A Clear, and Convincing, Strategy is Required - Gordon

Saving the Banks

The Brown government took decisive (if belated) action when banks reached the point of collapse last October. Hundreds of £ Billions was provided, mainly as loans to be repaid over years. It is important to emphasise that this is not expenditure – in the longer term, there could even be a profit for the taxpayer.

The banks have been ‘saved’ but they have not kept their part of the bargain - to increase lending to the level the economy, and individuals, need. The reasons for this must be addressed urgently. Steps are likely to include extending the period for repayment to the government, and perhaps a lower interest rate on the loans.

If the privately-owned banks do not co-operate to the full, they must be nationalised. In any case, the banks already controlled by the government – Northern Rock, Bradford and Bingley, Royal Bank of Scotland (and the Post Office) - should be developed as a People’s Banking System.

Make Do and Mend No Good

The banks have been supported with hundreds of £ Billions. In comparison, the rest of us have received very little. Alister Darling’s £ 20 Billion package was woefully inadequate; as are the small ‘make do and mend’ measures to help the unemployed.

The government gives the impression that it believes the financial markets will recover in their own time, and that we shall eventually be back to where we were in 2007. This seems most unlikely and, in any case, this is not where we want to be.

The state, albeit reluctantly, is heavily involved in the financial markets. It must stay there and take the steps necessary to create a much fairer and more equal society. The challenge is not to mend a broken system, which has undermined the economy and caused large-scale unemployment, but to create a new system.

The new system must function in the interests of the whole nation, not just a few speculators.

2009 Priorities and Cost

‘Make do and mend’ will not do. Because there is no convincing strategy, the government is boxed in. It recognises that borrowing is necessary but is afraid to borrow on the scale required because it refuses to make the policy changes required for repayment.

The priorities are to:

(i) keep the elderly alive, by ensuring that they are warm and properly fed;

(ii) keep families in their homes;

(iii) ensure that children have proper care;

(iv) prevent unemployment and to create new jobs.

This requires £200 Billion, rather than the £ 20 Billion of the Autumn Package This obviously requires government borrowing but there must be a clear and convincing strategy for repayment.

Strategy for Repayment

Repayment is a major problem only if it is believed that restoring the old, free market, system is the solution. Even if restored, it would be a pale shadow of its former self – and, even more important, the old inequalities would continue.

Gordon Brown and Alister Darling are nervous about the necessary expenditure because they do not have a convincing strategy for repayment. Without it, they are open to the charge of ‘irresponsible borrowing’.

To repay the £ 200 Billion, the first step is to stop spending on what we do not need and cannot afford. The obvious example is Trident and armed services geared to intervention in the affairs of other countries (e g Iraq and Afghanistan).

The second step is to crack down on tax avoidance (companies and individuals) and to impose a windfall tax on companies which make excessive profits.

The third step is progressively higher rates of tax on incomes over £80,000 a year.

Over a 5 year period, starting 2010, these steps would more than repay the 200-300 £ Billion of borrowing to see the country through the recession. They would also result in a fairer, and more equal, society.

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