On the tenth anniversary of the start of the economic crash, I thought it would be good to get an assessment of past and current consequences from people able to make unbiased assessments of the damage inflicted by the bankers’ and regulators’ irresponsibility in the early years of this century for which we mere mortals continue to pay.
The greatest financial crisis since 1929 not only caused major economic disruption, it has also considerably weakened political parties of the centre in Europe and America. People lost faith in politicians who had no idea about the casino practices of young city traders working for bank bosses asleep on the job.
The Institute for Fiscal Studies and the Institute for Government came together recently to assess the current climate in which people are trying to do business whilst still faced with the overhang from the 2007/8 crash. Gross Domestic Product is little better than in 2008. We are 15% poorer than if a 2% growth rate had been maintained since 2008. The tax burden is now at its highest since 1986.
The bankers’ folly has been paid for substantially through massive cuts in local government grant with the promise of 100% business rate retention now withdrawn. One interesting suggestion made at the seminar I attended was that local government was easy prey for ministers because a lower tier of politicians took the blame. Will elected city region mayors make a difference here? Then there are the benefit reductions. They will have led to eleven billion pounds of savings by 2022.
What about the headwinds? The growing and ageing population will absorb 1% of GDP by 2026 and Brexit could cost over three billion pounds a year according to the Institute for Fiscal Studies Deputy Director Carl Emmerson.
We have had sluggish growth rates since 2008 due to poor productivity. Would easing the 1% public sector pay limit help? It might, the 1% pay rise policy is now causing huge retention problems in prisons, hospitals and teaching.
The election taught us that the need for continued austerity is under challenge. The low hanging fruit of efficiency savings has long been plucked. The government appears to have no strategy for sorting out the public finances in the long term. A full review is needed with some courageous thinking.
So here we are 10 years after the financial merry-go-round came to a crashing halt. We are still paying for it and some of the old practices are creeping back in.
The crash of 2007/8 was substantially triggered by companies giving mortgages to people who couldn’t afford them. The 2017 equivalent is car loans using the very popular personal contract purchase method. Experts fear many people are using this method to lease cars they can’t afford. Overall £200bn is now owed on credit cards, overdrafts and personal loans. What happens when interest rates rise, which they will have to, someday?
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