Treasury mulls loan insurance as Wedgwood cracks

As the UK economy braces itself for a gloomy 2009, should we be spending or saving our way out of recession?

Last Updated: 31 Aug 2010

It’s pretty clear that this is going to be a grim year on the economic front, as highlighted by yet another business collapsing into administration; today it’s illustrious china-maker Waterford Wedgewood that’s been forced to admit that it's now potless. With thousands of jobs and businesses under threat, the Government is considering various schemes to pump more money into the economy – while Tory leader David Cameron is accusing the Prime Minister of leading Britain into a ‘terrifying debt crisis’. It certainly looks like the economy will be the major political battleground in the next 12 months...

Yesterday PM Gordon Brown told the BBC that the Government would boost our ailing economy by bringing forward about £10bn of public spending, which he says will create up to 100,000 jobs. He also promised to get bank lending back to 2007 levels, in order to get credit flowing to businesses again. Unfortunately, low-margin lending is the last thing banks want to be doing as they rebuild their battered balance sheets – so the Treasury is apparently mulling a scheme to guarantee a portion of all bank lending. This would mitigate some of the banks’ risk, thus encouraging them to get their cheque books out again.

If you think this plan sounds a bit familiar, it’s because it’s almost identical to the National Loan Guarantee Scheme that the Tories have been banging on about for weeks. So if Brown does pinch the idea, it might finally help Cameron get back onto the front foot (he was certainly on the offensive on Radio 4 this morning, insisting that the PM needed to ‘get with the programme’, and scoffing at his ‘joke’ VAT cut). But generally speaking, the two parties now seem in total disagreement about how we should deal with the current crisis – there’s a clear dividing line appearing between the Government’s plan to borrow and spend our way out of recession, and the Tory plan to reduce the size of the state and put money back into people’s pockets.

Either way, it’s going to be a tough year. The Centre for Economics and Business Research reckons the UK economy will shrink by nearly 3% in 2009, while most analysts seem to agree that the current recession will last until at least the back end of this year (and possibly longer). The collapse of Waterford Wedgewood today is hardly a surprise – the company is nearly £500m in debt and has apparently been making a loss for the last five years – but it won’t be the last to call in the administrators in the coming months, whatever happens in Whitehall...

In today's bulletin:

Autonomy's Lynch heads Britain's Top 100 Entrepreneurs
Treasury mulls loan insurance as Wedgwood cracks
CIPD warns against redundancies
Banks shunned 'anally retentive' Madoff
Quiz: MT's 2008 in 20 Questions

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