British Politics’s Blog

The ravings of an individual, UK voter frustrated with our politicians

Posts Tagged ‘uk economy

Ed Balls recession comments, a slip or planned?

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It is difficult to believe that the comments attributed to Ed Balls, “I think that this is a financial crisis more extreme and more serious than that of the 1930s and we all remember how the politics of that era were shaped by the economy”, was a mistake. Ed Balls is one of Gordon Brown’s closest confidantes and credited with some of the secret briefings to journalists during Tony Blair’s tenure as PM.

As a former key Treasury adviser to Gordon Brown when he was Chancellor, he would have known that his comments would be widely publicised and as an experienced politician, I cannot believe that this was anything other than deliberate. The Governor of the Bank of England has indicated that the economy could shrink by up to 6% this year, unemployment is at 2m, forecasters suggest that this will rise to 3m this year, Sterling is under pressure against all currencies, the expected rise in exports has not materialised…the list goes on.

Now Gordon Brown, having pounded David Cameron for talking down the UK economy and not being one to admit that he is wrong, would hardly have made the announcement himself. So, is it conceivable that Ed Balls was just Gordon Brown’s mouthpiece? After all, it is not like this would be the first time is it?

New Labour has always leaked bad news, they don’t make announcements and what better way than to have a cabinet minister and former Treasury adviser to let this ‘slip’ whilst addressing the party faithful in Yorkshire. Call me a cynic if you will, but this does seem typical of New Labour, drip feed bad news, announce good news with fanfare. Now it is in the public domain, ministers and eventually Gordon Brown, can add a little meat to the bones, temper the news by saying, whilst it will be worse than they forecast, it won’t be like the great depression. That said, a 6% contraction (year on year) of the UK economy would be more than we experienced during the Depression. Convenient that this ‘announcement’ should come a few weeks before Alistair Darling’s update on our economic future.

Did anyone else note that Gordon Brown, I believe for the first time, used the word “Nationalisation” in a response to David Cameron at PMQ’s? What happened to “public ownership”, is Mr Brown slowly inching towards Old Labour?

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Cameron sets up Economic Recovery Group

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The latest announcement from the Tory Party machine is that David Cameron is to invite “leading businessmen” to join his ‘Economic Recovery Group’. now, don’t get me wrong, this is a laudable initiative, but it lacks a certain something, specifically its failure to appoint people from the SME sector, even though they are undoubtedly the backbone of our economy.

The UK’s 4.4m small and medium-sized businesses (SMEs) are the engine room of our economy, accounting for 47% UK employment (13.5m), 99.7 per cent of all enterprises and 48.7% of UK Plc turnover. Within the SME sector, some 4.2m actually employ less than 10 employees and a further 167,000 less than 50. In fact, SME’s actually employ 60% of the ‘private sector’ workforce. It is, therefore, self-evident that small business is the primary vehicle for innovation which leads to new jobs, new industries and new wealth for this country and its people.

The people Cameron has invited include Next’s Simon Wolfson, Lloyds TSB chairman Sir Brian Pitman, Google chief executive Eric Schmidt and ex-Vodafone boss Sir Chrisopher Gent.  Quality people, but what do these guys know about small and medium sized enterprises. Granted, they may have once worked within one or two, but you can be certain that it was a very long time ago. If Cameron wants to come up with sensible initiatives that have a positive impact on the vast majority of businesses in this country, then he needs to stop trying to hit the headlines with industry ‘names’ and start talking to real business people within the SME sector. It may not give him the same headlines, but it will provide him with a better insight into the real issues and there is a chance that the people of this country will start to think he is a man of substance rather than glitz. We have all, I am sure, had enough of glitz, polish and rhetoric to last a lifetime.

Don’t get me wrong, I don’t doubt the credentials and standing of these men, but I do question the logic of inviting these ‘wise men’ to offer advice on how to deliver real solutions to the SME sector. Unless, of course, Cameron doesn’t realise what contribution the SME sector makes towards UK Plc turnover and how many the sector employs. Don’t go for an industry spokesman Mr Cameron, invite a couple of SME businessmen. If Mr Cameron doesn’t know where to look, as a SME businessman myself, I will gladly give my two-penneth and my time, at no charge.

1929 stock market is history repeating itself

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I read an interesting article over at the political blog Power to the People, about the similarities between the 1929 stock market crash and our current economic situation and I am finding it difficult to fault the parallels. Clearly many of the problems we are experiencing today are similar to those during the 1929 crash, except, as the author points out, back then it was shares and today it is property.

As the author makes clear there were some people in power in 1929 that were rightly concerned about the possibility of the whole pack of cards falling down, but elected to do nothing.

