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Islamic bonds and foreign state investment in UK, but still no UK public investment

Osborne is today unveiling a £200m Islamic bond or ‘sukuk’ to try to make the City of London the leading player in the sharia-compliant finance industry, which is estimated to be worth $1 trillion globally.’ He has made clear he wants to make the City the base for Chinese banks and a global hub for offshore trading in the Chinese currency.

No doubt Osborne also wants to see a revival of the City’s pre-2007-8 dominance, partly it appears supported by Carney’s extraordinary claim last week that he would be happy to see the banking sector’s assets expand to 9 times GDP by 2050 – a degree of imbalance which would put the UK economy severely at risk of an even bigger collapse when compared with 2007 when banking assets were £7 trillions or 5 times GDP. Just about everything is wrong with this plan.

First, it is bizarre to be luring large-scale Islamic funding to London, together with big French and Chinese government money to build new nuclear plant at Hinckley Point C, but categorically refuse to commit any UK public investment in any major domestic projects. The vision seems to be to turn the UK, not into a long-term sustainable foundation for a viable nation, but rather a forum for international barter where Britain’s assets, whether public or private, are are freely sold off in the international market place provided the price is right (or even in the case of Royal Mail where the price is a fire-sale give-away).

This is an incredibly short-sighted philosophy since it is oblivious to what every other major nation has recognised, namely that economic security demands national control over all the fundamentals that can guarantee political, military and economic stability. The massive sell-offs of the 1980s, which earned the City a staggering £40bn for fixing these deals but denuded Britain of many of its biggest industrial assets, are now set to continue with Britain as the bargaining chip.

Second, whilst the City may benefit yet again, the rest of Britain will be sacrificed once more on the altar of the banking honeypot. The ‘recovery’ is fragile because it is based on the rickety foundations of consumer borrowing and an artificial and short-lived housing bubble. A City revival will force up the exchange rate again which will kill stone dead any manufacturing recovery.

None of the four possible sources of demand are present – the enormous balance of payments deficit in traded goods (£106bn last year) drains demand out of the economy, business investment is stagnant (the big companies are still sitting on a cash stockpile of £700bn), consumer borrowing if it continues will only suck in more imports, and public investment, the fourth and most important source of demand in the pit of a recession, is an ideological taboo for this Thatcherite government.

Why isn’t Labour saying all this and harrying this counter-productive Tory scorched earth policy into the ground?

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