Peter Kenyon

A bold bank plan, market values and the real world

Anyone worried about their job, pension or personal wealth might be wondering why the British Labour government's bold plan has not stopped a further slide in share prices on the London Stock Exchange. Stock markets don't trade in political boldness. They price future profits - usually 18-months out.

The bank plan is about solvency of the British banking system, adequate capitalisation to lend, and liquidity in the money markets. But no bank is going to lend if a business plan doesn't stack up i.e. demonstrate capacity to pay interest and repay a loan on the part of the prospective borrower.

Uncertainty about future profitability is much more difficult for governments to manage. Interest rate cuts, public works programmes and tax reductions for those most likely to spend (rather than save) are among the major tools available to government - not the market to use to help pave the way to restore confidence in stock markets by improving their ability to price future profits.

Democratic socialists (that's what all members of the Labour Party are - it says so on our Party cards) will note that Gordon Brown's government is emphatically eschewing taking either control or an equity stake in the UK banking system. It is offering to buy preference shares with a fixed rate of interest and no voting rights for the purposes of underwriting bank solvency and improving capitalisation. The politics should come in the measures taken to boost confidence in the economy, encourage future profitability and win back the trust of the electorate that the Labour Party is fit to continue governing the country. (Citizens of Glenrothes, please take note - Scotland/Iceland what price independence?)

The independent Bank of England (and I hope it stays that way) has a particular responsibility when its monetary policy committee (MPC) meets tomorrow to decide whether or not to cut interest rates. As former prime minister Tony Blair is reported to have advised Peter Mandelson, when offered a job in last week's cabinet reshuffle: "It's a no brainer".

Let's hope the Labour government's boldness in doing its part is not lost on the MPC either, and it takes the market by surprise with the size of the interest rate cut to help kickstart the real economy. Next development to watch - the pre-budget report.

UPDATE: 1205 Bank of England cuts interest rate 0.5% as part of concerted international action. Very timely - FTSE losses look as though they have eased. Will the banks pass on the cuts immediately?

UPDATE: 1210 UK government to advance payment of invoices to 10 days from 30 days for small and medium-sized business - Conservative leader David Cameron is being pummelled by Gordon Brown at today's Prime Minister's Question Time - a knockout IMHO

42-days: first test of Labour's new found unity?

MPs returned to Westminster today and already rumours are circulating about the 42-day detention provision of the Counter Terrorism Bill. I am not up to speed on the precise timetabling of remaining Parliamentary business. But I am aware this could be the first test of the Labour Party's new found unity. On the one hand there are the stories of Nick Brown's (re-)appointment as Chief Whip threatening tighter control on backbench MPs, on the other is the appointment of Jon Trickett as the PM's PPS. I am presuming Jon will be saying in private: Prime Minister, we need to drop this. (Yes, I know he voted for the provision at 3rd reading in the Commons. But there are lots of MPs who vote for a government policy against their better judgment.)

We have got to focus on the economy. If that wasn't screamingly obvious, a quick look at the FTSE 100 today (down over 5%) is a salutary reminder. We are not going to get the economy moving again wasting political capital on a theoretical possibility that even law officers, the police and the security services can't agree on. Government can maintain its concern on the record, so that in the event of the need for longer powers of detention emergency legilsation can be put before the House. And we can all get on flushing out the next issue that government ministers have set their hearts on without thinking through the political ramifications thoroughly in the context of Labour values.

Crisis? What crisis?

Public service broadcaster, the BBC, has this. What more do we, Labour Party loyalists, need for the weekend? Cheer up, Gordon.