Britannia Radio

AN UNHOLY MESS

The bad news on the economic situation floods in so fast that it is difficult to keep track of it all!  

However we get a picture of Brown’s determination to spend - spend -  spend at all costs running up against the reality that he can’t!  You get Brown disconnected from Darling and Darling disconnected from Mervyn King.   And they call that ‘joined-up government”?

Many readers talk of emigrating.  I wonder if Cameron and Osborne feel the same?  It’s one hell of a mess and it will take cool calm patient concentration and determination to sort it out.  What a prospect.    The sooner they get started the better for Britain

Christina Speight

TELEGRAPH 25.6.09

1. Cuts and tax rises:  there is no other way

The "extraordinary" scale of Government borrowing run up by Gordon Brown will require spending cuts and tax rises after the next election no matter who is in power, the Governor of the Bank of England has cautioned.

 

By James Kirkup, Political Correspondent 

Mervyn King issued his warning as the Prime Minister was forced to retreat on controversial Commons claims about Labour's spending plans.

Speaking to the Treasury Committee of MPs, Mr King dealt a serious blow to Mr Brown's political strategy of casting the next election as a choice between "Tory cuts" and "Labour investment."

In the Budget in April, Alistair Darling set out plans to borrow an extra £700 billion over five years, taking the national debt to £1.3 trillion.

Simply paying the interest on that borrowing will soon cost more money than the Government spends on schools or defence.

Mr King told MPs that whoever is in office after the next election will have to set out clear plans to reduce borrowing, something that could only be achieved by cutting spending, raising taxes or a combination of the two.

"The scale of the deficit is truly extraordinary," Mr King said. "There will certainly need to be a plan for the lifetime of the next parliament, contingent on the state of the economy, to show how those deficits will be brought down".

George Osborne, the shadow chancellor, is believed to be considering a two-day cabinet meeting to discuss binding spending cuts if the Conservative Party gain power at the next election.

Shadow cabinet sources said the idea is modelled on cabinet discussions held by the Labour government in the 1970s, and would force department heads to agree how spending will be brought under control.

The Government finances its deficit by selling bonds to international investors. Mr King warned that unless those investors are persuaded that spending will be reined in, they will refuse to lend to the UK.

He said: "Although we are finding it easy now to finance those deficit by issuing gilts, there could be funding challenges down the road."

Mr Brown has pressed ahead with his cuts-vs-investment attacks on the Tories despite the fears of Cabinet colleagues that it will backfire on Labour.

Those fears were compounded yesterday as the Prime Minsiter was forced into a climbdown on spending.

Last week, Mr Brown told MPs that under Labour, capital expenditure - Government spending on new buildings and equipment - will rise until the London Olympics in 2012.

That statement drew accusations that he was misleading the Commons, because Treasury documents show capital spending will fall from next year.

At Prime Minister's Questions, Mr Brown conceded that he had been wrong.

David Cameron challenged the Prime Minister over the claim.

He said: "Last week he told the House that capital expenditure will grow until the year of the Olympics. The Government's own figures show that is just not the case. Will he take this opportunity to correct what he told the House last week?"

Mr Brown replied: "Yes."

To mocking laughter from Tory MPs, he continued: " In the building of the Olympics capital investment will rise very substantially.

"Capital investment is rising from £29 billion to £37.7 billion and then to £44 billion in 2009-10 and that is to help complete the building of the Olympics. Thereafterwards it will fall."

George Osborne, the Shadow Chancellor, said yesterday had been "demolition day for Gordon Brown's tax and spending policies."

He said: "At lunchtime the Prime Minister's attempts to defend himself in the Commons ended in ridicule; and in the afternoon the Governor of the Bank of England delivered the final blow by demolishing for good any claim that this discredited government ever had to a credible plan for the recovery."

2. Britain facing biggest deficit in Western world, warns OECD

Hopes that the biggest post-war economic slump will soon end have been dashed after the rich world's leading economic institution slashed its forecasts for economic growth and warned that Britain next year faces the worst deficit in the industrialised world.

