The big story tomorrow is likely to be the government moving ahead with the part-nationalisation (or something similar) of Britain’s banks. This move (£40bn? £50bn?) could come even before the stock market opens in the morning, I’m told.
The state taking preference shares in Britain’s banks would be an astonishing sign of the times. UPDATE: Here is the story on ft.com.
As a result readers may miss another significant move tomorrow. Alistair Darling, the chancellor, is expected to use* the Mais lecture at Cass Business School to discuss life after the fiscal rules.
You may remember that Gordon Brown pledged to end “boom and bust”. His mechanisms for doing so; 1] the golden rule (government will borrow only to invest over the ‘economic cycle’) and 2] the sustainable investment rule: net debt should remain below 40 per cent of GDP.
Both have landed in untenable territory as the government has been forced to borrow more and more. The National Institute for Economic and Social Research (NIESR) said this summer that the debt/GDP ratio has drifted past 43 per cent (if Northern Rock is taken into account); making a nonsense of Yvette Cooper’s insistence (today) in the house that the figure was still about 36 per cent. NIESR reckons the ratio will hit 44 per cent in a few years, even excluding Northern Rock.
Philip Hammond, shadow chief secretary to the Treasury, told the Commons this afternoon that tomorrow’s announcement would be a “humiliation” for Mr Brown.
He reminded MPs that, as recently as 2003, Mr Brown had described the rules as “the basis on which I think the public has seen this government as competent“. An end to boom and bust has been the prime minister’s mantra for years.
“He (Darling) will use the occasion to clear the way for scrapping the government’s rules on public spending, using the credit crisif for cover, taken actually admitting that the government has broken its own fiscal rules, burying it with a whimper,” said Mr Hammond.
Vince Cable, Lib Dem Treasury spokesman, agreed that Mr Darling was likely to use the speech to signal a retreat from the rules.
But he was more sanguine about the breach; both opposition parties had (eventually) backed the rescue of the financial sector in its many forms - the nationalisation of Northern Rock and Bradford & Bingley, the £200bn liquidity scheme and (tomorrow’s) “rescue plan for the banks including recapitalisation which could involve £30bn, £50bn, who knows“ - and that would tip the government even further into the red. And that couldn’t be helped.
This ignores the fact that the government had already breached both rules. Yet again, the credit crunch is providing “cover” for ministerial failings.
* UPDATE: The speech has been postponed.
Jim Pickard
Kiran Stacey
