Rage and a regulation debate are the first reactions, as politicians and the media struggle to rise to the level of events. Simon Jenkins in the Sunday Times: The casual ease with which ministers moved against share-shorting on Thursday too late to save HBOS must leave the nation gasping at why this was not done earlier. And when will they decide after all that they should have regulated the bonus culture? Predictably, the Economist warns already against over-regulation. Next up, fear of tax hikes accompanying a massive £100 million of increased borrowing. No reassurance from a more confident looking Gordon Brown on that front this morning as he dismisses the question as a matter for budgets. To the charge that his old New Labour mantra no more boom and bust” has turned to ashes Brown replies: the idea that we are going to rewrite the past ten years is completely wrong. The huge new level of public borrowing will be repaid by the banks over a new cycle. And he pledges: We have made the decision that we will not cut the public finances. This should receive a cautious welcome in Northern Ireland, so dependent on the public finances. The thrust of his lengthy BBC interview was that the financial crash does not amount to a full-blown economic crisis. Few comparisons are available yet but heres one from Larry Elliot of the Guardian. Yes spot the date September 2, well before the real crisis peaked – if it has yet. Fings aint wot they used tbe are they? Quotes from Larry Elliot The Guardian 2 September
The first post war recession in Britain did not arrive for almost 30 years, but the country then suffered two calendar years of falling output 1974 and 1975 coupled with a surge in inflation to almost 27%. The following year, there was such a serious run on the pound that the IMF forced the Labour government to swallow cuts in public spending in return for help.
A cheaper pound and the arrival of North Sea oil from the mid-70s onwards gave the economy a brief respite, but the breakdown of Jim Callaghans incomes policy in late 1978 marked the start of a three-year economic crisis that included a wave of strikes, a fresh surge in inflation to 20% and the deepest slump of the entire postwar period.
Activity in the economy fell for five successive quarters from the end of 1979 to the start of 1981, leaving gross domestic product almost 5% lower than it had been before the recession set in, and claimant-count unemployment on its way to a peak of more than 3 million. Similarly, there were five successive quarters of negative growth in 1990 and 1991, resulting in unemployment peaking at just short of 3 million.
The Economist says:
Unless policymakers blunder unforgivablyby letting systemic institutions fail or by keeping monetary policy too tightthere is no need for todays misery to turn into a new Depression. A longer-term worry is the inevitable urge to regulate modern finance into submission.
Those of us who have supported financial capitalism are open to the charge that the system we championed has merely enabled a few spivs to get rich. But it helped produce healthy economic growth and low inflation for a generation. It would take a very big recession indeed to wipe out those gains. Do not forget that in the debate ahead.
Back to today, for the Government, poll results ranging from disastrous to mildly encouraging are an improvement from disastrous full stop, the Observers massive poll of 35,00 people in over 200 marginals for PoliticsHome predicting mass wipe out while the Com Res poll for the Independent, showing the Conservative lead almost halved may nevertheless be no more than dead cats bounce. Cabinet chatter persists. An admission that Brown lacks emotional intelligence is squeezed out of the tiresomely perky (I tell it as it is ) Hazel Blears. Alan Johnson’s twosome with David Miliband looks like a challenge in waiting. while Jack Straw (62) is choosing this moment to tell us he goes to the gym fit for the treadmill, fit for power!
Finally Charles Clarke ex- Home Secretary and Brown’s arch-critic, warns this is not the time to be willing to wound but afraid to strike.
Former BBC journalist and manager in Belfast, Manchester and London, Editor Spolight; Political Editor BBC NI; Current Affairs Commissioning editor BBC Radio 4; Editor Political and Parliamentary Programmes, BBC Westminster; former London Editor Belfast Telegraph. Hon Senior Research Fellow, The Constitution Unit, Univ Coll. London