Tag: Chancellor


Chancellor Gideon – Fact or Fiction?

One of the greatest pleasures in life used to be for someone to read a great work of fiction to you out loud. You would sink back, close your eyes and let it wash over you ……and all that you had to do is to compose the pictures! Unfortunately, reading out-loud is a dying art and now a pleasure only enjoyed by young children and the infirm.

So imagine the frisson of  anticipation ahead of listening to Chancellor Gideon reading The Autumn Statement – (I have always been a great fan of realistic fiction!)  I closed my eyes, kicked back…but…the pictures just wouldn’t come. All I could visualise was a smug fat boy with a Caligula haircut and eyes with all the charm of two bullet holes,  reading with all the conviction of a posh grocer reading a Fortnum’s shopping list.

GDP..blah blah….Growth…blah blah….Deficit…blah….and so on.

Then, after the “de rigeur” and customary:  “Hard-working people” , “Mess they left behind” and “Tough decisions” plus the recently conceived “It will be less that it WOULD have been”….all from the Coalition Book of Platitudes, came something about the Normal Retirement Age (NRA) moving ever closer to life expectancy!

I felt myself slowly emerging from the Treasury-induced coma.

Whether the NRA is 69, 70 or 102, it will never affect those on a private pension or those with enough money to be able to make choices.

The ability to make choices is what individual freedom is all about. One of the overriding features of this government is that too many people perceive that their choices have been compromised. Control has been wrested away from those who are relying on the State to feed and provide their shelter in old age.

Meanwhile, the “well-off” will continue to be able to stop working whenever they want to.

It is only those clapped out individuals who see retirement age as The Finishing Line who will be affected. They are the ones who used to retire at 65 and die at 67.

Soon, they will retire at 70… not quite dead but maybe wishing they were, knowing that some of their better-off acquaintances will have already been retired for 20 years.

(BTW, unemployment at the time of the 2010 General Election was 2.47 million. It is STILL 2.47 million. ……NO statistical sleight-of-hand will ever change that fact!)

Gideon and the Welfare State.

This is what Chancellor Gideon said about Mick Philpott, the scumbag who killed his own children through an act of gross stupidity:

“Philpott is responsible for these absolutely horrendous crimes and these are crimes that have shocked the nation. The courts are responsible for sentencing, but I think there is a question for government and for society about the Welfare State and the taxpayers who pay for the Welfare State, subsidising lifestyles like that. I think that debate needs to be had.”

These ill-conceived words from an ill-conceived Chancellor have sparked a debate because of the link made between the crime and the Welfare State. Let’s test Osborne’s opinion with a small substitution:

Shipman is responsible for these absolutely horrendous crimes and these are crimes that have shocked the nation. The courts are responsible for sentencing, but I think there is a question for government and for society about the NHS and the taxpayers who pay for the NHS, subsidising lifestyles like that. I think that debate needs to be had.”

It doesn’t work, does it?

Philpott is the product of an upbringing, a  British education, a social environment, a learned set of values and generations of genetic programming.

Juxtaposing the Welfare State and Philpott’s crime was yet another “bad call” in a long list of bad calls by the Chancellor.

The Genesis of the United Kingdom’s Welfare State is to be found in the Liberal Welfare Reforms of 1906-1914, under Liberal Prime Minister Herbert Asquith.

Surely, Gideon and Dave aren’t going to blame the Libdems for this one too, are they !?

Banking Reform – A Lack of Will?

When will groups such as  The Parliamentary Commission on Banking Standards wake up and realise that this government has NO real intention of reorganising the banks.

The talk has moved from buffers to firewalls, ring-fencing, electrified ringfencing , shocks and any number of excruciatingly bad metaphors.  As the Commission must have realised by now, the government is cherry-picking its recommendations in order to mollify the Banking Lobby  – which is probably the most influential in Westminster.

Today the Banking Reform Bill is being debated in the Commons, no doubt with the ultimate objective of yet more procrastination by a government which seems unable to either manage or take those “tough decisions” which it is always banging-on about. Unless , of course those tough decisions are aimed at and affect the less privileged.

Andrew Tyrie, the Chairman of the PCBS says “”The government rejected a number of important recommendations. We have concluded that the government’s arguments are insubstantial.”

He added: “There remains much more work to be done to improve the bill.”

JUST what the Chancellor and Prime Minister wanted to hear…..and just as long as the argument can continue until at least May 2015.

Banking reform is in the future – and that is exactly where the government intends to let it stay. Indefinitely.


The piece below is over 2000 words long and I have just completed it for a client .

It is about the random nature of an economic system.

Have you ever wondered why ALL economic predictions are wrong? Have you noticed that in spite of a proven record of error, economists and politicians continue to bang their heads against the forecast-wall and refuse to do anything else but continue to predict outcomes which by now, they must realise will be incorrect?

They certainly use all the latest computer models which have been empirically derived and used for many years.

So, are there any incorrect assumptions about “fundamentals”?

Is the economic process Stochastic (a sequence of random variables)? Or is it Deterministic (when the output of a system is totally dependent on its initial state and  subsequent inputs – and therefore, predictable)?

(Mind you, to add to the confusion, deterministic systems may occasionally produce random  and therefore unpredictable results. )

Is economics a question of Stochasticity v Determinism?

Why do I ask the question? Because there appears to be a total absence the ‘stable equilibrium’ predicted by classical economists.

On the contrary, Market Economics behaves like a collection of dynamically unstable systems. The instability is attributed to external ‘shocks’ rather that any fault in the basic concept. There is what can only be described as ‘non lineality’.

One solution to this ‘non-lineality’ is CHAOS THEORY!

So far, no real evidence has been produced of ‘low – dimensional’ Chaos in economic processes but there are definitely discrepancies between the ‘expected’ according to classic economic models and the ‘observed’. Just look at any economic prediction within your memory. It was probably incorrect.

We still have a ‘mechanistic’ view of the world and economics as a ‘hangover’ from 18th century SCIENCE.

Scientific thinking is very simple: ‘Measure, predict and adjust until you no longer have any more surprises. Then keep measuring to confirm that what you measured in the first place can be replicated’.

Economics was conceived on that same principle . It was established as a ‘science’. That’s where the Determinism crept in.

It was at this time that man first considered the possibility of his own intellect being so unconstrained that he would eventually understand the ‘Universe and everything’ through the medium of scientific reasoning.

This principle was applied to all sorts of activities and thinking – including economics.

The so-called ‘Enlightenment Policy’ would help man in his pursuit of happiness. Especially in the sciences. Science was cool and now in the early 21st Century it is enjoying a bit of a revival.

Of all the subjects on offer, Physics became the admired Paragon for Enlightenment and so it continues.

The way Physics works is simple: Carefully describe an environment and you should be able to predict the outcomes of any experiment conducted within that environment.

Likewise in Economics:  Know the initial environment and you should be able to predict outcomes based on subsequent inputs.

The belief stemming from that philosophy is that EVERYTHING is governed by ‘NATURAL LAWS’ which are a set of ‘cause-effect’ regularities. That means that everything can be predicted.

These same principles have been applied to Economics.

A simple scientific rule is that ‘The state of any system is a consequence of what it was in the preceding moment…..and so on.’

In the beginning, random occurrences had no place in such linear thinking. Everything was governed by Mathematics and Laws.

However, there is one major flaw in the way that we ‘do’ science: That is our ignorance of the CAUSES which generate phenomena and events.

For instance, we know the effects of gravity – which we can measure but we don’t really know the CAUSE.

However, in spite of our ignorance of the exact causes of events added to the imperfection of our analyses, we still cannot have 100% certainty about the vast majority of phenomena.

Economists also appear to have forgotten both the imperfection of analysis and their ignorance or (at best) of the exact CAUSES of events.

What is the solution? What is to be done about our comparative blindness?

Our ‘crutch’ is the science of probability. Chance.

Current economic thinking is a throwback. In economics, the world is still viewed as totally deterministic.

‘STOCHASTIC’ is non-existent – as is uncertainty because uncertainty is treated as ignorance or a failure to understand the deterministic rules of a very complex system.

Yet, with ALL our processing power, no-one has yet been able to establish those rules which should  predict outcomes.

So, as Chaucer wondered in The Nonnes Priest Tale – Travelling from A to B:  Freewill or Predestination?

Looking at the unpredictability of economic outcome, we move from linear to non-linear dynamics, from certainty to probability, from Economic Theory to Chaos Theory.

Theories of economics have been shaped by the assumption of ‘Rational Man’ who behaves in accordance with a known set of rules.

The evolution of economics into a science was ‘booted’ into becoming a science when it was ‘mathematicised’. Formulae arrived and suddenly, it became a bona fide branch of Applied Mathematics.

Many of the original people who translated economics into a mathematical form were physicists, engineers and mathematicians…… and it still shows. At that time, their view of the world was ‘linear’.

Does that work in economics? The short answer is ‘no’. That is why economists are struggling, interpreting and making excuses.

Marshall in his ‘PRICIPLES’ compared the study of economics to the study of tides. The number of variables affecting tides means it is impossible to create a consistent dynamic picture.

Even nowadays, there isn’t enough processing power to generate an accurate picture of such a dynamic system, especially as the number of variables affecting such a system is, for all intents and purposes – infinite.

Imagine random stones being thrown into the sea or small outcrops of rock or variations in the seabed. They all have an effect on the ‘shape’ and speed of the tide.

And so it is with an economic system: lots of rocks, stones and other variables.

It is not possible to formulate or predict a picture of such an infinitely dynamic system.

Currently, economic theory appears to predict that any shock to such a dynamic system will (obviously) have an effect on the system but that it will ultimately converge-to or seek either a new equilibrium or ‘tend’ towards its original equilibrium because, after all – that’s what ‘systems’ are supposed to do!

Economic Theory assumes a tendency towards stability and equilibrium with certain ‘oscillatory happenings’ on the way.

So we have a situation where economic thought was (and still is, in most cases) linear, deterministic and quasi-dynamic. That is to say, the ‘set-in-concrete’ notions of certainty, invariant economic laws and sameness……………..rather than approximation, probability and infinite variety.

For instance, the Bank of England  predicts an inflation rate one year ahead, based more on hope than fact or perceived fact. But when such predictions are (always!) wrong, there is no revisiting of the thought process, merely another prediction with little or no basis in anything-in-particular.

Often, both ‘inputs’ and predicted outcomes are decided by committee and vote!

All predictions appear to be based on an assumption of an ultimate convergence of economic process to stability, via those periodic cycles which, although not understood are treated with a certain sense of fatalism.

Chancellors are so locked into predictions based on erroneous facts that they will even massage their outcomes in order to land somewhere near the expected landing point – purely in order to retain credibility not only for themselves but also for ‘the system’.

What cannot possibly be countenanced are the random fluctuations of what is most likely a permanently unstable economic system. We don’t do that sort of thing because it may suggest a lack of control!

Let’s have a look at non-linear Economic Dynamics.

Actual (REAL) economic results indicate little resonance with the symmetry and regularity suggested by a linear mechanistic dynamic system. (Something that moves predictably along a pre-determined path).

On the contrary, fluctuations and movements are totally unpredictable. That means that regular Deterministic Laws cannot apply.

If we look at an economic situation in say, the Eurozone at a particular point in time, we may try to predict an outcome in say, 10 years’ time.

However, a small variant or an incorrect assumption in our analysis of the initial economic situation will have an effect on the ultimate outcome. The earlier that variation occurs, the more devastating will the effect be.

For instance Greece’s hidden debt at the time of its accession to the Eurozone, undetected at the time, is having a huge effect on the Eurozone’s economic outcome.

Meanwhile,  the economists, bankers and politicians crave and need the comfort of ‘stability’.  They know that the further the Eurozone travels from the initial conditions at Greece’s entry into the Euro, the more anomalies“The Greek Effect” will generate. It’s a self-amplifying issue.

Consequently, the bulk of the  work of Eurozone politicians is  now concentrated on creating a series of ‘faux’ stabilities.

It is the fallout from Stochasticity which is causing  fear with Determinism being their comfort and shelter.

It was only 60 years-or-so ago that stochastic considerations were appended to classical economic theory.

But the so-called New Classical Macroeconomics was no more than a compromise. “Let’s introduce a Factor X because we can no longer ignore it.”

Yet, the economists still needed their ‘models’ – because deep down they were still the mathematicians and physicists of old.

A formula was devised (SLUTSKY) which took the linear dynamic business cycle model and added random (not necessarily economic) terms which attempted to explain the real ‘actualités’!

