The Lib Dems took out their anger at the “recklessness and greed” that blighted the banking industry earlier today so it was right that FactCheck looked into some of their claims on banking and the economy.
The claims
“The liabilities of the UK banking system in totality are now four-and-a-half times the size of the British economy.”
Nick Clegg, Liberal Democrat press conference, 20 April 2010
The Liberal Democrats cited a Financial Times blog post dating back to January 2009 as the source for this claim.
The post, by Willem Buiter (a former member of the Bank of England’s Monetary Policy Committee), asserted that The total balance sheets of these banks about to around 440 per cent of annual UK GDP. The banks in question were Lloyds Banking Group (comprising Lloyds-TSB Group and HBOS), Barclays and HSBC.
A report from the House of Commons Treasury select committee published last month went a little further finding that “in the 1970s the UK banking sector had a balance sheet of 50 per cent of United Kingdom GDP; it is currently 500 per cent of GDP.”
So, if anything, Clegg’s statement is an understatement as more recent data puts the UK banking liabilities now five times the size of the British economy.
“It was the Labour party that was asleep at the wheel in the first place. It was the Labour party that let the bankers gorge themselves on their bonuses – let the bankers recreate such huge liabilities in the system…the government didn’t hold the bankers to account…it was the biggest mistake in British modern history.”
Nick Clegg, Liberal Democrat press conference, 20 April 2010
“The Tories only offered more deregulation at exactly a time when the banking sector was spinning into more recklessness and greed.”
Nick Clegg, Liberal Democrat press conference, 20 April 2010
The Lib Dems are keen to blame the two “old parties” for a lack of regulation, which they say led to the recent British banking collapse.
But as FactCheck has pointed out before, Clegg’s economic right-hand-man Vince Cable was, it seems, a supporter of Gordon Brown’s now much-maligned light touch economic policy.
At the second reading of the Financial Services and Markets Bill, which ushered in the light-touch policy, Cable said: “I want to express broad support for the bill, whose philosophy and whose architecture of financial regulation reflect a broad consensus.”
The Lib Dems tell FactCheck that “while light-touch regulation was not at the time wrong, in principle the credit crunch has made it clear that the way this regulation was carried out was entirely inadequate.”
It seems perhaps it was not just Labour and the Conservatives who have been forced to reassess their approach, and blaming them both now for not acting ignores the fact Cable seems to have been in favour of the policy when it was first signed off.
“Gordon Brown has now said it was a mistake that the Labour government allowed the banks to get away with blue murder… it was a mistake which cost 1.3 million people their jobs, a mistake which has cost all taxpayers £1tr in the bailout of the banks.”
Nick Clegg,Liberal Democrat press conference, 20 April 2010
The 1.3 million jobs Clegg quotes is higher than the headline increase in the official unemployment count since the glory days of 2007.
The Lib Dems pointed us to a report by the Chartered Institute of Personnel and Development, which estimated that -taking into account factors not considered as part of official unemployment figures – a 1.3 million people had been made redundant in the recession, as the source of their claim.
When numbers are bandied about in relation to the bank bailout, they can seem mind-bogglingly high, so a trillion pounds doesn’t seem ridiculous when you count up the help the government has given so far – although that’s not to say the vast sum will never be recouped.
In December last year, the National Audit Office totted up the cost of stabilising the banks at almost £850bn – made up from the purchase of shares in the likes of RBS and Lloyds plus offers of guarantees, insurance and loans for the banking sector.
But even this mammoth figure doesnt include everything related to the credit crunch tab, such as the bailout of Northern Rock, which had an outstanding loan of £22.8bn at the start of the year.
This doesn’t mean all that money is lost to the taxpayer for good – loans can be paid back, and shares can be sold. The Treasury’s latest estimate (in table C4 of the budget report) is that, at current prices, the bailout will end up costing the rather lower sum of £6bn, depending on how much the government eventually gets for selling off its stakes in the banks.
However, as the spending watchdog pointed out, the final cost to the taxpayer of rescuing the banking system won’t be known “for a number of years”. So while the inital cost is close to a trillion Clegg is not taking into account the monies the government hopes to reclaim as part of the overall cost.
