Pity Osborne isn’t this passionate when talking about growth

Allister Heath
WHAT a shame. Yesterday’s grilling of Bob Diamond, Barclays’ swashbuckling former boss, while not quite a damp squib, did not really clarify a great deal. There were some intriguing revelations – including that the relationship between the FSA and Barclays had been bad for months and that Diamond was worried that the government would nationalise Barclays in 2008 – but the clash was no game-changer. This is a great pity. A huge number of unanswered questions remain – not least, why did nobody in government, the regulators and the Bank of England do anything about Libor? They clearly knew that something was up. And why did Diamond really quit? Who told the board that he had to go? What exact powers did they use for that? As to Diamond, his performance was poor. There were inconsistencies in what he said and it is unclear why he didn’t know about the investigation in his own bank.

The government hasn’t done as badly as I feared it might on this. For once, it has generally resisted the temptation to engage in extreme populism. That is the right decision: punishing wrongdoing is very different to waging all out-war on the City and trying to smash a key sector. That was also Boris Johnson’s point yesterday. There should be an unprecedented crackdown on those who lie and cheat – but that should not mean demonising everybody in the City.

A judge-led inquiry would drag on for too long, cost a fortune and debilitate too many large institutions, rendering them incapable of functioning properly, hitting the supply of credit and other services and destroying jobs. There would be no guarantee that it would come up with the right answers, apart from on narrow specifics involving wrongdoing; when it comes to broader questions of economics or policy, judges are not the ones we should turn to for answers. The government is also right to point out that this crisis took place under Labour; it is extraordinary how Gordon Brown’s errors have been forgotten by so many.

But the government’s critique of Labour’s record is extremely incomplete: partly because Osborne is continuing exactly the same monetary policy, conducted by the same personnel, he never highlights the role of excessively low interest rates in fuelling the crisis or the Bank’s failure to fulfil its role as a lender of last resort when liquidity dried up. Another, increasingly baffling blunder, is that the government ought to be much more vocal in calling for alleged wrongdoers to be prosecuted and, if convicted, jailed. Traders who manipulated Libor for their own gain ought to fall into that category. The UK needs to be very tough on law-breakers – in every walk of life.

It is also extraordinary how much George Osborne appears to be enjoying himself taunting Labour and trying to work out how to catch out Ed Miliband. Osborne only cares about politics; for him, all of this is just a game. He wants to hit Ed Balls where it hurts, presumably to gain one or two points in the opinion polls; he doesn’t really seem to care how he does this, what he sacrifices or what the side-effects could be.

The reality is that the economy is doing increasingly badly. GDP probably shrank in the second quarter. At this rate, it could even shrink in the third quarter. This is a disastrous turn of events. Why isn’t Osborne as passionate about trying to tackle this as he is engaging in partisan politics? Perhaps somebody should call for a Leveson-style inquiry into why we are now in a recession. I’m being facetious, of course, but the chancellor now needs to get back to his day job.