Britannia Radio

This posting is a pot-pourri of news items and comments from a
variety of sources .

Major pronouncements in the media are available by the wheelbarrow-
load! I will try and sort the wheat from the chaff as the day goes by!

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TELEGRAPH blog 24.11.08 at 20:06
Is Britain Going Bankrupt?
Posted By: Ambrose Evans-Pritchard

The bond vigilantes are restive.

We are not yet facing a replay of the 1970s 'Gilts Strike', but we
are not that far off either.

There is now a palpable fear that global investors may start to shun
British debt as the budget deficit rockets to £118bn -- 8pc GDP -- or
charge a much higher price for to cover default risk.

The cost of insuring against the bankruptcy of the British state has
broken out -- upwards -- over the last month. Yes, credit default
swaps (CDS) are dodgy instruments, but they are the best stress
barometer that we have.

Today they reached 86 basis points, near Portuguese debt in the
league table. For good reason. Alistair Darling has had to admit that
the British economy faces the most sudden economic collapse since
World War Two, and the worst budget deficit of any major country in
the world.

Ok, this is a lot lower than Iceland, Ukraine, Hungary, and other
clients of the IMF, but is significantly higher than Germany (35),
USA (43), and France (49).

After trading at similar levels to our AAA-rated peers for years, we
started to decouple in August and then began to soar in October.
We reached a fresh record the moment the Chancellor told the House of
Commons that the budget would not return to its already awful
condition until 2016.

Should we be worried? Yes.

Marc Ostwald from Insinger de Beaufort said Gilt issuance would reach
£146bn in fiscal 2008/2009. Britain will have to borrow £450bn over
the next five years.

This is an utter fiasco.

With deep embarrasment, I plead guilty to supporting the Brown-
Darling fiscal give-away -- though with a clothes peg clamped on my
nose. As the Confederation of British Industry and many others have
warned, we face an epidemic of bankruptcies unless we tear up the
rule book and take immediate counter-action.

The Bank of England's drastic rate cuts are a necessary but not
sufficient stimulus. Monetary policy is failing to get traction
because the credit system has broken down.

We face the risk of a rapid downward spiral if we misjudge the threat
at this dangerous moment, as we sit poised on the tipping point.
Besides, the whole world is now resorting to fiscal stimulus in
unison under IMF prodding. Sticking together is imperative. If
countries reflate in isolation, they can and will be singled out and
punished. That is the lesson of 1931.

But this is not to excuse the Brown Government for the total hash it
has made of the British economy. It presided over a rise in household
debt to 165pc of personal income. How could the regulators possibly
think this was in the interests of British society? What economic
doctrine justifies such stupidity? Why were 120pc mortgages ever
allowed? Indeed, why were 100pc mortgages ever allowed? Debt is as
dangerous as heroin.

Labour ran a budget deficit of 3pc of GDP at the top of cycle. (We
had a 2pc surplus at the end of the Lawson bubble, so we go into this
slump 5pc of GDP worsee off). The size of the state has ballooned
from 37pc to 46pc of GDP in a decade, and will inevitably now rise
further.

It is because Gordon Brown exhausted the national credit limit to pay
for his silly boom that today's fiscal stimulus -- just 1pc of GDP
(China is doing 14pc) -- is enough to rattle the bond markets.

Our national debt will jump in what is more or less the bat of an
eyelid from under 40pc of GDP to nearer 60pc -- according to Fitlch
Ratings. It is enough to make you weep. But is this bankruptcy
territory? Not yet. Britain will remain at the mid to lower end of
the AAA club.

A Fitch study today estimates the "fiscal cost" of the bank bail-outs
(which is not the same as just adding guarantees to the national
debt) is 6.9pc of GDP for Britain -- compared to Belgium (5.7pc),
Germany (5.8pc), Netherlands (6.3pc), and Switzerand (12.9pc). We are
not alone in this debacle.

If and when the storm blows over, Britain should still have a lower
national debt than Germany, France, or Italy. It will certainly have
a better demographic structure that most of Europe (except France and
Scandinavia) , and less catastrophic pension liabilities than most.

The situation is desperate, but not serious -- as the Habsburgs used
to say. Fingers crossed.
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BBC ONLINE 25.11.08
UK to suffer 'severe' recession

The Organisation for Economic Co-operation and Development (OECD) has
warned of a "severe" economic downturn in the UK in 2009.

The Paris-based body has predicted that economic output in the UK
will fall by 1.1% next year, more than any other major G7 country.
The US economy is forecast to decline by 0.9% in 2009, and Germany by
0.8%.

Economic growth in the 30 countries of the OECD is forecast to fall
by 0.4%, before growing by 1.5% in 2010.

As well as the UK, the OECD identifies Hungary, Iceland, Ireland,
Spain and Turkey as being the countries most affected by the economic
slowdown.

"These economies are most directly affected by the financial crisis,
which in some cases exposed other vulnerabilities, or by severe
housing downturns," it says.

In the pre-Budget report, the chancellor accepted that the UK economy
would decline by 0.75% to 1.25% next year, but said that the UK was
"better placed" than other countries to cope with the downturn.

