Sep 17 2007
To understand the credit crisis you first have to bury Labour’s soundbites
Labour has consistently said two things about the economy since taking office: "No more boom and bust" and "We made the Bank of England independent which created economic stability". Both of these statements are misleading.
"No more boom and bust" conceals the recessionary periods which manufacturing has experienced, the boom and sharp slowdown in public sector spending, the contrast between booming financial and business services around London and the poorer performance of other parts of the economy.
The comment that the government made the Bank of England independent is absurd.
What Gordon Brown did in 1997 was to:
1 Remove banking regulation from the Bank of England and give it to the FSA
2. Remove public sector debt management from the Bank and give it to the Debt Management Office under the Treasury.
He went on to intervene in the Bank’s management of the foreign exchange reserves, leading to the sale of gold to buy Euros at a low price for gold.
His "strengthening " of the Bank’s role in interest rate decisions was the only move of power in the opposite direction. He showed he could limit Bank power this by changing the inflation target. He also kept the power to appoint members of the Monetary Policy Committee. The government has declined to explain why some members are renewed and others are not.
The truth is more mundane than Labour’s soundbites. The government has not abolished sharp fluctuations in activity and in the prices of some assets. It has continued to hold substantial influence over inflation, interest rates and the other main economic levers. It has built up a lot of extra public sector debt. What is happening now owes a lot to the actions, inactions, and statements of the government.
John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College...
