Britannia Radio

With the storm gathering over the economy it is clear that Cameron is 
quite right to claim that cutting VAT by a tiny percentage but at a 
vast cost to the Treasury (£16-£20bn)  was totally wasted.  With 
shops offering discounts of up to 70% who can even suggest that a 
2.1% cut in VAT would have any effect at all.   This just proves that 
businesses were prepared to try and save themselves and found the 
Brown-Darling VAT cut derisory.

Darling, it would seem, is following the Tory suggestion of making 
available - one way or another - yet more taxpayers' money to boost 
lending.

Meanwhile the jobless and the pensioners will suffer as the public 
sector is still creating new jobs which jave to be paid for.

As interest rates drop to near zero tax receipts on the non-existent 
income will vanish.

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TELEGRAPH   3.1.09
Prepare for the sequel to the UK bank bail-out
One might have hoped for some good news on the first working day of 
the New Year.

By Edmund Conway, Economics Editor

Instead what we received was a chilling reminder that the financial 
crisis and the credit crunch have a good way to run yet. In fact amid 
the raft of data published was one statistic which was particularly 
telling. It underlines the likelihood that the Government will most 
probably feel compelled to step in with another banking bail-out 
package before too long; it reveals that the credit crunch may now be 
more of a constraint on the economy than the common or garden recession.

We have know for some time that the economy and the housing market 
have been weighed down by a collapse both in the supply of credit 
(the financial crisis) and a similar slide in the demand for 
borrowing (consumers' fears of further house price falls). Knowing 
this, it has been hard to argue that if there really was money 
available to borrow - in other words if the supply side of this 
problem was solved - people would actually go out and get it.

However, the Bank of England's Credit Conditions survey reveals that 
while the supply of credit continues to dwindle, with banks both 
cutting the amount they are handing out and increasing the stringency 
of the conditions attached to the money, demand for mortgages and 
credit card borrowing may be starting to recover.

This makes sense. Although many people have overextended themselves 
in recent years, some have not and they want to snap up bargains - 
cheap houses or cars for instance. That they are being prevented from 
doing so by banks, which are still repairing their balance sheets and 
rationing credit, underlines that while the financial bail-out 
package of October ensured the banking system would not collapse it 
has failed in its bid to boost the availability of lending to 
households.

Given that the Government is unlikely to tolerate such an outcome 
(witness the public horror as Nationwide revealed it was sticking to 
the terms of its mortgage deals and not passing on further rate cuts 
to its tracker mortgage customers) there will almost certainly be 
another banking bail-out - this one likely to take Royal Bank of 
Scotland and HBOS/Lloyds TSB further into public ownership.

There are other solutions: among them temporarily relaxing capital 
requirements and mark-to-market rules or exhuming the Paulson plan to 
buy up toxic debt, but none of these will make more cash available to 
households instantly. If that is the Government's intention, it is 
fast becoming clear that it will have to do it itself.

For better or, more likely, for worse, full-blown nationalisation of 
vast swathes of the banking system beckon.
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FINANCIAL TIMES   3.1.09
1. UK savings rates cut to 0.1%
By Elaine Moore and Ellen Kelleher

Substantial reductions in savings rates quietly introduced over the 
holidays have left consumers with accounts paying out as little as 
0.1 per cent on deposits at a time of economic uncertainty when many 
households are planning to put more money aside.

The cut in savings rates will particularly affect pensioners who 
depend on interest payments to supplement their savings for 
retirement, financial advisers fear.

"It's bleak for all savers, and pensioners in particular," said Ben 
Yearsley, an investment manager with advisory firm Hargreaves 
Lansdown. "We've reached a point where savings rates are lower than 
the rate of inflation."

This week, Abbey, Lloyds TSB, Halifax, Barclays, NatWest, Alliance & 
Leicester, Nationwide and Royal Bank of Scotland slashed rates on 
variable savings accounts by 1 percentage point or more.

ICICI, Egg, Ipswich Building Society and Yorkshire Building Society 
have also withdrawn fixed rate offers during Christmas, and 
Dunfermline Building Society has announced it will close its 4 per 
cent fixed-rate bond next week.
"Savers have been battered in the past six months. And this is a 
particularly difficult time for people who rely on income from 
deposits," said Darren Cook, a spokesman for Moneyfacts.co.uk, a 
price comparison website.

As of this week, savers with less than £5,000 in Halifax's Extra 
Income Saver will receive just 0.1 per cent per year, as will those 
with less than £50,000 in Abbey's flexible saver account.
Lloyds TSB offers a 1 per cent rate to those with more than £250 
invested in its Advantage Saver account who do not receive 
introductory bonuses.
The savings rates available are a far cry from 2008's headline-
grabbing rates in excess of 7 per cent. The average interest 
available to consumers opening a fixed rate savings account has 
fallen to 3.4 per cent, from nearly 6 per cent a year ago, says 
Moneyfacts.

Rates for cash individual savings accounts are down sharply as well - 
with some of the biggest lenders such as Halifax, Abbey, and Lloyds 
TSB reducing their cash ISA rates by 1 per cent or more this week. 
But with rates so low, some lenders have already indicated they 
intend to avoid reducing savings rates again and are keeping mortgage 
rates high to remain competitive.
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2. Cameron attacks 'failure' of VAT cut
By George Parker

David Cameron on Friday denounced the government's 2.5 per cent cut 
in value added tax as "an unbelievable and expensive failure", citing 
figures suggesting a grim festive season on the high street.

