Britannia Radio

A bit of a pot-pourri of economic news in this posting.  A fairly 
sober account of government thinking from the Guardian starts it off 
while it ends with the battle of words between the parties.

xxxxxxxxxxxcs
Statistic of the day
60 Britons a day emigrated permanently to Australia last year
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GUARDIAN   8.1.09
Treasury considers bank lending guarantees for business
Chancellor concerned over lack of activity in the money markets, 
tougher credit terms for companies and difficulty in obtaining mortgages
. Jill Treanor and Ashley Seager

The government is considering a package of measures to cushion the 
blow of the recession which could include throwing lifelines to big 
companies, small businesses and households starved of finance in the 
money markets.

A high level team of officials from the Treasury and other government 
departments, as well as the Bank of England, is working hard to find 
a solution to the financing difficulties caused by the credit crisis.

No concrete decisions have yet been taken about how to tackle the 
mounting problems although Alistair Darling, the chancellor, hopes to 
make an announcement about his wide-ranging plans in the coming weeks.
Darling, along with Lord Mandelson, the business secretary, is trying 
to address three areas of concerns:
.... the difficulty of obtaining a mortgage since 100 or so lenders 
that were offering deals before the credit crunch have disappeared 
from the market, leaving just a handful of large names offering home 
loans by the end of last year
.... the tougher credit terms offered to small businesses, who are 
also fearful that their financing will be pulled by banks being more 
selective about lending. Some of the major providers of credit in the 
market - Icelandic and Irish banks - are also no longer in business 
to anything like the extent they were.
.... the lack of activity in the money markets which is making it 
difficult for banks to borrow from each other, but also for big 
business to obtain finance.

Some £50bn worth of loans have to be refinanced in the next two 
years. If they cannot be refinanced, as looks likely, companies may 
need to draw down credit lines from banks - further draining them of 
the resources the government wants to plough into small business and 
the housing market. Officials at the Treasury such as Dave Ramsden, 
head of macroeconomics and fiscal policy and Tom Scholar, in charge 
of financial stability, are concerned that larger international 
companies are facing credit constraints because those companies have 
made greater use of international capital markets, which are now 
largely closed.

The recent easing of the interbank lending rates makes little 
difference to the frozen credit markets, since little interbank 
lending is actually taking place.

Darling has made it clear that providing finance to households and 
companies is crucial, but that the corporate sector is a more 
immediate problem.

The issue of financing is top of the Bank of England's agenda. Mervyn 
King, the governor, has said that getting money flowing to businesses 
is the most important way to stave off the recession.

The Bank of England's quarterly survey of credit conditions last week 
showed that lending to households and businesses fell sharply in the 
last three months of 2008 and banks are expected to reduce it further 
in the first quarter of this year.

Experts make the point that it is difficult for banks to issue loans 
when they are predicting that the value of the assets against which 
the loans are secured, are going to fall. This is particularly the 
case in the housing market where there are expectations that house 
prices could fall as much as 25% this year.

This is why it is so difficult for first-time buyers to get a 
mortgage because banks have largely given up offering loans above 75% 
of a property's current value.

They have also made such loans a lot more expensive than those at 60% 
loan-to-value because the latter represent a lower risk for the lenders.
Treasury officials are confident they can come up with a coherent 
package in the next week or two. They insist that the 
recapitalisation plan for large banks last year was a success because 
it prevented the banking system from collapsing. Now their attention 
has moved towards freeing up loans, but they believe they must act in 
a co-ordinated way with other countries.
"We are still thinking about all the options we can take to support 
lending in the economy. There is a lot of work going on and it is top 
of ministers' minds. But we need to do this in a holistic way," said 
one source. Some of the options being discussed include:
..... adopting the proposal by Sir James Crosby, the former HBOS 
chief executive, to use £100bn of taxpayers' money over the next two 
years to guarantee mortgage bonds. This would help kickstart mortgage 
lending.
..... using the Crosby proposals to allow loans to small businesses 
to be packaged up and sold on with government guarantees.

The Conservatives have already called for government backing for 
loans to small businesses and Mandelson is thought to be close to 
announcing the terms of the £1bn small business loan guarantees 
heralded in the pre-budget report.

