Picture: John Redwood MP, Iain Martin, Jill Kirby, Michael Fallon MP and Fraser Nelson at a Centre for Policy Studies seminar on the economy.
The Bank of England is likely to cut interest rates again today – probably by 0.5% – but John Redwood believes that rate cuts have already gone too far.
Speaking at a seminar on the economic crisis yesterday evening – hosted by the Centre for Policy Studies and The Daily Telegraph – Mr Redwood said that the historically low levels of interest rates endangered the deposit base of banks. He said that there were now serious questions of social justice flowing from the ways in which prudent savers were being punished and imprudent borrowers rescued.
Saving was a key theme of Iain Martin’s contribution to the CPS
meeting. "Saving," said The Telegraph’s Editor of Comment, "is
responsible capitalism in action. A new generation must learn that
savings provide insulation against tough times, security for their
families and capital for banks to lend on, sensibly, to those who will
create a return and personal and national wealth. This is the virtuous
circle of capitalism, and it is the starting point for sustained
Earlier in the evening Mr Redwood launched a strong attack on the Bank of England. Blaming Gordon Brown’s tripartite regulatory reforms he said that the Bank had never got a grip on the banking crisis because it is no longer involved in the monetary markets in the ways that it once was and had lost the intelligence it received through its former banking supervisory roles. Under Gordon Brown the Bank had come to resemble a monthly tea party for monetary economists.
Michael Fallon MP also said that it was vital that the Bank was returned to its former lead status. He recounted his ‘who was in charge?" question to Bank Governor Mervyn King when he and other members of the Treasury Select Committee were reviewing the bank crisis. Mr King had replied: "What do you mean by ‘in charge’?" That’s how crises become badly managed.
Other highlights from the seminar:
- Michael Fallon began his remarks by insisting that blame must be pinned on Gordon Brown for Britain’s crisis. This was not a crisis from "the shores of Lake Michigan" but was home grown. Britain had failed to regulate credit and capital. Britain had failed to target house price inflation. Britain had lost control of its public deficit. Britain had been slow to respond to the crisis when the warning signs were there. He said there should be no more money for bank bailouts and no more fiscal stimuli.
- Iain Martin described the current Tory plan to slow the growth of public spending as "chicken feed". His remarks were echoed by Fraser Nelson. The Spectator’s Political Editor called for the Tories to add a four letter word beginning with ‘C’ to their vocabulary: CUTS. Many Tory radicals had feared that David Cameron would be too cautious in government but that is no longer an option, he said. Unless Mr Cameron was radical in his approach to rethinking the scope of the state he would fail as Prime Minister. Michael Fallon called for more honesty on the public finances. He joked that George Osborne’s Office of Budgetary Responsibility was once called The Treasury. More important than lecturing the banks on responsibility, he said, was for politicians to restore order to the public finances. Iain Martin welcomed the possibilities of the Tories’ Domesday Book idea as a way of educating the public about the extent of the public sector funding crisis. Fraser Nelson said Tory politicians were six to nine months behind the public mood on public spending and waste if his mail bag was representative. News of the World readers who were writing to him were already fully aware of the scale of the public sector crisis. They were waiting for a politician to tell them the truth.
- Fraser Nelson saw an opportunity for London’s financial sector if the American authorities over-regulated their banks. Britain’s regulators had shown a "wrong touch" rather than a "light touch", he said.
- Responding to a question from Andrew Lilico on the bank bailout Mr Redwood said that the falling share prices were the wrong reason to have bailed the banks out. Banks could trade with a share price of a penny as long as depositors were not panicked. There was no run on banks that required a bailout. He would have preferred the Bank of England to step in to guarantee deposits and act as an "intelligent bank manager", requiring changes of corporate behaviour.