Gary Mulvaney – no standard Tory

The UK Government’s proposed ID cards – which are being introduced by stealth by way of, for example, the Young Scot Card – have always been recognised as having a serious cost implication as well as their negative impact on human rights.

In drawing attention to the fact that the population of Argyll and Bute’s share of the cost of the introduction of these cards will be £7.77 million, Mike MacKenzie, one of Argyll’s Prospective Parliamentary Candidates for Westminster (SNP) has added up some more costs Argyll will share. The list is:

£7.77 million – share of the cost of the ID card proposals.
£3.35 million per annum – share of the annual cost over the next thirty years of replacing Trident
£18 million – approximate share of the UK Treasury’s upcomingcuts to public expenditure

He asks if these are what we would choose to spend our money on? He then answers his own question: ‘With these financial resources at our disposal we could make significant improvements to health care, to education and to infrastructure in Argyll and Bute, especially if the Scottish Government had the ability to borrow for capital projects’.

Hey – we might even fix the potholes on the roads on Mull.

RBS restructuring may lose 20,000 jobs as Brown prepares to print money and insure toxic debt

Posted on February 23, 2009 by

Stephen Hester, the new CEO of the Royal Bank of Scotland is dividing the bank into two main elements – today’s core business which is profitable and will carry on; and a peripheral cluster of ‘assets’ which will be sold as soon as buyers can be found. These ‘assets’ are the £300 billion debts – mostly toxic – acquired during the disastrous investment banking adventures that have brought the bank low.

Hester needs to show his shareholders that the heart of the RBS can succeed. Splitting the structure in this way means that he can point to one and try progressively to dispose of the other.

The identification of assets to be put up in a fire sale will inevitably mean job losses and industry experts are predicting that these may run to 20,000.

This news comes as Gordon Brown announces a plan to spend £500 billion in insuring the so-called toxic debt acquired by UK banks while at the same time pumping £15 billion, much of it new money, into the mortgage market by 2011 via Northern Rock. This is being done in an attempt to reverse the movement of the economy towards a settled recession.

Experts predixct that this move will itself create a twin track mortgage market, even within Northern Rock itself. Current mortage holders will continue to face repossession while new mortgagees will see much more favourable terms under the proposed injection of ‘new Government money’.

The national debt is now at a frightening level. Last week it was independently estimated by the Office of National Statistics at £2 trillion, when the value of the banks’ toxic debts are included.

Brown’s latest gamble – in insuring these debts and in going for what is called ‘quantitative easing’ – or printing money, as it is less ambiguously known to most of us – is also frightening. It may be too little too late.

On the one hand the UK is borrowing on an unimaginable scale and one which will bring real and widespread pain in the repaying.

On the other hand, Brown’s response pattern from the start of the collapse of the banking system has been to do as little as possible and to leave that until he had no alternative.

This means that none of the moves to date – however much they have cost us – have achieved the necessary stabilisation of the economy. From the reluctant, progressive upgrading of the bank guarantees to savers onwards, each move has been too small, too late and too indecisive. In effect, it has largely been wasted money.

Since early last Autumn when the financial industry began to unravel, there has been an argument that Brown’s best strategy was to make an early, large and bold move. But that is not his character.

The real nightmare is that the current massive debt will be our long term burden without achieving anything significant. It has been accumulated progressively, in fire-fighting dribs and drabs, each of which has vanished without impact.

However mad it seems, printing money might work in hands other than Brown’s but, with his track record throughout this crisis, hope that he might get this right would fly in the face of the evidence.

Brown has also set his face openly against a course recommended by many experts – dividing banking into two functions: the normal high-street retail banking and the high risk investment banking sector. The decision to carry on with the current twin-function banks will leave the taxpayer, now the owner of so much of the UK’s banking stock, liable for the risk-taking sector which could otherwise be hived off as purely private sector ventures.

Prudence to print pounds

Posted on January 8, 2009 by

If it wasn’t so terrifyingly serious it would be almost endearing – like the sort of solution to insolvency that any inventive small schoolboy like William the Bad would have taken, courtesy of his John Bull printing set.

Andy Mettler Wikipedia Commons Gordon Brown is seriously considering printing money – increasing the money supply. They call it ‘quantitative easing’.

This is how it works. There’s an important national company in trouble – or it could even be the banks needing yet more funds. The Government could buy the company, taking it into state ownership or buy the banks’ ‘toxic debts’ for the taxpayer. These are the debts that are probably irrecoverable.

The Government would have to borrow money to do any of these things – and the UK’s borrowing debt is already far beyond any historical precedent.

But there is another way. The Government could simply roll the presses of the Royal Mint for long enough to produce the required amount to buy the troubled company or fill the banks’ coffers again in exchange for unstable debts.

The state would own whichever, possibly worthless, commodity it had bought – with no increase in borrowing to pay for it. The company or the banks would have the cash – perfectly acceptable currency. They would use this cash for some purpose which would add to the money supply in general circulation. In the case of the banks, this would be money to lend – to small businesses and homeowners in loans and mortgages.

Neat, isn’t it? And it is this ‘solution’ that Dear Prudence is currently considering.

