Cause of crisis

We are grateful to Gavin McCrone for his encapsulation of the various pro- and anti- policies, and omissions, from the economic debate over recent weeks (3 May).

However, he is remiss in attributing all of the crisis to the behaviour of the banks. The source of our difficulties was the failure by the Labour government to respond to escalating house prices from the early 2000s, by increasing interest rates to dampen down the market. The Monetary Policy Committee's remit did not cover that.

However, low interest rates fed cheap money, increased borrowing and sales on the high street, resulting in increased revenue from VAT etc to the Treasury. Normally, too much money chasing too few goods results in inflation which acts as its own regulator, but there was an abundance of foreign goods so prices remained stable while the tax money flowed in and we had a 300-year record annual balance of trade deficits.

When the money ran out, the banks resorted to their supermarket-style practices, and the rest is history. But, precipitate action on interest rates would have prevented most of that. Why is it that some banks managed to avoid the crisis, and require no government/taxpayers' money?

The major reason for the black holes in the various parties' proposals has its roots in the failure of the Labour government to publish, just before the election was called, its Comprehensive Spending Review.

Professor McCrone virtually accuses the Conservatives of being compromised by their comments about the ineffectiveness of the VAT reduction of two and a half per cent, insofar as any increase would be equally ineffective. But it was Labour's VAT reduction.

DOUGLAS R MAYER

Thomson Crescent

Currie