Recession

Darling struggles to find consistency

Alistair Darling’s got an interview in today’s FT, and you know the story by now.  Yep, the government thinks that borrowing needs to come down drastically; extra growth would go towards cutting the structural deficit; there’ll be the “toughest settlement” on public spending for twenty years, only it shouldn’t be introduced too quickly; those bankers aren’t quite as evil as previously suggested; and so on and so on.  As we’ve said before, it’s certainly an improvement on that fatuous investment-vs-cuts line.  But you’ve got to wonder whether the public will find it credible, in view of what Brown & Co. have said, and done, in the past. Reading the complete

The not so steady creep of inflation

As Mark Bathgate and Fraser warned, the economic crisis now has an added dimension: inflation. The government’s preferred marker, the Consumer Prices Index (CPI) rose to 2.9 percent in December from 1.9 percent in November, which as Andrew Neil notes is the biggest monthly rise in the annual index since records began. And the Retail Prices Index (RPI), used to calculate welfare payments and wage re-negotiations, rose to 2.4 percent from 0.3 percent. The underlying RPI rate rose to 3.8 percent from 2.7 percent.  We are now seeing the long-term effects of Quantitative Easing and the use of debt to finance further government borrowing. A consequence of printing money is

Osborne looks to Sweden, but let’s not turn Japanese

The Tories have said plenty to dismay me in the last few weeks, so I was delighted to pick up the FT today to see George Osborne talking sense – and boldness. Given that we have to increase taxes, it’s an obvious one to raise. The “too big to fail” principle means that the state now provides de facto insurance to banks – so it’s reasonable that they pay for that insurance. The whole tone of Osborne’s interview is reassuring, especially as he indictates he is studing the aggressive Swedish reponse to the fiscal crisis. He indicates Tories are looking at plugging the deficit with 80 percent cuts and 20percent

Surprise, suprise, inflation’s on the rise

Oops! Britain’s inflation is heading back to 4 per cent territory ­ as you’d expect with the Bank of England printing money and using the debt to finance government spending. If you create more money, you reduce the value of the money. Citi has done another brilliant research note, which it is putting online, laying out the implications. The punters are facing pay freezes, or settlements below 2 per cent. The cost of living is soaring. Result: misery. Here are the two graphs from Citi that spell it out. First, inflation (much affected by the VAT hike ­ in the same way that it was artificially reduced by the VAT

Tories struggling to find a line on tax

After the platitudes in David Cameron’s speech yesterday, comes the bluntness of Ken Clarke in today’s Sunday Telegraph.  Interviewed by the paper, the shadow business secretary says that it would be a “folly” to rule out tax rises: “It is something that every Conservative tries to avoid but I didn’t avoid it when I was getting us out of recession before. Coming out of a recession when you have such a severe deficit you can’t rule out putting up taxes.” He’s right, of course.  The mammoth size of the deficit, and the lag before many spending reductions take effect, will mean that the Tories shouldn’t rule out tax rises.  More

What a difference two years makes

“Did he know who you were? I mean, not to be disrespectful, but he has been away for two and a half years…” So Five Live’s Phil Wiliams asked David Miliband who was talking about his conversation with Peter Moore who has just been released from Iraqi captivity. Brilliant image. The guy gets out of prison, then there’s a call from this nerdy Blairite bag carrier claiming to be foreign secretary. Yegawds, he’d say, what’s happened? Worse, Gordon Brown had become Prime Minister and irreparably trashed the British economy in the space of 24 months. Britain has now joined Zimbabwe in printing money to fund state spending. At the end

It’s not just the bankers who will be hanged

Oh, Darling, what hast thou done?  There are few more pertinent, or more damning, examples of what the government’s soak-the-rich policies could mean for the country than the news that JP Morgan is having second thoughts about developing a £1.5 billion European HQ in Canary Wharf.  Of course, the bank may still go ahead with it.  But just imagine if they don’t: the work lost for construction workers and a thousand other contractors; the tax revenues lost for the public finances.  The damage won’t just – or even mostly – be to the financial sector. Thing is, I imagine that Number Ten will be fairly happy with the story.  As

A whole batch of Brownies

There are some pretty cheeky claims in today’s Pre-Budget Report. One is that “Cyclically-adjusted borrowing is lower than at Budget across the medium-term forecast.” (page 171). That makes it sound like it’s all under got a bit better since the Budget. But in fact the “cyclically adjusted” improvement is entirely because of a redefinition of the cycle – not because of any actual reduction in the deficit.  For example, the PBR forecasts the deficit for 2013/4 as 5.5 percent of GDP – exactly the same as that in the 2009 Budget.   Another claim is that “The annual pace of consolidation set out in this Pre-Budget report is faster than

How long until the plug is pulled?<br />

Moody’s AAA sovereign monitor was published today, and whilst the UK’s AAA status remains ‘resilient’ the situation is far from rosy. The report states: ‘The UK economy entered the crisis in a vulnerable position, owing to the (overly) large size of its banking sector and the high level of household indebtedness. Both continue to weigh on economic performance. Net bank lending to the UK business sector has continued to contract through Q3 2009, and repairs to household balance sheets (i.e. the rising savings ratio) may weigh on demand for some time to come. The depth of the crisis has been mirrored by the ongoing deterioration of public finances (with gross

James Forsyth

Tomorrow could be a turning point for the Tories

The number of polls showing the Tories below forty percent are causing some heartburn for the Tory leadership. When the first poll came out showing the Tory lead down, there was a feeling that this wasn’t all bad, that it would help remind the party that the election isn’t in the bag. But there is now mounting concern at Tory slippage, this is being reinforced by the fact that the party’s own research shows the same trends. Today’s leader in The Times, a paper which is normally editorially supportive of the leadership, was another unhelpful development. Newspaper editorials don’t move popular opinion but they do still influence the prism through

Ever the optimist

It seems absurd to describe our dour and jowly Prime Minister as an eternal optimist, but he is. Rachel Sylvester’s column contains this delicious snippet of gossip: ‘When Mr Darling said that Britain was facing the worst recession for 60 years, Mr Brown telephoned him to tell him the downturn would be over in six months.’ Prudent foresight, there’s nothing like it.

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,

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

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

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

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

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

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

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

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