At last, an attempt had been made to explain ‘exogenous shocks’ to an economic system by the introduction of nothing more than random error terms.

But  what was REALLY missing in classical economic reasoning was the concept of  NON-LINEARITY.

So, the battle was between a Linear Model with a Stochastic Term (a fiddle factor) versus a pure Non-Linear Model.

Obviously by now – 200 years from the beginning, we have to assume that the evidence for linearity in economics has been overestimated!

So, if we agree that we do need a new non-linear model of econonomics, what are we searching for? What are the other ingredients and how do we ‘work them in’?

Do we want a synthesis of economics, psychology, politics and sociology? Or do we simply stick to the notion of determinism?

Human evolution is viewed as a random process (although the way it is often expressed makes it seem as if scientists view it an ‘inevitable linear’).

The evolution of an economic system is also pretty random, except that, applying psychology, politics and sociology, it can never be a system that can develop naturally. (For example, Survival of the Economically Fittest).

Mind you, economists have already had several attempts at introducing the concept of non-linear economics.

Followers of Keynes developed theories which generated Real Business Cycle Theory but any exogenous shocks to the new non-linear system were considered as merely ad hoc disturbances.

Economists could NOT break away from LINEAR THINKING. Linear thinking was being applied in an attempt to imprison a loose and free system, which tended to CHAOS.

The result? More economic models that you can shake a stick at!

It is only fair to say that our understanding of economic phenomena has been greatly enhanced by all these models and formulae…… but still no cigar. No General Theory of Economics. No equivalent of E =mc2….+εe

So Chianella, Pun, Goodwin, Kaldor, Baldrin, Woodford, Barmal, Benhabib etc have all done their bit but we’re still NOT QUITE there.

Unfortunately, for all intents and purposes, many of the models did no more than introduce the concept of economic ‘white-noise’.

Chaotic systems generate their own randomness without need for external input. Therefore in a chaotic system, predictions can ONLY be very short term and even if there were deterministic rules within such a chaotic system, an inability or failure to 100% ‘book’ the initial conditions of the system will always yield forecasting errors.

This all suggests that economic forecasting (except that on a very short time-scale) is a nonsense. PLUS – the bigger the system, the bigger the CHAOS.

That would suggest that a proposal such as a EUROPEAN ECONOMY is a flawed concept because there is very likely to be an exponential amplification of Chaos.

The dynamic of a mega-economy is very different to a housewife balancing the books at home – although economists are still applying the same principles to both.

Unfortunately so far, classical economists continue to resist economic chaotic concepts.

The reason for this apparent intransigence is simple: it is very difficult to extract evidence of chaotic dynamics from economic data – especially on a meaningful scale. Especially if another dose of chaos is injected into the ‘mix’ by erroneous or spurious data.

In order to predict in a chaotic system a VAST (infinite) amount of data is required – far more than is normally available and so far, the search for Chaos in economics has not been successful.

Meanwhile it is Chaos which is making long-term economic forecasting totally impossible and increasingly sophisticated and precise measurement of ‘initial conditions’ incredibly difficult and potentially prohibitively costly.

If we imagine an economy to be like a cloud – subject to all those forces that clouds are subject to, we can  see the impossibility of a mathematical model which can predict the size, shape and exact direction of the cloud or even its shape and volume as it travels.

Its ultimate shape will always remain a mystery.

Politicians, bankers and economists ought to be able to say ‘I don’t know’ without us constantly expecting magic answers which do not exist.

For example: ‘Mr Chancellor or Mr Banker – what will be the effect on the economy of billions in Quantitative Easing?’ Correct answer? ‘We don’t know.’

“The initial conditions of a system are always uncertain, while Chaos guarantees that these uncertainties make prediction impossible.”  (Heisenberg)

THAT is the essence of Chaos within an Economics System.

FCNK – Fur Coat, No Knickers

British politics are cyclical and there are two views as to the nature of the cycle. One is that Labour is in power for a bit and then the Conservatives come along with lots of shovels and clear up the mess. The other view is that it is Labour politicians who wield the shovels after the Conservatives’ turn.

There is another other great political constant , not-only in British politics but worldwide.  Ultimately, all party leaders fail – as do their parties. Then the other lot make an attempt. Then the shovels come out etc. etc.

This is an unbreakable cycle. The cycle can only be broken by  totalitarianism . However,  totalitarian States always have a “sell-by” date because the chaos of the democratic party-based cycle is always waiting in the wings to deliver its own flavour of damage. Totalitarianism often degenerates into tyranny, followed by the chaos of either imposed or self-imposed democracy. Just look at Iraq.

The root cause of chaos in democracy is always created by  the impact of political ideology on economics.  The latest change in the United Kingdom government is an excellent example.

There is no doubt that the British economy is in chaos and that the Conservatives believe that their policies are the only way to hose away the Labour mess.

Chancellor George Osborne is standing where he started two years ago. In the economic foothills of a great 5-year economic and political climb. Unfortunately, the peak towards which he is guiding us will not remain still and two years after the journey began, the ultimate goal has moved.

If he is a good Chancellor, he will not be afraid to change direction as we travel. Let us hope that he does not repeat Labour’s mistake and refuse to shed the shackles of ideology when the going gets tough. To put it in political terms, there will be times when he will need to think as a Socialist and other times when he will need to be even more right-wing than currently seems healthy.

That is why it is good for him to have a few Liberals in tow – although, ideally a few left wing Labourites may have been preferable.

Adam Smith is his Wealth of Nations (1776) referred to the United Kingdom as  “a nation that is governed by shopkeepers“.  Subsequently,  Napoleon said  “‘Angleterre est une nation de boutiquiers.” In typical French fashion, neither original nor accurate but we understand what he meant. He thought that he was being disparaging whereas Adam Smith’s original quotation was more about the Britain expanding its Empire for the sole purpose of establishing new markets of customers for its own economy. Like shopkeepers would.

Had Napoleon foreseen what the British economy was to become in the 21st century, he may have said, “Angleterre est une nation d’administrateurs, fonctionnaires et conseillers en gestion”

England is a country of administrators, Civil Servants and Consultants.”

If there is one good reason for the present change in government, then that is it.

There are jobs which create wealth and there are jobs which are the so-called “Cost Centres” – the jobs which only spend. Administrators, both public and private who don’t actually contribute to production are a drain on an economy.  Any organisation which is heavy on administration compromises its ability to generate a surplus – the same applies to a State.

Under New Labour, organisations such as the NHS  experienced an massive influx of administrators and  there has been a mushrooming of  Quangos. More and more inquiries have cost the economy millions, as have the gradually expanding mini-Westminsters that are our Local Authorities. Empire-building has become  the Public Sector’s favourite contact sport.

Obviously being politicians, the Conservatives  are not able to say that there are too many non-productive civil servants but that is exactly what they do mean when they point out that the so-called Public Sector needs some rationalisation –  but the gradual expansion of the administrative classes is nothing new.

My first job many years ago was in the Scientific Civil Service. Our establishment had just over 200 of us researching and more than 400 administrators. We were in prefabricated temporary structures whereas the pen-pushers  had a modern office block.  The argument was that as we were spending taxpayers’ money, no cost was too great in order to ensure that every single penny spent was controlled and accounted-for. Plus ça change.

Until very recently, there has been a “no expense spared” attitude among both public servants and politicians with little or no incentive for either of them to control expenditure. A case of   rampant accelerating Cost Centre growth.

That is why the Chancellor announced a freeze on Public Sector pay and launched a probe into public service pensions and why the budgets of government departments will be cut by 25%. In addition, the Civil List has been frozen at £7.9 million p.a. and the Government will dispose of some of its assets in order to raise cash – notably, the air traffic organisation NATS, the Tote and the student loan book.

However, in spite of  the banking system remaining one of the government’s major creditors, it has been “clobbered” with an annual levy which will probably only collect about £2 billion per year. Compare that with the total cost (so far) of rescuing our banking system, which is well-in-excess of £850 billion.

Unfortunately, the government is also committed to hand-outs to a long queue of advisers and consultants. Notably,  Slaughter & May, the international law firm will be paid nearly £33 million for commercial legal advice and Pricewaterhouse Coopers over £11 million for its work on asset protection.

The government is also paying Credit Suisse at least £500,00 per month for advice on the asset protection scheme with a similar amount being paid to Deutsche Bank.

Needless to say, there are other government “advisers” on the payroll so the final total cost of the government’s bank rescue activities is far from established because it is open-ended.

In spite of the crippling government (and therefore taxpayer) expenditure on the banks, they are still declaring weirdly high profits, paying themselves bonuses and not delivering the commercial lending agreed with the previous Chancellor.

The government has not been able to fund all this purely from the income that it generates from taxation so it has had to borrow more and more. Hence the huge deficit and the international pressure to do something about it.

That explains  the increase in VAT, the quite major changes to the benefits system, the various “tweaks” to personal taxation, the sell-offs and cuts in public expenditure.

That has all had to be counterbalanced by an encouragement for business to produce more, hire more people and thereby generate not-only more tax for the government but also stimulate us all to spend more in order to maintain the  “produce-sell-buy-spend” cycle.

The Chancellor has taken a bit of a risk because he is assuming that the “produce” stage of the cycle will ultimately act like a defibrillator applied to a dying patient’s heart. He believes that ultimately it is business which makes an economy function. On the other hand, the Socialists believe that the cycle begins with “spend”. Hence their concept of , for instance spending on roads, railways and other government-driven projects in the hope that “spend” creates employment plus income for the individual, which in turn stimulates demand which drives production.  Same principle but a   fundamentally different starting point.

It has been shown many times that Cost Centres (mostly support functions) do not generate direct profit. The drivers of any economy are Profit Centres – the ones that make something and then sell it at a profit.

The current debt-ridden economic climate needs the harsh but correct approach favoured by the Chancellor.  For the moment, the Profit Centres have it. Although that does NOT mean that the “Austerity Method” cannot be tempered with a bit of good old-fashioned government spending when necessary.

Ideology must never be a bar to sound economic common sense.

Finally, the government has the one major Cost Centre and that is the Benefits System. The system has been abused  – of that there is no doubt.  As part of its strategy, the last Labour government needed to massage its unemployment statistics. Encouraging more and more individuals to avoid the dole queue by remaining in education is an example of a  transparently obvious ploy. The other was an over-generous benefits system especially the blatantly abused Disablities Allowance which cost the taxpayer over £11 billion per year.

The Disabilities Allowance was introduced 20 years ago by a Conservative government when under 1 million people were eligible. In the intervening years, the number of claimants has grown to approximately 3 million which represents a substantial percentage of the working population.

The Chancellor’s approach of proper medical testing for Disabilities Allowance claimants may sound Draconian  but absolutely necessary because in spite of the fact that unemployment statistics will doubtless be adversely affected, there will be a corresponding increase in those eligible for work. Once again,  an example of Cost Centres being converted into potential Profit Centres.

What of normal productive workers, entrepreneurs and those engaged in support functions which are designed to keep the economy going? Have we escaped intact?

The answer is that we are all subject to collateral damage, either through increased living costs or unemployment. The real unemployment figure has been approaching 3 million for a few years and it is only now that Gordon Brown’s Canute-like posturings have been consigned to the poubelle of history , that an accurate picture has emerged.

The picture is this:

None of us is as well-off as we imagined during the New Labour years of illusory plenty. Many have been screwing the system for too long. It started with the politicians and it is now our turn to realise that the days of  “Fur Coat , No Knickers” are well and truly over.

Budget 2012 – so you don’t have to….


  • The 50p tax rate will be reduced to 45p in April 2013
  • The point at which people start paying income tax will be raised to £9,205 from April 2013; it is currently £7,475 and will go up to £8,105 in April 2012


  • Only those with income over £60,000 to lose all child benefits
  • Will be phased out when someone in a household has an income of more than £50,000. It will fall by 1% for every £100 earned over £50,000


  • Extra 37p on packet of cigarettes from 6pm tonight
  • No change to existing plans on alcohol duty
  • No change to existing plans on fuel duty


  • A single tier pension, at a minimum of £140, to be introduced
  • Automatic review of state pension age to be introduced


  • UK economy is forecast to grow 0.8% in 2012
  • The forecast for 2013 is 2%, for 2014 is 2.7%, and for both 2015 and 2016 is 3%
  • Inflation is forecast to fall to 2.8% in 2012, and to 1.9% in 2013


  • Stamp duty on properties worth over £2 million to increase to 7% from midnight
  • Any such homes bought through companies will pay 15%


  • Sunday trading laws to be relaxed for eight weekends beginning 22 July
  • Independent Pay Review bodies to look at introducing regional pay for public sector


  • Corporation tax will be cut to 24% from April 2012, falling to 22% by 2014
  • Tax relief for the video games, animation and high-end television production sectors
  • Government to consider enterprise loans for young people to start their own business


  • Extra funding for ultra-fast broadband and wifi in 10 of UK’s largest cities
  • Investment in railways in north-west England to be increased
  • Airport expansion options to be outlined later this summer, including review of south-east airport capacity


  • Government borrowing this year to be £126bn – £1bn less than forecast
  • Forecast to fall to £21bn by 2016-17

United Kingdom and Miracle-Gro?

