, the underlapping departments make it almost impossible to produce an analysis of the extremely complex problems that are causing the economy to unravel.
The latest policy initiative of reducing VAT by a few percent will have no impact on people’s purchase decisions, particularly as the retail sector is embarking on massive discounting on sales, while the increase to UK industry and other employers of National Insurance, as well as the increase in tax on fuel, which will affect distribution costs, is negative for employment. Added to this the ballooning Government deficit will almost inevitably lead to interest rate rises one to two years from now. Add to this the pre-announcement that taxes will rise considerably in 2010 is a statement calculated to kill off any potential green shoots that may be appearing at the end of 2009.
The leaks accompanying the announcement indicate that it was a decision to make a grand statement before the cohesive and intelligent policy was thought through, showing we still have a UK Government that is addicted to spin over substance.
Good Grief!
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