WHAT a shambles. The police and fire services are shutting petrol stations to prevent riots in parts of the country; Stansted’s baggage controllers are striking over Easter; Britain’s nuclear energy programme is in chaos after E.ON and Npower ditched plans to build new reactors, fuelling fears the lights could go out in a decade’s time; and to add to the gloom, the OECD is warning – rightly or wrongly – that the UK is back in a technical recession. The government is in the midst of its very own Spring of Discontent, much of it self-inflicted.
It has failed to show the unions that it is in charge; its weakness is now being repaid. It has failed to properly prepare for the fuel strike: as Boris Johnson’s letter to the government (revealed on page 1) rightly points out, for all the bluster about jerry cans, the authorities are still not treating this as a proper emergency. The real scandal is how ministers fuelled the panic to try and divert attention from its hike in Vat on pies and other blunders. Its response to the planned fuel strike is reminiscent of its disastrous early response to London’s shameful riots last year – but back then, at least David Cameron eventually regained control, albeit belatedly. But where is the leadership today?
The nuclear fiasco was wholly predictable: the Lib Dem part of the coalition hates nuclear energy. But taken so soon after the coalition’s planning “shake-up” turned out to be a useless damp squib, it is clear the supply-side agenda which George Osborne promised would kick-start the economy will never materialise. The growth agenda is not dead – the cuts to corporation tax and, eventually, to the top rate of tax will help – but it is all a case of too little, too late. The messages also remain confused.
Psychologically and politically, a technical double-dip would be a disaster for Osborne (even though the difference between growth of 0.1 or -0.1 per cent is well within the margin of error, especially in the UK, where statisticians inevitably push through massive rewrites to economic history for many years after the original estimates are released). Osborne will be blamed for the wrong reasons: in reality, the only thing he is doing right is reducing the deficit and cutting some marginal tax rates. He has increased other tax rates, failed to deregulate and messed up on monetary and financial policy. Inflation has been too high – and the supposed positive effects of ultra-loose monetary policy are being cancelled out by a tightening caused by new bank regulations.
Standard variable rates on mortgages have shot up, as banks must now borrow longer-term (and thus at higher rates) from depositors and as a result of higher capital requirements. Interest rates on bank loans of less than £1m to non-financial companies rose to 3.92 per cent in February, according to Citigroup’s analysis. This is 3.42 per cent above the Bank Rate, the highest spread since data began in 2004, having averaged 1.67 per cent in 2004-07. Some of this can be explained by a more rational approach to risk, but the majority is due to the regulatory changes signed off by this government. Banks have to hold much more capital against loans made to small businesses, which the regulators (and credit rating agencies) deem riskier. Credit easing will – absurdly – serve as a government scheme to partly undo another government scheme but it will merely cut borrowing costs a little.
Wherever one looks, it is all a giant mess. Ministers and advisers lack managerial ability and in some cases basic competence. David Cameron urgently needs to reshuffle his government and bring in some fresh blood before it is too late.
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