“Growth” is a word which is used far too rarely in all the messages and communiques which we have become accustomed to hearing emanate from the million-and-one Euromeetings.

Consequently, it is refreshing to see something (anything) written-down which indicates some intent from our own government.

On the face of it, a raid on Pension Funds (see below) does not look like a good plan and none of the goals (below) have dates attached to them. If they did have dates , we would probably realise that this is not a plan for an immediate growth-explosion but something which first needs to be created, drawn, discussed, re-discussed before the first spade is ever  sunk into the ground. Neither is it an integrated plan – on the contrary, it can best be described as a series of disparate initiatives.

These projects will NOT make the country any richer, because they represent a “spend” rather than an “earn”, that is to say, they are not something which we can exchange for goods or cash with other countries.  These are job-creation schemes which are often confused with proper growth.

Nevertheless, it’s a start. We have lift-off!

The Chancellor of the Exchequer, George Osborne, and the Business Secretary, Vince Cable, have  announced a wide-ranging package of more than 140 reforms to build a stronger and more balanced economy. These measures include actions from the second phase of the Government’s Growth Review Phase II and the National Infrastructure Plan.

These measures are supported by an infrastructure package of £30 billion.  This includes unlocking up to £20 billion of private investment through signing a Memorandum of Understanding with two groups of UK pension funds, an additional £5 billion of infrastructure spending in this Spending Review period, and commitments to £5 billion of capital projects in the next Spending Review period. In addition, the Government is supporting around a further £1 billion of investment by Network Rail.

To make the UK’s infrastructure fit for the 21st century, the Government has published its National Infrastructure Plan 2011. The plan sets out a critical analysis of the state of the UK’s infrastructure and sets out a pipeline of over 500 infrastructure projects. It commits to clear ambitions to address the key challenges in each major infrastructure sector – energy, transport, telecommunications, waste and water.

The key measures in the National Infrastructure Plan include:

  • introducing a new approach to financing infrastructure, by leveraging £20 billion of private investment from pension funds;
  • giving local authorities more flexibility to support major infrastructure by considering local borrowing to fund the Northern Line extension to Battersea, and exploring new sources of revenue, such as options for tolling on the A14.
  • investing over £1 billion to tackle areas of congestion and improve the national road network, including £270 million for two new managed motorway schemes at congested times on the M3 and M6.
  • investing more than £1.4 billion in railway infrastructure and commuter links, including £270 million for a rail link between Oxford and Bedford and £390 million on enhancement and renewal works to improve stations and infrastructure.
  • investing £100 million to create up to ten ‘super-connected cities’ across the UK, with 80-100 megabits per second broadband and city-wide high-speed mobile coverage.
  • The Chief Secretary to the Treasury, Danny Alexander, will chair a new cabinet committee on infrastructure, to push through the delivery of the top 40 priority projects and programmes that are critical for growth.

The second phase of the Government’s Growth Review has been led jointly by HM Treasury and the Department for Business, Innovation and Skills (BIS).  The Autumn Statement announces a set of further reforms building on this, including:

  • creating a £20 billion National Loan Guarantee Scheme, to lower the cost of loans to small businesses, and a £1 billion Business Finance Partnership, which will lend to mid-sized businesses and small and medium sized businesses in the UK through non-bank channels.
  • increasing the Regional Growth Fund by £1 billion to provide ongoing support to grow the private sector in areas currently dependent on the public sector.
  • an extra £600 million to fund 100 additional Free Schools, and an additional £600 million to deliver an additional 40,000 school places.
  • introducing a new build mortgage indemnity scheme which will help up to 100,000 families to buy their own home, and launching a new £400 million Get Britain Building investment fund to progress stalled developments.
  • providing £45 million of support to UK firms wishing to export, doubling from 25,000 to 50,000 the number of SMEs supported, and making similar support available to 500 mid-sized businesses.
  • making 100 per cent capital allowances available in six Enterprise Zones (Black Country, Humber, Liverpool, North Eastern, Sheffield, and Tees Valley).
  • making available around £250 million from 2013 to support energy intensive industries manage the costs of electricity, including increasing the relief from the climate change levy on electricity for Climate Change Agreement participants to 90 per cent.
  • an additional £200 million for science capital investment.
  • investing £55m into the Strategic Rail Freight Network to help deliver schemes that remove bottlenecks and improve capability and longer term connectivity to the UK’s major ports.
  • giving a bigger role to businesses in purchasing vocational training programmes. In the New Year employers will be invited to bid for a share of a new £250 million government fund. This will route public investment directly to employers.
  • taking decisive action to remove barriers to hiring by making reforms to streamline employment law.
  • investing £10 million over five years from 2013-14 in Project Enthuse, matched by investment from the Wellcome Trust, to improve the quality of science teaching in schools
  • announcing how the Government will maximise the value of public sector data.

The Chancellor of the Exchequer, George Osborne, said:

“We are committed to making Britain the best place to start, finance and grow a business.  The measures I am announcing today will help us to achieve this by creating an environment in which businesses are easy to set up, have access to credit when they need it and are able to grow without being held back by red tape.  This action supports our deficit reduction plan and the Government’s monetary activism as we build a balanced economy.”

Business Secretary, Vince Cable, said:

“These measures are an important element of the Government’s work to create the right conditions for business to start up, invest, grow and create jobs. They sit alongside our deficit reduction plan and work to increase the supply of credit.

“I attach particular importance to infrastructure and Government capital spending, including that on innovation and science, and the credit easing initiative.  Speedy and effective implementation is now required, building on the major progress that has been made implementing phase one.”

The first phase of the Growth Review was published in March 2011. Work has started on all 137 commitments and substantial progress has been made.  The Government has  published an update on every single measure announced in The Plan for Growth.

S.M.A.R.T Barroso.

José Manuel Durão Barroso is a very able, bright  and distinguished politician. He is the lawyer-economist who is President of the European Commission.

His speech of 12 October 2011 to the European Council was going to tell the world what was going to be done about an issue which for the past two years, even during Middle Eastern revolutions, earthquakes and hurricanes , has consistently been one of the TOP THREE news items:   The European Economic Crisis.

During that time, politicians, economists and bankers have adopted a strange general, non-specific tone, laced with metaphor and euphemism and we have all become seduced by this new trick of being told nothing, yet imagining that we have been told everything.

Last week, I analysed Bank of England Governor Mervyn King’s latest statement and found that true to form, it was flooded with generalisations and platitudes with a sprinkling of occasional metaphor.

Mr Fact has become a stranger and fear appears to have driven away the the art of realistic economic ambition and goal-setting.

Most of us have come across the goal-setting model S.M.A.R.T.

A goal has to be structured as follows. It has to be  SPECIFIC, MEASURABLE, AGREED, REALISTIC and TIME-BASED.

So, if a politician says that “something will be done as soon as possible”, it fails on all counts. However, if a politician says (and the figures do not matter!):

” It has been agreed with all members of the Eurozone as well as the IMF and the ECU that the European Central Bank will hand-over $250 billion to the Greek Government on November 1st 2011 with an additional $50 billion on March 31st 2012″, then we have a definite  statement of intent – a goal.

If a Chancellor said “The Austerity programme is NOT an open-ended precaution. On January 1st 2013, the VAT rate will be reduced to a zero rate until the end of the First Quarter 2014 and every viable  SME with a turnover of less than £100,000 will be given a grant of £20,000”  would also be a goal.

“Boosting Capital”,  “Rebuilding Balance Sheets”, “Banks have to lend more” etc. are further examples of empty non-goal-based rhetoric.

The text of Mr Barroso’s speech is reproduced below. I have highlighted certain phrases.

You decide.

Brussels, 12 October 2011

Mr. President,

Presidency in office of the Council,

Honourable Members,

The European Council of 23 October will be held against a backdrop of urgency over the threat of systemic crisis now unfolding. There are many issues on the European agenda. The Minister of the Polish Presidency mentioned most of them. I will not of course go into detail of the many important challenges, from the conference in Durban to very important external items. I will today focus on the urgent response needed to the financial and economic crisis.

To break the vicious cycle of uncertainty over sovereign debt sustainability and over growth prospects, we need comprehensive solutions now.

In my State of the Union address to this Parliament two weeks ago I promised responses. Today we are delivering. I can announce that the Commission has just adopted a roadmap to stability and growth. And we have set out concrete terms and timelines to implement it. You are the first to whom I communicate the main elements of this roadmap. I am sending to the President of the European Parliament the document that we have first adopted some time ago.

Honourable Members,

Over the last three years, the European Union has come out with specific responses to different aspects of the crisis. Now is the time to bring them all together. To once and for all meet the depth of the crisis with a full comprehensive and credible response.

The elements in this roadmap are interdependent. They must be implemented simultaneously. They must be implemented immediately. This is the only way that the European Union can convincingly:

  • Give a decisive clear response to the problems of Greece;
  • Enhance the euro area’s backstops against the crisis;
  • Make a coordinated effort to strengthen the banking system including through recapitalisation;
  • Frontload stability and growth-enhancing policies and;
  • Build a more robust and integrated economic governance.These are the five points of the roadmap I put before this House today and that I will take to the European Council on October 23rd as a coherent and comprehensive plan for Europe that embodies a Community approach.

Here is how.

First, on Greece, we need a decisive solution. Doubts and uncertainties over Greece’s future jeopardise stability in the entire euro area and beyond. The time has come to definitively remove these doubts. This means three immediate and sustained actions:

  • paying the sixth tranche of the loans to Greece. The result of the Troika mission has sent a positive signal in this respect;
  • deciding a sustainable solution for Greece within the euro area. This should be through an effective second adjustment programme, based on adequate financing through public and private sector involvement, backed up with robust implementation and monitoring mechanisms;
  • We also understand that Greece must fully carry out its programme in a timely manner, with continued support from the Commission’s Task Force and maximised disbursement of structural funds focused on growth.

But there is a more general problem in the euro area.

Despite the assurances given by Heads of State or Government on 21 July to support countries under programmes, and despite their assurances that private sector involvement would be strictly limited to Greece, contagion risks have not been contained. To decisively put a stop to this threat that is hampering all our efforts, we must strengthen the euro’s firewalls. We must have credible, stronger instruments.

At the European Council I will strongly urge Heads of State and Government of the euro area to complete and complement the measures they agreed on 21st July.

This is crucial to give a much-needed injection of confidence to market participants.

It means making operational the agreements taken to increase the flexibility and effectiveness of the EFSF and the future ESM, to allow for precautionary programmes based on conditionality, on which the Commission and ECB should be consulted in advance. Stronger monitoring and surveillance could be included as part of the Stability and Growth Pact.

But, the EFSF must be more than just a firewall.

It should have real firepower. We should maximise its capacity.

And, to further cement the expression of unity and responsibility inherent in these crisis resolution mechanisms, we must accelerate the adoption and entry into force of the permanent ESM – preferably to mid-2012.

We must trust that the European Central Bank will continue to provide the background of financial stability necessary for all this to be done.

The strengthened and more flexible EFSF is in the interest of all euro countries, including the Slovak people. Our common currency plays a crucial role in investment decisions, in growth, in jobs, all over Europe. I commend those in Slovakia who have risen above partisan attitudes and voted in favour of what is important for all Slovak citizens, for the euro area and for the European Union as a whole. And I call upon all parties in the Slovak Parliament to rise above the positioning of short term politics, and seize the next opportunity to ensure a swift adoption of the new agreement.

The third element of the roadmap is the need for a coordinated approach to strengthen the banking system. Let us be clear – over the last three years huge efforts have been deployed to this end. Billions of euros in aid and guarantees. An overhaul of banking supervision. Boosting capital requirements and protecting citizens’ deposits.

