This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.guardian.co.uk/commentisfree/2013/mar/12/lending-billions-down-the-drain

The article has changed 2 times. There is an RSS feed of changes available.

Version 0 Version 1
Lending: billions down the drain Lending: billions down the drain
(7 months later)
The problem with the government's funding for lending scheme – and indeed its entire strategy for growth – can best be expressed in an old cliche: you can lead a horse to water, but you cannot make it drink. With its policy of monetary activism, the coalition has concentrated on laying on the H2O of credit. Ministers have exhorted banks to lend, the Treasury has signed up to the Merlin agreement with financiers – as well as encouraging the provision of £375bn of quantitative easing and the £80bn scheme of funding for lending. These wheezes have cost hundreds of billions of pounds and taken up months of policymakers' time – and the net result has been sorely disappointing.The problem with the government's funding for lending scheme – and indeed its entire strategy for growth – can best be expressed in an old cliche: you can lead a horse to water, but you cannot make it drink. With its policy of monetary activism, the coalition has concentrated on laying on the H2O of credit. Ministers have exhorted banks to lend, the Treasury has signed up to the Merlin agreement with financiers – as well as encouraging the provision of £375bn of quantitative easing and the £80bn scheme of funding for lending. These wheezes have cost hundreds of billions of pounds and taken up months of policymakers' time – and the net result has been sorely disappointing.
Britain may be about to plunge into its third recession in four years; in any case, our GDP or national income remains around 4% lower than it was in 2008. Next week the chancellor will unveil his fourth budget – and it will almost certainly show that growth will continue to be below par for the next couple of years, while public debt as a proportion of GDP is likely to be on the rise. And the chancellor stands less of a chance than ever of seriously narrowing the structural deficit. Not all of this is his fault, true: the euro crisis and the ramp-up in commodity prices over the past few years are just two of the factors that have blackened the outlook. But George Osborne must take the blame for administering the wrong policies.Britain may be about to plunge into its third recession in four years; in any case, our GDP or national income remains around 4% lower than it was in 2008. Next week the chancellor will unveil his fourth budget – and it will almost certainly show that growth will continue to be below par for the next couple of years, while public debt as a proportion of GDP is likely to be on the rise. And the chancellor stands less of a chance than ever of seriously narrowing the structural deficit. Not all of this is his fault, true: the euro crisis and the ramp-up in commodity prices over the past few years are just two of the factors that have blackened the outlook. But George Osborne must take the blame for administering the wrong policies.
Faced with a major shortfall in domestic demand, he has depressed demand still further by laying out the biggest programme of spending cuts ever seen in peacetime Britain. And to spur growth, he has relied instead on trying to offer as much credit as possible. Put another way, an unthirsty horse has been offered gallons of surplus water. Going by reports this week, Mr Osborne will next week announce yet more policies to boost lending to small and medium-sized businesses; perhaps by more closely targeting the funding for lending scheme administered by the Bank of England. This could once be chalked up as foolishness, but now it surely goes beyond that – it is wilful, damaging blindness on the chancellor's part.Faced with a major shortfall in domestic demand, he has depressed demand still further by laying out the biggest programme of spending cuts ever seen in peacetime Britain. And to spur growth, he has relied instead on trying to offer as much credit as possible. Put another way, an unthirsty horse has been offered gallons of surplus water. Going by reports this week, Mr Osborne will next week announce yet more policies to boost lending to small and medium-sized businesses; perhaps by more closely targeting the funding for lending scheme administered by the Bank of England. This could once be chalked up as foolishness, but now it surely goes beyond that – it is wilful, damaging blindness on the chancellor's part.
Such a focus on credit provision was justifiable at the height of the credit crisis and for years afterwards. But it must surely be evident by now that the main problem is not the lack of loans available to firms; it is that businesses do not see the growing markets or buoyant economy that would justify them spending and borrowing to invest. The chief executives and managing directors can hardly be blamed for this: as Tuesday's industrial production figures and bleak forecasts from the National Institute of Economic and Social Research indicate, the economy is still stuck in the doldrums. While this remains the case, the government's focus on credit is misplaced.Such a focus on credit provision was justifiable at the height of the credit crisis and for years afterwards. But it must surely be evident by now that the main problem is not the lack of loans available to firms; it is that businesses do not see the growing markets or buoyant economy that would justify them spending and borrowing to invest. The chief executives and managing directors can hardly be blamed for this: as Tuesday's industrial production figures and bleak forecasts from the National Institute of Economic and Social Research indicate, the economy is still stuck in the doldrums. While this remains the case, the government's focus on credit is misplaced.
Our editors' picks for the day's top news and commentary delivered to your inbox each morning.