Professor Alan Barrett:

-----so that should give me a little bit of leeway. The Deputy asked a specific question on the level of credit that would hold in a normal economy. I am not sure there is an answer to that question, so I will come at it from a different route. There is obviously a problem and if one takes the Central Bank's work on this, there are difficulties for SMEs in getting credit. That is clearly a problem but in an economy that is under the pressure ours is under, it is absolutely the case that a certain proportion of SMEs will fail. Therefore, there are real risks to lending to this group. This is a very difficult question. I remember at the outset of this crisis being involved in a discussion along the lines that if we were not going to have a functioning banking system for a long period of time, that would act as a constraint on growth.

To return to the remarks about life in a post-bubble economy, one of the great difficulties is having an impaired banking system and it is very hard to see an economy growing in the absence of a banking system. We will have an impaired banking system for quite a while and a banking system that may not feel comfortable lending, precisely for the reasons that banks do not want to get burned again. There may not be the human capital in the banks to make good lending decisions. We had a banking system that was made up of people whose job was to lend on property transactions; they were not people who were able to analyse good investment decisions. There is a real problem. To use the economic term in that respect, we talk about a market failure, that the market will not deliver something that the economy really needs. It is a standard economic argument that if there is market failure what one wants to see is the government intervening. I noted with great interest earlier in the week an announcement at the Liberal Democrats conference of the notion that the British Government was simply going to short circuit the difficulty and establish a bank that would lend directly to people.

That is something we have not explored, but it would be an issue this group would discuss. I remember early discussions on it and at the time it was arguing that the fear behind setting the up of a State entity was that the giving of loans would be politicised. Other such arguments were made that typically went against State involvement in a bank.

To return to a point made earlier, this long into the crisis there is no sign of banks being restored to active lending and health. Perhaps, therefore, it is time to short-circuit the process.

The second point was related to the design of the property tax.