IIt’s a sign of how bad things have gotten for Sir Keir Starmer that the Labor leader felt the need to float his idea of UK recovery bonds in his speech on the economy. Opposition leaders tend to keep specific policy proposals secret in the early stages of a parliament because they know there is a risk that the government will plunder them if they are good.
Instead, they prefer to focus on the big picture: the current batch is making a total mess of things, there must be no return to the failed policies of the past, we must invest in the future. And most of Starmer’s speech was made up of that sort of thing, along with the usual memory of the post-war Attlee government.
It would be extremely naive to imagine that recovery bonds will change voters’ perceptions of Labor overnight, but while it’s more than a gimmick to spice up a regular speech, the idea is interesting. The thinking behind them is that only a fraction of the excess savings accumulated during the pandemic will be spent, so the rest could be doing something more useful than staying in bank accounts.
Labor say the recovery bonds would have the same attractions as traditional national savings bonds – interest, insurance and long-term – with the difference that the proceeds would go to pay for the post-Covid recovery. George Soros recently came up with a similar proposal for the EU, with the difference that governments would issue perpetual bonds on which principal would never be repaid.
Currently, savings rates on money lent to the government through National Savings and Investment (NS&I) are at nugatory levels, so if Starmer’s idea is to have any hope of working, the interest rate of the bonuses should be much more attractive. But if they were popular, they could act as proof of a much bigger project: financing the greening of the economy.
Barclays dividend payments indicate fewer long-term Covid scars
Needless to say, Barclays have had better years. Provisions against loan defaults have skyrocketed and earnings have suffered as a result. But, and it is an important but, the bank has weathered the Covid-19 storm reasonably well. One sign of its confidence is that it has resumed dividend payments to shareholders, albeit only at a modest level.
The performance of Barclays, the first of the UK’s large lenders to report their results, highlights the difference between the current recession and the last one, in the late 2000s. So the financial system was central to the problem: Banks had too little capital to cover the losses from risky investments, and when the crisis hit, the flow of credit came to an abrupt halt. A financial crisis turned into an economic crisis.
This time, the banks are peripheral. Naturally, they can expect to suffer losses because many of the businesses that have closed as a result of government restrictions will not reopen. Consumers have been paying off their credit card debt, which is good for the financial health of those affected but bad for bank profits. But unless there is another, much more serious leg of the pandemic, banks have enough capital to cope.
That means that there is unlikely to be a dangerous feedback loop in which the recession leads to a financial crisis which in turn deepens the recession. Although 2020 saw the economy’s biggest contraction in a year in more than 300 years, it may leave fewer scars in the long run than the seemingly less severe recession of a decade earlier.
Hip and knee benefits drop, online greeting cards rise
The annual operating profit of the manufacturer of artificial hips and knees Smith & Nephew fell almost two-thirds as a result of a collapse in elective surgery. Online gift and card company Moonpig expects revenue to double this year. It’s hard to find a more succinct summary of Britain locked up.
George is Digismak’s reported cum editor with 13 years of experience in Journalism