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Cable, Hutton and Redwood join credit crunch debate

Experts air their views on the credit crunch at Middlesex Business School Breakfast Forum

‘A punk monetarist experiment’ was MP John Redwood’s opinion of some of the steps the government has taken to deal with the impact of the credit crunch, notably ‘quantitative easing’ - increasing the money supply by printing more. Mr Redwood joined MP Vincent Cable, Treasury spokesman for the Liberal Democrats, and Will Hutton of not-for-profit think tank The Work Foundation to take part in the Business School’s Breakfast Forum, held at the Hendon campus on 29 October.

At the Breakfast Forum, each speaker reflected on the factors which have led to the UK’s recession, and gave their recommendations for a ‘cure’. Vincent Cable spoke first, saying the British economy had had ‘a major seizure’. A year on from what many regard as the hardest part of the recession for the UK, Dr Cable felt ‘the patient is being supported but is still in bad shape’, and predicted a long recovery period. “I’m not confident we will bounce back from this recession in the way we have from past recessions”, he said. He suggested that significant measures will be needed to reduce the scale of public sector borrowing, which for the current year is around 14% of GDP (gross domestic product). He concluded: “As a nation we are very dependent on the financial sector”, and added that by leading and taking decisive action on its economy, Britain could also play a role in encouraging international action.

Will Hutton of The Work Foundation pointed out that in previous recessions, the impacts had lasted between 40-50 months. He believed employment levels could take more than six years to reach pre-recession levels and felt the ‘knowledge economy’ would be a leading force in taking the UK out of recession. He recommended a mix of strategies to encourage this, ranging from tax breaks and less regulation, through to more interventionist measures influencing education, and the allocation of capital.

John Redwood, MP and an Associate Professor at Middlesex’s Business School, summarised what he saw as the three phases of the credit crisis – the boom period of low interest rates, easy money and credit excess from 2003-7, followed by higher rates, tightening cash and capital regulation in 2007 and 2008, and the current phase of monetary expansion, which he referred to as ‘a punk monetarist experiment!’  He felt recent measures, such as ‘quantitative easing’, were extreme, and that if different decisions had been made on liquidity and interest rates, Northern Rock, RBS and Lloyds TSB need not have been nationalised. He argued for a monetary policy with more attractive interest rates and less ‘easy’ credit available and suggested that to achieve sustainable recovery, the government needed to sell off the state-owned banks as a range of competing banks to improve the breadth and choice in the UK banking market.

Audience questions included what impact the credit crunch might have on climate change – speakers felt the credit crunch could create more consumer and industry demand for fuel-efficient vehicles and energy systems and therefore could add impetus to the work of innovators. The impact of devaluation on the UK’s economic prospects was discussed and the speakers also considered the degree and style of regulation that would be necessary in the future to secure a better banking industry.

Professor Alan Durant chaired the event. Anna Kyprianou, Dean of the Business School and Pro Vice-Chancellor at Middlesex University said: “We’re delighted to welcome three such highly experienced and respected speakers to our Breakfast Forum. Each of them represents a particular perspective on the credit crunch and what may lie ahead for Britain’s economy, and they have given us some highly stimulating issues to consider”.

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