However, all this has not yet been sufficient to lift the weight of uncertainty hanging over the banking system, or to halt the volatility and pressure on the European banks. While these doubts persist and spread, sufficient confidence cannot be restored to allow liquidity to flow again and to oil the growth that our economies so badly need. For confidence to return we need to fix the sovereign debt problem, which can only be done through a coherent package.

We must therefore urgently strengthen the banks, because in fact those two issues – the sovereign contagion and the banks are now, whether we like it or not linked. This must be coordinated through the Member States, the European Banking Authority, the ECB and the Commission. The strategy should comprise 5 key steps:

  • It should include all potentially systemic banks identified by the European Banking Authority across all Member States;
  • It should take account of all sovereign debt exposure in full transparency;
  • It should involve a temporarily higher capital ratio after accounting for exposure;
  • Banks that do not have the required capital should present and then implement plans to have it in place as swiftly as possible. And until they have done so, they should be prevented from paying out dividends and bonuses by the national supervisors.
  • Banks should use private sources of capital first. If necessary the national government should provide support as a next step, as a last resort, drawing on a loan granted from the EFSF. Any public support should be compatible with the state aid rules. The Commission intends to extend the existing state aid framework for bank support beyond the end of 2011.

Naturally, details on capital ratios and evaluation methods should be proposed by the EBA with national supervisors, who are best placed to judge on this.

At the same time, the ongoing work on a new financial regulation system should be completed as swiftly as possible. To that end, the Commission will present its remaining proposals to implement the full G20 commitments by the end of this year. We also urge rapid adoption of the Financial Transaction Tax I presented to you two weeks ago.

The fourth element is to frontload policies that consolidate stability and boost growth.

We all know that most Member States do not have much room for fiscal stimulus. Those who have should use it. However, all Member States do have at their disposal means to implement structural reforms, to focus spending on priority areas, and to remove obstacles to growth.

As I said to you in my State of the Union address, growth is within our reach if we can break down the barriers that stop money, services and people flowing through our Union as they should.

This means first – getting more out of what has already been agreed at the – European level.

I am talking about implementing for instance the services directive, delivering on the digital agenda. I’m talking about maximising our trade agreements.

These are measures we can take today, that don’t require significant additional investments or budgetary effort, but that can have immediate and significant benefit for our companies, for our citizens, for our economy.

This means second – accelerating adoption of what is on the table. There are many proposals on the table that we can fast-track for adoption. I am talking about unitary patent protection. I am talking about the energy savings directive. I am talking about concluding ongoing trade agreements.

And it means third – fast-tracking the most urgent growth-boosting proposals. I am talking about the Single Market Act, about forthcoming proposals to facilitate access to venture capital because today there is a lack of venture capital in Europe and this is especially felt by SME’s. I am talking about the Young Opportunities initiative to increase youth employment.

And where agreement on fast-tracking proves difficult, we should be able to use enhanced cooperation so that those who want to move forward are not held back. Frankly dear members of the Parliament it is time to say that the speed of the European Union should not be the speed always of its slowest member. We need sometimes to use reinforced cooperation.

All this should be done in conjunction with targeted investment at European Union level, such as through the Europe 2020 Agenda where we propose also our Project Bond Initiative, the Commission will propose it next week, and will maximise the resources of the European Investment Bank so that it can lend to the real economy.

So reforms, implementation of everything we have agreed and also try to fund some of these efforts through new sources of investment using the appropriate instruments we have and some we can create like the Project Bonds.

The fifth and final element of the Commission’s proposed roadmap to stability and growth is the pursuit of sound economic policies by the Member States, especially of the euro area, reinforced by stronger Community governance.

We now have the six pack– and I thank you for your support in getting the ambitious proposals approved. We have the European Semester and all that it entails in strengthening governance. But we must go further to match the ambitions of our monetary policy with those of our economic policies. As we have said we have to complement the monetary union with a real economic union. The future of the single currency also depends upon it.

In its roadmap, the Commission is proposing a much stronger euro-area dimension in planning, implementing and assessing national policies. This dimension is backed up by strict constraints enforceable at the Euro-area level and is based on an enhancement of the Community approach, which will reinforce the role of the European Parliament in economic governance. We will further reinforce the role of the Commissioner for economic and monetary affairs in full respect of the Treaty.

There are other actions we can take very quickly, without change in the Treaty:

  • We must improve working methods and crisis management between the European Commission, the European Council and the Eurogroup. Proposals to this end will be made soon, in line with the agreements of 21 July, by the President of the Council, Commission President and President of the Eurogroup and the aim is to have a more streamlined process between the Euro area summit, the Eurogroup and the Euro area working group.
  • Second, we should streamline and reinforce the instruments we have. Not only by rapidly implementing the six-pack, but also by strengthening the European Semester by intensifying surveillance and integrating the Euro Plus Pact into the Semester – hence reinforcing the Community method in the Union.
  • And we must also go further than the measures set out in the six-pack, by setting out provisions for strengthening the economic and budgetary surveillance of Euro area Member States requesting or receiving financial assistance from the EFSF, ESM, or other institutions. The Commission will make a proposal to the Council and the European Parliament under Article 136.
  • We must monitor the national budgetary policies of Member States in excessive deficit procedure or countries under programmes through a Commission-Council procedure which will enable the European Union to intervene. For example, in serious cases it could request a second reading of draft budgets, to suggest amendments in the course of the year and to monitor budgetary execution. The Commission will make a proposal to the Council and the European Parliament under Article 136 setting out the graduated steps and conditions that should apply in such cases. You see, honourable members, that we are really speaking seriously when we mention we urge for more discipline, more integration. It means more Europe that, I think, should be the goal of all of us.
  • All this is in addition to the proposals on a more unified external representation for the Euro area and options for ‘stability bonds’ the Commission will bring forward by the end of this year.

One final point on governance – In the State of the Union address I said the Commission would present a single, coherent framework for better economic governance based on the Community method. We are developing that right now.

The proposal will ensure the compatibility between the euro area and the Union as a whole. It will be done in a way that aims to integrate the Euro Plus Pact because coordination and integration must be carried out on a single, Community level. How can we speak about coordination and integration in a disintegrated manner. It is obvious that we need a Community approach to do that. Yes, we need stronger governance. Yes, we need the Euro area heads of government to meet more frequently. But no, we do not need to create yet more institutions or yet more titles, when we already have the structures in place to do the job.

It is essential that we do not create a division between the 17 members of the euro area and the 27 members of the European Union – most of whom wish to join the euro. Such a division could deeply harm the European Union as a whole, put in question the Single Market, be an invitation for renationalisation of Community policies. That is why we need to have stronger governance for the countries that are in the euro area, but have it in full compatibility with the rules and the acquis for the European Union as a whole. This is why it is essential to keep the Community institutions – this European Parliament, the European Commission – at the core of the process of coordination and integration.

The role of these institutions is also to guarantee this link, to guarantee that no Member State is jeopardised, to guarantee that Europe remains strong and united.

Honourable Members,

The solutions to Europe’s crisis, I believe, are known by most of us. But to grasp them requires courage and political will. To do so is to fully acknowledge our interdependence and to take a bold leap towards further integration. The problem of Europe is not too much integration. It is in fact a lack of a European approach. Such changes to the nature of our Union may need to be enshrined in changes to the Treaty. Changes that must keep the Community method at their core.

But one thing is for sure – as the crisis narrows in on us, I see no other option but to act now, so the fact that we are considering for the future more ambitious changes should not be an excuse not to adopt the decisions now and this is why we need to act together in a unified and coherent way.

This crisis is not partial. The response cannot be partial. Our responses cannot be piecemeal. That is why this roadmap is a single, comprehensive approach and all its elements must be implemented in parallel.

This is the message I intend to take to the European Council on 23rd October and for which I would like to have your support – the support for a united and stronger Union.

Thank you for your attention.

Go for Gold!

Eighteen months ago, I predicted that during 2011, gold would hit $2000 per ounce. So far, it has I topped-out at just over $1900 and then pulled back to about $1750

There was a 10% price drop in three days! That appears to have frightened some but has also done a lot of good because gold has been hugely overbought in the last few months and was due  a correction.

This correction is likely to continue to well below $1500. I am therefore no longer predicting $2000 per ounce.

It will rise to above $4000!

Within a few months, Ben Bernanke’s “do nothing , wait and see” policy will no longer be viable and the American economy will begin to crumble, closely followed by a mega-slide in Euro stocks.

At that point, those who do not become jammed in the exits will once again rush for gold – at the point when Bernanke and other Finance Ministers begin to oil the money-printing presses for more empty Mickey Mouse “quantitative easing” money!

Although we  are already in a Bear Market, there will still be unexplained rallies, falls and adjustments but thanks to politicians who have lost the art of decision-making, gold is still the way to go.

p.s. this is a fitting time to once again pay tribute to our former Prime Minister, Gordon Brown.

THIS is what he did!

States of the economies.

The next economic and banking collapse is going to make the 2008 crash look like a slight adjustment.

Once-powerful Western economies are booking  quarterly GDP growths of 1% or less. For the non-mathematicians, that is within a rounding error of ZERO growth. So when you hear a Chancellor deriving solace from an economy achieving  a growth of say 1.5% which was “better than the expected” 1.3%, we know that they and we are in trouble.

Politicians and central bankers have exhausted their entire repertoire on a THREE YEAR attempt to put their economies in order whilst at the same time propping-up a broken banking system. None of it has worked!

They all know that the tsunami is coming but there is no high ground to run to.

European politicians are rushing about, turning inaction into an art-form whilst economies and banks  are merely standing on the trapdoor and holding hands hoping that somehow all this will go away and the entire system will somehow self-right. Their impotent prevarication can (and will) only result in two things – collapse and bankcrptcy.

Bankruptcy of governments, business and of private individuals.

Last week we had the very first example of a banker who more-or-less threw-in his hand, admitting that there was little-else that money could do. The Federal Reserve’s Ben Bernanke had the choice of either printing more empty dollars or not. The so-called Quantitative Easing 3 would have increased US inflation and made Investment Bankers happy. It would have enabled the bankers to further plunder the markets and create more of those illusory profits. They’ve been operating on that basis for two years now and perhaps Bernanke decided that enough was enough.

Mainlining money is never the long-term solution – it’s too addictive!

However, No U.S  Quantitative Easing   has simply accelerated the collapse of the United States economy.

Yes! It’s as clear-cut as that.

In the end, Bernanke took a leaf from the politicians’ book and decided to do nothing but sit and wait. NO mention of QE3 and no steps to promote economic growth.

He has decided to kick the the whole thing forward yet another month in the vain hope that Congress can deliver the next promise. THAT’S what you call a long-shot!

For the moment both Europe and the USA appear to be quite content to pause and doze in the middle of their joint economic tightrope until someone else (as yet unknown, probably China) comes along to coax  them out of their torpor.

Unfortunately, America and Europe are entwined in such a way that if Europe falls, so will the USA.

We used to dismiss the  PIIGS nations as the ones heading for the econo-slaughter house — Portugal, Italy, Ireland, Greece and Spain.  Their problem is very simple – they have debts so huge that there is absolutely NO prospect of them ever being repaid.  Their politicians  are also waiting for something miraculous to happen sometime in the future.

The Euro saviour WAS supposed to have been the “strong man of Europe”, the one with the largest economy – Germany. Unfortunately,Germany has also hit the economic buffers. It’s growth in this year’s second quarter was  just 0.1 percent!

France, Europe’s second-largest Euro-economy, has also ground to a halt. President Sarkozy’s has followed the UK route with huge budgetary cuts. That certainly looks good on paper and may lower deficits  but will  produce an  impossible drag on an already-waning economy. THAT will inhibit growth and ultimately lower tax revenues – which will inevitably result in higher taxation.

The United Kingdom’s Chancellor can take the credit for showing everyone else the way to economic stagnation through the triple whammy of  Government budget cuts, rising inflation and plunging consumer confidence. EXACTLY the conditions to discourage anyone from risking any sort of entrepreneurial initiative or borrowing from the banks to fund commercial expansion. That is, if the banks weren’t continuing to sulk.

Europe is frantically cutting spending in a desperate attempt to postpone the inevitable debt meltdown. Meanwhile  Washington continues to rack-up up its national debt at the eye-watering rate of more than 10 percent per year.

All that America has achieved so far is to have its credit-rating slashed by Standard & Poor’s while its local governments, states and cities frantically try everything from releasing prisoners early to selling off the family silver.

