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“OK, but…” – Yes, It’s a George Osborne Speech #cpc11

In to the conference hall (my customary no-more-than-one visit to that glorified media briefing) to hear George Osborne’s contribution. It was a good speech from a technical point of view; it had a few jokes and he said what need to be said (S&P today reaffirming the UK’s AAA credit rating).

The Party has also learned a lesson from New Labour: that reannouncements work, as the morning’s headlines testified. Those in local government had it confirmed some time ago that the second year of the concil tax freeze was on, and so Labour were right that it was nothing new … but such details never stopped them when in government.

The interesting stuff was the small business ‘credit easing’ (is that a recognised term?) and the reigning back on the carbon emissions targets. The latter might also have the happy outcome of cheesing off Chris Huhne; as it was no doubt meant to, to keep us polar bear barbecuing right-wingers happy.

Yet just as with the Chancellor’s major parliamentary statements, such as the budget, the announcements among the cynical old timers could only lead to a muted “OK, good, but …”.

On small business lending, the banks are not avoiding lending because they can’t be bothered to take the time out from counting their bonuses and toasting their saviour Gordon Brown. Banks are nervous, quite probably over-cautious, and are looking to rebuild balance sheets and minimise the effects of any existing toxic debt. Presumably Osborne’s scheme, one way or another, will involve the government intervening in lending decisions (either by the banks or markets at large). Will they have available some secret font of wisdom as to whether businesses are being denied credit by a nervous bank, or if they are genuinely bad risks; be it because of poor management, business potential or more quantifiable matters such as collateral?

Having avoided the temptations of unfunded fiscal stimulus, an infrastructure bank or more direct means of forcing banks to lend, he must not, even unwittingly, spark the creation of another credit bubble.

Then we have the scaling back of the carbon emissions targets. Again, good on the face of it, but the acid test will be what effect it has on the climate change levy, fuel duties, feed-in-tariffs and carbon reduction commitment mechanisms, all of which are adding to living costs in the name of fighting climate change, sometimes with the most tenuous of justifications.

OK, that’ll do for now, back to the fringe guide to find something to eat before the Boris rally tonight.

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One response to ““OK, but…” – Yes, It’s a George Osborne Speech #cpc11

  1. botzarelli October 3, 2011 at 5:36 pm

    It will be worth keeping an eye out to see if the scheme for easing credit to SMEs is notified to the European Commission. If not, it could be a bit of a dead duck as it will mean that it is being done at fairly high interest rates (there’s a tedious calculation of how many basis points above a notional base rate a loan from a state backed fund has to be at in order to be capable of being provided without the need for the whole scheme to be notified as State Aid). For example, an unsecured loan to a business with a rating of CCC or lower (or the equivalent) which is not at immediate risk of insolvency would need to be at a rate of at least 11.48% if being provided with State backing. If there is an immediate risk of insolvency it would be difficult to provide any loan at all.

    This meant that the emergency business loan schemes put in place by the last government when the economic crisis struck tended not to be a lot of use (I advised on a couple of these schemes at the time). I’m therefore a little sceptical about whether in fact there will be much coming to support SMEs unless and until I see the detail of the scheme and whether it is going to be provided with Commission approval. Of course, that’s the point at which it might get a little political and I’m not sure that I’m overly keen on the possibility of HMG being asked to compromise on eg the next round of euro bailouts to keep the Commission sweet to get an approval for a credit easing scheme…

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