 

By Edmund Conway

In a further blow for Alistair Darling, the Organisation for Economic Co-operation and Development also warned that the Government may have to pump more than £130bn extra into the banking system. [Just when the IMF and Standard & Poors say he mustn’t !  -cs] 

Most economic statistics released in recent months have been better than expected, including the CBI's distributive trades survey yesterday, which was the strongest for a year. However, the OECD downgraded its forecast for UK growth this year to a contraction of 4.3pc – compared with a previous forecast of -3.7pc.

The cut is significant, since the OECD chose on the other hand to increase its growth forecast for the world's leading industrialised economies from -4.3pc to -4.1pc. It added that the 30 member OECD would grow by 0.7pc next year, while Britain would stagnate, not growing at all.

The bearish forecast comes as something of a surprise, since many economists expect the UK to be among the first countries to emerge from technical recession, aided by the weakness of the pound and the Bank of England's decision to pump £125bn or more cash into the financial system through quantitative easing. However, the OECD said that not only was Britain's fiscal position far weaker than its neighbours, following many years of high borrowing by Gordon Brown, the UK was also more vulnerable to a consumer slowdown associated with falling house prices.

The Paris-based institution said the Government's fiscal deficit next year would climb to 14pc of gross domestic product – higher than anywhere else in the OECD, including Ireland and Iceland. The report urged the Bank of England to keep "the [interest] rate as close to zero as possible up to end 2010."

It also warned that more taxpayers' money may have to be poured into the financial system, saying: "further bank losses may well require substantial further capital injections by governments." It said the UK may have to spend a further 3-9pc of GDP – equivalent to £45bn-£135bn.

DAILY EXPRESS 25.6.09

BANK CHIEF BLASTS BROWN FOR LEAVING 'A LEGACY OF DEBT'

By Gabriel Milland

BANK of England Governor Mervyn King yesterday blasted Gordon Brown and Alistair Darling for their handling of the public finances.

His surprising attack came as an international watchdog warned that Britain was on course to sink further into debt than any other major country.

Mr King also rubbished Lab?our’s promise that the economy would improve later this year.

He said it was “more uncertain now than ever” about when any recovery would come.

Speaking to the Commons treasury committee, he attacked Mr Darling, the Chancellor, for not showing greater ambition to get spending under control.

He then accused Mr Brown of running up massive overdrafts when he was Chancellor and leaving a legacy of debt for future generations.

Mr King said: “We came into this crisis with fiscal policy itself on a path that wasn’t sustainable. We are confronted with a situation where the scale of deficits is truly extraordinary.”

State borrowing is already forecast to go over £180billion this year, equivalent to more than £3,000 for every Briton.

Earlier yesterday, the Organisation for Economic Co-operation and Development predicted that borrowing would get even worse next year – rising to more than 14 per cent of GDP.

It said the UK would sink further into the red than any other major nation.

The country lacks a strong and credible policy for reducing public debt, it said, and it predicted that unemployment, which stands at a 12-year high of more than 2.2 million, would rise to nearly three million next year.

Mr King’s comments were a breach in the unspoken rule that Bank of England governors do not comment on ministers’ tax and spending plans and they are sure to infuriate Mr Brown.

Shadow Chancellor George Osborne said yesterday proved to be a demolition day for the Prime Minister’s reputation.

He said: “In the morning new figures showed Britain facing the biggest deficit in the world and in the afternoon the Governor of the Bank of England delivered the coup de grace by demolishing for good any claim that this discredited Government ever had to a credible plan for the recovery.

“We urgently need an election to rescue this country from a government whose denial is a danger to the recovery.”

Mr King’s words are some of the fiercest criticism that he has made of the Government but they come just days after another split between him and Mr Darling appeared over banking reform. 

Despite his bleak picture, other members of the Bank’s monetary policy committee, which sets interest rates, suggested the economy was over the worst.

Andrew Sentance said activity could have reached some sort of bottom. 