The ENTIRE Western economy has ground to a shuddering halt with the weird unwanted bolt-ons of climbing inflation and consumer confidence at near an all-time low.

So what IS the solution?

The solution is comparatively simple and should be attempted in stages.

The first would be to reconcile ALL sovereign debt.

Secondly,  the markets and banks would collapse – but at a controlled rate.

Thirdly, it should be admitted that the Euro and the Eurozone were both very bad ideas which developed into a grotesque sacred cow.

Then we could ALL start again.

The alternatives are greater budget shortfalls, greater deficits, even faster growths in  government debt, followed by  catastrophic collapses and Depression.

The former all require  political decisions of such magnitude that even the politicians have come to realise  that we do not have anyone  with even remotely the courage to  raise his or head above the parapet to take control.

So for the moment, it seems as if we’re knowingly headed for an economic holocaust.

So, unless the politicians wake up soon, we need to create hell and not wait for it.

From “Brother, Can You Spare a Dime,” lyrics by Yip Harburg, music by Jay Gorney (1931)

They used to tell me I was building a dream, and so I followed the mob,
When there was earth to plow, or guns to bear, I was always there right on the job.
They used to tell me I was building a dream, with peace and glory ahead,
Why should I be standing in line, just waiting for bread?

Once I built a railroad, I made it run, made it race against time.
Once I built a railroad; now it’s done. Brother, can you spare a dime?
Once I built a tower, up to the sun, brick, and rivet, and lime;
Once I built a tower, now it’s done. Brother, can you spare a dime?

Gideon Floundering?

The MOST wretched Cabinet job is that of Chancellor of the Exchequer. I  spent years criticising the “Iron Chancellor”,  Gordon Brown. During his posturing days when he was surfing the economic wave created by his predecessor Ken Clarke and even when Tony Blair had declared him the “best Chancellor we’ve ever had”. I saw that he was overspending and that if he’d carried on, the solids would have hit the air conditioning even earlier than they did .

He was given the credit for keeping us out of the Euro but I suspect that the only thing that stopped him was his innate inability to make a decision. He was constantly hounded by self-doubt – and quite rightly so.

It took others several years to realise that the Iron Chancellor was more Irn Bru than of  the metallic variety and in retrospect, perhaps  didn’t quite deserve the consolation prize of the keys to No.10.

I had a sneaky admiration for Alistair Darling because he and I once shared a platform in the early 90s when he was in charge of Pensions. He came across as  a Minister who had taken the trouble to familiarise himself with his subject and anyone who can do that with Pensions earns my undying respect. Plus, when the bankers crapped their own nest, he was the one who managed to wipe their noses and bottoms, give then some pocket money and send them back to their offices without alarming the rest of us.

His contribution has never been fully recognised because his then boss was arguably the worst manager and motivator I was lucky never to come across.

Nowadays we are in the hands of Gideon “George” Osborne. His public manner and voice belie that fact that he is a shrewd operator and very bright. The only problem that he has is one of communication. He is too defensive.

The Labour Government left him NOTHING. In effect, he was (and still is) is in a start-up situation. He has to create the conditions which give the rest of us a reasonable chance to create an economy which, had it been a horse, would have been shot by now.

For several years I have been saying that Economic Theory needs a healthy dose of Chaos Theory appended to it. Consequently, what has become increasingly obvious t0 some of us in the last few years is that economic forecasting has become a mug’s game. Both economic forecasters and politicians ought, by now to have learned that any projections have an inbuilt error of up to 100%. So, if growth is forecast at 5%, it is just as likely to be either 10% or Zero. This is exactly what we are finding today with inflation predictions. The Governor of England may as well hire Russell Grant or Mystic Meg to hand him the numbers.

Hence the overuse of the phrases “Higher than expected” and “Lower than expected”. In spite of the unpredictable variables – from the Japanese Tsunami to the Middle East Riots, politicians still persist in their own special brand of blind optimism. The nearest that they come to admitting that they are no longer in control of events is the occasional “Because of global economic conditions…”

Unfortunately, blaming the Global Economy now looks like an excuse, on a par with “the wrong kind of weather”. The “Global” excuse is only pulled out of the hat when things appear to be going wrong.

The fact is that  a loosely integrated global economy  contains an infinite number of variables, so Finance Ministers ought to relax and freely admit that currently, they are OBSERVERS rather than SHAPERS of economic events.

We have just seen a “surprise” increase in the United Kingdom’s unemployment figures. The figure is 2.49 million – which in reality means that there are probably over 3 million people out of work.

The Chancellor says that in spite of the “disappointing” figures, his policies “are creating jobs” – and do you know – HE IS RIGHT!

He has already cited “world markets” as an explanation – and once again, he is absolutely right! Unfortunately, after a year of unnecessary excuses, that in itself looks like yet another routine excuse.

The number of unemployed women has risen by 38,000. That is the sharpest increase in 2 years and the highest number of unemployed women for 23 years. Why is that? The truth is that no-one really knows. Unfortunately, politicians and “experts” cannot find it in their hearts to admit that they do not know. So we will have yet more pointless explanations.

The Chancellor of the Exchequer is NOT responsible for the current moribund state of our economy. That was caused by a mixture of Gordon Brown’s ineptitude, crooked Bankers and the resulting recession.

George Osborne may have the communication skills and manner of a 30s lounge lizard but, technically, he is without doubt the best we’ve got.

He deserves our support so that he no longer feels the need to sell us  what is undoubtedly the most  foul-tasting economic medicine that has EVER been dished out by a peace-time government.

Be nice to your Chancellor. The alternative sits on the bench opposite –  a Brownite about to explode out of his grey suit and it ain’t a pretty sight!

Hug a Hooray.

Featherbedding the Banks

What the bankers are holding



A report was published today by the New Economics Foundation about the “hidden subsidies” currently enjoyed by the British banking industry. It is evident that the language, techniques and accounting procedures used within the banking system are such that they obscure both the full extent of the support that banks are accepting from the taxpayer  and the comparatively small amount of “banking skill” that banks executives contribute to their own “profits”.

Since 2008,  known public support for the financial sector has been unprecedented in scale.

Since the Bank of England came to the rescue of Northern Rock in 2007, with a  £25 billion emergency borrowing facility, the sums have grown. Subsequent systemic bank failures meant that the public purse would have to support the whole financial sector, not just individual banks.

Many schemes of different types were introduced. They all  lacked transparency so that the amounts are still hard to summarise.  Together,the schemes  added up to £1.2 trillion of backing to the banking system, equivalent to about 85 per cent of the UK’s national 2009 income.

The UK  scale of intervention, in spite of the vast differences in GDP was comparable to that of the United States.

But is it possible that there is still more to the story?  Research from the Bank of England, the Office of Fair Trading, the Institutional Investors Council and Moneyfacts (which provides independent rate comparisons)  reveals a range of other hidden subsidies to the big banks.

Chancellor George Osborne’s recently announced bank levy is minuscule in comparison to all the bank subsidies which we do not know about. The Chancellor was pulling a very small rabbit from a very large hat. The Independent Commission on Banking has yet to publish a complete list of the de facto hidden subsidies currently being enjoyed by the banks. What we know so far amounts to no more than scratching the surface.

Increased scrutiny of the financial system in the wake of the banking crisis has shed light on a number of practices previously taken for granted, which now might be viewed in a different light. The sheer complexity of modern banking (itself one of the conditions that brought on the crisis) has worked to shield the sector from difficult questions. But with the dust of public interventions now settling, a number of anomalies are emerging.

The ‘Too Big to Fail’ subsidy. Having concluded that our major banks are “too big to fail”, the government now  provides a public guarantee. That effectively is insurance against a bank going bust. In business terms, this gives the banks a huge commercial advantage over other organisations. All commercial enterprises need to borrow money and the banks are no exception. However, they can borrow money much more cheaply than any other type of company because of the fact that the public is guaranteeing anything that they borrow.

Answers from leading auditors questioned by the Treasury Select Committee confirm this. The hidden subsidies save the banks a large amount of money – at least £30 billion annually– and thus helps them generate “unearned” profits. To put it simply, they save billions on the cost of their own borrowing and so make MUCH  MORE profit that they would have done without that taxpayers guarantee.

It also means that when the banks pay bonuses to senior staff for “performance”  as well as dividends to institutional investors, the rewards of  the public’s  “insurance”  are headed in the wrong direction. They should be coming back to the taxpayer.


The quantitative easing windfall subsidy.  When it was decided that the economy needed more liquidity (cash), the Bank of England pumped money in using the technique called “quantitative easing”. Many people refer to this as “printing money”. However, there is slightly more finesse within the system than a bit of  pressure applied to  a  printing press button .

Take Government Gilts, for instance.(Gilts are bonds issued by governments and they pay a fixed ate of interest twice a year. Governments use Gilts to raise money)

The Bank of England  is not permitted to buy UK  gilts directly from the Government as this is considered to be “monetising” government debt, or in other words directly funding government expenditure through “creating money” .

Instead the Debt Management Office first sells the gilts to banks and other investors and then the Bank of England buys them back from the banks at a higher price, with money that it has “created” . The bankers then reward themselves for completing these “deals.”

 That gives the banks “new” money plus a cut of every trade.


The ‘make the customer pay’ subsidy. Thanks to an apparent lack of forward planning (and understanding), the government has created a paradox which really has placed the banks “between a rock and a hard place”. They have been given two contradictory goals by the government. The first is to lend money (which is what caused the majority of their problems in the first place) and the second is to hold onto their money so that they can rebuild their capital.

The banks could manage this problem in any number of ways. However, they have taken the easy option which is to charge more when they lend and at the same time, pay less to their own savers and investors. The difference between what the banks charge their borrowers and pay their savers is known as the “interest rate spread” or margin.

So the government, by way of using the taxpayer to guarantee that banks cannot fail to repay their debts has meant that banks can now “buy-in” money cheaply and resell it at a vast profit. That also means that they don’t have to pay their private savers very much at all. Technically, they are punishing the very people who are subsidising them .

As a matter of interest, there was a time when banks and building societies had an operating margin  (Difference between what they charged  borrowers and what they paid investors) of 4%.That means that in today’s climate,  borrowers could be charged say 10% and savers could be paid 6%. That excludes mortgagors whose borrowings are secured – their rates could easily be of the order of 3% .

Although the banks have taken the “screw the client”option, they could  speed-up their recapitalisation through eliminating bonus payments and dividends. The banks’ hidden subsidy created through overcharging their customers is estimated at £2.5 billion per year.


The Fake Money Subsidy. The nature of money is such that when a bank grants  a loan, it does not have the money. It is allowed to create money to hand-over and makes a profit from the interest rate which it charges. That is another form of subsidy – as the government has  effectively given banks another  licence to print money. Money is “lent into existence”. The old days when banks only lent money left by savers have gone.

So if this is considered another subsidy, it is worth tens of billions per year.

The whole essence of the contemporary monetary system is the  creation of money out of nothing, through the medium of lending.

The government and the taxpayer are no longer dealing with individual banks. We are dealing with a very powerful cartel which not-only negotiates as a single organism but has left the very concept of “competition” far behind. Furthermore,  if you study the various interest rate charges and products, you may be forgiven for assuming  that price-fixing appears to be taking place.

The UK retail banking industry is unusually concentrated. Not only do the largest five mortgage lenders have a market share of 82%  but the range of providers was much diminished by the demutualisations of the late 1990s. This concentration of the market has all but killed competition.


Mortgages: Current mortgage interest rates, compared to the bank base rate and the rates at which banks “buy in” money suggest that the banks are profiting greatly from their mortgage clients.

Using figures from Moneyfacts on the average rates offered for the benchmark two year tracker mortgage since June 2007, we can see that rates have fallen from 6 per cent to 3.5 per cent.  But the Bank of England base rate has fallen by much more – from 5.5 per cent to 0.5 per cent. The mortgage interest rate spread has therefore increased from around 0.5 per cent to 3 per cent.

Some readjustment in mortgage pricing was necessary, but even taking a conservative view of long-term spreads as being around 2 per cent, the increase to 3 per cent since the crash represents additional interest revenue of around £1.6 billion per year from 2009 gross lending and a further £1.5 billion per year from 2010 gross lending.

Increasing the margin on new mortgages has certainly been a factor in bolstering bank profits since the crash. Furthermore, despite the reductions in base rates and wholesale funding costs, key lending rates have hardly moved since the crash.

It seems therefore that the burden of “rebuilding” bank balance sheets is being borne by bank customers and certainly NOT  by bank shareholders and their executives.


