Vince Knows He Called it Wrong on Northern Rock

When Northern Rock was nationalised, Vince Cable cheekily told Gordon the government could have had his advice for free, unlike the advice for which they paid millions to Goldman Sachs. The Commons chamber laughed. Vince said it was the “best way” to protect taxpayers: “After five months, the Government are now in the best position to ensure the repayment of the taxpayer’s money.” Guido said “bollocks”.

The Tories sent mixed messages, essentially they didn’t want to nationalise it (they are not that left-wing) but they didn’t want to say “put it into administration” (John Redwood was the most coherent Tory voice on the issue here and here).

Cable today says that he knew all along that it was iffy:

“These figures confirm the suspicion, held by many of us, that the Government and the regulators were badly deceived by Northern Rock’s former managers when they agreed to bail it out on the basis that it was a good bank with a good loan portfolio… I am encountering cases of people being repossessed as a result of deeply foolish loans and the bank and the taxpayer who now own Northern Rock are having to absorb the resulting losses”

So why did Vince happily congratulate Gordon on nationalising the Rock? Socialising the losses and privatising the profits is not a good deal for the taxpayers. Vince is currently on a damage limitation tour of newsrooms salvaging his reputation for sound judgement…

Northern Rock Sinking Taxpayers

The Old Labour backbench was cheering and singing the Red Flag when the enabling legislation to nationalise Northern Rock was passed. Guido said at the time it was the return of seventies socialism.

Now we have a situation where £100 billion of taxpayer’s money has been bet on the UK property market as it goes south. Gordon Brown and Alastair Darling repeat the mantra that the public’s money is secured against the bank’s assets. The bank’s assets are what exactly? The equity in mortgagor’s homes belongs not to the bank, it belongs to the homeowners. The only properties Northern Rock has an interest in are it’s own branches and offices. The only homes it owns are those where it forecloses, usually and increasingly at a loss due to negative equity (remember all those 125% offers).

Northern Rock is selling off any assets of value to pay down the government debt. Essentially the government is asset stripping what it can and like many an asset stripper before it is sacking staff. Unlike capitalist vultures it will not make a profit, the government will be left with billions of bad debts. This half-year’s losses are £585 million, £20 per taxpayer. Mortgage arrears have doubled, repossessions are up another 50% on already bad figures – and the worst is yet to come. The Rock’s bad debts will be borne by taxpayers.

This Labour poster from 2005 will come back to haunt them at the next election…

UPDATE : A co-conspirator emails to point out that adding the debt for equity swap (which the taxpayer will never see back) to the losses gives £3,585,000,000. Divide that by 28 million taxpayers and you get £128 per taxpayer, or some 70 pence per day so far. What would you rather spend the 70 pence a day on?

Treasury Denies Plans to Break Broken Golden Rule

The FT front pages the Treasury’s supposed plan to break the Golden Rule and breach Gordon’s self imposed debt limit of 40% of the UK’s gross domestic product.

The truth is the City and the Gilts market has regarded the Golden Rule as a political fiction for years. 700 or more PFI debts that build schools and hospitals owned by the state are government guaranteed debt whatever fudge the government claims. Northern Rock mortgage guarantees are not only bad debts they are also government debts, the Network Rail debt likewise, state pensions are another unfunded government debt.

The Office of National Statistics made it officially 43.1% back in May (full explanation from IFS download here). The only news is that the Treasury looks set to admit the truth. The pathetic reality is that Gordon’s psychology did not allow him to admit his failure to keep his own rule. The rule could have been kept to in the good times, it hardly needed much fiscal rectitude to sustain when he inherited falling public debts from Ken Clarke.

The Treasury is spinning this morning that it is not going to break or loosen the rules. Guido suspects it will “redefine” the economic cycle somehow.

See also Fantasy Island Economics.

