Tuesday, 20 October 2009

Britain plays catch up with Vince

Last weekend Lib Dem shadow chancellor Vince Cable was up in the North East. Twice I listened to a call from him to separate banking into safe retail banking guaranteed by the UK government but closely regulated and Investment banks, free to pay large bonuses and take risks but not be bailed out by the government. He has been calling for this since well before I first heard this call at the Lib Dems spring conference and the launch of his acclaimed analysis of the financial crisis, The Storm.

Like his call for nationalisation of Northern Rock, it's been derided as impossible. Now Mervyn King has called for the functions of banks to be split. Apparently the Tories are now saying that it's an idea they are interested in. The government says its impossible. It does annoy me to see billions being poured into a dysfunctional banking system when reforms outlined by Vince almost a year ago would help minimise the chances of it happening again. Vince has been proved right time and time again. I wonder how long it will take the government to change their mind.

1 comment:

  1. Just thought this exchange between Vince and Gordon Brown in Parliament from 2003 might be of interest, although I'm not sure Gordon would like to be reminded of it:

    13 Nov 2003 : Column 398

    Dr. Vincent Cable (Twickenham): On the housing market, is not the brutal truth that with investment, exports and manufacturing output stagnating or falling, the growth of the British economy is sustained by consumer spending pinned against record levels of personal debt, which is secured, if at all, against house prices that the Bank of England describes as well above equilibrium level? If the Bank of England is correct in its expectations of a market correction and rising interest rates, what action will the Chancellor take on the problem of consumer debt, which is rapidly rising, with 8 million annual visits from the bailiff?

    Mr. Brown: The hon. Gentleman has been writing articles in the newspapers, as reflected in his contribution, that spread alarm, without substance, about the state of the British economy. As the Bank of England said yesterday, consumer spending is returning to trend. The Governor said:
    "there is no indication that the scale of debt problems have . . . risen markedly in the last five years."
    He also said that the fraction of household income used up in debt service is lower than it was then.

    I suggest that the hon. Gentleman look at the overall picture of the British economy. Yes, during the period of world downturn, when the rest of the European economy was not growing at all, it was necessary for both consumer spending and public investment to contribute to the growth that we have achieved in Britain; but he can see that business investment and manufacturing output are starting to return and that the export position will improve over the next period. What the Bank of England said yesterday about the prospects for growth, compared with what people said when we gave our Budget forecast in April, suggests that we have been right about the prospects for growth in the British economy, and the hon. Gentleman has been wrong.