Sneaky Fees: It is not only in retail banking that the customer is getting a raw deal. A study by the Office of Fair Trading (OFT) into the equity underwriting market, published in January 2011, found that “the market lacks effective competition on price”. This  followed an earlier report by the Institutional Investor Council (IIC) which tracked how total fees for raising equity capital, using rights issues, had increased over the past decade.

It has risen from 2% per cent to as much as 4%. Within this, the amount kept by the organising investment banks in their roles as broker, underwriter and adviserhad risen threefold from 0.75 per cent to 2.25 per cent!   There appears to be little justification for bank fees trebling and would explain for instance why a bank such as  Barclays Capital (the investment arm of the bank is now generating more profit than its retail arm)

Investment banks have collected over £1billion in  “excess” fees and over 90% of that has been generated since the 2008 crash. 

Banking is the only business which, when in trouble increases its prices. It can do this because it has a captive audience.

 It therefore seems a nonsense for Government to state that it would be desirable for London to remain “competitive”  as a global financial centre.

There is nothing competitive about London except bank bonuses. Competition used to be viewed as being based on the cost to the customer and not the income of the company’s officers.


And so…….The really frightening statistic is that notes and coins represent only about 3% of the total money supply. The rest is created as new credit.

According to analysts. estimates, the largest four UK banks are set to report profits before tax for 2010 of around £22 billion between them. By 2012 this is expected to more than double to over £45 billion, as analysts predict a return to “business as usual” for Britain’s large banks.

The same banks had total staff costs for 2009 of around £37 billion, with over £7 billion being paid out in the form of bonuses that were concentrated amongst their elite.

The hidden subsidies to UK banks from taxpayers and bank customers are very similar in scale to current bank profits.

This indicates that far from being efficient, the UK banking sector is deficient and that overall levels of dividends and remuneration, including bonuses are far higher than is economically justified.

The Broad Sunny Badlands

“Do you know what THIS means in Italy?”


Since the Chancellor’s spending statement you may have noticed that we are being fed the occasional snippet of information which was not mentioned in the original speech.

For instance, the government is in severe danger of damaging its hard-won “green” credentials by allowing DEFRA to sell-off half of the land currently looked after by the Forestry Commission. Publicly-owned forests may soon be turned into golf courses, holiday villages and other little-needed leisure facilities. They are planning the sell-off for two reasons. The first is the obvious one – to raise cash and the second is the over-simplistic belief that such a move will create jobs.

As usual, the government is planning a sell- off when prices are at a historic low. Margaret Thatcher did it with our oil, Gordon Brown sold our gold to the Chinese after he had driven the price down and now, the obscenity that is the coalition is about to dispose of our heritage – some of which protected by laws enacted in the Magna Carta.

Zac Goldsmith MP headed David Cameron’s environment task-force says that he is in favour of Forestry Commission land being disposed of.   Not-only content with vandalising our economy, this government appears to be readying itself to destroy our green belt. In twenty years’ time, are we going to enjoy driving through the New Forest ” housing and golf” estate or the Forest of Dean  caravan comple? Perhaps we should hand the lot over to Centre Parks and be done with it.

The clowns in government are once again demonstrating attempts at politico-entrepreneurship bycreating economic havoc and in the long run,  costing the nation a fortune.

The government is once again meddling in things that it does not understand and by playing at business, it is surely beating the economy into the ground just as effectively as Labour managed to do from the nineties onwards.

It was announced today that not-only  is confidence at an all-time low within the public sector but also in the private-sector.  When private sector confidence takes a bashing, it tends to suggest that those in charge are not in a bullish frame of mind and are waiting. Currently none of us is sure what anyone is waiting for but this week there will probably be announcements that we are about to be visited by what we have all been expecting – another hard-earned dose of recession. The famous “Double-dip” – but that is still no excuse for flogging-off the country’s assets.

Any State which is thinking of selling assets is no different to  the strapped-for-cash individual who convinces himself that he doesn’t really need his TV or computer and sells it on ebay. OK, he then has money in his hand but he spends it and…….? It’s back to square one. He can continue to dispose of assets until he has none left. Then what?

A report published today says that the average UK  household-debt is approaching £9000 – and that excludes mortgages. At the end of August , the total UK personal debt stood at £1,457 billion.

Between us, we owe more than the whole country produces in a year but what is most surprising is that personal debt in the UK is still  on the increase. Sadly, some people are now  borrowing in order to eat and to keep a roof over their heads. This is the atmosphere in which our coalition government seems to believe that business is about to expand and thus create jobs  which will offset those lost as a result of their decimation of the public service industry.

They appear to believe that Government rhetoric is all that is needed to convince us all that they have the formula for a miraculous economic recovery. Meanwhile, the Office for Budgetary Responsibility put the chances of the government’s strategies working at no more than 60%.

George Osborne is about to announce a £200 million investment is many government’s favourite word – TECHNOLOGY. Oooooh! Harold Wilson used the technology scam first and since then, whenever a government is in trouble, they roll-out the T-word. There will be Innovation Centres which will help “connect business to new technologies“. George, dear, we already have Innovation Centres and they are populated by ex- bankers who dispense advice to “budding entrepreneurs” on how to find their way around a balance sheet and how to prostrate themselves when they visit their own bank to beg for development capital.

Talk to real entrepreneurs and we will tell you that rather than waste another £200 million, the government should use that money to repay a day’s interest on the national debt and not attempt to recreate what are in essence talking shops and luncheon clubs.

The Chancellor talks of a “New Economic Dynamism”. Nice phrase, well constructed but without a coherent plan, there will be no New Economic Dynamism. Economic recoveries are notoriously fickle mistresses and are  certainly not to be relied-on to happen just at the time when you wish that they would.

It’s no good looking at the Germans and the incredibly fast upturn in their economy.  They are still  the world’s top mechanical engineers – that’s why, for instance they are China’s main supplier of industrial machinery.

In February 2009, Gordon Brown said that Britain’s recovery from recession can be helped by doubling  exports to China. George Osborne said the same thing three months ago.  The only problem is – what can we export  that the Chinese want? Call Centres?

That’s an important question because there is no point in producing goods without there being a demand. Currently, every economy in the world is looking at China as its next main market – as China moves from being a pure producer to major producer-consumer .

In his  address to the CBI this morning David Cameron managed to avoid the “broad, sunny uplands of economic recovery” phrase – but the might as well have used it – because that was his overall message.

If that is what is in his mind, he ought to beware. Winston Churchill took the United Kingdom through its darkest hour and look what happened to him.

He lost the 1945 General Election.

Mind you, it was different then.

He had been at the head of a dodgy coalition government.

Here are some statistics: CLICK HERE

No, George!

“Oooh! Yesss!  That WAS good! I was SO good”

Jobs , jobs, jobs. There is no doubt that the coalition government is gambling on jobs suddenly reappearing Phoenix-like  as the economy awakens from its present inanimateness. Make no mistake, it is no coincidence that the Chancellor’s Statement was delivered towards the end of October. Christmas is on the way. We all tend to spend a little more in the run-up to Christmas and that buys any government a little more time as underlying consumer figures are distorted by the abnormal pre-year-end activity. Traditionally, there is even a small upswing in the employment figures as retailers and producers hire temporary staff.

However, it is still  fair to say that the jobs market has become markedly more difficult over the past few months.

Of course it’s going to get more difficult as the government’s austerity programme to address the country’s debt mountain begins to kick in. How will it affect the economy?  Of course, if there are people losing their jobs or are fearful of losing their jobs, they tend to save more and spend less. That has a very significant impact on final demand which is expected to remain under pressure. All the boarded-up shops in our towns are testament to the continuing downturn in demand for all non-essential goods.

The negative job-market and consumer demand predictions will ensure that economic activity will become even more becalmed than many commentators believe.

UK inflation continues to remain above  near-term projections but the medium-term outlook is for inflationary pressure to fall back. That’s according the Bank of England’s  own quarterly inflation report. Then, it believes that inflation will rise because of the impact of VAT hikes –  because the tax increase will most certainly be passed onto consumers by every retail outlet still in business.  

However because the bank judges the risks to  inflation to be high both on the upside and on the downside and given more general economic concerns, then economic policy, monetary policy and  interest rates in particular will remain where they are for a considerable period of time. It follows therefore that  there won’t be  a huge amount of pressure to unconventional monetary policy either. 

Currently, the Bank of England is showing signs that it believes that it is best not to touch anything – with one notable exception. The only fiscal stimulus that they know. The Easy One. Quantitative Easing.

If you take the view that we might have a double-dip depression, then you are presupposing that we have already  had some sort of recovery. Some of us take the view that although the data shows that the we’ve had a recovery, it is no more than a statistical anomaly associated with the earlier substantial fiscal stimulus enacted globally to try and kick-start economic activity.

If you strip-out that stimulus, the underlying figure is very much more pedestrian and much more in keeping with a prolonged period of very subdued or zero growth. Technically, we appear to be out of recession but actually we are not. That alone is a very good reason to suppoose that the Chancellor’s timing is very wrong.

Of course whether an economy experiences +0.1% or -0.1% growth,  it won’t really really feel like it to the man or woman on the street because  conditions remain remorselessly tough as they have done so several years now. 

Measures such as those outlined by the Chancellor always have consequences. For instance, an increase in petty crime, strikes, absenteeism, a decrease in productivity are just a few. The United Kingdom already has one of the world’s worst shoplifting records. To the year-ending June 2010, retailers lost £4.4billion to theft. That’s well over £12 million per day! That will increase.

It seems that the Coalition government is attempting to clear-up the inherited economic mess  by sapping the very foundations of United Kingdom society. The Welfare State and the Public Sector will be undermined as never before and judging by yesterday’s reaction of the entire Parliamentary Conservative Party, it has all been done with a mixture of social sadism, joy and vain hope. They should remember one thing though – this is a first. This type of extreme “slash and burn” has never before been attempted and could easily plunge our economy into depression.

There are some (Price Waterhouse Coopers among them) who say that there is a real possibility that for every Public Sector job lost, a job will be lost in the Private Sector. That does not bode well for the Chancellor’s hopes for an entrepreneurial upswing in the SME community.

The preening Chancellor’s performance was not for the British public, it was for the international financial community and others. He was showing-off to the IMF, the World Bank, his Bilderberg chums, his family and friends. It was a “Hey, look at me now” curtain-raiser to a potentially short Front Bench career.

His irksome performance during yesterday’s Spending Statement was not a particularly edifying spectacle. The post-“I commend this statement to the House”  backslapping and whooping on such a sombre occasion was sickening.

One suspects that in the months to come, we will see a chastened, more contrite and wiser George Osborne at the Dispatch Box.

Public Sector Perspective


Q: “How many people work in the Public Sector?”

A: “About half of them”

The United Kingdom workforce numbers about 29 million. Six million work in the Public Sector.

When Labour came to power in 1997,  the number of Public Sector employees was fewer than 5.2 million and had been falling for several years. The downward trajectory continued for another 12 months but from 1998, the number began a steep climb – as the Labour Government expanded its spending.

When the present Coalition government reduces the number of public servants by 500,000, they will only in fact, be returning to the numbers of 10 years ago.

The fastest rates of accelerated employment have been in Education and the NHS.

It would seem that because there are high concentrations of public servant at the United Kingdom’s extremeties, the worst-hit will be Wales, Scotland and Northern Ireland.

The Liberal-Democrats are fully behind the Chancellor’s Public Sector “slash and burn” but here’s an extract from their May 2010 election manifesto:

“We have identified £3.1bn of public spending that can create 100,000 jobs.”

You’re in this together

“Air hair lair there” (You’ll have to read it out loud.)

By the end of this week, after we have heard all of the government’s pronouncements on slashes in expenditure, perhaps we may not be as sure as we were about the principle of Self-flagellation Economics.

The Brown-Darling method was the softly-softly approach which combined slow growth with a slow decrease in public expenditure. The major flaw in what they achieved during their 13 years in power was their unbridled expenditure and their total lack of negotiating skill. There are government armaments contracts which have the taxpayer “done up like a kipper” for a generation to come. The various government contracts were negotiated so well (by the suppliers) that it would cost more to unravel the contracts than it would to honour them.

The best example is the farcical situation of having to build two aircraft carriers which will not have any planes landing on them.

The Labour government has left a “Gordian Knot” expenditure legacy which will potentially plunge two generations into poverty.

