By Martin Kelly
Governor of the Bank of England, Sir Mervyn King has claimed that a lack of action by the last Labour government in the early days of the banking crisis could have cost up to one million people their jobs.
The accusation was contained in comments Mr King made in a lecture broadcast last night in which the bank chief said he warned Gordon Brown in early 2008 that action was needed in order to prevent a crisis.
According to Mr King, the former Labour PM and his advisors failed to heed his warnings which he claimed, could have prevented the recession that hit the UK in 2009.
Brown and his Ministers dithered until October of 2008, but by then said Mr King it was “too late to prevent the financial crisis from spilling over into the world economy”
In the lecture last night, the Bank governor described the internal wranglings that took place over the Labour Government’s response to the banking crisis.
He said: “In August 2007 came the moment when financial markets began to realise that the emperor had no clothes.
“From the start of the crisis, central banks provided emergency loans but these amounted to little more than holding a sheet in front of the emperor to conceal the nakedness of the banks. They didn’t solve the underlying problem – banks needed not loans but injections of shareholders’ capital in order to be able to absorb losses from the risky investments they had made.
“From the beginning of 2008, we at the Bank of England began to argue that UK banks needed extra capital – a lot of extra capital, possibly £100 billion or more. It wasn’t a popular message.”
Sir Mervyn said the “bold action” to largely nationalise RBS and Lloyds Banking Group took another nine months.
“That bold action in October 2008 could have happened sooner,” he said. “Bailing out the banks came too late to prevent the financial crisis from spilling over into the world economy. The realisation of the true state of the banking system led to a collapse of confidence around the world and a deep global recession. Over 25 million jobs disappeared worldwide. And unemployment in Britain rose by over a million.”
Mr King’s comments were seized on by Labour’s political opponents who claim it destroys the party’s claims that the they had acted swiftly when the crisis emerged.
Commenting on the claims, SNP’s Westminster Treasury Spokesperson Stewart Hosie MP said.
“This is an extraordinary intervention from the independent chief of the Bank of England.
“It blows apart Labour claims of swift action to avert the banking crisis. They had been warned nine months earlier that a capital injection was needed – yet they sat on their hands and did nothing.
“Rather than ‘bold action’ on the banks, it was ‘no action’ until the UK economy was on the edge of a precipice.
“This slow response is nothing short of economic negligence from Labour, and they have to answer to each and every person who has lost their job as a result.
“All three of the London based parties have played their part in this continued economic crisis.
“Labour inertia first led us into recession, and Tory ineptitude, aided and abetted by their lib-dem partners, has taken us back there.
“It’s time economic powers were in the hands of a decisive Scottish Government who would take action to create jobs and grow the economy out of the mess they have got us into.”
Sir Mervyn admitted he himself should have did more to draw attention to banking practices that ultimately led to several British banks having to be bailed out.
In the lecture he claimed that a lack of regulation allowed banks to take unacceptable risks and that changes introduced by former PM Gordon Brown left the BoE powerless to act.
It also emerged that the bank chief urged the current UK coalition to introduce new laws in order to prevent the disaster happening again.
Mervyn King’s comments come at an inconvenient time for the Labour party who are fighting local elections throughout the UK and face stiff competition from the SNP in Scotland.
They also follow economic figures which show the UK has plunged into a second recession under the stewardship of the Conservative/Lib Dem coalition.