Frank Field MP
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Saving ourselves . . .

Last week’s National Institute of Economic and Social Research finding makes grim reading. For the last quarter the economy declined by 1.5%. Should this rate continue for a whole year (nevermind escalating) the fall in national income in this recession will be greater than in 1931 which is now regarded as a depression or slump.

What Governments can do in the face of such a large economic decline is limited. The one thing they can do is to try and manage expectations so that a recession does not become a slump. To do this the Government has to act quickly, for any intervention to be large enough, and for it to be well targeted. There has to be big question marks over the Government’s strategy so far.

What can make the depression worse is to take the wrong measures. The general hue and cry is that interest rates should be cut further. I do not believe that last week’s bank rate cut will make any difference at all in the one key area where there should be most concern. This is getting credit from banks to businesses that need working capital to survive. Cuts in bank rate will not achieve this goal. New measures by the Government are urgent.

What is worrying about bank rate cuts is that officialdom does not see raising the savings ratio as part of our longer term recovery.

Government, firms and individuals have been spending too much on tick. Instead of discouraging savers by cutting rates the Government should be encouraging them so that banks have greater rather than smaller deposits. This then helps us solve the bank liquidity problem. We also need longer term as a nation to save more.

Two other measures which would help would be to insist the banks declare their toxic assets. Maybe the Government ought temporarily to suspend the banks’ capital adequacy rules which the FSA just recently tightened now the horse has bolted.

Increasing savings coming into banks, making them declare the size of their toxic debt and allow them to extend credit beyond the FSA moves would do more than any other set of proposals to lessen the severity of the economic downturn.

The media has reported Alan Milburn’s task as increasing mobility of young people from working class backgrounds into the professions. I hope Alan is taking no such limited view of his role. Most working class parents in my constituency do not see their sons and daughters becoming doctors or architects or the like. What most of them are anxious about is for their sons and daughters to gain skills to keep their children employable throughout their working lives. The biggest failure of the 1944 Act was not to implement the proposals for technical schools. The new academy programme in Birkenhead and elsewhere offers the chance to rectify this sixty-year failing. But the outlook isn’t good. Only 1400 pupils began the government’s new diploma scheme this year. Getting effective technical education into schools through the diploma scheme would do more to advance social mobility than any other move the Government could think up in a month of Sundays.
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