Prime Minister Gordon Brown has dropped his summer pretense that the choice at the next election will be between the cost-cutting Conservatives and a Labour Government with money to spend. For the first time under David Cameron’s rule, next week’s Tory conference will openly debate ways of slashing public spending.
The political narrative has switched, perhaps too quickly, from firefighting the economic crisis to showing the electorate you have responsible policies in place to pay back the huge sums that have been spent putting out the fire.
It is clear that the first Budget after the election will not be pretty, whoever is in power, and financial services will certainly be in the firing line. The upcoming pre-Budget report and Queen’s Speech give Labour the chance to get in the first blows.
Brown and Chancellor Alistair Darling are under pressure to show that, after the bailout, the banks cannot go back to business as usual. The Government will give the FSA new powers to fine banks which pay excessive bonuses.
It would be welcome if Brown and the FSA showed such decisiveness in dealing with the shoddy advice on pensions, investment and protection that many of these banks have been offering their customers.
It is ridiculous for politicians to make grand statements about clamping down on “reckless” bankers without addressing the way that some institutions have behaved, and continue to behave, in this area.
N ew Labour has done its best to discourage as many people as possible to save into a pension. Last April’s Budget attack on higher-rate tax relief was the latest in a long line of flawed policies. The fear now is that Darling may go further after the Trades Union Congress’s call for higher-rate relief to be scrapped altogether.
Difficult public spending decisions need to be taken but politicians must not treat all those in financial services the same. While reining in the bankers, politicians should be working with the industry to empower individuals to save more and protect themselves.
Measures such as cutting tax relief may save a bit of cash but would send out a disastrous message that thrift is not to be encouraged and show that politicians have learnt little from the economic crisis.