Britannia Radio

The writing is on the wall - Brown’s crisis is escalating and our  
solvency as a nation is at risk.

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TELEGRAPH                26.3.09
City alarm as Treasury fails to sell Government gilts
Britain's ability to borrow tens of billions of pounds to fight the  
economic crisis has been called into question after the Treasury  
failed to sell Government gilts for the first time in more than a  
decade.

    By Robert WInnett, Deputy Political Editor

Fears are growing on the financial markets that Britain may not be  
able to repay the billions of pounds in debt it is amassing to rescue  
banks and revive the economy.

The Government admitted yesterday that, for the first time since  
1995, investors had been unwilling to buy the full complement of its  
so-called gilt-edged bonds at one of its official auctions.

Gilts are the financial instrument it sells to investors to fund  
public spending. If future gilt sales are unsuccessful, it could be  
devastating for Gordon Brown because he might have to scale back his  
spending plans.  [I have said for months that if we did not  
voluntarily cut govdernment spending we would be forced to so later -cs]

The failure of yesterday’s auction followed a warning from the  
Governor of the Bank of England on Tuesday that the country could not  
afford to introduce another fiscal stimulus package of spending rises  
and tax cuts.

Although some experts attributed the failure to confusion in the  
market, rather than concern over Britain’s solvency, it was highly  
embarrassing for Mr Brown coming just days before world leaders are  
due to meet in London for the G20 summit to discuss the economic crisis.

George Osborne, the shadow Chancellor, said: “The failed gilt  
auction, the first for many years, should be of real concern to  
everyone.
‘‘It is too early to say, but the risk is that at some point the  
Government will not be able to fund its huge debts.”

Gilts are issued by the Treasury to fund Government borrowing.  
Investors receive an annual rate of interest from the Government  
after buying gilts from the Treasury.

They are traditionally regarded as one of the safest forms of  
investment.
The Treasury holds regular auctions of gilts and they are usually  
oversubscribed, with investors wishing to buy more than twice as many  
gilts as those being sold.

However, yesterday investor interest in the gilts was understood to  
have been the lowest in history. The lack of interest is likely to  
concern Mr Brown and Alistair Darling, the Chancellor, as their plans  
for Britain’s economic recovery are based on dramatically increasing  
public borrowing by issuing more gilts.

A lack of investor interest in gilts could also lead to Britain’s  
credit rating being cut, which means the Government would have to pay  
more to borrow in future. Interest rates on the Government’s debts  
rise when gilt prices fall.

Writing for the Telegraph, David Cameron, the Tory leader, said  
yesterday’s failed gilt auction was a “worrying sign, because higher  
interest rates will increase the cost of paying for the national debt  
and could deter the investment we need to get us out of this  
recession. That would make the recession longer”.

The Conservatives have already said Britain is facing bankruptcy as  
public spending and therefore borrowing increases rapidly.

The national debt is forecast to rise to more than £1?trillion by  
2013. Mr Brown recently abandoned the so-called “golden rules” that  
limit public borrowing.

He was understood to have been considering announcing a new fiscal  
stimulus package in next month’s Budget and encouraging other  
countries to do the same in an attempt to tackle the global recession.

However, many European leaders are growing increasingly concerned  
over the scale of public borrowing. Mirek Topolanek, the Czech prime  
minister, who holds the presidency of the European Union, said plans  
by Britain and America to borrow money to fund an economic recovery  
plan were a “way to hell”.

In the face of such criticism, Mr Brown, speaking in New York  
yesterday, appeared to indicate that the Government was backing away  
from further tax cuts or public spending increases. He highlighted  
other measures the Government was taking, and suggested that  
quantitative easing – effectively printing money to buy assets – was  
now the preferred method for tacking the economic crisis.

Despite the gloom one of the City’s most respected economists claimed  
yesterday that the global economy was turning the corner. Larry  
Kantor, the chief economist at investment bank Barclays Capital,  
advised clients to “become more aggressive” and start buying shares  
again.  [Selectively OK.  But vaguely like this seems very bad advice  
-cs]

He said factories that stopped or slowed their production lines have  
run down their stockpiles of goods to such an extent that they will  
have to start gearing up again to meet demand [Where is demand  
demanding? -cs] – triggering a dramatic jump in the world’s economy.