David Cameron has set out the Conservative approach to dealing with the recession in a speech to this morning’s CBI conference.
He was especially forthright in laying the blame with the Government for the fact that Britain is facing a deeper and longer downturn than any other industrialised nation.
"To argue – as some do – that this all comes from America is nonsense. Britain enters this recession with the largest budget deficit in the developed world. This is not America’s fault – it’s because no money was ever put aside for a rainy day. Britain enters the downturn with the highest level of personal debt in the world. This is not America’s fault – it’s because the Bank of England had its historic ability to call time on the levels of debt in the economy removed. And Britain enters the downturn with one of the most unbalanced economies in the world, far too dependent on housing, now in decline, finance, now in crisis, and government spending, now at its limit. That’s not America’s fault – it is the consequence of domestic policy failures."
He described his top priority now as "monetary activism":
“What does monetary activism really mean? First it means lower interest rates. This week the Bank of England themselves said that they had considered cutting interest rates by more but – in anticipation of a fiscal stimulus in the Pre Budget Report – had decided not to. We have consistently argued that government must not do anything to make further interest rate cuts less likely.
“But simply cutting interest rates and appealing to banks to pass on the cuts is not enough… So as well as lowering interest rates, monetary action must mean radical new measures to actually get credit flowing through to businesses, measures that recognise how existing banks are still suffering from the trauma of toxic assets and massive over lending, like a new institution to issue government guarantees for new lending, with a fee to cover the risk to taxpayers. The banks would still make the loans and still carry some of the risk, but a government guarantee would allow the banks to expand their lending.
He also re-iterated the measures he would implement to help businesses through the downturn:
would allow small businesses to delay their VAT payments by six months.
That’s a £10bn boost to help small firms with cashflow problems. We
will cut the small companies tax rate to twenty pence. We would cut
employers’ national insurance by one percent for the smallest firms.
And we would introduce a £3 billion tax breaks for jobs scheme to
reward companies who take on new staff."
He had the following to say in advance of this afternoon’s Pre Budget Report:
real story of this PBR will be our enormous deficit and out-of-control
public finances and that’s where we need to learn the long-term
lessons. The gap between the tax that comes in and the spending that
goes out is likely to be almost £80 billion this year. That’s a mind
boggling figure – bigger than what we borrowed in the depths of the
last recession and this one hasn’t even properly started yet. This will
only get worse. Next year, it could be over £100 billion. That would be
another £4,000 for every family in Britain.
put these figures into some perspective. We’re already paying more on
debt interest than we do on schools and transport budgets and after
this PBR, Gordon Brown will have borrowed more than all previous
governments – combined. Let’s be clear about what this really means for
us. They might be talking about tax giveaways but everyone knows that
they’re throwing money at us now to take it away at a later date.
That’s the thing about debt – you’ve got to pay it back sooner or
later. And to pay back all this money would mean an eight per cent rise
in income tax, or a six per cent rise in VAT, or a corporation tax rate
of seventy-one percent.
And he summarised the three long-term lessons to be learned as:
- Never, ever again enter a downturn with such a massive budget deficit.
- Never again allow personal and public debt to spiral out of
- Never again let our economy become so dependent on such a small number of industries and markets like finance and housing.