+++ Oil Tax Windfalls :Treasury Rakes £115m Weekly More Than Budget Forecast +++

Maurice Fitzpatrick, senior tax manager at Grant Thornton, the accountants is quoted in the FT:

Since the Budget in March, the Treasury has already taken an estimated £820m more than its forecasts in North Sea oil tax. The £6bn of surplus revenue would easily cover the cost of U-turns on both fuel duty and vehicle excise duty, where ministers are introducing new bands which could cost an extra £200 for drivers of inefficient cars. Deferring the 2p increase in fuel duty by six months would cost £550m. Scrapping the revamped vehicle excise duty altogether would mean the loss of an estimated £465m next year and £735m next year – although ministers may only remove the retrospective element of this tax.

So scrapping the poll tax on wheels and the 2p hike on petrol taxes would cost about 9 weeks extra than forecast windfall taxes due to high oil prices. Scrap ’em now…

Why is Petrol So Expensive in Britain?

Petrol is now nearly £6 a gallon, or some £1.15 a litre, of which 67p or some 57% goes to the Treasury. But that is only the beginning of how the Treasury makes more out of high petrol costs than OPEC and the oil companies combined.

The price differential between Britain and America is almost entirely due to taxation. Americans are enraged that they are paying $4 a gallon, they would probably have another revolution if they had to pay the equivalent of $12 a gallon as the British do. Even Europeans pay lower fuel taxes than the British, in some cases dramatically lower tax rates.

In the 2005 budget Gordon doubled the tax levy from 10% to 20% on oil explorers. At the time the Offshore Operators Association said it was “shocked” by the chancellor’s decision. “At a single stroke, the Treasury has rewritten the industry’s future. It will severely undermine business confidence,” warned the OOA chief executive, Malcolm Webb, “This has been done not once but twice in the space of just three years and we fear that this time the North Sea will not be as resilient.” And so it has proved.

Former oil trader Alan Duncan, the Tory Business Shadow, says Brown‘s actions over oil production are “not just laughable, but pitiful… he has completely lost the plot.” The government has belatedly today exempted 30 unprofitable oil fields from Petroleum Revenue Tax and granted licenses to two new sites. It was Gordon himself who doubled the Petroleum Revenue Tax three years ago.

What bemuses Guido most is that in the midst of all these difficulties, Alistair Darling is still dithering and doesn’t know if he wants to delay adding 2p a litre to fuel costs. He doesn’t know? He really doesn’t have a clue does he?

UPDATE : Osborne spotted the problem last year.

Jonah Brown Calls for Lower Oil Prices

This lunchtime Gordon made his call for increased oil production by OPEC and North Sea Oil producers. How did the market react? Above is today’s price chart, notice the move beginning just after Gordon’s midday rant at the market.

You guessed it – oil rose over 4 bucks…

Note to Editors : Oil Price is $126 not $135 Doh!

Why are some of the papers this morning reporting oil is $135 a barrel? Could it be because Downing Street is briefing on that basis ahead of Gordon’s meeting with the oil companies and they are too lazy to check? Crude oil for July delivery touched a record $135.09 a barrel last week – last Guido looked at it and wished he was short the market – it was trading at $126.35.

Gordon isn’t going to talk down the market, it will come down when the market believes recession will hit demand…

UPDATE : Larry Elliot, Guardian Economics editor reckons oil “has increased from $10 a barrel a decade ago to $135 today.” If he turns a few pages in his own paper he will see he is wrong.

Fantasy Island Economics

The 40% Golden Rule was officially smashed last week. The Office of National Statistics says even the fiddled government debt level now stands at 43.1%. The Treasury’s Code for Fiscal Stability allows the Government to break the Golden Rule temporarily if it specifies:

  1. the reasons for departing from the previous fiscal policy objectives and operating rules;
  2. the approach and period of time that the Government intends to take to return to the previous fiscal policy objectives and operating rules; and
  3. the fiscal policy objectives and operating rules that shall apply over this period

Well the government could honestly specify:

  1. We recklessly overspent in the good times and when things went wrong and we nationalised Northern Rock, we bust even the fiddled limits.
  2. We will probably carry on spending like a drunk sailor in port and leave the mess to George Osborne to sort out, just as Geoffrey Howe had to sort out our mess last time.
  3. We will just throw money at any electoral problem even though we seem to have run out of people and things to tax.

