The always eloquent but invariably misguided Dan Hannan is one of the chief bearers of the Tory party’s Thatcherite flame. Devoted to Hayek and Milton Friedman’s dubious school of economic theory and a staunch eurosceptic, he’s not taken very seriously by most MEPs in Brussels. But after his attack on Gordon Brown in the European parliament became a YouTube hit in spring 2009, he attracted a lot of ill-deserved publicity and became the favoured son of his party – which tells you that, for all Cameron’s fine-sounding talk about creating a ‘Big Society’, deep down the Tories are still the same nasty party. Hannan may be a maverick but he says what the Tory leadership really believes but dares not say, which when it comes to economic policy, is the sanctity of markets free from any government interference.

Hannan’s latest missive attempts to convince us that “politicians have no business telling banks what to lend”. Well, I’m sorry, Dan, but when elected politicians have pumped in an estimated £1 trillion of taxpayers’ money to keep these banks from collapsing, and when these banks then fail to pass on sufficient credit to small businesses then it is precisely the job of politicians to tell banks what to do.

Dan Hannan, like the Tory leadership, has been consistent about the bank bailouts that Labour pumped on to save the savings and pensions of millions of Britons during the worst times of the financial crisis – he was against it. Like George Osborne, he does not believe that governments should interfere with market forces, even if those markets are either facing complete collapse, as they were in 2007-8, or failing the best interests of society as they are now as a result of the lending crisis.

But, as the likes of Lloyds, RBS and Northern Rock have reported a return to multibillion pound profits this week, and the value of the taxpayers’ stock increases, we should constantly remind the Tories of the folly of their opposition to the bailout. Allowing the banking system to collapse would have caused unimaginable chaos that would inevitably have spilt over into society at large, and bankrupted millions of hard-working Britons into the bargain. In contrast, the ‘bailout’ itself has actually turned out to be a good investment and will generate a large profit for the treasury.

There is a case to be made that the banks are stuck between a rock and a hard place. The EU capital requirements directive requires banks to hold more capital as a proportion to what they can lend – a sensible long-term move to prevent the banks being as undercapitalised as they were when the crisis hit. Secondly, the coalition has proposed a bank levy, albeit a meagre one estimated to raise £1.2 billion, while Labour is also proposing further levies on the financial sector.

But this does not mean that the lending capacity of major banks doesn’t exist, or that the demand for credit doesn’t exist. As I have written before, the bank of England’s financial stability report in June, and last week’s coalition green paper, admitted that if British banks kept to 2008 bonus levels this could generate around £10 billion in additional capital over 2010 and sustain £50 billion in new lending. For Hannan and bankers to whinge that they can’t lend the money because they don’t have it is simply arrant rubbish.

Besides, considering that it was the banks and investment firms that got themselves into this mess by prioritising short term risk-taking ahead of long-term profitability, it is difficult to have much sympathy for them.

But, once again, we have clear dividing lines on the economy between ourselves and the Tory-dominated coalition. We know that markets are good at creating economic growth, but they do not always function perfectly and are not morally superior to government intervention. When markets are failing to deliver the best outcomes for our economy and society, then we know that we need to rules and state intervention to guide them. To the likes of Dan Hannan the ‘market’ is a sacred entity that should never be disturbed by government. We all know that while they don’t admit it in public, George Osborne and the Tories agree with him.

Photo: dystopos