Michael Meacher MP
Labour MP for Oldham West and Royton
Key to challenging power of banks is regaining control of money supply
July 10th, 2012
The discovery by the Bureau of Investigative Journalism that the financial services industry spent £92m last year lobbying politicians and regulators shows how deeply entrenched the banks have become in the UK power structure contrary to the public interest. The documents show that that lobbying firepower was used to slash UK Corporation Tax (Osborne caving in to them again) as well as to de-rail government plans to set up a new corporate regulator to police quoted companies. But there’s a lot more too that they’ve secured which works against the national interest – the cut in 50p income tax, the soft touch on all the City mis-selling scandals, the watering down of the already weak Vickers recommendations, the rejection of a financial transactions tax, the wilful blindness over massive City-driven tax avoidance, the continuing failure to regulate complex derivatives that were at the heart of the 2008-9 crash, and many more. So how should they be stopped?
The key to City power is their control over the money supply which they use ruthlessly to promote their own interests to the disadvantage of the nation at large. Thatcher’s Big Bang in 1986 abolished all controls over consumer credit as well as de-regulated housing finance. The banks were then able to use the expansion of the money supply, 97% of which they are responsible for, mainly for the purpose of feeding a property boom as well as huge foreign speculation, whilst only allocating 8% of credit for the purposes of productive investment (manufacturing, construction, communications, distribution, retail and wholesale). That mere 8% allocated to business is a prime reason why Britain’s manufacturing capacity has deteriorated to the point where in 2010 the UK balance of payments deficit on traded goods reached £100bn, 6.8% of GDP, which is utterly unsustainable.
Regaining public control over the money supply, as all successful economies since the Second World War have exercised, is absolutely vital to ensure that the nation’s resources are primarily channelled into industry and exports rather than property and financial speculation. That is a pre-condition for any sustainable UK economic recovery. It is also a necessary, and perhaps even a sufficient, condition for reining in the power of the City.
Under this ‘window guidance’, which prevailed till the 1970s when the Tories replaced quantitative ceilings by the price mechanism and variable interest rates, unproductive credit creation like today’s lending to hedge funds was firmly suppressed. Equally consumer loans on any significant scale, which would trigger inflationary demand for consumer goods and draw in increased imports, were discourages and hard to get. Priority was given to productive investment (plant and equipment, key services, enhanced productivity via new technologies and R&D).
If we want to escape our economy being hollowed out by manufacturing deficits of £100bn a year as well to constrain the anti-business and anti-UK power of the City, that is the route we must now take.