The penny has dropped for Denis MacShane of all people:

“the prime minister can announce that he will leave more money in the pockets of the British people by reducing their taxes. This can be targeted at the indigenous working class, furious at the incessant year-on-year council-tax increases above the rate of inflation… I do not know of a single minister who privately does not despair at the waste of money on pointless projects, publications, or legions of press officers that add no value.”

Welcome to economic reality Denis. When even former Labour Ministers are calling for tax and waste reductions the tax argument is won (without any help from the Cameroons).

Meanwhile, fresh from telling the banks to lend more mortgages at lower rates in defiance of LIBOR, Gordon is today going to tell the oil companies to drop prices in defiance of supply and demand. What is the point of Gordon’s market bucking fantasy rants? To get a photo op and show he is “doing something”, he will subsquently in interviews say that he told the oil companies to drop prices, just like he told OPEC to stop laughing at him. There is only one thing in his pwoer which will reduce petrol pump prices.

Given that some three quarters of the petrol price is tax, perhaps reducing the tax take on petrol would be the best way to help hard pressed voters. The Golden Rule is bust, we need economic growth. We can only boost the faltering economy if, as Dennis MacShane says, we “leave more money in the pockets of the British people by reducing their taxes”. You can’t buck the market Gordon, but you can borrow from the bond market…

+++ ONS : Public Net Debt 43.1% +++

The Office of National Statistics makes it official: 40% Golden Rule smashed by Northern Rock being included as government debt… don’t even think about Network Rail or the unfunded public sector pensions deficit…

Unfunded Tax Cuts – Hooray!

At last a policy from the government that Guido can support. Let us hear no more from Labour politicians about Tory “unfunded tax cuts”. The government is going to have to go to the City to borrow the extra £2.7 billion…

This Leak Enquiry Should Be Easy

Careful examination of the photographic evidence reveals that it is the manicured finger of Ms Flint that is holding this morning’s Cabinet briefing* for public viewing. She should be charged under Section 8 of the Official Secrets Act 1989 for failing “to take such care to prevent its unauthorised disclosure as a person in his/[her] position may reasonably be expected to take.”

The final sentence visible concludes, in bold type, that most importantly: “… it is vital that we show that at this time of uncertainty we show that we are on people’s side”. You see that is the thing with New Labour politicians, what they care most about is covering their arse. Not that they would think to introduce an emergency growth package as Bush has done in the U.S., or cut taxes to boost growth like they have elsewhere in Europe. No, the most important thing is that they push their disingenuous spin slogan that they are “on people’s side”. That should do it…

*They don’t have a clue – 5%, 10% or more falls in property prices possible. Government has of course guaranteed the mortgage market with taxpayers money.

Northern Rock Shareholders Offer to Buy Bankrupt Labour Party

click to enlarge

The letter from the Northern Rock Shareholders Action Group makes an offer of £100 for the Labour Party and gives “the existing Party members the opportunity to buy it back in 5 years time at the same price”. This will give the Labour Party a “period of temporary private ownership under a new management team…which may well give it the breathing space it needs to recover and protect the interests of all the stakeholders.” Well they are bankrupt and those are reasonable terms, better than the Treasury offered…

Taxodus : Aberdeen Asset Management Packs Bags

Aberdeen Asset Management manages £114 billion and is rumoured to be following Brit Insurance to Dublin. The Times adds Smith & Nephew as well as Cadbury heading for the tax exit doors. Will the last multi-national to leave switch off the light…

Taxodus – Enterprises Flee UK Tax Regime

The news that WPP is considering fleeing UK shores to escape ever increasing taxes resulting from Gordon’s prolificacy must signal that business has had enough of Gordon’s tax and spend policies. Every week a major business seems to make the move, Ireland is continually welcoming companies keen to halve their tax bill.