The people of America felt rich, lifestyles improved after the austerity of the first world war and few people raised any doubts, those that did, such as President Hoover, tended to keep it to themselves, rather than be see as the Cassandra.

Surely Gordon Brown knew there were real risks that the property bubble could burst, particularly given the property crash of the 1990’s, he must have been aware that the economy was being fueled by cheap and easy credit and above all, that the massive profits being reported by the banks were not from their high street activities alone. Yet, he chose to do nothing, now he is puffing his chest out and telling us how he is going to save the world. Personally I think that there is something morbid about allowing the same person who threw us in at the deep end to then jump in, ignoring his own culpability and receive backslaps for his vain attempt to save us.

During the 1929 crash, millions of people were destitute, having lost all their saving. Today, with millions of people investing in pensions, the fall in key stocks means that their pensions are worth considerably less than they were 18 months ago. Perhaps by as much as 50%! Those that have saved for their retirement, will be punished with low or non-existent interest rates, resulting in a reduction in their standard of living, even though they may not have been benificiaries of the largesse that caused these problems. Of course, most civil servants do not have to worry about such anomolies, because their final salary schemes are paid out of future income and as such, are guaranteed.

But the lessons of history havent been learnt, as the article goes on to state;

After the 1929 stock market crash, Hoover introduced the Securities & Exchange commision to regulate US markets, this had the desired affect. However, over the past 20 years or so, the rules and regulations have been relaxed, seen as no longer necessary and much of what we witness in the United States today can be attributed to the easing of those regulations. Similarly, the much vaunted deregulation of the City was also a pre-cursor to the problems we all face today. Light regulation and a hand-off approach by government and the regulators has allowed the banks to enter very high risk transactions which many people struggle to understand.

This government has a lot to answer for. Mr Brown promised an end to boom and bust yet, in spite of his promise, we are actually in one of the most dire economic positions ever experienced by this country, even though the warning signs were there all along. They were just conveniently ignored for political expediency and no doubt, because Gordon Brown, whilst basking in the glory of being described as the ‘iron chancellor’ didn’t want to be a party pooper. Shame on him, he was in the best position to know the risks and to do something about them, but he did nothing. In my view he is either incompetent, inept or reckless.

And…I couldn’t agree more with the statement made on this posting…

In my view, government ministers and bankers must be called to account because they have demonstrated what appears to be a reckless disregard for the interests, respectively of the people of this country and the interests of their shareholders.

We must all demand that all those in position of power or responsibility that have played an active part in this economic mess be made to accept responsibility. Further, anyone that has been reckless, irrespective of whether they are in government or commerce, must be brought to book. We, the people will automatically have to pay for any mistakes we have made (as well as those we haven’t), why should politicians and senior business executives get away scott free?

Stop banks from carrying forward losses to offset future profits

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Most analysts forecast that most, if not all of our high street banks will shortly announce record breaking losses, as many re-value their assets and take the write-off’s on the chin. In fact, informed pundits are suggesting that this will continue for another 2-3 years. Well, there is little or nothing we can do about that.

However, any bank that has been in receipt of state aid, support or taxpayer sponsored insurance schemes must not be allowed to benefit from a double whammy. That is to say that, whilst the taxpayers of this country take on much of the risks associated with their recklessness, the banks carry forward these massive losses, to allow them to offset past losses against future profits. That would most certainly rub salt into the wound. Under current taxation rules, business can carry forward past losses, to set against future profits. This concession made sense for most businesses that have a difficult year or two, or those that are in a start-up phase. It should not be used to reward banks and their shareholders, when they have had to rely on a state bailout or support programme to allow them to survive intact.

Government ministers and opposition parties must provide the assurances, here and now, that the banks will not be permitted to carry forward past losses, to offset against future profits where these banks have been in receipt of any state aid. A failure to do this will allow banks and more specifically their shareholders to receive handsome ‘tax free’ rewards at the very time that the taxpayers will being having to accept higher taxes as a direct conseqeunce of the banking crisis and the largesse, or indifference of our government and ministers. This would be completely unacceptable. If the banks were not so integral to our economic well being, they would not have been treated as a ‘special’ case and received such massive state aid. But they are and they have been. MP’s must now undertake to identify the banks as a special case in the future, given the racing certainty that they would, under existing rules, be rewarded with future tax breaks/concessions.

