Recession

Sunday

David Blackburn

A tax Blitz that reveals Labour’s mistakes in full

The rumour mill is pulling 24/7 shifts. In recent days, newspapers and newswires have turned into gossip columns devoted exclusively to Alistair Darling’s Pre-Budget Report. If the rumours are true, which is a huge assumption, Darling will not offer the taxpayer a pre-election lolly-pop besides deferring the Age of Austerity until 2011, by which time he will probably be out of office. If Labour’s 1992 manifesto was a tax bombshell, then by all accounts this PBR will be like Dresden. Everyone, both rich and poor, is in the firing line, and there is no space here to analyse every alleged proposal.   Darling looks likely to prolong the VAT cut until at least February,

Friday

James Forsyth

Bernanke trashes Brown’s tripartite system

Gordon Brown’s much heralded tripartite regulatory system failed the first time it was faced with a financial crisis, proof that taking away regulatory powers from the Bank of England was a massive mistake. Now, Ben Bernanke — who is trying to secure a second term as Fed Chairman and keep the Fed’s regulatory powers intact — is citing the Brown model as what not to do, telling the Senate banking committee: “[O]ver the past few years the government of Britain removed from the Bank of England most of its supervisory authorities. When the crisis hit – for example when the Northern Rock bank came under stress – the Bank of

Thursday

Mark Bathgate

Risky business | 3 December 2009

With the largest transfer of liabilities in British history – the insurance of the risk of loss on £240 billion of toxic RBS assets by taxpayers – proceeding, there is worryingly little information being given about either what these assets may be or what risks there are to the taxpayer. Rather than the parliamentary enquiry and detailed disclosure Swiss parliamentarians demanded when UBS needed similar assistance, a small press release noting such exotics as “structured credit assets “ has been issued. The spin continues to be that there is nothing to worry about and all this money will come back fine. Bank of England data shows that UK bank exposure

Wednesday

Lawrence Kay

Politicking on the backs of the poorest

This afternoon Jim Knight MP, the minister for welfare reform, proclaimed that the Government wants to turn the Jobcentre Plus network into a careers service for everyone. He said that welfare advisers, who currently try to help get people on benefits back into work, will start to “provide opportunities for progression” for anyone in a job – no matter whether the person is a banker or a bin man. This is a bad idea for a simple reason: it is far more important to help the unemployed back into work than give assistance to people who already have a job. The longer that someone is out of work, the worse

Monday

Mark Bathgate

Labour’s free for all

The potentially huge exposure of UK banks in Dubai, depreciating some UK bank share prices again this morning, is a reminder of just how much UK bank lending grew in recent years. The above chart shows the growth in external claims of the UK owned banks around the world over the past decade. The sums lent almost quadrupled to nearly $4 trillion in 8 years.  Anyone interested in discovering which bubbles the UK banks (and now taxpayers) have funded can find the data on the Bank of England website – $1.2 trillion in the United States, $125 billion in Spain, $183 billion in Ireland, $50 billion to the UAE/Dubai. Bank

James Forsyth James Forsyth

Tory corporation tax plans become clearer

During the Tory party conference, I wrote about how the Tories were developing plans to radically cut corporation tax. In recent weeks, the Tories have been dropping plenty of hints about this agenda but giving little detail on it. After reiterating the Tories’ existing plans to lower the rates of corporation tax at the CBI conference last week, David Cameron said: “and we want to go further.” Today, in an interview with the FT, the Tory treasurer Michael Spencer reveals that he is “hopeful that, over the next parliament…we will get corporation tax down towards the 20 per cent level.” Spencer is close enough to the leadership to know what

Saturday

David Blackburn

A nation of property owners

An Abu Dhabian official has briefed Reuters that Abu Dhabi will rescue Dubai on a “case-by-case basis”. The official stated: “We will look at Dubai’s commitments and approach them on a case-by-case basis. It does not mean that Abu Dhabi will underwrite all of their debts. “Some of Dubai’s entities are commercial, semi-government ones. Abu Dhabi will pick and choose when and where to assist.” This is potentially bad news for the UK taxpayer, who faces the prospect of provided further cover for British banks, who invested $50bn in the region at the height of the boom. The reason we’re in the firing line? Generous though they are, Abu Dhabi

