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).

 
Andrew Neil, Presenter, The Daily Politics and Sunday Politics Article written by Andrew Neil Andrew Neil Daily and Sunday Politics

Responding to Davey interview critics localisation->translate("watch"); ?>

Andrew Neil's response to criticism in a Guardian Blog and on Twitter to his Sunday Politics interview with Ed Davey.

Watch Andrew's report

Comments

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  • rate this
    +2

    Comment number 1.

    Osborne's announcement on 'credit easing' was indeed the most intriguing element of his speech. But Ms Greening's incoherence under your questioning left me in no doubt that 'credit easing' is like 'the big society': a nice-sounding thingy that on inspection turns out to be a back-of-the-envelope phrase for a back-of-the-envelope gimmick. What a shower!

  • rate this
    0

    Comment number 2.

    This is part of the conflict between the Treasury and the Bank of England. Merv 'The Swerve' King must be relieved of his position. His policy has failed miserably and he must be consigned to the out-field where the damage can be restricted. He is like the close slip fielder who has dropped too many catches. Quantitative Easing is, and was a policy doomed to failure. Interest rates must rise.

  • rate this
    +1

    Comment number 3.

    Why are you lot so nice to politicians?
    Ms Greening was incoherent beacuse she was attempting to support the undefined meandering of Osborne's equally incoherent poo of a policy statement. What a complete load of crap!!
    Party politics is what is standing in the way of sensible solutions to 30 years of corporate, private & government debt worship.
    - Banks need their haircut - NOW. no more space

  • rate this
    0

    Comment number 4.

    Simple solution - all developed nations agree to be twice as wealthy as they are now. The new money is created to that value and invested in world infrastructure. Because everyone is part of the agreement there is no net change in the balance between currencies nor any inflation. the new money then filters back into the real economy. Tax revenues increase, the deficits and debts to be repaid.

  • rate this
    0

    Comment number 5.

    Following on - ]
    Provided this method is applied in a balanced way and targetted at green energy generation, research and infrastructure then this "Upper Economy" can coexist with the standard market economy.
    With the approriate regulation and oversight we eliminate the dependance upon oil and manage the earths resources in a sustainable way.

  • rate this
    0

    Comment number 6.

    Money has no intrinsic value and essentially, with approval, the world can have as much as it likes.
    Provided the new money is issued and used within a tight set of guidelines that allow it to filter through the economy then there is no real reason for it to cause hyper inflation / devaluation.
    This is the real power of governement, thus breaking the stranglehold of the Fed and BOE.

  • rate this
    0

    Comment number 7.

    To draw a comparison, a game of monopoly can see all the players start with £1 or £1500. the decision is entirely up to the players. The decision doesn't affect the value of the currency.
    Simply put at £1 the game economy stalls, however at £1500 it kick starts the game economy.

    All that is required is an agreement and trust, the currency still has no intrinsic value.

  • rate this
    0

    Comment number 8.

    Economics is merely a myth, cloaked by smoke and mirrors; the economists its high priests.
    We've all been taken in by them.
    Isn't it time we started to question the vested interests and their blind faith in their dead religion?

  • rate this
    -1

    Comment number 9.

    I suppose we could vote Labour back into power then we could all buy more of Gordon Brown's magic beans.
    We'd have the added novelty of a talking horse as a Prime Minister.

    Altogether UK citizens....... "Mr Ed, the nation says naaaaay!"

  • rate this
    +1

    Comment number 10.

    Zim

    Well it's as coherent as many other economic theories.

    Go easy on the magic beans...

  • rate this
    +1

    Comment number 11.

    It is not the magic beans we want to be easy on...it's the human beans...

  • rate this
    +1

    Comment number 12.

    Andrew,
    China is a very fragile country, riots not reported do not mean that they do not occur. Imagine the effect on the country when the leaders have to disclose that they have 'invested' in various overseas governments and that all their 'investment' has to be written off. All that hard work, all that exporting. It will be pay back time for Chinese defaults after their revolution.

  • rate this
    0

    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!

  • rate this
    0

    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
    0

    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
    0

    Comment number 16.

    Catch@11

    Very true!

  • rate this
    0

    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.

 

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