Vince Cable is famous for his regular outbursts and refusal to keep things too Coalicious. However his latest one is rumoured to have brought even George Osborne onto his side of the battle line.
By comparing its demands for banks to boost their levels of capital they hold to the Taliban, Cable has fired something a bit stronger than a warning shot at the Bank of England and new Governor Mark Carney. The logic is simple & hard to disagree with. If banks are required to stock up on capital they’re inclined to lend less, especially to small businesses who are riskier to lend to than established ones. As a result businesses are restricted in terms of how far they can expand, so growth suffers, and despite both business and growth getting better in the UK ,there’s still a way to go before we get back to full steam ahead. Naturally Osborne and Cable won’t be happy with the Bank of England’s restrictions if they’re hindering the chances of small businesses, especially given the government’s focus on new business start-ups and the entrepreneurial spirit.
The best outcome from Cable’s remarks, in the eyes of the business world and the government, would be for the Bank of England to ease up a bit on the tight restrictions. Purely because it means more money for them, since business lending would surely increase and the Treasury could take its share of the corporation tax, helping to close the deficit which still stands at over £100bn. Nobody can imagine a world in which Vince Cable isn’t publicly frustrated at something, but in this instance I think he’s right to be. Post-recession public opinion and politics have left us a political arena where we must bash the bankers, and get money flowing to businesses again at the same time, against the backdrop of a global financial crash. Those two mindsets and the harsh reality of things are never going to mix, and as shown we end up with banks having less money to lend, business held back, and policies like the one Cable is so angry about.
There’s a bigger debate to be had which leads on from Cable’s comments, beyond business loans and tax revenues. Banks are being ordered to stock up on capital so they don’t suffer as much, should a similar financial crash happen again. Essentially, they are being ordered to become big enough so they can’t fail, a mantra equivalent to the one behind the bank bailouts a few years ago. Is following the same way of thinking going to spare us from the same dilemma years down the line? As we’ve seen it’s taxpayers and businesses who join the banks in struggling for money after a bailout, so history would say no. It won’t have been the first thing on Cable’s mind when he blasted the Bank of England ‘Taliban’, but he did highlight how the culture of ‘too big to fail’ hasn’t been given up on quite yet. Given how things have gone since the crash, there’s a good case for why it should be.
Sam Baxter tweets as @SamJ_Bax