So what’s the problem? If the state were a bank – which it virtually is these days – the problem would be its ‘liquidity ratio’. When the largely unregulated banks recently collapsed, they did so because of virtually total easement on the requirement to lend against only a safe percentage of assets. So when borrowers defaulted and the pyramid of hedging imploded, they were themselves in irrecoverable debt. They had no liquidity.

If the state prints money it is in effect knowingly taking the same risk the banks took with such disastrous consequences. There will be no assets to set against the new money printed. It’s a confidence trick which, if the truth be told, all money is anyway. Within safe limits, however, confidence generally holds and we get by.

Printing money is the most desperate last throw for a state to make. It brings us closer to hyperinflation than we should sanely consider. In the 1920s, post First World War Germany increased the money supply, hit hyperinflation - and there is living memory in the UK of German citizens literally barrowing Deutschmarks to pay for the smallest item of food. In the 1970s Argentina took the same route and got to the same place. And in the 1990s, Japan – as Brown may now do, refused to admit the lessons of history.

An increasingly possible nightmare is that Brown may print money, fatten the money supply and then call an early General Election, maybe in June. He would hope to win – or to lose narrowly – with the country gulled into a deceptive sense of relief in the greater availability of worthless money. And he would hope to win before the foundationless edifice comes tumbling down. But of course he would also hope that this wouldn’t happen. Every gambler does.

If the Prime Minister prints money, whichever party wins the election the country wll be stuffed.

Alistair Darling denies plans to print money to save economy

UK ‘divide and ruie’ strategy on the rejection of funding spread for new Forth Bridge project

Posted on January 5, 2009 by

Everyone agrees that a new bridge across the Forth is crucial to the development both of Scotland’s transport system and thereby of its economy.

Whatever one’s politics or one’s views on any particular issue, there can be no doubt that Scotland today has a Government that governs, that accepts responsibility for decision taking, that will face up to tough situations and that is building a strategic policy for the growth of the country.

There is every fiscal sense in Finance Secretary, John Swinney’s request to the UK Treasury to spread the cost of the new bridge over the next twenty years of Holyrood’s capital budgets.

In its rejection of the request, there were two responses from UK Treasury Ministers:

Chief Secretary to the Treasury, Yvette Cooper, said: ‘The UK-wide public spending framework does not allow for bringing forward spending in this way’.
Chancellor Alistair Darling described the Scottish Government as: ‘asking to borrow money from budgets that have yet to be allocated, over an extremely long period’.

Let’s take a sharp reality check here.

Alistair Darling and Yvette Cooper, with Prime Minister Gordon Brown, have committed the entire UK to a volume of borrowing debt never seen before in history. It will take, not just twenty years, but generations to repay and its impact on future budgets cannot even be guessed at

So talking about a ‘public spending framework’ in a context where the Prime Minister has thrown all frameworks out of the window is no more than robot-babble.

And talking about ‘asking to borrow money from budgets that have yet to be allocated, over an extremely long period’ is a very pale description of the fiscal burden the UK Government has now taken on.

These wafer-thin ‘defences’ for saying no should not be taken seriously for more than the twenty seconds it takes to see through them.

The real strategy is baldly seen in the Chancellors further remarks: ‘If you are contemplating large projects like this you do have to make choices’.

By rejecting the fiscallly responsible suggestion Holyrood has made, the Westminster Labour administration is obviously trying the tired old political trick of divide-and-rule. It is hoping to force the Scottish Government to take such choices and set Scot against Scot and Scots against their Government in consequence.

It is to the credit of the Scottish Government that it has not flinched from this. John Swinney has said that the bridge must go ahead and that other projects will have to be prioritised.

Bridges cannot be built quickly. The future of Scotland’s economy depends upon the main infrastructure being fit for purpose and this work has to start now. This affects all Scots, wherever they live in the country. It would be good to see Scots resisting being made pawns in a bigger game by refusing to have their local territorial fears set against the larger national interest – and supporting the bridge project.

Smoke and mirrors in Pre-Budget Report disguises a borrowing nightmare – and rise in fuel duty a bad hit on the Highlands

Posted on November 24, 2008 by

Amongst the heavy use of smoke and mirrors in the Pre-Budget Report, there are three headline stories.

The Chancellor has made the biggest ever cut to growth forecasts – dropping from his forecast of 2.75% to 0.5% for this year, then down to minus 0.75% – minus 1.25% in the first two quarters of 2009
The borrowing the UK is now committed to is terrifying – £1 Trillion by 2013 -2014 and the strategies for its repayment have not yet been spelled out
The growth forecasts on which the Chancellor has based the limit of our borrowing needs are widely considered to be very optimistic – back in surplus at 0.5% at the end of 2009 and from 1.5% to 2% in 2010.