Once we come out of the other end of this recession, taxes will rise and if the past is anything to go by, the public will be expected to pay the lions share through direct and indirect taxation. This country will need banks and industry to pay their fair share. We cannot afford any bank or any business to use 2 or 3 years of losses to offset against the following 2 or 3 years profits. Everyone needs to make a contribution. If business, such as the car industry are in receipt of state aid, then they must also be prevented from offset past losses against future profits, similarly, if these businesses are not registered in the UK for tax purposes, then they must undertake to do so before any taxpayers funds are advanced and for a period beyond, to make sure that taxpayers benefit in the future. Now is the time to be negotiating tough terms and looking ahead in terms of these banks and businesses making a real and tangible contribution in the future. A failure to do so will result in a massive public backlash in the future.

UK Economy, can the future be so bright?

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It doesn’t really matter who you listen to, everyone seems to believe that we will come out of the recession leaner and stronger, with most arguments centering on how deep and how long the recession will be. There are also varying estimates as to the level of debt UK Plc will have and also how long it will take to reduce this debt mountain via increased tax revenues. Maybe I am cynical, naive or just plain stupid, but I can’t for the life of me see what we are going to be left with when the recession does actually end.

We know that after the last recession, our manufacturing industry was virtually decimated, not only did many people lose their jobs, but an industry dating back to the Victorian times disappeared virtually over night. Therefore, even if the pound is weak, surely we cannot rely on manufacturing to provide jobs and tax revenues.

So what of the financial services and banking industries? As we all know, this particular recession has been brought about, for the most part, by poor lending decisions of the banks. In addition, much of the profit derived from The City was via ‘manufactured’ trades of bundled mortgages, securities and so on. The financial services and banking sector have now had their fingers burned. In addition, one of the main attractions of the UK was light regulation, and there is every indication that the UK authorities will now start to tighten the rules. Taking all these things together, it is most unlikely that the UK banking and financial services sector will ever look the same again, nor will it offer the same levels of GDP contribution, jobs or tax revenues. Added to which, with many financial institutions and banks harbouring massive losses, it is quite likely that they will not have to pay any corporation tax for a good few years to come.

As our manufacturing base declined, our GDP was propped by the banking and financial services sector, given the above, do we really have any hope of a strong recovery from any of these sectors? I think not. On top of everything else, before the recession, the government were steadily increasing corporation tax as well as red tape. As a direct consequence, the UK was no longer the land of milk and honey from a tax perspective. So in recent years we have seen more and more companies registering their businesses abroad for tax purposes. Southern Ireland is a case in point, where their tax regime is considerable more attractive than our own. This will lead to a further loss of jobs and more importantly in the current debt climate, a loss of tax revenues.

Then their is our carbon emissions targets. Our government has committed to a reduction of 80%, this is not empty rhetoric, they intend to make it legally binding. Similarly, a reduction in carbon emissions is not incentive driven, instead is uses a stick rather than carrot approach, meaning higher ‘green taxes’. These taxes will hit not just business, but individuals as well and of course the price will have to be paid both at the tills and in the way of fewer jobs. What this means is that is that any UK business will be subject to higher direct taxes and higher indirect taxes via ‘green’ initiatives. Now, because the UK is one of the few countries taking carbon reductions seriously, it means that companies operating in the UK will be subjected to a competitive disadvantage when compared to other countries.

Then look at what has been driving sales over the past 10 years, the so called “credit bubble”. The economy has grown as a direct result of easier credit, low interest rates and rising house prices. The latter has made people feel more wealthy, leading to a release of equity through remortgages or secured loans, the ‘easy’ money has than been spent in th High Street, on consumables, cars and nice holidays. In a harsher climate, with less money available to consumers, a stagnant housing market, higher taxes and fewer people in work, it is difficult to see how or when we can expect a return to ‘business as usual’.

So, whilst I know the politicians hate to paint a picture that is considered too negative or gloomy, I would like to witness them share their thoughts on just how everything is going to be fixed and over what timescale. Becuase, in all honesty, unless I am missing something, the future does not look too bright.

Democracy has already disappeared

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Much has been said over the weekend regarding the Damian Green affair, with most commentators suggesting that our democracy is damaged, at stake or in peril. I would not argue with any of these descriptives other than to say our democracy was under threat a good deal earlier than this high profile incident.

Whether it is detention without charge, law officers being able to store telephone call details, text messages, email content and web browsing habits, or the ability of the police to take DNA off a subject even if they haven’t been charged. All of these new laws have been brought in, ostensibly to aid the fight against crime and terrorism, but as we have already witnessed, neither the police nor the government are shy of using anti-terror laws in completely inappropriate circumstances. As each new piece of legislation has been passed, so we have had to wave a fond farewell to some of the fundamental rights that we have lost in the process. Rights that we have enjoyed for hundreds of years. Yet crime is not falling and terrorism remains the same threat as it was before.