The Irish benefit massively and the inward investment has helped make Irish per capita incomes now higher than in the UK. In the last 11 years Gordon’s big government and big tax bill thinking has contrasted with Ireland’s more Thatcherite approach – resulting in Ireland becoming richer. It has come to something when the republic is spending hundreds of millions of euros to help the poor neighbour in the North upgrade infrastructure. Eurosceptics who claim Ireland is subsidised by EU funds are out of date. Nowadays Ireland is a net loser from the EU financially.

Gordon says he is listening, well he should hear what businesses are saying and see what they are doing. The tax base is narrowing and will continue to do so until he takes the low tax, high growth route to prosperity. The taxodus across the Irish sea will only increase otherwise…

+++ United Business Media Flees UK Taxes +++

The company valued at £1.3 billion is fleeing the shores of Britain’s increasingly high tax regime, joining the FTSE 100’s Shire Pharma in what is becoming a trend as Britain becomes less competitive.

UBM will become tax resident in Ireland, where we enjoy corporation tax rates of 12.5% compared with the 28% suffered in the UK.

Plenty of room for the rest of the FTSE 100…

UK Mortgage Debt / GDP Ratio Worse than U.S.

“I will not allow house prices to get out of control and put at risk the sustainability of the recovery.”
Gordon Brown, 1997 Budget Statement.

Gordon repeatedly tells us that Britain will weather the global financial turbulence better than America. The Bank of England projects that over a million homeowners could face negative equity in the widely expected property market downturn. The data above shows that British homeowners are more indebted than even Americans…

The National Association of Estate Agents reports that house sales and mortgage approvals have halved. First time buyers are an increasing rarity, below the asking price deals more common, properties are taking longer to sell and the number of buyers on agents books is down by a third. And Gordon still condemns the Tories for proposing to effectively remove first time buyers from paying stamp duty…

+++ Alliance & Leicester Drops 10% +++

Perhaps they need another £50 billion…

Gordon’s Local Garage Hikes Fuel Price 25%

Britain is getting more and more like Zimbabwe every day, a leader afraid of elections, food prices soaring and now petrol prices jumping 25% in a week.

The Rix garage in Kirkcaldy has been charging an outrageous £1.45 a litre for diesel and £1.25 for unleaded petrol. Not that this will bother Gordon – he has never had to pay for petrol.

The Grangemouth oil refinery is on the verge of shutdown as it looks like a two-day strike by staff will go ahead this weekend.

Reports from around the country tell of queues of panic buyers worried that the 200,000 barrel-a-day Grangemouth refinery closure will force the BP Forties Pipeline System, which transfers oil from more than 50 North Sea fields, to be turned off. If the dispute lasts for more than two days Britain will run dry…

Oil Hits Record High as U.K. Strike Shutdown Proceeds

Ineos Group is proceeding with the shutdown of its 200,000 barrel-a-day Grangemouth refinery as talks with unions to avert industrial action look bleak. The plant takes crude from BP’s Forties Pipeline System, which transfers oil from more than 50 North Sea fields.

So the housing market is dropping on the back of the credit crunch and U.K. oil supplies are about to be turned off. Not exactly the best economic outlook is it? Expect to see queues at petrol stations just in time for the local elections….

Bank of England Chief Economist :1,350,000 Borrowers Face Negative Equity

Charles Bean is the Bank of England’s Chief Economist, he gave an under-reported speech last week that shook up the Gilts market. It should shake up everyone. According to Mr Bean the Bank’s research has found that 5% of mortgagors have less than 20% equity in their home.[…] Read the rest

+ READ MORE +



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