It's not all doom and gloom
How refreshing to see the boss of a major corporation demonstrate that he is willing to swim against
The revelation that Labour is loosening the fiscal rules, a funda mental tenet of Brownomics, has been greeted with "end of prud ence" type headlines or as another nail in new Labour's coffin.
There appears to be a collective determination in the media (of which I am part) and among the chattering classes to talk us into a deep funk. Actually, the Treasury decision to kick away the traces of the fiscal rules could be exactly what is needed in the present doleful economic circumstances.
Having ceded control of interest rates to the Bank of England, the government has no monetary means of easing the economic position of ordinary households. It can, however, inject more money into the economy using budgetary policy. It had three stark options as the budget deficit surged in the face of slowing growth: increased taxes, public spending cuts or to allow borrowing to swell.
The first two would have layered ever more pain on hard-pressed households. The third choice allows the government to inject extra income into people's pockets through hard times. It is old-fashioned Keynesian economics which encourages extra borrowing and public works during a slump.
This can work well providing there is the willpower to recoup lost income when the green shoots of recovery finally appear.
This is just one of the counter-cyclical recovery mechanisms that kicks in during an economic downturn. Another is falling house prices. Home owners the length and breadth of the nation are deeply concerned as successive indices from the Halifax and Nationwide, two of the biggest mortgage lenders, reveal the sharpest downwards correction in house prices since the late 1980s.
It is deeply worrying for those who hopped on to the housing ladder in the later stages of the house price boom, aided by foolish lending. I recently received a letter from a distressed reader who had been lent seven times their income by Northern Rock in its final madcap days, and is now being encouraged by the nationalised lender to take his business elsewhere - except no one wants him.
But such cases are the exception. After all, the price of the average property bought since early 1996 had risen by almost 250 per cent by the start of this year, making their owners extremely equity rich. The problem has been for those on the bottom of the pile, who have been priced out of the property ladder. The current retreat in prices, which is particularly pronounced in new-build properties in the inner cities, could offer those frozen out of the market for so long a once-in-a-lifetime opportunity to buy.
Because housebuilders are so desperate to unload stock, bankers are calling in their loans and new-build apartments are being heavily discounted. Builders are offering all kinds of incentives, such as paying legal fees and stamp duties - costs that can run into several thousand pounds - and subsidised mortgage arrangements. Timing can be difficult, as everyone wants to wait for the bottom.
The natural tendency in hard times is to draw in your horns. The rise of the discount supermarkets, such as Lidl and Aldi, and the problems of Marks & Spencer show how quickly consumer behaviour is affected. But the behaviour of corporations is much the same. The thought of slowdown, recession and the bankers on their backs leads to retreat. Jobs are often cut before shareholder dividends and the easy cuts in spending - on future investment and marketing - are rapidly implemented.
It is refreshing, then, to see the boss of a major corporation willing to swim against the tide. The young chief executive of BT - a company once renowned for its conservatism - is doing just that. Ian Livingston has decided that instead of offering investors instant gratification by buying back the company's own shares, he is going to invest the money saved - up to £1.5bn - in a leap up the technological ladder.
BT intends to replace the ancient copper wires leading to your house with the latest glass fibre-optic cable. This should transform the web and broadband experience for millions of residential homes and small businesses across the country. It will be a leap forward for Britain in the race for high-speed broadband, giving it a competitive advantage as the west emerges from the present slump.
The next-generation broadband will bring speeds of up to one gigabit to businesses up and down the country. It will allow ordinary households to have multi-viewing, high-definition television, fast internet, instant messaging and dozens of other services.
In the current atmosphere, BT received little credit for its bravery, just as Downing Street's dose of Keynesian economics was seen from left and right as an own-goal.
Sometimes, however, it helps to look beyond the clouds; the view is brighter than you imagined.
Alex Brummer is City editor of the Daily Mail
Tags: Economy 2008
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