The coalition government – or should we say, David Cameron and George Osborne know that they are past the stage of papering over the cracks of a broken economy and like Alexander the Great, they have been more-or-less forced into taking the sword to the problem.  Potentially that’s the economics and Conservative ideology taken care of. Unfortunately, they have forgotten the politics.

The “We are in this together” mantra which has been continually boomed out by DC and his disciples is beginning to sound a little thin and unconvincing. Agreed that most of us will be well and truly “in it” but the majority of the Cabinet is immune from the upcoming economic trials and tribulations because they are rich and/or have a Trust Fund or two. That is not the Politics of Envy – just  straight fact which is harming the coalition’s plausibility.

The government is beginning to lack credibility for two reasons. The first is that many members of the government belong to the high-end of socio-economic Group A. The rest of us tend to be Group B-down, with the majority C1 and C2. That very conspiquous disparity has signalled the potential rekindling of the Class War. The Cabinet is connected at the stratospheric levels of business, commerce and banking and appears to be increasingly detached from the ordinary voter.

The other grounds for the government’s lack of credibility are found in the uncomfortable shotgun wedding that was the Lib-Con coalition. Make no mistake, the Liberals are there purely for the head-count. Had it not been for Gordon Brown refusing to vacate the sand-pit, the Liberals would be building sandcastles with Labour. The coalition was a triumph of duplicity over decency.

After this week, the government will enter the most difficult part of its short tenure. The Federal Reserve has announced QE2 ( Quantitative Easing – The Sequel) and where Uncle Sam goes, we are sure to follow.

It was pointed out yesterday that the proposed reduction in Child Benefit (which will really clobber the C1s and C2s) will contribute more to government savings that the banks.  Very soon, the Treasury will be handing more money to the banks so that they can “tidy up” their balance sheets and lend more money to small businesses. Or more accurately, the government will hand banks more pretend money which will be used to buy shares and government gilts which in turn will create profit and bonuses – for the banks.

Somehow, this all feels like a recipe for a very unhappy electorate, so don’t be surprised if very soon you find yourself, Frenchman-like, standing outside somewhere-or-other, holding a placard after having withdrawn you labour (that is if you have any labour to withdraw).

Prepare for a long hard winter.

Message for Wayne Rooney

Piss off. You’re beginning to make Jordan look interesting.

Speaking of socio-economic groups – here’s a “Z”

Another one of those ugly pikey women who looks like a pink Shrek with a ponytail has made the papers. This one has put her 2 year-old daughter on a diet “so that she doesn’t end up looking like me”. She will.

These were her words of wisdom: “With an eating disorder, you can get through it with therapy. But when you’re fat, you’re fat for life”. Not a good excuse to make your young child go hungry – or is she doing it so that there are more chips and fishfingers for her?

By the way, does anyone know why nowadays, women in their early twenties have cultivated such fat wobbly rear-ends – usually accompanied by a ponytail, a Maclaren buggy, arms like a docker and terminal stupidity – you know, the ones who are a TV interviewer’s favourite Vox Pops. They always say either “I think it’s disgusting” or  “Words fail me. I don’t know what to say.”

And where can you buy stretchy size 30+ jeans and those plain short-sleeved tops?

In the old days, at least women waited until their 40s before they enjoyed the comfort of accelerated below-the-waist growth.

The French.

Spanish Air Traffic Controller:  “Tango Yankee Bravo 141 is just entering French air space. I am handing him to you. Over.”

French Air Traffic Controller:  ” I spit on your plane.”

I love the French.

Screw the children.


The Law of Unforeseen Consequences has slapped David Cameron and the Conservative Party at exactly the wrong time.

Politicians are yet to learn that there are certain things which have , like the Steve Wright Show and alcoholic teens, become a  part of the fabric of British Society. They are the Pensioners’ Heating Allowance and Child Benefit. Any politician who fiddles with either DESERVES to be clobbered hard because he is demonstrating a fundamental lack of understanding of the British psyche.

DC is having to fight a rearguard action because a clumsy Chancellor has taken that dangerous forbidden step into “making it personal” by picking the near-threadbare purse of one of our major social icons – The Young Mother.

Child Benefit has been going for so long that it has become a fixture – a tradition –  and you do not mess with tradition. Plus, the way that Child Benefit is going to be ripped from that  poor mother’s hand, is plain brutal. Emotive language? Yes it is, but this is an emotive topic.

In the current tax year, if your taxable income is less than £37,400, you pay tax at 20p  in the pound so you will be allowed to keep your Child Allowance. However, if your income is £37,401 and above, you will lose it because that is the level from which any income between £37,401 and £150,000 is taxed at 40p in the pound..

So where’s the problem? The unfairness arises if a household has two or three people earning and who between them produce a taxable  income which is in excess of  £37,400.

If a husband and wife are both working, and they each have a taxable income of say£30,000, they are both paying tax at 20p in the pound. So, if they have children, they will retain their Child Allowance in spite of the household income being £60,000.

However, had the government said that any household with a TOTAL TAXABLE INCOME  in  excess of  say £35,000 would lose its Child Allowance – there would have been fewer mascara-smeared young mums on the TV and those Mumsnet harpies would have remained in Cyperspace where they belong  and not descended into television studios like latter-day Dementors.

The clumsiness with which the LibCon, ConLib or ConDem coalition is setting about their version of the economic  “slash and burn” is not necessarily a symptom of social insensitivity – although there are those who are already pointing to the lack of understanding of the privileged “few” who currently  have the reins of British economic power in their beautifully manicured hands. The apparent maladroitness is more likely to be a result of trying to impress the foreign financial  community by running, well before they have learned to walk. Too much too soon.

You may be familiar with the story of the old ram and the young ram standing on a hill looking down on a field of ewes. The young ram turns to the old ram and says. ” Let’s run down the hill and f**k  a few of those ewes.” The old ram replies   ” Let’s walk down and f**k  the lot.”

The shiny new government’s enthusiasm and impetuosity are being interpreted as a lack of “understanding” and is resulting in  a subsiding  empathy with the voting public. That is certainly not what was intended.

David Cameron is now fighting a rearguard action in trying to excuse the inexcusable. Over the last two days he has been running for the well-trodden political cover of prosaicism and statistics.  What might (and should) have been a celebratory Tory conference has deteriorated into the media equivalent of a duck-shoot by many senior political commentators.

The solution? Slow down, boys. Think it through.

Drain the swamp first.

Investment Banking

The British economy is not is very good condition and we know that the unemployment trend is still upwards. Retailers are continuing to shut down and the manufacturing sector is still in a comparatively unhealthy state. Does it not therefore seem strange that one sector of the economy – the one that doesn’t actually MAKE anything is posting profits in BILLIONS?

It is said that if one sector of the economy is delivering improbable margins, then something is wrong.

The annual rate of inflation here in the United Kingdom is 4% and in spite of what Mervyn King, the Governor of the Bank of England is hoping, it is set to rise. He is about to write to the Chancellor of the Exchequer and tell him that the sudden inflation rise is a mere “blip”.  The blip will continue until the big manufacturing economies such as China  and India awake from their torpor and once more start to run their production machinery at full speed. That is when the price of commodities – everything from soya beans and wood to copper and oil will  increase in price because there will be a higher demand. 

The collateral damage will be our  inflation rate because as demand for goods increases, so will prices of raw materials, followed by the cost of the goods in the shop; the goods we buy. That is also why the Bank of England’s tinkering with interest rates in order to control inflation has always been  such a nonsense.

Let’s have a close layman’s look at Barclays declared £11.6 billion profit for last year. The figures are an approximation but will not be too far out.

It is generally accepted that these days, a bank generates most of its profit from its Investment Banking activities and as Barclays Retail Bank will soon be declaring write-offs of £9 billions-worth of bad debts, we’ll concentrate only on the profit derived from Barclay Capital’s dealing.

If we assume that the £11 billion profit represents  a 20% margin on the stocks and shares purchased, that means that in order to have achieved a profit of £11 billion, they will have had traded assets worth about $55 billion.

We may be forgiven for thinking that £55 billion is a lot for them to have invested in business and commerce but in reality,  they may already have sold that volume in order to realise their profits.

However, if their profits are simply “paper” profits and not hard cash, they will still be holding onto those investments  which can now decrease in value just as easily (and quickly) as they may rise. Hence the new craze for deferred bonuses.

The £11 billion profit shown on their accounts as profit is just a “snapshot” of the company taken on a particular day.

There is another scenario which is a little more worrying  – and this does not just apply to Barclays but to any bank and this is why just over a year ago, so many of them were shown to be organisations of the “all furs and no knickers” variety. Banks often borrow money in order to buy stocks and shares, hence euphemisms such as “gearing” and “leverage”. They both mean “borrowing money”.

That is why all banks ought to be obliged to disclose their Gearing Ratio so that we know how much of their invested cash is their own. If a bank is highly-geared and therefore has to service a large debt, it will be very vulnerable to sudden market downturns.  That is what happened in 2008/2009 – their foundations were either too soft or non-existent.  (The Gearing ratio is a straight comparison between a bank’s  activities funded with borrowed money and those funded with their own cash).

When Mervyn King uses phrases such as ” the banks are rebuilding their balance sheets”, it is because many of them were holding too many “assets” which they had bought with borrowed money plus many of those assets became liabilities which many banks hid.  They are now required to have enough of their own money and assets  before they either lend or borrow. “Quantitative Easing” was designed to accelerate the process. Did it work?  The jury is still out.

Mervyn, the Chancellor and the Prime Minister are watching the banks “rebuilding “ on the assumption that prior to the reconstruction, they fully drained the swamp.

Some of us still have our doubts.

What Recovery?





Since 2007, there have been at least three announcements  which declared an end to the economic crisis. Today, we have the latest pronouncement of a slight ”recovery” and the fact that a survey shows “increased confidence” from consumers. All a bit nebulous but nevertheless welcome.


The FTSE 100 is trying to muster the courage to break through the 5000-barrier and there are predictions that it will be well over 5000 by year-end.


Pundits are once again queuing up to make predictions. It’s a pity that they weren’t around this time last year to predict the 2008  banking meltdown.


Whenever the Government intervenes with yet another injection of cash or dose of “quantitative easing”, investors rush back to the risks and the markets rally sharply.


We seem to have gone from a boom-bust cycle to a much shorter “cash handout-gamble” cycle. Read More

Darling has the solution in his hands.

If you have read a good balance of the reporting and commentary on yesterday’s budget, you will have realised by now that this was a political budget. The Chancellor and his puppet-master know that their stewardship of the economy has a maximum of 12 months to run and then , as is the fashion nowadays, the lecture and non-exec circuits beckon. There is light at the end of the tunnel for some but unfortunately, not for all.

There is no point in raking through the coals of yesterday’s return to Old Labour and the 21st Century embrace of the Politics of Envy.

“Let’s do the rich!”and the great unwashed and the slack-jawed champagne Socialists will most likely follow. Trouble is that the great unwashed is fast becoming the great unemployed and Tony Blair’s Champagne Socialists (teachers, media people etc.) are now more Cava Sippers than being able to afford the real thing. Some have even moved to pink Zinfandel!

The Budget was delivered with all the panache and conviction of a  tortoise that knew that it would never catch the Conservative hare. And did you see the Hammer-horror grin that Brown’s face morphed into when Darling sat back down into the wet patch.

Cigarettes – √. Booze – √. – Petrol – √.

Let’s make it look as if we are going to upset the rich – “It’s always good to piss on their strawberries”. -√.

Oh yes – Pensioners  – √.

Did you notice that the Chancellor looked a bit uncomfortable talking in mere pounds and pence. After all, he is used to lots of noughts now. When the scale of Government’s borrowing was announced there was a definite shift in the Earth’s orbit as economists’ scrotums shrunk to a tenth of their size – at the speed of light. Some may remain dysfunctional for years to come. Like the banks.

This was a Budget by Numbers when what was needed was a masterpiece. The trouble is that before this Government is run out of town,  Chancellor  Darling will touch up an already impossibly bad economic picture with another Budget. What was that Chris Rea song? Oh yes – The Road to Hell.

You may be wondering why all seems to be well with the Banks  – they should have all completed rehab by now and should be ready to score us some readies. Their Social Worker – otherwise known as the Treasury is telling us that they still need a bit of time to regain confidence. That is why they are currently being fed a “money substitute” through the medium of quantitative easing.

