By Matthew Barrett
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Following George Osborne's Mansion House speech, and announcement of new bank lending programmes, several think-tanks and campaign groups have reacted to the news.
The Institute of Economic Affairs' Editorial Director, Prof Philip Booth said:
"The government has got itself into a terrible muddle over this crucial policy area. On the one hand, it is imposing huge liquidity and capital requirements on banks to reduce the potential cost to the taxpayer of bank failure. The FSA is also increasingly regulating financial product markets to reduce the flow of funds to borrowers. On the other hand, the government is bringing in a series of schemes to subsidise and guarantee lending through the same commercial banks whose lending is being restricted. Emergency measures to deal with liquidity crises are one thing. However, with regard to the fundamental policy issue, the left hand of the Treasury does not seem to know what the right hand is doing."
Graeme Leach, Chief Economist at the Institute of Directors, said:
"Facing a bombardment from the euro zone the Chancellor and Governor are calling up the reserves. Defensive measures need to be put in place and they’re making sure everyone knows they’ve done it. The extended liquidity and funding for lending schemes are welcome, but limited. The liquidity scheme will need to be massively expanded if break-up and contagion spread across the euro zone. The funding for lending scheme helps the supply of money and the demand for it, by lowering the cost of borrowing. But the core problem remains. Companies alarmed by the euro crisis will not be eager to borrow regardless of the cost."
A report from the Centre for Economics and Business Research estimates that "a low tax, low spending government" would produce "economic growth running about 0.3% per annum faster" than an alternative higher tax, higher spending government. The report concludes: "By 2020 GDP is about £20 billion higher under the low tax scenario associated with a Tory victory."
More here. Graph below.