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Liberal Viewpoint The Wrong Solution!
The Government acted quickly in response to the crisis. It produced a package of measures including unprecedented input of Government money into several banks and £1 billion of guarantees for small businesses. In the pre-Budget Statement the Chancellor also introduced the temporary 2.5% cut in VAT - the first in British history, and one which he could not have made if we had adopted the Euro. The Government has subsequently put pressure on banks to cut lending rates, despite the fact that these cuts would hurt investors, such as senior citizens who supplement their pensions from investment interest. This package, involving massive Government borrowing was, I think, the wrong solution and a missed opportunity. Measures such as interest rate and VAT cuts are like offering an alcoholic drink to someone with a hangover. The Government’s policy seems to be based on a misplaced belief that we can and should return to the patterns of behaviour pre-credit crunch, the very behaviours which led us into this mess! House prices, for example, are still too high in proportion to hosuehold incomes. The real and devastating pain of substantial falls in house prices and consumer spending is unfortunately a necessary corrective to the recklessness of the last few years. Unless such falls are borne now, worse will follow later. So should Government borrow to intervene, stimulating recovery? Yes! But such borrowing to invest should only be for productive capital investment. Government spending should concentrate on infrastructure which will enable a recovering economy to grow efficiently - investment in renewable energy provision on a massive scale to reduce our dependence on imported gas and oil, in new sustainable transport systems to move goods, investment in energy efficient works on public buildings and investment in social hosuing, especially for key low paid workers in the economy. These measures would create jobs and therefore new tax revenues and consumer spending. The activity of Government should be to enable people to work in productive jobs, and to enable manufacturing, retail, distribution, energy supply and other industries to recover. Government‘s task is not to stimulate consumer spending but to enable producers of goods to compete in a modernised, fuel efficient, sustainable economy, thereby creating new jobs and restoring confidence. For Liberals, Government’s intervention should be in an enabling role - providing infrastructure in which the private and mutual sectors can do what they do best. Andrew Montgomerie is a member of the Liberal Party’s National Executive Committee This article is written in a personal capacity and is not an official statement of Liberal Party policy.
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Britain is now entering the worst recession since the 1930s. A bubble of unsustainable debt has burst, with consequences which will be felt painfully for some years. Although the economic tsunami began with sub-prime mortgages in the United States, it met with no sea-defences when it hit us because we ourselves have been borrowing excessively to fund escalating property values and increasing consumption. As spending on consumer goods collapses, manufacturers and retailers face potential ruin. Household names such as Woolworths begin to disappear. The consequences for employment in the coming year are grim and recent estimates of the numbers of unemployed are sadly likely to be to optimistic, as so much recent economic forecasting has been.