Chancellor warns of global crisis hitting Britain
Pastor Dale Morgan
Chancellor warns of global crisis hitting Britain *
By Robert Winnett, Deputy Political Editor
Last Updated: 9:27am BST 18/06/2008
Alistair Darling, the Chancellor, is to warn that Britain is now
"exposed to global events like never before" in his first Mansion House
speech to the City.
In a BBC interview he urged people not to push for inflation-busting pay
rises this year saying it would be "disastrous" if the current high
rates of inflation became the norm.
His comments will underline the growing concern within Government over
the impact of rapidly increasing food and fuel prices which have pushed
inflation to a 16-year high.
Mr Darling is hoping to calm consumer fears by insisting that he is
working with the Prime Minister to co-ordinate a global response to the
problems. Gordon Brown will this weekend travel to Saudi Arabia to talk
to oil producers.
Speaking on BBC Radio Four's Today programme, he said: "This year will
be difficult. There is no doubt if you go to the pump or the supermarket
you will see the difference.
"I've made it very clear we cannot get ourselves into a position where
we let inflation to take hold. That would be disastrous."
He repeatedly declined to reject suggestions that Britons would face a
decline in living standards this year - as their wages would rise by
less than the cost of living.
"Most people will understand if you get yourself in a position where
every penny extra you get in pay is eaten up in pay rises…if we get
ourselves back into that spiral it will take years to get out of it," he
said.
But he insisted that the economic pain was likely to prove short-lived.
"There are very good reasons for people to be optimistic," he said. "Yes
it's tough, but we can get through it."
The Chancellor will use the Mansion House speech to unveil a major
overhaul of financial regulation to bring the Treasury and the Bank of
England closer to the City and its institutions.
The annual Mansion House speech is a key date in the annual business
calendar and Mr Darling's performance could prove critical amid growing
City concerns over his recent performance. Mervyn King, the Governor of
the Bank of England, will also speak at the event.
Mr Darling is expected to say: "We are exposed to global events like
never before, as the past 12 months have shown."
He will use the speech to outline proposed changes in the wake of the
meltdown of Northern Rock. The Chancellor will announce plans to
increase the Bank of England's role in promoting financial stability,
including bringing in City experts to advise Mr King and reforming the
Bank's governance.
He may also reveal details of his plan to give the Financial Services
Authority new powers to intervene in a failing bank - including the
right to seize deposits and bring in new management.
The Bank of England is also expected to be given a role in helping to
oversee the use of such emergency powers.
The chancellor will also use the Mansion House speech to map out the
extended use of so-called "special liquidity schemes" - such as that
announced earlier this year to provide billions to Britain's mortgage
lenders. He will also call for much greater co-operation between
regulators across the world. He believes this may help give early
warning of emerging international crises, such as the collapse of the US
sub-prime mortgage market.
"While we must position ourselves to reap the rewards of globalisation,
we must also recognise the realities of this new interdependence," he
will say.
The Chancellor is also expected to announce that he wants to work more
closely with the City. He is currently advised by a Business Council
comprising of senior executives. However, it only meets twice a year.
Mr Darling now wants to set up a series of more specialised working
groups which can deal with more immediate policy issues.
The first of these groups will look at rights issues, capital raising
and short selling with the aim of finding regulations that preserve the
right to sell short while seeking to prevent speculators targeting
companies raising capital.