Happy Budget Day

Today is budget day.

In keeping with "modern tradition", since Labour took office, budget "secrets" are now routinely leaked.

This year's budget will, according to the media, contain an announcement from Alistair Darling that stamp duty on properties will be scrapped on house purchases up to £250K for first-time buyers.

All very well, if they can borrow the money to buy the house.

Duty on strong ciders and alcopops will be increased significantly, in an attempt to reduce binge drinking by young people.

I am of the view that the economy and country would run much more effectively if politicians resisted the urge to tinker, meddle and change the rules quite so often.

Read More

Darling Receives Pre Budget Boost

In the run up to tomorrow's "eagerly anticipated" budget, Alistair Darling has received something of a boost from the inflation figures.

The Office for National Statistics (ONS) reports that inflation (consumer prices index - CPI) fell to 3% in February.

However, the retail prices index remained at 3.7%.

Optimistic forecasters believe that inflation will fall back to 2% by the end of the year.

Doubtless the wave of optimism that these figures has unleashed will be somewhat dampened after tomorrow's budget, which will bring home to roost a few truths about the real state of the economy.

Read More

Economists Get It Wrong

The dismal "science" of economics has managed to get something wrong again.

This time it has massively underestimated exactly how much in debt the UK economy really is. Economists had expected a January (traditionally a good month for tax receipts) government surplus of about £2.8BN. The reality was in fact a deficit of £4.3BN, the first time since records began in 1993 that the UK was in debt in January.

The Treasury claim that the Government forecasts remain as stated by Darling, namely government borrowing will be £178BN (12.6% of GDP). However, City experts now predict that the debt will overtake the 12.7% recorded by Greece.

Economists are now calling for a more credible plan by the government, to show how it will address this issue.

They should not hold their breath!

Read More

Don't Feel Sorry For Yourselves

I cannot but help chuckle at Alistair Darling's comments directed to the bankers (ex "Masters of The Universe"), where he told them "don't feel sorry for yourselves".

Before he went into a meeting at Davos, with eight UK and foreign-owned banks, he held a press conference at which he said:

"My message to the banks is that it is in their interests to get off the front pages.

The banks should do what they are supposed to do, provide credit to the economy. They must know that changes are necessary. They can all see that the regulatory regime needs to be more robust and more intrusive.

Don't feel sorry for yourselves. Work with the government to see how you can improve the situation."

That almost is an admission that the tripartite system set up by Brown hasn't worked!

Regarding the banks, he is to some extent correct. Wallowing in self pity is not a pleasant spectacle to behold, not least when the "wallowers" are universally despised (rightly or wrongly).

The banks, like it or not, need to address their lamentable reputations if they are to have any hope of trying to set the agenda for regulatory changes etc.

It seems, for the moment, that the banks haven't quite realised that yet. They exclude themselves from being taken seriously at the discussions at their own peril.

Read More

"Secret" Meeting

Hush whisper it softly, The Times reports that Alistair Darling will meet the heads of top British and American banks (including HSBC, Barclays, Standard Chartered, JP Morgan and Morgan Stanley) at a secret meeting in Davos tomorrow.

How can this meeting be described as "secret", if it is publicised a day in advance in a national newspaper?

The purpose of the "secret" meeting is for the bankers to express their feelings to Darling about the possibility of new sanctions against the banking sector.

The banks, quite rightly, are concerned that attempts to curtail their activities may well negatively impact the global economy.

However, be that as it may, the bankers need to recognise that on some occasions politics (even if it is emotionally charged) outweighs economics. Were Darling, and indeed any other politician, to ignore the wave of public hostility and revulsion towards bankers they would be signing their own political death warrants.

Like it or not we live in a democracy and, on occasions, the will of the people (no matter how misguided that may be) has to count more than the will of the "Master of The Universe".

That being said the near failure of the banking system took place on Darling's watch, under the tripartite system created by Brown. Blaming the bankers has provided useful cover for Brown and Darling.

True political leaders would step forward and highlight the failures of both the banks and regulations, and come up with a route map for the future whilst explaining to the electorate that the bankers were not entirely to blame.

We await the coming of these "true political leaders" with baited breath.

Read More

Cretins

Were the ordinary voter ever to require proof that we are being governed by cretins, the leaks from the Treasury about the "success" or otherwise of the 50% tax on bonuses makes for interesting reading.

It would seem that the 50% "one off" (if you believe that this is a "one off", then I put you in the same boat as our illustrious government) on bankers' bonuses is not having the effect that the government wanted it to have.

Our "leaders" wanted the tax to discourage banks from paying high bonuses to their staff.

Anyone with the slightest understanding of human nature will understand that when it comes to money, and governments trying to forbid people from making money, human beings can be remarkably stubborn and creative in the methods used to avoid government interference.

Therefore, as predicted, in the short term the banks will be paying out the bonuses (in one form or another) and either absorbing the increased tax themselves or finding ways to avoid it.

Needless to say they are also looking for ways to transfer their operations out of the UK, in order to avoid the unfavourable tax regime being implemented by the government.

Does this matter to you and I?

Of course it does!

