After the bail out plan for the banks, it strikes me that there has been little in the way of real action from the Government in helping individuals and business. Every time I read a report of Alistair Darling or Gordon Brown, they seem to be urging and discussing action but doing very little.
They are urging the energy companies to reduce petrol prices, the banks to maintain lending levels to each other and to small businesses, mortgage-lenders not to repossess homes so quickly, local government to advance capital spending programmes. But urging is simply just not enough.
The Government is in a state of disarray now (and this is why David Cameron and the Tories should be patient and not panic about being crowded out of the news right now). Any action they are looking to take, as in today's announcement of loans form the European Investment Bank, seems to be at the supra-national level. There is no admission that the Government finances are in no position to do much at the national level. It is now stymied by Government expenditure over the last 10 years to maintain false employment levels through vastly increasing public sector jobs and by it's expenditure and commitment to the two wars in Iraq and Afghanistan. It makes announcements only to reel back on them when placed under scrutiny (such as the capital spending proposal which they were later forced to admit they were only suggesting bringing planned expenditure forward - quite how capital processes planned for future years can be advanced they haven't yet managed to explain).
But culpability on the lack of action lays not solely with the Government. In a week where the Federal Reserve in the US have again reduced interest rates, where is the action by the Bank of England? I have long stated that the 'independence' of the Bank of England is a myth - it is not independent if it's economic aims and targets are set by the Government. Interest Rates should be a lot lower than they are now - the greatest danger to the economy for the last 6 months has been the threat of bank collapses and recession, not inflation. But significant action on interest rates as not been taken.
The MPC can not wait month to month to decide whether any action over interest rates should be taken. It has to be seen to be pro-active not reactionary in doing something with respect to interest rates. The crisis is so dynamic, monthly changes in interest rates are not good enough.
What is needed is proper action that the general public can understand. We need honesty about plans and abut expenditure. We need admissions of where mistakes have been made. We need clear statements of where the Government can have a proper impact and where it can not.
But right now I would suggest the following immediate action:
1) Reduce interest rates by 1 percentage point
2) Enforce interbank lending between British Banks as a price for the guarantees and funding in place
3) Legislate for a moratorium on house repossessions for a year
4) 1% cut in small business corporation tax
5) 6 month employers NIC contributions holiday for small businesses
6) Announce the abandonment of ID cards and the related planned expenditure
I am not too concerned with a short term increase in expenditure (or reduction on tax revenue) as this can be paid for in a few years time by the sale of the stakes the Government has taken in RBS and Lloyds/HBOS.
The important thing is that we need action not words now...
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