The nationalisation of Bradford and Bingley is set to push the combined burden of public sector debt and exposure to the housing market resting on the shoulders of the UK taxpayer to almost £1 trillion. At around 65 per cent of GDP, it will make a mockery of the Government's "sustainable investment rule", which aims to keep net debt at below 40 per cent of GDP. Even without the addition of the mortgage books of Northern Rock and Bradford and Bingley, and the bank of England's extensive loans to the financial sector, public sector borrowing was set to reach "crisis" levels not seen since the previous peaks during the last recession, in 1993, and in the mid-1970s. The impact of lower or non-existent growth on tax revenues as well as various government "concessions" on the 10p tax band and fuel duty promises to be considerable. This level of taxpayer exposure to the fortunes of the housing market is unprecedented, and will leave the state as the second-largest provider of home loans, after Halifax Bank of Scotland. Indeed, if the taxpayer ever has to take on responsibility for that bank's mortgage book the combined public sector debt and taxpayer exposure figure would rise to about 85 per cent of GDP, or about £1.2 trillion. That's the sort of figure last seen in the early 1960s, when the British economy was desperately attempting to escape from its historic liabilities associated with paying for two world wars and the building of the welfare state. At that time the sheer size of the national debt made sterling very vulnerable to currency crises. More uncomfortably for ministers are suggestions, reported over the weekend, that some UK bankers are looking to the Treasury to set up a "bad bank", similar to the Paulson Plan in the United States. This would take on all the British banks "toxic assets" in the hope that the relief would allow them to rebuild their balances sheets, resume commercial lending, especially to each other, and boost the wider economy. Estimates of such a scheme are invariably guesswork, but in all events would not improve the state of the public finances. Meanwhile, the latest survey from the CBI of the financial services sector reveals that profitability among financial services firms has plummeted to record lows as the credit crunch continues to bite, according to a survey released today. The CBI and PricewaterhouseCoopers found that profitability in the past three months continued to slump, and business volumes sank to their weakest since the survey started in 1989, and are expected to fall again in the next quarter. John Cridland, CBI deputy director general, said: "One year after the credit crunch first took hold, business volumes and profitability in the financial sector have taken their hardest hammering yet."Taxpayers run risk of a £1 trillion burden
Monday, 29 September 2008
Tuesday, 30 September 2008
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