The issues are harder to address for larger companies given the 
potential scale of the financing problem. Officials are anxious to 
prevent big corporations being deprived of finance, particularly 
those reliant on short-term loans known as commercial paper. There 
are concerns that companies are having difficulty rolling over the 
loans in the current market. Commercial paper usually provides 
funding for no longer than nine months and it is used to finance 
current expenditure.

The US's central bank, the Federal Reserve, started buying commercial 
paper directly from companies late last year and officials in London 
are studying that policy carefully to see if it could be applied in 
Britain.

In attempting to deal with all three areas and in some way supporting 
lending by banks, the Treasury is conscious that it will be taking 
some of the private sector's risk on to the public sector's balance 
sheet.
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ECONOMIC 'Shorts'   7.1.09
FINANCIAL TIMES
==US deficit set for postwar record
Congress spending watchdog sounds alert
. Obama faces battle over fiscal stimulus
. US private sector shed 693,000 jobs in December
. Obama warns of record $1,000bn deficit
==German bond sale's fate signals trouble ahead
A German sovereign bond auction failed on Wednesday as investors 
shunned one of the most liquid and safe assets in the world in a 
warning for governments seeking to raise record amounts of debt to 
stimulate slowing economies.
The fate of the first eurozone bond auction of 2009 signals trouble 
ahead as governments around the world hope to issue an estimated 
$3,000bn in debt this year, three times more than in 2008.
The 10-year bonds failed to attract enough bids to reach the ?6bn the 
German government wanted. Bids of ?5.24bn, a cover of only 87 per 
cent, amounted to the second worst auction on record in terms of demand.
[The Italians have a vast debt which dwarfs this and has to be 
'rolled-over' this year.  Withg a very dodgy economy can they do it? -
cs]
==Editorial Comment: Get on with it
UK government must give businesses an umbrella with credit guarantees 
for lenders to give would-be investors the confidence they require to 
get stuck in

THE TIMES
==Britain set to print cash as rates hit record low
Alistair Darling is considering expanding the money supply by 
billions as interest rates appear certain to fall to an historic low
==Council tax debt-chasers on £600 an hour
The huge charges of insolvency accountants who chase up small council 
tax arrears of a few hundred pounds are revealed
==Carmakers seek cash from banks amid bailout fears
With the Treasury's proposed rescue programme now in doubt, car 
companies are going directly to the banks for help
========================
POLITICS HOME    7.1 09
COMMENTS
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Sky News, BBC News 13:40
Brown: Action on unemployment "the dividing line" between parties
Gordon Brown, Prime Minister

Mr Brown said that the government was working to get people back to 
work "as quickly as possible" describing this as "the dividing line" 
between the parties.

"The dividing line, I'm afraid, between the parties is we want to 
take this action we know we've got to increase activity in the 
economy, the Conservatives and other parties will not invest to do that"

"We want to help people get back into work as quickly as possible," 
he said.

He added: "I don't want the old approach that the Tories had before 
where they just stood by and left the unemployed to suffer

"We cannot have the do nothing approaches we had in the past. We are 
acting now."

He said that government would create jobs by investing in green jobs 
and new technologies to help people back to work.

"We are going to build out of the present into the future from today 
to tomorrow that's why we'll be investing in the digital economy in 
transpost and skills and the green economy," he said.

The Prime Minister also said he had "no intention of even thinking 
about an election"

"That means it's the last thing on my mind. The first thing on my 
mind is that I'm here to help the families and businesses in this 
country come through this global problem," he said
[All he is proposing - though as yet he's done nothing as usual - is 
create some temporary pseudo-jobs which weill merely substitute for 
unemployment pay.  Those who lose their jobs don't want pretend work -
cs]
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BBC News at 16:26
Apprentice announcements have little impact in real world, says Willetts

David Willetts, Shadow Skills Secretary

Mr Willetts said that government announcements on increased 
apprenticeships was not matched by what was happening "in the real 
world"

"Gordon Brown has been talking about more apprenticeships for years 
in fact every few months he announces more apprenticeships.

"We've been tracking what happens in the real world. The number of 
apprenticeships that we would recognise as apprenticeships, up to A-
level standard and with a recognised employer, has been falling under 
this government, and there's nothing he has done that is going to 
reverse that trend," he said.

He also said the government "hasn't shown any fresh thinking" by 
failing to create opportunities for apprenticeships in central 
government.

"Within central government the number of apprenticeships is 
shockingly low," he said.