LONDON // Alistair Darling, the chancellor of the exchequer, is still cautious about the economic outlook in the UK and highly sceptical of proposed US banking reforms to prevent another global financial crisis. Key GDP figures for the UK are to be released tomorrow, but Mr Darling refused to get carried away by predictions of growth.
The UK has remained in recession longer than almost any other major advanced economy, but economists are almost certain that preliminary estimates will show growth resumed in the last three months of 2009. "I don't know what the figures are - but I remain cautious," Mr Darling told The Sunday Times. "There is still a lot of uncertainty around." In his budget in April last year, Mr Darling predicted a return to growth around the turn of the year, a forecast that proved more accurate than most economists' expectations of expansion in the third quarter.
During what has been the country's deepest recession in more than 50 years, the budget deficit has ballooned, while salaries for top public-sector jobs have soared. "In some quangos [quasi public-sector agencies], local authorities and other organisations, the level of pay, especially at the top end, and bonuses have reached the stage where they don't pass what I call the next-door neighbour test. If you can't justify them to your neighbour, you've probably got it wrong," Mr Darling said.
He was also sceptical about recently announced plans from Barack Obama, the US president, to toughen bank regulation, for example by restricting proprietary trading. Such moves were doomed to fail unless they found very broad international support. "The banks are global, they are quite capable of organising themselves in such a way that if the regime is difficult in one country they will go to another one, and that doesn't do anyone any good," he said.
Mr Obama announced plans last week to limit the size and scope of US banks and financial firms, saying they would "never again" get so big that taxpayers have to bail them out or risk the economy. The aim of the plan is to limit "excessive" risk taking and to "protect" taxpayers by preventing banks or financial institutions from owning, investing in or sponsoring hedge fund or private equity funds.
"It is always difficult to say ex ante that you would never intervene to save a particular sort of bank," Mr Darling said. "In Lehman [Brothers], for example, there wasn't a single retail deposit, but the then American administration allowed it to go down and that brought the rest of the system down on the back of it." Mr Darling said the UK would continue to work with the US on financial reform, but said any proposals must be "workable and deliverable", and insisted any action had to be international.
"If everyone does their own thing, it will achieve absolutely nothing," he said. * with Agence France-Presse