Bank of Cable

This post has nothing to do with Headington!

It doesn’t seem clear yet how Vince Cable’s Business Bank is going to operate. Leaving aside the dubious practice of making a headline-grabbing policy announcement at the party conference before the details have been thrashed out within the coalition, the idea that seems to be emerging sounds like yet more of the failed policy of throwing cheap money at the banks.

According to a report I saw on the BBC, the Business Bank won’t be lending directly to small and medium businesses. Instead it will use money from tax revenues to buy debt from the regular commercial banks in the hope that they will use the cash to lend to businesses. I would love someone to explain how this differs from the failed policy of quantitative easing, which printed money to give to the banks and which they have failed to use to finance business expansion, other than instead of printing the money they’ll be giving our taxes to the banks – presumably instead of spending them on public services and public investment. Why would the banks behave any differently with this money than with QE money?

If any economist or LibDem supporter can reassure me I’d appreciate it. And while you’re at it perhaps you could clarify how Nick Clegg’s promise that future cuts won’t target the poorest and most vulnerable reconciles with his agreement to abolish the 50p tax rate. Thanks.