Kate Barker, one of the committee’s independent members, said there had been some signs of improvement but “the jury is still out”.

She cautioned: “But I don’t draw the conclusion that we are going to move to a period of strong growth.”

Meanwhile, it was claimed Mr Osborne would shortly announce Tory plans to hand back regulation of the finance industry to Bank of England governors.

Mr Brown took the task of overseeing big banks away in 1997 and gave it to the newly created Financial Services Authority.

Tories blamed the FSA for worsening the credit crunch.

FINANCIAL TIMES 25.6.09

Governor in dark on banking regulation

By Chris Giles, Economics Editor

Mervyn King blew into the open the lack of trust and rancour between the bank of England and the Treasury on Wednesday as he complained he had not been adequately consulted on Alistair Darling’s plans for reform of banking regulations.

The Bank governor also heightened tensions over fiscal policy by insisting that the government’s “extraordinary” and “enormous” levels of borrowing had to be reduced faster than the Treasury planned, even if the economic recovery was only as strong as Mr Darling pencilled in at the Budget.

His comments to MPs on the Commons Treasury committee flabbergasted its members. John McFall, the committee chairman, said the lack of communication at the top level between the Bank, Treasury and Financial Services Authority was unbelievable. “The tripartite authorities are a communications black holes, which is worrying.”

Mr King had planned to try to defuse tensions between himself and the Treasury with his appearance. Early in giving evidence, he disputed reports of tensions between himself and the chancellor. “I have no problem with that relationship whatsoever,” he claimed.

He also insisted he had no interest in a turf war between the FSA and the Bank over who gets to pull any new financial regulatory levers. “Let’s talk about the substance rather than who does what,” he pleaded.

But Mr King’s views were not nearly as emollient as they appeared, something that MPs discovered when they questioned Mr King on his views on the balance between power and responsibility and how the process was working over reforming regulatory powers.

Asked whether he had been consulted on the Treasury’s proposals for regulatory reform which are due to be published imminently, Mr King said: “It depends on your definition of consultation.

“I have not been consulted on what will be in the white paper and I have not seen a draft copy of it.”

When MPs insisted he must have a fair idea of what would be in the document, he added: “I do not know what will be in the white paper – whether anybody else does, I do not know”.

And in perhaps the most damaging comments of all, he hinted that the Labour government’s view might not be all that relevant, because the big decisions would be taken by a future government. “I don’t suppose this [the white paper] will be the last word on it,” he said.

Earlier, the Bank governor agreed the current balance of powers and responsibilities “was a mess”, insisting that the Bank’s powers were not as great as its responsibilities to maintain financial stability.

“That’s fine by me”, the governor said, insisting this was not enough to prevent another financial crisis, “but you, in parliament, must be clear that the Bank of England can only publish reports and make speeches.”

Michael Fallon, the leading Conservative member on the committee, said: “The lack of consultation is staggering. It sounds like the governor and the chancellor are growing more distant by the day”.

The fact that Mr King had not been consulted was not disputed by the Treasury, where insiders said he and other important people would get to see a draft of the white paper before it was published. The Treasury has been concerned for some time that early consultation withn Mr King might mean that government policies might come up for discussion between the governor and the Conservatives.

Mr King’s intervention on fiscal policy went further than before, insisting the budget deficit should be brought down more quickly if the economy recovers on track. 

”If the economy were to recover along the path assumed in the Budget projections of GDP then I think the time over which deficits need to be reduced is likely to have to be faster than was implied by that projection,” he said.

Postscript - TELEGRAPH  25.6.09

Irish economy is the sickest of them all, IMF study claims

Ireland is suffering the severest recession of any advanced economy, the International Monetary Fund said in its annual health check.

The country is in “the midst of an unprecedented economic correction” with losses at its banks predicted to swell to €35bn (£30bn) over the next two years.

“The stress exceeds that being faced currently by any other advanced economy and matches episodes of the most severe economic distress in post-World War II history,” the IMF said in its report. [-----more]