David Blackburn

Outmanoeuvred Brown endangers recovery

The Times’ Ian King writes that Dubai’s predicament presents an opportunity for the City to attract new business. There is no reason why, with attractive incentives, London shouldn’t capitalise on Sheik Mohammed’s momentary lapse of reason. However, the appointment of Michel Barnier, an evangelical protectionist who makes Joseph Chamberlain look like the father of Free Trade, as EU regulating supremo is a disaster for Britain. The appointment raises further questions about Gordon Brown’s acceptance of Baroness Ashton as the EU’s foreign minister. Michael Fallon is no doubt: “Brown has been completely outwitted. We now have none of the three key economic jobs in Brussels. This has all happened at an

Friday

David Blackburn

Dodgy doings in the desert

Of all the lunacy engendered by this financial crisis, Dubai’s decision to call a six-month creditor standstill on its chief holding company is the most pronounced. Dubai’s successful but hideous entrepot model depends on the confidence capital markets, and as a rule markets don’t react to nasty shocks with a shake of the head and a song and dance routine. It’s as if plague has descended on every stock exchange in the world; investors are fleeing for safety. Overnight, shares in Asia collapsed between 3 and 5 percent, and the FTSE, Dax and Cac40 have opened around one percent down. Prepare for another black day. Will this blip develop into

Wednesday

Mark Bathgate

Saving the world | 25 November 2009

Today’s revised GDP data confirms that the UK remained alone of the world’s major economies in recession in the third quarter of this year*. The fact that the UK remains mired in recession long after most economies have recovered makes clear how uniquely badly positioned the UK economy was to handle a downturn.  While some investment banks continue to argue that this performance reflects the inability of the Office of National Statistics to calculate the data correctly, there is good reason to believe that this huge underperformance is grounded in reality. Economic history teaches that bank crises are amongst the worst things that can ever hit an economy. The collapse

James Forsyth James Forsyth

Cause for concern

That Ipsos-Mori poll is still making waves, with both Steve Richards and Daniel Finkelstein devoting their columns to the prospects of a hung parliament. Steve is excited by the possibility, thinking that it would restore the Commons to its rightful place as the cockpit of the nation. Danny is concerned by it, fearful of the consitutional damage it could inflict. But it strikes me that the real reason to worry about a hung parliament is the financial markets. How would gilts traders react to a weak government that was incapable of making cuts? One of the few advantages Britain has – as it strugggles to deal with a deficit which

David Blackburn

Missing the point | 25 November 2009

The Today programme really let Paul Myners off the hook this morning. The interviewer obsessed with why the loans had remained secret for so long. It’s a fair question, and it seems bizarre that we only learn of them ten months after the borrowing was repaid in full. However, there are more important questions. As I wrote yesterday, these disclosure’s most potentially volatile revelation is that Gordon Brown was propping up HBOS whilst urging Lloyds to purchase the ailing giant. Was this issue examined in any depth? No, though it must be determined whether the Lloyds’ board understood HBOS’s predicament in its horrific entirety. The equally crucial question of how

Tuesday

David Blackburn

There are more pressing financial concerns than this

The two top dogs at the Treasury Select Committee, John McFall and Michael Fallon, give remarkably different reactions to the news that ministers withheld details of emergency loans to RBS and Lloyds for over a year. McFall argues that secrecy was necessary to avoid a run on the banks; Fallon expresses outrage that Lloyds’ shareholders were not privy to all information when considering the disastrous purchase of HBOS, urged on them by the Prime Minister.   Both have their points. Blind panic is the defining recollection of those autumnal days. If the situation had been exacerbated by full disclosure of the mess RBS and Lloyds were in then God alone