How is it that a few of the big banks have declared such surreally fat profits? Have you never wondered why or how they seem to have been rehabilitated so quickly? They are still cooking the books, ignoring the fact that they are still insolvent. The difference is that now they are doing it with this and other Governments’ connivance. To put it simply – it is a world-wide con trick. There is naughtiness afoot.

If we knew the real figures, we would panic. The fact is that for every pound or dollar that the Banks once had in their coffers, they lent or gave away at least 50. They tied the modern Gordian Knot not with rope but with worthless paper and they have fashioned what  appears to be the most complicated paper chain ever conceived. Currently they all owe each other billions because they screwed each over, many times over. The screwer was also the screwee and vice versa.

This has been institutional fraud carried out by banks on other banks and  the only reason why they are not all standing in the dock is that there isn’t enough dock available.

The other important factor is that instead of doing what Alexander the Great did and cutting through the knot, Governments still think that they can untie it . If they carry on their random attempts, it could take a generation.

The banks have the Governments by the balls.

That brings us neatly to a rather pathetic silver-haired Edinburgh Solicitor predicting that we are soon to experience a recovery with a growth rate of 3.5%. That statement really is not worth commenting upon because of the poor man’s past record – which is similar to Russell Grant’s. In fact…………………………..

There are billions of pounds stashed away in funds, in banks and in insurance companies. That money belongs to us and many of us will have to wait years before we can get our hands on it.  I am referring, of course to Pensions. Personal pensions, group pensions, small company pensions… they come in a hundred delicious flavours.

There was a time when someone leaving a company  – whether voluntarily or otherwise could take their accrued pension with them. Let us say that the Chancellor announced that for the next two years, anyone being made redundant or who wanted to stop working could have all of their accrued pension immediately. What effect would that have.

Firstly, we would have “spenders” in the economy. who could provide a massive buying stimulus to all retailers. The Government would save on benefits because many of these individuals would suddenly have “savings”.

Secondly the institutions holding the pensions would not have to be “persuaded” to part with the money because if they refused, they would be breaking the law. And if the didn’t have the money, then we would all know.

Thirdly, employers would think twice before sacking anyone if they knew that they would not-only have to fund their redundancy pay but that they would also have to hand over accrued pension benefits.

Too simple? The alternative is to keep feeding the banks with money that we do not have and that has a time limit which is not as far away as we seem to think.



Revenue and Misappropriation

What the Banks really mean

It is about time that the taxpayer was told exactly.what the banks have done with the money that they have been handed by the Government.
Vague statements such as “plugging holes in the balance sheet” mean nothing to most people (including politicians). “Restoring confidence” in inter-bank lending is also a meaningless phrase as is “toxic assets”.
Alistair Darling has just asked the banks to “tidy up” their Balance Sheets. Does that mean that the banks were handed taxpayers money without having tidied up? A company’s accounts consist of two sets of figures: The Balance Sheet – what they own and what they owe. The other bit is the Revenue and Appropriation Account. Maybe its time to re-label it to the Revenue and Mis-appropriation Account because it would seem that is where the trouble lies.
Where’s the money? Have they got it yet?
When banks do deign to lend, the terms make it nigh-on impossible for the average borrower to take advantage of their generosity. Politicans continue to throw everything that they can at the bankers, yet the bankers are sitting back, calculating how to circumnavigate their sudden bonus loss and scratching round for the next non-exec directorship. Many know that they may still be pushed out of the airplane with only a small parachute.
Most pundits are secretly thinking that we will end up with a fully nationalised banking system and are merely observing a game of “Who will blink first” between the Government and the banks.
Here in the UK, Gordon Brown is beginning to sound monotonous (!)  and yesterday, even Barack Obama’s “cut-and -paste” rhetoric was sounding jaded.
This terrible state of affairs has had a profound effect on the political and economic pundits.  “Punditis” is rife.
Financial experts are running out of metaphors and their predictions show all the conviction (and accuracy) of a pier-end astrologer. Other experts are delving deeper and deeper into a morass of incomprehensible technical detail which may be interesting to other financial anoraks but is adding nothing to the debate.
There was a time when Television and Radio reported the opinions of politicians and financial experts. Now, they report the opinions of Robert Peston.
Time to take a deep breath folks.

Have I got a deal for you!!


“Mr Starling. If you were ever accused of understanding all of the issues surrounding  the collapsing house market – would there be enough evidence to convict you?”

For instance, there are only two reasons why house prices are falling and why the house market is moribund.

Moribund? Just look up New Labour.

The market is at death’s door because:

1. Obtaining a mortgage at a decent interest rate with a good Loan-to-Value is becoming increasingly difficult. It has nearly got to the stage when the only people who can obtain a mortgage are the ones who do not really need one.

2. House prices are falling at an ever increasing rate. 

House values are likely to fall by 15% in 2008 and probably about 12% in 2009. (Source: Howard Archer, Global Insight, Sept 2008)

Let’s do a quick calculation:

Assume that I buy a house for £175,000. If the value drops by 15%, after one year, I will have a house worth £148,750. 

Then if the value of my £148,750 house drops by a further 12%, my house will then be worth £130,900.

That means that in two years I will have made a paper loss of (£175,000-£130,900) which is £44,100.

So, Mr Starling what you are saying is that you want to encourage me to go ahead and buy this house by removing the Stamp Duty which will be £1750?

I am no Einstein but that does not look like a good deal to me.

Oh, I know that you will help me when I get into arrears by making my home a part-council house and there may be a small bung to help me with a deposit. But no thanks.

I realise that life on Planet Westminster  is a bit different to the real world but I would suggest that you change your advisers because the “suits” who are advising you at the moment appear to be tragically out of touch.

Mervyn? Mervyn King?

Great darts player. You should get advice from Eric Bristow as well while you’re at it.

Can’t do any more harm.

mervyn-king.jpg Mervyn King

Darling – listen to what I mean, not what I say.


We know what Alistair Darling said but do we really know what he meant? What was the subtext? Let’s try and sort out any misunderstandings and misinterpretations.

Last week, according to the Chancellor, the British economy was going down the toilet and the public was “pissed off” with the Government.

YESTERDAY he said that the “fundamentals” of the economy remained strong.

So what were his motives? He must have known that he would come in for the mummy and daddy of all bastings by the media and his Cabinet chums. Dave Cameron and his hooray happy slapper mates think that Christmas has come early and if they’re thrown any more Labour screw-ups, they are in danger of sensory overload.

Not one commentator has spotted Mr Darling’s motives for his outburst to the Guardian.

Whether he’d had a glass too many of (courtesy of the Guardian) Glencrap, whether he was feeling naughty  or whether he thought that he would piss on Gordon Brown’s strawberries just for the hell of it – none of that matters.

We suspect that there may have been a touch of  “In Vino Veritas” but that does not matter either.

This former Edinburgh councillor and small-time Solicitor who for some miraculous reason is running our economy is (and looks) stressed beyond limits.

Another case of a politician being promoted above his level of incompetence?  Or one who has just looked up “fall guy” in his Thesaurus.

What he would like more than anything is for Gordon Brown to put him out of his misery and replace him with David Milliband.

Darling’s own personal “end of term” will come in mid-October when Brown yet again rearranges the deckchairs on the sinking SS New Labour. (You started it, Prescott).

Darling’s outburst to the Guardian is a transparently conscious provocation and New Labour should be prepared for more. To continue the nautical metaphor : in Brown’s eyes, Darling has now become the shit deserting the sinking rats.

Do you remember Geoffrey Howe’s devastating attack on Margaret Thatcher during his 1990 resignation speech. Darling obviously decided to dictate his suicide note to the Guardian rather than make a speech.

He and Howe are both examples of “Yes” man morphing into “Fuck you” man.

If Brown does not “redistribute” him in the next reshuffle, Darling will resign either for health reasons (good early-pension scam) or the more likely “I want to spend more time with my family”.

We have already had the “anti-gaffe” brigade attempting to water-down  and reinterpret Starling’s indiscretions but it’s too late.

Man the lifeboats!

And the Milliband played on.



Banks will unveil billions of pounds in profits next week, while their cash-strapped customers battle with the credit crunch.

The banking giants are raking in up to £350 every SECOND in profit- more than a MILLION   pounds an hour, according to analysts.

The eye-watering sums prove hard-up Brits are shouldering the cost of the credit crunch, as greedy banks protect their profit margins by hiking up interest.

David Kuo of money website Fool.co.uk said: “The one thing that banks are good at is making money.  After all it’s dead easy to make money when you already have lots to begin with.  With the credit crunch, banks can’t easily lend more cash, so they are charging more for what they do lend.


“They are they are hiking the cost of mortgages, credit cards and loans to try to sort out their balance sheets.”

HSBC is expected to win the income war by revealing profits of £5.5 BILLION in the first six months of the year- or £350 every second.

And next week Royal Bank of Scotland group, which includes NatWest is expected to report profits of £3.68 BILLION, or £234 a second.

Lloyds is predicted to notch up a £1.9 BILLION surplus, which is more than £10 million a day, or £120 every second.

And HBOS – which includes the Halifax and Bank of Scotland – is expected to reveal profits of £1.78 BILLION.  That’s 9.76 million every day, or £113 every second.

 Reproduced by kind permission of SOPHY RIDGE – News of the World

True Git

darling1.jpgQuestion:  “What is the collective noun for Bankers?”

Answer:  “A  Wunch.”

Yesterday, the Chancellor was snubbed by the bankers.

Several of the biggest players in the banking system were invited to come along an talk to the Chancellor about how they were going to help the poor borrowers who are unable to repay their mortgages.

Would he manage to persuade them to lower their interest rates or maybe tell them to be gentle with borrowers in arrears and not throw them out of their homes?

When the meeting finished, the follow-up publicity from the Treasury PR machine was very muted. It was muted because effectively, the Chancellor had been told to bugger off.

The banking fat-cats are untouchable plus Alistair Darling had made a very basic negotiating error. He had already asked the Bank of England to arrange a £50 billion handout and then expected something in return. What he should have done is to have had the meeting with some sort of “ace in the hole”. For instance:

” Listen guys – you lower the rates, give the “genuine hardship” mortgage borrowers a short payment holiday and I shall arrange to bail you out and   promise to pay off your collective gambling debts.”

Instead, this former Edinburgh Solicitor, up against some of the biggest sharks in commerce gave them the help that they needed and then thought that he could appeal to their good nature. It was a no-contest.

The wunch knew that the Government could not afford another U-turn so they went into the meeting with the Chancellor knowing full well that he would not risk the threat of withdrawing BoE support. They had him by the shorts.

Mr Darling was told it will take ‘quite some time’ for the BoE rescue package to make a difference.

and  ‘For now, mortgage pricing will remain high. If anything, it will increase in the short term.’

The ‘stubbornly high’ cost of raising money in the money markets was blamed.

This was from the guys who make the money markets.

Let’s get one thing straight – LIBOR is the London Inter Bank Offered rate and is the rate at which the Banks borrow money from each other. The rate is set by the British Bankers Association. It is a rate which is controlled by the banks and could be changed at any time. Once again, they have stitched-up the Chancellor.

Alistair Darling said he hoped that lenders would ‘continue to take their responsibilities towards customers seriously’.

While Alistair is “hoping”, the  fat-cat banker is lighting up another Monte Cristo as the houseboy counts the bonus. The banker is not thinking how he can help Mr “In the Shit” Borrower. He has far more important things on his mind. Those share options are not looking as attractive as they did a few months ago. Perhaps he should wait before cashing them. After all , once this free gift from the BoE takes effect, the share price should rise quite nicely……….

Darling the Minder

If we agree that the Bank of England has acted as the banks’ pawnbroker, then the banks are the sad old hookers who were OK until one of their “tricks” ripped them off.  

Understandably, they are still a bit nervous from the time that they were screwed when they weren’t looking but of course, it won’t ever happen again. They have a minder now.  The Chancellor.

They are meeting him today. He is going to talk to them nicely and hopefully persuade them  to lift their skirts and open their legs just a little bit.

Underneath all that bling, designer clothes and big cars, these hookers have a real heart of gold. Let’s be generous! As generous to them as they have been to us. They would like to go all they way but now feel that there is safety in numbers – they’ll stick together until all this blows over.

The only note of caution is that these professional ladies are dealing with a shiny new Chancellor. This ex-lawyer and Scottish councillor still looks a little nervous of doing it with these experienced old whores.

As it’s his first time, they will be gentle and let him think that he’s been wonderful. 

What will they screw out of him ? Maybe a little corporation tax concession?

A normal minder  would beat the crap out of them and send them back onto the streets.

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