My Chancellor and I have decided that we can no longer fob you off with phrases like “we know the path to recovery will be bumpy but growth will soon return”. Instead we now acknowledge that honesty is the best policy, so here goes.
We have made much about what a good job we are doing in containing government spending but, in truth, we are barely scratching the surface. The level of our National Debt is six times that which we have disclosed to you as we have taken no account of the actual cost of public-sector pensions and a whole host of other liabilities (see Nick Silver’s IEA Bankruptcy Foretold Paper of last June).
This means that the only hope we have of making any meaningful impact on our massive debt is to inflate our way out. I’m sure you will have noticed we have already started down this path, as although inflation is rapidly approaching six per cent, we will continue to urge the Bank of England to pay savers just 0.5 per cent for as long as possible. Luckily for us, the so-called bond vigilantes only seem to be able to concentrate on one thing at a time so we are praying that Euroland’s Club Med keeps them away from looking to closely at our books for many moons to come. Whatever happens, please accept our apologies because your standard of living and personal wealth is going to fall a long way from here.
This brings us to our policy towards the banks. Our natural inclination is to be chummy with their top people as we rather admire a breed that has as much chutzpah as we politicians. We do realise that Mr Diamond’s comments that the time for remorse is over and we now need to be nice to the all important banking community, is not acceptable to you. Actually a spoof “news “ item in the current edition of Private Eye sums up reality rather nicely: “A government spokesman insisted that the Square Mile must retain its status as a major player in the meltdown or our economy. If the banks were to withhold bonuses, these City high-fliers would just take their skills for destroying economies elsewhere and surely none of us want that.”
You will be pleased to know that we are not going to just bury our heads in the sand as there are a number of positive things we can be getting on with. For example we are going to make sure that our banks deposit and lending operations are ring fenced from their so-called investment-banking activities. If the likes of Mr Diamond wish to continue to try to conjure up profits from thinking up ever more complex financial instruments, then their friends in the Middle East etc can fund that. But we know you, the depositor, has had enough of their “risk management” practices.
Another positive development is that we do understand that we cannot expect you to suffer the burden of rising inflation eating away at your finances as well as inflicting ever higher taxation on you. We are well aware there are a large number of you sitting on cash that you are understandably hesitant to invest in, what could be, a more productive manner. To this end, our next budget will include wide-ranging tax incentives aimed at encouraging the individual to invest in our SME companies. We know that this sector provides our best chance of sustainable growth, yet it has proven the most difficult to finance over the long term (see our recent Green Paper Financing a Private Sector Recovery) especially as our banking friends prefer to hobnob at Davos rather than take a fresh look at Dagenham.
In summary, George and I realise that being honest breaks every political rule in the book but as Greece, Egypt and co are finding out, we live in exceptional times and exceptional measures are called for.