Monday

Peter Hoskin

Brown goes for growth – fails

So the dividing line persists.  Today, both Gordon Brown and David Cameron will talk about “going for growth” at the CBI’s annual conference.  But it all, more or less, comes down to the same, dreary “investment vs cuts” line that we’ve heard countless times before.  According to the Times, Brown is going to say that growth is the best way of tackling the deficit, rather than those nasty Tory cuts.  And, what’s more, “he hopes investment from China will drive the recovery”. Of course, growth will have a role to play in reducing the deficit.  A vibrant economy will have a better chance of tackling record deficits and debt levels

Thursday

Mark Bathgate

Fatal inexperience

The Government debt mountain grew by a further £11.4billion in October. The UK now has one of the most expensive governments in the European Union – now materially above the Eurozone average and within touching distance of France and Sweden in spending above 50% of GDP.  Blaming large Government per se for economic problems is overly simplistic – larger Government spending countries like Sweden and Finland have managed to build export market shares and provided stock market returns over the past couple of decades that put the UK to shame. Spain now has thousands of miles of high speed railways and over 50% of their energy needs come from renewables.

Tuesday

Mark Bathgate

The gathering storm

The UK inflation rate again “surprised” to the upside today, registering at 1.5%. As the above chart shows, the UK now has by some margin the highest inflation rate in G7. Were it not for the temporary VAT cut – which takes about 1% off the current CPI rate – the rate would be moving quickly above the Bank of England’s target of 2%. It would seem that the deflation threat, used as justification for the Bank of England deciding to finance the Government’s deficit this year through printing money, has not transpired. A severe recession and rise in unemployment has hit the economy, but this seems to be one

David Blackburn

The liberal centre’s continuing confusion on challenging the BNP

My recent post about the BNP has offended liberals as well as the hard right. Liberal Conspiracy’s Sunny Hundal writes: ‘David is highly confused. This is because he says: “The Spectator has maintained that the party’s domestic policies are inspired by racial supremacist ideology and that its economic policies are like Dagenham – that is, three stops beyond Barking.” Yes, I’ll agree with that. The party’s domestic policies are indeed inspired by a racial supremacist ideology. Which is why people should avoid following those policies right? Except, he does on to say centrist parties “must engage with (and I mean engage with, not shout down)” BNP policies. What a muddle.

Friday

Mark Bathgate

The perfect storm

The UK debt crisis has three constituent parts – household, government and banking. The fact that households, government and banks all went on a debt binge at the same time makes the risks for the UK economy so unusual.  The European Commission is now estimating that total UK Government debt will rise above £1.3trillion by the end of 2011, representing a more than trebling in the total debt load since 1997. If interest rates normalise to the 5% or so seen during recoveries in previous cycles, this will see the interest service bill alone rise to around £65billion a year – more than double the total defence budget. Assuming continuing

Wednesday

David Blackburn

On the road to recovery? Don’t be daft

I’d forgotten what it felt like to read positive news about the British economy. To be honest life is full of much more thrilling experiences, but my lack of enthusiasm is partially explained by the fact that a 6,000 employment rise is not proof of recovery. That half the population of Cranleigh have found employment over three months is seen as salvation puts Britain’s economic reality firmly into perspective. If you delve into the Labour Market Statistics the picture becomes clear. Unemployment was expected to rise and will continue doing so, but the employment figure is an anomaly. Britain is still visibly contracting, albeit at a decelerating rate. Vacancies fell

Tuesday

Mark Bathgate

Two elementary mistakes

The warnings from around the world about the scale of the UK’s government debt crisis keep flowing in. Following last week’s warnings from the IMF and European Commission about the scale of the UK debt crisis, credit rating agency Fitch has described the UK as the AAA country most vulnerable to a downgrade. The table at the bottom of the page shows the European Commission’s forecasts for Government deficits as a share of GDP for next year. The UK beats IMF bailout case, Latvia, to head the league table with a deficit level almost double the EU average. The Commission estimates that the UK’s total debt will have almost doubled