The 0.5 fall in output reported last week was more than most analysts expected and it is evident that the recession is going to be quite long (I would think at least 18 months) and relatively deep. With the fall in share prices, the problems of the banks are not entirely sorted out as they are finding it difficult to raise capital on the markets. This may be a particular problem for Barclays who understandably eschewed government aid.
As the public come to perceive the banks as 'publicly owned', they may expect government to intervene on all sorts of issues from customer service to repossessions. This is going to cause a real mess as the old model of nationalisation never worked as far as accountability was concerned and we don't have a new one. What the Government should say is that they have no responsibility for day-to-day commercial decisions, but that is politically costly as far as repossessions are concerned.
The fate of small business is becoming something of a political battleground between Labour and the Conservatives. I have a personal interest as one of my children and her husband run a small manufacturing/service business and they are in the process of moving into new premises. (See Signs ) They say that it is quieter than usual, but orders have by no means dried up and they seem to be getting more interest from abroad as the pound falls (although that will push up the cost of the out sourcing they do in China). On the subject of China, controversial columnist Will Hutton has something to say in The Observer this morning. In my view it borders on the insulting, but you can read it yourself here: Hutton
As far as small businesses are concerned, the Conservatives favour tax breaks or deferment, Labour subsidies. Tax breaks really are a form of subsidy but they are perceived differently. Tax concessions give more autonomy to the small business person to decide how to use the money, but it may end up in their pocket. Subsidies, however, may not achieve the required objective and then there is the 'additionality' problem.
This means that you are paying people to do things they would have done anyway. For example, supposing a small firm was trying to train someone up to become a manager and wanted to send them on some courses with their chamber of commerce. As I understand it, even very small firms can now get these paid (or largely paid for) under the Government's 'train to gain' scheme. In other words, taxpayers are paying for something that would have happened anyway.
What is clear is that all this borrowing and spending to boost the economy will end up with a bill which could amount to the equivalent of 2.5p on income tax for ten years. If Dave Cameron wins the next election, as still seems likely, it could be a poisoned chalice.