The Conservative leader sharpened his attack on the government's 
economic policies, arguing that the focus should be on shoring up 
lending to businesses in-stead of attempting to bolster consumer demand.

Mr Cameron, speaking on the BBC, pointed to one survey showing 
footfall in high street shops fell 3.1 per cent in December against 
the previous year as evidence the 13-month VAT cut had failed to 
stimulate demand.

Labour shrugged off his attack, saying it was too early to say 
whether the VAT cut was succeeding in its goal of supporting consumer 
spending through the downturn.

Mr Cameron has reshaped his policies to tackle the recession, with an 
emphasis on fiscal conservatism. He argued the VAT cut would add to 
"Labour's debt crisis"; the Tories have pledged to cut public 
spending in coming years beyond the already tight settlement 
announced in November's pre-Budget report.

Meanwhile, he is anxious to fight off Labour claims he would "do 
nothing" to counter the recession, an impression bolstered by some 
Tory MPs who have argued the downturn serves a necessary cleansing 
function for the economy.

Speaking on BBC Radio 2's Jeremy Vine Show, Mr Cameron repeated his 
view that the most urgent task facing the government was to 
underwrite lending to business, as companies went under because of a 
shortage of credit.

"The real problem is that banks aren't lending. In order to stop this 
credit crunch destroying tens of thousands of good small businesses, 
the government needs to act to ensure lending," he said.

He said the Tories would make £50bn available through a loan 
guarantee scheme, which he said could be financed without adding to 
government debt.

Alistair Darling, chancellor, has spent the past few weeks working on 
the details of government scheme which could look similar to the Tory 
proposal.

Mr Cameron called for a more "ethical capitalism" to emerge from the 
recession, including a continued commitment to the environment. He 
said Britain needed a more "balanced economy", with a stronger 
emphasis on manufacturing and saving.
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TIMES   3.1.09
Chancellor Alistair Darling on brink of second bailout for banks
Billions may be needed as lending squeeze tightens

Francis Elliott, Deputy Political Editor, and Gary Duncan, Economics 
Editor

Alistair Darling has been forced to consider a second bailout for 
banks as the lending drought worsens.

The Chancellor will decide within weeks whether to pump billions more 
into the economy as evidence mounts that the £37 billion part-
nationalisation last year has failed to keep credit flowing. Options 
include cash injections, offering banks cheaper state guarantees to 
raise money privately or buying up "toxic assets", The Times has learnt.

The Bank of England revealed yesterday that, despite intense 
pressure, the banks curbed lending in the final quarter of last year 
and plan even tighter restrictions in the coming months. Its findings 
will alarm the Treasury.

The Bank is expected to take yet more aggressive action this week by 
cutting the base rate from its current level of 2 per cent. Doing so 
would reduce the cost of borrowing but have little effect on the 
availability of loans.

Whitehall sources said that ministers planned to "keep the banks on 
the boil" but accepted that they need more help to restore lending 
levels. Formally, the Treasury plans to focus on state-backed 
gurantees to encourage private finance, but a number of interventions 
are on the table, including further injections of taxpayers' cash.

Under one option, a "bad bank" would be created to dispose of bad 
debts. The Treasury would take bad loans off the hands of troubled 
banks, perhaps swapping them for government bonds. The toxic assets, 
blamed for poisoning the financial system, would be parked in a state 
vehicle or "bad bank" that would manage them and attempt to dispose 
of them while "detoxifying" the main-stream banking system.

The idea would mirror the initial proposal by Henry Paulson, the US 
Treasury Secretary, to underpin the American banking system by buying 
up toxic assets. The idea was abandoned, ironically, when Mr Paulson 
decided to follow Britain's plan of injecting cash directly into 
troubled banks.

Mr Darling, Gordon Brown and Lord Mandelson, the Business Secretary, 
are expected to take the final decision on what extra help to give 
the banks by the end of the month.

The banks have taken much of the heat for the economy's woes. But 
ministers are said increasingly to accept that attacking the banks 
will not by itself transform a situation that is jeopardising 
Britain's economic prospects.
Insiders point out that Mr Darling's criticism of mortgage lenders 
has softened in recent weeks.

After the Bank of England's radical cuts in interest rates over the 
past two months, the focus at the Treasury has shifted away from 
mortgage lending to the pressure being put on businesses by the 
scarcity of loans, which is emerging as the bigger economic danger.

Richard Lambert, the Director-General of the CBI, said yesterday: 
"The Government is going to have to do more to restore credit flows 
across the economy."

He said that the car industry was especially vulnerable: "Without 
access to credit or loan guarantees on commercial terms, this vital 
part of the economy will incur lasting damage."

The scale of the lending drought was highlighted as separate Bank 
figures showed that the number of new home loans approved plunged to 
a record low in November. Only 27,000 mortgages for house purchase 
were approved by banks and building societies, down from a revised 
31,000 in October. It is the lowest level since the Bank began 
collecting data in 1999. The Bank's quarterly credit conditions 
survey showed that banks restricted access to loans of all kinds by 
companies and consumers in the past quarter, and that they plan to 
tighten the screws more in this quarter.

Halifax reported that the price of the average house fell by more 
than £100 a day last year. Its quarterly figures showed that the 
average house ended the year down in price by £37,178, or 16.2 per cent