Pre-Budget Report

I recognise the difficult balancing act the Chancellor faced in compiling the pre-Budget report in the most difficult economic and financial circumstances that we have faced in many years, as he will with the Budget proper. However, on fairness and taxation, I and many others believe that he has not quite got the balance right. Every economy will have its peaks and troughs. No Government are potent enough to abolish the economic cycle, and no Government in the free world can dictate human nature, with its swings of optimism and pessimism, and the credit cycle, which results from the expansion of banking and credit over the centuries. However, it is important that the Government recognise the dangers and weaknesses within the modern free market and act accordingly, through fiscal and monetary policy in wider economic management, and through a robust framework of regulation, and the willingness to act promptly when the public interest demands it, in the financial markets. Before becoming an MP, my career was in banking and then in financial journalism. Latterly, I was the City editor of a national newspaper. From the early 1980s, I either witnessed close-up or reported in detail on each major financial and economic crisis as it unfolded, including the 1987 stock market crash, the 1990s recession, sterling's ignominious exit from the European exchange rate mechanism, the problems that engulfed the Lloyd's insurance market—the so-called LMX spiral—when nobody knew where the risks really lay, and the bail-out in the late 1990s of the massive US hedge fund Long-Term Capital Management, which happened because the Clinton Administration and, importantly, Wall Street, did not know where the liability merry-go-round would stop and how much damage could be done to the global financial system. The unique problem in my working life—it forms the context of this PBR—is the current credit crunch and global recession. In this crisis, the aspects of those other crises, save for the problem of maintaining a fixed exchange rate, have descended us at the same time. History will tell, but arguably the key individual action that crystallised the credit crunch, ignoring previous lessons from the 1990s, was the Bush Administration's decision to let Lehman Brothers go to the wall. Equally arguably, the single most important policy action to contain the damage was taken first not in the United States but here in the UK—prompt and decisive action to rescue the banking system by the Chancellor and the Government. That happened not in the bankers' interests, but in the public interest. Also in the public interest, the Government responded to stimulate demand and to contain a more damaging downward economic spiral, as any intelligent reader of history would have done. That is the background against which the Chancellor delivered the PBR before Christmas. The key difference between this recession and the one in the 1990s is that in this one, the Government have taken positive action to ameliorate its effects—they have not simply let events take their toll on industry and ordinary families. The key difference with the 1980s is that this recession was precipitated by a massive shock to the financial system. True, it was not helped by over-lax financial regulation, with the Government, in good economic times, continuing the previous Conservative approach. But unlike the 1980s' recessions, it was not brought on by the Government themselves through ideological experiments in monetary policy as a dose of harsh medicine, a self-inflicted pain that harmed much of our manufacturing industry, especially in areas such as mine in north Staffordshire, and permanently blighted much of our economy and many of our local economies. Any reasonable person should welcome the individual measures in the PBR to help industry and businesses, as well as the determination not to jeopardise recovery by cutting Government spending too far or too fast. However, I would have liked the Government to go further on manufacturing. The financial crisis has delivered the sharpest lessons on the dangers of over-reliance on the financial sector and the City of London with all its short-termism. It is vital that we have a whole new emphasis on and encouragement for manufacturing. Our major competitors—Germany, France and Japan—do this. There, it would be inconceivable that only a fraction of the machinery for one of the UK's biggest renewable energy projects—the London array—would be supplied by domestic companies. We have simply not taken enough advantage of new or existing industries. Anyone who had cause to go to the old Department of Trade and Industry to seek help for industry would have been dismayed by the "hands off, can't do and won't help" mentality of officialdom. That was another painful hangover, like the so-called light-touch regulation of the City, from the Thatcherite days. A whole new attitude and approach is needed. I encourage the Chancellor to take up that theme strongly when he presents the Budget proper. The Chair of the Select Committee has already addressed at length the City and financial regulation, including in particular the importance of getting performance incentives right—