Tuesday 20 April 2010

From a kingdom of gold to one of rust and iron

It's a sense of déjà-vu listening to the Government nowadays; things may be bad they tell us, but they'd be a lot worse had we been under a Conservative government. This argument is of course bollocks for the simple reason that there wasn't a Conservative government. We might as well argue that the economy would be in a lot better state had the banks decided not to play Russian roulette with our money - but they did and now we don't have any. It's a line advanced every time a ruinous regime feels power slipping away. The Conservatives under John Major tried invoking memories of the 1970's; they failed partly I suspect because people couldn't remember just how bad the 1970's were – and they were awful – but mostly because it was irrelevant.

Ten years ago Gordon Brown ignored repeated warnings over selling a large part of Britain's gold reserves; this resulted in a loss to the tax payer conservatively estimated at £5 billion. We cannot know what the opposition might have done; we only know what the then Chancellor, now Prime Minister, did do.

The basic equation amounts to a Labour government that wrecked the British economy versus a Conservative opposition who had they been in power may have made the same mistakes. This in turn means they may have done things differently. They may have decided not to appoint the then head of HBOS, James Crosby, to the Financial Services Authority - the organization supposedly responsible for the regulation of the financial services industry. James Crosby, lest we forget, is the man who sacked his head of Group Regulatory Risk for doing his job - pointing out that the company was taking too many risks. Four years later HBOS collapsed, was bought out by Lloyds and found responsible for annual losses of £10 billion.

It will likely prove the biggest boom and bust in most people's memories with cuts tougher than those implemented in the 1980's. Not long after the general election public services will be cut and over the course of the next parliament tens of thousands, if not hundreds of thousands of jobs in the public sector will be lost. Some might argue, and with some justification, that this readjustment is long overdue. In the fourth quarter of 2009 for example, despite being in the middle of our worst economic crisis for decades, employment in the public sector [pdf] increased by 7,000 to 6 million; compare this to employment in the private sector which decreased by 61,000 in the same period. When Tony Blair became Prime Minister he tripled the number of people working at Number 10 Downing Street so these figures shouldn't really come as a surprise - but they still shock me. We live in a country where more than one in four of the workforce is employed in the public sector and where public spending now accounts for more than 50% of our gross earnings .

Let's say that no one could have prevented the recession; the question is could the country have been better prepared? Could the Labour government have avoided selling assets at such a loss? Could it have ensured proper governance of the financial sector? Could it have avoided indulging in clearly unsustainable levels of public spending? The answer to all of these questions is obvious. To suggest that the opposition would have done the same or hark back to a long ago past is irrelevant and tired. 'We failed but they would have been worse' is a defence as bankrupt as their legacy and on May the 6th we should make them pay.


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