Howard Reed\’s just released a report claiming that remutualising Northern Rock is going to be just great for everyone. Kittens will happily gambol sort of stuff.
We\’re going to hear a great deal about this as Our Chuka tries to convince us all that giving it away rather than selling it is just dandy. We\’ll start with the lie indirect:
This suggests that the proceeds from a Northern Rock flotation or trade sale in the near future would not be sufficient to cover the £50 billion or so of support from public funds already provided in the run-up to and following nationalisation.
That statement, as it stands, is true. But worthless.
For there\’s been two very different sorts of public funds provided. There\’s been the losses, subsidies. And yes, of course, we\’d like to get these back. But we might not, it has to be admitted.
Then there\’s been the financing that has been provided from public funds. Something very different indeed. This is the government lending money to Northern Rock which NR then lends to other people (or slightly more accurately, has already lent to other people). On which interest is paid. And the capital will be paid back in the future. It\’s only when you add these two together that you get the £50 billion.
More: much of that £50 billion in funding is actually in the bad bank, the bit that no one is even thinking of selling.
So while it\’s true that privatisation won\’t get the £50 billion back nor will any other solution other than simply time. As people pay off their mortgages which that £50 billion funds then the money will flow back into hte government. But to reject privatisation because that alone won\’t repay the £50 billion is what we might call the lie indirect.
And then we come to the real lunacy:
The aftermath of the financial crisis has seen a huge reduction in net lending to businesses . Figures from the Bank of England (2011) show that net business lending in real terms averaged around £1.6 billion a year between 1998 and 2005, before increasing to £7.4 billion in 2007 at what turned out to be the height of an unsustainable lending boom. The aftermath of the 2008 crisis has seen a collapse in lending, with net lending falling to minus £3.9 billion in 2009 and minus £2.1 billion in 2010.
The one growth sector for business lending, particularly for the small business sector, has been among mutually owned banks and building societies. For example, between 2007 and 2010 the Co-operative Bank doubled the annual amounts it lent to small businesses8.
A mutualised Northern Rock would be able to take a longer view on returns to capital than an independent plc or a subsidiary of a larger bank fixated on short-term returns to capital. It is likely that this would be useful for small businesses and community run businesses (such as social enterprises) in particular.
They know precisely nothing about lending to business. Haven\’t a sodding clue. Working capital? What the fuck\’s that?
Howard Reed seems to think that giving the entirely clueless money to spray around the economy is going to help us recover from having had the entirely clueless spraying money around the economy. Man\’s a loon.
Won\’t stop Our Chuka from quoting him though.