The City, like it or not, provides a large chunk of tax revenue for our "illustrious" political masters to spend on their pet projects. Once the government starts hacking away at the money supplied by the City, there is precious little left to do but increase the tax burden on the rest of us.

The fact that the government is disappointed that bonuses have not been curtailed, indicates just how cretinous they are. The higher the bonuses, the greater the tax take.

The Treasury will do very nicely out of this bonus season, raking in around £4BN.

Such a pity that during times of plenty Brown overspent the surplus, and left us with a massive debt to pay off.

As said, we are being governed by cretins!

Read More

Bleed The World

Read More

The Pre Budget Report III

As predicted, Brown's and Darling's plans for a bankers' bonus tax (levied to divert attention from the 1% rise in National Insurance) is rapidly falling apart.

Both HMRC and the Treasury have been forced to admit that that the draft legislation on bank bonuses is poorly written, and will have to be revised in the New Year.

It seems, as ever with Labour's shoddy legislative drafting, that the net for this tax could be drawn very wide indeed (eg more than just "bankers").

HMRC are stressing that asset management firms (including those owned by banks), hedge funds, investment advisers, private equity and family offices would not be hit by the tax.

However, no one believes them!

Read More

The Pre Budget Report II

Alistair Darling has been more than a wee bit canny, wrt his tax on banks paying bankers' bonuses.

Whilst it may or may not raise £500M, it has created such a media stir that the real pain of the tax rises (another 0.5% on National Insurance - over and above the 0.5% rise already coming in) has been "forgotten". This tax will raise several billion.

The fact is that taxes have been pushed up, and we are all going to be paying far more to this government.

Darling's bankers' bonus tax is merely a bit of window dressing to distract the voters' attention.

Read More

The Pre Budget Report

As Alistair Darling steps up to deliver his "Pre Budget Report", and probably implement an unworkable "bankers' bonus tax" (see below an article from today's HMRC Is Shite), the Office of National Statistics (ONS) reports that Britain's goods trade deficit worsened unexpectedly in October from £6.9BN to £7.1BN (the largest gap since January).

This fall raises uncomfortable questions over the UK's ability to pull itself up out of recession in Q4 this year.

To add to the pressure on Darling, Moody's warned that unless he acts swiftly to reduce the debt the UK's AAA rating will be reduced.

Article from HMRC Is Shite

Good luck to HMRC in trying to levy a "bankers' bonus tax", in the event that Darling implements one in his "Pre Budget Report" today.

Disregarding the fact that taxing one specific "class" of worker is contrary to the concept of taxes being non discriminatory, the tax will be unworkable:

1 There will be a wholesale exodus of banks, other financial institutions and individuals from the UK.

2 What is the definition of a "banker"? Those who currently fall into Darling's definition of "banker" will simply have their employment status/title changed, to eg "admin clerk".

3 Pay rises will be backdated to mop up the bonus pool.

The tax will be shot to pieces, and HMRC will be forced to waste valuable time and resources trying to "pin a tail on the donkey" of the bankers.

Read More

Windfall Tax

Governments, much like ravenous dogs, always become very overexcited at the smell of someone else's money. When they find out that there are large sums being paid out, they want a cut of the action as well.

Therefore, it should come as no surprise at all to learn that Alistair Darling is considering imposing a special windfall tax on bankers' bonuses next year.

Taxing the banks themselves would be counterproductive, as it would be taking money back that has only just been pumped in to prop them up.

Will a windfall tax on bonuses achieve very much, in a tangible sense?

That depends on the nature of the tax, and as to whether the recipients of the bonuses find a way to avoid it.

Whilst, as has become the norm with Brown, this may well play "nicely" to the gallery of envy, in the long run it will achieve very little. It will not come close to balancing the books, and will drive away high earners from the UK to other less taxing environs.

Meanwhile the Centre for Economics and Business Research has warned that in a decade, the UK could drop from being number 4, in terms of the economy, in the world to being number 11 by 2015.

heavy taxes and stifling bureaucracy will bring that possibility ever closer.

Read More

Recession Worse Than Thought

Chancellor Alistair Darling will admit in the pre-Budget report that the economy performed worse in 2009 than he first predicted.

Quell surprise!

The prediction for economic shrinkage was 3.5%, the reality was in fact 4.75%.

Given this failure in forecasting, why should anyone believe the Treasury when it says that growth in 2010 will be between 1-1.5%?

Read More

RBS Slips Deeper Into The Mire III

It would seem that, despite being given a further £33.5BN of taxpayers' money yesterday, the Royal Bank of Scotland may in fact sink even further into the mire.

Alistair Darling warned that this wreck of a bank may in fact need more taxpayer funds, estimated at being at least £8BN, at some stage in the not too distant future.

The taxpayer now owns 84% of this wreck.

Why are some of the senior management who destroyed this once proud bank still in situ?

Read More

RBS Slips Deeper Into The Mire

Royal Bank of Scotland (RBS), the wreck of a once fine bank now 70% owned by the taxpayer, saw its shares fall by up to 14% this morning as it announced that it may be forced by the EU to sell more assets than planned.

Quote:

"It remains RBS's goal that any required divestments do not threaten its recovery plan."

