Economy

The two top dogs at the Treasury Select Committee, John McFall and Michael Fallon, give remarkably different reactions to the news that ministers withheld details of emergency loans to RBS and Lloyds for over a year. McFall argues that secrecy was necessary to avoid a run on the banks; Fallon expresses outrage that Lloyds’ shareholders were not privy to all information when considering the disastrous purchase of HBOS, urged on them by the Prime Minister.   Both have their points. Blind panic is the defining recollection of those autumnal days. If the situation had been exacerbated by full disclosure of the mess RBS and Lloyds were in then God alone knows what pandemonium would have ensued.

So the dividing line persists.  Today, both Gordon Brown and David Cameron will talk about "going for growth" at the CBI's annual conference.  But it all, more or less, comes down to the same, dreary "investment vs cuts" line that we've heard countless times before.  According to the Times, Brown is going to say that growth is the best way of tackling the deficit, rather than those nasty Tory cuts.  And, what's more, "he hopes investment from China will drive the recovery". Of course, growth will have a role to play in reducing the deficit.  A vibrant economy will have a better chance of tackling record deficits and debt levels than a sinking one.  But to indicate that extensive cuts will not be necessary is disingenuous in the extreme.

Ever the contrarian, Michael Portillo makes a case that you don't hear from many on the right in his interview with Andrew Neil on Straight Talk this weekend.  George Osborne has given "a fair amout of detail" about the Tories' debt-reduction plans, he says, but that could be the wrong approach: "I wouldn’t seek probably to give very much more detail ....  You know, I was with Margaret Thatcher when she came in to Government in 1979, we faced a big public spending problem.  It was terrible.  It was a hard slog but she didn’t cut public spending.  I was Chief Secretary between ’92 and ’94 – big public spending problem – I was trying to cut public spending; I did not succeed in cutting public spending.

I’d forgotten what it felt like to read positive news about the British economy. To be honest life is full of much more thrilling experiences, but my lack of enthusiasm is partially explained by the fact that a 6,000 employment rise is not proof of recovery. That half the population of Cranleigh have found employment over three months is seen as salvation puts Britain’s economic reality firmly into perspective. If you delve into the Labour Market Statistics the picture becomes clear. Unemployment was expected to rise and will continue doing so, but the employment figure is an anomaly. Britain is still visibly contracting, albeit at a decelerating rate. Vacancies fell by 1,000 and have never been at a lower level since records began in 2001.

It is another black day for Gordon Brown. The financial news from America, contrasted with continuing decline here, indicts Brown’s recession strategy. Playing the long game, Osborne is being vindicated, and Guido is correct that the ongoing UK recession negates Labour’s attack line on Osborne: the novice has trumped the alleged master. More damaging though is the resurfacing of Damian McBride and the ‘omerta’ of Brown’s inner circle, with its sordid and cynical connotations. The news that Nadine Dorries will receive £1,000 from McBride reflects poorly on the Prime Minister. Worse still, there is possibly more to come – Dorries has two suits outstanding, against Number 10 and Derek Draper respectively.

Most people expected this morning's official GDP statistics to show that the economy has come out of recession.  But they didn't.  In fact, they had the economy shrinking by 0.4 percent in the third quarter of this year.  So the downturn continues – and it's the longest on record. We've always maintained on Coffee House that coming out of recession won't do much good for Brown.  But, obviously, staying stuck in one has far more dangerous implications for him (not to mention the country).  Obviously, the government won't be able to deploy the green shoots strategy now.  But with other major economies already out of recession, they'll struggle to deploy it in future.  You imagine the Tories will have a field day with this.

In contrast to David Brooks’ optimism about Conservative economic policy, is Oliver Marc Harwich, former Chief Economist at Policy Exchange, who described George Osborne’s plans as “timid and unimaginative”. In a speech to the Centre for Independent studies, Dr Harwich remarked: “To be fair to the Tories, at their last party conference in Manchester George Osborne finally spelt out that a future Conservative government will be cutting public spending. But even the £23 billion over the next five years that Osborne announced amounts to little more than a rounding error in Britain’s public finances. Even in the face of the greatest economic crisis that Britain has experienced in decades, Tory policy remains timid and unimaginative.

What is the true price of Gordon Brown’s economic incompetence and inept bank regulation? The soaring national debt is one. And if you own a mortgage, you’ll find that you’re paying another. The gulf between the Bank of England base rate and the average mortgage rate is now at a huge high – as banks rip off their customers, trying to fill the hole in their balance sheets. This is an under-discussed topic. The “action we have taken” (a phrase Brown uses to try to lay claim to the Bank of England’s base rate reduction) would have a far greater effect on the economy if the UK banking system was not (still) so badly broken. The below graph, from Citi, shows spreads (ie, gap between base rate and retail rate) on key UK mortgages from 1995.