The government has become the ‘bitch’ of the police service, giving them have whatever they want, whether it be detention without charge, 30,000 taser guns or the ability to monitor telephone calls on the say so of a senior officer rather than a judge. Opposition parties, by contrast, have acted like the governments lapdogs, providing a less than spirited defence of the rights of the individual. In an effort to preen themselves in front of the TV cameras, or gain a few column inches from a compliant newspaper, members of parliament have forgotten that they are responsible for upholding the rights and liberties of the citizens of this country. They have failed miserably….look at how many departments that have been labeled “not fit for purpose”, now consider how this label could be identified with most of the government and a large number of other MP’s!

As a consequence of this governments preoccupation with gaining more and more state control, we as a people have become all the poorer. Not in economic terms (that was for different reasons), but in terms of freedom. Our right to privacy has gone forever, because this government has allowed nearly every aspect of our lives to be monitored and/or recorded and then allowed upwards of 800 agencies, both public and private, access to that information. It is an outrage. Worst of all, every MP that failed to speak up for the people of this country on this issue have been complicit in our demise, further, every newspaper editor that has failed to raise these issues for fear of losing scoops from a minister have failed their readership.

Of course you can’t get the genie back into the bottle, but members of parliament on all sides should seek to use the Damian Green affair as a signal that a complete review is now needed of all legislation passed that has provided government and the police service with unprecedented powers over the people of this country. British citizens are supposed to be the masters, not the servants, New Labour policies have dispensed with this long held tradition. Purists may say I am wrong, but it is my contention that when so much power has been passed to government and the tools or agents of government, such as the police service, security services and so on, the people of this country become the servants of state, not the other way around.

We may retain the vote, but little else and if we allow further removal of our rights, we could end up being a basket case like Zimbabwe, with question marks over our entire electoral system. Melodramatic maybe, possible most certainly, after all, Hazel Blears has already indicated that she wants the legal power to prevent publication of certain stories in the mainstream media and has pointed out that she is not in favour of bloggers. Who 20 years ago would have guessed that we could lock people up for a month with no charge, seize the assets of another country using anti-terror laws, monitor and store every telephone call, text message and email, force identity cards on a reluctant public? The list goes on, but you get the picture, it isn’t just possible, we are already well on our way.

If ever there was a justification for a public enquiry, something I do not normally advocate, it is now. It should be wide ranging and concentrate on the legislation that has been drafted by this government which as a consequence of its introduction, has removed, reduced or eroded the civil liberties and rights of the people of this country. Further, they must look at what the original intention was and find out how these laws have been used, abused or mis-used. This enquiry must then have the power to order that government introduce legislation to allow either an amendment to, or the repeal of any legislation that is not as intended or has simply gone too far.

David Cameron could lead this charge and I suspect he will have a great deal of support, certainly from the public and most likely from the LibDems and a few Labour backbenchers. Or, he could let the opportunity pass by and be picked up by Nick Clegg. For as sure as night follows day, there will be a massive public backlash when it starts to sink in just how many of our rights have been sacrificed in a fight against terrorism, something, incidentally that this country has faced for most of its existence.

If as a consequence of the Damian Green affair members of parliament only seek an exemption for MP’s, then I think the public will have a very good idea who our elected members look out for and it would most certainly not be us. They could be reminded of this at the ballot box assuming we manage to retain that right. Don’t laugh, it could happen, just look at our ruling elite!

Do not bank on the banks

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My attention was turned to an interesting post over at Power to the People which followed on from my own post in respect of a bankers claim that “banks are not charities“. The post that I am referring to relates to corporation tax that banks would normally pay and comes at the whole issue from a perspective I had not considered, but is, nonetheless, very relevant in the current economic climate.

As everyone knows, the high street banks are posting massive losses as they move to write-off questionable assets and large consumer debts. However, under the current HMRC rules, they are entitled to carry over losses to offset against profits in future years. This means, that in spite of the significant risks being borne by the UK taxpayer as a direct consequence of the banking bailout, when things improve, there will be no win for us. In other words, the big banks, will not have to pay any form of corporation tax for some considerable time to come, perhaps, in some cases, for the next 5 years.

This, whilst perfectly legal, is an outrageous state of affairs and in my view, must be treated as an exception to the rule. Gordon Brown must bring in urgent new legislation to prevent the banks carrying forward these massive losses to set off against future profits. The principle of carrying forward losses is a good one, however, in this particular instance, it would leave the taxpayer with a very sour taste indeed. Failing which, the government must advise the banks that they could be subject to a windfall tax equivalent to any loss to the Exchequer in terms of tax revenues. The full article can be read here: Will taxpayers lose out to the banks again?