Conservatives make their ELEVENTH call on Labour to enact a guarantee for bank lending

Speaking at Policy Exchange this morning George Osborne renewed his call for Gordon Brown to enact a guarantee for bank lending - first proposed by the Conservatives on 10th November.  The Tories' guarantee scheme is backed by the FT - which has called for Labour to "get on with it" - and yesterday on CentreRight.com by Ruth Lea.  Mr Osborne attempted to increase the pressure on Labour today by tabling the issue for debate in the House of Lords:

"I can today announce that we have tabled an amendment to the Banking Bill in the House of Lords that would establish a National Loan Guarantee Scheme. That Bill will be debated when Parliament returns next week and we will press our case.  It presents the Prime Minister with a clear choice.  He can support the radical action needed to limit the effects of the recession or he can continue to achieve nothing.  The most recent data show that the number of company liquidations has risen from 241 a week to 304 a week in the space of a year, and that's even before taking the last few months into account.  That's almost 10 businesses a day going under because of the credit crunch.  Every day that Gordon Brown dithers, he is putting at risk people's jobs and livelihoods and futures. That's why we need action and action now." 

In a speech supported with a long list of quotations from academics, central bankers and businessmen the Shadow Chancellor also called on Labour to revisit the terms of the bank recapitalisation.  The VAT cut had failed, he insisted, and at enormous cost to taxpayers.  If Brown and Darling failed to understand the nature of the recession things would, Mr Osborne said, continue to get worse, not better.

Tim Montgomerie

> Download a PDF noting the occasions when the Conservatives have called on Labour to Guarantee Bank Lending.

Comments

[m dowding]

"In a speech propped up", BBC type language there. "Supported by evidence from" would be more accurate. Strewth, we don't need that negative and careless language in our own ranks, do we?

[resident leftie]

The FT is suggesting that the government "get on with" their own plans, and Ruth Lea says nothing concrete at all.

We have a loan guarantee scheme. Here it is: http://www.businesslink.gov.uk/bdotg/action/detail?type=RESOURCES&itemId=1074447105

What exactly is it that Osborne proposing that is different from this?

[Tim Montgomerie]

To Resident Leftie:

The FT wrote: "Guarantees for lending to exporters and small businesses were announced in November. The opposition Conservatives have rightly proposed extending them. Nothing, however, has actually happened."

Ruth Lea wrote: "Guaranteeing business loans must be a priority, as emphasised by the Conservatives."

Those seem to be pretty supportive to me.

***
m dowding: I've replaced "propped" with "supported" in deference to you :-)

[resident leftie]

So, all they are proposing to the government is that they should increase the size of the government loan guarantee scheme? The "11 times" document suggests that they haven't even heard of it. So Osborne is saying "We support the goverment's loan guarantee scheme, and we want them to extend it"? Not exactly clear blue water!

[Tim Montgomerie]

Osborne said this in his speech:

"Our scheme would provide guarantees – initially worth up to £50 billion – for new lending to businesses of all sizes. This is far larger than the £1 billion Small Business Finance Scheme announced by the Chancellor in the PBR, which covers only 0.2% of all lending to businesses. It also dwarves the 720 million euros of loans from the European Investment Bank that were announced yesterday."

What the Conservatives are proposing is in a different ballpark from Labour's baby sized measures.

[Cleethorpes Rock]

The Conservatives have repeatedly called for this scheme which would get money moving again. They have proposed a cut in NI and freezes in council tax and relief for savers. Labour are the "do nothing" party.

[GB£.com]

I may be alone, but I think it is a crazy idea, and am not surprised that Osborne supports it.

It will simply result in more debt (from defaulters) for taxpayers, imho (as the insurance will prove too risky and expensive to convince any private sector insurance companies to get involved).

We can't forget that Cameron and Osborne were convinced that the recapitalisation would achieve exactly the same goal in October when others were saying it would not do so.

[GB£.com]

..remember a very long list of 'experts' supported Cameron's pet project, man-made global warming, before others came out to say it was a pile of steaming organic poo.

[Malcolm Dunn]

The recapitilisation saved the banks at the time, would you rather they had failed Chad?
In view of the fact that nothing has worked to enable credit to flow would you rather Osborne proposed to nothing as Labour people stupidly claim?

[GB£.com]

I'd certainly prefer him to propose nothing, than something stupid Malc.

Unfortunately, Labour are probably likely to copy this idea, and when it goes tits up, it will be the second Osborne proposal (he claimed personal credit for the recap plan in October - see playpolitical) to cost taxpayers billions but solve nothing.

"The recapitilisation saved the banks at the time"
Are we supposed to celebrate 'saving' a few banks with crap business models that should have been left to go under?

[Lucy]

What utter nonsense.

For the record, the FT leader cannot be assumed to be representative of the views of the City big boys.

[dai]

It's a very good and effective idea, with relatively small risk or exposure and can fitted comfortablely alongside the existing loan guarantee scheme structure. The existing scheme can be improved and widened very easily by increasing the size of the loans avaialble and by allowing all businesses, not just start ups, to partcipate. This would be the most effective way of increasing bank lending efficiently up to the levels proposed.

