(It’s ok, there’s a song at the end).
HM government decided back in September of 2008 that whatever economic action was necessary to fight the prospect of a recession would have to be conducted through the established banks operating in the UK. This was an understandable decision because banks have long been the way society has regulated the flow of credit and debt necessary for business and public enterprises.
However, the downside of this traditional solution are becoming clearer. There is still no sign that banks are any more inclined to lend to businesses despite the money they secured from government. Instead they have used the money to provide a nest egg against further unspecified losses from their bad investments. The scale of these losses, made by institutions such as RBS and HBoS, are still not completely clear.
Meanwhile, the ‘stalemate’ in traditional lending practices is having catastrophic effects on non-financial sector businesses which cannot access traditional supplies of credit. The government has been making plans to help, however, its activity is cumbersome and it is, clearly, struggling to keep up with the scale and speed of the crash. The result is that businesses of all sorts are slashing costs to survive – and that means jobs.
In general, unemployed people do not, or cannot pay tax, and soon have to claim support from the state. The recent figures about collapsing tax revenues for the government were extremely bad news for us all because the bill for the unemployed and soon-to-be poor is about to get much bigger. Hamish McRae spells out what it means here for the next few years.
As he writes, the bill for the profligacy and bad practice of the banks and the government’s enormous efforts to save them will be paid in huge UK unemployment, long term national debts and, perhaps, also in social upheaval.
Updated 29th July 2014:
In re-reading this article from 2009 for a repost made on social media, I think I would only change the use of unemployment for underemployment as much os the ‘slack’ in the national economic effort has been absorbed by the adoption of zero-hours contracts for workers and underemployment in self-employment for many others.