Fabian's Blog

Financial Turmoil

Tuesday 29th November 2011 2:21 PM

Worrying news seems to be coming thick and fast. Unemployment is rising. The economy is not growing. We risk being sucked in to the turmoil surrounding the financial profligacy of many Eurozone countries. Prices are rising: the Consumer Price Index (CPI) showed inflation at 5% last month. Thomas Cook, the travel company, has needed to refinance its operations with increased bank borrowing. The proportion of people unable to buy even the cheapest home for themselves is growing rapidly. Government borrowing is exceeding forecasts. Yet, while this is happening, tax avoidance by the rich and large companies proceeds on an alarming scale. Millions of people worry about being able to retire at some time in the future. But if ever there was a need for us to feel that our government was in control and could resolve some of these problems it is now. But what have we got? A Chancellor of the Exchequer who is a sorry spectacle, wringing his hands on the sidelines and having to consider some of the very measures that he was advised to do by Labour but so pompously rejected, claiming that the only strategy to be followed was one of slashing government expenditure to stem borrowing.

Guess what? Government strategy is not working - though it's certainly hurting. Already some Conservative MPs will be getting nervous about their prospects at next election so George Osborne is having to back away from his so-called principles and take some steps to spend money to sustain the economy and try and avoid a second recession. The Labour government used to get accused of spinning but just you wait and see what masters of the art the Tories can be as some of Osborne's supposed remedial measures get announced.

I don't want to trivialise the situation that the country faces today. Rescuing the banks, preventing dire recession, safeguarding the key structures of our country such as the NHS, and maintaining high employment meant that governments the world over needed to borrow and spend. So the money has to be paid back. It was always clear to me from the beginning that, silently behind closed doors, many true blue Tories would almost rejoice about this situation because, under cover of necessary austerity, it would allow 'their' government to do what it really believes in and that is to wind back the role, size and importance of the state. Just look at the reductions in the navy when we need more coastal and shipping protection. Staggering decisions on cutting swathes through police forces at a time when social problems are growing. Withdrawing almost completeley from a responsibility to support most students taking first degrees by effectively privatising our universities making undergraduates pay the full costs of their own education. Great headlines on axing the quangos but no considered reflection on the implications for the government work they were set up to undertake.

And the chickens are coming home to roost. Growth has been stalled for 9 months. Job cuts are being announced on a staggering scale - pity the workers at British Aerospace and Bombardier. At a personal level, people are seeking to conserve savings and entrepreneurs find there is no climate to take investment risks. The money is not moving round so quickly and it means less gets made, fewer people can work, tax revenues fall and the government finds itself in a worsening, not an improving situation.

I welcome some of the recent news like the announcement of the electrification of the railway line between Leeds and Manchester. Spending money on civil engineering projects injects activity into the economy at the base level generating jobs and much work before it vanishes out of the country in the purchase of imports. That said it will be all very well having a line to Manchester but what about the lines to Middlesborough, Hull and Scarborough which are the termini of the current Trans Pennine Trains? Will they get electrified? If not we will have a half-baked electrified network. And what about some new electric trains to run on the line? It is, I read, over 1000 days since the last large train order has been placed and our sole surviving manufacturer - Bombardier in Derby - is reeling through lack of orders. Will we end up with second hand stock like last time when the lines to Skipton and Ilkley were electrified?

I also applaud the plans to improve roads such as the M62 and M56 and the idea of encouraging pension schemes to invest directly in such projects but I wait to hear the detail as I just do not trust this government. I fear that in making some correct decisions they will blunder on elsewhere making more cuts especially in the support for the most vulnerable sections of our communities. I'll bet a pound to a penny nothing serious will be done about the many schemes that deprive the UK of billions in tax revenue. Wealthy individuals using companies to buy and sell expensive houses to avoid stamp duty or allowing UK companies to register their operations in tax havens to avoid paying higher levels of corporation tax.

What really appalled me was the positive spin George Osborne tried to put on the announcement about the sale of Northern Rock to Richard Branson's Virgin Money. Northern Rock was at the eye of the storm when the global financial crisis hit the UK. Having borrowed most of the money it was lending on the international market, it could not carry on trading when the supply dried up and so the Labour government had to step in and buy the company to protect investors' savings. Now the government will never get all this money back as the bank has been sold at a loss of between £400 Million and £650 Million. Osborne's spin overlooked the fact that the government is having to retain the bad debt part of Northern Rock's lending. This involves some £21 Billion that is owed by Northern Rock Asset Management much of which may never be repaid.

It is so frustrating to see what is happening and to be unable to do something about it. This is the sad lot of being in opposition. It is much worse of course for those who lose their jobs and businesses because we have a government drawn mostly from the monied classes who cannot comprehend what they are doing.