[resident leftie]

Posted by: Tim Montgomerie | January 09, 2009 at 12:13

What the Conservatives are proposing is in a different ballpark from Labour's baby sized measures.

Thank you. The problem is that banks still don't want to lend the 25% they have to risk - in other words, it's take up that's the problem, not the amount of funds available for under the scheme. If you make it 100%, banks will simply lend to the guarantee.

I'd like to so something more for business angels willing to risk smaller sums for direct involvement in business - with a similar guarantee. If I could get a guarantee on a proportion of equity investment in a small business I thought was a good bet, I'd certainly consider it.

[Rare Breed]

I am not a lefty. Just a bit concerned about this since Broon turned on the printing presses in February 08 as John Redwood has pointed out.

The biggest risk at present is inflation.

The Govt. have masively increased the money supply to no avail and look set to continue.

If you imagine that money flow is a river and the banking crisis is like someone built a huge dam that stopped the banks lending the money. The flow stopped, contracting the money supply and reducing aggregate demand.

Rather than take down the dam the government turned on all their taps and instead of starting the flow again they have just flooded the valley behind the dam with money. Eventually the money will over top the dam, but this will only be a the same flow as before the dam was erected so everything will seem ok again............................until you take down the dam by getting the banks to loan freely again....then there will be an almighty tidal wave of money leading to massive inflation.

Simply guaranteeing the loans or eating up the bad debt would have saved the day originally but now, due to the monetary expansion, the 12% return on the bailout and the increased reserve requirements for tier 1 banks is all that is keeping us from Zimbabwean inflation.

This leaves an interesting dilema for a true socialist like Brown.

At the flick of a swith he could halve the debt of people in debt while halving the wealth of those that prefered to save than borrow and have some wealth to lose.

The best solution would be to use the return rate on the bailout and the tier 1 reserve requirement to only allow the flow of money to come back slowly. So if the money behind the dam is going to be let out slowly then as growth returns (who knows when) these rates will have to be increased and not decreased as has been sugegsted by some, including DC.

[Rare Breed]

Its also worth pointing out that it might be in the political interest of the Conservatives if Labour were once again responsible for runaway inflation due to their mis-times monetary expansion.

If Brown hadn't nationalised the banks then he wouldn't have been able to restrict them with his bailout return of 12 % and his increase of the reserve requirement for tier 1 banks. Why not just deposit the money with the bank????????????

It all seems so deliberate.

Remember that inflation only helps the banks and the government. As they create the money and take advantge of it before it decreases the value of the rest of the money in circulation.

[Gay Alan Fan]

George Osborne is rubbish and should be immediately replaced by the superd Alan Duncan. He has the good looks and the orange tinge of a shorter Kilroy-Silk. He will be more than a match for Al Darling's eyebrows. George can then spend more time on his bullingdon club friend's yacht while Alan saves the economy.

[Super Blue]

"Gay Alan Fan" is making ridiculous claims, badly spelt. Is he more familiar to us all, perhaps?

[Graham]

Hang on. The FT also says a guarantee scheme won't work if they aren't willing to spend any money on it - which George O isn't.

[Graham]

Anyway, George is doing better now. I liked the tax cut on savings. Why should people be punihsed by McBroon for doing the right thing?

[Philip du Bois]

Having been found wanting on the economy, Cameron’s Conservatives are now staking all their hopes on their policy of a loan guarantee scheme.

Here’s David Cameron speaking at a visit to Nissan in Sunderland recently after the company announced 1,200 job losses:

“I am deeply worried about the workers who have lost their jobs today. This will be devastating for families who are affected by it. Our national loan guarantee scheme would help the car industry get the credit support it needs. Every day the government delays such a scheme, more jobs are lost.”

Unfortunately for ‘Dave’ the Nissan site in Sunderland produced 386,000 cars for EXPORT to more than 45 countries last year and it’s the global slump in demand not the credit crunch which is hurting Nissan in Sunderland. Are the Tories really now claiming that their national loan guarantee scheme will make other countries buy Nissan cars, or is ‘Dave’ just making false claims about his own weak and feeble economic policies in the hope that nobody will notice?

DOH!

[rugfish]

Posted by: Philip du Bois | January 09, 2009 at 21:29

If what you say is true Philip, and I'm not doubting you at all, then Labour and Tories have a lot of explaining to do why both parties have been banging on about getting credit to businesses and using the motor industry to exemplify the lack thereof for Peter Mandelson is dangling the same carrot.

There is of course also the EU Directive which forbids state interference in industry to consider which Peter Mandelson should have come out right away and told people but he won't because he probably knows what public reaction he'll get as a Eurosceptic backlash begins to focus on this damned government.

The only way to solve OUR problem is surely to intervene and aid demand within an internal market by lowering duty and taxes too but this would undoubtedly call into question the very nature of why we're actually in the European Union at all and giving it the remnants of our money.

Perhaps the fact France is also going all steam ahead with producing an electric powered vehicle is partly the reason we ( our government ), has not sought to compete in that market too. The same thing happened with our coal industry whilst we were shutting mines, Germany and Poland were pumping out greater production, so where are these decisions being made except behind closed doors away from the public whilst the public are fed a bunch of lies ?