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Lloyds-TSB and RBS could be the basis of a National Investment Bank

The economy is stagnating and is clearly in deep trouble.

The latest figures show the UK economy has grown by just 0.2% in the nine months since George Osborne announced his Comprehensive Spending Review that set out a huge package of cuts. There is turbulence on the stock markets in part, at least, because of fears about growth prospects and a collapse in confidence in the capacity of decision makers to resolve the crisis.

The right wing politicians and the ideologists in the universities and the media want two contradictory objectives to be achieved at the same time. They want rapid, deep cuts and they want to see expanding demand to achieve private sector growth.

Growing unemployment, falling demand, reductions in private and public sector investment in the UK are all direct consequences of these ideas. The Tory led coalition has pinned many of their hopes on export-led expansion following the de-facto devaluation of sterling. But other political leaders elsewhere now seem to be following the same approach and this has hit prospects for export led growth, at least in the short term.

Without international coordination of a growth agenda, there is a real risk that the crisis will continue.

Even before the renewed global problems we are now seeing, the recovery had been choked off here in the UK – with growth flat-lining since the autumn as the Chancellor’s policies started to kick in. His VAT has given a further vicious twist to inflationary pressures. The proof is clear. In contrast to 0.2% growth that we have witnessed over the past three quarters, there was economic growth of 2.1% in the three quarters preceding the Comprehensive Spending Review. What’s more, the economy is still 4% below its pre-recession peak.

Without growth and with the social costs of low pay, part time working and unemployment rising there is a real risk that we cannot even successfully manage the deficit – more people in work paying taxes is the best way to get the deficit down.

This is why Labour is saying to George Osborne that he should listen to the old maxim: when in a hole stop digging.

But that alone will not move the economy into recovery. The government also needs a serious growth strategy.

To get the economy back on track the Chancellor needs to deal with the root causes for the recession, rather than being blinkered by ideology. The situation is now grave and the search for solutions is
urgent.

A year ago there was a surprising consensus amongst commentators that there is no alternative, which Labour has consistently sought to challenge.

There now needs to be a debate about the Chancellor’s reckless and incautious rush to austerity. And there has to be a proper discussion about how to regenerate economic growth.

It is for this reason as a contribution to this debate that I welcome this pamphlet.

The authors argue that the collapse in investment has been a significant driver of the recession and the continued stagnation of the economy. They point to statistics showing GDP has fallen £56bn since the recession began in 2008, with the collapse in investment accounting for £45bn.

Collapsing investment hits current growth and long term productivity. If our productivity as an economy falls relative to elsewhere, then we would clearly not be well placed to compete when the world begins to move out of the crisis.

Working on the premise that we must tackle investment and long term competitiveness the authors argue that one way forward which would increase demand in the economy, and raise both employment and productivity, would be to take action now to address this issue.

This pamphlet sets out one idea from the authors to tackle this collapse in investment: a National Investment Bank, using the government’s majority shareholdings in Lloyds-TSB and RBS.

It may be that the Tories will seek to sell off the public’s stake in the banks at a knock down price and then attempt to use it to justify a pre-election tax give-away. The authors say – by contrast – that the publically owned banks should rather be used to help finance the long term regeneration of or economy.

There are those who would argue that this would indeed be poetic justice. For it was the private banks’ recklessness which helped to precipitate the crisis in the first place.

Increasing investment and getting growth back on track, whether through a National Investment Bank or as Ed Balls has argued by repeating the Bank bonus tax to fund youth jobs, new housing and additional funds for the Governments under-funded and over-subscribed Regional Growth Fund would also enable the government to tackle the deficit, by increasing the tax revenues and reducing welfare payouts.

This pamphlet is a timely and fascinating contribution to what needs to be a renewed debate about the way forward for our country.

This reproduces Jon’s introduction to the pamphlet A Brighter Future for the British Economy which may be downloaded as a PDF from here.

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