Sunday, 23 May 2010

Has Vince Cable been sidelined? Will there be a double dip recession?

There is no doubt that Vince Cable has a very important job to do. He needs to propose how to split up the banks, make sure they are not too big to fail, that they are properly regulated and the retail and casino functions are split up. People's savings should not be put at risk by irresponsible banking behaviour of the kind we have seen recently. Ideally he should resist Tory urgings that the banks should be privatised straight away. Yes they should be privatised eventually when economic conditions are favourable, but not on the behest of his ideological counterparts in the Tory party. It is said that he is frustrated that he does not have the power to do what he wants and that George Osborne wields some power in all this. This is alarming if true. However even if it is true, Vince should fight his corner and go public if the Tories are being obstructive. He will surely have public opinion on his side. He may have more power than it appears on paper.
But why would the Tories do such a thing anyway? Well the Tories are the party of hedge fund managers and the money markets. Not only that, city institutions will lobby hard and they have the financial clout to do so. Making these changes will be very hard, and the Tories are not our natural allies in wanting to do this.
So there is a battle to be fought on the banking front, but we should not overlook the broader economic picture. This is a government that will make cuts right away. That in itself is a problem, as Vince Cable argued only a couple of weeks ago not to do this; "Slashing spending now could push the economy back into recession and inflict further structural damage on the UK that will make it harder to sustain our credit rating. He (George Osborne) ... fails to appreciate what the markets are looking for is a credible plan to reduce the deficit, not a willingness to slash regardless of economic conditions. In the current climate it is essential that decisions about the speed and timing of tackling the deficit are based on the state of the economy, not political dogma". See Vince Cable will be busy with his own priorities and will not get much of say in all this now.
I have asked about this on-line and got various responses. Some Lib Dems never believed what Vince Cable said at the time and thought he was just playing politics. These are often the same people who thought a the same a couple of years ago when Vince Cable was criticising the government over the high levels of debt. Look how wrong there were!
Others argue that £6billion is not very much, although I doubt it will seem that way once implemented. Some have pointed out that it depends on where the cuts are being made, and this is a more important point. Clearly cutting on national Id cards will not result in big job losses (albeit no comfort for those who do lose their jobs). Maybe it is possible to make cuts without detracting from the economic stimulus? Up to a point this is true, but can we cover all £6billion this way? Probably not. The official party response is that somewhat miraculously we do now have the growth we need to make this cuts less painful. If true this is an astonishing turn of events, coinciding very conveniently with the date of the general election. The latest growth figures do look better, but surely it is too early to say now that the time is now right? particularly given the prospects of contagion from the parlous state of the Greek economy?
The problem once again is Tory ideology. They will advocate we should cut regardless of economic conditions, as Vince Cable warned. Dangerous times.

1 comment:

John said...

No - Will Hutton said there won't be