The OECD warns that any recovery in the US is likely to be "languid"
as consumption is held back by the large losses in household wealth.

And it says that the risks are still on the downside, suggesting that
economic conditions could worsen significantly.

These risks include "further failures of financial institutions, " a
"longer period before financial conditions normalise," and the
possibility that emerging market countries such as China will be
harder hit by the downturn in global trade.
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DAILY MAIL 25.11.08
Taxes of envy don't add up: Darling's squeezing of the rich will drag
us back to the 1970s
By Edward Heathcoat-amory

Back to the 70s: Alistair Darling's decision to squeeze the rich in
his Pre-Budget report takes the politics of taxation back to the 70s
With his decision to return to squeezing the rich, Alistair Darling
has taken the first steps to dragging the politics and economics of
taxation in Britain back to the Seventies.

Those were the days when George Harrison was so outraged at the high
levels of income tax, that the Beatle wrote the lyrics to a song
called Taxman: 'Let me tell you how it will be. There's one for you,
nineteen for me. Cos I'm the taxman, yeah, I'm the taxman.'

Even after Harrison wrote those words, taxes continued to rise.
Denis Healey, the Labour Chancellor of the Exchequer, increased the
higher rate of tax on incomes of £20,000 and above to 83 per cent in
1975. Those earning more than £8,000 a year paid 60 per cent.

On top of that, there was a special 15 per cent surcharge for
'unearned income'. So anyone living on a pension or savings was taxed
at up to 98p in the pound. This had been introduced by the equally
useless Tories in 1972.

Not surprisingly, such high levels of tax were an economic disaster.
Top-earners went abroad, others lied about their income, or paid tax
experts to stay ahead of the Inland Revenue. Others didn't bother to
work so hard - why should they, when virtually all the money was
going to the Government?

So when Margaret Thatcher came to power in 1979, she determined to
change all that.
She cut the top rate to 60 per cent, abolished the surcharge on
investment income in 1984, and then in 1988 reduced the top rate of
income tax to 40 per cent - where it has stayed ever since.

She was inspired by a new generation of economists who argued that
government revenues would rise when they cut tax rates, because doing
so removed incentives for wealth creators earners to avoid taxation,
as well as encouraging them to make money.

One economist in particular, Arthur Laffer, drew a curved graph on
the napkin of a restaurant in New York in 1974 while explaining this
phenomenon to Dick Cheney and Donald Rumsfeld. The so-called Laffer
curve - which showed receipts rising as tax rates fell - inspired
politicians around the globe to cut taxes.

When Margaret Thatcher came to power in 1979 she reduced income tax
rates
In Britain, when Thatcher began the process of reducing income tax
rates, the top 10 per cent of taxpayers contributed 32 per cent of
revenue from income tax. After the cuts, this rose to 45 per cent.

Gordon Brown and Tony Blair recognised the significance of this when
they created New Labour. They promised - a commitment repeated in
every Labour manifesto since - that the top rate of income tax
would not rise.

And under both Tory and Labour governments, the rich paid more and
more into the state's coffers.

This year, about 53 per cent of the total income tax revenue will
come from the top 10 per cent of earners. The top 1 per cent of
taxpayers alone will pay nearly a quarter of money raised from income
tax: about £38billion.

So yesterday's decision to ditch three decades of low income tax for
high earners - while arguably a piece of cheap politics - makes
no economic sense either.

Yes, 800,000 rich people will pay more ( three-quarters of all
yesterday's tax rise, according to the official figures) amounting to
more than £3,000 a year for those earning up to £200,000, and over
£1,000 a year if you earn between £100,000 and £140,000. That may
make everyone else feel better.

There may even be a short-term increase in receipts, but it won't
take the rich long to find a way round the system, or simply to move
elsewhere in search of a more generous tax climate.

After all, the City, where most of them work, is suffering greater
job losses and pay cuts than any other part of the economy.

And the highest earners aren't stupid. They can see these tax
increases barely scratch the surface of the money needed to pay back
our debt. So they will worry a future Labour Government, if there is
one, would put up their taxes even more.

The result? Mr Laffer will be proved right again, as enterprise -
the one quality Britain will need if it is to get out of this
economic mess - is stifled while tax accountants prosper,
government revenue falls, and the middle classes are left paying the
bill.

Mr Darling has forgotten the principle on which New Labour won three
elections - that the economics of envy don't add up.
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OTHER ITEMS - - - 25.11.08 (Extracts)
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BBC ONLINE
Mortgage lending feels the strain
Mortgage lending has plummeted in recent months
Mortgage lending by the UK's biggest banks has fallen sharply
compared with a year ago, a banking body says.
The number of mortgages approved for house purchases was down to
21,584 in October, 52% lower than a year earlier.
The figures come the day after a stark warning about the state of the
mortgage market in a report by former banker Sir James Crosby.
He warned that without government intervention, net new mortgage
lending might shrink in 2009 -----
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Tories demand Pre-Budget debate
"The Conservatives are calling for a full parliamentary debate on the
pre-Budget report as attention turns to how many people will gain or
lose from it. The Tories say Monday's statement was a Budget in all
but name and needs every bit as much parliamentary scrutiny." - BBC
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