The credit crunch continues

We are still experiencing a crunch in credit - when will it end?

The financial crisis, which began in 2007, is often described as the "credit crunch". The evidence, however, is that the crunch in credit only really began in 2009 and shows no sign of abating.

For many the financial crisis became real when queues of depositors were filmed outside Northern Rock on 14th September 2007. However, Bank of England credit data reveals that the credit crunch really began in the middle of 2009 and in a very dramatic fashion. It was then that many sectors of the British economy witnessed such a dramatic fall in credit that nearly three years on credit levels remain significantly below their peak.

Credit in many sectors fell off a cliff edge in the second quarter of 2009 after years of continual growth. The sectors in the table above all witnessed dramatic falls in credit in the middle of 2009, although real estate saw a more pronounced fall about a year later.

What is even more worrying is the fact that, in many sectors, credit levels have continued to fall.

The data in table 2 begins where that of table 1 finished and gives bimonthly credit figures from March 2011 to March 2012. Credit in these four key sectors has continued to fall. Of most concern are the falls in credit to manufacturing and financial intermediation firms. The manufacturing sector produces the majority of Britain’s goods exports and firms in this sector rely on credit to invest in capital. Furthermore, trade credit helps firms reach foreign markets. The fall in credit to firms involved in financial intermediation is both a symptom and a cause of the problem and is evidence of the weaknesses that continue to plague the British banking system.

The final table indicates the severity of the credit crunch. Interestingly the crunch that began in the middle of 2009 was of a similar magnitude to the contraction in credit since the end of 2010. The data suggests that, far from the crunch relaxing, it continues and with previous falls the problem is compounded.

The picture is not the same for all sectors; lending to individuals secured on the value of property or similar asset has returned to, and in fact risen beyond, pre-crisis levels. The hotels and restaurants sector did not witness a significant fall in credit during the crisis. Nevertheless credit constraints continue to affect many important sectors of the British economy and there is little indication that this situation will change any time soon. Given this, it is hard to argue that the worst is behind us.

What time is it? Time to make it easier to get credit. Photograph: Getty Images

Selling Circuits Short: Improving the prospects of the British electronics industry by Stephen L. Clarke and Georgia Plank was released yesterday by Civitas. It is available on PDF and Amazon Kindle

Photo: Getty
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Ken Livingstone says publicly what many are saying privately: tomorrow belongs to John McDonnell

The Shadow Chancellor has emerged as a frontrunner should another Labour leadership election happen. 

“It would be John.” Ken Livingstone, one of Jeremy Corbyn’s most vocal allies in the media, has said publicly what many are saying privately: if something does happen to Corbyn, or should he choose to step down, place your bets on John McDonnell. Livingstone, speaking to Russia Today, said that if Corbyn were "pushed under a bus", John McDonnell, the shadow chancellor, would be the preferred candidate to replace him.

Even among the Labour leader’s allies, speculation is rife as to if the Islington North MP will lead the party into the 2020 election. Corbyn would be 71 in 2020 – the oldest candidate for Prime Minister since Clement Attlee lost the 1955 election aged 72.

While Corbyn is said to be enjoying the role at present, he still resents the intrusion of much of the press and dislikes many of the duties of the party leader. McDonnell, however, has impressed even some critics with his increasingly polished TV performances and has wowed a few sceptical donors. One big donor, who was thinking of pulling their money, confided that a one-on-one chat with the shadow chancellor had left them feeling much happier than a similar chat with Ed Miliband.

The issue of the succession is widely discussed on the left. For many, having waited decades to achieve a position of power, pinning their hopes on the health of one man would be unforgivably foolish. One historically-minded trade union official points out that Hugh Gaitskell, at 56, and John Smith, at 55, were 10 and 11 years younger than Corbyn when they died. In 1994, the right was ready and had two natural successors in the shape of Tony Blair and Gordon Brown in place. In 1963, the right was unprepared and lost the leadership to Harold Wilson, from the party's centre. "If something happens, or he just decides to call it a day, [we have to make sure] it will be '94 not '63," they observed.

While McDonnell is just two years younger than Corbyn, his closest ally in politics and a close personal friend, he is seen by some as considerably more vigorous. His increasingly frequent outings on television have seen him emerge as one of the most adept media performers from the Labour left, and he has won internal plaudits for his recent tussles with George Osborne over the tax bill.

The left’s hopes of securing a non-Corbyn candidate on the ballot have been boosted in recent weeks. The parliamentary Labour party’s successful attempt to boot Steve Rotheram off the party’s ruling NEC, while superficially a victory for the party’s Corbynsceptics, revealed that the numbers are still there for a candidate of the left to make the ballot. 30 MPs voted to keep Rotheram in place, with many MPs from the left of the party, including McDonnell, Corbyn, Diane Abbott and John Trickett, abstaining.

The ballot threshold has risen due to a little-noticed rule change, agreed over the summer, to give members of the European Parliament equal rights with members of the Westminster Parliament. However, Labour’s MEPs are more leftwing, on the whole, than the party in Westminster . In addition, party members vote on the order that Labour MEPs appear on the party list, increasing (or decreasing) their chances of being re-elected, making them more likely to be susceptible to an organised campaign to secure a place for a leftwinger on the ballot.

That makes it – in the views of many key players – incredibly likely that the necessary 51 nominations to secure a place on the ballot are well within reach for the left, particularly if by-election selections in Ogmore, where the sitting MP, is standing down to run for the Welsh Assembly, and Sheffield Brightside, where Harry Harpham has died, return candidates from the party’s left.

McDonnell’s rivals on the left of the party are believed to have fallen short for one reason or another. Clive Lewis, who many party activists believe could provide Corbynism without the historical baggage of the man himself, is unlikely to be able to secure the nominations necessary to make the ballot.

Any left candidate’s route to the ballot paper runs through the 2015 intake, who are on the whole more leftwing than their predecessors. But Lewis has alienated many of his potential allies, with his antics in the 2015 intake’s WhatsApp group a sore point for many. “He has brought too much politics into it,” complained one MP who is also on the left of the party. (The group is usually used for blowing off steam and arranging social events.)

Lisa Nandy, who is from the soft left rather than the left of the party, is widely believed to be in the running also, despite her ruling out any leadership ambitions in a recent interview with the New Statesman.However, she would represent a break from the Corbynite approach, albeit a more leftwing one than Dan Jarvis or Hilary Benn.

Local party chairs in no doubt that the shadow chancellor is profiling should another leadership election arise. One constituency chair noted to the New Statesman that: “you could tell who was going for it [last time], because they were desperate to speak [at events]”. Tom Watson, Caroline Flint, Chuka Umunna, Yvette Cooper, Andy Burnham and Liz Kendall all visited local parties across the country in preparation for their election bids in 2015.

Now, speaking to local party activists, four names are mentioned more than any other: Dan Jarvis, currently on the backbenches, but in whom the hopes – and the donations – of many who are disillusioned by the current leadership are invested, Gloria De Piero, who is touring the country as part of the party’s voter registration drive, her close ally Jon Ashworth, and John McDonnell.

Another close ally of Corbyn and McDonnell, who worked closely on the leadership election, is in no doubt that the shadow chancellor is gearing up for a run should the need arise.  “You remember when that nice Mr Watson went touring the country? Well, pay attention to John’s movements.”

As for his chances of success, McDonnell may well be even more popular among members than Corbyn himself. He is regularly at or near the top of LabourList's shadow cabinet rankings, and is frequently praised by members. Should he be able to secure the nominations to get on the ballot, an even bigger victory than that secured by Corbyn in September is not out of the question.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog. He usually writes about politics.