Up for possible sale are Churchill, Direct Line and Green Flag insurance operations; along with more than 300 bank branches and its Global Merchant Acquiring card-processing unit. It may also have to downsize its investment banking arm.

Whilst these brands all have value, being part of the forced sale will inevitably reduce much of that value and the price that RBS hopes to be able to extract from any deal.

The forced sale is in order to satisfy EU policy that attempts to ensure that RBS doesn't have an unfair advantage in the market. The EU is also gunning for Lloyds Banking Group, which may have to sell assets and branches, and Northern Rock which is splitting into two.

Alistair Darling tried to spin this positively yesterday, by saying that the creation of three new banks will stimulate competition.

All very well, but if this is such an important issue, why did the government not intervene some years earlier in order to stimulate competition and provide consumers with more choice?

Read More

Brown's Clunking Fist Caused The Financial Meltdown

It would appear, from extracts of memoirs published about the dying days of Lehman Brothers, that aside from the US Administration pulling the plug on Lehman (the collapse of which then caused the meltdown of the global financial system) our dithering Prime Minister had a hand in it too.

Seemingly Barclays was on the cusp of sealing the deal, subject to approval from the UK government.

At the eleventh hour, out of the blue, Darling (having spoken to Brown) refused to give permission, despite being warned by the US that Lehman collapsing would cause global financial meltdown.

Is it not ironic that Brown, who claims to have saved the UK from even worse economic turmoil, is in fact more than partially responsible for causing the crisis in the first place?

Read More

The Longest Recession on Record

Figures released this morning show that GDP fell by 0.4% in Q3, making this the longest recession on record.

Pundits had been expecting, and Gordon "no more boom and bust" Brown had been hoping for, a small increase in GDP. Indeed the BBC "Ceefax" news this morning briefly reported that we had pulled out of recession (so much for reporting real news, real time!).

Undaunted, Alistair Darling claimed that growth will return by the end of the year. However, his prediction was dismissed by others as being nonsense.

Clearly the Bank of England will have to continue with its policy of quantitative easing, having used up its other weapons by reaching near zero interest rates.

Any recovery will be slow and patchy.

Read More

Shutting Stable Doors

Listen very carefully and you will hear the sound of a stable door being slammed shut by Darling and Mandelson.

Ahead of Alistair Darling's Labour conference speech outlining new rules to curb bankers' bonuses, Lord Mandelson spoke on BBC's Radio 4 programme.

He noted that Gordon Brown, as Chancellor, had introduced new legislation that "sorted out a ragbag of different regulatory processes" in financial services to make them "much leaner, meaner and more efficient".

Aside from the obvious point that the Tripartite system was hardly "leaner, meaner and more efficient", it is clear that if Darling is now having to introduce further regulations, it is clear that Brown's regulations weren't up to the job.

Mandelson will say later today that we rely too much on the financial services industry.

Fair comment, except this has been known for many years.

What exactly will he replace it with?

Later today Darling will outline plans to:

-End automatic bank bonuses year after year.
-End immediate payouts for top management.
-Defer any bonuses over time so they can be clawed back if they are not warranted by long term performance.

All very well.

However, as can be seen with the change of HQ for the CEO of HSBC, bankers will simply up sticks and leave.

The stable door may now be slammed, regrettably the horses have long since bolted!

Read More

In Denial

Alistair Darling has rejected claims from the Organisation for Economic Cooperation and Development (OECD) that the UK economy will not pull out of recession until 2010.

The OECD claim that the UK economy will record zero growth in the final quarter of this year, while the eurozone and the US will score two quarters of growth.

Darling, on Radio 4, said:

"The OECD has made predictions in the past ... Some have turned out not to be spot on

My prediction in the budget was that this country would come out of recession around the turn of the year. I hold to that view."

The trouble is that this government has been remarkably inept in "predicting" this crisis, in reacting to this crisis in a timely manner and in ensuring that there were sufficient reserves to manage this crisis.

Why should their predictions be any better than the OECD?

Why should we believe them?

Read More

Grill Party

Alistair Darling will be holding a "grill party" today, to which the CEOs of Britain's leading banks are invited.

Darling will use the "grill party" as an opportunity to express government "concerns" over the lamentable level of bank lending that is holding back the possibility of pulling out of the recession.

Lloyds Banking, RBS, HSBC and Barclays will all attend the meeting.

Darling is quoted:

"That is why we will be going through with each individual bank asking them why is it, at a time when the cost of borrowing is coming down, it would appear that the cost to small business appears to have gone up?

We're playing our part, the banks have got to understand that the public will not understand it if they do not play their part to the full."

Quite what Darling thinks he will be able to do to persuade the banks to lend more is not clear.

Additionally, as Vince Cable notes, why has it taken Darling this long to realise that there is still a problem wrt bank lending?

Read More

Warning These Products Can Seriously Damage Your Wealth

Alistair Darling has announced proposals for the use of cigarette type health warnings on mortgages and other financial products. These would be highly visible, and would be appended to all financial products.

However, much like the warnings on cigarette packets, whether anyone will take the slightest bit of notice of them is open to debate.

Read More