Conservative conference: chancellor's credit-easing plan

 

Treasury minister Justine Greening explained the "credit easing" plan announced by George Osborne in his conference speech

Journalistic inquiry here in Manchester since Chancellor George Osborne finished his speech has concentrated on trying to find out more about his plans for credit easing (or monetary activism as the Treasury also calls it).

You can see my efforts to learn more from Treasury Minister Justine Greening here.

Since that interview I've learned that the Treasury would only buy the corporate bonds of big companies in another financial crisis (at the moment big companies are flush with cash and don't need state help on borrowing) and that the real breakthrough would come from developing a corporate bond market for small and medium sized companies (the SME sector).

The Treasury would encourage SMEs to issue bonds (as an alternative to scarce bank loans) by promising to but them up itself with borrowed money. It would not buy the bonds of companies deemed not creditworthy.

The bonds would have to be approved by credit rating agencies (that really worked with sub-prime!). The scheme would probably not touch the very small (where credit is scarcest).

The bonds would probably be aggregated into new financial instruments to give scale to this new bond market (let us hope they are not then sliced and diced, like sub-prime).

Chancellor George Osborne's full speech to the Conservative Party conference in Manchester.

And it won't happen overnight: Treasury briefings talk of months if not years to establish this SME bond market, so the plan doesn't amount to an immediate monetary stimulus.

The Treasury would have to borrow the money to but these bonds but they would appear as assets on the government balance sheet so (it is claimed) not add to government borrowing (I'd like clarification on that: if I borrow £500,000 to but a house secured by the house I've still added £500,000 to my borrowings).

Concentration on this however has obscured another interesting part of the Chancellor's Speech.

At the Lib Dem conference Energy Secretary Chris Huhne denied to me in a BBC interview (and then to the conference) that the various green measures of which he is an enthusiast was helping drive up energy bills.

Indeed he claimed that his various energy-saving measures would actually cut bills over time. That is clearly not the Chancellor's view.

More realistic targets

Mr Osborne acknowledged that green policies were "piling costs on the energy bills of households and companies". He went on to say that Britain should not be cutting carbon emissions any faster than the rest of the EU. At the moment we are trying to meet tougher targets than any other major European economy.

The Chancellor said he'd made it clear that the current energy review should reign in Britain's position as a green outlier.

I didn't get the impression at the Lib Dem conference that Mr Huhne's heart was in that. He seemed quite proud of the idea of Britain leading the green field.

I know from private briefings that the Chancellor does not quite share Mr Huhne's green enthusiasm. Mr Osborne wants more realistic targets. Mr Huhne wants to be a pathfinder. Who will win? Watch this space.

* The Andrew Neil Interview with Andrew Lansley is on BBC iPlayer. (until Sunday).

 
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    Comment number 17.

    Andrew,

    as we know it takes a long distance to turn a super-tanker around to reset the course. The trouble is that this is a Titanic economy, not a super-tanker. The economy has hit the iceberg, and it is nearly a hundred years since the sinking of the un-sinkable Titanic. We are just so doomed. This is first Great Global Depression, it has been unsustainable for an awful long time, since 1987.

  • rate this
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    Comment number 16.

    Catch@11

    Very true!

  • rate this
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    Comment number 15.

    One reason why the British Government was able to sell their Bonds is that many are now Index-Linked, and they are linked to the RPI, not the CPI. So, any pension fund will 'invest' in Bonds which give an effective return above inflation, say 2-3 per cent above. So, why should anybody 'invest' in shares, and as we know Pension Funds cannot 'Trade' shares, otherwise they lose their CGT exemptions.

  • rate this
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    Comment number 14.

    Andrew,

    is this going to be the October when people really understand the total fragility of the Global Economy. I believe that there will have to be a massive sell-off of shares, as the governments of the world safeguard the bondholders. If bonds are safeguarded, then it will be shareholders who will lose their shirts. Shares are not guaranteed, bonds may well be, so why hold shares.No brainer

  • rate this
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    Comment number 13.

    There is news that the Dow Jones has risen by 500 or so points. I do not know why this has happened, however, it should be understood that any analyst should tell you that the Dow Jones Index is the worst index as to the performance of an economy as it is possible to be. From what I understand it is made up of only 30 Companies, to reflect the performance of a country the size of America!

 

Comments 5 of 17

 

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