By 2013 – 2014 we will be borrowing £1 Trillion – 57% of our Gross Domestic Product (GDP), the highest in history, worse even than the 1970s when the UK suffered the humiliation of having to go to the International Monetary Fund (IMF) to be bailed out. The current limit on the national debt is that it should not exceed 40% of GDP

How this will be repaid is both unclear and uncertain. With the exception of the higher rate of income tax at 45% for incomes over £150,000 – which is more gesture politics than an earner – only two measures were proposed:

£5bn of Government department efficiency savings in 2011. Efficiency savings historically are rarely actually made and are very hard to demonstrate convincingly.
£5bn from a 0.5% rise in National Insurance contributions from both employees and employers from April 2011. The rise in NICs, which will hit workers and employers, is the only real contribution to the repayment of borrowing.

Before this afternoon’s mini-budget, For Argyll said: ‘Expect generosity more apparent than real’. We could not have been more right. It was sleight of hand all the way.

£20 billion injected into the economy between now and 2010 – and £40 billion taken back in raised taxes.
A temporary (to end 2009) 2.5% reduction in VAT to 15% – to be offset by a permanent rise in fuel duty. This will hit the Highlands particularly hard – there is usually no alternative to the car; and freight costs for businesses will rise
Small businesses have not been given a reduction in corporation tax, but the planned 1p rise in this tax will be deferred. Instead of a reduction in corporation tax, SMEs will be given latitude to spread the payments of all their taxes – VAT, Corporation Tax and National Insurance Contributions (NICs) – over an extended period. They will, of course, be incurring more tax debt while they spread repayments of current tax debt. They will also have 0.5% increases in employers’ NIC’s from 2011.
Pensioners will get a one-off payment of £60 for an individual and £120 for a couple added to their £10 Christmas Bonus – from January 2009. This means not this year.
Basic rate taxpayers will see compensation for the removal of the 10p tax band continue with a reduction of about £145 in their annual tax bill. But all workers (and employers) will pay an additional 0.5% in National Insurance Contributions NICs) from 2011.
From 2011, those earning over £150,000pa will pay a new higher rate of tax of 45% on earnings over that limit. The Chancellor said that this will apply to 1% of incomes. It will see someone earning £250,000 pay an additional £5,000 a year. At the same time, the spending power and habits of the rich are likely to gain from the 2.5% cut in VAT for the next 13 months.
Motorists will simply see a slower phasing in of the differential vehicle excise duty which will reward low emission vehicles. 2009 will see a flat rate £5 rise for all vehicles. 2009 will see heavy polluting vehicles pay a maximum rise of £30; and lower polluting vehicles pay the same or less.

Before this afternoon, For Argyll said: ‘Expect a June 2009 election’ It looks like we were right on this too. The VAT cuts will last until the end of 2009. Neither the rise in NICs for employees and employers nor the higher rate income tax for the top 1% will hit until Spring 2011, giving a bit of leeway in case the election runs to the wire in 2010. The heaviest Government borrowing will not take place until after 2009.

This year, 2008, we will borrow £78 million.
In 2009 it will rise to £118 million or 48% of the UKs Gross Domestic Product (GDP).
But by 2013 – 2014 the national debt will have risen to 57& of GDP – and it may well be worse since, as noted above, this projected borrowing need is based on growth forecasts higher than anyone expects. The current limit to the national debt is is 40% of GDP.

So in the best possible circumstances and in the fastest possible time, it will be 2015 – seven years from now – before we are in a position to start paying anything back. This is the burden each of us now carries. We have indeed mortgaged our children’s futures.

The £20 billion of giveaways from now until April 2010 includes – and this is not an exhaustive list:

£4 bn from the European Investment Bank for our banks (and there are seven in the queue already) to pass on to small businesses.
£2bn in loan guarantees for small businesses
£1bn in support for working capital of small exporters
Businesses going into loss will be able to offset losses to a maximum of £50,000 against three years of profits
£3bn of spending brought forward for motorways, housing, schools and energy efficiency
Introduction of a Savings Gateway for low income savers – but, everyone missed this, not until 2010. The Government will add 50p for every £1 saved in Savings Gateway accounts. These will be available in banks, building societies, credit unions and – a genuinely good one – Post Offices.
Child benefit support – with both currently proposed rises to be paid together from April 2009, adding around £2,035 for middle income families
A rise in the Basic State Pension to £95.25
A rise in Pension Credits to £130 for an individual and to £198 for a couple
A payment of £70 to disabled children
£15mn for a free Debt Advice service for all
£775mn for social housing
£535mn brought forward to pay for 200 more trains and increase environmental protection and flood defences
£100mn of new money and £50mn brought forward to pay for insulation in another 60,000 houses in low income families

Warning to Savers – Avoid Isle of Man and Channel Island Banks. These offer attractive rates but because of their individual constitutional relationship to the UK, they contribute nothing to Exchequer. The Chancellor has called for a review of the position of these banks in relation to deposit guarantees. He made it clear that the UK is not going to be ‘universal guarantor’ and does not intend to guarantee accounts in these banks.

A final and sobering note on the situation we’re in is that the cost of insuring against the Government defaulting on Bonds it sells on the stock market has risen sharply in the last few days. It is now second only to Italy – a chilling measure of how our economic stability is viewed by the outside world and by the financial markets. Having said that, the FTSE rose quickly by 10% after the Pre-Budget Review – a sign of confidence by the financial markets, for the moment.

PreBudget report: Treasury reveals biggest growth forecast cut since records began

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