Doing nothing is wrong, but so is doing just anything
The mantra of the moment is that exceptional times warrant exceptional actions. But that does not mean every exceptional action is what is needed. It is time to take stock on the government’s extraordinary measures to end the crunch.
The old financial rules have been ripped up in the past year. Major banks have been nationalised at a cost of billions with even greater sums made available to lenders as credit. Interest rates have been slashed to negligible levels. Taxes have been cut.
There are plans for job initiatives, loan guarantees for homeowners and business plus major capital-expenditure projects.
There is talk too of help for the motor industry and plans for a further bank bail out.
On top of that markets are in turmoil: share prices have plunged amid unprecedented volatily, oil has reached new records then collapsed, and sterling has tumbled.
But there is a danger that in agreeing that the old regime failed, any alternative must be better or even best.
Radical changes are being accepted without question.
We have become so used to exceptional actions that nothing now shocks, but simply being exceptional is not enough. Indeed, there may be good reason why such measures have been rejected previously.
It is immediately clear that the cut in Vat, though costing £12.5bn, has had no discernable effect on spending. The cuts in stamp duty on house purchases have made no noticeable difference either.
The government’s paid £5bn too much to buy shares in the initial bank bail-out, leaving taxpayers with a paper loss equivalent to almost 2p on income tax.
Low interest rates have not stimulated the property market or mortgage volumes but are having a severe effect on savers and their ability to consume.
A government whose watchword was prudence is now spending unimaginable sums in an honest attempt to slow the UK economy’s slide into recession and to salve the banking system.
But some serious questioning of the liabilities the state is taking on and the cost of subsidising this deficit needs to be attempted.
Even on the very best scenario, taxpayers will be paying for the 2008 crash for many years – probably almost a generation.
Long after the initial crunch is history, business and the public will be financing the rescue. Even when recession ends, all growth for the next decade will be diverted into debt repayment leaving no scope for improving living standards.
Colossal numbers are being followed by when greater sums when the first action does not work.
Whether it is a parliamentary report or an auditors’ inquiry, a dispassionate analysis of whether money is being well spent is urgently required. We need to know if good money is being thrown after bad.
