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THE INDEPENDENT 25.3.09
Bank governor warns: 'We cannot afford any more stimulus plans'

Intervention threatens Prime Minister's hopes for Budget and G20 summit

By Sean O'Grady, economics editor

The Governor of the Bank of England, Mervyn King, has hijacked next 
month's Budget and ruled out a further fiscal stimulus to the economy 
- the very policy Gordon Brown is campaigning for in advance of the 
G20 summit in London next week. Such open defiance of Downing Street 
by Threadneedle Street is unprecedented in modern times.
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Mr King told the Treasury Select Committee yesterday that, while the 
recession would mean that "very large" budget deficits would have to 
be tolerated for some years, there was little scope for further, 
"discretionary" increases in borrowing, similar to the £20bn package 
announced by the Chancellor in last November's pre-Budget report.

Mr King told MPs: "Given how big those deficits are, I think it would 
be sensible to be cautious about going further in using discretionary 
measures to expand the size of those deficits ... The level of the 
fiscal position in the UK is not one that would say, 'Well, why don't 
we just engage in another significant round of fiscal expansion?'"

Last week the IMF said that the UK's budget deficit would rise to 
around 11 per cent of GDP next year - or £165bn, against a Treasury 
forecast of £118bn. It will be the highest in the G20. The Treasury 
is already constrained by that: tiny increases in public spending - 
1.1 per cent a year in real terms - are planned from 2011 and 
economists are warning about an inevitable £25bn of tax rises - 
whoever wins the election.

Mr King's intervention may well irritate 10 Downing Street on at 
least three grounds. First, that Mr King is ruling out the very 
fiscal stimulus that the Prime Minister is publicly committed to and 
trying to persuade the German government to agree to. Second, that Mr 
King has seemingly overstepped the traditional line between Treasury 
matters to do with budgets and public spending and the Bank's remit 
of financial stability and monetary policy. Central bank governors do 
not usually offer the benefit of their wisdom in such a public 
fashion as Mr King chose to yesterday, and he added: "I'm sure the 
Government will want to be cautious in this respect. There is no 
doubt we are facing very large fiscal deficits over the next two to 
three years."

And third, that Mr King's remarks have been seized on by opposition 
politicians. George Osborne, the shadow Chancellor, said: "This is a 
defining moment in the political argument on the recession ... The 
Governor of the Bank of England no less has said Britain cannot 
afford a further fiscal stimulus. He goes on to say that monetary 
policy should be the main tool to tackle the recession. This is 
hugely significant, as it vindicates the big decision taken by David 
Cameron and myself on the economy."

The Liberal Democrat Treasury spokesman, Vince Cable, said: "Any 
fiscal stimulus will have to be repaid in the future and so should 
encourage growth today as well as creating assets for the long term, 
neither of which the VAT cut has achieved. That is why the Liberal 
Democrats argue that the VAT cut should be replaced by a programme of 
targeted investment in affordable housing, large-scale home 
insulation and public transport improvements."

The former Labour Treasury minister, Stephen Byers, added to the 
Prime Minister's woes by claiming that the G20 summit agenda is too 
ambitious. He called for the withdrawal of the cut in VAT, the 
centerpiece of the Treasury's stimulus.

Mr King said that, apart from "targeted and selected measures" aimed 
by ministers at some sectors of the economy, the Bank is best placed 
to manage any boost to the economy through its policy of 
"quantitative easing", more colloquially called "printing money".

Today the Bank will begin purchasing bonds issued by companies to 
help them raise capital more cheaply and to generally ease credit 
markets. Some £75bn will be spent in this way, mostly on government 
securities in the next three months. "We can do more monetary easing 
if necessary," Mr King added. The Governor said the policy's effects 
might begin to be judged in six months.

The Chief Secretary to the Treasury, Yvette Cooper, denied any rift 
between the Government and the Bank of England: "What [Mr King] said 
is we need to take a sensible approach, which we always do." Mr 
Brown's official spokesman merely added that the Bank "has supported 
the current action of fiscal stimulus".
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CONSERVATIVE HOME      25.3.09
Cameron vows to bring 'law and order' and social responsibility to 
the financial markets
"David Cameron has pledged to restore 'law and order' to the 
financial markets if the Tories come to power. He said he would 
change the culture of the City and give the Bank of England power to 
oversee public and private debt levels. 'We are the party of law and 
order. So we are the party to bring law and order to the financial 
markets,' he said." - Daily Mail

"David Cameron yesterday risked putting the Conservative Party on an 
apparent collision course with the Financial Services Authority when 
he pledged to return power to the Bank of England, just as the FSA 
chairman, Lord Turner, argued for the existing financial regulator to 
retain the lead. The Tory leader was setting out his regulatory 
blueprint for Britain's financial services in the wake of the 
financial meltdown." - The Independent
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CONSERVATIVE HOME   24.3.09
Boris shows the way on spending cuts

Boris Johnson has cut 120 posts at City Hall today as part of 
restructuring plans.  The London Evening Standard reports that "The 
Mayor wants to save about £7.5million from an £80million budget by 
the cuts, many of them middle managers earning about £40,000."  
That's 9.4%.

The Standard continues: "The main cuts are expected to be among 
administration staff. Short-term contracts will not be renewed."

I suspect that similar overstaffing exists across much of government.

The Standard also notes the new departments and their chiefs:
. "Resources, led by finance director Martin Clarke.
. External Affairs, headed by Guto Harri, director of communications.
. Communities and Intelligence which will receive policy advice from 
Kit Malthouse, deputy mayor for policing.
. Development and Environment, advised by Sir Simon Milton, deputy 
mayor for planning and policy